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Full text of "Munitions industry : hearings before the Special Committee Investigating the Munitions Industry, United States Senate, Seventy-third [-Seventy-fourth] Congress, pursuant to S. Res. 206, a resolution to make certain investigations concerning the manufacture and sale of arms and other war munitions"

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MUNITIONS INDUSTRY 






HEARINGS 

BEFORE THE 

SPECIAL COMMITTEE 

INVESTIGATING THE MUNITIONS INDUSTBY 

UNITED STATES SENATE 

SEVENTY-THIRD CONGRESS 

PURSUANT TO 

S. Res. 206 

A RESOLUTION TO MAKE CERTAIN INVESTIGATIONS 

CONCERNING THE MANUFACTURE AND SALE 

OF ARMS AND OTHER WAR MUNITIONS 



PART 1 

SEPTEMBER 4, 5 and 6, 1934 

ELECTRIC BOAT CO. 



Printed for the use of the 
Special Committee Investigating the Munitions Industry 




UNITED STATES 
GOVERNMENT PRINTING OFFICE 
83876 WASHINGTON : 1935 



MUNITIONS INDUSTRY 



< « • 

HEARIN>0S 

BEFORE THE 

SPECIAL COMMITTEE 

INYESTIGATING THE MUNITIONS INDUSTRY 

UNITED STATES SENATE 

SEVENTY-THIRD CONGRESS 

PURSUANT TO 

S.Res. 206 

.A RESOLUTION TO MAKE CERTAIN INVESTIGATIONS 

CONCERNING THE MANUFACTURE AND SALE 

OF ARMS AND OTHER WAR MUNITIONS 



PART 1 

SEPTEMBER 4, 5, and 6, 1934 
ELECTRIC BOAT CO. 



Printed for the use of the 
^Special Committee Investigating the MunitrOo;^ Industry 



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UNITED STATES 
GOVEUNMENT PRINTING OFFICE 
S?87« WASHINGTON : 1934 



MR 13 193' 







SPECIAL COMMITTEE INVESTIGATING THE MUNITIONS INDUSTRY 

GERALD P. NYE, North Dakota, Ohairman 

WALTER P. GEORGE, Georgia ARTHUR H. VANDENBERG, Michigan 

BENNETT CHAMP CLARK, Missouri W. WARREN BARBOUR, New Jersey 

HOMER T. BONE, Washington 
JAMES P. POPE, Idaho 

Stephen R^ushenbush, Secretary 

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MJB 13 1935 



Cteried to cr«dit awt^ 






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C2 

CONTENTS 



Testimony of: ^^se 

Carse, Henry R., president, Electric Boat Co__ 2, 10, 24, 30, 45, 51, 65, 67, 70, 

74, 90, 100, 107, 108, 113, 125, 132, 138, 148, 157, 165, 171, 175, 180, 189, 

193, 206, 211, 217, 227, 236. 242, 256, 264, 275, 282, 287, 293, 299, 301, 

304. 

Spear, Lawrence Y., vice president, Electric Boat Co__ 5, 10, 12, 15, 19, 22, 27, 

42, 48. 60, 66, 69, 72, 85, 91, 108, 111, 113, 126, 130, 136, 140. 154, 163, 

168, 173, 176, 182, 193, 205. 208, 214, 226, 231, 237, 245, 257, 265, 278, 

281, 283, 292, 296, 300, 303, 306. 

Sutphen, Henry R., vice president, Electric Boat Go__ 6, 54, 83, 99, 106, 279 

Relations with Vickers 11 

Relations with Austria, Germany 14 

Relations with Vickers and Zaharoff 19 

Zaharoff — Income tax 37 

Directors and stockholders 51 

Relations with United States Government Departments 61 

Relations with Zaharoff 65 

Relations with South American countries 74 

Relations with Peru 85-95 

Peruvian Loan 104 

Relations with Brazil 164 

Relations with Argentine Republic 180 

Relations with Vickers in South America '. 194 

Relations with Zaharoff and Spain 205 

Relations with United States Government 218 

Foreign Relations — Roumania 225 

Foreign Relations — Italy 226 

Foreign Relations — Germany 229 

Foreign Relations — Holland 238 

Foreign Relations — France ^= 241 

Foreign Relations — Turkey 245 

Foreign Relations — Japan 252 

Vickers -1, __^ ._ 255 

United States Government relations 1— ^-1* 260 

Submarine building operations — domestic and. foreign 263 

United States Government business : . 281 

in 



N 



INVESTIGATION OF MUNITIONS INDU8TEY 



TUESDAY, SEPTEMBEE 4, 1934 

United States Senate, 
Special Committee to Investigate the Munitions Industry. 

Washington, D.C. 

The committee met, pursuant to call, at 10 a.m., in the caucus room, 
Senate Office Building, Senator Gerald P. Nye presiding. 

Present: Senators Nye (chairman), George, Clark, Bone, Pope, 
and Barbour. 

Also present : Stephen Raushenbush, secretary, and Robert Wohl- 
forth, assistant to chief investigator. 

The Chairman. The committee will be in order. 

This committee, a select committee of the Senate, is met in com- 
pliance with and in consideration of Senate Resolution 206, which 
the Chair asks to have made a part of the record at this point in 
the proceedings. 

(S.Res. 206 is as follows:) 

[S.Res. 206, 73d Cong., 2cl sess.] 

Whereas the influence of the commercial motive is an inevitable factor in 
considerations involving the maintenance of the national defense; and 

Whereas the influence of the commercial motive is one of the inevitable factors 
often believed to stimulate and sustain wars ; and 

Whereas the Seventy-first Congress, by Public Resolution No. 98, approved 
June 27, 1930, responding to the long-standing demands of American war 
veterans speaking through the American Legion for legislation " to take the 
profit out of war ", created a War Policies Commission which reported recom- 
mendations on December 7, 1931, and on March 7, 1932, to decommercialize 
war and to equalize the burdens thereof; and 

Whereas these recommendations never have been translated into the statutes : 
Therefore be it 
Resolved, That a special committee of the Senate shall be appointed by the 

Vice President to consist of seven Senators, and that said committee be, and 

is hereby, authorized and directed — 

(a) To investigate the activities of individuals, firms, associations, and 
of corporations and all other agencies in the United States engaged in the 
manufacture, sale, distribution, import, or export of arms, munitions, or other 
implements of war ; the nature of the industrial and commercial organizations 
engaged in the manufacture of or traffic in arms, munitions, or other imple- 
ments of war ; the methods used in promoting or effecting the sale of arms, 
munitions, or other implements of war ; the quantities of arms, munitions, or 
other implements of war imported into the United States and the countries of 
origin thereof, and the quantities exported from the United States and the 
countries of destination thereof ; and 

(b) To investigate and report upon the adequacy or inadequacy of existing 
legislation, and of the treaties to which the United States is a party, for the 
regulation and control of the manufacture of and traffic in arms, munitions, 
or other implements of war within the United States, and of the traffic therein 
between the United States and other countries ; and 

1 



Z MUNITIONS INDUSTRY 

(c) To review the findings of the "War Policies Commission and to recom- 
mend such specific legislation as may be deemed desirable to accomplish the 
purposes set forth in such findings and in the preamble to this resolution ; and 

(d) To inquire into the desirability of creating a Government monopoly in 
respect to the manufacture of armaments and munitions and other implements 
of war, and to submit recommendations thereon. 

For the purposes of this resolution the committee or any subcommittee 
thereof is authorized to hold hearings, to sit and act at such times and places 
during the sessions and recesses of the Congress until the final report is sub- 
mitted, to require by subpena or otherwise the attendance of such witnesses 
and the production of such books, papers, and documents, to administer such 
oaths, to take such testimony, and to make such expenditures, as it deems 
advisable. The cost of stenographic services to report such hearings shall not 
be in excess of 25 cents per hundred words. The expenses of the committee, 
which shall not exceed $15,000, shall be paid from the contingent fund of the 
Senate upon vouchers approved by the chairman. 

' For 3 weeks the committee will engage in what will amount to a 
very general study, though perhaps not a detailed study, of the 
American munitions industry. It should not be felt that the ap- 
pearance of witnesses at this 3-weeks' session indicates that at the 
end there has been a completion of the study of the specific cases 
in which those witnesses might be concerned. 

The Chair is delighted to note that with but one exception all of 
the members of the committee named by the Senate are present 
this morning and hopes that the committee is going to be able to 
stay close by the study throughout the hearings. The absentee is 
one of the co-authors of the resolution occasioning the investigation. 
Senator Vandenberg, of Michigan, who is absent at this time for 
reasons beyond his own control. We are hoping that he may be 
with us at some time during the proceedings. 

First of all this morning we want to hear the officers of the Elec- 
tric Boat Co. We will ask Mr. Carse, Mr. Spear, and Mr. Sutphen 
to come forward and be sworn at this time. 

TESTIMONY OF HENRY R. CARSE, LAWRENCE Y. SPEAR. AND 

HENRY R. SUTPHEN 

(The witnesses were duly sworn by the chairman.) 

The Chairman. Gentlemen, we have asked 3''ou all to come for- 
ward at this time because the line of questioning is apt to be such 
as will occasion a question here and there of any one of you sep- 
arately. 

Mr. Carse, what is your connection with the Electric Boat Co.? 

Mr. Carse. I am president. 

The Chairman. Where are the headquarters of the Electric Boat 
Co.? 

Mr. Carse. New York City. 

The Chairman. And where is your plant or plants? 

Mr. Carse. Groton, Conn. 

The Chairman. You have only the oTne plant? 

Mr. Carse. We also have other plants at Bayonne, N.J. 

The Chairman. Mr. Spear, will you give to the committee your 
name and your official connection with the Electric Boat Co.? 

Mr. Spear. Lawrence W. Spear, vice president. 

The Chairman. And Mr. Sutphen? 

Mr. Sutphen. Henry R. Sutphen, vice president. 



MUNITIONS INDUSTEY 6 

The Chairman. Mr. Carse, when was the Electric Boat Co. 
organized ? 

Mr. Carse. About 1900. 

The Chairman. And by whom was it organized ? 

Mr. Carse. Isaac L. Rice. 

The Chairman. Alone ? 

Mr. Carse. I was not connected with the company at that time. 
I think that he formed the Electric Boat Co. and had some friends 
join with him in purchasing the stock. 

The Chairman. Could you furnish the committee the names of 
the officers and directors of the corporation when it was first formed ? 
Have you the records here in Washington with you ? 

Mr. Carse. No; not in Washington. 

The Chairman. Would you supply that to the committee upon 
jour return home? 

Mr. Carse. If I can find them ; yes. 

The Chairman. What is the business of the Electric Boat Co., 
generally speaking? 

Mr. Carse. The Electric Boat Co. designs and builds submarine 
boats, motor boats, and also electric machinery primarily designed 
for use in submarine boats. We also design and construct Diesel 
engines primarily for use in submarine boats. 

The Chairman. How long have you been at work on the Diesel- 
engine phase? 

Mr. Carse. I think about 1908. 

Mr. Spear. 1910, I think. 

Mr. Carse. 1910. 

The Chairman. When did you first become connected with the 
Electric Boat Co.? 

Mr. Carse. 1915. 

The Chairman. You had no connection with it prior to that? 

Mr. Carse. I had been a director for a few years, ofi:' and on, 
prior to that time. 

The Chairman. With whom is the business of the Electric Boat 
Co. primarily ? With whom do you deal primarily ? 

Mr. Carse. With different governments of the world. 

The Chairman. Does the Electric Boat Co. own stock in other 
corporations ? 

Mr. Carse. Our electric plant was formerly the Electric Dynamic 
Co. The Electric Boat Co. owned all that stock. It has lately con- 
solidated, and outside of that the Electric Boat Co. does not own 
stock in any other corporation except names, like the Holland 
Torpedo Co. We own the stock of or maintain that corporation 
simply for the old patent rights. There may be one or two other 
corporations we have organized with nominal capital simply to 
maintain the trade name; for instance, Elco, on the motor-boat end 
of our business. 

The Chairman. Mr. Carse, do other corporations own stock in the 
Electric Boat Co. ? 

Mr. Carse. None that I know of. 

The Chairman. Let us distinguish between these two companies 
of which you speak. One is the Electric Boat Co. ? 

Mr. Carse. Yes. 

The Chairman. And the other? 



4 MUNITIONS INDUSTRY 

Mr. Carse. There isn't an_y other now. 

The Chairman. The one that was in existence. 

Mr. Carse. Electric Dynamic Co. 

The Chairman. The Electric Dynamic Co.? 

Mr. Carse. Yes. They built electric machinery. 

The Chairman. But they arc no longer in existence? 

Mr. Carse. No. Tl;ey have been consolidated with the Electric 
Boat Co. 

The Chairman. Are all of your sales in the name of the Electric 
Boat Co. — all of your dealings? 

Mr. Carse. Yes. 

The Chairman. What is the name of the corporation whose name 
you bought? 

Mr. Carse. Holland Torpedo Co. 

The Chairman. You never use their name in selling or contracting 
for your products? 

Mr. Carse. No, sir. 

The Chairman. Were you on the board of directors of each of 
these companies before the Electric Dynamic Co. was consolidated 
with the Electric Boat Co.? 

Mr. Carse. Yes, sir. 

The Chairman. Was that true pretty generally of all the direc- 
tors? 

Mr. Carse. Yes, sir. 

The Chairman. They were holding common directorates on both 
boards ? 

Mr. Carse. Yes, sir. 

The Chairman. In your financial relations, Mr. Carse, with what 
banking firm do you do business primarilj^ ? 

Mr. Carse. We have deposit accounts in the Central Hanover 
Bank & Trust Co. in New York; the Guaranty Trust Co. of New 
York ; the Chase National Bank of New York ; Mechanics Trust Co. 
of Bayonne; Baj^onne Trust Co. of Bayonne, and a bank in New 
London 

Mr. Spear. The National Bank of Commerce of New London. 

Mr. Carse. The National Bank of Commerce of New London. 
Those are deposit and checking accounts. 

The Chairman. Do you have any foreign banking accounts? 

Mr. Carse. We have; yes. We have an account with Morgan & 
Grenfell, London. 

The Chairman. Any Paris accounts? 

Mr. Carse. No, sir. 

The Chairman. Mr. Carse. you were asked to bring with you a 
statement of the special commissions that were ]:)aid to other than 
agents of your corporation. Has that been supplied the committee? 

Mr. Carse. It has been. The examiners told us that we had sup- 
plied everything that they wanted. 

Mr. Raushenbush. Mr. Chairman, we have the statements of the 
salaries of the officers and commissions paid to agents. We do not 
have the statements of the connnissions or payments made to other 
than agents. There may be some misunderstanding and possibly the 
company can furnish us that later. Would that be satisfactory to 
you? 

Mr. Carse. There are no other. 



MUNITIONS INDUSTRY O 

Mr. Raushenbush. There are no payments to any other than 
agents ? 

Mr. Carse. No. 

Mr. Raushenbush. There are no paj^ments to anyone other than 
the agents you have listed here on this exhibit? 

The Chairman. To what exhibit do you refer, Mr. Raushenbush? 

Mr. Raushenbush. To a calculation prepared by the Electric Boat 
Co. giving the salaries of the officers and the expenses paid to them 
^nd to certain of their agents. 

The Chairman. Then, I take it Mr. Carse, there is before you a 
statement which the committee understands has been approved by 
you showing the payments made by the Electric Boat Co. to Mr. 
ilenry R. Carse as president of the corporation during the period 
from 1919 to 1934; is that correct? 

Mr. Carse. Yes, sir. 

The Chairman. Down to and including August 15? 

Mr. Carse. Yes, sir. 

The Chairman. Let that statement be marked as " Exhibit No. 1 " 
and be made a part of the record. 

(The statement referred to was marked " Exhibit No. 1 ", and 
appears in the appendix on p. 309.) 

The Chairman. Mr. Spear, I call your attention to a statement 
which we shall have marked " Exhibit No. 2 ", and which will be made 
part of the record, showing the payments in salary and expenses 
made to L. Y. Spear, vice president. 

(The statement referred to was marked "Exhibit No. 2", and 
appears in the appendix on p. 309.) 

The Chairman. Are you conversant with that statement? 

INIr. Spear. No, sir. I have not seen it. 

The Chairman. A copy will be laid before you. 

(Mr. Spear was thereupon handed a copy of the statement re- 
ferred to.) 

The Chairman. Is that acknowledged by you, Mr. Spear, as be- 
ing a true statement of the amounts received by you from 1919 to 
August 15, 1934? 

Mr. Spear. Not having had any chance to check it, I cannot swear 
to the accuracy of it ; but so far as I know, it is. 

The Chairman. This shows the total salaries to have been paid 
you in that period to be $414,218.75; with the total of the expenses 
being $28,396.44, or a total altogether of $442,615.19. 

Mr. Spear. Yes, sir. 

The Chairman. Referring back to " Exhibit No. 1 ", Mr. Carse, 
that statement shows your salary to have been during that period a 
total of $459,218.75, and expenses paid to you totals $2,729.57, or a 
grand total of $461,948.32; is that correct? 

Mr. Carse. Yes, sir ; that is correct. 

The Chairman. I shall now offer as " Exhibit No. 3 ", a statement 
of salaries and expenses paid to H. R. Sutphen, vice president. Elec- 
tric Boat Co. 

(The statement referred to was marked " Exhibit No. 3 ", and 
appears in the appendix on p. 310.) 

The Chairman. Mr. Sutphen, with a copy of that statement be- 
fore you, do you acknowledge that to be a true account of the 



6 MUNITIONS INDUSTRY 

salaries and expenses paid to you through that period, from 1919 to 
1934? 

Mr. SuTPHEN. I do. 

The Chairman. Which shows a total of salaries of $304,500; a 
total of expenses of $8,647.G3, or a grand total of $313,147.63. 

Mr. SuTPHEN. That is correct. 

The Chairman. I shall now offer as " Exhibit Xo. 4 " a statement 
of salaries and expenses paid to H. A. G. Taylor, secretary-treasurer 
Electric Boat Co., for the period 1919-34, up to August 15. 

(The statement referred to Avas marked " Exhibit No. 4 ", and 
appears in the appendix on p. 310.) 

The Chairman. Mr. Carse, with a copy of that exhibit before you, 
do you acknowledge that to be an accurate statement of what was 
paid to Mr. Taylor during the period from 1919 to 1934? 

Mr. Carse. I do. 

The Chairman. That statement shows a total salary paid of 
$105,783.20; a total of expenses paid of $3,035.46, and a grand total 
of $108,818.66. 

Mr. Carse. Mr. Chairman, I might mention that that is over a 
period of 16 years. 

The Chairman. That covers the period mentioned, which is 15 or 
16 years. 

I shall now offer as " Exhibit No. 5 " a statement of salaries and 
expenses paid to G. C. Davison, vice president, Electric Boat Co., 
for the same period referred to, 1919 to 1934. 

(The statement referred to was marked " Exhibit No. 5 ", and 
appears in the appendix on p. 310.) 

Mr. Carse. Mr. Davison resigned in 1922. 

The Chairman. That is correct. This shows that Mr. Davison 
drew a salary and expenses only through the years 1919, 1920, 1921, 
and 1922, the total in those 4 years being $50,833.32, with expenses 
totaling $761.11, or a grand total of $51,594.43? 

Mr. Carse. That is correct. 

The Chairman. And you acknowledge that to be a true state- 
ment ? 

Mr. Carse. Yes, sir. 

The Chairman. Mr. Davison resigned in 1922, did he? 

Mr. Carse. Yes, sir. 

The Chairman. And has no connection now with the corporation?' 

Mr. Carse. None at all. 

The Chairman. I shall now offer as " Exhibit No. 6 " a statement 
of the Washington office expenses of the Electric Boat Co. from 1919 
to 1934, showing the expenses of this office during that period of 15 
or 16 years to have been $292,617.80. 

Do you acknowledge this to be a true and accurate account of the 
expenses of your Washington office ? 

Mr. Carse. I do. 

The Chairman. That shows salaries and expenses paid clerical 
help, rent, office expense, traveling expense, and apparently Messrs. 
C. S. McNeir and S. J. Joyner were in charge of the office? 

Mr. Carse. Yes, sir. 

The Chairman. Mr. McNeir until 1927 and Mr. Joyner there- 
after? 



MUNITIONS INDUSTRY 7 

Mr. Carse. Yes, sir. 

(The statement referred to was marked "Exhibit No. 6", and 
appears in the appendix on p. 311.) 

The Chairman. Mr. Carse, I shall now offer as an exhibit a state- 
ment of contracts for naval vessels, ammunition, and so forth, Jan- 
nary 1. 1919, to August 15, 1934, of the Electric Boat Co. A copy 
of the statement is laid before you, Mr. Carse. 

(The -statement referred to was marked " Exhibit Xo. 7 ", and 
appears in the appendix on p. 311.) 

The Chairman. That shows a total of $26,722,153.44, which in- 
cludes business done with the United States Navy, the Government 
of Peru, and the Argentine Government. Do you acknowledge that 
to be a true account of the contracts for this material referred to? 

Mr. Carse. I do. 

Mr. Spear. Just to get the record correct, Mr. Chairman, this first 
item is wrong. That order was placed in 1918. 

The Chairman. You are referring to the order 

Mr. Spear. For the United States Navy Department, Submarines 
S-Ji.2 to S-Jf.7. That was a mandatory order placed during the war 
bv the President. 
^The Chairman. In 1918? 

Mr. Spear. In 1918. The formal contract, however, was not en- 
tered into until a month afterward, and evidently this record is 
made up from the formal contract record. 

The Chairman. So that this would be true of the formal contract 
record ? 

Mr. Spear. Yes; and the formal document. 

The Chairman. But the actual facts are that the order was 
placed 

Mr. Spear. And the work was begun in 1918. 

The Chairman. Thank you for that explanation. 

I shall now offer for the record as " Exhibit No. 8 ", Mr. Carse, a 
statement of the royalties received by the Electric Boat Co. during 
the calendar years shown, 

(The statement referred to was marked " Exhibit No. 8 ", and 
appears in the appendix on p. 312.) 

The Chairman. That shows royalties from 1916 down to and 
including 1927 from the British Vickers, Japanese Vickers, Dutch 
Vickers, Australian and DeSchelde Vickers. 

Mr. Carse. No. Those are all received from Vickers divided in 
accordance with the submarine boats built for the British Govern- 
ment, those on account of a contract with the Mitsubishi, of Japan, 
and also contracts Vickers had in regard to supervision, and so forth, 
of boats built by the Dutch. Some of that Dutch was received from 
Vickers because of supervision that they gave to the Government in 
connection with the building of submarine boats by Dutch shipbuild- 
ers and some came to us from a shipbuilding concern in Holland 
directly because of the winding up of an old license agreement. 

The Chairman. Is that what is known as the DeSchelde ? 

Mr. Carse. Yes, 

The Chairman. Mr. Carse, what is the reference " S.E.C. Naval "? 

Mr. Carse. That is a Spanish name. I think it is Sociedad Es- 
panola Construccion Navale, That is a Spanish concern. 



8 MUNITIONS INDUSTRY 

Mr. Kaushenbush. I think it is " Constructora Naval." 

Mr. Carse. DeSchelde is a Dutch concern. The Australian refers 
to submarine boats built for Australia by Vickers. 

The Chairman. What was the nature of these royalties? For 
what were these royalties paid? 

Mr. Carse. For the granting of a license on our part for them to 
use our patents on submarine boats. 

The Chairman. Have you totaled this statement of royalties 
received during that period from 1916 down to and including 1927? 

Mr. Carse. No. 

The Chairman. We have not had that totaled. 

Mr. Carse. No ; but they are here. 

The Chairman. Could you approximate from your memory of 
the corporation records what that total might be? (This figure, 
later supplied, is $3,869,637.38.) 

Mr. Carse. No. That would be a guess. I would want to figure it. 

The Chairman. Mr. Carse, who is Capt. Paul Koster? 

Mr. Carse. He is a native of Holland. 

The Chairman. A native of Holland? 

Mr. Carse. A native of Holland who was in the Dutch Navy when 
the first submarine boats were built in Holland under license that we 
granted to a shipbuilding concern in Holland. He was a naval 
officer who made the first trial of that Dutch submarine boat built 
in Holland. He had very extensive knowledge in regard to sub- 
marine boats and submarine-boat construction, and in 1912 Mr. Rice, 
then president of the company, appointed him the agent of the com- 
pany in Paris, and he continued so until some few years ago. 

The Chairman. When was he first appointed ? 

Mr. Carse. 1912. 

The Chairman. Is he still serving? 

Mr. Carse. No, sir. 

The Chairman. When was his service discontinued? I have a 
note before me indicating it was in 1932. 

Mr. Eaushenbush. I think it was in 1931. 

Mr. Carse. A little before 1932. 

The Chairman. What was the occasion for his retirement? 

Mr. Carse. It was the impossibility of the manufacturers in the 
United States — in the manufacture of submarine boats, securing any 
orders in Europe. 

The Chairman. Mr. Koster was virtually in charge of your Paris 
office, was he not? 

Mr. Carse. He was. 

The Chairman. That was known as your European office? 

Mr. Carse. Yes. 

The Chairman. Did you discontinue that office? 

Mr. Carse. We discontinued it entirely. 

The Chairman. In 1931 or 1932? 

Mr. Carse. Yes, sir. 

The Chairman. I shall offer as " Exhibit No. 9 ", a statement of 
the salary, commissions, and expenses paid to Capt. Paul Koster from 
1919 to 1931, showing a total salary of $80,833.32; total commissions 
of $17,633.13; a total of traveling expenses, rent, taxes, clerical, 
office maintenance, and so forth, of $78,200.60, or a grand total paid 



MUNITIONS INDUSTRY \f 

to Capt. Paul Koster or through him of $176,667.05. You recognize 
that to be a true statement of the moneys paid to Captain Koster ? 

Mr. Carse. I do ; for a period of 13 years. 

The Chairman. Over a period of 13 years; yes. 

(The statement referred to was marked " Exhibit No. 9 ", and 
appears in the appendix on p. 312.) 

The Chairman. You have told us, Mr. Carse, that the receipts 
from royalties were for patent rights. 

Mr. Carse. Yes, sir. 

The Chairman. Did that include other items; that is, did it in- 
clude such items as that of supervision in other plants than your 
own in America ? 

Mr. Carse. Supervision in plants in this country ? 

The Chairman. Yes; did it provide for sujpervision of plants in 
Europe ? 

Mr. Carse. Oh, yes ; but that supervision was paid for also. The 
wages of the men were paid for in addition to the license fee. 

The Chairman. You mean the Vickers, or the boat builder abroad, 
paid the salary of that supervisor? 

Mr, Carse. Yes, sir. 

The Chairman. As well as paying you the royalties ? 

Mr. Carse. Yes, sir. 

The Chairman. Does the American Navy use your submarine 
patents ? 

Mr. Carse. Well, any submarine boat that has ever been built has 
been obliged to use our patents. 

Senator Bone. I did not get your last answer. They are obliged 
to use your patents ? 

Mr. Carse. Yes, they are obliged to use our patents. 

Senator Barbour. I think Mr. Carse means the committee to un- 
derstand their patents are basic patents. 

Mr. Carse. They were; yes. 

Senator Barbour. At the time they were in force they were basic 
patents originally. 

Mr. Carse. Yes. 

The Chairman. The payment of royalties by Vickers and others 
would indicate they recognized your right to those patents and plans. 

Mr. Carse. Yes ; we had taken out patents in every country in the 
world. 

The Chairman. Has the United States recognized your patents? 

Mr. Carse. They have. 

The Chairman. Do they use your plans and your patents ? 

Mr. Carse. Yes, sir. 

The Chairman. Do they use your patents with your consent? 

Mr. Carse. Yes, sir. 

The Chairman. Have you ever denied them consent to use those 
patents? 

Mr. Carse. No, sir. 

The Chairman. Mr. Carse, under date of April 20, 1925, as presi- 
dent you wrote Capt. Paul Koster in Paris saying : 

We have never assented to the United States Government building our type 
of boat in its navy yard, and have never given them a permit to cover the use 
of our patents, but in the contract entered into on July 17, 1917, for submarine 
boats 8-17 to S-^l, inclusive, and contracts entered into on .July 1, 1919, for 



10 MUNITIONS INDUSTRY 

construction of submarine boats S-Jt2 to S-47 in tbeir own plants or plants of 
subcontractors, clause 5 of the said contract reads as follows : 

I will not bother to read that clause, bat I call your attention to 
the fact you told Mr. Koster that your company had never assented 
to the United States Government building your type of boat. 

Mr. Carse. We had not assented at that time. 

The Chairman. You have since assented^ 

Mr. Carse. We have; yes. 

Mr. Spear. Let me correct that. 

The Chairman. You want to make a correction? 

Mr. Spear. Yes, because that is a matter with which I am more 
familiar than Mr. Carse is. What was the date of that letter, Mr. 
Chairman ? 

The Chairman. April 20, 1925. At this point let that letter be 
offered as " Exhibit No. 10." 

(The letter referred to was marked " Exhibit No. 10 ", and appears 
in the appendix on p. 313.) 

Mr. Spear. There have been, Mr. Chairman, two licenses, one di- 
rectly and one in an indirect way to the United States Government 
to build in the United States navy yards submarines from our plans 
and designs prior to that date. Mr. Carse was probably not familiar 
with that. 

Outside of that, the Government has built quite a number of 
submarines in its own yard, which, according to our patent attorneys, 
involved a good many of our patents, but there never had been any 
agreement with the Government with regard to that, or any nego- 
tiations. We simply let the matter run as it was. I think that 
makes it actually in accordance with the facts. 

The Chairman. What was the occasion now for stating to Mr. 
Koster here, as Mr. Carse did, that there had not been assent? 

Mr. Spear, You will have to ask Mr. Carse. 

The Chairman. Mr. Carse, what was the occasion for that? You 
will find that statement in the second paragraph of the letter. 

Senator Barbour. A question suggests itself to me at this point, 
Mr. Chairman. At that time was the United States Government 
building any submarines or other vessels which used any of your 
patents, whether you consented to it or not? 

Mr. Spear. We considered that they did, but we never had any 
negotiations with them about the matter, or gave them any license, 
or even discussed it with them. 

Senator Barbour. In other words, while there may have been no 
assent, it is a fact that they were constructing vessels in which, in 
your opinion, they were using certain of your patented features? 

Mr. Spear. That is a fact. 

The Chairman. You never challenged the Government's use of 
those features, then? 

Mr. Spear. No. 

Mr. Carse!. The way this should read is that we have never con- 
sented generally to the United States Government using our types. 

Mr. Spear reminds me that in 1916, of the " O " boat type, we did 
grant them a license to build two boats in the navy j^ard while we 
were building a certain number in our own yard. 

The Chairman. A little later we shall come to the correspondence 
and the understanding that did exist as regards that. 



MUNITIONS INDUSTRY 11 

Mr. Cakse. Then later, when we sold them the parts of some boats 
we constructed for Russia, we sold those parts to the Government, 
and they assembled them in one of their navy yards. But I do not 
know exactly now ^Yh.J Koster was asking about this, and perhaps 
.at that time I did not think it was necessary to go into minute detail 
with him. But, generally speaking, that is a correct statement. 

The Chairman. Is it probable that Koster had encountered abroad 
the thought on the part of those that he and you might become cus- 
;tomers, that the United States was not using your boats ? 

Mr. Carse. I do not recall what he could have been doing in 1925. 

RELATIONS WITH VICKERS 

The Chairman. Let us leave that for the moment. In that same 
.letter is information that prompts me to ask you this: Does your 
.company consider Vickers a competitor in submarine building, o" 
in the building of machiner}^ for submarines ? 

Mr. Carse. In relation to building submarine boats in countries 
other than the United States or the British possessions. 

The Chairman. In the strict sense of the word you consider them 
.competitors, do you not? 

Mr. Carse. Competitors, because they can build them cheaper, 
and if in negotiations with some of these outside governments the 
government does not insist upon the American design, or is per- 
fectly willing to take the British design, Vickers can build them 
cheaper and make delivery cheaper than we can in the United States ; 
so, we grant Vickers permission or license to build in those coun- 
tries and they pay us a royalty. 

The Chairman. Perhaps this fourth paragraph in your letter of 
April 20 to Mr. Koster reveals better that situation. That para- 
graph says : 

In relation to submarines built in England, our arrangement is direct with 
yickers, we never having had any negotiations direct with the British Gov- 
ernment. 

Mr. Carse. That is right. 

The Chairman. Reading further it says : 

The conditions of our agreement with Vickers is that on any type of sub- 
marine boat built by that firm for the account of the British Government we 
■receive a certain percentage of the net profit accruing to them on such busi- 
ness, and during tlie entire period of such construction, running over 20 years, 
our average profit has been £28,467 per boat, and the profit of Vickers accruing 
on this business has been larger than our proportion. 

That is substantially correct, so far as relates to your relations 
with Vickers, on British business? 

Mr. Carse. Yes, sir. I think I know what this letter refers to 
now. We had a claim before the American-German Mixed Claims 
•Commission for infringement of our patents by Germany in the 
construction of submarine boats during the war, and we had figured 
there was due us $40,000 royalty per boat. They hacl built some- 
thing over 400 boats; and, of course, there was a great deal of dis- 
.cussion back and forth as to the fair amount of royalty to charge; 
and this information I evidently wrote to Koster to show what we 
^had been paid by other shipbuilding concerns in different countries. 

The Chairman. In any event, you made a percentage on all of the 
submarine building that Vickers did for the British Government? 



12 MUNITIONS INDUSTRY 

Mr. Carse. Yes, sir. 

The Chairman. Now, did you pay Vickers any percentage on 
the boats you built for the American Government? 

Mr. Carse. No, sir. 

Tlie Chairman. In no case? 

Mr. Carse. In no case. 

The Chairman. It resolves itself to this, does it not, Mr, Carse^ 
that, whether you did or whether Vickers built for the British Gov- 
ernment, you got a profit out of it? 

Mr. Carse. Yes. 

The Chairman. And to the extent that Vickers is a competitor^ 
you proht even when your competitor gets the business ? 

Mr. Carse. Yes, sir. 

Senator Barbour. In reality Vickers was more in the category of a 
customer than a competitor, so far as the business you two have in 
common is concerned? 

Mr. Carse. Yes ; they were a customer to use our patent in all of 
these different countries. 

The Chairman. I offer now to the committee " Exhibit No. 11 'V 
this paper being an agreement between the Electric Boat Co. and 
Vickers, and as supplement A to Exhibit No. 11, a letter by the 
Electric Boat Co., signed by Mr. Rice, to Vickers ; and as supplement 
B, a letter by Isaac L. Rice to Messrs. Vickers, Ltd. ; and as supple- 
ment C, a third supplement, being a letter by A. T. Dawson, director^ 
for Vickers, to Isaac L. Rice, at that time president of the Electric 
Boat Co. 

(The agreement referred to was marked " Exhibit No. 11 ", and 
appears in the appendix on p. 313.)^ 
All of these exhibits having to do with the one contract. 

I am referring to the contract made in London on the 21st day of 
October 1913. 

That contract, Mr. Carse, you will notice in the opening para- 
graph makes reference to a contract of December 12, 1902. What 
can you tell us of that contract, or Mr. Spear or Mr. Sutphen, if 
either of you are prepared to ansAver the question ? 

Mr. Spear. Yes; I recall the general terms of it. It was a con- 
tract defining the relations of the two with regard to submarines, a 
contract granting Vickers a license, exclusive so far as Great 
Britain is concerned, and confined, as I recall it, to Great Britain, 
and defining the conditions under whicli the license should operate, 
and defining the compensation to the Electric Boat Co. for the use 
of the patents. 

The Chairman. Mr. Spear, of course, that contract is still to be 

had. 

Mr. Spear. Not unless it is is the New York office ; but I presume 

it is there. 

The Chairman. We are without it, and I should like to have a 
copy of it. Will you supply it on your return ? 

Mr. Spear. If it can be found, I will be glad to do so. 

The Chairman. That is the 1913 contract? 

Mr. Carse. Here is the 1902 contract. 

The Chairman. That is only a letter, is it not? 

Mr. Spear. This is a letter of modification, I believe. 



1 The letters referred to ■were marked "Exhibits Nos. 11-A, 11-B, and 11-C ", and 
appear in the appendix on pages 314 and 315. 



MUNITIONS INDUSTRY 13 

The Chaiemax. Of which agreement; the 1902 agreement? 

Mr. Spear, Yes ; this is a letter of modification of the 1902 agree- 
ment, but the agreement itself is not here. 

The Chairman. That I should like to have. 

Mr. Spear. We will furnish it, if it can be found. 

The Chairman. And now in the letter bj'' Mr. Rice to Vickers, 
the letter being dated October 21, 1913, there are these provisions: 

The Electric Boat Co. will also agree to the following disposition of any 
profits which may be gained in the continental business conducted by the 
Vickers Co., vi/ : 

1. In the event of any boats being constructed for continental countries in 
the Vickers yards iu Great Britain, 60 percent to Vickers, Ltd., and 40 per- 
cent to the Electric Boat Co. 

2. In the event of such boats being constructed in any other yard in Great 
Britain or Ireland approved by the Electric Boat Co., 50 percent to Vickers, 
Ltd., and 50 percent to the Electric Boat Co., after deducting the profits 
allowed to the building firm. 

3. In case such boats are built in continental Europe, or patents or licenses 
thereunder are sold, 50 percent to Vickers, Ltd., and 50 percent to the Electric 
Boat Co. 

So then you had an agreement, I take it, Mr. Carse, that gave you 
consideration and profits for whatever boats Vickers built for Britain 
or for continental Europe. 

Mr. Carse. Yes, sir. 

The Chairman. Does that continue true today? 

Mr. Carse. Yes. 

The Chairman. You signed another contract with Vickers on 
March 4, 1924, which contract is being offered as committee " Exhibit 
Xo. 12.- 

(The contract referred to was marked " Exhibit No. 12 ", and 
appears in the appendix on p. 316.) 

The Chairman. I shall read very briefly from that contract, as 
follows : 

This agreement witnesseth : 

First : That from all of the covenants and agreements herein contained, as 
to the territory therein included, there is and shall be excluded and excepted 
therefrom the following territory : Spain, Japan, France, Italy, Belgium, Hol- 
land, Norway, Finland, Brazil, Argentine, and Peru, and all territory, colonies, 
and dependencies of each of said countries and of all communities and places 
that are subject to the government and/or suzerainty of the respective govern- 
ments of the respective countries above set forth. The business of manufac- 
turing, building, and/or selling submarines to each of the above-mentioned 
countries shall be, and is hereby, declared to be governed, managed, or con- 
trolled by a series of agreements either heretofore made and entered into or 
to be hereafter made and/or entered into, and Vickers hereby agrees that it 
will not attempt to do nor seek business in or for the aforesaid countries just 
mentioned, except in accordance with such special agreement as have been 
or may hereafter be made with E. B. Co. 

Second : Under this agreement, from which the countries listed in paragraph 
" First " hereof are and shall be excluded, as between the parties hereto, 
there shall be the following division of territory, to wit : 

(a) Territory reserved exclusively for Vickers; that is, Great Britain and 
her colonies and dependencies, including self-govering territories such as 
Canada, Ireland, Australia, and India. 

(b) Territory reserved exclusively for E. B. Co., viz. The United States of 
America, the colonies and dependencies thereof, and the Republic of Cuba, and 
all communities and countries governed by or under the suzerainty of the 
United States of America. 

(e) Common territory in which both parties shall be free to act, namely, all 
countries of the world, but eliminating therefrom all countries and territory 

83876— 34— PT 1 2 



14 MUNITIONS INDUSTRY 

includod in any of the subdivisions set forth in paragraph " First " hereof, and 
the countries and territories set forth in subdivisions " a " and " b " of this 
paragraph " Second " of this agreement. 

So there was a division of territory as well as a division of profits 
accruing thronj2:h the building of submarines. 

Mr. Carse. There was a provision for the granting bj^ us of the 
right to Vickers to use our patents in building in these different 
countries. The reason of that subdivision, the latter jDart of j^ara- 
graph 1, and the exclusion of Spain, Japan, France, Italy, Belgium, 
Holland, Norway, Finland, Brazil, Argentine, and Peru, was that we 
either had a licensee in those countries or were ourselves negotiating 
to build submarine boats for those countries, so we told Vickers they 
must not go in there and compete with us. In the other countries 
and those mentioned, if the people preferred the British submarine 
design to the American design, we would be perfectly willing for 
them to take the business in preference to having Italian or Spanish 
or German concerns that had located in Holland to go in and get 
the business. 

The Chairman. Under that contract or agreement any submarine 
built under your plans, and according to your argument the only 
submarine that could be built would have to be built under your 
plan, would have to be bought from either Vickers or from you. 

Mr. Carse. No; because there were other people who ignored our 
patents, and there were other licensees, too. 

The Chairman. I understand ; but at this time you had that 
agreement that between you and Vickers there should be a division 
of submarine business. 

Mr. Carse. According to the wishes of the customer. 

The Chairman. Yes; provided the customer was removed from 
the area upon which there had been an agreement. You had agreed 
that all countries would have only one that they could really go to. 

Mr. Carse. No; we having granted licenses to shipbuilding con- 
cerns in these countries, and they being exclusive licensees, we could 
not give Vickers a license to go into those countries and compete. 

The Chairman. Certainly not ; but where there has been no license 
previously granted, you and Vickers a;2:reed you would not interrupt 
Vickers in the territory you were giving the agreement on, and he 
was not to interrupt you in the territory that would be exclusively 
yours. 

Mr. Carse. Tlieir territory was the British, and ours was the 
United States. In the other part of the world, we Avere perfectly 
willing for them to go in and bid if people preferred the British 
design. If they preferred the American design and were negotiating 
with us we would not give them the right to go in and bid against us. 

relations with AUSTRIA, GERMANY 

The Chairman. Who was the Whitehead Co.. Ltd. ? 

Mr. Carse. That was a concern organized to build submarines 
down in Trieste, Austria, wasn't it? 

Mr. Spear. No; it was not organized to build submarines, but it 
was organized to build torpedoes. 

The Chairman. Where? 

Mr. Spear. In Fiume. 



MUNITIONS INDUSTRY 15 

The Chairman. A little before the v.ar you granted Whitehead a 
license to build submarines in accordance with patents, secrets, and 
designs belonging to the said American company. I have before me 
the agreement of June 11, 1912, which I shall ask to be incorporated 
as " Exhibit No. 13." 

(The document referred to was marked " Exhibit No. 13 ", and 
appears in the appendix on p. 324.) 

Mr. Carse. Mr. Spear knows about that agreement. 

The Chairman. Mr. Spear, in paragraph marked 1 on the first 
page of that agreement I find the following language : 

The American Co. hereby grants to the Whitehead Co. for the term of 
twenty (20) years from the date hereof the exclusive right during the con- 
tinuance of this license to manufacture submerged boats in Austria-Hungary in 
accordance with the said patents, secrets, and designs, or any other letters 
patent now or hereafter belonging to the American Co. or which may either 
directly or indirectly come under its control relating to or connected with 
submerged boats, all of which are hereinafter referred to as " The American 
Company's Patents " and to sell the same exclusively in Austria-Hungary, 
Greece, Turkey, Rumania, and Bulgaria, for the use of the respective Govern- 
ments of those countries. 

You are acquainted with that contract? 

Mr. Spear. Yes, sir. 

The Chairman. That means Austria-Hungary was building these 
submarines from your patents just before the war? 

Mr, Spear. Yes, sir. 

The Chairman. Is it also true Germany got hold of these patents ? 

Mr. Spear. Yes, sir; and we were allowed some compensation in 
the Mixed Claims Commission for infringement of our patents by 
the German Government. 

The Chairman. How many submarines did Germany build under 
those jDatents? 

Mr. Carse. We claimed they used one or more of our patents in 
every one of their boats, but they did not acknowledge that. 

The Chairman. I have before me a letter from Koster in Paris 
which I offer as " Exhibit No. 14." 

(The letter referred to was marked " Exhibit No. 14 ", and appears 
in the appendix on p. 327.) 

The Chairman. I note that Koster says in the opening paragraph 
of this letter dated August 2, 1919, after the war, the following: 

Now that we are on the point of getting peace with Austria-Hungary, or 
with what politically may be left of these countries, it undoubtedly will interest 
you to know that during the war two submarines have been built in Flume. 
Before going further into this matter I herewith call to your attention the 
agreement which we arrived at with Messrs. Whitehead & Co. on June 28, 1913. 

Then Mr. Koster quotes the agreement. 

Mr. Spear. That is the agreement terminating the license. 

The Chairman. You put in a claim, did you not ? 

Mr. Spear. Yes. 

The Chairman. Do you know just how many boats were built in 
Austria and how many were built in Germany or how many Ger- 
many built? 

Mr. Spear. I do not remember the figures, Mr. Chairman, but I 
did have the information when it was in question. 

The Chairman. Is it true you put in a claim with the Mixed War 
Commission against Whitehead for building two German sub- 
marines ? 



16 MUNITIONS INDUSTRY 

Mr. Spear. I think not. 

Mr. Carse. I think I can tell you that, Mr. Chairman. Koster 
was very anxious to i^roceed and bring action against the Whitehead 
Co. or the receivers or successors or something of that nature, so he 
wrote these letters. I gave the thing my best thought and concluded 
we would simply be wasting good money in trying to secure any- 
thing from a defunct concern in Austria, and he finally came along 
with a letter by which he proposed to continue the action in his own 
behalf. I stated if he wanted to go ahead and do that and pay all 
of his expenses and give us 50 percent of all he received above the 
expenses I was perfectly willing for him to do it. Nothing has been 
accomplished in connection with it. 

The Chairman. You never recovered anything from Whitehead 
& Co. ? 

Mr. Carse. No. 

The Chairman. Did you recover anything from Germany? 

Mr. Carse. We had a very trivial recovery; yes. 

The Chairman. You had some trouble with the Alien Property 
Custodian in that connection — or, did you seek to collect through 
the Alien Property Custodian? 

Mr. Carse. No; through the Mixed Claims Commission. 

Senator Clark. What was the amount of that claim with the Claim 
Commission ? 

Mr. Carse. According to the record with the Navy Department, 
Germany had built, or were building, 441 submarine boats, and 
we thought a ro5^alty of $40,000 a boat was about fair, and that 
would amount to about $17,000,000. The Germans, of course, denied 
infringing any patent, and we said, " Well, why don't you show the 
plans of your boats, that will be jour defense; and if your plans 
show no infringing of patents, that ends it." They said they had no 
plans ; they said they had all been taken by the Versailles commission, 
so that we were in a way stalled for evidence. I went over there in 
1924 and appeared before the Mixed Claims Commission and made 
a hairbreadth advance. But then we found that all of the German 
submarines taken by Great Britain had been destroyed, the sub- 
marines brought over here had also been destroyed, but we found 
that France had kept a couple of submarine boats they had gotten 
from German3\ We were able to secure some of the plans of the 
interior arrangement of those boats. 

Senator Clark. Mr. Carse, this claim had to do with boats con- 
structed during the war or immediately prior to the war, did it not? 

Mr. Carse. Yes. In 1913 Krupp had demanded in the German 
court a license from us at a very nominal figure. 

Senator Clark. That was what year ? 

Mr. Carse. About 1912 or 1913, and they brought in the German 
Government on the basis they were doing the work for the Father- 
land. We contested that, asking a great deal more, because the 
patents they wanted to use were basic ; and while they were not such 
a very large portion of the submarine, they were the most important 
parts, they were the vital parts. So it was tried in the courts of 
Germany, and finally the patent appeal court at Liepzig, in 1913, 
gave a decision allowing us a certain royalty per tube on submarine 
boats built by them. 

Mr. Raushenbush. That is per torpedo tube. 



MUNITIONS INDUSTRY 17 

Mr. Carse. Yes,- per torpedo tube, and the tanks connected with 
them. They claimed the}^ had not infringed our patents, but had 
done something else. We could not produce the boats and we could 
not get access to their drawings, although counsel we employed told 
us there was no question that copies of every drawing of the German 
Admiralty was in existence. Finally we found some drawings of 
these German submarines in possession of France, and when we pro- 
cUiced those, then the Germans found some designs of the interior, 
and General Parker, head of the Mixed Claims Commission, ques- 
tioned them how they discovered those at that time and had never 
been able to discover them before. They claimed they had secured 
them from the clitTerent shipbuilding yards who had built the Ger- 
man submarines during the war. We clearly showed from those de- 
sigiis to the satisfaction of the American agents and, it seemed, of 
General Parker that they had infringed. But General Parker was 
sick at that time and he died of cancer later. Finally there came 
down a decision arrived at by the German American Claims Com- 
mission that we were entitled to the royalties stated by the Liepzig 
court in 1913 on a very small portion of the submarine boats that had 
been built by Germany, and this was because of a very slight devia- 
tion from the actual drawing, although the portions of the boat were 
exactly the same. We had to accept the decision. 

The Chairman. Does it not pretty nearly come to this, that about 
the only thing that is left to be honored at all in time of war is a 
patent on war machines? 

Mr. Carse. They ignored the patents over there. 

The Chairman. Haven't you stated there was some recovery from 
them ? 

Mr. Carse. Based on the judgment of the German court in 1913, 
and the recovery was only $12'5,000. 

The Chairman. Well, all the same where there was a recovery 
on the rights to manufacture a machine, there has been no right to 
recovery for any life or other property. 

Mr. Carse. Yes; the Mixed Claims Commission granted claims 
and recovery on other things such as merchant vessels. 

The Chairman. Who was Count Hoyos? 

Mr. Spear. Count Hoyos was the managing director at one time 
of the Whitehead firm at Fiume. 

The Chairman. What nationality was he? 

Mr. Spear. He was an Austrian. 

The Chairman. They became our enemy during the war, of course, 
or we became theirs. Count Hoyos held stock in the Electric Boat 
Co.. did he not? 

Mr. Carse. I believe he did. 

The Chairman. How did he come in possession of that? 

Mr. Carse. I do not know. It was before my time. 

The Chairman. How much stock did he hold? 

Mr. Carse. I do not know. Not very much. 

The Chairman. Is there any record to reveal what he paid for that 
stock? 

Mr. Carse. No; I do not know. 

The Chairman. There will now be offered in evidence as " Exhibit 
No. 15 ", as letter dated July 12, 1921, signed by Carse, addressed to 
Capt. Paul Koster. 



18 MUNITIONS INDUSTRY 

(The letter referred to was marked " Exhibit No. 15 " and appears 
in the appendix, p. 328.) 

The Chairman. This letter refers to 100 shares of the Electric 
Boat Co. stock which the Alien Property Custodian wanted posses- 
sion of or wanted new stock issued to the Alien Property Custodian 
in place of that which had been issued to Count Hoyos. Was Count 
Hoyos ever in the employ of the Electric Boat Co. ? 

Mr. Carse. Not that 1 know of. 

Mr. Spear. No, sir. 

The Chairman. Were not these shares of stock owned by Count 
Hoyos given to him for service that he had rendered at some time ? 

Mr. Carse. Not that I know of. 

The Chairman. The Alien Property Custodian wanted you to issue 
new stock? 

Mr. Carse. Yes. 

The Chairman. Count Hoyos had not surrendered his stock? 

Mr. Carse. No. 

The Chairman. And you could not issue stock above the amount 
you were authorized? 

Mr. Carse. No. 

The Chairman. Did the Alien Property Custodian ever come into 
possession of that stock? 

Mr. Carse. I do not know. 

The Chairman. Is Count Hoyos a stockholder in the Electric Boat 
Co. still? 

Mr. Carse. No ; I do not think so. I never saw Count Hoyos. 

The Chairman. This letter to which we have referred says: 

A j'oung relative of Count Hoyos was making inquiries here — 

That is at your office, I take it — 

some time ago in relation to the dividends, and I do not know how far he may 
have gone in stirring up the matter which we felt had been passed upon some 
time ago. 

Mr. Carse. He was going down to Washington to see somebody or 
had been down to Washington to see somebody, and I did not know 
what he had accomplished or what he could accomplish. 

The Chairman. Had you paid a dividend to stockholders? 

Mr. Carse. There had been some dividends declared prior to that 
time. 

The Chairman. But were the dividends on this 100 shares of 
Hoyos' stock paid ? 

Mr. Carse. They were mailed to him. 

The Chairman. Were they mailed to him during that year? 

Mr. Carse. I do not know. I suppose they could have been. I 
cannot answer that offhand. We could check it out but I have never 
kept it in mind. It was a small matter. 

The Chairman. How much such stock ownership has there been 
abroad in your company? 

Mr. Carse. Not very much that we know of. Of course, stock is 
very often in other names; just a few shares, not very many shares. 

Senator Barbour. Mr. Carse, is your stock or the stock of the 
Electric Boat Co. listed on the New "York Stock Exchange ? 

Mr. Carse. Yes, sir. 



MUNITIONS INDUSTKY 19 

Senator Barbour. Has it been for some time? 
Mr. Carse. Yes, sir; for many years. 
Senator Barbour. Was it at that time? 
Mr. Carse. Yes; at that time. 

Senator Barbour. In other words, anybody could acquire stock 
who went to a broker and ordered and bought it? 
Mr. Carse. Of course. 

relations with tickers and zaharoff 

The Chairman. Mr. Carse, who was Mr. Craven? 

Mr. Carse. Craven is one of Vickers' principal men. 

The Chairman. What is his full name? 

Mr. Carse. Commander Sir Charles Craven. 

The Chairman. And what is his official connection with Vickers? 
What do you know it to be? 

Mr. Spear. He is managing director of their shipyard plants and 
I believe also some of their steel plants. I do not know exactly 
how far his authority goes. 

The Chairman. Lieutenant Spear, on January 29, 1926, Mr. 
Craven, for Vickers, wrote to you a letter that was marked " Strictly 
private ", which letter I ask be known as " Exhibit No. 16." 

(The letter referred to was marked " Exhibit No. 16 ", and appears 
in the appendix on p. 328.) 

The Chairman. The heading of " Exhibit No. 16 " is " Strictly Pri- 
vate." It is addressed as follows: 

Lieut. L. Y. Spear, U.S.N., 

Electric Boat Co., Groton, Conn. 

Were you connected with the United States Navy in January 1926 ? 

Mr. Spear. No, sir; I v,'as not. My connection with the Navy 
ceased in 1902. 

The Chairman. How long were you connected with the Navy? 

Mr. Spear. From 1886 to 1902. 

The Chairman. And you obtained finally the rank of lieutenant? 

Mr. Spear. Yes, sir. 

The Chairman. What does the reference here to " lieutenant " 
mean ? 

Mr. Spear. It is a European habit. Over there a man may retire 
and keep his rank, without pay, and engage in any business he 
likes. 

The Chairman. Let us get that correct. In Great Britain a man 
could retire from the British Navy. 

Mr. Spear. Yes, sir : if he gives up his pay, and he can retain his 
title and rank and engage in any business he likes. 

The Chairman. But you cannot do that in this country? 

Mr. Spear. That is illegal. It is simply a custom they have, and 
they have gotten in the habit of calling me " Lieutenant Spear ", 
although I think I am pretty old for that. 

The Chairman. Have you a copy of " Exhibit No. 16 " before you, 
Mr. Spear? 

Mr. Spear. Yes, sir. 

The Chairman. It comes to this, then, Mr. Spear, does it not: 
That when Mr. Craven comes into possession, directly or indirectly, 
of your patents, they are in the possession of the British Navy ? 



20 MUNITIONS INDUSTRY 

Mr. Spear, Yes; indirectly. 

The Chairman. In this letter, Mr. Craven, for Vickers, asks you 
to lower your percentage on the bids for their Australian submarines 
from 3 percent to 11/2 percent. In next to the closing paragraph 
that letter reads as follows : 

I dislike very much having to ask your company to meet us in a matter of 
this kind so very soon after the new agreement has been made. * * * 

That is the agreement of 1924, I take it? 

Mr. Spear. Yes, sir. 

The Chairman (continuing reading) : 

but times are really terrible here, and I think that if for a year or two we 
can obtain all the submarine building that there is aliout. we may be able to 
freeze out a lot of wartime builders, who are relatively much more favourably 
situated now to compete with us than they would be if times were good, as 
the three percent to the E. B. Company weighs heavily when one is putting on 
practically no profit for one's self, whereas in proper times we should not feel 
it to anything like the same extent. 

Who were these war-time builders? 

Mr. Spear. During the war the British admiralty had need for a 
great many submarines. They therefore took the designs of the 
vessels which Vickers were building, and under their war-time 
powers they said that the Vickers firm did not have sufficient ca- 
pacity to build as many submarines as they needed, and they ac- 
cordingly took, as I recall it, four other firms, passed the plans to 
them, and directed the construction by them of these submarines to 
the Vickers plans. Cammell-Laird w^as one of the firms, and I think 
White was another; and I think Beardmore was another. Those 
are all the names wdiich I recall right now but my memory is that 
there were four or five of them. 

The Chairman. This commission that Craven speaks of had been 
a 3-percent commission? 

Mr. Spear. Yes, sir. 

The Chairman. What was that commission? 

Mr. Spear. That was the commission providing for the use of 
our patents in the last agreement we made with them in the vear 
1924. 

The Chairman. Your last agreement with Vickers? 

Mr. Spear. Our last agreement v/ith Vickers. It was a royalty. 

The Chairman. Vickers got the contract for the Australian sub- 
marine? 

Mr. Spear. Yes. they built that submarine. 

The Chairman. You reduced your commission from 3 percent to 
114 percent? 

Mr. Spear. My memory is we agreed to that. 

Mr. Carse. We did not always meet Mr. Craven's requests for 
reductions and we used sometimes to split the difference. 

Tlie Chairman. But you were agreeing with Vickers that it was 
desirable to eliminate or " freeze out ", as he expressed it here, the 
war-time builders and get as much business as you could alone? 

Mr. Carse. Yes, but we sometimes thought that Mr. Craven was 
a little gloomy in the matter of his opinion as to the future. We 
wanted all the income we could get. 



MUNITIONS INDUSTEY 21 

The Chairman. Did you pay any commissions to anyone for 
business abroad outside of your Paris representative? 

(Mr. Carse conferred with associates.) 

The Chairman. Did you not pay commissions to Basil Zaharoff? 

Mr. Carse. That is what we were talking about. We do not pay 
him, but under an old agreement there a certain percentage is paid 
to us and we transmit it to Sir Basil Zaharoff. 

Senator Clark. When was that agreement made, Mr. Carse? 

Mr. Carse. We later get a commission which we return. 

The Chairman. You get a commission which you return? 

Mr. Carse. Spanish business only. 

The Chairman. I offer as " Exhibit No. 17 ", a statement by the 
Electric Boat Co. showing commissions paid to B. Zaharoff, starting 
in 1919 up to and including 1930, showing the total amount of com- 
missions paid as $766,099.74. 

(The statement referred to was marked " Exhibit No. 17 ", and 
appears in the appendix on p. 329.) 

The Chairman. How would you explain the general nature of 
these commissions shown on " Exhibit No. 17 " ? 

Mr. Carse. These are our Spanish business. I think it goes back 
before my time, but we have an agreement there with this Spanish 
company, Sociedad de Construccion Naval, by which they were to 
have paid a certain percentage of the profits which they made in 
building submarine boats for the Spanish Government. 

The Chairman. In which Vickers were interested? 

Mr. Carse. Not in the beginning; not originally. 

Senator Clark. What was that percentage, do you recall, Mr. 
Carse ? 

Mr. Spear. Originally it was a profit-sharing agreement; 50 
percent. 

Senator Clark. They paid you 50 percent of the profits on the 
Spanish submarines ? 

Mr. Spear. Yes, sir. 

Mr. Carse. That was the basis of all of our original agreements. 
We have since been obliged to modify them from time to time, owing 
to the change of conditions, and so forth. This agreement was 
modified so that they paid us a certain percentage, which under 
another agreement we transmitted direct to Sir Basil Zaharoff and 
then they paid us another basis of compensation for ourselves. 

Senator Barbour. Mr. Carse, who is this Sir Basil Zaharoff? Is 
he a Spaniard? 

Mr. Carse. Sir Basil Zaharoff is called the mystery man of Eu- 
rope. He is a verj^ able man. There have been all sorts of stories 
about his parentage and early youth, and so forth, most of them 
probably just fables; but I think he probably is a Greek, but he is 
also Sir Basil Zaharoff, and is a Knight of the Garter of Great 
Britain. 

Senator Clark. He has also claimed to be a Frenchman at vari- 
ous times, has he not, Mr. Carse ? 

Mr. Carse. I do not think he claims to be a Frenchman, but he 
has lived in Paris and Monte Carlo. He is a Spanish duke also. 
He is a very able and a very brilliant man. There seems to be a lot 
of slurring around about him, but I met him in 1924 and I think 



22 MUNITIONS INDUSTRY 

he was one of the very greatest men I have had the honor to meet, 
and I think you will find that the President of the United States 
in 1919 gave Sir Basil his confidence and advised with him in 
relation to the matter he was in Europe for. 

The Chairman. I am surprised to hear that. I was about to re- 
mark that the only country that has not recognized Sir Basil or 
decorated him is the United States. 

Mr. Carse. He has not had so much to do with the United States. 
He is a European. 

Senator Clark. Mr. Carse, when was this original arrangement 
made with this Spanish concern with respect to the division of 
profits 50 percent? 

Mr. Carse. It was before m}^ time. 

Senator Clark. Can you get that contract for us so that it can be 
put in the record? 

Mr. Spear. Yes, sir. 

Senator Clark. Mr. Carse, when was this modification of that 
original contract made ? 

Mr. Carse. Mr. Spear can probably answer it more directly. 

Mr. Spear. Just to make the subject clear, while the original agree- 
ment provided for a share of the profits, we found 

Senator Clark. Do you know about when the original agreement 
was made, Mr. Spear ? 

Mr. Spear. I could tell you roughly. 

Senator Clark. Yes, sir. 

Mr. Spear. I should say about 1910 or 1912. 

The Chairman. This statement which was made, " Exhibit No. 
17 ", showing commissions paid starting in 1919 is not inclusive of 
all commissions that were probably paid to Sir Basil Zaharoff ? 

Mr. Spear. No; I think there was a great deal before that. No; 
business was received immediately after the agreement. It was some 
years after the agreement, Mr. Chairman, before there was any busi- 
ness. Just to finish my statement : Wq found our Spanish friends a 
little bit slow in accounting, and so forth, so that before we had 
formally modified this agreement, we did reach an agreement with 
them that instead of paying us 50 percent on the business which they 
were then doing, they would pay a fixed percentage, which merely 
meant that we could get some money as we went along instead of 
waiting for them to finish the boats and make up an accounting. 

Senator Clark. That was a fixed percentage of the gross business 
which was done? 

Mr. Spear. Yes, sir. 

Senator Clark. As against a division of profit? 

Mr, Spear. Yes, sir; that was the first modification of the original 
agreement. . 

Senator Clark. Do you know about when that was, Mr. Spear? 

Mr, Spear. That, I think, was in 1921, 

Senator Clark. That was entered into by you on behalf of the 
Electric Boat Co.? 

Mr. Spear. I negotiated that in Europe; yes, sir. Then later on 
our original agreement with them expired, came to an expiration 
date — our license agreement. 

Senator Clark. When was that? 



MUNITIONS INDUSTRY 23 

Mr. Spear. I do not know. I did not bring these dates with me. 
At any rate, it was subsequent to this modification of which I have 
told you. 

Thereupon a new agreement was entered into in which they be- 
came 

Senator Clark. Do you have that agreement with you ? 

Mr. Spear. I did not bring any of these papers. I do not know 
whether you have them or not. 

Senator Clark. All right. 

Mr. Spear. Under the new agreement, they became licensees of 
both ourselves and Vickers; the reason for that being that Vicker3 
owned some stock in this Sociedad de Construccion Naval. 

Senator Clark. That is the Spanish company ? 

Mr. Spear. That is the company which had been directed techni- 
cally by British engineers, largely from the beginning. 

Senator Clark. Does Vickerg have any patents as distinguished 
from your patents? 

Mr. Spear. Yes, sir; they have patents as distinguished from our 
patents. Under the new agreement we jointly give them a license. 
In other words, they take a license from both of us so that they can 
u^e Vickers' patents, Vickers' engines, and so forth, if they choose, 
as well as ours. 

Senator Bone. Are you permitted to use Vickers' patents under 
that agreement? 

Mr. Spear. Yes. 

The Chairman. Do you pay Vickers anything for the use of those 
patents? 

Mr. Spear. We do not. 

Senator Clark. Mr. Spear, what was the intention of the second 
agreement entered into in 1924: or 1925? What did you get out of 
that? 

Mr. Spear. My recollection is we got 3i/^ percent, when the sub- 
marines are built according to our designs and when we supply all 
the working plans, and so forth. 

Senator Clark. That is on the gross? 

Mr. Spear. Three and a half percent on the gross. If, on the 
contrary, they should be directed by their own government to build 
a different kind of boat we did not design for them, but they used 
our patents, then they pay li/^ percent. 

Senator Clark. What does Zaharoff get out of it under that con- 
tract ? 

Mr. Spear. Nothing. 

Senator Clark. Then what are the sums set out in the exhibit 
which has just been put in evidence, indicated as sums paid to 
Zaharoff? What do they represent? 

Mr. Spea.r. They came under the old agreement. 

Senator Clark. They apparently extended to 1930, which is sev- 
eral years after the old agreement expired, according to your testi- 
mony. 

Mr. Spear. I cannot tell you, because I did not make this up. 

Mr. Carse. This new thing which the Spaniards have advised us 
that they have made, without consultation with us, lyo percent is 
Just lately. 



24 MUNITIONS INDUSTRY 

Senator Clark. What I am trying to <ret at, Mr. Spear, is this: 
In 192C this exhibit shows that there was paid to -Sir Basil Zaharoff 
the sum of $67,309.58. 

Mr. Spear. Yes, sir. 

Senator Clark. And in 1927 you paid in $33,327.44. 

Mr. Spear. Yes. sir. 

Senator Clark. And in 1928 you paid in $90,080.79. 

Mr. Spear. Yes, sir. 

Senator Clark. And in 1929 you paid in $35,744.65. 

\[r. Spear. Yes, sir. 

Senator Clark. In 1930 ^-ou paid in $77,883.12. Now you say 
that this is not part of the three and a half percent or one and a 
half percent which you get back, and at the same time you say that 
Sir Basil Zaharoff did not receive anything under that contract. 
What do these payments represent? 

jMr. Spear. You misunderstood. 

Senator Clark. I understood that that was what you said. 

Mr. Carse. Sir Basil at the present time, under this latest modi- 
fication which we have been advised the Spaniards themselves have 
made, gets nothing; and there is no provision for Sir Basil Zaharoff 
at all, but prior to this late episode 5 percent went to Sir Basil 
Zaharoff on the Spanish business. 

Senator Clark. But the figures which I have just enumerated 
from the exhibit you have said were under the orio-inal contract 
which has expired, and that a new contract was entered into which 
provided nothing for Sir Basil Zaharoff. 

Mr. Carse. You misunderstood him. He did not mean that. I 
think the thing Avas modified so that we got 3^4 percent and Vickers 
314 percent and Sir Basil continued the 5 percent, the same as he 
had previously. 

Senator Clark. In the new contract? 

Mr. Carse. Yes, sir. 

Senator Clark. Is that contract still in effect ? 

Mr. Carse. It is still in effect, only, as I say, the Spaniards have 
given us notice that instead of operating under the three and a half 
percent clause, they propose to operate under the one and a half 
percent clause. 

Senator Clark. I am not now speaking, Mr. Carse, of the amount 
of your commission. I am speaking of your payments to Sir Basil 
Zaharoff. What do they represent for the years 1926 to 1930, in- 
clusive ? 

Mr. Carse. Remittances which were made to us by the Spanish 
Company of 5 percent, and we transferred that to Sir Basil Zahai'off. 

Senator Clark. Now, Mr. Carse, will you explain to the committee 
why it is that you were required on a fixed commission to make these 
payments to Sir Basil Zaharoff for the Spanish company, and why 
they should have been transmitted to you and the actual pajanents 
made by you? 

Mr. Carse. I do not know. 

Senator Clark. What is the basis for that arrangement? 

Mr. Carse. Sir Basil Zaharoff' secured that business for us entirely. 
It was his business. The Spanish business was his business. He 
secured that business and he held it for us against very keen compe- 
tition. He secured the contract originally. 



MUNITIONS INDUSTRY 25 

Senator Clark. But if the contract provided for an allowance to 
you by Zaharoff, why should the payment be made through the 
Electric Boat Co. ? That is what I am trying to get at. 

Mr. Carse. I suppose because the contract or agreement was made 
between the Sociedad de Construccion Naval and the Electric 
Boat Co. 

Senator Clark. Sir Basil Zaharoff is not a party to it? 

Mr. Carse. Not a party to it. 

Senator Clark. Did his name appear in the contract? 

Mr. Carse. No, sir. 

Senator Clark. What was the specification, then, in the contract 
covering this 5 percent? 

Mr. Caese. I cannot say. 

Senator Clark. In other words, let me put it a little bit differently, 
Mr. Carse. Did the contract provide that you were to have 5 percent 
as your commission, that you were to have 5 percent plus 3i/2 per- 
cent 01-11/^ percent; in other words, that you were to have your 
commission on one class of business, 8i/^ percent, and on another of 
61/2 percent? 

Mr. Carse. No, sir; never 6i/^. They simply advised us that they 
were going to operate under clause no. 4, li/o percent, which they 
have not paid us. 

Senator Clark. I understand, Mr. Carse, but since Basil Zaharoff, 
as you say, was not a party to this contract, what was the provision 
in the contract with regard to your commission? Did the contract 
provide for a payment of 5 percent to Sir Basil Zaharoff? 

Mr. Spear. No; I think not. I do not think his name was 
mentioned. 

Mr. Carse. I could not answer that. 

Senator Clark. In other words, the contract actually provided for 
a payment of 8i/^ percent to you, of which you, of your own accord, 
remitted 5 percent to Sir Basil Zaharoff? 

Mr. Carse. I do not think I would say " of our own accord." I 
think that was based on some old agreement at the time he secured 
the business for us. 

Senator Clark. That was based upon an old agreement between 
the Electric Boat Co. and Sir Basil Zaharoff? 

Mr. Carse. Yes, sir; and continuing 

Senator Clark. So that, in effect, this 5 percent was simply a 
splitting of the commission between you and Sir Basil Zaharoff on 
the basis of 5 percent or Si/o percent or li/o percent, as the case 
might be ? 

Mr. Carse. It was the payment of commission to an agent who 
secured for us the business. 

The Chairman. And you looked upon Zaharoff as the agent who 
had secured the business? 

Mr. Carse. Absolutely. 

Senator Pope. Whose agent? Your agent? 

Mr. Carse. Yes, sir ; our agent in connection with Spanish business. 

The Chairman. Senator Bone. 

Senator Bone. Mr. Carse, can you tell the committee what service 
this gentleman rendered to the British Empire that induced the 
King to make him a Knight of the Garter, or which induced the 
Spanish Government to make him a duke? 



26 MUNITIONS INDUSTRY 

Mr. Carse. I do not know. 

Senator Bone. AVoukl 3-011 suggest to the committee that it was his 
activit}^ in the munitions business that led those Governments to give 
him those decorations and titles? 

Mr. Carse. I do not know. I do not know his history. He is not 
a man who talks very much. 

Senator Bone. He seems to have been very influential with the 
Spanish Government, and he got an exclusive contract from them, 
and I was wondering if it had anything to do with the bestowal of 
his title. 

Mr. Carse. I could not say. 

Senator Bone. Will you advise us why these various European 
governments have sought to bestow these titles on this gentleman? 

Mr. Carse. Sir Basil married a Spanish duchess. 

Senator Bone. I understand that; but you would not bestow a 
title on a man because he married some woman. What services did 
he render those countries, if you can advise us ? 

Mr. Carse. I do not know. 

Senator Bone. He appears to have been suppljdng ammunition 
and munitions of war to all of them, and they were fighting one 
another, and I was wondering what was in the gentleman's history 
that led them to bestow upon him these titles. Possibly you can 
enlighten us. 

Mr. Carse. His wife was the cousin of King Alfonso. 

Senator Bone. It was rather a family affair, more than anything 
else? 

Mr. Carse. It would seem so. I spent a day with Sir Basil at his 
country home, and I certainly did not put him on the stand and 
cross-examine him. 

The Chairman. I think. Senator Bone, j^ou will find your question 
answered as we go along further in the inquiry. 

Senator Pope. Did 3^ou take up his relation with Greece and the 
services which he might have performed for Great Britain in con- 
nection with Greece? 

The Chairman. Senator Clark will take up that tomorrow. 

Senator Clark. One other question, Mr. Carse. This figure of 
$760,099.74, which was paid by you to Sir Basil Zaharoff between 
1919 and 1930, inclusive, if I understand correctly, rej^resents 5 per- 
cent of the business transacted by you with Spain during that period? 

Mt. Carse. Yes, sir. 

The Chairman. Is Mr. Zaharoff interested in Vickers? 

Mr. Carse. I do not know. At one time it was reputed that he 
had a controlling interest. 

The Chairman. That he had a controlling interest ? 

Mr. Carse. Yes, sir. 

The Chairman. Vickers, however, speaking generally, is very 
much a British concern, is it not? 

Mr. Carse. Very much so; yes, sir. 

The Chairman. I have before me a letter written by C. W. Craven, 
addressed to you, Lieutenant Spear, dated October 7, 1927, and 
again marked "Absolutely Personal and Confidential ", which we 
will ask to have incorporated as " Exhibit No. 18." 

(The letter referred to was marked " Exhibit No. 18 ", and appears 
in the appendix on p. 330.) 



MUNITIONS INDUSTRY 27 

The Chairman. Referring to " Exhibit No. 18 " down close to the 
middle of the opening paragraph we find Mr. Craven saying: 

* * * we have just received an inquii*y for 1, 2, or 3 boats for the Admiralty. 
Armstroug-Whitworth's have also received a similar inquiry. 

Who is Armstrong-Whitworths ? 

Mr. Spear. Armstrong-Whitworths are now out of business, but 
at that time it was a large shipbuilding and engineering company 
in Great Britain, also an ordnance company, with large plants at 
Newcastle. 

The Chairman. Vickers now possess them ? 

Mr. Spear. No, sir; only a part. They went through bankruptcy 
after the war and Vickers took over some of their plants, but not all. 

The Chairman. At any rate, Mr. Craven says : " My present feel- 
ing is that we should quote for 1, 2, or 3 from Armstrong's " — that 
indicates that Vickers then had a large holding in Armstrong's, does 
it not? 

Mr. Spear. That would be my conclusion. 

The Chairman (continuing quotation) : 

Who have agreed to put in whatever price I tell them, and that we should 
also quote for 1, 2, or 3 boats from Barrow. 

Who is Barrow ? 

Mr. Spear. That is where Vickers' principal shipbuilding plant is 
located. It is on the east coast of England. 
The Chairman. Then Mr. Craven says : 

I would keep the Armstrong price very slightly above ours, the idea being 
that whatever boats were ordered from either party would be built at Barrow, 
so effecting considerable economies. I also think that perhaps it would be 
worth while putting forward a tender for six boats, the total number to be 
built. I have had a word with the director of contracts at the Admiralty, who 
is a friend of mine, and who would like this. He, I know, tried to get us the 
order for all live submarines last year. 

Now has Vickers kept you informed constantly of such business 
as they were contemplating? 

Mr. Spear. In general, whenever there is an inquiry. 

The Chairman. Do you keep Vickers advised of such business as 
you have in prospect? 

Mr. Spear. Not unless it is a business in which Vickers is legiti- 
mately interested. 

The Chairman. Although Vickers is a British concern, in this par- 
ticular case they were not opposed at all to " ganging up " when it 
is to their advantage to drive a better bargain with their own 
Government ? 

Mr. Spear. I presume not. I do not know. 

The Chairman. This same letter. Lieutenant Spear, in the closing 
paragraph, makes reference to the secretary of Vickers and says: 

who was put on the board yesterday, is leaving in the Mauretania on Saturday 
to see Sheridan and Roberts. 

Who are they? 

Mr. Spear. I believe they at that time were Vickers' agents in 
this country. 

The Chairman. In this country? 

Mr. Spear. In this country. 

The Chairman. Vickers had agents here in America then? 



28 MUNITIONS INDUSTRY 

Mr. Spear. Yes; they have many products. 

The Chairman. Are Mr. Sheridan and Mr. Koberts still in busi- 
ness? 

Mr. Spear. I believe not. 

The Chairman. Where were they located at that time? 

Mr. Spear. They have an office in New York. 

The Chairman. In New York? 

Mr. Raushenbush. Sheridan is still here? 

Mr. Spear. Yes, sir. 

The Chairman. And how about Mr. Roberts? 

Mr. Spear. I do not laiow where Mr. Roberts is. 

Mr. Carse. He is in New York. 

Mr. Spear. I think he is in New York, but I do not know of my 
own personal knowledge. 

The Chairman. Is either of them connected with your industry 
in any way? 

Mr. Spear. Not with our industry. 

Mr. Carse. Roberts is a director of the Electric Boat Co. 

The Chairman. Mr. Roberts is a director of the Electric Boat 
Co.? 

Mr. Carse. Yes, sir. 

The Chairman. Did you see the secretary of Vickers when he 
came over on that trip, Mr. Spear? 

Mr. Spear. I do not remember that I did, sir. 

The Chairman. Mr. Craven had said in his letter that he did 
not suppose he would be getting in touch with you, but if you hap- 
pened to meet him : 

I know you will be kind to him. 

Mr. Carse. What year was that? 

The Chairman. 1927. 

Mr. Carse. Sims came in the office one time for about 5 minutes. 
I do not know whether it was then or some other time. 

The Chairman. I have laid before you " Exhibit No. 19 ", being a 
letter dated November 30, 1927, addressed to you, Mr. Spear,^ again 
written by Mr. Craven, and I will interrogate you with reference 
to that. 

(The letter referred to was marked " Exhibit No. 19 " and appears 
in the appendix on p. 330.) 

The Chairman. Down in the fourth paragraph of that letter, 
" Exhibit No. 19 ", you will find this language : 

When you are next over here I will show you my estimate, but you can take 
it from me now that I knew there was going to be keen competition, and I cut 
my price to under 5 percent profit, because I felt that, with your support, it was 
up to me to get the work and starve out competitors for another year or two. 
For your private information, I was in a position to look after Armstrong's 
and iieep them out of Ihe picture on this occasion. 

Do you know how he kept Armstrong's out of the picture? 

Mr. Spear. No, sir; I have no information except what is in this 
letter. 

The Chairman. He wrote a postcript to that letter, which reads as 

follows :■ 

You will notice in the enclosed report of the meeting that Armstrong's had to 
make a terrible fuss about the Merchant Shipyards, etc., which they are retain- 



MUNITIONS INDUSTRY 29 

ing, and which will continue to be operated by the old company quite apart from 
the new amalgamation. This, it will be obvious to you, is for the benefit of 
their debenture and shareholders. For your own private information, the 
works they are retaining are the ones we refuse to have anything to do with. 

Do you know anything more about the consolidation at that time ? 

Mr. Spear. No, sir; I know nothing about it except what there 
is in this letter and what appeared in the public press. 

The Chairman. Mr. Craven wrote you another letter under date 
of September 10, 1930, and I will offer that letter at this time as 
" Exhibit No. 20." 

(The letter referred to was marked " Exhibit No. 20 " and appears 
in the appendix on p. 331.) 

The Chairman. Kef erring to " Exhibit No. 20 ", Mr. Craven stated 
as follows: 

I still hope your company will meet me regarding the amount due to you, 
because there was certain action I had te take which involved expenditure, and 
which I ;!m sure you would have agreed with. I cannot possibly say any more 
in writing, but when the long-promised visit takes place we will have a talk. 

Has that long-promised visit taken place? 

Mr. Spear. No, sir. 

The Chairman. You have not seen Mr. Craven since that time ? 

Mr. Spear. I have not been abroad since that time. Mr. Craven 
stopped one day in New York. 

Mr. Carse. I do not know the date, but he came over on the 
maiden voyage of one of the big ships built for the Canadian Pacific 
road. He came over on that. 

Mr. Spear. To make my answer responsive, I know what the 
chairman wants to know. He wants to know if I have ever had a 
talk with Commander Craven about the subject of this letter. 

The Chairman. That is right. 

Mr. Spear. The answer is " no." 

The Chairman, Have you had a talk with any one connected with 
Vickers on the subject matter of this letter? 

Mr. Spear. I have not had a talk with anyone connected with 
Vickers on the subject matter of this letter. 

The Chairman. Did you see Mr. Vickers 2 months ago when he 
was over here? 

Mr. Spear. No, sir. 

The Chairman. Did you, Mr. Carse ? 

Mr. Carse. No, sir. 

The Chairman. Do you know whether he had a talk with any 
officials of the Electric Boat Co.? 

Mr. Carse. No; he did not. 

The Chairman. Did you know he was in the country ? 

Mr. Carse. No, sir; I did not know he was in the country. 

The Chairman. Mr. Craven expressed the ho]5e that you would 
meet him regarding " the amount due to you." Have you <met him 
regarding the amount due to you? 

Mr. Spear. I do not recall that. Every time that any business 
appeared in sight he always wanted to pay us a smaller amount. 
Whether we agreed at that time, I could not tell without looking up 
the record. 

83876— 34— PT 1 3 



30 MUNITIONS INDUSTRY 

The Chairman. He said that there was certain action that he had 
to take which involved expenditure. What could that actual expendi- 
ture be? 

Mr. Spear. I could not tell you. 

The Chairman. One hesitates to use the word lieutenant, but I 
am rather forced to ask here if it could mean anything other than 
that there was bribery resorted to in getting business ? 

Mr. Spear, Yes; it could very readily mean many other things, I 
think. 

The Chairman. Do you think it does mean anything other than 
that? 

Mr. Spear. I think so, because, so far as my knowledge goes, I have 
never known of any case of bribery in connection with the British 
Government. 

The Chairman. Do you know of any cases where officials con- 
nected with the Spanish Government, for example, have been sus- 
ceptible to bribery in order to help get business, one way or the 
other ? 

Mr. Spear. I have no knowledge of any such thing. 

Senator Clark. Sir Basil attended to that end of it, did he not? 

Mr. Spear. I cannot answer for Sir Basil. 

The Chairman. Mr. Carse, we find that, in addition to havinor very 
positive working agreements and understandings as to divisions of 
profit and territory, the Vickers people even went so far as to assume 
the right occasionally to reproach your company for your method of 
doing business abroad. Here is a letter dated July 30, 1932, ad- 
dressed to you by Mr. Craven, which T introduce as " Exhibit No. 21." 

(The letter referred to was marked " Exhibit No. 21 " and appears 
in the appendix on p. 332.) 

The Chairman. A portion of that letter reads as follows : 

FirFit may I su^.t^esf that cvpii in code it is bettor not to mention any names 
of ships, as I am rather afraid that such telegi-ams misht get into the hands 
of our clients, and it would be awkward if they asked me about our agreement 
with you. I am sure j'ou will appreciate what I mean. 

Is the conclusion to be drawn from that statement that the British 
Admiralty had no knowledge at all of the agreement between Vickers 
and you ? 

Mr. Cause. I think that is what Mr. Craven means, that the British 
Admiralty might raise some objection to an American concern receiv- 
ing any money on account of business with the British Government, 
the same as you asked me, apparently with intent, whether we paid 
Vickers anything on American business. 

Vickers have behaved in a straightforward manner with us in all 
of our arrangements since early 1900, 

The Chairman, Has the British Government had knowledge of 
the existence of this understanding between you and Vickers? 

Mr. Carse. I do not know. We have never had 

The Chairman, Has the United States Navy or has the American 
Government had knowledge of this agreement between you and 
Vickers? 

jMr. Carse. Undoubtedly. 

The Chairman. You say " undoubtedly." How do you know that 
they kncAv? 

Mr. Spear. I, for one, have talked to them. 



MUNITIONS INDUSTRY 31 

Mr. Carse. We have told them many times. 

Tlie Chairman. You, Mr. Spear, have advised them of it? 

Mr. Spear. Yes, sir. 

The Chairman. Did it ever occasion any embarrassment at all ? 

Mr. Spear. Not the slightest. 

The Chairman. Mr. Carse, what is your own personal opinion 
regarding the effort to accomplish agreements looking to disarma- 
ment in the disarmament conferences'? 

Mr. Carse. I take no position at all. 

The Chairman. They had a tendency to slow business down, lead- 
ing up to them and during their conduct? 

Mr. Carse. Certainly. They have held it up, especially the effort 
of Great Britain to do away with submarines, and it has certainly 
affected our line of business very substantially. 

The Chairman. Speaking now more particularly of Vickers. 
have you ever heard them express themselves regarding their atti- 
tude toward these disarmament conferences? 

Mr. Carse. I so very seldom see Vickers that there is not any 
conversation. 

The Chairman. With anyone connected with them? 

Mr. Carse. The last time I was over in England was in 1924. 
They have not expressed any opinion about it. 

The Chairman. You have had a pretty constant flow of corre- 
spondence between you. Have they expressed themselves in that 
respect? 

]\rr. Cafse. I do not recall any expression. 

The Cpiatrman. Here is a letter dated October 30, 1932, addressed 
to you by C. W. Craven, of Vickers, which is offered as " Exhibit 
No. 22." ' 

(The letter referred to was marked " Exhibit No. 22 " and appears 
in the appendix on p. 832.) 

The Chairman. In this letter, " Exhibit No. 22 ", Mr. Craven says: 

All tliat you and I gain hy the transacHon will he that we phall know that 
if the ship is built Vickers will get the order. If. on the other hand. Geneva 
or some other fancy convention decide that large submarines have to be 
abolished, no definite contract will be placed and the Admiralty can retire 
gracefully without having to pay us anything. I cannot, of course, commence 
spending any money until say March, but, at any rate, our competitors will not 
receive the enquiry. 

Is not that rather a slurrino; of the disarmament program? 

Mr. Carse. No ; I do not think so. 

The Chairman. What is the meaning of the reference to " fancy 
convention "? 

Mr. Carse. Some people sometimes use words and phrases. I 
think there was perhaps a division of opinion in regard to these 
conferences. Some people, members of the conference, favored cer- 
tain things and others favored other things. You cannot blame 
private citizens and so forth for having differing opinions. They 
had presented a design for a submarine boat wliich had been ap- 
proved by the British Government, subject to the result of the Geneva 
Conference, and if the conference did not decide against the build- 
ing of submarines of this size, they would get the order, and if they 
did decide against it, they would not get tlie order. So that they 
had to wait until the end of the Geneva Conference. 



32 MUNITIONS INDUSTRY 

The Chairman. Is there not to be read in this paragraph which 
I have quoted to you a desire that the conference fail? 

Mr. Carse. Naturally a person would not wish some action to be 
taken by any conference that would be detrimental to his interest. 

The Chairman. Now Mr. Craven expressed the same thought as 
related to H. M. S. Clyde, in a letter under date of January 6, 1933, 
addressed to Mr. Henr}'' K. Carse, which I will oflfer as " Exhibit 
No. 23." 

(The letter referred to is marked " Exhibit No. 23 ", and appears 
in the appendix on p. 333.) 

The Chairman. In " Exhibit No. 23 ", Mr. Craven stated as 
follows : 

At the same time the admiralty also promised us the order for II.M.S. Clyde 
(another repeat of the Thames), but in this latter case they will not give us a 
contract until after the end of March. In other words, they will have the 
right to withdraw their promised order for the second ship if Geneva or any 
other troublesome organization upsets the large subm^arine. In view of this, I 
am not saying anything publicly about the Clyde, and I would suggest that 
it would be wise that Spear should not let the information get into the hands 
of your Navy Department until after I can tell you that we really have a 
proper contract. Cammoll I^airds will get the two small S boats. On the 
whole, I am very pleased, because it is impossible in these days of starvation 
of shipbuilding to get all the submarine orders. 

Who are the " other troublesome organizations " to which he 
refers ? 

Mr. Carse. I suppose they have pacifists in England, the same as 
they have in the United States. 

The Chairman. Yes; but pacifists in England could not upset 
their submarine program. 

Mr. Carse. They might very well. Who can tell what any organ- 
ization might do ? He does not refer to Geneva there except "' or 
other troublesome organizations." 

The Chairman. That was January 1933 and we were approaching 
the renewed disarmament conference. 

Mr. Carse. People have "different opinions about that. 

The Chairman. You do not think Craven was referring to that? 

Mr. Carse. No, sir. 

The Chairman. Not at all? 

Mr. Carse. No ; because he expected to get the order when Geneva 
had adjourned unless some other troublesome organization should 
come into the picture. 

Senator Clark. No; he does not do that, Mr. Carse. He does 
not describe the other organization. Pie puts Geneva in the same 
class. He states : " In other words, they will have the right to 
withdraw their promised order for the second ship if Geneva or 
any other troublesome organization upsets the large submarine." 
So that he regarded the Geneva Conference as a troublesome organi- 
zation, evidently. 

Mr. Carse. I could not speak the English words for t]ie man 
who wrote that. 

The Chairman. Perhaps it is better to let the language stand by 
itself without our undertaking to say what it does mean. 

Mr. Carse. I would say so. 



MUNITIONS INDUSTRY 33 

The Chairman. At anj' rate, Mr. Carse, in this case there was a 
premium for Vickers ancl for yourself in the event that the confer- 
ence failed to come to an}^ agreement? 

Mr. Carse, No; that is not it. Not come to any agreement, but 
if any agi"eement that they made did not prohibit or prevent the 
construction of submarine boats of the size indicated. 

The Chairman. Lieutenant Spear, did you withhold from the 
Navy Department and did you refrain from letting the Navy De- 
partment know what Britain's plans were, as stated in this letter? 

Mr. Spear. I said nothing about it to anybody until after it 
became an established fact. 

The Chairman. Why was he afraid that the information would 
get into the hands of the Navy Department? 

Mr. Spear. I could not tell you that. I do not know. I presume 
they thought it was a confidential matter with the admiralty and 
that if the admiralty chose to tell our delegates at Geneva what 
they were contemplating, well and good, but it was up to them. I 
really do not know anything about it. 

The Chairman. Would it have been to the advantage of the dele- 
gates of Britain in the disarmament conference to have contem- 
plated building for the future and keeping the United States in 
the dark as to having such ships that they had in part contracted 
for? 

Mr. Spear. That I do not know, ?<Ir. Chaiman. I know from 
talks which I have had with some people who have attended these 
conferences they thought that the right thing to do was to put their 
cards on the table and tell each other vphat they contemplated 
doing, in the event the agreement took a certain form. A^^ncther 
they all lived up to that or not, I do not know, of course. 

The Chairman. All in all, you and your associates or your com- 
pany have had pretty direct understanding with Vickers all the 
way through regarding their plans and your plans as related to 
Fhipbuilding? 

Mr. Spear, In general; yes, sir. 

Senator Clark. Mr. Spear, you say that this information was 
confidential information of the British Admiralty. It was not so 
confidential to prevent Vickers giving it to yoii, a private con- 
cern in this country, was it? 

Mr. Spear. No. 

Senator Clark. Mr. Carse, or Mr. Spear, do you have any written 
contracts with Sir Basil Zaharoff with regard to this Spanish 
business ? 

Mr. Carse. There was something back in 1912. 

The Chairman. Let that be offered as " Exhibit No. 23-A." 

(The document referred to was marked " Exhibit 23-A" and ap- 
pears in the appendix on p. 333.) 

Senator Clark. Was there any subsequent agreement in writing 
between the Electric Boat Co. and Sir Basil Zaharoff? 

Mr. Carse. No ; not that I know of. 

Senator Cl.^rk. Mr. Carse, do you understand that Sir Basil 
Zaharoff still controls the Spanish armament business since the 
Spanish people rose up and drove his cousin Alfonso out of the 
country ? 



34 MUNITIONS INDUSTRY 

Mr. CaKiSe. I do not know. 

Senator ClxVkk. Whatever contractual arrangement you have with 
him is still in effect? 

Mr. Caese. Still in effect, but we have not got any money. 

Senator Clakk. But if you get any, you will have to " kick " over 
5 percent to him^ 

Mr. Cakse. No, sir. Everybody all around the world is repudiat- 
ing what they owe, or might owe, so that we do not kno,w where we 
might come out. 

Senator liAnuouR. You are not doing any business with him now, 
or he with you at the moment? 

Mr. Carse. We have not paid him any money for some years, 
according to the statement. 

Mr. Raushenbush. Since 1931? 

Mr. Carse. Yes, sir. 

Senator George. Mr. Carse, are there any restrictions applicable 
to your patents that do not apply to all other American patents 
generally i 

Mr. Carse. I do not know exactly what you mean. I do not know 
of any. Restrictions of what nature, do you mean ? 

Senator Cxeorge. With reference to granting license to foreign 
firms. 

Mr. Carse. No; the patents do not contain any restrictions and 
we have granted licenses in times gone by to shipbuilding concerns 
of different countries. There was Great Britain, Holland, Norway, 
and Austria. 

Senator George. There are no restrictions on your base patents 
applicable to submarine construction that do not apply generally to 
patents issued or granted by our Government? 

Mr. Carse. No, sir. 

Tlie Chairman. The committee will be in recess until 1 : 30 o'clock 
and the witnesses will please come back at that time. 

(Thereupon, at 12: 15 p.m., the committee took a recess until 1: 30 
p.m. of the same day.) 

AFTER RECESS 

The recess having expired, the committee resumed at 1 : 30 p.m., 
Hon. Gerald P. Nye (chairman) presiding. 

The Chairman. The committee will be in order. There should 
be incorporated in the record at this time a telegram received from 
Senator Vandenberg, the only member of the committee absent, de- 
claring : 

[Telegram] 

W 5 47 Govt. DL. Grand Rapids, Mich., 10:46 a.m., September 4, 1934. 

Hon. Gerald P. Nye, 

United States Senate: 
Previous unbreakable engagements keep me from opening session of com- 
mittee stop Hope to join you Thursday morning stop Deeply gratified at 
progress our investigators seem to have made stop More and more convinced 
that our committee task is of vital importance and that the people expect 

results. 

Senatok a. H. V.\.ndenbekg. 

1112A 



MUITITIONS IISTDUSTRY 35 

Senator Pope. Mr. Chairman, I would suggest that the total of the 
amount of royalties received by the Electric Boat Co. in connection 
with this foreign business be inserted in the record. 

The Chaikman. I suggest that that figure be inserted by the re- 
porters at the point when that was being considered this morning. 

Senator Pope. So that it may be made a part of the record; at any 
rate, the amount is $3,809,637.38. That is the total of the figures as 
shown on " Exhibit No. 8." 

Senator Barbour. Is the range of time over which that is spread 
stated ? 

Senator Pope. Yes. They cover the years 1916 to 1927. 

The Chairman. Before recess there was offered in evidence " Ex- 
hibit No. 23-A", that being a copy of a memorandum concerning a 
meeting held in London in June 1912. 

Mr. Carse, 1912 does not mark the beginning of the relations of 
your company with the Vickers concern, does it? 

Mr. Carse. No, sir. 

The Chairman. Who is Albert Vickers? 

Mr. Carse. At that time he was head of Vickers Co. 

The Chairman. And who was Isaac L. Rice? 

Mr. Carse. He was president of the Electric Boat Co. 

The Chairman. And at that time who was Basil Zaharoff? 

Mr. Carse. Sir Basil Zaharoff. 

The Chairman. Did he have any connection with a Spanish 
munitions undertaking ? 

Mr. Carse. I think at that time he was our European representa- 
tive. 

The Chairman. Was he not also at that time a director of the So- 
ciedad Espaiiola de Construccion Naval? 

Mr. Spear. I think he was. 

Mr. Carse. I do not know myself. Mr. Spear thinks he was. 

The Chairman. This copy of the memorandum of which I speak 
is signed by Albert Vickers and Basil Zaharoff (Exhibit No. 23-A) 
and says that— 

A meeting was held in London in June 1912 at which an agreement, dated 
18th June 1912 was drawn up between the Electric Boat Co. of New York, 
and the Sociedad Espanola de Construccion Naval, of Madrid. At this meeting 
there were present : Mr. Albert Vickers. chairman of Messrs. Vickers, Ltd., 
and vice president of the Sociedad Espanola de Construccion Naval ; Mr. Isaac 
L. Rice, now deceased, but at the time of the meeting president of the Electric 
Boat Co., New York; Mr. Basil Zaharoff, director of the Sociedad Espanola de 
Construccion Naval. 

Clau.se 9 of the above agreement reads as follows : 

" For the purpose of maintaining the American company's business in 
Europe it is agreed that 5 percent of the selling price of each boat shall be paid 
by the Spanish company to the American company and that these payments 
will be UKMle pro rata as and when the money is received by the Spanish com- 
pany under the order for such boat or boats." 

As to the application that had to be given to the amount representing the 
said 5 percent of the selling price of each boat and how it was to be dealt 
with, it was decided and agreed by the three above-named gentlemen that these 
commissions be paid to and distributed by Mr. Basil Zaharoff. 

We, the undersigned, hereby confirm the accuracy of the above statement. 

(Sgd.) Albebt Vickers. 
; (Sgd.) Basil Zahaeoff. 



36 MUNITIONS INDUSTRY 

I gather from the existence of this memorandum that it was 
brought to you in confirmation of an agreement that was reached at 
this London meeting. 

Mr. Carse. Yes, sir. 

The Chairman. Was this agreement the one that was so long dis- 
cussed this morning between you and Senator Clark having to do 
with the 5-percent commission? 

Mr. Carse. Yes, sir. 

The Chairman. Just why was the distribution of this commission 
left to Mr. Zaharoff? 

Mr. Carse. I do not know. It was a commission paid to him of 
5 percent, which is not an out-of-the-way commission on securing 
any important business, and what he did with it he alone knows. 

The Chairman. In any event, Spain was affording a rather large 
submarine business at that time, was it not i 

Mr. Carse. It was starting a program but — there were only one 
or two boats, were there not? 

Mr. Spear. There was none for some years and then it began later 
after that agreement. 

The Chairman. On August 9, 1917, Mr. Carse, you sent certain 
disbursements to Mr. Zaharoff. In any event, Mr. Zaharoff under 
that date of August 9, 1917, acknowledged receipt, and his letter 

read^: 

Paris, August 9, 1917. 
Heney R. Caese, Esq., 

President Electric Boat Co., 

Nassau and Pine Streets, New York. 

Dear Sir: I am in receipt of your letter of 20th ultima, bringing me check 
on Paris for francs 82,691.37, and note that further remittances will be made 
on this account from time to time, as the funds are received by your company, 
and I am, dear sir, 
Truly yours, 

Basil Zaharoff. 

The Chairman. How much commission was paid Basil Zaharoff 
up to 1919; are you prepared to say? 

Mr. Carse. No, I could not say. This was on the Spanish account. 

The Chairman. Will your records enable you to produce for the 
committee the figures of commissions paid to him up to that time ? 

Mr. Carse. I think 30. 

The Chairman. What did you understand this commission that 
has been recited here as 82,000 francs to be for? What was that 
commission for? 

Mr. Carse. The Spanish company would have remitted to us in 
pesetas 5 percent of the amounts that they had received on a con- 
tract for submarine boats for the Spanish Government. 

Senator Clark. That was in addition to your share, was it not? 

Mr. Carse. Yes. Our share came later. His share came first. 
As he was in Paris we converted the pesetas into francs and sent 
him a draft for francs. 

Senator Boke. Does it appear in the records who owns this Span- 
ish company? 

The Chairman. It does not yet. I think now might be a good time 
to develop that point. 

Who owns the Spanish company? 

Mr. Carse. I do not know. We have no knowledge of that at all. 



MUNITIONS INDUSTRY 37 

The Chairman. You do, however, have knowledge that Zaharoff 
was very extensively interested in it? 

Mr. Carse. We believe he was, but we have no definite knowledge. 

Senator Pope. You do not know whether he is a stockholder in 
the company or not? 

Mr. Carse. No. 

Senator Bone. Do you know whether Vickers had any interest 
in it? 

Mr. Carse. We do not know, but we believe they have an interest 
in it. 

Senator Clark. You knew Cravens was an officer of the Spanish 
company, did you not? 

Mr. Carse. During the last few years he has become an officer. 

The Chairman. Do you feel that this commission of 82,000 francs 
was Mr. Zaharoff 's own? 

Mr. Carse. We have no reason to think otherwise. 

ZAHAROFF — INCOME TAX 

The Chairman. In 1917, Mr. Carse, the correspondence reveals 
that you were drafting or having drafted a letter to help Zaharoff 
avoid paying income tax on these commissions. There is now of- 
fered in evidence as " Exhibit No. 24 ", a letter dated September 21, 
1917, addressed to H. C. Sheridan, Esq., Woodward Building, Wash- 
ington, D.C., by yourself. 

Who was Mr. Sheridan ? 

Mr. Carse. He owns the Hotel Washington. I do not know 
whether at that time he had anything to do with the Hotel Wash- 
ington, or not. He, at that time, was the agent of Vickers, Ltd., 
in this country, and he also was a representative of Sir Basil Zaha- 
roff. I believe some question was raised as to income tax on the 
payments to Sir Basil Zaharoff, and Mr. Sheridan took charge of it 
and he took up the matter with White & Case, of New York, who 
were one of the leading income-tax law firms. This came to me. 

The Chairman. Was that income-tax law firm White & Case? 

Mr. Carse. White & Case. This came to me — I do not know ex- 
actly why they sent it to me instead of direct to Sheridan; and I 
transmitted it to Sheridan. 

The Chairman. In any event, Mr. Carse, in that letter to Mr. 
Sheridan, " Exhibit No. 24 ", you said : 

AVe handed to Messrs. White & Case the copy of the letter which you left 
with us last Wednesday from Paris, and we are in receipt today of a letter 
from them recommending that Mr. Z. make a reply somewhat as follows : 

" Commissioner of Internal Revenue, 

" Treasury Department, 
" Washington, B.C., U.S.A. 

" Dear Sir : I have received your letter of June 29 requesting me to fill in 
the blank form 1040 enclosed therein showing my income derived from sources 
within the United States. In reply I beg to respectfully inform you that I have 
received no such income. The commissions of $1,360,000 referred to by you 
were not income to me personally but were payments transmitted through me 
to the corporation for which I am the agent here in I'aris. 
" Respectfully yours ", 

It is further suggested that Mr. Z. communicate to us any reply he may 
receive to said letter and to advise with us before writing any letters or filing 



38 MUNITIONS INDUSTRY 

any reports that may be requested. Any commuuifations, of course, that come 
from Mr. Z. will be taken up with Messrs. White & Case lor opinion. 
Yours very truly, 

(Signed) Henky R. Carse, President. 

This would indicate, Mr. Carse, that you were in very close direct 
knowledge of this income-tax difficulty. Your letter suprgested that 
Mr. Z., meaning Mr. Zaharoff, I suppose, make a showing that the 
commissions of $1,360,000 were not income to him personally, but 
were payments transmitted through him to the corporation for which 
he was an agent. 

Now, what corporation could that possibly have been ? 

Mr. Carse. It might have been many of them. That was a com- 
mission not on business done in the United States. 

Senator Claek. What corporation did you have in mind, Mr. 
Carse, that he was agent for when you made that suggestion to him, 
the suggestion that he write that letter ? 

Mr. Carse. I did not make that suggestion. White & Case made 
that suggestion. 

Senator Clark. You transmitted it? 

Mr. Carse. Yes ; I transmitted it. 

Senator Clark. What did you understand that meant, when you 
transmitted that suggestion ? 

Mr. Carse. I did not know who he meant. It might have been 
Vickers or it might have been someone else. 

Senator Clark. Where did you get the suggestion that that had 
actually been commission going to a company instead of to Mr. 
Zaharoff personally? 

Mr. Carse. I did not make that. 

Senator Clark. I say, where did you get the suggestion that you 
transmitted to Mr. Zaharoff? 

Mr. Carse. From White & Case. 

Senator Clark. They did not make any suggestion to you as to 
what company he was agent for ? 

Mr. Carse. No. 

Senator Clark. They just suggested to you that you write Zaharoff 
and suggest to him to write a letter to the United States Bureau of 
Internal Revenue, setting up that he had passed these commissions 
on to a firm ? 

Mr. Carse. That was not the point. Mr. Sheridan had taken this 
up with White & Case directly and they wrote this letter to me. I 
think mj^self they should have written direct to Mr. Sheridan, be- 
cause he was handling it and I simply transmitted it. These 
commissions, I believe it was decided, were not 

Senator Clark (interposing). Just before you go on with that, 
Mr. Carse, j^ou had first submitted Sir Basil Zaharoff 's letter to 
Messrs. White & Case ? 

Mr. Carse. No. I had submitted Mr. Sheridan's letter 

Senator Clark. To Messrs. White & Case. Did Mr. Sheridan 
make any suggestion as to where these commissions had gone at the 
time he wrote you this letter? 

Mr. Carse. I do not recall that he had made any definite statement. 

Senator Clark. Do you have a copy of Mr. Sheridan's letter that 
you submitted to White & Case? 

Mr. Carse. I do not know. It was all there, but I do not know. 



MUNITIONS INDUSTRY 39 

Senator Bone. Why would this firm of New York lawyers ask 
you to write that kind of a letter, instead of writing it themselves? 

Mr. Carse. They did not ask me to write that letter. They sent 
that to me to transmit to Sheridan and have Sheridan, who repre- 
sented Sir Basil Zaharoff, have him write such a letter. 

Senator Clark. Who opened up the negotiations with White & 
Case? Did you do it? 

Mr. Carse. No. Sheridan did it. 

Senator Clark. How did you happen to be submitting a letter to 
White & Case from Sheridan ? 

Mr, Carse. Sheridan was in the office there. He was one of our 
directors at that time and he wrote this letter addressed to White 
& Case. 

Senator Clark. Why did you have to hand it to Wliite & Case if 
Sheridan wrote the letter? Why did you have to do it? You say in 
this letter : 

Dear Mr. Sheridan: We handed to Messrs. "Wliite & Case the copy of the 
letter which you left with us last Wednesday from Paris and we are in 
receipt today of a letter from them recommending that Mr. Z make a reply 
somewhat as follows : 

What did you have to do with it ? 

Mr. Carse. I suppose I introduced him to White & Case, that is 
all. 

Senator Clark. Did your introduction of him to White & Case 
make it necessary for you to deliver all communications from Sheri- 
dan to White &'Case? 

Mr. Carse. He asked me to send it to them. He was in the office. 
You see, this goes back a good many years. 

Senator Barbour. The Electric Boat Co. would have to report 
any income to a third party, I take it? 

Mr. Carse. Not if it were earned outside the United States. That 
had been passed upon in relation to the salary paid to Koster. 
Koster's salary was earned entirely in Europe. It was not anything 
that was done in the United States for which he was paid. That 
was passed upon by the Internal Revenue Bureau as not coming 
within the act. 

Senator Barbour. That is exactly what I mean. You people 
would know, in other words, whether it was for services in the 
United States or not? 

Mr. Carse. Yes. 

Senator Barbour. If it was not, it would be your duty to desig- 
nate it that way, as I see it ? 

Mr. Carse. If it were earned in the United States. 

The Chairman. But, ]\Ir. Carse, this letter of yours to Mr. Sheri- 
dan has you revealing a belief, or at least you are suggesting, that 
Mr. Z make a showing that this income of $1,360,000 was not income 
to Zaharoff personally. Yet there is a letter written on the 9th of 
August 1917 in connection with which you have said that the 82,000 
francs paid to Basil Zaharoff was, so far as you knew, his own per- 
sonal income. 

Mr. Carse. Yes. 

The Chairman. That it went to him, not to anyone else. 

Mr. Carse. So far as I know ; yes. 



40 MUNITION'S INDUSTRY 

The Chairman. How do you square off these two letters 6 weeks 
apart ? 

Mr. Carse, I did not write that letter. 

The Chairman. What letter ? 

Mr. Carse. This letter here, suggesting the kind of a letter Sir 
Basil Zaharoff' should write. That was not my letter. 

The Chairman. But that was incorporated in your letter. 

Mr. Carse. I passed it along as the advice of White & Case. 

The Chairman. Did you know then that this was false, that the 
commission of a million dollars referred to actually was Sir Basil 
Zaliaroff's income? 

jSIr. Carse. No; I did not know anj^thing about Sir Basil Za- 
liaroff's income or what he did with it. 

The Chairman. But you have told us with respect to a letter by 
Sir Basil Zaharoff G weeks earlier that 82,000 francs that he received 
was his own personal income. 

Mr. Carse. So far as I had any advice. I do not Imow what 
Zaharoff did in his business. He did not tell me. 

The Chairman. You believed that, but here in this letter you are 
indicating a belief or an understanding at least that none of this 
commission was personal income to Basil Zaharoff. 

Mr. Carse. That Avas not my thought or my knowledge. That 
was White & Case's suggestion. I did not say it was so. 

The Chairman. The most interesting point of all is this: Did 
Zaharoff succeed in escaping the payment of any income tax in the 
United States? 

Mr. Carse. I do not know. I believe there was some settlement, 
but I never knew what it was. Sheridan never told me. It was 
handled entirely by him. I did not have any more to do with it 
except trajismit that advice from AVhite & Case to Sheridan. 

Senator Bone. You do not know whether he or his undisclosed 
principals paid any tax to the Government on that? 

Mr. Carse. I heard that there was a settlement made. 

Senator Bone. A settlement? 

Mr. Carse. Yes. 

Senator Bone. With the Internal Revenue Bureau ? 

Mr. Carse. Yes ; that is correct. 

Senator Bone. Could you tell us out of what transactions the 
income of $1,300,000 arose ? 

Mr. Carse. Well, I would have to check that. 

Senator Bone. Were those commissions on sale of munitions? 

Mr. Carse. Munitions? What do you call munitions? 

The Chairman. Submarines or machinery for submarines. 

Senator Bone. That were produced in this country? Was the 
equipment produced in this country, on which that commission was 
paid ? 

Mr. Carse. I would have to check that out. 

Senator Bone. Is there any way of finding out, so that j'ou can 
let us know on what transactions that commission was paid? 

Mr. Carse. Certainly. 

Senator Bone. Whether it was on machinery and equipment pro- 
duced in this collntr3^ I would like to have that made a part of the 
record at some point later, if that information can be checked on. 



MUNITIONS INDUSTRY 41 

I would like to be informed as to whether that transaction arose in 
this coimtr}^, whether the profit or the comuiission was on a trans- 
action involving equipment that was produced in the United States. 
Because if it was, I cannot see why the Government should have 
compromised a case of that kind even though the money went to a 
foreign country. 

Tiuit is all, Mr. Chairman. 

The Chairman. Mr. Carse, the suggestion by White & Case, which 
was incorporated in your letter to Sheridan under date of Septem- 
ber 21, 1917, is that a showing be made that the $1,360,000 referred 
to constitute payments transmitted through ZaharoU' to the cor- 
poration for which he was the agent in Paris. For what concern 
was he the agent in Paris? 

Mr. Carse. Not necessarily in Paris. 

The Chairman. That is what the letter says. 

Mr. Carse. The business extends all over Europe. 

The Chairman. Did Vickers have offices in Paris? 

Mr. Carse. I think he represented Vickers in some respects. 

The Chairman. Do you sujjpose that this $1,300,000 was income 
to Vickers? 

Mr. Carse. To anybody. I do not know who it might have been. 
I would have to see if I can check it out for you. 

The Chairman. I wish we could be clearer on that if it is at all 
possible. Could he have been agent for this Spanish boat building 
concern that had an office in Paris? 

Mr. Carse. He may have been. 

Tile Chairman. Did you have any understanding at any time that 
these payments were anything other than commissions directly to 
Sir Basil Zaharoff? 

Mr. Carse. Well, they were made to him. I had no way of going 
behind the scene to find out whom he represented or how he was 
going to handle the amounts that he received. 

Senator Bone. Who paid this money to Zaharoff — your firm? 

Mr. Cakse. Yes; our firm. 

Senator Bone. The Electric Boat Co.? 

Mr. Carse. The Electric Boat Co. 

Senator Bone. Paid $1,360,000 to Zaharoff? 

Mr. Carse. Yes. 

Senator Bone. Was that monej'^ that came into your possession 
through business operations? 

Mr. Carse. It must have; yes. 

Senator Bone. Then 3'ou can inform us now out of what transac- 
tions it arose, can you not? That is a very large sum of money. 

]Mr. Carse. I know it is. 

Senator Bone. Did it represent commissions on submarines that 
your firm built? 

Mr. Carse. I would like to be exact. I would like to look it up in 
our records and figure it all out. I do not want to give you any 
inaccurate information. 

Senator Bone. Of course, I do not expect you to be able to repeat 
from memory; perhaps your memory might be faulty. But that is 
a very large -um of money to pay a man in one commission, 

Mr. Carse. We did not pay him that in one commission at one 
time. It was a series of commissions. 



42 MUNITIONS INDUSTRY 

Senator Boxe. A series of commissions; but that is a very large 
sum of money. I should think perhaps that you would know in a 
general way at least out of what transaction or transactions it grew. 

Mr. Carse. Well, I could not say what it all grew out of. 

Senator Bone. Will you supj^ly the committee Avith that informa- 
tion later? 

Mr. Cause. Certainly. 

Senfitor George. Mr. Carse, this letter to which we have been re- 
ferring, after quoting the suggested letter from White & Case, adds 
this : 

It is further suggested that Mr. Z communicate to us any reply he may 
receive fnmi said letter and to advise with us before writing any letters or 
filing any reports that may be requested. 

That seems to be a part of your own letter, does it not ? AVill you 
examine it? 

Mr. Carse. I have read it. I do not know whether that — have 
you got a letter from White & Case to me, Mr. Kaushenbush ? 

Mr. Kaushenbush. No; we did not find that. 

Mr. Carse. I think you have it. I think that is a part of White 
& Case's letter. 

Senator George. I think if you will examine this copy you will 
see that it is not. 

Mr. Carse. I have the copy right before me. I think you must 
have the letter from White & Case to me. I think you will find the 
whole thing is in it. 

Mr. Raushenbush. We can examine our files, but I do not remem- 
ber it. 

Mr. Carse. It was a full page, was it not? 

The Chairman. Mr. Raushenbush, what have our agents revealed 
respecting the condition of the files from which all of this material 
was taken? 

Mr. Raushenbush. They seem to be in good shape, as far as the 
files of the company in New York and at Groton went. 

The Chairman. Did there appear to be any part of the con- 
secutive file or correspondence missing? 

Mr, Raushenbush. Not from the files of the company as far as 
the New York and Groton offices went. 

The Chairman. So it is fairly possible that we may have in them 
the record of this White & Case correspondence? 

Mr. Raushenbush. It may be. 

Tile Chairman. Mr. Spear, when did you first become connected 
with the Electric Boat Co.? 

Mr. Spear. In 1902. 

The Chairman. As an officer at that time? 

Mr. Spear. No; as a technical employee in charge of their design- 
ing and construction. 

The Chairman. When did your connections become such as to 
occasion your activity abroad? 

Mr. Spear. I used to accompany Mr. Rice, the president then, 
abroad to advise him on the technical aspects of the matter. 

The Chairman. In those earlier days? 

Mr. Spear. In those earlier days. Later on — I do not recall the 
exact date — later on I became a director and vice president. The 



MUNITIONS INDUSTKY 43 

record will show the date. I do not remember. It was a good many 
years ago. 

The Chairman. But there came a time when you went or were sent 
on your own, not as an adviser, but as a rej)resentative of the com- 
pany, to Spain? 

Mr. Spear. Yes; later on. I have visited Spain. 

The Chairman. Writing to the Electric Boat Co. under date of 
July 24, 1923, Basil Zaharoff says : 

Although I have no douht that Lieutenant Spear keeps you informed re the 
Spanish husiness, it may not be out of pUice if I also report. On his arrival 
in Paris, Lieutenant Spear came to luncheon at my house with Mrs. Spear, 
after which we had a long talk about the Spanish business, and I prepared 
Lieutenant Spear's line of conduct for him previous to his going to Spain, 

Just what was the meaning of that? How was 3^our line of con- 
duct prepared for you? Tell us about your visit at that time with 
Mr. Zaharoff. 

Mr. Spear. I am speaking now from memory about that particular 
visit, and subject to any lapse in my memory. I think that was the 
time when I was endeavoring to arrange with the Spanish company, 
instead of waiting until they completed the work we had in hand 
and accounted for the costs and profits, to transform that into a fixed 
percentage, so that we could receive some money immediately with- 
out waiting for this work to be finished. I think that was at that 
time, and that was the object, the only object I then had, as I recall 
it. The only active business I had to do with Spain was to secure 
their consent to a modification of the original agreement. I believe 
that is what he is referring to there. 

The Chaikman. Surely, there were matters of diplomatic relations 
that would have to be considered in a mission of that kind and his 
experience would put him in a position to acquaint you with the 
situation in Spain, would it not? 

Mr. Spear. I thought he was a very good adviser as to how T 
should approach the gentlemen, particularly as I then understood 
that he was a director in that company himself. I wanted his advice 
as to how I should approach and how I should deal with that issue. 

The Chairman. Mr. Zaharoff goes on in this letter to say : 

On his return from Spain I thought it wise to go and see our Spanish friends, 
and to generally study the position, and during my conversations with the 
authorities I found that the Ministry of Marine was very frightened about our 
idea of introducing German machinery into the submarine boats ; in fact so 
disturbed about this that they nearly broke off the negotiations. 

Mr. Spear, That came about in this way. At that time we were 
the licensees of the Maschinenfabrik Augsburg Nurenberg. 

The Chairman, You mean the Electric Boat Co, was the licensee ? 

Mr. Spear. We had the American license on their design and pat- 
ents on Diesel engines. That was the firm that developed tlie par- 
ticular Diesel engine which was used so extensively in Germany in 
their submarines during the war and at that time it was considered 
generally to be as good, if not better, than any other Diesel engine 
for that particular purpose. 

We had prepared some designs for the Spanish Government, The 
design of a submarine is a very intricate matter and the machinery is 
very intimately connected with the whole design. In that design 
we had brought up this particular type of engine which could be 



44 MUNITIONS INDUSTRY 

obtained by the Spanish Government either from us or could be 
obtained from Germany or some other licensee of the German firm. 

The Chairman, When did you become the licensee of the German 
firm? 

Mr. Spear. I think 1910. 

The Chairman. And you were licensed right on during the war 
time and up to this time in 1923 at least? 

Mr. Spear. Yes; up to that time. I think the license expired 
in that year. 

The Chairman. Did you exercise your rights under that license 
during the war? 

Mr. Spear. Yes and no. During the war, the only instruments 
that we built for the United States Government were designed by 
us, not by the German firm. During the war, of course, we had 
no communication with the German firm and we never received 
any plans of any of these developments that they made during the 
war, until after the war was over. 

The Chairman. Did the German firm have access to your plans 
and your designs? 

Mr. Spear. No. 

The Chairman. The American plans? 

Mr. Spear. No. 

The Chairman. Were they a licensee of yours? 

Mr. Spear. No. 

The Chairman. Were thej'^ a licensee of Vickers? 

Mr. Spear. No. 

The Chairman. Or of this Spanish company? 

Mr. Spear. No. They had no connection with them. They were 
piirely an engine firm. 

The Chairman. Mr. Zaharoff goes on in this letter as follows : 

A smoothed the matter carefully, and after meeting the Spanish board in 
Madrid I returned to Paris, and shortly after Colonel Fuster, the managing 
director of the Constructora Naval, came to see me in Paris, when we ar- 
ranged for the line of conduct to be followed by all of us at the meeting which 
was to take place between Messrs. Vickers, Lieutenant Spear, and the two 
Spanish representatives. 

Colonel Fuster has just returned and stopped here on his way to Spain, and 
tells nie that the meeting at Messrs. Vickers. in London, was very satisfac- 
tory, and that he thought that the ideas put forward by Lieutenant Spear 
would be acceptable to the Constructora Naval, and also to the Spanish Gov- 
ernment, and I must congratulate Lieutenant Spear on his tact and great 
authority in the matter, and I feel confident that everything will go to the 
satisfaction of all concerned. 

Will you please in future remit me in ])esetas on Madrid, instead of in francs 
on Paris, which would be more convenient for me to deal with the question; 
and I am, gentlemen. 
Sincerely yours, 

Basil Zaharoff. 

What were tliese ideas that you put forth at that London 
meeting? 

Mr. Spear. I hesitate to say, because I do not recall the details of 
that meeting. I presume that we discussed ways and means of dis- 
j)cnsing with the German design engine in those boats. 

The Chairman. Of getting away from that design entirely? 

Mr. Spear. Of getting away from that design. I also think we 
discussed this other question I spoke to you about, of modifying our 



MUNITIONS INDUSTRY 45 

agreement so we would receive a percentage of the contract price 
rather than a share of the profits. 

The Chairman. What does Mr. Zaharoff mean when he suggests 
that remittance be made to him in pesetas on Madrid instead of in 
francs on Paris when he says that this would be more convenient 
for him to deal with the question? 

Mr. Spear. I do not know. 

The Chairman. Were you making remittances to him in connec- 
tion with this particular difRcuity you were having with Spain? 

Mr. Spear. No, no remittances in that connection at all. 

The Chairman. Whatever remittances he got were these com- 
missions ? 

Mr. Spear. Those that you have already discussed. 

The Chairman. His closing paragraph in this letter would make 
it appear that there was need for pesetas to do the business with 
them. 

Mr. Spear. Possibly so. I know nothing about it, Mr. Chairman. 

The Chairman. Recalling the matter, do you recollect now that 
the Spanish were very much alarmed about the use of this German 
machinery? 

Mr. Spear. I did not think they were as much alarmed as Sir 
Basil thought they were, but I did see some signs that for some 
reason of their own they thought it an undesirable thing to do. 

The Chairman. On September 11, 1923, Mr. Zaharoff wrote you, 
Mr. Carse, saying : 

I quite agree with you that the era of submarine boats is now opening all 
over the world, aucl I trust it will bring much business to your company, and 
you may count upon my little efforts always working in your direction. 

Are we to draw the conclusion that his efforts in your behalf were 
really little or was he engaged in your behalf in a large way, Mr. 
Carse ? 

Mr. Carse. Well, I suppose he was a very modest man. When 
was that? 

The Chairman. September 11, 1923. 

Mr. Carse. We have never received any business through any 
efforts he might have made other than that Spanish business since 
that time. 

Senator Clark. It is already in evidence, Mr. Carse, that the 
business that he brought in amounted to something like $2,000,000 
at 5 percent. In other words, $2,000,000 was only 5 percent of the 
business that he brought? That appears from figures already put 
in the record. 

Mr. Carse. No. I thought it was only $700,000. 

Senator Clark. That is since 1919. There was put in evidence 
just a while ago the fact that there was $1,350,000 in addition to 
that which had been paid by vou to him in commissions. 

Mr. Carse. That was before" 1923. 

Senator Clark. Well, how much was it? How much did his 
commissions amount to during the period of the contract? 

Mr. Carse. You have it here. 

Senator Clark. That schedule is since 1919. But we have got 
an additional figure of $1,350,000 in connection with which the 
income-tax matter was taken up. 

83876— 34— PT 1 4 



46 MUNITIONS INDUSTRY 

Mr. Carse. I will have to check that out. 

Senator Clark. I should be glad ii: you would do that and 
furnish the information for the record, please. 

Senator Barbour. Did you get any business for submarine boats 
through Sir Basil Zaharotf other than for Spain ? 

Mr. Carse. Way back in the early days Sir Basil did arrange some 
negotiations with one of the building concerns in Russia, but nothing 
developed from that until the war came along. 

Senator Bone. How far back was that, Mr. Carse? 

Mr. Spear. I should think, speaking from memory now, that that 
contract was entered into — that is, with the Nevsky Shipbuilding 
Co.— along in 1908, 1909, or 1910. 

Senator Clark. Was it under that contract that, during the period 
of the war when the United States was supposed to be neutral, you 
shipped parts of submarines abroad and had them assembled in 
Russia ? 

JNlr. Spear. No. That was a direct order from the Russian Gov- 
ernment. 

Senator Bone. Were Sir Basil's relations with the Russian Gov- 
ernment — that is, the old Czarist government — cordial at that time ? 

Mr. Carse. It was long before my time. I reall}'' do not know. 

Senator Barbour. What I had in mind when I asked j'ou the 
question was that there were two altogether separate transactions; 
one was the transaction that you people had with the Spanish Gov- 
ernment to sell them submarines, which is your business. The other 
transaction was with Sir Basil, to give him a certain commission to 
help you get that business. 

Mr. Carse. Yes. 

Senator Barbour. And that is all that it amounts to, is it not? 

Mr. Carse. That is right. 

The Chairman. I will ask that the letter of September 11, 1923, 
become a part of the record as " Exhibit No. 25." 

(The letter referred to was marked " Exhibit No. 25 " and appears 
in the appendix on p. 334.) 

The Chairman. Mr. Spear, writing from the Hotel de Paris, 
Monte Carlo, on the 8th of March 1924 Mr. Zaharoff said to you 
as follows: 

Exhibit No. 26 

Hotel de Paris. 

Monte Carlo, 
8th March 1924. 
Lieutenant L. Y. Spear, 

The Electric Boat Company, 

Groton, Conn. 
My Dear Spear : Sir Trevor Dawson, w ho is staying with me, has shown me 
your letter about the unsatisfactory way in which the submarine work is being 
done, and to begin with I am writing somewhat diplomatically to Madrid, 
without going into details, and I will later on either get the managing directors 
of the constructora naval to come and see me in Paris on the subject, or, 
preft>rably, I will go to Madrid myself, as this matter needs careful attention, 
and I will keep you informed of results. 

Sir Trevor also showed me your letter about the delay in the new contract, 
and as this question calls for speedy attention I am telling Madrid that it is 
in the interest of all concerned that the new contract should be signed without 
delay, and I have no doubt that this will be done. 
I am, my dear Spear, 
Sincerely yours, 

[S.] Basil Zaharoff. 



MUNITIONS INDUSTRY 47 

Who was Sir Trevor Dawson? 

Mr. Spear. Sir Trevor Dawson was a director in Vickers, managing 
director as I recall it at that time. 

Senator Bone. In what business? 

Mr. Spear. Vickers. 

The Chairman. He was a Britisher, of course? 

Mr. Spear. Yes, an Englishman. 

The Chairman. Mr. Carse, when did you go to Europe? 

Mr. Carse. In 1924. 

The Chairman. It was after 5^ou had been in Europe, then, that 
Basil Zaharoff wrote you from Paris on the 13th of February 1925 as 
follows: 

Paris, ISth February 1925. 
Messrs. The Electric Boat Company, 

Nassau and Pine Streets, New York. 
Gentlemen: 

I beg to acknowledge receipt of your letter dated 3rd inst., bringing me cheque 
for — Fes. 391,497.68 on Madrid, with which I am doing the needful. 

I avail mj-self of this opportunit}' to say good morning to your president, in 
the hope that Mrs. Carse and Master Carse are in excellent health, and 
I am, gentlemen. 
Truly yours, 

Basil Zaharoff. 

The Chairman. What is the meaning of that language "with which 
I am doing the needful"? 

Mr. Carse. I do not know. I do not know what he did with the 
money we gave him. 

The Chairman. What did you understand that this remittance was 
for? 

Mr. Carse. That is the 5 percent on some payment that we had 
received from Spain. They had sent us 5 percent and I transmitted 
it to him. 

Senator Clark. What did you understand when you read this 
letter Sir Basil Zaharoff to m.ean by the language "with which I am 
doing the needful"? 

Mr. Carse. I did not understand anything about it. I do not ask 
people what they are doing. It is none of 1113^ business. 

Senator Clark. That phrase was just a meaningless phrase to you 
in Sir Basil's letter? 

Mr. Carse. Yes. It did not mean anything. He never told us 
what his expenditures were. 

Senator Bone. Mr. Carse, does the language "doing the needful" 
have any particular significance in a country Uke Spain? 

Mr. Carse. I do not know. I do not know what he did with it. 
I do not know whom he employed or anything of the kind. One can 
make all sorts of guesses and have all sorts of dreams, and so on. 
But you are talking facts. You are asking for facts. I do not 
know anything about what he did with the money. From what I 
know of Sir Basil, I would rather think that he kept it for himself. 

The Chairman. I will ask that tliis letter be made a part of the 
record as "Exhibit No. 26". 

(The letter above referred to was thereupon marked "Exhibit No. 
26" and appears in text on p. 46.) 

Senator Barbour. So far as you are concerned, you had no under- 
standing with him as to what he was to do with any of it? 



48 MUNITIONS INDUSTRY 

Mr. Carse. No, absolutely nothing. 
Senator Barbour. Yon did not care. 

Mr. Carse. He would not have explained any of his actions to- 
me. He was not a little commission agent that you would find on 
the street and tell him what he was to do. 

Senator Clark. At this time you were operating under the new 
contract, were you not? 
Mr. Carse. Evidently. 
Senator Clark. 1925? 

Mr. Carse. Yes. Evidentl}^ the Spaniards had agreed to the 
modification which had been propose'd and which I laid before Sir 
Basil in August 1924. 

Senator Clark. Which meant that you were getting either 3K 
percent or Iji percent on the work yourselves, depending on the basis 
on which the Spanish company did the work and Sir Basil was 
getting 5 percent. Is it not a rather unusual arrangement by which 
your agents in the sale of submarines get more than the company 
itself? 

Mr. Spear. Just let me correct one thing. I think the 5 percent, 
as I recall it, only went with the 3 percent, but when we got only 
|1K percent, he got nothing, I believe. 
1 Senator Clark. He got nothing. , 
Mr. Spear. I think so. 

Senator Clark. He only got 5 percent when you got 3K percent. 
Mr. Spear. Yes. 

Senator Clark. It is not rather unusual to have an arrangement 
by which the agent in the sale of submarines gets a bigger percentage 
than the company itself? 

Mr. Sfear. It is the only case I know of. Perhaps I might add 
this, that new contract was a joint agreement and the two licensors 
got more than the agents — the two put together. But they had to 
divide it up. 

Senator Clark. He got 5 percent in order that "he might do the 
needful." 

Mr. Spear. We got a total of 7 percent and he got a total of 5 
percent. We had to divide the 7 percent up. 

Senator Bone. Can you tell us whether this British gentleman who 
was named a moment ago, Sir Trevor Dawson, is a director or an 
officer of this Spanish company? 
Mr. Carse. He is dead. 
Mr. Spear. I believe he was. 

Senator Bone. That would seem to indicate that the British 
firm of Vickers had some interest in the Spanish firm. 

Mr. Spear. It is my understanding that they did. They certainly 
had a technical interest, because they had a technical board in Eng- 
land advising them on their technical operations. It is my under- 
standing — I cannot testify to that as a fact — but it is my under- 
standing that they also owned some of the stock of tie Spanish 
company at that time. 

Senator Bone. Did Sir Basil ZaharofT have any stock in it? 
Mr. Carse. It is my understanding that he did. I do not know 
how otherwise he could have been a director, as I understand he was. 
Senator Bone. He was a director of the Spanish company also? 
Mr. Carse. So I understand, and I suppose he held stock. 



MUNITIONS INDUSTRY 49 

Senator George. Did you understand that he was a director of the 
Spanish compan,y all along over a period of years? 

Mr. Spear. Sir Trevor Dawson or Sir Basil Zaharoff? 

Senator George. Sir Basil Zaharoff. 

Mr. Spear. My understanding is that he was a director over a 
period of years, yes. 

Senator George. And was also director of Vickers? 

Mr. Carse. I believe he was, although I do not know that he 
continued to be a director of Vickers as long as he was a director of 
the other company or not. 

Senator Bone. Do the facts seems to indicate that he, as a director 
of Vickers and an officer of the Spanish company, was getting this 
commission aside from what the company was getting out of it? 

Mr. Spear. The facts are just as wc testified. 

Senator Bone. Are those facts that he was getting that 5 percent 
outside of what the company was getting out of it? 

Mr. Spear. Yes. 

Senator Barbour. You do not know what he did with the 5 per- 
cent, whether it went back to the company or net? 

Mr. Spear. I do not know it went back to the company. 

The Chairman. I ofi'er as coiranittee " Exhibit No. 27 " the letter of 
March 1, 1925, addressed to Mr. Carse by Mr. Zaharoff. 

(The letter referred to was marked "Exhibit No. 27" and appears 
in the appendix on p. 334.) 

The Chairman. In that letter Zaharoff acknowledges receipt of 
Mr. Carse's report to him of the state of the American Boat Co. 
markets, and he promises that — 

on my arrival in Madrid on 12th April I convoke your representatives and 
those of the Constructora Naval to state their claims to me. 

What do you recollect about that, Mr. Carse? 

Mr. Carse. Daniell was our technical representative at the plant 
of the Sociedad, that is, the Constnictora Naval, the Spanish concern. 

Mr. Spear. I tliink this was it. I do recall at one time Mr. Daniell 
said that some of the technical methods used in doing the work did 
not fully meet with his approval, and I believe the reference was tliis, 
that an arrangement be made so that the Spanish authorities down 
in the shipyard would recognize the fact they must make the work 
satisfactory to our representatives, because we were responsible for 
the technical performance of the boat for speed and other qualities. 

The Chairman. I offer as "Exhibit No. 28" a letter dated March 
27, 1925, written hj Basil Zaharoff and directed to Mr. Carse. 

(The letter referred to was marked "Exhibit No. 28 ", and appears 
in the appendix on p. 335.) 

The Chairman. In this letter, "Exhibit No. 28 ", Mr. Zaharoff says: 

Having attended to the principal part, I now come to the rest of your letter, 
and reassure you that on my arrival in Madrid, 2 weeks from now, I will imme- 
diately deal with the differences between your good selves and the Constructora 
Naval and your Mr. Daniell is already informed of my intention, and will meet 
me in Madrid. 

It is good to know that Congress has passed a bill in your favour, which I hope 
will be very satisfactory to you, and I must congratulate Lieutenant Spear on the 
diplomatic way in which he has handled this matter and has obtained such a 
result. 

Mr. Spear, were you doing some lobbying, or were you active in 
supporting some bill back in 1925 or 1924? 



50 MUNITIONS INDUSTRY 

Mr. Spear. There was a bill then pending for the relief of contrac- 
tors. 

Senator Clark. For the relief of what? 

Mr. Spear. For the relief of contractors. During the war, where 
they had received orders from the Navy Department to do certain 
things and they had executed those orders, and the Comptroller's 
Department held the Navy Department had no authority to give such 
orders, the result of that being that the Navy Department inaugurated 
a bill and submitted it to Congress in which they sought to have a 
commission or body set up to deal with those matters and do equity* 
Eventually such a bill was passed, but we never acted under that bill. 
We eventually brought our matter into the Court of Claims and 
disposed of it there. 

Senator Clark. "Where did Zaharoff get the idea you were active 
in that matter? 

Mr. Spear. I do not know, but I can say this: Sir Basil was the 
most polite man I ever saw. I think he ascribed to some young men 
qualities they did not have. 

The Chairman. I offer in evidence committee's ''Exliibit No. 29", 
being a letter written by Mr. Spear to Mr. Zaharoff under date of 
May 8, 1925. 

(Said letter was marked "Exliibit No. 29" and appears in the 
appendix on p. 335.) 

The Chairman. The first paragraph of that letter, "Exhibit No. 
29", is as follows: 

Please accept mj^ thanks for your notes of the 14th, 24th, and 28th ultimo, all 
relative to the Spanish business any my congratulations upon the results which 
you have secured with respect to the new contract. It goes without saying that 
we are all pleased with the outcome and grateful to you for j'our successful inter- 
vention in the matter. I note that the new arrangement will not become effective 
until after the next Constructora Naval Board meeting which I assume will be 
held before very long. In the meantime, I should like to prepare a draft of the 
necessary form of agreement between the Constructora Naval on the one hand 
and Messrs. Vickers and ourselves on the other as well as of the necessary agree- 
ment between Messrs. Vickers and ourselves, and in order to do that I shall 
require to know whether or not under the new arrangement we shall continue to 
receive and pass to you a certain percentage of the contract price. Perhaps you 
will be good enough to let me know about this at your convenience. 

Now, what was the miderstanding up to this time? 

Mr. Spear. It was that 5 percent of the contract price was passed 
to Sir Basil Zaharoff. 

Senator Bone. Was any part of that business in which your firm 
supplied none of the material? 

Mr. Spear. I beg your pardon; I didn't quite understand. 

Senator Bone. In other words, were you given any part of the 
profits on equipment over there which your firm did not manufacture 
under that agreement? 

Mr. Spear. Under that agreement the first submarine built in Spain 
we supplied from our own plan the engines and certain other parts, 
such as electric motors. In the subsequent vessels we did not, but 
those were all secured in Europe, mostlj^ in Spain, because they were 
trying to build up their industries in Spain, and desired to have the 
work done in Spain. 

Senator George, Is that Spanish concern entirely a private 
concern? 



MUNITION'S INDUSTRY 51 

Mr. Spear. It is entirely a private concern in a way, but in a way 
it is semipublic in character, in that it is a very widespread concern, 
and some of the properties they operate belong to the Government, 
and they did have a very broad general agreement with the Spanish 
Government. It covers not only such things as we are discussing, 
but also merchant ships, locomotives, and all sorts of things. 

Senator George. The Spanish Government dealt entirely through 
this concern? 

Mr. Spear. With us? 

Senator George. Yes. 

Mr. Spear. Yes, sir; the negotiations were always directly between 
the Sociedad and the Spanish Government, 

Senator Bone. Do you know whether the vSpanish Government 
subsidizes in any manner this concern? 

Mr. Spear. I believe it does in an indirect way, because I have 
seen notices in the Spanish press with regard to the difficulties this 
company was in, and the government was coming to its rescue, in 
order to maintain employment in its yards. 

Senator Bone. In other words, the government abdicates its right 
to build its own ships and gives this private yard the privilege of 
doing that, and subsidizes it, as you say? 

Mr. Spear. I should say that there was an element of subsidy in it 
in some way. 

Senator Bone. Would you say the subsidy was concealed in some 
manner? 

Mr. Spear. No, I said these are all public matters as to the arrange- 
ment between the company and the government. 

Senator Bone. I was wondering if you could enlighten us on that. 

Mr. Spear. I do not know of any subsidy, but I do know that when 
business got bad in Spain as it did everywhere, there came up the 
question of the discharge of a lot of workmen on these different ships, 
and when that arose the Government itself intervened and made some 
arrangement for ordering some ships, or doing something for the 
purpose of preventing unemployment that might arise. In other 
words, if these people had been left without employment, they would 
have had to very largely reduce their force, and I know the Govern- 
ment did take some action to prevent tbat being done. My knowl- 
edge of that is entirely from what was published in the Madrid press. 
I had no communication about that from the Sociedad. 

DIRECTORS AND STOCKHOLDERS 

The Chairman. Mr. Carse, is it correct that yourself, Henry R. 
Carse, Otto Marx, Stephen Peabody, A. S. Roberts, Charles P. 
Hart, Joseph A. Sisto, Henry R. Sutphen, Lawrence Y, Spear, and 
Herbert A. G. Taylor constitute the board of directors of the Electric 
Boat Co. at this time? 

Mr. Carse. Yes, sir. 

The Chairman. I find here given the name of A. S. Roberts. Is 
that the same Roberts to whom reference was made this morning? 

Mr. Carse. Yes, sir. 

The Chairman. And whom the Vickers agent was to see over here 
on a trip he was making to America? 

Mr. Carse. Yes, sir. 



52 MUNITIONS INDUSTRY 

The Chairman. I think the record should contain the business 
connections of all members on the board. As relates to this, Mr. 
Carse who is president and director, your address is given as 40 Wall 
Street, and it is indicated that you are president and director of the 
Duralumin Co. 

Mr. Carse. That was a subsidiary of the Electric Boat Co. The 
American Duralumin Co., we call it. 

The Chairman. How did you pronounce that? 

Mr. Carse. D-u-r-a-1-u-m-i-n Co. The British company is called 
the Duraluminum Co., and we leave off the one syllable. The 
Duralumin Co. was the licensee of some German patents which Mr. 
Rice secured sometime back, and the Electric Boat Co. owned all of 
the stock, and when I went with the company I became president 
and director of all of these little subsidiaries. 

The Chairman. That was true of the Electric Dynamo Co. 

Mr. Carse. Of the Electro Dynamic, yes. 

The Chairman. What is Transmarine? 

Mr. Carse. The Transmarine was a subsidiary of the Submarine 
Boat Company organized to operate ships which the Submarine Boat 
Company had taken over from the Emergency Fleet Corporation. 

The Chairman. You are also trustee of the Central Hanover Bank 
& Trust Co.? 

Mr. Carse. Yes, sir. 

The Chairman. You are director of the American Construction 
Fire Assurance Co.? 

Mr. Carse. That is not the name of it. 

The Chairman. Const. Here is the abbreviation. 

Mr. Carse. That is the American Home Constitution Co. 

The Chairman. The American Constitution Fire Assurance Cor- 
poration? 

Mr. Carse. Yes. 

The Chairman. You are shown also to be a director of the American 
Home Fire Insurance Co., are there two of them? 

Mr. Carse. They have been consolidated. 

The Chairman. And also you are shown to be a director of the 
Stuyvesant Insurance Co. 

Mr. Carse. Yes. 

The Chairman. Has that also been consolidated? 

Mr. Carse. No, that is separate. 

The Chairman. What is your connection with the Birmingham 
Realty Co.? 

Mr. Carse. President and director. 

The Chairman. Now, as to Otto Marx, whose address is given as 
25 Broad Street, New York, another director of the Electric Boat 
Co., he is shown to be a director of the Submarine Boat Corporation, 
the Atlantic Port Corporation, organizer of the Otto Marx & Co. 
engaged in bonds and bonding, organized in 1901. 

Mr. Carse. That is in Birmingham, Ala. 

The Chairman. He is shown also to be a director of the Trans- 
marine Corporation. 

Mr. Carse. All of that Submarine and Transmarine are out of 
existence. 

The Chairman. He is shown to be a director of the Associated 
Dry goods Corporation. 



MUNITIONS INDUSTRY S3 

Mr. Carse. Yes; I believe that is true. 

The Chairman. And a director of the American Writing Paper Co.? 

Mr. Carse. I beheve so. 

The Chairman. He is shown to be a director of the Avondale Mills. 

Mr. Carse. I believe so. 

The Chairman. Also a director of Hahne & Co. 

Mr. Carse. That is a part of Associated Drygoods, and I believe 
he is a director. 

The Chairman. Also a director of James M. McCreery & Co. 

Mr. Carse. Yes. 

The Chairman. Also a director of Lord & Taylor. 

Mr. Carse. Yes. 

Mr. Raushenbush. May I ask a question, Mr. Chairman? 

The Chairman. Yes. 

Mr. Raushenbush. Is he a director of Ladenburg, Thalmann & 
Co.? 

Mr. Carse. I do not know. 

The Chairman. Stephen Peabody, also a director of Electric Boat 
is shown to be a director of Kelly-Springfield Tire Co., a director of 
Buffalo Gas Co., a director of Frontier Electric Lighting Co., and also 
of the Western & Pennsylvania Traction Co. 

Mr. Carse. Everything I know is that he is a director of Kelly- 
Springfield, but I do not know about the otiiers. 

The Chairman. Now, about Mr. A. S. Roberts, another director 
of Electric Boat, do you know of any other business connection 
Mr. Roberts may have? 

Mr. Carse. Oh yes; he is with the White Rock Co., an officer, but 
just the title I do not know. 

The Chairman. Is he not also a representative of the Vickers 
Co.? 

Mr. Carse. No, that ceased some years back. 

The Chairman. When? 

Mr. Carse. It must be about 3 years, was it not? 

Mr. Spear. I think 3 or 4 years ago. 

The Chairman. What was his connection with Vickers at that 
time? 

Mr. Carse. He was the representative in the United States. 

The Chairman. Was he not a stockholder? 

Mr. Carse. I do not believe he was. I understood that the busi- 
ness being done in this country by Vickers did not justify the mainte- 
nance of their office here. 

The Chairman. Charles P. Hart, who is assistant secertary of the 
Electric Boat, is also a director? 

Mr. Carse. Yes. 

The Chairman. His address is given as 33 Pine Street, New York. 

Mr. Carse. That is the same address. 

The Chairman. Joseph Sisto is also a director of Electric Boat? 

Mr. Carse. J. A. Sisto, yes; and I suppose his first name is Joseph. 

The Chairman. He is shown as the president and director of the 
Sisto Financial Corporation, of Sisto & Co., Inc., and as a director of 
Potrero Sugar Co., the American Composite Shares Corporation, and 
president and director of the Ceatral Management, and as director 
of Cuneo Press Corporation and of Hygrade Food Corporation. 

Mr. Carse. I do not know whether he is or not. 



54 MUNITIONS INDUSTRY 

The Chairman. Henry R. Siitplien, vice president and director of 
Electric Boat and his address is shown as 40 Wall Street. Mr. 
Sutphen, if this is not correct, I would like you to inform us, but you 
are shown to be vice president and director of the Holland Torpedo 
Boat Co. 

Mr. Sutphen. One of the old companies, yes. 

The Chairman. And president of the National Association of 
Engineers and Boat Manufacturers. 

Mr. Sutphen. Of Engine and Boat Manufacturers. 

The Chairman. Also vice president and director of the Electric 
Dynamic Co, 

Mr. Sutphen. Electro-dynamic. 

The Chairman. That is the company that has been absorbed by 
Electric Bont? 

Mr. Sutphen. Yes. 

The Chairman. Also vice president and director of the American 
Duralumin Co. 

Mr. Sutphen. That is one of the old companies. 

The Chairman. You are shown to be president and director of the 
Ratchet Brake Co. 

Mr. Sutphen. That was one of these subsidiary companies that 
has dissolved. 

The Chairman. All of these companies that were dissolved, did 
they possess some patent holdings? 

Mr. Sutphen. That company did have, until the patent expired, 
a patent on the ratchet brake. 

The Chairman. You are shown to be a director of the American 
Constitution Fire Assurance Co. 

Mr. Sutphen. Yes. 

The Chairman. And the American Home Fire Assurance Co.? 

Mr. SuTFHEN. Yes. 

The Chairman. And a trustee of the American Savings Bank? 

Mr. Sutphen. Yes. 

The Chairman. Mr. Spear, this shows you are vice president and 
director of the Electric Boat Co., and you are shown also to be a 
director, or were a director of the Submarine Co.? 

Mr. Spear. Yes. 

The Chairman. And the New England Shipbuilding Co. 

Mr. Spear. That has been absorbed by the Electric Boat Co. 

The Chairman. You are also shown to be a director of the Bed 
Rock Petroleum Co. 

Mr. Spear. Yes. 

The Chairman. And a director of the Structure Oil Co. 

Mr. Spear. Yes. 

The Chairman. You are also shown to be a director of the Petrole- 
um Extraction Co. 

Mr. Spear. Yes. 

The Chairman. And also a director of the Tri-State Refining Co.? 

Mr. Spear. , That also is out of existence. 

The Chairman. Herbert A. G. Tajdor, secretary-treasurer and a 
director of the Electric Boat, whose address is 40 Wall Street is shown 
to have been secretary and treasurer and director of the Submarine 
Boat Corporation. 

Mr. Carse. He was until it passed out of existence. 



MUNITIONS INDUSTEY 55 

The Chairman. And also a director of Electric Dynamic Co. 

Mr. Carse. That is Electro Dynamic Co. 

The Chairman. He is shown also to be secretary and treasurer and 
•director of the Electric Launch Co, Is that still in existence? 

Mr. Carse. It is a name we keep, but it is a part of the Electric 
Boat Co. 

The Chairman. He is shown also to be secretarj'- and treasurer and 
a director of the Elco Co. 

Mr. Carse. That is also a name for motor boats, that is all. 

The Chairman. He is shown to be secretary and treasurer and a 
■director of the Holland Torpedo Boat Co. 

Mr. Carse. That is a part of Electric Boat. 

The Chairman. Also secretary-treasurer and a director of the 
Ratchet Brake Co. 

Mr. Carse. Yes. 

The Chairman. And secretary-treasurer and director of the 
American Duralumin Co. 

Mr. Carse. Yes. 

Senator Clark. Mr. William B. Shearer was formerly a director 
of j^our company? 

Mr. Carse. No. 

Senator Bone. Is the Transmarine Corporation still in existence? 

Mr. Carse. No, Submarine and Transmarine went into recei\rer- 
ship about the 1st of January 1930, and the}^ are about wound up 
now, and they are expected to wind them up in a short time. 

Senator Bone. I understand this corporation owned the boats that 
had been taken over from the Shipping Board. 

Mr. Carse. Yes. 

Senator Bone. Did you operate them for a while? 

Mr. Carse. Yes, we did. 

Senator Bone. Did you have a mail contract with the Govern- 
ment? 

Mr. Carse. No. 

The Chairman. I am offering in evidence now "Exhibit No. 30", 
which is a copy of the material used by the committee showing the 
list of stockholders in the Electric Boat Co. who are holding over a 
hundred shares of stock. 

(The document referred to was marked "Exhibit No. 30", and is 
on file with the committee.) 

Mr. Carse. That list is of date last April, I think. 

The Chairman, This was as of when? 

Mr. Carse. It was prepared for the annual meeting held in April. 

The Chairman, That was held last April? 

Mr. Carse. Yes, sir. 

The Chairman. We will bother to give concern alone to those 
stockholders who show blocks of 2,000 or more shares. 

We find there J. S. Bache & Co., of New York City, who have 
5,896 shares. Who are they? 

Mr. Carse. That is a brokerage house in New York. 

The Chairman. Charles D. Barney & Co., New York, holding 
3,311 shares; who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. John F. Clark & Co., New York City, 3,877 
shares; who are they? 



56 MUNITIONS INDUSTRY 

Mr. Carse. That is a brokerage house. 

The Chairman. Is that true as well of Clark Dodge & Co., of 
New York City, holding 4,422 shares? 

Mr. Carse. That is not rio:ht; it is Clark, Childs & Keech. 

The Chairman. Clark, Childs & Keech hold 3.796 shares and Clark 
Dodge & Co. hold 4,422 shares. 

Mr. Carse. Then, that is a new one to me. 

The Chairman. Henry Clews & Co., of New York City, holding 
2,060 shares. Is that also a brokerage house? 

Mr. Carse. Yes, sir. We have not paid any dividends in so long 
that people do not have their stock transferred to their names. 

The Chairman. The next is Derb}^ & Co., holding 34,800 shares, 
who are they? 

Mr. Carse. Derby & Co. is a nominee. You know it has become 
the custom in New York for the different institutions instead of 
transferring stock to an individual name, because if he dies they have 
to transfer it back and forth, that all of the large institutions, trust 
companies, banks, and other institutions of that kind create a part- 
nership with a number of their clerks, 2, 3, or 4, and have these 
stocks transferred to that partnership name so that if any one of the 
clerks die there is always a partner to sign the name, and then they 
can appoint another clerk to be another partner. Derby & Co. is one 
of those partnership names. 

The Chairman. Dominick & Dominick, of New York City, holding 
3,065 shares, who is that? 

Mr. Carse. That is a broker. 

The Chairman. Dyer Hudson & Co., New York City, holding 
2,920 shares, who is that? 

Mr. Carse. That is a broker. 

The Chairman. Is that also true of the Empire Securities Co., of 
Daytona Beach, Fla., holding 2,386 shares? 

Mr. Carse. I do not know that company. 

The Chairman. Fenner, Beane & Ungerleider, of New York City, 
holding 2,935, who is that? 

Mr. Carse. That is a broker. 

The Chairman. Goodbody & Co., of New York City, holding 2,934 
shares, who is that? 

Mr. Carse. That is a broker. 

The Chairman. Hallgarten & Co., of New York City, holding 
11,830 shares, Vvho is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. Edward T. Hargrave, of New York City, owning 
2,000 shares, who is that? 

Mr. Carse. That is an individual. 

The Chairman. Harris Upham & Co., New York Citv, holding 
2,280 shares, who is that? 

Mr. Carse. That is a broker. 

The Chairman. Charles P. Hart, New York City, holding 43,269 
shares, who is that? 

Mr. Carse. I think that is very largely the stock of the company 
which they hold in the treasury. 

The Chairman. Mr. Hart is an officer of the company? 

Mr. Carse. He is our treasurer. 

The Chairman. And also a dii-ector? 



MUNITIONS INDUSTRY 57 

Mr. Carse, Yes; we put it in his name. 

Ttie Chairman. Hayden, Stone & Co., of Boston, Mass., holding 
11,570 shares; who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. Joseph J. Himes, of V7ashington, D.C., holding 
5,200 shares, who is that? 

Mr. Carse. That is an individual. 

The Chairman. Hornblower & Weeks, of New York City, holding 
10,130 shares; who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. Homer Huggan, of Ciiestnut Hill, Mass., holding 
3,500 shares; can you tell me who that is? 

Mr. Carse. That is an individual, but I do not laiow who it is. 

The Chairman. Hutchins & Parldnson, of Boston, Mass., holding 
19,461 shares; who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. E. C. Jameson, of New York City, holding 7,000 
shares; who is that? 

Mr. Carse. That is an individual. 

The Chairman. Is that the same E. C. Jameson who fathered the 
campaign that Bishop Cannon undertook some years ago? 

Mr. Carse. I do not know anything about any campaign, but I 
know he has held that stock for 25 years or more. 

The Chairman. It is the same initials, anyhow. Frazier Jelke 
& Co., of New York City, holding 3,210 shares; who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. Ladenburg Thalmann & Co., New York City, 
holding 33,550 shares; who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. Laidlaw & Co., New York City, holding 4,275 
shares, who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. Edith F. Lowis, of Racine, Wis., holding 3,200 
shares; who is that? 

Mr. Carse. That name is Lewis. It is an individual. 

The Chairman. Livingston & Co., New York City, holding 5,502 
shares; who is that? 

Mr. Carse. A broker. 

The Chairman. McClure, Jones & Co., New York City, holding 
2,308 shares; who is that? 

Mr. Carse. A broker. 

The Chairman. Mabon & Co., New York City, holding 1,900 
shares; who is that? 

Mr. Carse. That is a broker. 

The Chairman. Thomas L. Manson & Co., New York City, 
holding 4,000 shares, who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. Montgomery, Scott & Co., New York City, hold- 
ing 4,715 shares; who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. Francis P. Murphy, of Nashua, N.H., holding 
2,500 shares; who is that? 

Mr. Carse. That is an individual. 



58 MUNITIONS INDUSTRY 

The Chairman. Kenneth Outwater, New York City, holding 11,500 
shares; who is that? 

Mr. Carse. That is an individual. I do not know whether he is a 
nominee or not. 

The Chairman. Paine Webber & Co., New York City, holding 
20,004 shares; who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. Pearl & Co., New York City, holding 2,525 shares; 
who is that? 

Mr. Carse. A broker. 

The Chairman. E. A. Pierce & Co., New York City, holding 
21,358 shares; who is that? 

Mr. Carse. That is a broker. 

The Chairman. Pouch. & Co., New York City, holding 26,525 
shares; who is that? 

Mr. Carse. A broker. 

The Chairman. R. W. Pressprich & Co., New York City, holding 
2,300 shares; who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. Theodore Prince & Co., New York City, holding 
7,775 shares; who is that? 

Mr. Carse. That is a broker. 

The Chairman. Rhoades, Williams & Co., New York City, holding 
12,140 shares; who is that? 

Mr. Carse. That is a broker. 

The Chairman. E. P. Ristine & Co., New York City, holding 
2,275 shares; who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. Albert S. Roberts, Long Island, N.Y.; holding 
2,030 shares; who is that? 

Mr. Carse. That is Mr. Roberts. 

The Chairman. Mr. Roberts who is one of your directors? 

Mr. Carse. Yes. 

The Chairman. Anna Russo, of Brooldyn, N.Y., holding 2,000 
shares; who is that? 

Mr. Carse. That is an individual. 

The Chairman. Shields & Co., of New York City, holding 2,337 
shares; who is tliat? 

Mr. Carse. That is a brokerage house. 

The Chairman. Siglcr & Co., of New York City, holding 4,498 
shares; who is that? 

Mr. Carse. I guess that is a nominee. 

The Chairman. Edward B. Smith & Co., New York City, holding 
3,290 shares; who is that? 

Mr. Carse. That is a brokerage house. 

The Chairman. L. Y. Spear, Groton, Conn., holding 2,001 shares; 
who is that? 

Mr. Carse. That is a director. 

Tlic Chairman. Another director of the company? 

Mr. Carse. Yes, sir. 

The Chairman. Thomson & McKinnon, of New York City, hold- 
ing 9,234 shares; who is tiiat*^ 

Mr. Carse. That is a brok^rnge house. 



MUNITIONS INDUSTKY 59 

The Chairman. Harry Weisburg, New York City, holding 10,000 
shares; who is that? 

Mr. Carse. I do not know who that is. That is an individual, but 
who he represents, I do not know. 

The Chairman. C. E. Williams, of New York City, holding 27,150 
shares; who is that? 

Mr. Carse. That sounds like Chester E. Williams, one of our 
young men, and that stock is probably part of the stock which is in 
the treasurj^ in the name of one of our clerks. 

The Chairman. Very frankly, Mr. Carse, I am surprised to come 
down here to the Z's and find that Mr. Zaharoff is not listed as a 
stockholder. 

Mr. Carse. He never was a stockholder as far as I ever saw or 
had any knowledge. Whether he had stock in other people's names, 
I do not know. 

The Chairman. Do you suspicion that he has done that? 

Mr. Carse. It may be possible. The men who handle very large 
stock do not put the stock in their names. 

The Chairman. He wrote you under date of the 19th of May, 1925^ 
and said, "I desire no thanks for what I have done, because I am 
bound to attend to the interests of my firm of Vickers and of my 
friend the Electric Boat Co., in both of which I am a shareholder." 

Mr. Carse. I loiow, and he told me that, too, but I never was able 
to trace anything, and I tried hard enough. 

The Chairman. Why would he not have that sort of thing in his 
own name? 

Mr. Carse. They never put stock in their own names. If they 
should sell it then they would have it floating around the street and 
everybody would say "so and so is selling the stock." They do not 
do that. 

Senator Barbour. What is your stock quoted at now in the Elec- 
tric Boat Co.? 

Mr. Carse. 5, I think. 

Senator Barbour. What was it quoted at, at its highest point? 

Mr. Carse. I have seen this Electric Boat Co. stock 20 or 21. 

Senator Barbour. ¥/hat is par? 

Mr. Carse. There was no par, but we changed it and made it $3 
par so as to balance what we marked off on surplus. 

Senator Barbour. What does it pay? 

Mr. Carse. It does not pay anything and has not paid anything 
since about 1920. 

Senator Barbour. In other words, then, this stock paid no divi- 
dends and it is down to about $5 a share? 

Mr. Carse. Yes. 

Senator Pope. How many outstanding shares are there? 

Mr. Carse. There are authorized 800,000 shares, and there are 
in the hands of the public about 750,000. The company has in its 
treasury about 50,000 shares, authorized but in the treasury. 

The Chairman. Mr. Carse, can you designate any of the nominees 
who might be involved in some of these accounts? 

Mr. Carse. I have designated as you went along all of those of 
whom I had any knowledge. 

The Chairman. Do you know who they represent? 

Ivlr. Carse. As far as I Jcnow I have told you. 



60 MUNITIONS INDUSTRY 

Senator Barbour. Of the larger amounts in mentioning these 
brokers' names as you came to them, did you know for whose account 
they are holding the stock? 

Mr. Carse. No, I do not. 

The Chairman, Has Mr. Zaharoff ever indicated to you how 
extended were his stock holdings in the Electric Boat Co.? 

Mr. Carse, No, sir. In that quotation in that letter and in my 
talking to him that afternoon he said he was interested in our 
company. To what extent or anything of the kind or description 
I do not know. 

The Chairman. Had he ever been given stock for services to the 
company? 

Mr. Carse. Not that I know of. 

Senator Bone. It would be very easy then for him to cover the 
transactions of ownersiiip that way through any of these brokerage 
houses? 

Mr. Carse. Certainly, anybody can do that. If he had any stock 
it probably was in some other person's name. 

The Chairman. The letter in which Mr, Zaharoff spoke of being 
a shareholder in the Electric Boat Co,, I offer as "Exliibit No, 31". 

(The letter referred to was marked "Exhibit No. 31 ", and appears 
in the appendix on p. 336.) 

The Chairman. In that letter, ''Exliibit No. 31", Mr. Zaharoff had 
said: 

My long experience has always made me pay great attention to any opposition, 
however small or insignificant, and there can be no doubt that the Germans and 
Italians are boiling to get the wedge end in, especially as Spain is spending money 
on her navy, and the proposals they make to the Spanish Government are care- 
fully considered by the junior Spanish naval officers, who (I tell you in the strictest 
confidence) are working to persuade the superior officials that the Electric Boat 
Company, Vickers, and the Constructora Naval are all old-fashioned, and that 
the time has come for a new departure. 

That letter was addressed to you, Mr, Spear, What is the meaning 
of it all ; tell us what is the meaning of it. 

Mr, Spear. There has been a great effort on the part of the Italian 
firms, and the French and German firms, to get a share of the Spanish 
business, and we are doing our best to keep them from taking any 
business away from us. 

The Chairman. Evidently these proposals are being considered by 
the junior officers of the Spanish Navy, but they are not getting to 
the top with any of their proposals. 

Mr, Spear. No ; they have not been effective so far. 

The Chairman. It is barely possible Sir Basil was holding them 
back enough so that they were not receiving consideration of the 
officers at the top of the Spanish Navy. 

Mr. Spear, Beg pardon, I did not hear what you said. 

The Chairman, I drew the conclusion that Sir Basil was serving a 
large purpose in preventing the senior officers of the Spanish Navy 
from paying any attention at all to the proposals to the Spanish Navy. 

Mr. Spear. I hope he is trying to. 

Senator Bone. I beheve you said, Mr, Carse, your company had 
paid no dividends on your stock since 1920, 

Mr, Carse, Yes; I think so. 

Senator Bone. Then 1919 would be the last year dividends were 
paid? 



MUNITIONS INDUSTRY 61 

Mr. Carse. About that year, but I am not absolutely positive 
of the year. 

Mr. Spear. I might add one thing more \vith reference to the 
Spanish business. A private shipyard in Spain built a submarine on 
their own account, without any order, some 3 years ago, and it is 
still on their hands, because it has not commended itself to the 
authorities either of Spain or any other country. Outside of that and 
an order that was placed some years ago, I think before our contract, 
where the Spanish Government had obtained some small submarines 
from Italy, I tliink that was all before we made the arrangement with 
the Sociedad, there certainly has been a very strong effort on the part 
of the Italians, Germans, and French to push us out of the picture in 
Spain. 

The Chairman. Well, the Germans were becoming quite a factor 
in the field of submarine building, 

Mr. Spear. They became a great factor after the war. Under the 
Versailles Treaty they were not supposed to build submarines, so 
what they did was to organize a company in Holland of entirely 
German interests, but they set up the head office in Holland, and in 
that company they have been very active in sohciting business all 
over the world. 

RELATIONS WITH UNITED STATES GOVERNMENT DEPARTMENTS 

The Chairman. I offer in evidence a letter dated November 3, 1925, 
dated at Paris, addressed confidential to Mr. Spear, signed by Mr. 
Zaharoff. 

(The above letter was marked " Exhibit No. 32.") 

The Chairman. This letter, "Exhibit No. 32", addressed to Mr. 
Spear by Zaharoff urges your Mr. Spear to get the State Department to 
help you against the German competition in Spain. I will read the 
letter in full, as follows: 

(The chairman thereupon read in full "Exhibit No. 32".) 

Exhibit No. 32 

[Copy] 

Paris, Srd November 1925. 
Confidential 

Mt Dear Spear: The Germans are moving terribly in Spain, and unless we 
all combine against them we may find them installed there one day, and action 
is necessary. 

The United States Ambassador in Spain is a very clever gentleman, and highly 
esteemed, and I think that you should arrange for instructions to be sent to him 
from your State Department for him to tell the Spaniards that the United States 
Government work very harmoniously with the Electric Boat Company, with 
whom they exchange ideas, and that the United States hope that the Spanish 
Government is satisfied with the guarantee of the Electric Boat Company, com- 
bined with that of Vickers, and will not see any necessity for any other guarantee. 

The English Government will be difficult to move in the same direction, but 
when you inform me that your Government have given the necessary instruction 
to their ambassador in Madrid I will have no difficulty in persuading the British 
to do ditto, ditto, ditto. 

I hope you are well, and with my homage to Mrs. Spear, and my kind regards 
to Mr. Carse for himself and family, I am, 
Sincerely yours, 

(S.) Basil Zaharoff. 

8387e— 2'»_T»T J 5 



62 MUNITIONS INDUSTRY 

The Chairman. Mr. Spear, did you approach the State Depart- 
ment in this connection? 

Mr. Spear. I do not remember whetlier I did or not. I am in- 
clined to think I did, but I do not remember. 

Senator Barbour. In that connection, Mr. Chairman, with 
your permission, I will ask this: While the company has made 
no money and paid no dividends and with the stock selling around 
$5 a share, how many people did you employ? 

Mr. Spear. We are employing now at our Groton plant about 
1,300 people. 

Senator Barbour. Taking it all into account, how much employ- 
ment have you given to people. 

Mr. Spear. We employ about 1,600 people. 

The Chairman. You say you think you did approach the State 
Department? 

Mr. Spear. I have no real recollection of it. I would not see 
anything improper in it, and I probablj^ did, but I do not know. 

The Chairman. Then surely there was more than one approach 
to the State Department in matters of that kind? 

Mr. Spear. You mean on the Spanish matter? 

The Chairman. Well, on any matter? 

Mr. Spear. Whenever we had a matter where we were negotiating 
with a foreign company and we found other foreign competitors were 
running in their Embassies and Legations, we endeavored to get the 
American Government to do its part to offset what they were doing. 
I cannot say, however, that we ever succeeded in obtaining an order 
that way. 

The Chairman. The contract that was sought in Spain was finally 
accomplished, was it not? 

Mr. Spear. You mean the contract with the Government? 

The Chairman. Yes, sir. 

Mr. Spear. Yes. Since that contract has been in force the 
Sociedad has built all the submarines that the Spanish Government 
has had constructed for it. Not a large number, but all there were. 

The Chairman. Do you know whether the English Government 
finally took the steps that Sir Basil had suggested might be taken if 
the American Government would act in the premises? 

Mr. Spear. I do not know, sir; whether they ever did anything or 
not. I do not recall ever being advised about it. 

The Chairman. Why instead of going to the State Department in 
matters of this kind do you not rather approach the representatives 
of the Commerce Department? 

Mr. Spear. We also do, or we also have. 

The Chairman, ^^^lat could the State Department do that the 
Commerce Department cannot do? 

Mr. Spear. Well, I should say that the Ambassador in these 
countries, generally speaking, speaks with a more authoritative voice 
than the representative of the Department of Commerce. In other 
words, he presumably is listened to to a greater extent than the other 
representatives of the Government. 

The Chairman. On the other side, there are those who look 
upon the State Department as being the one and only Department 
of Government that exercises any hand in accomplishing maintenance 
of peace and understanding between countries, taking those steps 



MUNITIONS INDUSTRY 63 

that will prevent war or misunderstandings, taking the leading part 
in disarmament conventions and conferences. Is it not at least 
strange that the State Department shoidd put its hand in as a helper 
or a salesman in selling munitions of war to another country? 

Mr. Spear. I do not think so, sir. These are questions of inter- 
national competition. If the orders are placed with us, our Govern- 
ment at least has definite information, can obtain definite informa- 
tion, as to the qualities and characteristics of the vessels built, and 
it all gives employment to American labor. If, however, the order is 
placed with somebody else, there is no benefit. 

Senator Clark. But you have sought the intervention of the 
State Department at times when the ships were to be constructed in 
Belgium, a foreign country, have you not? 

Mr. Spear. We have sought their intervention whenever we 
thought it would help. 

Senator Clark. That would not give any help to American 
labor, would it? 

Mr. Spear. No; except we make the plans, which means emplo}- 
ment for American labor. 

The Chairman. When did Mr. Roberts become connected with 
the Electric Boat Co.? 

Mr. Carse. At the time that Mr. Sheridan resigned, he sug- 
gested that Mr. Roberts would make a good director. 

The Chairman. I offer "Exhibit No. 33", being a letter from Za- 
haroff to Mr. Carse, under date of February 2, 1926. 

(The letter referred to was marked "Exhibit No. 33" and appears 
in the appendix on p. 336.) 

The Chairman. That letter reads 

Senator Bone. May I ask one question with reference to the letter 
just introduced. In that letter, "Exhibit No. 32", there is a state- 
ment that ideas were exchanged, where he asks you — 

to tell the Spaniards that the United States Government works very har- 
moniously with the Electric Boat Co., with whom they exchange ideas. 

What does that refer to, Mr. Spear? 

Mr, Spear. It refers to technical matters. 

Mr. Bone. It refers, then, to patents, types of equipment, and the 
like? 

Mr. Spear. All kinds of technical matters. Senator. 

Senator Bone. Does the Navy Department exchange ideas with 
you, as this letter indicates? 

Mr. Spear. Whenever the Navy Department desires us to have 
anything to do with any submarine matter which they are getting 
ready to do, we always hold ourselves open to present them any 
ideas or information which we have that would be useful. 

Senator Bone. So that the United States naval officials are fully 
advised at all times of the exact type and patent of the boat you are 
buUding? 

Mr. Spear. Correct; yes, sir. 

Senator Bone. They have the most intimate detailed knowledge 
of those boats? 

Mr. Spear. They have complete knowledge. 

Senator Bone. The reason I asked that question is this: By this 
arrangement with the Vickers Co., the Vickers Co. and the Spaniards 



64 MUNITIONS INDUSTRY 

and most of them have an equal knowledge of these things because 
they will use your plans that are bid on and will buy them? 

Mr. Spear. No, Senator, the contracts with the United States 
Government contain a provision under which it is not permissible for 
us to transmit to any government or to any person not authorized by 
the Government any information about the ship as such. In other 
words, the designs w^hich are built for the United States Government 
are a confidential matter between the United States and ourselves. 

Senator Bone. Suppose the Spanish Government wanted a sub- 
marine of the very latest type, would you withhold from introducing 
into that boat the latest designs which you have? 

Mr. Spear. Yes, we never supply nowadays to any foreign govern- 
ment the design to which we are building for the United States Gov- 
ernment. 

Senator Bone. Do you think that that attitude is true of American 
munitions companies generally? 

Mr. Spear. I would not think so, Senator, because I think that 
munitions in general are standardized and submarines are not. 

Senator Bone. Then when you are selling abroad you work under 
the handicap of telling the fellow that it is not possible to furnish him 
the latest device? 

Mr. SpeaRo That is true, that w^e are not selling wiiat we have 
worked on for the United States Government. 

Senator Bone. How do you expect to operate in competition with 
other companies when you are not giving him the latest devices? 

Mr. Spear. We are not having much luck, Senator. The only 
thing built abroad now is a boat in Spain with respect to which we are 
the technical advisers. 

Senator Bone, Would that have any possible connection with the 
statement of Sir Basil ZaharofT with respect to the effect this might 
have in Spain? 

Mr. Spear. I would not see any connection. We give them what 
they want. They specify certain tilings they want the boats to do, 
and we are responsible for producing the design wliich will do that. 

The Chairman. Lieutenant Spear, let us assume that you were 
up to this moment a lieutenant in the service, commissioned, and then 
you retired, what would the law prevent you doing if the Electric 
Boat Co. asked you tomorrow to become a director and to be associ- 
ated with them in the manufacture of submarines? 

^Ir. Spear. As I understand it, the law is that no retired officer 
is permitted to occupy any position or be employed by any companj' 
w^hich has contractual relations with the United States Government. 

The Chairman. You could not even be employed, after you di- 
vorced yourself from your relations with the Government, to represent 
your company in the foreign field? 

Mr. Spear. When you are retired, you are not divorced from the 
United States Government, but you are at the call of the United 
States Government. 

The Chairman. Do you think that the law would prevent you 
from being tied up in any way with the Electric Boat Co. for a given 
period of time? 

Mr. Spear. It is my understanding of the facts that it is wholly 
illegal for any officer on the retired list to be employed by any 
corporation. 



MUNITIONS INDUSTKY 65 

The Chairman. Now, supposing there were some little technicality 
there so that you feel that, strictly speaking, under the law 3'ou could 
accept a position viiih the Electric Boat Co., but that position must 
find you divorced at all times and having no connections with the 
United States Government or with any contracts running between 
the Government and the Electric Boat Co. At least you would not 
feel morally sound in that position, would you? 

Mr. Spear. No; I think the only way you can feel morally sound 
and obey the law, and the spirit of the law, is to resign completely 
from the Navy. I believe that if there were a corporation which had 
Government business and separate commercial business, I think 3^ou 
might morally connect yourself with the commercial end, but I do 
not think you could legally. 

The Chairman. Supposing j^ou were retired today by the Arinv or 
the Navy, would you feel that tomorrow jou could accept employ- 
ment with the Electric Boat Co.? 

Mr. Spear. No, sir; I think it is absolutely illegal. You must 
resign. You must completely sever your relations. 

The Chairman. You said that Mr. Roberts became connected 
with the Electric Boat Co. when? 

Mr. Carse. When Mr. Sheridan ceased to be a representative of 
Vickers and Mr. Roberts was appointed in his place. 

The Chairman. Mr. Roberts was connected with the Electric 
Boat Co. in 1926 anyway? 

Mr. Carse. I think probably so. 

relations with zahaeoff 

The Chairman. "Exhibit No. 33" is a letter from Zaharoff to Mr. 
Carse dated February 2, 1926. 

The Chairman. "Exhibit No. 33" reads in part as follows: 

The Duchess and I were pleased to have good news of you from Mr. Albert 
Roberts, who was here with us for a week and is now returning home to the 
United States. 

Mr. Roberts also spoke well of the Electric Boat Co.'s position, which he thinks 
will soon declare itself. 

Will you please tell Lieut. Spear that it is not advisable for j^our Paris office to 
know anything whatever of your Spanish business, and will Mr. Spear give the 
necessary instructions on this point to your Mr. Daniell who is in Spain. 

Mr. Carse, why could not your own Paris office know what you 
were doing in Spain? 

Mr. Carse. Because Sir Basil Zaharoff did not like Koster. 

The Chairman. Are Zaharoff's connections so large that he could 
dictate what your representatives abroad were to do or were not to do? 

Mr. Carse. In regard to the Spanish business. He did not w^ant 
Koster interfering down there. 

The Chairman. He did not like your representative in Paris, did 
he? 

Mr. Carse. No, sir. 

The Chairman. He did not feel he was a proper man? 

Mr. Carse. No, sir. 

The Chairman. T^^iat was the Paris man's name? 

Mr. Carse. Koster. 



66 MUNITIONS INDUSTRY 

The Chairman. Is it in a degree fair to say in this business of 
selhno; submarines abroad that it is not always well to let your right 
hand know what your left hand is doing, or does not that apply here? 

Mr. Carse. No; I do not think that is the pointy but when you have 
one man handling a business it is not wise to have another man butt 
in and try to do something different. You are apt to confuse the 
thing and fall down between two horses. It is the same in any busi- 
ness. If you wanted to sell a building in Washington, it would not be 
wise to give it to two or three agents. 

The Chairman. I offer in evidence " Exhibit No. 34 ", being a letter 
dated August 14, 1926, addressed to Mr. Carse by Mr. Zaharoff. 

(The letter referred to was marked "Exhibit No. 34" and appears 
in the appendix on p. 337.) 

The Chairman. In ** Exhibit No. 34 ", Sir Basil Zaharoff in part says 
as follows: 

I had a very important Spanish official here the week before last, and from our 
conversations there can be no doubt that good business will continue for you and 
all of us in Spain, and we need not fear Krupp nor anybody else for a long time 
to come. 

Had you been given any word as to what had happened there to 
m.ake the situation seem as secure as Sir Basil had it appearing at 
that time, Mr. Spear? 

Mr. Spear. No, sir. 

The Chairman. Or you, Mr. Carse? 

Mr. Carse. No, sir. 

The Chairman. Mr. Zaharoff continued: 

Referring to what you say about the Argentine Government, j-ou know of 
course that they have been negotiating for some considerable time with the 
Constructora Naval for naval and war material, in which the King of Spain 
himself takes a great interest, and is using all his endeavours for Argentine 
business to go to Spain. 

I believe that the Constructora Naval has a fair — though not a big — chance, 
because foreign officers prefer living in Paris or London to being isolated in 
Spain, and consequently they generally put spokes in the wheels of the Spanish, 
much to the detriment of their country's interests. 

Lieutenant Spear is embarking for Europe while I am dictating this letter, and 
3'ou know that I will always be at his disposal, and support any valid ideas he 
may put forward. ■ 

Mr. Spear, in your contact in Spain, did you get to know the King? 

Mr. Spear. No, sir. 

The Chairman. Did you get to know, Mr. Spear, how direct or 
active may have been his interest in the Constructora Naval? 

Mr. Spear. No. 

The Chairman. Do you know whether or not he did have any 
direct personal holding there? 

Mr. Spear. Not to my knowledge. 

Senator Bone. Mr. Spear, who was the United States Minister or 
Ambassador to Spain at the time? 

Mr. Spear. At the time of my visit there, Mr. Moore. 

The Chairman. That was in 1925? 

Mr. Spear. I do not remember. I could not tell without looking 
it up. , 

The Chairman. I offer as " Exhibit No. 35 ", a letter dated June 17, f j 
1927, marked "Personal and Confidential. " That letter is addressed 
by Mr. Zaharoff to Mr. Carse. 
' (The letter referred to was marked "Exhibit No. 35.") 






MUNITIONS INDUSTKY 67 

The Chairman. It appears that in 1927 Mr. Zaharoff was very 
much alarmed about letting your Paris office know too much of what 
was going on in Spain. He stated as follows, and I think it would 
be well to read this entire letter [reading]: 

June 17, 1927. 
Exhibit No. 35 

(Personal and confidential) 

Dear Mr. Carse: I regret to have to trouble you with a disagreeable matter, 
which is the following: 

The Paris representative of the Electric Boat Co. has written to Don Pablo 
Ruiz, commander of submarine B-6, built by us in Spain, inviting him to come 
to Paris, when he would give him all the latest information regarding submarine 
boats. Commander Ruiz, who is a good friend of the Sociedad Espanola de 
Construccion Naval, informed our Spanish company of this confidentially, but 
naturally thought it his duty to communicate your Paris agent's invitation to his 
superiors at the Ministry of Marine in Madrid, and there is now a regular mess. 

The Spanish authorities say that we have always pressed them not to look at 
any other submarine proposals but ours, and have always assured them that 
we were giving them the very best that exists; yet the Electric Boat Co.'s agent 
in Paris must certainly be in possession of improvements which we were keeping 
back from the Spanish authorities. 

Our Spanish friends tell me that this question has become very serious, and will 
open the door to competitors, and that if the Electric Boat Co. desire to bring 
improvements to the notice of the Spanish Government, it was the duty of the 
Electric Boat Co. to communicate these improvements to the Constructors 
Naval, for them to submit them to their naval authorities. 

Our Spanish company are very much disturbed, because they fear their Gov- 
ernment may suspect their good faith, and they tell me that it has always been an 
exceedingly difficult and delicate problem to create a monopoly for the Electric 
Boat Co., products, and that this unusual intervention has already caused serious 
friction. 

I have repeatedly gone out of my way in warning you, my friend Lieutenant 
Spear, and Mr. Daniel, and also Mr. Roberts, to be exceedingly careful of your 
Paris agent, of whom I have a very bad experience, and consequently have no 
confidence in him, yet none of you have paid the least attention to my warning, 
and I will add that 1 have especially cautioned you all against Captain Koster's 
intervention in Spain, or even his ever mentioning Spain. 

Is Captain Koster of so inuch value and importance to you all that my warnings 
have been in vain? Or is this person protected by all or some of you? 

I have gone further, and told you all that I did not think it to the dignity of 
your company that you should be so represented in Paris. 

I have for some long time given up all active exertions with Vickers, but as I 
am the sole founder of the Constructora Naval, it is my pet baby, and I continue 
watching it, helping it, keeping it out of trouble, and cherishing it, but if you 
people continue as you are now doing, I am afraid I will have to let you deal 
direct with our Spanish friends without my intervention. 

Will you kindly present my homage to Mrs. Carse, and with a bonjour to 
your little boy, I am, dear Mr. Carse, 
Cordially yours, 

Basil Zaharoff. 

Addressed as tliis was to you, Mr. Carse, what did you do as soon 
as you got that letter? 

Mr. Carse. It seemed that too many cooks would spoil the broth, 
so I cabled to Mr. Koster that a repetition of his interfering in 
Spanish business would require us to ask for his resignation. Mr. 
Spear and myself had both told Koster to mind his own business, 
and his business had nothing to do with Spain. 

The Chairman. Perhaps this question has already been asked and 
answered, but I must ask you again: Who was Koster? What was 
his background? 

Mr. Carse. Mr. Spear can tell better. 



68 MUNITIONS INDUSTRY 

Mr. Spear. He was a Hollander by birth and was in tbe Dutch 
Navy. 

The Chairman. I recall. 

Mr. Spear. And was the first ofRcer in the Dutch Navy to be 
connected with submarines. 

The Chairman. When he is referred to as Captain Koster that 
does not mean that he ever had any connection with the American 
Army or Navy? 

Mr. Spear. No, sir. Later on he retired from active interest and 
some years after liis retirement he was employed by us. 

The Chairman. Koster's connection there was soon terminated, 
was it not? 

Mr. Carse. No; several years later, I think. 

The Chairman. Tliis was in 1927. 

Mr. Carse. He went up to about 1930 or 1931. 

Senator Clark. Even as late as this year you have had negotia- 
tions with Koster about representing you in Europe on some other 
armaments? 

Mr. Spear. Not the Electric Boat Co. I have. It had nothing 
to do with the Electric Boat Co. 

Mr. Carse. He wrote to Mr. Spear and he did not write to us. 
Koster means well enough, but he has the peculiar quality of allowing 
himself to have quarrels or differences with important people, or his 
customers, and does not get any business. 

Senator Clark. You heard rumors that Koster was known all 
over Europe as an international spy? 

Mr. Carse. I heard someone said that, but I did not believe it. 

Senator Clark. You mentioned that to Mr. Spear as one reason 
when you were fixing to "bounce" Koster, did you not? 

Mr. Carse. For instance, in France I was told that was his repu- 
tation. Of course that prevented him from ever doing anything in 
France. We never saw any evidences of that in any way. 

The Chairman. The fault or trouble that really caused Zaharoff's 
anger toward Koster seems to me that Koster revealed to the Spanish 
authorities that they were not getting from the Electric Boat Co. or 
from Vickers, or from Constructora Naval the last word in submarine 
building. 

Mr. Carse. That is the way they apparently construed it down 
there in Spain. WTiat did Koster mean by that? (Addressing asso- 
ciate.) 

Mr. Spear. I do not know what he meant. I suppose he meant 
he would give him all the information he had about what submarine 
building was going oa in Europe, but the other construction would be 
ridiculous because Koster was aot in possession of the information. 
We did not send Koster word every time we thought of a new develop- 
ment or a way of improving a submarine. He did not have any 
such information. 

Mr. Carse. He just butted in where he did not belong. That is all. 

Senator Clark. Based on Mr. Spear's answer to Senator Bone a 
few minutes ago with respect to giving such information to the 
Spaniards, I was wondering how you would give them the latest 
development in submarines. 



MUNITIONS INDUSTRY 69 

Mr. Carse. We had not given them any development of submarines 
that we had been working on for the United States Government. 

Mr. Clark. So the assumption of the Spaniards was not a very- 
violent one, was it? 

Senator Barbour. You would not give it to any government? 

Mr. Carse. We would not give it to any government. We are 
honor bound. 

Senator Bone, Mr. Spear or Mr. Carse, if you had got an order for 
a submarine from Spain, would you guarantee it was entirely up to 
date and an efficient submarine? 

Mr. Spear. We guarantee it as a submarine of the type which they 
want, which will go so deep, and has a certain range, and will carr}^ 
so many torpedoes and torpedo tubes. 

Senator Bone. As an expert in this particular field, would you say 
that the submarine that they called for is a late or efficient type? 

Mr. Spear. No; I think that the type they called for is not in 
accordance with the latest type they have asked for; is not in accord 
with our ideas of a good design. 

Senator Bone. Would it differ in speed? 

Mr. Spear. It differs quite materially in speed. 

Senator Bone. And method of operation? 

Mr. Spear. It differs in a great many respects. It is a highly 
technical question. It is not a design which we ourselves would 
recomm.end to somebody. 

Senator Bone. I understand, but that would be largely different 
in the technical viewpoint of the man, would it not? In other words, 
the Spaniard would think that was tlie very last word in submarines? 

Mr. Spear. They would think that was what they wanted, but, as 
a matter of fact, I think they make up their minds very largely by 
seeing somebody has got a submarine which has this thing, and some- 
body else has one with that on it, and they M^ould like to have one with 
all those qualities. You cannot make a sound design out of those 
qualities, and, therefore, the attempt to do it is in our technical judg- 
ment not a reasonable one. 

Senator Barbour. They pay you for getting a submarine, which in 
their judgment is what they want, and if they did not get it from you 
they would get it from somebody else? 

Mr. Spear. They would get it from somebody who would give it to 
them. They ask for certain things, and we endeavor to give them 
what they ask for. 

The Chairman. We have been wondering all day, Mr. Spear, 
just what Mr. Zaharoff's interest in Constructora Naval might be. 
In this letter of June 17th, 1927, he says that the Constructora Naval 
is his "pet baby", and he continues watching it very closely. 

Mr. Eaushenbush. And he is the sole founder. 

The Chairman. And declares that he was the sole founder. Are 
we to gather that he is the sole owner? 

Mr. Spear. No, sir. 

The Chairman. What do you know about that? How extensive 
is his interest? 

^ Mr. Spear. I imagine it is rather small. I imagine that at one 
time he owned a considerable part of it. From what I hear — it is 



70 MUNITIONS INDUSTRY 

hearsay and I cannot swear to it — I understand his actual holding^ 
in the company is very moderate or small at the present time; not as 
big as it was. 

Mr. Raushenbush. At one time, later on in the history of that 
company, Vickers took a very much larger interest, did it not, than 
at first?' 

Mr. Spear. I do not know whether they ever added to their interest 
or not. 

Mr. Raushenbush. What I am trying to get at is this — was Zaha- 
rojff getting out of the company in a big way replaced by Vickers 
coming in, the selling of stock from one to the other? 

Mr. Spear. That might have happened, but I have no knowledge 
of it. I do not know whether that is the case or not. 

The Chairman. Mr. Spear, what in the world can be the advantage 
of having an agent in Europe, as Zaharoff is for Electric Boat, who has 
nterests such as he has in the Constructora Naval, which is doing the 
same thing that you folks are doing? 

Mr. Spear. That was the only w^ay we could do any business with 
Spain, that is, to make arrangements to have the greater part of the 
work done in Spain because that is the poHcy of the Spanish Govern- 
ment. 

The Chairman. That is aside from, my question. I stated that the 
Constructora Naval w^as Zaharoff's pet bab}'-, and how could he be a 
conscientious agent for jt^ou or how could he be the most conscientious 
agent for you that you could hope for? 

Mr. Spear. We felt that we would Hke to make this arrangement 
with the Constructora Naval because it was the leading industrial 
company in Spain and Sir Basil was at that time very influential in 
that company, and so we used his good offices to bring about this con- 
tract that we made with them. Knowing him and knowing that he 
was intimately connected with it, we naturall}^ used his good offices 
to persuade them that this would be a good thing to do. 

The Chairman. All right. We must move on. Wliile evidently 
you were considering this complaint of Zaharoff regarding your Paris 
agent, he wrote you under date of July 12, 1927, a letter which is 
offered as ''Exhibit No. 36." 

(The letter referred to was marked "Exhibit No. 36" and ap- 
pears in the appendix on p. 337.) 

The Chairman. Mr. Zaharoff in the letter of July 12, 1927, " Exhibit 
No. 36", stated in part as follows: 

It has just occurred to me that Monsieur Michel Clemenceau, son of the great 
Clemenceau, and who represents the Vickers Company on the European Conti- 
nent, and also keeps in touch with all the South American Naval and Military 
Commissions in Paris, might be useful to your company under my supervision. 

Have you ever utilized the services of Clemenceau? 

Mr. Spear. That is a letter to Mr. Carse. 

The Chairman. I beg your pardon. Mr. Carse. 

Mr. Carse. No, sir; we never have. 

The Chairman. Have you considered it? 

Mr. Carse. No. 

The Chairman. Do you know whether Mr. Zaharoff has used his 
services in any connection? 

Mr. Carse. I have no knowledge that he used anything because 
we have not had any European business outside of Spain. 



MUNITIONS INDUSTRY 71 



X 



The Chairman. Outside of Spain you have had no European busi- 
ness since 1927? ' 

Mr. Carse. No. 

The Chairman. On August 27, 1928, in a letter which will be 
marked "Exhibit No. 37," you wrote Mr. Zaharoff, IMr. Carse, about 
your Japanese business. 

(The letter referred to was marked "Exhibit No. 37" and appears 
in the appendix on p. 338.) 

The Chairman. Was Zaharoff particularly interested in the Japa- 
nese business? 

Mr. Carse. No; he was not, except that I was tellins: him. He had 
said that he was a stockholder and I thought that would interest him, 
to know that we were negotiating with them, and at that time we 
thought we were negotiating with some degree of success, but nothing 
has ever developed. 

The Chairman. Would your business in Japan -paj Zaharoff any 
commission? 

Mr. Carse. No. 

The Chairman. You say in this letter of August 27, 1928: 

As you no doubt are aware, considerable friction developed between our staff 
and the officials of the Navy Department in Washington some 6 or 7 years ago, 
and the officials endeavored in every way to make it as difficult for the company 
as possible. I am glad to say that we have apparently eliminated that animosity, 
and I have reason to believe that the design of the Department at Washington 
of submarines has proven unsuccessful. 

Is the committee to gather, Mr. Carse, that the Navy Depart- 
ment's ignoring of what you have called more recent plans for sub- 
marine building had led them into difficulties and that it had not 
proved itself able to stand up? 

Mr. Carse. No; it had not proven to be as successful as it might 
have been. 

The Chairman. The letter goes on to state: 

At present our relations are such that we have been invited to present our idea 
of the proper type and design of submarine to be built by the United States Navy 
Department, and the plans and specifications we have submitted have been 
approved and accepted, and the expectation is that we will in the future divide 
with the Navy Department the building of submarine boats for this Government 

Has there been reasonable division since that time? 

Mr. Carse. During the last 3 years. What date was that? 

The Chairman. August 27, 1928. 

Mt. Carse. We were not as successful, as soon as we thought at 
that time that we would be, but we since then, about 3 j^ears ago, have 
been given the Cuttlefish and the Shark and the Tarpon and now they 
have awarded us three of the nev/ submarine boats. 

We have an organization that has existed for over 30 years. Alany 
men have been there that time and they have concentrated entirely 
on the designing and building of submarine boats. We have taken 
out very many patents, which we have filed in all the countries cf the 
world. Our men are concentrating on that work. In the Navy De- 
partment they shift from the bureaus to service and back again, so 
that a_ naval officer has manj' other things on his mind besides the 
designing of submarines. Thej^ also work on battleships and cruisers 
and destroyers. So that there cannot be the extent of concentration 
upon the single item that our organization can and does give, and it is 



72 MUNITIONS INDUSTRY 

a very difficult piece of work to do up to the highest efficiency. That 
is what is meant by that. There is no slur on anybody intended. 
It is simply a private letter. I did not publish that in the paper or 
anything. 

Senator Bone. Whose plans were used in building the Govern- 
ment submarines in later years; that is, where the Government 
built its own submarines? 

Mr. Cause. Mr. Spear can tell you about that better than I. 

Mr. Spear. How far back do vou want to go? 

Senator Bone. This letter isolated in 1928. Go back to 1928. 
Do you know who supplied the plans to the Government for building 
submarines? 

Mr. Spear. The Government supplied its own plans for the first 
two submarines after that. They supplied the general design for the 
first three, and those that w-ere ordered last year to be built by us 
were designed hj us, and those which were ordered this year to be 
built by us were designed by us. 

wSenator Bone. Mr. Spear, in the last 10 years, how many sub- 
marines would you say that the Government has built in its own 
yards, has constructed, as contrasted with those built in private 
yards? 

Mr. Spear. There has been very little building in the last 10 years. 
I am talking about the date of starting the work and I cannot go to 
the date of completion because I do not carry that in my mind. 

Senator Bone. Roughly, approximately how many? 

Mr. Spear. There have been 10 submarines ordered, all told, by 
the United States Government. So that the United States Govern- 
ment has ordered 3 from us and has ordered 7 to be built in the 
navy yards. 

Senator Bone, In Government navy yards? 

Mr. Spear. In Government navy yards. 

Senator Bone. There is one other question which I have in mind, 
which is provoked by tliis letter. Can you tell us where ZaharofI 
gets into the Japanese picture? 

Mr. Carse. He does not get into it at all. 

Senator Bone. Has he any connection with Mitsui or Mitsubishi 
outfit? 

Mr. Carse. No. 

Senator Bone. Does Vickers have a plant over there? 

Mr. Carse. They have some connection with the Mitsubishi 
people. 

wSenator Bone. Does Vickers have a plant over there? 

ISIr. Carse. I do not think they have any plant. 

Senator Bone. The}?^ maintain an office there? 

Mr. Carse. In the Mitsubishi office. 

Senator Bone. They are stockholders in one of the large Japanese 
plants, theliVickers? 

Mr. Carse. I do not know whether they own any stock or not. 
I doubt it. 

Mr. Spear. I think it is a license arrangement. I think Mit- 
subishi has a license from Vickers for engines, and so forth. 

Senator Bone. Under that license, do they use Vickers' patents? 

Mr. Spear. Yes, sir; whenever they build anything under that, if 
Vickers has a patent. 



MUNITIONS INDUSTRY 73 

Senator Bone. In other words, they use the Vickers' patents 
whenever they choose? 

Mr. Spear. Of that sort, but they do a lot of business of their 
own outside of the hcense with Vickers. 

Senator Bone. Of course through the Vickers' contracts Zaharoff 
would have an interest in Japanese business. 

Mr. Spear. He would not have any interest in our business. 

Senator Bone. I understand, but in the Japanese business Zaharofi 
would cut into it through his connection with Vickers? 

Mr. Spear. I should suppose so. I would assume that was his 
only interest. 

The Chairman. I offer in evidence " Exhibit No. 38 ", being a letter 
from Mr. Zaharoff to Mr. Spear, dated September 11, 1927. 

(The letter referred to was marked "Exhibit No. 38", and ap- 
pears in the appendix on p. 339.) 

The Chairman. It appears, Mr. Spear, that Zaharoff cannot 
interfere in your Argentine business for what he states are "social 
reasons". What do you understand those "social reasons" to have 
been? 

Mr. Spear. I do not know, sir. 

The Chairman. Was it his relationship to Alfonso, whom we were 
told in the previous correspondence was very jealousl}^ interested in 
the welfare of the Spanish manufacturing concerns? 

Mr. Spear. I could not tell vou what he meant, Mr. Chairman. 
I have no knowledge of what his reference to "social reasons" was 
about. 

Mr. Carse. We did not get the Argentine business. The Italians 
took that. 

The Chairman. You did not get any Argentine business? 

Mr. Carse. No, sir; the Italians took it. The competition in 
building submarine boats is far from being a monopoly. It is the 
fiercest competition imaginable. 

The Chairman. Speaking of such "social reasons" that might 
stand in the way of his interesting himself in your behalf in Argen- 
tine, does not the same hold true in France as well? Would not he 
have "social reasons" there which would prevent it? 

Mr. Carse. I do not think so. 

Mr. Spear. I think he refers to it. 

The Chairman (reading from Exhibit No. 38): 

* * * and also for my personal standing in France, v/hich obliges me to be 
absolutely neutral. 

Where in the world has Zaharoff been neutral? 

Mr. Carse. I have never considered that we have any possibility of 
doing any business with the French Government because the French 
Government is the most self-contained of any Government in the 
world, and they keep everythmg for their home labor and we have 
never been able to do anything with them at all. 

Senator Barbour. Did he mean that liis connections with the 
Spanish were such that while he was helpful in that quarter, he could 
not be helpful in another quarter and that it might militate against 
him? 

Mr. Carse. It might. I do not know what it means. He is a very 
polite man and it is sometimes bard to say just what he does mean. 



74 MUNITIONS INDUSTRY 

The Chairman. I offer in evidence as "Exhibit No. 39", a letter 
from Mr. Zaharoff to Mr. Carse, in which Zaharoff again criticizes your 
European set-up, Mr. Carse. 

(The letter referred to was marked "Exhibit No. 39", and appears 
in the appendix on p. 339.) 

The Chairman. In that letter marked "Exhibit No. 39," under 
date of September 13, 1927, Zaharoff says in part: 

I entirely approve of what you say regarding the difficulties of obtaining busi- 
ness from foreign countries by your representatives in Europe, and I must frankly 
tell you that I have never approved of your heavy expenditure in Europe for a 
useless purpose, but on the contrary I believe that this rather cheapens your 
position, whereas, if people want to communicate with you, you can always send 
a special representative to meet them, in which case the expenditure would be 
moderate. 

I will continue keeping Monsieur Michel Clemenceau in view, and we might 
utilize him in case of need, without our going to any expense. 

You have said that you have no recollection that Clemenceau was 
ever utilized? 

Mr. Carse. Never was to my knowledge. We maintained Koster 
there because we beheved that he loiew more about submarine-boat 
construction and operation than any man in Europe, and while there 
were certain qualities about him that we did not absolutely approve 
of, yet he did keep in touch with the technical aspects as developed 
in Europe and kept Mr. Spear advised. Then, as I mentioned this 
morning with relation to our claim against the Germans for infringing 
our patents during the war, Koster did some very good service in 
obtaining the evidence that finally forced the Germans to produce 
some draAvings of the boats that had been constructed, and also the 
Germans raised some defenses in relation to aspects of German law, 
and Koster secured the opinion of a German counsellor of standing 
and weight that controverted the opinion that had been advanced in 
the German defense. 

So, as you will perhaps note in one of those letters which I wrote to 
Sir Basil, we could not dispense with Koster 's service pending the 
settlement of tliis German claim. 

The Chairman. I offer in evidence "Exhibit No. 40". This, Mr. 
Carse, is a letter written to you by Basil Zaharoff, and dated 
November 12, 1927, from Paris. 

(The letter referred to was marked "Exhibit No. 40" and appears 
in the appendix on p. 339.) 

RELATIONS WITH SOUTH AMERICAN COUNTRIES 

The Chairman. Zaharoff makes reference in the first paragraph 
of that letter, " Exhibit No. 40 ", to Senor Luiz Aubry. Who is Aubry? 

Mr. Carse. Luiz Aubry was our agent in South America. He 
was naval attach^ for Peru at Washington, and after resigning from 
there he took up our agency in South America and secured orders for 
some submarine boats in Peru and w^ent to Brazil and Argentina 
endeavoring to procure business there. 

Back at the time of that letter he resigned from our employ and 
went to Paris as the naval attach^ of the Peruvian Government in 
Paris, and called on Sir Basil Zaharoff. I guess perhaps 1 gave him 
a letter. I am not certain. But he called on Sir Basil Zaharoff' and 
Sir Basil Zaharoff' was very much pleased with his acquaintance and 



MUNITIONS INDUSTEY 75 

arranged to have him go to Madrid and he was received very cordially- 
down there. 

The Chairman. You spoke of his having later resigned from the 
Electric Boat Companies' employ? 

Mr. Carse. Yes; at the time he went to Paris. 

The Chairman. But he came back into your employ later on? 

Mr. Carse. After he resigned as naval attache in Paris. He was 
never in the employ of both his Government and ourselves at the 
same time. 

The Chairman. During the time he was out of your employ — 
was that in 1927 and 1928? 

Mr. Carse. Yes, sir. 

The Chairman. In 1927 you are shown as paying him a salary of 
$5,400, and no salary paid in 1928. 

Mr. Carse. When was that? 

The Chairman. I offer for the record "Exhibit No. 41 ", being a 
record of the receipts of salaries, commissions, and expenses from 
the Electric Boat Co. of Capt. Luiz Aubry. 

(The statement referred to was marked "Exhibit No. 41", and 
appears in the appendix on p. 340.) 

Mr. Carse. I am not certain on these dates and the dates are more 
or less blended in my mind. 

The Chairman. The date of this letter, referring to Aubry not hav- 
ing yet arrived at the Peruvian Legation in Paris is November 12, 
1927. 

Air. Carse. There were 11 months in 1927 besides that. 

The Chairman. In 1926 he drew a salary of $7,200, and in 1927 a 
salary of $5,400, which would indicate that he had drawn salary only 
for a part of the year? 

Mr. Carse. Yes, sir. 

The Chairman. And in 1928 he drew no salary at all. 

Mr. Carse. That is right. 

The Chairman. But in 1928 he did receive from you a commission 
of $18,720. What was that for? 

Mr. Carse. That was for his commission on orders where we had 
built Peruvian submarine boats, where we paid him a commission as 
we received the money from the Peruvian Government. 

The Chairman. "Exhibit No. 41 ", shows a total salary starting in 
1922 and running down and including 1932 showing $37,800 paid to 
Mr. Aubry and commissions starting in 1924 and running down 
through the 15tli of August of this year totaling $253,674.04; and 
expenses starting in 1920 running down to and including August 15, 
1934, in the total amount of $34,727.85, or a total of salary and com- 
missions and expenses paid to him during that period of $326,201.89. 

Mr. Carse. That is about 5 percent on the business which he 
secured for us. 

The Chairman. About 5 percent on the business which he secured 
for you? 

Mr. Carse. Yes, sir. 

The Chairman. About the same commission which you were 
paying to Zaharoff? 

Air. Carse. That is it. It seems a moderate commission. That 
covered all expenses, traveling expenses, office expenses, and every- 
thing else. 



76 MUNITIONS INDUSTRY 

The Chairman. I offer in evidence " Exhibit No. 42 ", being a letter 
dated November 23, 1927, addressed to "My dear Sir Basil" and 
signed b}^ Mr. Carse. 

(The letter referred to was marked "Exhibit No. 42", and appears 
in the appendix on p. 340.) 

The Chairman. The third paragraph of "Exliibit No. 42" being 
the letter from Mr. Carse to Sir Basil reads as follows: 

In regard to our negotiations with Japan, I would have written you fully if 
there had been any definite contract. We have been working very closely on 
this subject for practically two years, and our representative, who has shown 
very clearly that his relations with Hayashi, Saito, and other leading men of 
Japan, are verj' close, advises us that he has complete assurances that the business 
will come to us, but during the last year, as you know, many matters have hap- 
pened in Japan to delay the closing of such negotiations. 

Who was your representative? 

Mr. Carse. Our vice president, Sterling Joyner. 

The Chairman. When did he become vice president? 

Mr. Spear. It was 1929 or 1930, according to my recollection. 
He came with us in 1927. 

Mr. Carse. He v/as not an officer at that time. He was simply 
taking an agency to secure an order from Japan. 

Senator Pope. Was he in Japan at that time? 

Mr. Carse. He was there twice. I think we engaged him in 1925. 

The Chairman. Mr. Carse, Mr. Joyner was to have been here. 
We have certain affidavits revealing the inability of Mr. Joyner to 
be here. I am going to suggest that Mr. Raushenbush make them 
a matter of record at this time, 

Mr. Carse. He is a very sick man. 

Mr. Raushenbush. Mr. Chairman, we have received a statement 
from Dr. Robert Scott Lamb, dated yesterday, saying: 

This is to certify that Sterling J. Joyner is ill and under my professional care, 
suffering from an acute laceration of an old heart lesion and must not leave his 
room for the present if he is to avoid serious consequences. 

Dr. Lamb is a Washington physician. 

W^e also have a statement from Dr. Burt D. Harrington, of Brook- 
lyn, describing the previous treatment Mr. Joyner has received at 
his hands and stating — 

He is under treatment at the present time and from my examination today — 
That is, August 31 — 

I feel that he is in grave danger of a complete collapse unless he follows my 
advice and takes a rest as I have advised. It might be desirable if he be hos- 
pitalized so that he can be closely watched. 

For your information, Mr. Chairman, I have asked Mr. Spear 
whether, in spite of Mr. Joyner's illness, it would not be possible to 
secure from Mr. Joyner the correspondence which he was asked to 
produce in his subpena, and Mr. Spear has informed me that he 
will discuss that matter with Mr. Joyner tonight and try to secure 
it, if it is at all available. 

The Chairman. Continuing with the letter of November 23, 1927, 
to Mr. Basil, written by you, Mr. Carse, you say: 

There have been manj^ rumors, and our Government has endeavored to ob- 
ta n details from us, and the British Government recently has been endeavoring 
to get information from us through our friends Vickers, but all discussions on 



MUNITIONS INDUSTRY 77 

the project under negotiation are fraught with danger and we have endeavored 
to keep the matter absolutely confidential * * * 

This refers to your dealings with Japan, which Mr. Joyner was in- 
teresting liimself in. Are we to understand that you were not giving 
to the United States Government, even though it was making inquiry, 
the facts that the Government wanted respecting these rumers of 
Japanese submarine building, Mr. Carse? 

Mr. Carse. They had some rumors somewhere that we had re- 
ceived a contract in Japan for a large number of submarine boats, 
and one of the Reserve officers, I believe of the O.N. I., came down to 
see me at my office. He was connected with some brokerage office in 
New York and he said that O.N.I, in Washington had directed him to 
come and get the particulars from me about the contract with 
Japan. I said, "We have not any contract with Japan." He did not 
believe it and was very indignant that I would not tell him about the 
contract with Japan. I said, "We have not any contract with Japan. 
I do not know of any contract with Japan." I said: "We have had a 
man over there talking to them, but what lias been accomplished, I do 
not know." He and a good many other people thought that by say- 
ing that that I was trjnng to hide something. 

Then I think we had other inquiries from Washington, and my an- 
swer was the same all the time, that we had no contract from Japan. 
We did not have and never have had. Simply because I could not 
give the answer they wanted is no reason why I should be condemned. 

Sir Trevor Dawson wrote asking me if we could let him Icnow what 
we were doing, and I simply had to tell him there was nothing tangible. 
We had heard a lot of talk about promises, and we had submitted pre- 
liminary sketches, not only for submarines, but for other vessels. 

Senator Pope. Wliere was Mr. Joyner when the Government was 
inquiring of you about this matter? 

Mr. Carse. He had not arrived here yet. He was on his way 
east, I think somewhere betv/een Honolulu and New York. 

Senator Pope. On his way to the United States? 

Mr. Carse. On his way back; yes, sir. They had evidently gotten 
some flash from Japan. I thought we were going to get the thing 
because gossip came to me from around the street that we were going 
to get a big order from Japan for building vessels, not only submarines, 
but other vessels, and one piece of gossip which came in was that some- 
bod}'' said they knew it because they knew where the money was. 
The money was already in New York to pay us, but we never saw it. 
It would have been a very nice piece of business for the United States 
if we could have landed it, and all those things, if possible to be ar- 
ranged, are beneficial to the United States, not only for labor but for 
the knowledge that the United States has of what is going on. 

The Chairman. But the United States does not get that knowl- 
edge until what is going on has happened, does it? 

Mr. Carse. Don't it? 

The Chairman. When the United States Government made inquiry 
of you, then, in this matter, you gave them all the information that 
was available? 

Mr. Carse. I gave them all the information which I had, which was 
nothing. 

83876 — 34— PT 1 6 



78 MUNITIONS INDUSTRY 

The Chairman. I offer in evidence as " Exhibit No. 43 " a copy of a 
letter addressed to Mr. Carse by Mr. Zaharoff under date of August 14, 
1928. 

(The letter referred to was marked "Exhibit No. 43" and appears 
in the appendix on p. 341.) 

The Chairman. I will quote this very brief paragraph from "Exhibit 
No. 43": 

I feel confident about your business in Spain, and believe that still bigger 
things are being cooked, though matters in that country take long to materialize. 

He has told you in this letter about seeing Alfonso going down in a 
submarine and quoting the newspaper account of that. 

I offer in evidence "Exhibit No. 44," being a letter dated September 2, 
1928, from Basil Zaharoff to Mr. Spear, in which the writer gives a 
lesson on how to get along with the authorities. 

I read from this letter dated the 2d of September 1928. 

I have your letter of 20th ultimo, with one from Mr. Daniell, about the Spanish 
Navy accepting the Echevarrieta offer to import all parts of a submarine boat 
to be assembled at Cadiz, and should tell you that we have for years past strongly 
opposed all offers made to the Spanish Government, but we were advised by 
good naval friends not to interfere in this case, because they did not want the 
authorities to think that they had got into a monopoly with us re submarines. 

We are advised that the clique that have been opposing our boats will now 
keep quiet, and the proof of this is that we are just negotiating most satisfactorily 
for a new lot of your submarines, and hope to conclude shortly. 

The letter is offered as "Exhibit No. 44". 

(The letter referred to was thereupon marked "Exhibit No. 44." 
and appears in the appendix on p. 341.) 

The Chairman. I offer as "Exhibit No. 45" a letter dated September 
10, 1928, addressed to Mr. Carse by Sir Basil Zaharoff where he again 
gives a recipe evidentl}^ this time on how to maintain a monopoly. 

He says: 

Exhibit No. 45 

September 10, 1928. 

My Dear Mr. Carse: Many thanks for your chatty letter of 27th ultimo, 
which I have read with much interest, and regret that there has not been har- 
mony between your naval authorities and your good selves. 

Government representatives are often difficult to deal with, but my 50 years' 
experience with them tells me that tact goes a very long way, and whenever my 
firm has got into misunderstandings with the authorities, I have always changed 
the person who has been negotiating, and utilized somebody else, and went on 
doing this until I had somebody who was sympathetic to the authorities. 

The Spanish naval programme is going on all right, and I expect final news 
during this autumn, and in one way am not sorry that Mr. Daniell is leaving, for, 
although he has now and then rubbed people the wrong way, without any in- 
tention of doing so. 

I trust that your news from Japan will continue improving, and that the 
business will come off to your satisfaction, and with my homage to Mrs. Carse, 
and love to your boy, I am, my dear Mr. Carse, 
Always cordially yours, 

Basil Zaharoff. 

(The letter above referred to was thereupon marked "Exhibit No. 
45.") 

The Chairman. I offer as "Exhibit No. 46" a letter dated November 
16, 1929, containing a request by Mr. Carse of Sir Basil for his help 
in behalf of one of the Electric Boat Companies' friends in the Navy 
Department. I read as follows: 

One of our friends in the Navy Department, Rear Admiral Andrew T. Long, 
has been nominated by President Hoover as Director of the International Hydro- 



MUNITIONS INDUSTRY 79 

graphic Bureau, located at Monaco, a position formerly held by the American 
Admiral A. P. Niblack. Admiral Long has been promised the support of a 
number of the countries lepresented in the League of Nations, and in talking over 
the matter with him the names of Spain and Greece have been mentioned, and, 
■without making statements to him, it has occurred to me that it might possibly 
be agreeable to you to recommend to your friends in Spain and Greece, if they 
have no other candidate for the position, to support the nomination of Admiral 
Long, who, you will no dou!)t remember, has been naval attache at Brussels and 
at Paris and commanded the European fleet of the American Navy, and was one 
of the members at the different Geneva conferences. You have probably met 
Admiral Long and have formed your own judgment as to his capacity and ability. 

(This letter was marked "Exhibit No. 46" and appears in the ap- 
pendix on p. 342.) 

The Chairman. I ask, Mr. Carse, did you know Admiral Long 
very well? 

Mr. Carse. No. 

Mr. Spear. I do. 

Mr. Carse. Mr. Spear does. 

The Chairman. Did you know him well? 

Mr. Spear. I had known him since my days in Annapolis. 

The Chairman. What was his part in the Geneva Conference or 
Conferences? 

Mr. Spear. He attended one of the conferences as one of the 
technical advisors to our delegation. That was one of the early con- 
ferences, in Geneva, as I remember. 

The Chairman. Further on in the letter by Air. Carse to Sir Basil 
he says: 

In Washington we have been making substantial progress. Our design of new 
submarine has been accepted by the Department and we are promised an order 
for two out of a present program of three submarine boats, but I should say in the 
abstract that such order could hardly be given to us pending the London Confer- 
ence to be held in January. As, however, it is generally conceded that no adverse 
action will be taken in connection with submarines at that conference, we expect 
to receive this order as soon as it can be properly given. 

Who, Mr. Carse, conceded or promised an order for these boats? 

Mr. Carse. Well, I do not Ivnow that anybody promised, but in the 
talking that was taking place at that time, it was spoken of that we 
would get an order for two boats. As it was, we did not, because 
thej went to Portsmouth. 

The Chairman. You were promised these boats? 

Mr. Carse. They had our designs. Our designs had been accepted 
and were considered very favorably, and so forth. I do not know that 
we were promised ; they did not promise me, but I was told that the 
general tenor down there was that the two boats would be allotted to 
us on the design that we had submitted. 

Senator Clark. WTio conducted the negotiations in the Navy 
Department? 

Mr. Spear. I did in large part. What happened was this: At 
that time they were considering submarines of a certain size and they 
wanted to get certain qualities. We got up a design to give them those 
qualities and then I held conferences with the technical bureau as to 
the features of those designs wliich for one reason or another they 
either wanted or did not want. It was finally settled with all the 
technical bureaus and we amended the design to suit their wishes. 
They felt it was a satisfactory design and the indications were that 
they thought that as long as they had not given us an order for 10 or 



80 MUNITIONS INDUSTRY 

12 years, it was time that we did receive an order; and the indications 
to me were that their intention was to place that order. As a matter 
of fact, the}^ were never built; those boats were never built at all. 
Later they decided to reduce the size and they built two smaller 
boats. We got an order for one and the other was built at a navy 
yard. So the hopes that we entertained were never realized. 

Senator Pope. Upon what did you base your statement here, 
"It is generally conceded that no adverse action mil be taken in 
connection with submarines at that conference", referring to the 
London Conference? 

Mr. Carse. I tliink that is very simple to explain. France was 
so absolutely and definitely opposed to the abolishment of submarines, 
that no agreement could be arrived at. The only nation that was 
strongly in favor of the abolition of submarine boats was Great 
Britain, because she knew that she could never engage in a war wdth 
a major power as long as submarine boats were in existence. They 
could blockade Great Britain a good deal better than they did the 
last time. 

Senator Pope. It was not based on any conference with our own 
Navy Department? 

Mr. Carse. No; not at all. 

Senator Bone. Mr. Carse, leaving the Government navy yard out 
of the picture of submarine building, is there any competitive factor 
in this country? Is there any other outfit building submarines? 

Mr. Spear. No other outfit is building them. Another outfit has 
bid upon them, or upon the last two lots and up to about 10 or 15 
years ago there was another company in the business, but they have 
since retired. The Navy did not give out any orders to private 
industry between 1918 and 1931. We did not receive any orders. 
In 1931 they asked for bids. We bid and one other concern bid. 
We were the low bidder, so we got the contract. Last year they 
also asked for bids; we bid, and another concern bid, and we were 
again the low bidders and received the contract. 

Senator Bone. Can you tell us the name of the concern that bid? 

Mr. Spear. In 1931 it was the New York Shipbuilding Corpora- 
tion. 

Senator Bone. They build battleships and cruisers and the like? 

Mr. Spear. They build all kin^s of things; Atlantic liners, de- 
stroyers, and anything that they are able to get. 

Senator Clark. Did not Bethlehem trj'- to chisel in on this business 
at one stage of the game? 

Mr. Spear. They never bid, but at one stage of the game, before 
we had a hull department of our own, we subcontracted to Bethlehem 
Shipyard the hulls on some of these boats. 

Senator Clark. Did not Bethlehem threaten to bid on some of 
these boats that you bid on? 

Mr. Spear. I heard rumors that they were going to, but they never 
did. 

Senator Barbour. In connection udth these commissions that 
have been mentioned, it would help me better to visualize what|they 
were if you were to tell the approximate price of a submarine of the 
usual size. 

Mr. Spear. In the United States or abroad? 

Senator Barbour. No; in the United States. 



MUNITIONS INDUSTRY 81 

Mr. Spear. Well, since the increase in costs and also the great 
■complexity in design in submarines, they have been built in navy 
yards for an average of around $2,900 to $3,000 a ton. Our prices 
on them are somewhat less. But that is about the prevailing price. 
It would depend on how many were built at one time and the design; 
that is, there is not a definite price per ton that applies to every bid. 

Senator Barbour, I understand that, but I was wondering, ap- 
proximately, looking at it from a layman's point of view, how much 
a submarine would cost. 

Mr. Spear. Well, I will tell you. The hulls v/ithout the machinery 
on the last two submarines cost a little under $2,400,000 apiece. 

Mr. Carse. That is on the last three. 

Mr. Spear. Yes; on the last three. That is the hull and the 
armament. That is all of it except the engines and the generators 
and the motors and the gears. 

Senator Barbour. Those are expensive. So that it would run to 
about over $2,500,000 complete. 

Mr. Spear. I should say that machinery — they have not received 
bids on machinerj^ yet — but the last bid that they had on machinery 
was a little less than a million dollars. I should say that the ma- 
chinery is worth somewhere between $800,000 to a million dollars. 

Senator Barbour. So we may say approximately $3,000,000. 

Mr. Spear. I should say for that size boat about $3,250,000, 
between $3,000^000 and $3,500,000. 

Mr. Carse. If it had not been for these foreign royalties that v>^e 
received from Europe on this foreign business, there would not be 
anj" such organization as the Electric Boat Co. with this trained, 
skilled crew^ of men, because that is the only thing that has kept us 
alive. 

The Chairman. Coming back to the case of Admiral Long and 
this letter which was marked ''Exhibit No. 46-A" (and appears in 
the appendix on p. 343), Mr. Carse on January 22, 1930, wrote Mr. 
Zarahoff as follows: 

My Dear Sir Basil; Your letter of November 29 was duly received and I 
communicated to Admiral Long that part concerning him and understand he 
has written to you, word coming to me that he has been promised 65 votes out 
of 69 necessary to elect. 

Do you know whether or not Admiral Long won the appointment 
at that time? 

Mr. Carse. He did. 

The Chairman. He did get it. 

Mr. Carse. Yes. 

The Chairman. Why did he come to you for help? 

Mr. Carse. He did not come to me. Some of our people spoke to 
me about it and I said, "Well, I \vill write Sir Basil and see if he 
cannot do something. " 

The Chairman. You communicated to Admiral Long? 

Mr. Carse. Yes. 

The Chairman. And told him what? 

Mr. Carse. Wliat Sir Basil had said. 

The Chairman. I offer in evidence as "Exhibit No. 47", a letter 
dated September 20, 1930, to Mr. Spear by Mr. Zaharoff. 

(The letter referred to was marked "Exhibit No. 47", and appears 
in the appendix on p. 344.) 



82 MUNITIONS INDUSTRY 

The Chairman. In this letter, marked "Exhibit No. 47", Mr. 
Zaharoff says: 

I quite agree with j^ou that everything should be and must be done to keep 
out the Germans, French, and Italians, and with j^our tact and that of Colonel 
Fuster and Cervera, I believe that the matter will be quietly piloted our way. 

Just what does that mean? 

Mr. Spear. That meant that we thought we would be successful 
in maintaining our position in preventing our European competitors 
from taking any of the business away from us. 

The Chairman. Zaharoff said in that same letter: 

The Spanish officers, like many others, endeavor naturally to show that they 
are inventing, and we should always seem to encourage such ideas while we are 
sticking to real safetJ^ 

That means that you were not accepting all of their thoughts? 

Mr. Spear. No; they present some thoughts to us. We consider 
that they are unsound or unsafe and we would not agree to incorpo- 
rate them in the designs for which we would be responsible. Some 
of them sometimes have ideas about what they think might be an 
improvement that from lack of real information on the subject would 
be wrong. We would not take the responsibility of accepting their 
ideas. 

Mr. Carse. You have to be careful that you do not offend them. 

The Chairman. I offer as "Exhibit No. 48" a letter dated August 
11, 1930, from Mr. Zaharoff to Mr. Spear. 

(The letter referred to was thereupon marked "Exhibit No. 48" 
and appears in the appendix on p. 344.) 

The Chairman. I find in this letter, "Exhibit No. 48 ", the following: 

You know that the Germans are using every imaginable trick to get a footing 
in Spain, also the Italians and French, but we are keeping our vigilant eye open, 
yet they may one day get hold of an interested official, and thus cause us much 
trouble. 

Just what was Sir Basil worried about there? What might they 
do to an interested official? 

Mr. Spear. I suppose they thought they might get some important 
official favoring their cause and advocating it which would cause us 
trouble. 

The Chairman. You don't think that he felt that Spanish officials 
might be susceptible to considerations that were not altogether con- 
fined to the merits of the case? 

Mr. Spear. I would not like to say what might be in Su' Basil's 
mind. 

The Chairman. I offer as " Exhibit No. 49 " a copy of a letter dated 
October 25, 1930, to Mr. Spear signed Zedzed. 

Mr. Carse. That is his cable address, his cable name. 

The Chairman. That is Zaharoff"'s cable name? 

Mr. Carse. Yes; Zedzed, Paris. 

(The letter referred to was thereupon marked "Exhibit No. 49"^ 
and appears in the appendix on p. 344.) 

The Chairman. In the closing paragraph of this last letter Mr. 
Zaharoff says: 

It is a very long time since I have seen Mrs. Spear and yourself, and I trust 
you are both well. I had the pleasure of entertaining here Mr. Sutphen, with 
some directors of General Motors. 



MUNITIONS INDUSTRY 83 

Mr. Siitphen, who were these dn-ectors in General Motors? 

;Mr. SuTPHEN. Mr. C. S. Kettering, vice president of General 
Motors and Mr. Codrington, who was president of the Winton 
Engine Co. 

The Chairman. Docs your company, the Electric Boat Co., have 
any coiniection at all with General Motors? 

Mr. Sutphen. No. 

The Chairman. None whatsoever? 

Mr. Sutphen. None whatever. 

The Chairman. Does General Motors hold any stock that you 
know of in the Electric Boat Co.? 

Mr. Sutphen. No. 

The Chairman. I offer as "Exhibit No. 50 " a letter dated Novem- 
ber 22, 1930, to Sir Basil Zaharoff by Henry R. Sutphen. 

(The letter referred to was thereupon marked "Exhibit No. 50" 
and appears in the appendix on p. 345.) 

The Chairman. I shall not offer the whole letter in evidence, as it 
seems to go into details concerning the visitation of Mr. Sutphen 
and the two General Motors officials in plants in Europe during your 
visit there. But in the second paragraph there is this language: 

Knowing of your interest in the Chase National Bank, upon my return I called 
upon Mr. Wiggin and told him of the very pleasant visit I had with you in Paris, 
and he was very sorry to learn of your illness. 

What is it you knew of Mr. Zaharoff 's interest in the Chase National 
Bank. 

Air. Sutphen. At the time that I visited with Sir Basil in_ Paris 
he asked me about Mr. Wiggin as he had heard that Mr, Wiggin had 
been in Europe that summer, but had not called on him. He men- 
tioned to me at the time that he was interested in the Chase National 
Bank and regretted that he had not had a chance to confer with Mr. 
Wiggin. 

Senator Clark. Mr. Carse, a while ago I asked you if Mr. W. B. 
Shearer had formerly been a member of your board and you said no. 
Had he had any other connection with the Electric Boat Co.? 

A'Ir. Carse. No. 

Senator Clark. Do you recall a conversation that you had some- 
time shortly prior to September 29, 1932, with Mr. N. E. Bates, Jr., 
of the duPont Co. in regard to some Peruvian business? 

Air. Carse. I remember Bates ; yes. 

Senator Clark. He came and talked to you about Peru? 

Air. Carse. Yes. 

Senator Clark. At that time you had a claim against Peru for an 
unpaid bill and you made an attempt to complete a scheme by which 
Peru would give you a guano concession; you were to apply that on 
your indebtedness and also get them some arms. Is that correct? 

Mr. Carse. No; that is not correct. Aubry was down in Peru 
representing us and trying to make some arrangement by which there 
would be a resumption of payments of our notes. He suggested that 
they might secure from the Peruvian Government an agreement that 
we would take guano to supply the Pacific coast on a certain basis. 
That was the Pacific coast only — California. The Atlantic coast had 
been given to some airplane manufacturer and the European market 
had long since been taken care of. 



84 MUNITIONS USTDLTSTEY 

Well, I made an examination, made a study of it, and I got in 
touch with William R. Grace & Co. who had handled the guano ex- 
ports from Peru for many years and found that the market in Cali- 
fornia was very meager and also that the Peruvian Government had 
already given the rights to some Peruvians down there. So that fell 
through entirely. So that did not amount to anything at all. It was 
such a small amount of guano. 

Senator Clark. That has very little to do with what I wanted to 
ask you at this time. I am now reading from a memorandum of a 
report from N. E. Bates, Jr., of the duPont Co., to Maj. K. K. V. 
Casey, director, dated December 29, 1932, which will be properly 
identified and put in evidence at the proper time. I am now reading 
simply for the purpose of refreshing your memory and getting your 
statement as to whether or not this memorandum correctly reports 
your conservation. After introducing the subject of Captain Aubry, 
Mr. Bates goes on: 

The plan as outlined by Aubry is that the Peruvian Congress would levy taxes 
on telegrams, cocoa, tobacco, etc.; the proceeds from which would be dedicated 
entirely to the payment of the $1,500,000 they expect to raise for the purchase 
of war materials. In the act will also be included a provision ceding to the 
Electric Boat Co., a concession to sell guano exclusively in the Atlantic coast of 
the United States; the guano to come from deposits now controlled by the 
Peruvian Government. 

Mr. Carse. That is wrong. There was not even any talk of the 
Atlantic coast. It was only the Pacific coast. 
Senator Clark. Continuing with tliis report: 

Mr. Carse figures that the revenue from the guano concession would amount 
to approximately $36,000 j^early. A similar concession is expected to be given 
to the United Aircraft Co. to whom the Peruvian Government owes $700,000. 
for the sale of guano on the Pacific Coast of the United States. 

Mr. Carse. It was just the reverse. 
Senator Clark (continuing reading): 

Mr. Carse thought we were manufacturers of arms and ammunition and there- 
fore, would be interested in supplying machine guns and ammunition to the Peru- 
vian Governm.ent with a possibility of giving the Government credit under the 
tax-levy plan suggested by Captain Aubry and which, of course, would mean that 
payment would depend upon collection of the proposed levies. 

Then there are certain other paragraphs not material to what I 
want to ask you at this time. Then there is a paragraph as follows: 

Carse informed me that the famous Mr. Shearer was formerly a member of his 
board of directors. Captain Aubry formerly represented Vickers in Peru, but 
Carse understands he is no longer connected with that British concern. 

Did 3'ou make any such statements as that to Mr. Bates? 

Mr. Carse. Never, never, never. 

Senator Clark. Was Shearer's name discussed between you? 

Mr. Carse. Never. I don't know why I should. 

Senator Clark. I do not know why you should, either. I am just 
asking you because Mr. Bates, in his report to his superior in the 
duPont Co., says that you did. 

Mr. Carse. There is absolutely nothing to it. I have only seen 
Mr. Shearer once in my life. 

Senator Clark. It is your contention that Mr, Bates just gra- 
tuitously included that misstatement in his report to his superior? 



MUNITIONS INDUSTRY 85 

Mr. Carse. I do not know where he got it from. There is no 
reason why I should discuss that with him. I only met him once in 
my life and that was many years ago. 

RELATIONS WITH PERU 

Senator Clark, Now, Mr. Carse, I want to direct your attention 
to the company's business in Peru. When did you first know Com- 
mander Aubry? When did he first come in contact with your 
company? 

Mr. Spear. While he was still in active service as naval attache in 
Washington. 

Senator Clark. He was at that time naval attache at the Peruvian 
Embassy in Washington? 

Mr. Spear. Yes. 

Senator Clark. And he was on the active list of the Peruvian 
Navy? 

Mr. Spear. Yes. He approached us with certain inquiries as to 
technical matters and various things he wanted to know. 

Senator Clark. On whose behalf did he approach you — on behalf 
of the Peruvian Government? 

Mr. Spear. The Peruvian Government. 

Senator Clark. When did you first employ Commander Aubry as 
your Peruvian agent? 

Mr. Carse. It was after he resigned. It must have been about 
1923. 

Mr. Spear. I think 1923 or 1924. The records would show it. 

Senator Clark. Was he on the active list of the Peruvian Navy at 
the time he was representing you as your representative either in 
Peru or in other South American countries? 

Mr. Spear. He was not. 

Mr. Carse. He was not; never. 

Senator Clark. Back in 1919 you heard through former President 
Leguia that he was interested in submarines; and you also had infor- 
mation at that time that Leguia would be back in power within 3 or 
4 months, did you not? 

Mr. Carse. I cannot recall. 

Senator Clark. I call your attention to a letter written by your- 
self to Mr. Spear which I will ask to have marked at this time for 
purposes of identification "Exhibit No. 51". 

(The letter referred to thereupon was marked for identification 
"Exhibit No. 51.") 

Senator Clark. Your letter reads as follows: 

Exhibit No. 51 

March 29, 1919. 
Mr. L. Y. Spear, 

Vice President, Electric Boat Co., Groton, Conn. 

Dear Mr. Spear: Referring to your letter of March 24 to Captain Buenano, 
the captain would like some definite explanation as to thie difference between the 
double-hull and the single-hull submarine, and would also like sketches of them or 
some general plan so that he could send full information to his people. 
Will you kindly have it sent forward as soon as possible and oblige, 
Yours very trulv, 

(Signed) (?) Carse. 

P.S. — Captain Buenano states that President Leguia will be returned to the 
Presidency in 3 or 4 months and it is he who is asking for the data on 
submarines, as the sentiment throughout the whole country is to secure land 



86 MUNITIONS INDUSTRY 

and naval armaments to protect themselves from Chile. If you have any 
photographs or pictures of any sort in relation to submarines or their machinery, 
the captain would like very much to have it so that he could send everything 
possible to Peru. 

Does that refresh your memory as to what information you had 
received that President Leguia would be returned to power in a few 
months? 

Mr. Carse. Well, that was 15 years ago, 1919. 

Senator Clark. How long had you known President Leguia? 

Mr. Carse. I did not know him at all. 

Senator Clark. How long had President Leguia been in communi- 
cation with your company, doing business with your company? 

Mr. Carse. That was back before I came into the company. Mr. 
Spear would know. 

Senator Clark. Did you not have some relation with President 
Leguia when he was in power before? 

Mr. Spear. Yes, sir. When President Leguia was in before he 
made with us — that was before Mr. Carse came into the company — a 
contract for I think six submarines, as I recall it. After he made the 
contract, he changed his mind as to the desirability of acquiring these 
vessels and that is where I first met Mr. Buenano. He sent Captain 
Buenano up to see us and asked us if we would not abrogate the 
contract and return the notes. 

Mr. Carse. I think there were $252,000 of treasury certificates. 

Mr. Spear. The first payment had been given us in notes and we 
decided that if the President did not want what he thought he wanted, 
it was not good business to try to hold him to a contract and we agreed 
and returned the notes. After that President Leguia was deposed 
and was in Europe for a good many years. Personally, I never met 
him and all of that negotiation was conducted by an American agent 
that we sent down there v/ho knew Lima pretty well and knew the 
President. He brought the matter to us and the negotiations, the 
original negotations "were all conducted through that agent, a man 
by the name of Chester. 

Senator Clark. As a matter of fact, at this time to which the 
letter I have just read refers, what you were actually doing was 
negotiating with a party of revolutionists who were fixing to over- 
throw the government. 

Mr. Spear. We were not negotiating with anybody. 

Senator Clark. You were furnishing plans for submarines to be 
used by Leguia who was at that time attempting to overthrow the 
Government b}'' revolution. 

Mr. Spear. He came back at that time and got elected. 

Senator Clark. Do you know what was the situation between the 
Peruvians and the Chileans. 

Mr. Spear. There had been ill-feeling there for years over the 
settlement of a boundary. In fact there was to be a plebescite to 
decide wlio owned the country, but it never had been held, and it 
was an open sore between the two countries. In fact our country 
sent a commission down to try to mediate the differences. 

Senator Clark. As a matter of fact, at this particular time, 1919-20 
Chile had bought some war vessels. 

Mr. Spear. The Peruvians knew the Chileans had more arms than 
they had, and they w^oiild not trust them. 



MuisriTioisrs industry 87 

Senator Clark. Was it not a common rumor at that time that 
Chile had purchased some warships through Vickers. 

Mr. Spear. I could not tell you what was the rumor at that time. 
That might be, but I do not know. 

Senator Clark. Now, in 1920 jon were trying to sell the Peruvians 
some destroyers, were you not? 

Mr. Spear. Yes. 

Senator Clark. At $100,000 apiece? 

Mr. Spear. I do not recall the price. I would hardly want to say 
the prices from memory. 

Senator Clark. I offer in evidence a letter dated March 24, 1920, 
from !Mr. Spear to the Peruvian Ambassador. 

Signor Pezet was Ambassador at that time. 

Mr. Spear. I think so. 

Senator Clark. I offer as "Exhibit No. 52", this letter. 

(The letter referred to was marked as "Exhibit No. 52" and 
appears in the appendix on p. 346.) 

Senator Clark. I read from this letter, " Exhibit No. 52 " as follows: 

Referring to the negotiations inaugurated by you with respect to the sale to 
your Government of the four torpedo boat destroyers which we have on hand 
for prompt delivery, we take pleasure in advising you as follows: ¥/hile we have 
a number of inquiries for these vessels, we shall be glad, as an accommodation 
to you, to hold them at your disposal until June 1, 1920. 

Were those vessels sold? 

Mr. Spear. No; they were not. 

Senator Clark. At the same time you were quoting them on 
submarines? 

Mr. Spear. I would not trust my m.emory whether we were 
quoting them at that time on submarines or not, but I do not think 
so. Those destroyers were discarded vessels that had been sold by 
the United States Government for scrap. We purchased them and 
the Ambassador knew we owned them, and he approached us to get 
a price on them. 

Senator Clark. You asked $100,000 for the destroyers and $130,- 
000 to arm them? 

Mr. Spear. Something of that sort. We had bought them at a 
scrap sale from the United States Government. 

Senator Clark. The quotations are stated in this letter of April 
1, 1920, which I offer in evidence as committee's "Exhibit No 53." 

(The letter referred to was marked "Exliibit No. 53", and appears 
in the appendix on p. 346.) 

Senator Clark. I call your attention to this letter dated April 1, 
in which you wrote Mr. Chapin — he was at that time your Wash- 
ington representative, was he not? 

Mr. Spear. Yes; he was. 

Senator Clark. You wrote him this letter I have referred to 
giving quotations for submarines for Peru. 

Mr. Spear. Yes. 

Senator Clark. At that time, Mr. Spear, the Peruvians were 
attempting to buy some submarines from the United States Gov- 
ernment, were they not? 

Mr. Spear. I understand the}^ did. 

Senator Clark. You were informed by Mr. Chapin that the 
Navy would not sell any submarines to Peru or Chile on the score 



88 MUNITIONS INDUSTRY 

this might be encouraging an outbreak of war between Chile and 
Peru. 

Mr. Spear. I do not recall the detail of what the reasons were, 
but I recall that approach was made by the Peruvians to the Gov- 
ernment, and it was declined later. 

Senator Clark. I offer "Exhibit No. 54", being a letter dated June 1 , 
1920, from L. Y. Spear to H. R. Carse. 

(The letter referred to was marked "Exhibit No. 54", and appears 
in the appendix on p. 347.) 

Senator Clark. In that letter, "Exhibit No. 54", Mr. Spear says: 

The Ambassador is cabling the Government tnat the United States has defi- 
nitely decided as a matter of policy not to supply anythi.ig either to them or to 
Chile on the score that this might be encouraging an outbreak of war between 
them. It is reported on good authority that tlie British Government is going 
to help the Chileans out, and if this is so or believed to be so by the other govern- 
ment, it ought to influence them io favor of our proposals. 

Now, it did not make any difference to you whether it was true or 
believed to be true by the Peruvian Government that Chile was 
arming? 

Mr. Spear. Not a bit. 

Senator Clark. Neither one would help you to sell submarines to 
Chile. 

Mr. Spear. It would bring them into the market for them if it was 
true or not 

Senator Clark. Did you take any steps to keep the United States 
Government from selling submarines to the Peruvian Government? 

Mr. Spear. None whatever. 

Senator Clark. If the United States Government refused to sell 
submarines to Cliile or Peru on the ground that it might be encourag- 
ing an outbreak of war between Peru and Chile, it indicated a very 
strong opinion on the part of the authorities in the United States that 
the sale of submarines would foment a war down there, did it not? 

Mr. Spear. Not that I know of. 

Senator Clark, Would not that be your deduction from the lan- 
guage in this letter? 

Mr. Spear. My deduction would be that any government would 
be very chary of it supplying to either side in that dispute something 
that might be used in the event of an outbreak of hostilities. 

Senator Clark. The delivery of submarines to either of those 
countries on the verge of war would be calculated to promote a war? 

Mr. Spear. I would not say it would be that, but I would say it 
was calculated to stop it. 

Senator Clark. That has not been the experience of mankind 
throughout the history of the world. 

Mr. Spear. My judgment would be that if one side was equipped 
to defend itself and the other was not, it would not promote a war. 

Senator Clark. Now, when you put out the report that the British 
Government was arming Chile, you were to that extent using the 
British Government to help you sell submarines. 

Mr. Spear. I was not using anything. I was writing a letter^ to 
Mr. Carse telling him such information as I had. It was advising 
Mr. Carse of what I had heard. 

Senator Clark. And now, when did the Bethlehem Steel Co. come 
into the picture as a competitor? 



MUNITIONS INDUSTRY 89 

Mr. Spear. I do not know. You will have to refresli my memory. 

Senator Clark. I offer "Exhibit No. 55", being a letter from F. E. 
Chapin, dated June 3, 1920, addressed to Mr. Spear. 

(The letter referred to was marked "Exhibit No. 55", and appears 
in the appendix on page 347.) 

Senator Clark. In this letter, "Exhibit No. 55", Mr. Chapin says 
on page 2: 

I am enclosing copy of a letter which I sent yesterday to Commander Azevedo 
after I had talked with Mr. Carse about the activities of Bethlehem. My con- 
versation over the telephone with Mr. Carse was inspired by the activities of 
Mr. Smith, a vice president of the Bethlehem, who tried to see Commander 
Azevedo in New York last Thursday, and I think succeeded. Mr. Smith was 
most persistent, and called the commander up two or three times by telephone, 
saying they could build submarines and that they had an agent in Rio and they 
had been building submarines for many years. Of course, I told Commander 
Azevedo that they were our subcontractors and only built the hulls and some 
minor parts, but everything was under the direction and supervision of the 
Electric Boat Company. It v/ould seem to me that Bethlehem is not proceeding 
in what I would call an ethical manner by trying to butt into our province as 
builders of submarine boats, and it looks to me as if there might be rather stiff 
competition if they pursue this course. 

Mr. Carse. That is Brazil. 

Senator Clark. What I asked was when the Bethlehem Steel 
tried to "butt" into the building of submarine boats. 

Mr. Spear. This letter appears to be dated June 3, 1920. 

Senator Bone. Do they still try to build hulls for the United 
States Government? 

Mr. Spear. No. 

Senator Bone. Is their equipment capable of doing that? 

Mr. Spear. It is capable; yes. 

Senator Bone. You have stated at that time they were building 
hulls? 

Mr. Spear. Yes. 

Senator Bone. You had confidence in the abilitv of the corporation 
to build hulls? 

Air. Spear. Under our supervision; j^es, sir. 

Senator Bone. What I mean is, they have the equipment there? 

Mr. Spear. Yes; they have the equipment there, and properly 
mimaged they could build a hull. 

Mr. Carse. They had no right to make that offer in 1920, because 
their contract with us was they would not build submarines until 
after a couple of years after they finished our work. 

Senator Clark. You afterwards made up "v^dth the Bethlehem, and 
paid half of the expenses of a representative in South America. 

Mr. Spear. I do not know that we did, but it may be we did. 

Senator Clark. I \\dll come to that in a few minutes, at the proper 
time, when I come to that correspondence; but right now I will ask 
this: As far back as 1920, Mr. Carse, your representative in Washing- 
ton, Mr. Chapin, recognizes the significance of what you submarine 
companies were doing in South America in promoting war. 

Mr. Carse. I do not know. 

Senator Clark. I should have asked Mr. Spear that question. He 
advised j^ou, Mr. Spear. 

Mr. Spear. I do not know whether he did or not. 



90 MUNITIONS INDUSTRY 

Senator Clark. I call attention to a letter from Chapin to you, 
dated June 3, 1920, which I offer as " Exhibit No. 56 ". 

(The letter above referred to was marked "Exhibit No. 56", and 
appears in the appendix on p. 348.) 

Senator Clark. Mr. Spear, at the time of the writing of that 
letter Mr. Chapin had been endeavoring to get the United States 
Government to send several submaiines around South America as a 
sort of an exhibit of their efficiency, had he not? 

Mr. Spear. I do not understand the Senator's question as to 
promoting war? 

Senator Clark. I will come to that later. I say, at that time Mr. 
Chapin as your representative had been endeavoring to get the 
United States Government to send a fleet of submarines around the 
South American coast as a sort of show case of your wares? Is that 
not correct? 

Mr. Spear. He says here that he had talked about that subject. 

Senator Clark. I will read that paragraph of the letter, as follows: 

Dear Larry: I have just left Admiral Niblack; talked with him about send- 
ing a fleet of submarines to South America to visit Rio, the Argentine, through 
the Straits and up the west coast. He has given directions to Captain Gal- 
braith to agitate this subject and see if it cannot be consummated. 

Who was Admiral Niblack? 

Mr. Spear. I think at that time Admiral Niblack was head of the 
Naval Intelligence. 

Senator Bone. Of the United States, you mean? 

Senator Clark. Yes. 

Mr. Spear. I think so. 

Senator Clark. Then this letter continues as follows: 

He believes in it. I brought the topic up by asking if the Department had 
under consideration the sending of a fleet; if it did, why it could not send a 
submarine. 

He said the Department was opposed to sending a fleet, for the reason the ships 
were not in good condition and it would take them away from service in the 
Atlantic or Pacific, but they had thought of sending a division of four ships. 
Nevertheless, he has taken up the question of sending submarines independently. 

He tells me that the whole balance of power has been destroyed by Chile 
getting six submarines and two warships from England, and that it has caused a 
good deal of uneasiness on the part of the Argentine, while Peru is absolutely help- 
less. He said in this connection the Department had recommended that six 
destroyers be released by the Department, but the Cabinet had sat down most 
emphatically on the proposition, so there is no chance of that being done at the 
present time. He said that in his talk with Pezet he told the Ambassador that 
it had occurred to him it was now a matter of Peru going into the market and 
buying outright not only with respect to destroyers, but also as to submarines. 

That is the Chief of Naval Intelligence advising the Peruvian 
Ambassador as to what he should do. 
Mr. Carse. It was Chapin advising him. 
Senator Clark. No; he says: 

The admiral said that possibly the Department could be of assistance by 
releasing one of the submarines novv- building and substituting therefor another 
to be built by the contractor later on. This would insure quick delivery, but I 
do not favor tlie plan very materially because I think the price named by the 
Navy would be niucli lower than the one we have quoted to the Peruvian Govern- 
ment. And perhaps even this proposed act on the part of the Department in 
releasing one of the submarines now under construction would be objected to 
quite as vigorously by the Cabinet as the proposition to release destroyers. 



MUNITIONS INDUSTRY 91 

So it was the position of your company if the Navy was to sell any 
of these vessels to Peru, that it would sell them at a lower price than 
you had quoted and therefore would be breaking the market on 
submarines. 

Mr. Cause. No; that was Chapin's cliitchat. 

Senator Clark. He was your representative; was he not? 

Mr. Carse. He was expressing his view. We never coincided with 
it. 

Senator Clark. Did you want the Navy Department to sell these 
submarines to Peru? 

Mr. Carse. What difference did it make, if they bought another 
one from us? 

Senator Clark. If who bought another one? 

Mr. Carse, The United States Navy. 

Senator Clark, Did you have any assurance the United States 
Navy would buy another one from you? 

!Mr. Carse, No; it was just cliitchat. The United States would 
not do what he was talking about. 

Senator Clark, If the United States Government would buy six 
submarines from you and turn around and sell them to Peru, what 
was your assurance of that? 

IMr, Carse. They were not talking about buying six submarines. 
They were talking about buying one boat. 

Senator Clark. This letter said they were talking about selling 
six submarines. 

Mr. Carse. The British Government sold six, the United States 
Government did not. 

Senator Bone. Does the United States Navy listen to suggestions 
that tliey send the Navy or a part of the Navy around the world on 
a sales expedition for a private corporation? 

Mr. Carse. It was not a sales expedition. 

Senator Bone. I am taking tliis letter as it reads. 

Mr, Spear. So far as I know that proposition was never put up to 
them. 

Senator Bone. It was seriously suggested that the Navy at the 
expense of the taxpayers, send a fleet down there to promote the sale 
of wares of a private company. Was that actually done or actually 
seriously suggested? 

Mr. Spear. I do not know that it was ever done. 

Senator Clark, It was suggested by your representative to the 
Department, was it not? 

Mr, Spear. I do not know. 

Senator Clark. You were informed by your representative that 
that had been done. 

Mr. Spear. All of the information I have is what is there. 

Senator Clark. He says that he had suggested to Admiral Niblack, 
and that he was in favor of it and had instructed one of his subordi- 
nates to agitate it. 

Mr. Spear. I believe it was advocating sending four ships down 
there. That is my understanding. 

Senator Bone, Is the Navy trying to promote the creation of 
larger armaments among these nations? 

Mr, Spear, Not that I know of. 



92 MUNITIONS INDUSTRY 

Senator Bone. And then we carry on peace conferences at Geneva, 
at the same time? 

Mr. Spear. I would not think so. 

Senator Clark. What was the occasion of your company having 
the submarines sent down there, was it not as a showcase? 

Mr. Carse. I never heard of it. 

Senator Clark. You may not have heard of it, Mr. Carse. I am 
not examining you. I ask Mr. Spear now whether you heard of it 
or not, and your corporation has assented to it as a statement of 
your representative. 

Mr. Carse. It was chitchat so far as I know. 

Senator Clark. It is not chitchat when a representative of your 
company goes to the Navy Department and makes a proposition of 
this character and he writes about it to your responsible vice president. 
Do you recall that? 

Mr. Spear. I do not recall it now, but I no do^ubt did at that time 
know of it. I had no recollection of it until you brought it back to 
my mind. 

Mr. Carse. Your representatives very often bring before you many 
propositions which you are obliged to turn down. 

Senator Clark. Mr. Carse, if you will read this letter you will see 
he was not bringing any proposition to Mr. Spear, but that he was 
reporting that he had taken official action on behalf of your company. 
It was a report of something he had done as your representative. 

Mr. Carse. It was a question of whether he had the power as a 
representative. 

Senator Clark. Do you know of any action ever taken to reprove 
him for the action he reported? 

Mr. Carse. I do not know about it. 

Senator Clark. Mr. Spear, do you know of any action taken to 
reprove him? 

Mr. Spear. I do not know anything about it. 

Senator Clark. So that Mr. Chapin's action did stand as the 
action of the company? 

Mr. Spear. I do not know whether it did or not. I recall nothing 
about it. 

Mr. Carse. It never was done, anyhow. 

Senator Clark. Now, Mr. Spear, in 1920, Commander Aubry who 
was your representative in Peru was instructed by the Peruvian Gov- 
ernment to come to Washington to get a loan, was he not? 

I call your attention to a letter dated July 16, 1920, which I offer 
as "Exhibit No. 57". 

(The letter referred to was marked "Exhibit No. 57", and appears 
in the appendix on p. 348.) 

Mr. Spear. Let me see that to refresh my mind. In 1920 he was 
not our representative. He was Naval Attach^ here, and he was act- 
ing for the Peruvian Government at that time. 

Senator Clark. That was before Commander Aubry made his 
arrangement for you? 

Mr. Spear. Yes; that was in 1920, and he was naval attache here 
at that time, I believe. 

Senator Clark. He was the same man who later became connected 
with you? 



MUNITIONS INDUSTRY 93 

Mr. Spear. The same man who, when he retired from active service, 
entered our employ. 

Senator Clark. When did he begin to be your representative? 

Mr. Spear. I have just testified that my best recollection is that 
it was 1923, but I have not looked it up. 

Senator Clark. I know that in 1921 you paid him $4,000 for ex- 
penses in 1920. 

Mr, Spear. That was for a book that he wrote. 

Senator Clark. It is enumerated here in "Exhibit No. 41" as 
"Expenses". 

Mr. Spear. That is what it was, it was a book that he wrote. He 
delivered some lectures and made up a book, which we thought was 
very useful to us. 

Senator Clark. That book was sometime later, was it not? 

Mr. Spear. I have not the exhibit right before me to refresh my 
memory. The book consisted of a print of a lecture which he had 
delivered with films in a theater in Lima to demonstrate the superior- 
ity of the electric boat over all otheis. 

Mr. Carse. That v/as before we paid him. It was in Spanish, and 
we circulated it all over the Spanish countries. 

Senator Clark. Anyway, Commander Aubry was sent up here for 
the purpose of floating a loan of $15,000,000 in this country, and that 
loan was to be used chiefxy for the purpose of arm.am.ent. Is that not 
correct, Mr. Spear? 

Mr. Spear. I could not tell you v/hat it was to be used for. It 
does not appear to shj here. 

Senator Clark. Now, Mr. Spear, on the question of whether or 
not this man was your agent at this time, I refer you to page 3 of the 
letter which you have in your hand, this being a letter from Mr. 
Chapin to your firm. It says: 

When you meet Captain Aubry, he may tell you something about the lecture he 
made in one of the largest theatres in Lima about the merits of the electric boat 
as compared with other submarine boats. The captain tells me that he had an 
audience of about three thousand people. His lectures were illustrated by pic- 
tures and films which you had furnished him. The President, the Minister of 
Marine, and other members of the cabinet were present, as well as the members 
of the Pro- Marine which is a society composed of citizens who are deeply interested 
in the welfare of the country but more particularly with relation to naval affairs. 
It appears that Captain Aubry arrived in Lima at a most opportune time. The 
Minister from Italy had been active with the Society of the Pro-Marine, and a 
contract had been prepared and was ready for signature, calling for the purchase 
of three of the Laurenti boats. If the contract had been signed it would undoubt- 
edly have committed the country to that particular type of boat, but owing to the 
representations made by Captain Aubry the contract was not signed and I judge a 
good deal of hornet's nest was started which resulted ultimately in the action of 
the President and his Cabinet determining to order four submarine boats from the 
Electric Boat Company- 

Would you not draw from that, that Captain Aubry was your 
representative in Peru at that time? 

Mr. Spear. He was not. He was in the active service of the 
Peruvian Government. He considered the submarines we built 
were much better adapted to the Peruvian conditions than the others, 
and he was acting in his official capacity for the Peruvian Govern- 
ment. He was in no way an agent of ours. 

83876— 34— PT 1 7 



94 MUNITIONS INDUSTRY 

Senator Clark. So at this time you would have the committee 
behove that Captain Aubry, a patriotic Peruvian, was going out hiring 
a hall and giving this lecture with films without any compensation 
from your company, and just as a coincident shortly thereafter he 
became your agent, not only in Peru, but in the whole of South 
America? 

Mr. Spear. That is what he did, but as I recall it, we defrayed the 
expenses of publishing that book. 

Senator Clark. You bought some copies? 

Mr. Carse. Quite some time afterwards. 

Mr. Spear. I think we eventually bought it and published it, and 
circulated it throughout the Spanish-speaking countries, because it 
was printed in Spanish. 

The Chairman. Senator Clark being willing, the committee will 
recess until 10 o'clock tomorrow morning. Let it be understood 
tomorrow morning, as the committee will meet at 10 o'clock, it will 
undertake to go through until 1 o'clock and break up the day at that 
hour rather than earlier. 

Until 10 o'clock the committee stands in recess. 

(Thereupon the committee recessed until 10 a.m., Wednesday, 
Sept. 5, 1934.) 



INVESTIGATION OF MUNITIONS INDUSTEY 



WEDNESDAY, SEPTEMBEU 5, 1934 

United States Senate, 
Special Committee to Investigate 

THE Munitions Industry, 

Washington^ D.G. 

The hearing was resumed at 10 a.m., in the caucus room, Senate 
Office Building, Senator Gerald P. Nye presiding. 

Present: Senators Nye (chairman), George, Clark, Bone, Pope, 
and Barbour. 

Present also : Stephen Raushenbush, secretary ; and Robert Wohl- 
forth, assistant to chief investigator. 

The Chairman. Let the committee be in order. Senator Clark, 
you may proceed v^ith the witness. 

TESTIMONY OF HENEY R. CARSE, LAWRENCE Y. SPEAR, AND 
HENRY R. SUTPHEN— Resumed 

RELATIONS WITH PERU 

Senator Clark. Mr. Spear, I believe when the hearing adjourned 
yesterday j^ou had testified that at the time when Commander Aubry, 
of the Peruvian Navy, had hired a theater in Lima and addressed 
an audience of some 3,000 people including the President of Peru 
and the Minister of Marine, in a lecture illustrated by some 50 
slides, illustrating the superiority of the products of the Electric 
Boat Co. over all other submarines, and had later had this lecture 
published in book form which he circulated at his own expense 
to some extent, and at no cost whatever to your company. 

Mr. Spear. That is my understanding. 

Senator Clark. How long after this lecture was it that this 
beautiful exhibition of friendship was rewarded by your company 
giving him a contract? 

Mr. Spear. I am not sure of the date. 

Senator Clark. About how long? I do not mean to be exact. 

Mr. Spear. You mean when he sent the first contract ? 

Senator Clark. No; when you made the first contract with Com- 
mander Aubry, when he became your representative? 

Mr. Spear. I think it was 1923. The record will show, and I may 
be wrong, but I think the record will show it was July 1923. 

Senator Clark. I am not asking for the exact date. As I under- 
stand, the commander had published these books on his own ac- 
count and you paid him for 2,000 of them at, roughly speaking, 
$2 apiece. 

Mr. Spear. That is my general understanding. 

95 



96 MUNITIONS INDUSTRY 

Senator Clark. That was on the suggestion of Mr. Chapin? 

Mr. Spear. Yes. 

Senator Clark, In addition to that Commander Aubry sent out 
several hundred copies of the book containing the lecture, on his 
own account? 

Mr. Spear. That I do not know anything about. I did not recall 
anything about it offhand until you reminded me. 

Senator Clark. You knew at the time? 

Mr. Spear. Probably I did ; but I do not remember now. 

Senator Clark. To refresh your memory on that, I call your 
attention to a letter from Mr. Chapin to yourself dated September 
21, 1920, which I will ask to have marked '' Exhibit No. 58." 

(The said letter referred to was marked " Exhibit No. 58 ", and 
appears in the appendix on p. 350.) 

Senator Clark. I read from this letter, " Exhibit No. 58 ", as 
follows : 

I saw Commander Aubrj' this morning. He is very much pleased that Mr. 
Carse, as well as your self, approves the proposed purchase of his article at $2 
per copy. He tells me that by October 20, and perhaps earlier, he will deliver 
to you 1.000 copies, and by November 10, S40 copies additional. Perhaps these 
deliveries can be made earlier, but in the meantime he would like to have you 
send him a check for $2,000 so thsit he can remit to the printers in Lima. The 
remaining $2,000 may be forthcoming when the final copies are delivered. 

The Conimander tells me that he left instructions in Lima for the distribu- 
tion to the Memliers of Congress and Government officials of possibly 1,000 
copies. In addition to that number he sent several hundred copies to his 
friends in Buenos Aires. 

Of course, he is not making any charge for those copies. 

If I understand, he was doing that as an act of charity to the 
Electric Boat Co. 

Mr. Spear. All I know about it is what is in this letter. 

Senator Clark. And now, I want to recur for just a moment to 
the letter of June 3. which we had here yesterday, the letter in which 
Mr. Chapin describes his interview with Admiral Niblack. 

Mr. Spear. Can I get that again ? 

Senator Clark. I can read enough to refresh your memory. This 
is Cha])in speaking, and he says : 

He (Admiral Niblack) tells me that the wlaole balance of power has been 
rlestroved bv Chile getting 6 submarines and 2 warships from England, and it 
has caused a. gieat deal of uneasiness on the part of the Argentine, while Peru 
is absolutely helpless. 

Are you familiar with the fact in connection with the submarines 
which Chile got from England? 

Mr. Spear. I think that was a piece of misinformation myself. I 
do not think they did get them. 

Senator Clark. Is it not a fact that what Chile got was manu- 
factured in the United States? 

Mr. Spear. No; I do not know that. 

Senator Clark. Is it not a fact that in the early days of the war 
Chile was having a warship constructed in England, and when the 
war started the British Government seized this Chilean warship and 
used it for their own purposes in the war; and that after the war. 
in compensation for the seizure of that warship, the British Govern- 
ment did arrange to have certain submarines made for Chile, and 
they were made in this country ? 



MUNITIOXS INDUSTRY 97 

. Mr. Spear. Not after the war. 

Senator Clark. When was it done? 

Mr. Spear. That was done during the war, when the United States 
entered the war. The British Government ordered from us and the 
Bethlehem Co. some submarines, and we built 10 of them in the 
United States. 

Senator Clark. Did jou build those ships for the Chilean Gov- 
ernment ? 

Mr. Spear. No; for the British Government. If you will permit 
I will tell you this about it. We being at war, of course, the ships 
could not be delivered and when they were finished they were taken 
to the Boston Navy Yard and immuned by the United States Gov- 
ernment, and wdien the United States entered the war the British 
Government and the Chilean Government made some kind of a 
trade, and the Chilean Government then acquired 5 or 6 subma- 
rines. But this has nothing to do with the statement of Admiral 
Niblack, because that occurred in 1917. 

Senator Clark. You stated you thought this information that 
Chile had received these warships was erroneous ? 

Mr. Spear. Yes; I was under the impression we were talking 
about something that had not happened 3 years before. My impres- 
sion was that was an erroneous impression of Admiral Niblack. I 
did not recall that Chile acquired any ships for some years after 
that. 

Senator Clark. So that this whole occasion of arming Peru, and 
of the revolution in Bolivia on the basis of the arming against Chile 
was based on an erroneous rumor? 

Mr. Spear. That is m}^ impression. I do not say that is a state- 
ment of fact, Chile had the ships we had just referred to, and it is 
possible, of course, that is what Admiral Niblack had in mind. 

Senator Clark. This order from Peru j'ou were negotiating in 
1920 was expected to be a fairlj^ large order, was it not? You re- 
ferred in one of your letters to it probably running between eleven 
and twelve million dollars. 

Mr. Spear. My impression is that we were talking at that time, 
if I am right about this, about 6 or 8 boats in a program. 

Senator Clark. How many boats would eleven or twelve million 
dollars pay for? 

Mr. Spear. That would depend on the size entirely. 

Senator Clark. I refer you to a letter dated July 20, 1920, which 
I will ask to have marked " Exhibit No. 59 ", the letter being from 
yourself to Mr. Carse. 

(The letter referred to was marked " Exhibit No. 59 ", and appears 
in the appendix on p. 350.) 

Senator Clark. This letter, " Exhibit No. 59 ", reads as follows : 

Commander Aubry s])ent yesterday with me liere, accompanied by Com- 
manders Freyer and Causey of the United States Navy. The latter two 
gentlemen are ffoing to Pern probably next week to practically take charge of 
the Peruvian Navy. 

That was the American Naval Commission to Peru by which the 
American Government allowed certain officers of the United States 
Navy to enter into contracts with Peru and other South American 
governments for jDractically taking charge of their Navies for the 



98 MUNITIONS INDUSTRY 

purpose of administration and training, and these two referred to 
were to be members of the American commission to Peru. 

Mr, Spear. They were to be on that commission ; yes. 

Senator Clark. Proceeding with the letter, it says : 

Commander Aubry seems to have made a great success of his visit. The 
Goverument has decided to order from us four 900-ton submarines and one 
submarine tender of about 3,i;00 tons disphicenient. Tiieir Minister of Marine 
plans to be here in September to sign tbe contracts. I understand they have 
some tinancing to do, but they seem perfectly confident of being able to take 
care of that, so that we will not be called upon to extend any credit. 

They want as soon as possible tinal and fixed prices fur this construction, 
including guns, ammunition, torpedoes, and everything else that goes with the 
ships. 

Owing to the presence of the United States officers during our conference 
here, I was unable to get details as to the situation with regard to the de- 
stroyers, but I expect to secure these tomorrow when I shall meet Commander 
Aubry again iu New York. 

Now, Mr. Spear, why was it you felt freer to deal directly with 
the representatives of tlie Peruvian Government than you did in the 
presence of the United States Naval Commission who were just 
setting out for Peru? 

Mr. Spear. That was a matter for the Peruvians at the time. 

Senator Clark. If the United States Navy were to take charge 
of the Peruvian Navy, they were entitled to know everything that 
went on ? 

Mr. Spear. They would know everything that went on. 

Senator Clark. But you did not feel free to discuss it in their 
presence ? 

Mr. Spear. No; I was under the impression they would not ap- 
prove of the idea — I do not know whether this is so — but what I 
thought was that they would not approve of the idea of taking these 
old boats that had been sold for scrap, and having them recondi- 
tioned by us. That is probably it. 

Senator Clark. Then that letter goes on : 

My understanding is that the U. S. Navy Department gummed this game by 
making a written offer to supply four modern oil-burning destroyers with 
complete armament at $100,000 each. 

That was considerably under the price you were quoting to the 
Peruvians ? 

Mr. Spear. I think that is what we did quote without armament. 
Senator Clark. Eeading further, this says: 

Subsequent to this foolish proceeding, I understand that the Cabinet took 
the matter under consideration and revoked this action. 

By that you mean the Peruvians? 
Mr. Spear. I presume so. 
Senator Clark. Reading further: 

Our friends, however, were not officially informed of this Cabinet action 
and so, of course, the offer served to prevent a deal with us on our boats. As 
I understand it, Aubry now proposes to get official confirmation as to Cabinet 
action and hopes then to be able to push tiiis deal through by cable. 

Mr. Raushenbush. In the last paragraph it is mentioned that the 
total order should run from 10 to 12 million dollars. 
Senator Clark. Yes. In the last paragraph you say : 

I am ari'anging to meet the Newark Bay people in New York tomorrow to 
go into the question of the cost of the tender. Present indications are that 



MUNITIONS INDUSTRY 99 

the price for this will be somewhere between two and a half and three million, 
so that the total order should run between eleven and twelve million dollars. 

Is that correct? 

Mr. Spear. Yes. 

Senator Clark. Now, to pay for all of this armament procure- 
ment, Peru was at that time, through Commander Aubry, endeavor- 
ing to float a loan in this country through the sale of its securities? 

Mr. Spear. I think so. 

Senator Clark. Mr. Sutphen, you handled the negotiations with 
Commander Aubry, did you not? 

Mr. Sutphen. No, 

Senator Clark. I call your attention to a letter dated July 29, 
1920, which I asked to be marked " Exhibit No. 60." 

(The letter referred to was marked " Exhibit No. 60 ", and appears 
in the appendix on p. 351.) 

In that letter, " Exhibit No. 60 ", you say, Mr. Sutphen : 

Dear Speab: Fred Chapin, Commander Aubry, and the Peruvian Ambassador 
called at the office this morning and we had a long talk and took lunch together. 

I conferred with Mr. Cochran after lunchecm regarding the loan situation 
and he turned me over to a Mr. Monroe who is secretary of the South American 
banking group here in New York, of which the Morgan firm acts as chairman, 
and which includes the City Bank, the First National Bank, and Kuhn & 
Company, etc., etc. 

Mr. Monroe did not give me any encouragement whatever. He said some- 
time ago Peru had made a similar request of the City Bank, he thinks within a 
month or two. At that time they intended to buy some of the American war 
vessels such as destroyers, submarines, etc., and the City Bank turned it down, 
as they were not interested in the matter, due to Peru's poor financial position. 
Its national debt is approximately $34,000,000, and as Mr. Monroe explained, 
to add 50% to the national debt to purchase war vessels would be considered 
very inconsistent, considering the financial position of Peru and how she has 
hocked almost everything she owns. 

Do 3^ou recall that now? 

Mr. Sutphen. I do recall it now, but that was 14 years ago and 
I did not recall it at first. 

Senator Clark. Reading further this says: 

I got the impression from the Ambassador at the beginning of our conver- 
sation that we would not receive much encouragement from the New York 
group of bankers, and his deductions were certainly correct. 

As you are going to see Chapin tomorrow, I think you ought to tell him 
that in the opinion of the American bankers it is not a very opportune moment 
to present the matter and that unless something unexpected turns up I think it 
would be better not to go further with this banking group. Upon Mr. Carse's 
return we can all talk it over and see if we have any new plan to suggest. lu 
the meantime I do not think we should present the matter further to the bank- 
ers. Mr. Monroe will report to Mr. Cochran and I in turn will have a talk with 
Mr. Cochran the first of the week. 

It appears there has been quite an agitation in Bolivia, as you know, and a 
revolution occurred there recently and in the opinion of the bankers it has been 
instigated largely by Peru to have Bolivia join with her in opposition to 
Chili. 

So that this unfounded rumor of armament on the part of Chile 
not only caused Chile to seek to add 50 percent to its national debt 
for the purchase of armament but also caused the revolution in 
Bolivia for the purpose of forcing Bolivia into the alliance. Is 
that not correct? That is the statement in your letter. 

Mr. Sutphen. Apparently I had that information at that time. 



100 MUNITIONS INDUSTRY 

Senator Clark. Keading further from this letter it says : 

So far I cau only report that the banking situation dees not look at all 
promising to float a loan for Peru of $18,UU0,U00 in the United States for the 
purcliase of submarines. 

Mr. Cochran personally would like to see anytliing accomplished that would 
help us along, but from what Mr. Monroe said it appears to me that Peru's 
financial position is not an attractive one to the banking houses in New York. 

Fred might report to the Ambassador when he sees him in Washington that 
we are working on the case and will know something more definite when Mr. 
Carse returns. 

I will be very glad to do anything further that you can suggest. 

So that it was not only part of your business to sell armament, Mr. 
Sutphen, but also your business to finance those South American 
securities by sale to the public so that they might purchase arma- 
ment ? 

Mr. Sutphen. I do not think that is quite the case. The signifi- 
cance of that was to ascertain if we had any suggestions as to the 
matter of a loan Peru might make in the United States. We natu- 
rally thought of our banking friends who could be approached on 
such a subject, but we have never taken a prime position in obtain- 
ing a loan for Peru. 

Senator Clakk. Your company pursued the matter further after 
the first negotiations to see what could be done. 

Mr. SuTiPiiEN. In an entirely friendly way, because we were not 
bankers. 

Senator Clakk. I call attention to a letter from Chapin to Carse, 
dated August 7, 1920, which I ask may be marked in evidence. 

(The letter referred to was marked "Exhibit No. 60-A", and 
appears in the appendix on p. 352.) 

Senator Clark. I will ask Mr. Carse to read this and see if this 
does not show the further trend of negotiations. I will read only 
the last paragraph myself. 

On page 2, Mr. Chapin says to you, Mr. Carse : 

I believe we should do everything we possibly can to encourage and aid the 
am'bassador, and should keep him advised from time to time of the progress 
made and the nature of the objections raised, so that he may see that we are 
dealing fairly and openly with him. 

I shall take occasion to see the ambassador at the earliest possible moment. 
I think he ought to be told your viewpoint as to the attitude of the bankers 
and the reasons which probably control them, also the influence which W, R. 
Grace & Co. may exert. 

Now, what was that answer, Mr. Carse — do you recall? 

Mr. Carse. Did I answer this? 

Senator Clark. We haven't got your answer to it, or at least I 
have not. Did it have anything to do with oil concessions in Peru ? 

Mr. Carse. Why, anybody's salespeople or agent or wliateyer you 
may call them, are constantly putting forward to the executives all 
sorts of plans and propositions. They seem to feel they have to do 
something to justify tlieir existence, and they do not seem to bother 
very much whether the offer they have received is strong, or has any 
assurance, so these suggestions and propositions come forward from 
agents like Chapin was. He was not an agent; he was simply a man 
down at Washington here to keep us in touch v^^ith different mutters 
to save us traveling back and fortli from New York to Washington. 
Now, his letters as you have read them here are filled with a lot of 



MUNITIONS INDUSTRY 101 

suggestions about this, that, and the other thing, as though they were 
settled facts, when they are only suggestions of tilings that might be 
accomplished. 

Senator Clark. Now, Mr. Carse, that may all be true, but he 
refers in this letter, in the extract which I have just read, to a view- 
point expressed by you with reference to W. R. Grace & Co. Let 
me read it again : 

I think he ou.t:ht to be told your viewpoint as to tlie attitude of tlie bankers 
and tlie ronsons wluth pi'obably coiitrcl them, also the influence wbicli W. R. 
Grace & Co. may exert 

I can readily understand from what you liave written that W. R. Grace & 
Co. would fail to exert their present influence were they controlled by biased 
or partisan motives. 

That, Mr. Carse, is something you passed on to him. [Reading :] 

At the interview which I hope to have with the Ambassador very soon I 
shall scund him out with regard to the possibility of American companies 
obtaining oil concessions, and as to whether the revenues arising from such 
concessions could not be devoted to the purposes of our impending contract. 

Did that suggestion come from you in this letter? 

Mr. Carse. I do not think it came from me, because I do not know 
anything about any oil concessions; who would care to have them or 
anything else. I do not know anything about the oil business. I 
have not the slightest comprehension of it. I do not know where 
that idea could have come from. 

Senator Bone. W. R. Grace is a British line, is it not? 

Mr. C-ARPE. No, sir; they are a New York house. 

Senator Bone. Are they located in New York? 

Mr. Carse. New York City; yes, sir. They have very heavy in- 
terests all down the west coast of South America, in Peru and 
Chile, and run lines of steamships, and they have manufacturing 
concerns and farming concerns and everything practically. 

Senator Bone. They run a big intercoastal line, I know. 

Mr. Carse. Yes; and also down the west coast of South America. 

Senator Pope. Do they have oil concessions? 

Mr. Carse. I do not know. I do not know anything about the 
details of their business at all. 

Senator Bone. They have connections which supply a good deal 
of freight to their boats, do they not? 

Mr. Carse. Yes, sir; they do. 

Senator Bone. So that they originate a greal deal of their own 
? 

Mr. Carse. Yes, sir; they originate a great deal of their own 
freight. 

Senator Clark. Mr. Carse, just for the purpose of refreshing your 
memory as to who was the originator of this matter of oil conces- 
sions, I call your attention to a letter dated August 6, 1920. 

Mr. Carse. I asked if you had that letter and you said " no." 

Senator Clark, I have the exhibits misnumbered, Mr. Carse. Of 
course, the letter dated August 6, 1920, precedes the last exhibit by 
1 day. 

Mr. Carse. That is right. It is 14 years ago. 

Senator Clark. I will ask to have this marked " Exhibit No. 61." 

(The letter referred to was marked " Exhibit No. 61 ", and appears 
in the appendix on p. 352.) 



cargo 



102 MUNITIONS INDUSTRY 

Senator Clark. In that letter of August 6, 1920, Mr. Carse, which 
is from you to Mr. Chapin, you said: 

There is one thing that occurs to my mind, and that is the oil in Peru 

Mr. Carse. That second paragraph, how about that? Would j^ou 
mind reading that first ? 

Senator Clark. I will come to that in just a moment. I now desire 
to go to the question of who originated the suggesti(m about the oil 
concessions. The- last paragraph on page 2 of the letter from you 
reads as follows : 

There is one thing that occurs to my mind, and that is the oil in Peru and 
whether some arrangement could be worked out with some of the large oil 
companies in this country for concessions in Peru, for which they would be 
willing to advance money. If you could find out from your friends the status 
of the oil lands I would be glad to broach this point to some people here who 
might be interested. 

So that, so far as that is concerned, the suggestion came from you 
and did not originate with Mr. Chapin ? 

Mr. Carse. That is your supposition. 

Senator Clark. You certainly mentioned it, did you not, in your 
letter of August 6, 1920? 

Mr. Carse. That is right. 

Senator Clark. It was not simply a fly-by-night proposition, sub- 
mitted by one of your agents, but was mentioned to him by the 
president of the company, who is the responsible head of the 
company. 

Mr. Carse. Yes ; that is simply a suggestion, if anything like that 
be done. 

Senator Clark. It was simply a suggestion that you inveigle some 
of the oil companies to supply funds for the purchase of arma- 
ments ? 

Mr. Carse. Senator, I do not like the word " inveigle ", because 
you do not " inveigle " the large oil companies into anything. 

Senator Clark. I think that is probably a fair criticism, Mr. 
Carse. In other words, you wanted to interest the large oil com- 
panies in financing an armament program for South America? 

Mr. Carse. I was willing to present anj^ proposition the govern- 
ment might approve with regard to any oil companies which might 
be interested. 

Senator Clark. And you were willing to have Mr. Chapin sug- 
gest to the Peruvian Government that that might be done, because 
that is what you suggest in this letter? 

Mr. Carse, If they wanted to borrow money or put up assets for 
borrowing money. The second paragraph of that letter I think is 
pertinent. Senator. 

Senator Clark. I was coming to tliat in just a moment, Mr. 
Carse. You are discussing the difficulties here of floating this loan 
througli the bankers. 

Mr. Carse. I knew it could not be done. 

Senator Clark. Yes. 

Mr. Carse. I had tried it back in 1910. 

Senator Clark. You say : 

Whenever a borrower is not able to secure the funds he wishes he is apt 
to ascribe his non-success to adverse interests, but while undoubtedly any 



MUNITIONS INDUSTRY 103 

group of bankers approached in relation to a loan on the West Coast of South 
America would consult the members of W. R. Grace & Co., and w^uld un- 
doubtedly be influenced by their opinion, if W. R. Grace & Co. did not give an 
unbiased business opinion that could be substantiated by facts they would very 
quickly lose their status in the business and banking world. Undoubtedly 
that organization is better acquainted with affairs on the west of South 
America than any other organization in this country, and while they have 
tJieir own interests to protect there is no question that their minds are open 
to take on any new business that indicates a safe return. 

The difficulty here as pointed out by Mr. Monroe to Mr. Sutphen is the 
lending of a large sum of money to a comparatively weak country to pre- 
pare for conflict with a much stronger country, and the armament, which this 
money could purchase would not insure victory as the other nation has much 
stronger armament and would tend more to bring conflict to a point than if 
they did to purchase the armament. 

Apparently you disagreed at that time, Mr. Carse, with the view 
expressed yesterday by Mr. Spear, that the purchase of armaments 
in Peru would tend to prevent hostilities rather than bring them 
about. 

Mr. Carse. I did not believe there was any large opportunity of 
making any sale to Peru. In our business we have followed up, very, 
very many clues or channels, some of which led to business and some 
of which did not. 

Senator Clark. Mr. Carse, in this letter which I have just read, 
you expressed the flat view that the purchase of these armaments 
by Peru was more likely to bring about hostilities than to prevent 
them, did you not? 

Mr. Carse. That would seem so. 

Senator Clark. Which is at direct variance Avith the view ex- 
pressed by your associate, Mr. Spear, yesterday, and tliat the pur- 
chase of those armaments would tend to prevent hostilities. 

Mr. Carse. I think that was expressing the belief of the bankers. 

Senator Clark. Did you agree with that point of view? 

Mr. Carse. Well, I really do not think — I do not know what I 
did 15 years ago — but I do not think that that is a sound point of 
view, because if one country has quite a navy and another country has 
none at all, the second fellow cannot be very " sassy " about any- 
thing that happens. And, as it developed in Peru, President Leguia, 
when he came in, had always the idea of a navy, and when he came 
back he planned in course of time to get six submarine boats. 

Senator Clark. As a matter of fact, he planned to get 10 ulti- 
mately, did he not ? 

Mr. Spear. It finally came down to six. 

Mr. Carse. It finally got down to wdiere his program was for six 
boats of this size, which he did build, but that occurred some time 
later. We built them two boats, and then we built them two more 
boats, and vv-e gave them good iDoats. They are still running, and 
they have made record trips of 10,000 miles, and these are considered 
not only by Peruvians but United States submarine officers 

Senator Clark. I think Mr. Carse, the qualities of the boats are 
really beside the point which we are getting at now. You were 
looking at that matter from purely a material standpoint ? 

Mr. Carse. Of course. 

Senator Clark. You say further in this letter, " Exhibit No. 61 " : 

Naturally, if Peru were badly defeated the persons who advanced them money 
for the armament could not expect any great liberality from the victor. 



104 MUNITIONS INDUSTRY 

Mr. Carse. Tliat is the bankers' view. 
Senator Clark (reading) : 

Onr business of course is to sell armament, Init we have to look at the other 
«ifle of the question as well. 

Mr. Cause. Of course, why should you want to sell some stuff and 
not get paid for it? 

The whole Government is urging in every way the extension of 
foreign commerce and yet you criticize us for trying to sell things 
to foreign governments. 

Senator Clark. I do not desire to enter into an argument with you 
at this point, Mr. Carse, but it might be said very briefly that there 
is a contention in this country that some of the efforts of armament 
salesmen to sell arms are undesirable and may in the future cost the 
United States Government in taxes to support a war, and in lives 
of its citizens, a great deal more than can possibly be gained by the 
small profit which you would make in extending the commerce of 
the United States. 

Now, Mr. Carse, I will direct your attention to a letter dated Octo- 
ber 25, 1920, which I will ask to have marked " Exhibit No. 62." 

(The letter referred to was marked " Exhibit No. 02 " and appears 
in the appendix on p. 353.) 

TERUVIAN LOAN 

Senator Bone. Mr. Chairman, before the Senator goes to " Exhibit 
No. 62 ", may I digress for just a moment so that I ma}^ ask a question 
of the witness? 

If my memory serves me correctly, the Peruvian Government, 
subsequent to this time, did float a very large loan through New 
York bankers in this country, did it not? This is just so much 
history, but just for the sake of the record. It has nothing to do 
with this inquiry. 

Mr. Carse. We had nothing whatever to do with it. 

Senator Bone. I am well aware of that. I mean the Peruvian 
Government did subsequently float a large loan in this country, and 
as I recall it, those Peruvian bonds were under consideration in the 
recent Senate inquiry, which showed that they were absolutely no 
good and proved to be " duds" and are now in default, so far as the 
interest is concerned. That is correct? 

Mr. Spear. That is correct. 

Senator Bone. I do not know the extent of that default, but is 
was a very sizeable one, in any event. 

Mr. Carse. That had nothing whatever to do with our transaction. 

Senator Bone. I am Vv^ell aware of that. That was a subsequent 
transaction, but it has to do with conditions discussed here as to 
Peruvian finances. 

Senator Clark. Mr. Carse, this letter dated October 25, 1920, 
from Mr. Chapin to yourself had further to do with the floating of 
this loan in the last paragraph. 

By the way, do you know anything about the transactions to which 
Mr. Chapin refers, by which the United States Shipping Board paid 
$1,100,000 in cash and a further payment of $900,000 for the pur- 
chase of some Peruvian ships ? 



MUNITIONS INDUSTKY 105 

Mr. Carse. I do not know anything about it, except I have heard 
that Peru held up some German shij^s that Avere at Port of Callou 
at the beginning of the Avar. 

Senator Clark. You do not know why the United States Sliip- 
ping Board was buying ships at the time tliey were ghitted with 
ships in tliis country? 

]\rr. Spear. This was during the war. 

Senator Clark. They took over ships during the war'^ 

]Mr. Spear. It was a subsequent settlement for ships they wanted.. 

Senator Clark. What do you understand by this last paragraph, 
Mr. Carse, in Mr. Chapin's letter, in which he says : 

I think the Ambassador has in mind that this deposit could be placed witli 
some New York bank, wliich might become insLi'iimental in floating the loan 
needed for the carrying out of the naval program. 

Mr. Carse. I suppose he thought that if he had $2,000,000 de- 
posited in a bank, it might make that bank regard the credit of 
Peru stronger. 

Senator Clark. Sort of " rigging " the market for bonds, in other 
words ? 

Mr. Carse. They floated two or three loans before they floated 
this big loan to which Senator Bone referred. They floated a couple 
of loans, 7, 8 or 10 million dollars through some bond house, I think. 
We had nothing whatever to do with that. We did not get any of 
that money. Our money came from certain specific taxes. 

Senator Bone. I guess the bankers got most of that money, did 
they not? 

Mr. Carse. I do not know. They spent a great deal down there 
on public works, so I am told. I have never been there. 

The Chairman. What makes the Senator think that the bankers 
have got most of it? 

Senator Bone. Some of my friends bought some of this beautiful 
paper from Peru and have kept it for souvenirs. 

Mr. Carse. The bankers turned the money over to the Peruvian 
Government. 

Senator Clark. Part of it. They got a very substantial commis- 
sion. 

The Chairman. I understand the bankers did not hang on to 
many of the bonds but sold them to the public. 

Senator Bone. The folks were urged to consult their bankers 
as to investments, and when they consulted with their bankers, that 
ended everything, their savings and everything they had managed to 
accumulate. 

Mr. Carse. I am not acquainted with that. 

Senator Bone. You have heard about that, have you not? 

Mr. Carse. I certainly have. 

Senator Bone. There have been intimations concerning that in 
this country. 

Mr. Carse. I think all of us have known something personally 
about similar things. 

Senator Clark. Mr. Carse, it is not particularly important, but 
3^ou had a communication from time to time, either directly or 
through your agents, with the American Naval Mission to Peru? 

Mr. Carse. I do not think I had directly. 



106 MUNITIONS INDUSTRY 

Senator Clark. I mean your company. 

Mr. Carse. I think probably Mr. Spear could answer that. 

Senator Clark. Do you recall a letter dated November 16, 1921, 
which I will ask to have marked " Exhibit No. 63," from Charles 
Gordon Davy, commander. United States Naval Mission to Peru, 
and Commandante Director of the Peruvian Naval College, solicit- 
ing an advertisement from you for a magazine published by the 
Peruvian Naval College? 

Mr. Spear. I did not recall it until I saw this [examining paper]. 

(The letter referred to was marked " Exhibit No. 63 " and appears 
in the appendix on p. 354.) 

Senator Claek. This letter, " Exhibit No. 63 ", will refresh your 
memory on that, Mr. Spear, will it not ? 

Mr. Spear. I do not remember it. 

Senator Clark. In which it was made a matter of national pride 
to print this advertisement in the Peruvian naval magazine. I 
direct your attention to the last paragraph of that letter, which 
reads as follows : 

I have talked this matter over with our commercial attache in Peru and with 
my other American friends, and they assure me that we are going to hear from 
you. American prestige demands. 

Did you respond to that appeal from our diplomatic service that 
American prestige demanded that you insert an advertisement in this 
Peruvian magazine? 

Mr. Carse. Yes ; we had an advertisement in that magazine " Re- 
vista de Marina." We put it in. I am not certain what size it was. 

Senator Barbour. Do you remember if other people advertised in 
the same magazine? 

Mr. Carse. Yes, sir ; quite a number of other people, a number of 
different shipbuilding concerns. I have not seen it for some time, 
and I guess we have stopped it. 

Senator Bone. I gather from this correspondence that the New 
York bankers were well aware of the financial condition in Peru at 
that time and were dubious about their ability to float a loan. Is not 
that true? 

Mr. SuTPHEN. That is correct, Senator, 

Senator Bone. They were fearful of the inability of Peru to pay 
any bonded debt of that character at that time ? 

Mr. SuTPHEN. I do not know what they were afraid of, but they 
were not interested. 

Senator Bone. It must have been due to the financial condition in 

Peru. 

Mr. SuTPHEN. Probably. 

Senator Bone. The bankers were doubtless aware of that when 
they floated their big loan in the United States, which we have been 
discussing. 

Mr. SuTPHEN. That was in 1930. 

Senator Clark. Mr. Sutphen, the National City Bank floated a 
loan of $18,000,000 for Peru in 1922, did it not? 

Mr. Sutphen. Mr. Carse referred to the earlier loans. I do not 
remember the amount, Senator. The National City Bank did not. 

Senator Clark. Who did float the loan in 1922? 



MUNITIONS INDUSTRY 107 

Mr. Caese. White-AVeld & Co., I think, brought out the loan. 

Senator Clark. The Seligman Co. did not float the first 
$18,000,000. 

Mr. Cakse. No, sir; I think it was White-Wells, with a group (»f 
other bond houses. I do not know the amount. I think there were 
two. I think it was 8-percent or a 7i/2-percent loan. 

Senator Clark. That aggregated 18 million dollars, or about that, 
Mr. Carse? 

Mr. Carse. I should think about that. 

Senator Clark. And those securities were, of course, sold to the 
peojDle in the United States? 

ivlr. Carse. Yes, sir. 

Senator Clark. Shortly after that you received the first payment 
in 1924, to be exact, did you not? That is, you received your first 
payment on your contract with Peru for 2 submarines, 24 torpedoes, 
and a submarine base ? 

Mr. Carse. Yes ; but it did not come out of that money, the bonds. 
That came out of a fund, that is the first payment, came out of a 
popular subscription fund in Peru that had been made up for the 
purpose of securing some naval vessels, some submarine fund, or 
something of that nature. 

Senator Bone. Had a great deal of sentiment for naval defense 
been generated there in the meantime ? 

Mr. Carse. It had been going for submarines and this fund had 
accumulated in that way. They were going to use it at one time — 
and I think it was shown here — for the buj'ing of some submarine 
boats from Italy. 

Senator Pope. Was this United States naval mission down there 
at that time ? 

Mr. Carse. When did they go ? They were there when we got the 
order. 

Senator Clark. They went there in 1920 or 1921, did they not, 
Mr. Carse? 

Mr. SuTPHEN. About that time. 

Mr. Carse. Sometime around that time, because they passed upon 
all the details of our contract specifications and so forth. Is not 
that so? 

Mr. Spear. Yes, sir. 

Senator Pope. You were in very close touch with them all the 
time? 

Mr. Carse. We were not. 

Senator Pope. Your agents? 

Mr. Spear. They were responsible to the Government to see that 
they got proper material, and they were the people to scrutinize 
the specifications and the contract and to take care of it for the 
Peruvian Government. 

Mr. Carse. The Peruvian Government did not give the contract 
until after the American mission had approved the plans and speci- 
fications. 

Senator Clark. The first paj^ment was $461,254.15, was it not? 

Mr. Carse. I think so. 



108 MUNITIONS INDUSTEY 

Senator Clark. I offer in evidence as " Exhibit No. 64 " on that 
point a letter signed by Mr. Spear, addressed to the Minister of 
Marine at Lima, Peru. 

(The letter referred to was marked " Exhibit No. 64", and appears 
in the appendix on p. 355.) 

Senator Clakk. Mr. Carse, without going into the details of 
Peruvian finance, and out of v,diich particular fund the loans were 
paid for, the fact remains that you sold them submarines and got 
I^aid for them and the American people bought Peruvian bonds and 
got " stuck." Is not that the result? 

Mr. Carse. I do not see any connection at all. 

Senator Clark. Perhaps not, but that fact remains, does it not? 

Mr. Carse. We have not got paid yet. 

Senator Clark. I understand you have not been paid completely 
for some of your later orders. 

Senator Boke. I am puzzled a little about one thing, INIr. Carse. 
There was testimony in this record to the effect that when j'^ou sup- 
plied plans to foreign governments for submarines, and equipment 
of that character, you did not supply them with what you con- 
sidered the latest type and model, because you have an under- 
standing with this Government that you will not supply to a foreign 
government anything of that kind. 

Mr. Carse. That was not said. Senator. What Mr. Spear said 

Senator Bone. Perhaps I overstated it, but that was my impres- 
sion. 

Mr. Carse. That we did not furnish them the copies of plans and 
designs that we were building for the United States Navy. 

Senator Bone. Here we have a picture of this Government send- 
ing a naval mission down to little Peru and telling the people down 
there how to build up-to-date submarines. 

Mr. Carse. They could not build them there. 

Senator Bone. Or telling them what sojt of plans and specifica- 
tions to prepare for submarines. Now they were handing ther^e 
Peruvians antiquated plans? 

Mr. Carse. No. 

Senator Bone. Manifestly they were not going to suggest to Peru 
that they have the latest type of submarine that this country had. 

Mr. Carse. The United States Government did not furnish the 
plans. 

Senator Bone. I have a note here that the American naval officials 
approved the plans. 

Mr. Carse. Yes; certainly. 

Senator Bone. They must have approved a set of ]:»lans then which 
were not wliat they would consider up-to-date for this Govern- 
ment. Were they "slipping" the Peruvians something? That is a 
vulgarism, but were they " slipping " the fellows down there some- 
thing? 

Mr. Spear. Let me answer. That is a teclmical question. 

Senator Bone. It is hardly fair to give a technical answer to a 
lawyer about a thing as to which he is not wholly familiar. 

Mr. Spear. I think I can make it clear. 

Senator Bone. You can give a by-and-large answer on it. 

Mr. Spear. The conditions under which the United States con- 
sidered that they wanted to use submarines affects the designs of the 



MUNITIONS INDUSTKY 109 

vessels. It has to be of certain quality for their work. The work 
which the Peruvian submarines were designed to do, from a mili- 
tary standpoint, is different from the latest United States boats. 
So that the two things are not parallel at all. You see, if the United 
States had said to us, " We want a boat for this purpose, to do so- 
and-so ", at that time, and had said, " What are your suggestions ", 
the suggestions would have been the same as we made to the Peru- 
vians in general, except that we would have put in the particular 
things which the United States Government always wants. But the 
uses of the two things are entirel}^ different and therefore their qual- 
ities are different and the designs are different. 

Does that answer your question. Senator? 

Senator Bone. In a way, 3^es; but I still am unable to understand 
why the United States Government sends a naval commission around 
telling foreign powers how to build good submarines. 

Mr. Spear. They did not do anything of the sort. They considered 
them very fine submarines for the purpose. 

Senator Bone. Is that also in the interest of promoting trade ? 

Mr. Speak. Ko. 

Senator Bone. Why does our Government go to the expense of 
sending naval officers around the world on ventures of that char- 
acter? Can 3''ou tell us? Is that part of our national program? 
We might as well let the countrv know about these things. 

Mr. Spear. There was a time, and I do not think it now exists. I 
think they have stopped it. 

Senator Bone. I doubt if the great majority of the people are 
aware of that. 

Senator Clark. It is a fact that the Secretary of the Navy stated 
at the time Congress passed the act to authorize the naval mission 
to various South American countries that one of the purposes of it 
was to sell armaments and to induce them to install American 
equipment. 

Mr. Spear. I was about to say that part of the policy at that time 
was close connection with South America, and if we got into trouble 
they wanted to have things which they knew about and could use, 
and thought were all right. That was a part of their policy and 
I was about to say in answer to Senator Bone that that was true, 
when you brought it out. That was the answer that I was going to 
give you. That vv^as a known fact. 

Mr. Carse. This Government paid the expenses of the missions, the 
salaries of the men. 

Senator Clark. As a matter of fact, they drew salaries from the 
American Government at the same time, and in the case of Peru they 
were uaid $8,000 a year apiece while they were down there? 

Mr. Carse. Something of that nature. I do not know. 

Senator Clark. So that it was really a very nice thing for the 
American navnl officers who were sent down there? 

Mr. Carse. Surely. 

Senator Bone. The fact that the Peruvian Government wanted to 
do something did not relieve the taxpayers of this country from 
I):iying the expense at the same time. 

IVIr. Carse. I do not know what arrangement they made. 

83876— 34— PT 1 8 



110 MUNITIONS INDUSTRY 



Senator Bone. The thing which I am getting at is : We are using 
the Navy as a sales agency. And that is the interesting feature of 
this thing, and I am rather inclined to think, since this is a private 
venture, it might be the part of wisdom for the Government to 
refrain from that expenditure, at least if it is going into the thing 
as a public policy, and that the people should be advised, so that 
the people will know about it. The people have the right to know 
about the policies and weigh the value and merits of the adminis- 
tration on what it is doing. 

Mr. Carse. It seemed to me it was more a gesture of good will 
to the South American countries. 

Senator Bone. It could hardly be said to be a gesture of good 
will — building submarines, battleships, and shipping TNT into the 
country — could it? 

Senator Clark. The American Naval Mission got thrown out 
about the time Leguia was thrown out, did it not? 

Mr. Carse. I guess everybody was. 

Senator Bone. In connection with this activity, we are sending 
men to Geneva and assuring the world that we are trying to promote 
peace and bring about disarmament. That is what I am trying to 
get at. On the one hand we are using a Government agency to 
promote the sale of battleships, munitions of war, and so forth, and 
with the other hand we are making a gesture of peace at Geneva. 

Mr. Carse. Senator, we have always considered that the subma- 
rine boat was the greatest means of doing away with war that ever 
existed. 

Senator Bone. Well, a submarine blew the Lusitanm out of the 
water, and I do not think that promoted peace, do you ? 

Mr. Carse. No ; but that was done by the Germans, who stole our 
patents. 

Senator Bone. But that is beside the point. A submarine was 
actually the thing that immediately brought about war. 

Mr. Carse. We have never built a submarine boat that was not 
used for defense. 

Senator Bone. And that submarine may have been built with the 
use of an American patent. 

Mr. Carse. It was a patent which they stole. 

Senator Clark. I will ask you to look at a letter dated October 
27, 1924, which I will ask to have marked " Exhibit No. 65 ", from 
Commander Aubry at Lima, to Mr. Spear. 

(The letter referred to was thereupon marked " Exhibit No. 65 ", 
and appears in the appendix on p. 355.) 

Senator Clark. Mr. Spear, I will ask you to look at the top of 
page 2, paragraphs 6, 7, and 8, in which Commander Aubry says : 

Now, I must inform you that Ackerson wired to Admiral Woodward 

Admiral Woodward at that time was head of the American naval 
mission to Peru, was he not? 
Mr. Spear. He was. 
Senator Clark. I will repeat that. 

Now, I must inform you that Ackerson wired to A(hniral Woodward on tlie 
21st saying that Mr. Harriman was willing to reopen negotiations for a loan 
based on national-defense taxes and for naval construction. In his wire 



MUNITIONS INDUSTRY HI 

Ackerson requests Admiral Woodward to communicate to the President in order 
to have his personal opinion, and in case he should approve, he will come by 
first steamer. 

Do you know who Harriman was? 

Mr. Spear. Yes. 

Senator Clark. Who was Harriman and what was the proposi- 
tion, if you can tell us briefly, Mr. Spear ? 

Mr. Spear. Mr. Harriman was Mr. W. A. Harriman, who, for a 
number of years, interested himself very actively in all kinds of 
shipping and shipbuilding matters. He has since retired, I believe, 
after some sad experiences, from that branch of the business. 

Mr. Ackerson, to whom he refers, was one of Mr. Harriman 's men, 
assistants, whom he had sent on a trip to South America to see if 
he could find any enterprises in which Mr. Harriman might be 
interested ; in other words, to see if he could drum up any business 
cf any kind in these various things in which Mr. Harriman was 
interested. 

Senator Clark. Do you know what the proposition was that Har- 
riman wanted to submit to President Leguia? 

Mr. Spear. No; I do not know anything about it. I may have 
heard something about it later, Senator. 

Senator Clark. This letter does not disclose entirely what the 
proposition was. 

Mr. Spear. I think it was on the theory that Mr. Harriman might 
be interested in some kind of proposition, if it was based on special 
taxes and not based upon the general credit of the Peruvian Gov- 
ernment. That is the impression that I get from the paragraph 
you just read. 

Senator Clark. And he was using an American admiral as a go- 
between for the purpose of negotiating a loan which would be used 
by Peru for armament purposes ; at least, that is Commander Aubry's 
statement, is it not? 

Mr. Carse. He was trying to. 

Senator Clark. That is what I said. 

Mr. Spear. Yes ; he was advising the admiral. 

Senator Clark. He did use the admiral as a go-between. 

Mr. Carse. You do not know whether Admiral Woodward did 
what he requested or not. 

Senator Clark. The next paragraph clears that up. [Reading:] 

President Leguia's answer, communicated by Admiral Woodward to Acker- 
son, was to the effect that President Leguia was willing to reopen the negotia- 
tions with a view of obtaining a loan up to $12,0{X),000, to carry on half of 
the proposed naval scheme. 

8. We are expecting Ackerson to come any moment, and I think this time 
something will be done in regard to the loan. The sad point is that if the 
scheme is carried through and Harriman provides the money, they will be 
the ones to get the largest share of the $10,000,000 which will be allotted to 
the Navy, * * *. 

What did he mean by that? 

Mr. Spear. I think Mr. Harriman at that time owned a shipyard 
or controlled a shipyard, the old Bristol Yard which was created 
during the war to build merchant ships. I think he was interested 
in getting business for that. 



112 MUNITIONS INDUSTKY 

Senator CLArac. And, of course, if he put up the money, he would 
expect them to buy ships from him instead of from you; is that it? 
Mr. Si'EAR. Certainly. 
Senator Clakk. Continuing with this paragraph : 

The sad point is that if the scheme is ci'.rried through and Harriman pro- 
vides the money, they will be the ones to get the largest share of the 
$10,000,000 which will be allotted to the Navy, getting, therefore, his three 
destroyers, leaving only a margin for us, if we fight well, for one more sub- 
marine ; because the remaining money will have to be taken for more subma- 
rine; because the remaining money will have to be taken for the completion of 
the payment of the two submarines, bai e and also mines and aeroplanes that 
Woodward wanted. I am looking forward for a pretty good scrap, and at 
least if the worst come, I must get 1 submarine and 50 torpedoes. 

As a matter of fact, there had been a considerable controversy 
going on for some time in Peru, had there not, Mr. Spear, as t& 
whether or not this money that they were going to spend for arma- 
ments should be spent for destroyers or for submarines? 

Mr. Spear. There had been. 

Senator Clark. And that was part of the backstage politics that 
went on in connection with these contracts, was it not? 

Mr. Spear. There was undoubtedly a difference of opinion. Some 
people thought one would be better, and some thought the other. 

Senator Clark. And the fellows who sold destroyers had their 
representatives dov/n there assuring the public of Peru and the 
naval officers of Peru that what they had to have in order to keep 
out of the clutches of Chile was destroyers, and you had your rep- 
resentative down there assuring them that what they had to have was 
submarines ; is that correct ? 

Mr. Spear. Everybody was trying to promote their own business. 

Senator Clark. Everybody was trying to sell their own product; 
yes. Now, in that same letter, Mr. Spear, Commander Aubry pro- 
posed to you, did he not, that he get himself appointed the Peruvian 
representative to the Geneva Disarmament Conference? I direct 
3'^our attention to paragraph 11. 

Mr. Spear. Where cloes that appear. Senator? 

Senator Clark. The paragraph no. 11, at the bottom of page 2. 

]Mr. Spear. I see it. 

Senator Clark (reading:) 

It is very important that y<m should let me know the date at which you are 
going to launch the subs for many reasons, the main one being that Admiral 
Woc'dward is very much interested for obvious reasons; either myself or my 
wife will have to take the sponsors to the States; and then I am planning to 
be appointed by the Government, if you permit, delegate for Peru in the dis- 
armament conference that is going to take place in Geneva in .June 1925. I 
feel that I can do something good for Peru there, as well as for the cause 
for the submarines in South America. My flag will be "No quotas in sub- 
marines" construction in South America, and classify it as a "defensive 
weapon." 

At that time, of course, Mr. Spear, Commander Aubry was your 
paid representative in South America, was he not? 

Mr. Spear. Yes. 

Senator Clark. And he was really presenting a proposition to you 
for vou to pay his expenses to this disarmament conference, was he 
not? 



MUNITIONS INDUSTRY 113 

Mr. Carse. If he had gone, he would have had to resign as our 
I'epresentative, or else his Government would not have given him an 
official appointment. 

Senator Clark. Well, he says in the next paragraph : 

In this respect, not only do I require your opinion but also your authoriza- 
tion I request in th.is respect as soon as possible, because I will have to make 
some initial work here outlining a plan fur the Government in case I decide 
to go ; which, otherwise, 1 will net have to make. 

Evidently he expected you to pay his expenses, did he not, Mr. 
Carse ? 

Mr. Carse. His expectations were not realized. 

Senator Clark. I understand, but you took it that he was putting 
a proposition up to you to pay his expenses, did you not ? 

Mr. Carse. I do not know. 

Senator Clark. In the next letter, from Mr. Carse to yourself, 
Mr. Spear, dated November 19, 1924, there is an indication that Mr. 
Carse was perfectly willing for Commander Aubry to act as a dele- 
gate to the disarmament conference for ail purposes of disarmament 
except the submarines, but was not willing to pay for it. I offer 
that letter as '' Exhibit No. 66." 

(The letter referred to was marked " Exhibit No. 66 ", and appears 
in the appendix on p. 357.) 

Senator Clark. The letter reads as follows: 

DfiAR Mr. Spear : Your favor of the 17th instant to hand in regard to 
Peruvian business, and I can see no objection on our part to Aubry serving 
as delegate to the Disarmament Conference, only I hardly think we should 
pay his traveling expenses, plus $15 per diem. 

Mr. Carse. Well 

Senator Clark. Now, Mr. Carse, do you know whether Comman- 
der Aubry actually served as the Peruvian delegate to the Disarma- 
ment Conference? 

Mr. Carse. I do not think he did ; not so far as I know. I never 
heard of what went on over there. 

Senator Clark. In other words, when you would not pay his ex- 
penses and $15 per day, he did not want to go? 

Mr. Carse. We were not taking any part in attempting to in- 
fluence a world conference. We have not got quite that amount of 
conceit. 

Senator Clark. Mr. Spear, you had some controversy, did you 
not, as to whether these submarines for which you received con- 
tracts from Peru should be built in this country or in England, did 
you not? 

Mr. Spear. In connection with the hulls. 

Senator Clark. And there was some objection on the part of 
the 

Mr. Spear (interposing). Not a controversy. Senator. 

Senator Clark. Well, there was objection on the part of the 
American Naval Commission to your having the hulls built in tlie 
yards of Vickers & Co. in England ? 

Mr. Spear. That is my recollection. 

Senator Clark. They raised some objection, and Aubry had a 
very difficult time in obtaining a very grudging and reluctant con- 
sent. 



114 MUNITIONS INDUSTRY 

Mr. Spear. I do not know about that ; it may be so. 

Senator Clark. Just to refresh your memory, Mr. Spear, I should 
like to refer to a letter to you from IMr. Aubry. 

Mr. Spear. I cannot remember those details. Senator, as you can 
with the letter in front of you. 

Senator Clark. I understand that, of course. I am just trying 
to refresh your memory on these points, Mr. Spear. I am now go- 
ing to refer to a letter from Mr. Aubry to yourself, dated at Lima 
on the 22d of March, 1924, which I will ask to have marked " Ex- 
hibit No. 67." 

(The letter referred to was thereupon marked " Exhibit No. 67 " 
and appears in the appendix on p. 357.) 

Senator Clark. I refer you particularly to page 3, of that letter, 
the first paragraph which reads : 

Now that I have your long ctible of the 19th accepting the proimsal as per 
iny detailed cable message of the 14th, I feel quite at etise. Nevertheless, 
there has been for Woodward a very sore point and that is the one re- 
garding the partial construction in England to which the President agrees 
entirely ; * * * 

By the President he means Leguia, does he not? 

Mr. Spear. Yes, sir. 

Senator Clark (continuing reading) : 

but that Woodward did not look upon with sympathy, because — as I explained 
in niy prpvious letters — ho wanted to have all done in the States. You can 
suppose that I did not consult with Woodward as to this point, but in his 
presence I told the President that for the financing aspect of the matter we 
would have to make the hulls at our associates' yards in Barrow, of course, 
very much to the surprise of Woodward. * * * 

By "associates" there he meant Vickers, did he. not? 

Mr. Spear. Yes. 

Senator Clark (reading) : 

So when Woodward wrote with his own hand the cable that I sent j'ou on 
the 14th inst., he put " partial construction in England permitted but not pre- 
ferred."' Of course, that is all we needed. I have to do my best to give him 
the chance of getting even, because he has been of great lielp altogether. 

In other words, having outwitted Admiral Woodward at one 
point, he wanted Admiral Woodward to have an opportunity to beat 
him in some matter to even up. Is not that what you gather from 
the language of that paragraph? 

Mr. Spear. No. I would not use the word " outwitted ", Senator. 

Senator Clark. He talks here how he had used Admiral Wood- 
ward, how he had outwitted Admiral Woodward; he did not com- 
municate this fact to him until it was too late for Admiral Woodward 
to stop what was done. What do you understand he meant when 
he said, " I have to do my best to give him a chance to get even, 
because he has been a great help altogether "? 

Mr. Spear. I think it is very clear. The admiral did not like 
that idea and Commander Aubry had sense enough not to put the 
question up to him, when he knew that he did not like it. 

Senator Clark. What did he mean by saying that he was going 
to let Admiral Woodward get even ? 

Mr. Spear. He meant that Admiral Woodward would have the 
final say about it and dictate what the final message should be on 
the subject. I think that is what he meant. 



MUNITIONS INDUSTRY 115 

Senator Clark. That is not what he said. He said : 

So when Woodward wrote with his own hand the cable that I sent you on 
the 14th instant, he put " partial construction in England permitted but not 
preferred." Of course, that is all we needed. 

Then he goes on to say that he would give Admiral Woodward a 
chance to get even, because he had been of a considerable help in the 
matter. 

Mr. Speak. The whole question arose in this way. May I elucidate 
it a little ? 

Senator Clark. I should be glad to have you do so. 

Mr. Spear. It arose in this way. There always was the question 
of the ability of the Peruvian Government to pay for what they 
wanted to order and that meant first that prices had to be kept as 
low as we could keep them; and second the financial consideration 
might enter into it. At this time, before we took that order, our 
plant did not have a hull yard. We built the engines and the tor- 
pedoes and the machinery of various kinds and prepared the plans 
but we had to get our hulls at that time subcontracted for. Owing to 
the cheapness of construction in England, we could subcontract for 
that hull there a good deal cheaper than we could in the United 
States. 

Senator Clark. That is what Aubry meant when he made his 
reference to the financial aspects? 

Mr. Spear, Not entirely. Senator, I was going to finish. This, 
I believe, I am correct in saying. At that time the question of how 
they were going to do all this was not quite settled in our mind, as 
to whether they were' able to or not. We felt that the Vickers firm 
could be called upon, if they got a contract with hulls, to assume 
their share of any financing that had to be done. 

Senator Clark. Are you through, Mr. Spear? 

Mr. Spear. I am through for the moment, Senator. 

Senator Clark. So far as labor was concerned, in fact so far as 
gross outlay was concerned, the hulls were the principal parts of the 
cost of the submarine, were they not? 

Mr. Spear. Not the hull proper. That is not the principal part. 

Senator Clark. I thought you said yesterday that the cost of the 
hull was something over $2,000,000. 

Mr. Spear. " Hulls " is a very large term. That means all kinds 
of equipment that goes into the ship, which was not contemplated in 
this case. 

Senator Clark. What part of the ship were you having manu- 
factured by Vickers? 

Mr. Spear. We were suggesting that they manufacture just the 
bare hull. 

Senator Clark, Did you actually have those hulls made in 
England ? 

Mr. Spear, No ; it did not turn out that way. We constructed the 
ships entirely ourselves in our own yard. 

Senator Clark. This Admiral Woodward to whom we have been 
referriniv is Admiral Clark B. Woodward, is not that his name? 

Mr. Spear. Yes, 

Senator Clark. At that time the head of the Peruvian mission? 

Mr. Spear. He was at that time chief of the Peruvian mission. 



116 MUNITIONS INDUSTRY 

Senator Clark. He was also of service to 3^011 at that time, was he 
not, in connection with a proposition Avhich was advanced for pur- 
chase by Peru of certain vessels from the Swedish Government? 

Mr. SrEAR. I do not remember that. 

Senator Clark. That is in that same letter that is before you, 
Mr. Spear. 

Mr. Spear. What page is that on, Senator ? 

Senator Clark. It begins at the bottom of page 1. The language 
is as follows : 

We were, for a few days, iudirectly associated with tlieni for all intents and 
purposes and, tlierefore, in a very bad position which was considerably aggra- 
vated by the offer made by the Sweden firm named '" Kcckus " of 6 submarines 
complete — 2 of 800 tons and 4 of 530 tons — built for the Germans during the 
war and which are at pre.^ent in the Swedish yards of Maol. They have been 
offered by the cliarge d'affaires of the Swedish Government here on the name of 
his Government for the sum of £g.l,000,000, paynjeut.s to be made in any way 
the Government would choose. Of course, I felt a good deal excited then about 
this, and that is the reason of my cablegram of the 8th inst., as the President 
had told me — on my explaining to him thiit that was very unfair and bad for 
Peru due to the fact that we did sign the Treaty of Versailles — that he vrould 
buy those units because Peru needs to have some submarines and he could not 
obtain them advantageously in the States nor in England. Of course, such a 
purchase could not have eventually been consunmiated because I would have 
planned the same methods that we did plan in Argentine, and Woodward, who 
had been very nice throughout all these proceedings, would have stopped it; but, 
anyhow, it did come in a very unfortunate moment, as the President was quite 
upset due to the interference of the guarantee trust in all his schemes. 

Now, Mr. Spear, I will ask you to refer to the bottom of page 4, 
where it says : 

The only thing that I cannot attend, or better * arrange at all as you 
desire is that relating to the local commissions * * * 

What does he mean by those local commissions? 

Mr. Spear. I know nothing about it, except what is in the letter. 
I presume he felt there were people there he had to have employed. 

Senator Clark. He had not communicated to you before about 
those local commissions? 

Mr. Spear. I do not think so, not that I know of. 

Senator Clark. What does he mean by the language — 

The only thing that I cannot attend, or better arrange at all as you desire 
is that relating to the local commissions. I have not dared to propose it to 
the interested parties because I am sure that this would be even dangerous 
at this special stage of the negotiations. I have to give commission to three 
persons, and two of them, whom I have consulted with, have accepted as a 
great concession to receive the commissions distributed in three equal parts: 
The first from the first payment, the second from payment no. 6, and the third 
from tlie last payment. As I think this perfectly fair, I am going to wire to 
you accordingly. The commissions that I have distributed according to your 
authorization are $15,000 per boat, that is to say after you receive your first 
payment of $400,000 you will please send me $10,000 to attend to this. 

What were those special commissions, Mr. Spear ? 
Mr. Spear. I do not know. 

Senator Clark. You authorized them, did you not? 
Mr. Spear. We authorized the amount, $15,000. 
Senator Clark. AVhat did you understand was to be done with the 
-$15,000? 



MUNITIONS INDUSTEY 117 

Mr. Spear. I understand that Aubry considered it necessary to 
carry through the business, to pa}'^ some commissions to some asso- 
ciates. The details of this, I do not know, Senator. 

Senator Clark. As a matter of fact, Mr. Spear, those special 
commissions represented bribery, did thej^ not? 

Mr. Spear. Not that I know of. 

Senator Clark. In other words, you know that bribery ig an ele- 
ment on which all of your South American business is based, do 
you not? 

Mr. Spear. I would not say that. But I will say that there is 
a general impression that what we would call bribery and which 
they do not is pretty general practice in most South American 
countries. That has been my information and experience. 

Senator Clark. It was your opinion, was it not, that bribery was 
the basis of ail South American armament selling, was it not? 

Mr. Spear. I would not call it bribery. But it was my opinion 
that you could not do business with South America without paying 
a good many commission^. I do not know whether it was bribery 
or not. I have heard of some cases of direct bribery. 

Senator Clark. Mr. Carse, what did you understand was to be 
done with these special commissions that were paid for this Peruvian 
business to which the commander referred? 

Mr. Carse. I do not know what he was going to do with it. 

Senator Clark. You simply authorized it without making any 
effort to find out the necessity for it or what was to be done with it ? 

Mr. Carse. Yes ; it was a moderate commission. 

Senator Clark. Did you know what was to be done with this 
money, Mr. Sutphen? 

Mr. Sutphen. I do not know. 

Senator Clark. What did you understand he meant when he said 
that these people had to be paid in order to get the business ? 

Mr. Spear. I understood just what he said, that the business would 
be interfered with, or something, if the commissions were not paid. 

The Chairman. Was this commission referred to here included in 
the record, in the evidence that was offered for the record as reveal- 
ing the total of the commissions paid ? 

Mr. Spear. Of all the commissions paid 

The Chairman (interposing). Through Mr. Aubry? 

Mr. Spear. Of all commissions paid. They were all included in 
the record, yes. 

Senator Clark. You mean the special commissions that Aubry 
informed you he was to pay out, were included on your books? 

Mr. Spear. Everything we paid to Aubry was included in that 
statement, yes. 

Senator Clark. Mr. Spear, I will ask you to look at a letter from 
you to Commander C. W. Craven, managing director of Vickers 
Limited, Barrow-in-Furness, dated March 3, 1927, which I will 
offer in the record at this point. 

(The letter referred to was thereupon marked " Exhibit No. 68.") 

Senator Clark. You were on more or less confidential terms with 
Commander Craven, were you not? 



118 MUNITIONS INDUSTRY 

Mr, Spear. Yes: I have known him quite welL 
Senator Clark. Paragraph 3 of that letter, dated March 3, 1927, 
is as follows : 

This is an appropriate time for me to tell you that none of us here have 
ever met our Chilean representative and consequently we cannot in any way 
vouch for his reliability. 

This was at a time when you were in association with Vickers on 
Chilean business, was it not? 

Mr. Spear. At a time when some business was pending in Chile 
which we were discussing. 

Senator Clark. I wnll read the whole letter and perhaps it would 
clear that up. [Reading:] 

March 3d, 1927. 
Exhibit No. 68 

Commander C. W. Craven, 
Vickers Limited, 

BaiTotv-in-Fuiyiess, England. 

My Dear Craven : 1. Referring to the cables exchanged between us on Feb. 
21st and Feb. 22nd with regard to the possible sale of two " L " type boats for 
quick delivery, I have .iust cabled you as follows : 

"Reference cables Feb. 21st and Feb. 22nd relative L type suggest prepare 
estimate immediately. Writing." 

2. The country in question is Chile and the business in its present aspect 
started with a cable from our representative there asking if we could furnish 
two boats for immediate delivery larger than 900 tons and stating that the 
boats could be second-hand provided that the design was modern. For reasons 
with which you are already familiar, and I think that as the cards now lie, 
it will be best, for the time being at least, to continue to talk of nothing but 
British construction, hence my cable to you of Feb. 21st with reference to the 
possibility of making quick delivery of two " L " boats. 

Why was it better for an American boat company to continue to 
talk only of British construction, and steaming up a sale for British 
boats, instead of American boats, Mr. Spear? 

Mr. Spear. We were at that time still building two boats for Peru. 
That was when the feelings between these two countries were rather 
exasperated. They had not composed their differences up to that 
time and we did not think it would look very well for us to be 
dealing with the Chileans the same time that we were dealing with 
the Peruvians. That was the main reason. In addition to that, 
we had had some experience with the Chileans in years before that 
had not been so happy and that had left rather an unpleasant im- 
pression in my mind. I was not so very keen about going through 
again the experience that I had had with them before. 

Senator Clark. So that you preferred to tell the Chileans that 
the best deal they could make would be with your associates, Vick- 
ers, out of whom you would get a conunission? 

Mr. Spear. Yes; we had no boats that would meet the conditions. 

Senator Clark. Continuing with this letter: 



^te 



As soon as I received yours of the 22nd of Feb., I cabled our agent as follows : 
" Nothing available immediate delivery. Best delivery new construction 
England thirteen months using available machinery parts already insi)ected by 
British Admiralty. Cost probably about £300,000 each. If funds available and 
inquiry really serious will arrange formal proposal by our British licensee 
Vickers i)rovided your commission acceptable. Cable commission required." 
to which I am just now in receipt of the following reply : 

" Offer both to Chilean Commission and Legation London offering forward 
delivery with premium. Advise me when bid made size price so that work here 
for immediate decision. Commission 5." 



I 



MUNITIOlSrS INDUSTRY 119 

3. This is an appropriate time for me to tell you that none of us here have 
ever met our Chilean representative and consequently we cannot in any way 
vouch for his reliability. We all know, however, that the real foundation of 
all South American business is graft and it may very well be tliat he knows the 
proper people to pay in Santiago. At any rate, I am passing the thing along 
to you for such action as you may think it proper to take, having in view 
jour own separate negotiations. If you should decide to submit a tender now 
for two " L " boats, with premium for early delivery, you will, of course, have 
to reserve our 5 percent royalty as well as the 5 percent commission referred to 
in the cable ; on the other hand, if your decision is in the negative, you will 
have to be careful in the futui'e if you should, on your own account, offer the 
■" L " type, since under such circumstances our Santiago man might very well 
come forward with a claim for commission. 

Senator Pope. Who wrote that letter, Senator? 
Senator Clark. Mr. Spear, to the head of the Vickers Co. [Con- 
tinuing reading:] 

4. Please cable me your decision and action so that I can advise Santiago. In 
conclusion, I would like to add a little unsolicited and perhaps superfluous 
advice which is that I would not be too modest about the price and would 
cover into it a substantial amount in excess of the 10 percent above referred 
to, my own experience being that at the last minute something extra is always 
needed to grease the ways. 

Now, by " Greasing the ways " you meant such things as these 
special commissions which were referred to in Commander Aubry's 
letter, did you not? 

Mr. Spear. Yes; that is what I meant. I meant special expenses 
that always crop up. 

Senator Clark. " Special expenses." In other words, graft and 
bribery to officials of those countries? 

Mr. Spear. Not necessarily to officials, Senator. They have a cus- 
tom down there of taking care of their friends. 

Senator Clark. "An old Spanish custom? " 

Mr. Spear. An old Spanish custom, yes: of taking care of 
their friends through Government business. You will always find 
a certain number of people that they say you must employ, and so 
forth. That is the way. 

Senator Clark. Such as the son of the President of Peru, for 
instance ? 

Mr. Spear. Well, it might be anybody, you know, whoever their 
political friends are, they take care of them by asking people to 
employ them, or people who are going to do business with the 
Government. 

Senator Clark. I will just finish this letter by reading the post- 
script. 

P.S. — "While as indicated above, I do not tliink that price is the main con- 
sideration, in this job, if the amount of commission asked should for any 
reason be the controlling element, I will of course, pass along to Santiago any 
counter-proposal you might elect to put forward. 

Senator Clark. I will get back to this Chilean matter later. 
Now, referring to this sale of submarines to Peru, Mr. Spear, you 
had come difficulty in getting by the American Naval Mission on your 
plans and specifications, did you not? 

Mr. Spear. I do not recall any great amount of difficulty. I think 
there were some changes they wanted made, as I remember it. 

Senator Clark. Did not the Commission complain you had re- 
duced the capacity of the boat without reducing the price? For 



120 MUNITIONS INDUSTRY 

instance, I will refer you to a letter from Commander Aubry, dated 
March 31, 1024, which letter I will ask be marked '' Kxhibit No. 09." 

(The letter referred to was marked " Exhibit No. 69 ", and appears 
in the apjiendix on p. 360.) 

Senator Clark. At the bottom of the first page of this letter, " Ex- 
hibit No. 69 ", it says : 

The reduction of the submarines speed to a uiininium of 8% miles also is a 
pore point because Woodward told mo tliat he could not understand improving 
the quulities of the boats by reducing the main features. 

Mr. Spear. I won't be sure about this. Senator, but I think this is 
the situation, I tliink, as I recall it, that the specifications were 
accepted of the design and quality of the boat, and I think that was 
9 knots submerged. When we get to a contract we always keep 
something up our sleeve to be sure we can meet the contract require- 
ments. 

Senator Clark. Woodward complained about reducing the general 
capacity of the boat without any reduction of price. 

Mr. Spear. As I see here the question he is referring to is whether 
the submerged speed should be 9 knots or 8%. Do you see anything 
else — I think the boat actually did finally make 9, as we thought 
it would, but we did not want to guarantee that. 

Senator Clark. You also had some controversy with Woodward 
on the question of whether these boats were to be delivered in Eng- 
land or in the States. Tliat is in paragrai)h 1 of the letter. Appar- 
ently you had been making an effort to deliver the boats in England, 
which would mean an additional cost of about $50,000 on the Peru- 
vian Government to bring the boats across. 

Mr. Spear. That is probably correct. 

Senator Clark. This letter sliows Woodwnrd had been endeavoring 
to accept delivery in England and tlie Government declined to do 
that. 

Mr. Spear. I do not recall that. 

Senator Clark. Then there was some discussion about a certain 
type of gun, the Davis submarine gun. 

Mr. Spear. I think I proposed some special type of gun and they 
did not want it. 

Senator Clark. On whicli Woodward hnd not made up his mind. 

Mr. Spear. He eventually made up his mind he did not want it. 

Senator Clark. Aubry promised you he would be able to mana^^e, 
and you would not have to furnish the gun included in your price 
of the boat. 

Mr. Spear. I do not think we ever proposed to furnish the gun in 
that price. 

Senator Clark. What does he mean by saying, " Therefore I think 
T shall be able to arrange so as to have the gun not included in the 
price." 

Mr. Spear. That is Avhat he means. 

Senator Clark. It meant you would not have to ])ay for the gun. 

Mr. Spear. Thnt is the idea, we would not supply the gun. It was 
a separate matter and if they wanted it they could order it from us 
and we could buy it and put it on the ship. 

Senator Clark. Now, this letter indicates tliat your representative. 
Commander Aubry, thoroughly realized that he was selling arma- 
ment to countries where he was busy drumming up hostilities. 



MUNITIONS INDUSTRY 121 

Mr. Spear. I could not tell that ; I do not know. 
Senator Clark. I read from the letter at the bottom of page 2, the 
following : 

Tlie fiict that if I bring with mo tlie contracts for Peru, as T expect I will, 
it would be a great blunder going to Argentine, for ins^tance, via Chile (in this 
l»usincs.s we have to be taclfnl and a little diploniiitic) ; and so in regard 
to Bnizil as well as to the Argentine now that the affairs are going to take place 
at the same time. I will have to be very careful concerning my activities with 
any one of these countries respecting the others. 

What he meant, he was trying to sell to all of these countries which 
might be in hostilities with each other at any time, and he was trying 
to keep each one from finding out ho was dealing with the other. Is 
that not what you find that ])aragraph to mean? 

Mr. Spear. I think it perfectly natural, sir, where these people 
are perhaps not on the best of terms with each other, if he went to one 
then to the other, and dealt with them simultaneously, he would get 
a bad reception. 

Senator Clark. Yes, he could not sail Brazil when he was dealing 
with Argentine and vice versa. 

Mr. Spear. I do not think he would wish them to know it, natur- 
ally, as a matter of ordinary business prudence. 

Senator Clark. Now, in 1924, in ccmnection with this order you 
became very much dissatisfied with the price of hulls which was 
quoted you both by Bethlehem and Vickers, did you not, and con- 
sidered the possibility of establishing a phtnt of your own to -build 
hulls? 

Mr. Spear. Yes, sir. 

Senator Clark. I refer you to a letter dated July 29, 1924, to Mr. 
Carse, which we will have marked " Exhibit No. 70." 

(The letter referred to was marked " Exhibit No. 70 ", and appears 
in the appendix on p. 362.) 

Senator Clark. What do you mean by saying on the second page 
of that letter you want to keep Bethlehem in line? In paragraph 5 
you say the following : 

Of course, in the face of the above figures, there is only one answer so far 
as this particular job is concerned. 

That was to have them manufactured by England? 

Mr. Spear. Yes. 

Senator Clark. Continuing, the letter, it says: 

Insofar as future competition from Bethlehem is concerned, T have been 
treating tliom in this matter with the greatest foi'sidoraticm and there would 
be no po'^sible excuse for hard feelings if they do not get the job, and certainly 
they would be less disturbed by our doing it than if we gave it to some other 
American yard. Moreover, with this equijiment in hand, I v.-ould not fear 
their competition in the future and, if necessary, I think we could keep them 
in line by arrajiging to give them any excess of Atlantic coast work over our 
own capacity as well as all Pacific coast work. 

"Wliy was it necessary to keep Bethlehem in line? 

Mr. Spear. Because they had ambitions then to enter into the 
submarine business. 

Senator Clark. In other words, you wanted to keep them out of 
competition ? 

Mr. Spear. Yes. 

Senator Clark. Now, about a year later Bethlehem was bidding 
against you for guns? 



122 MUNITIONS INDUSTRY 

Mr. Spear. For Peru? 

Senator Clark. Yes. 

Mr. Spear. I think they did. 

Senator Clark. You were bidding on guns and ammunition as 
well as submarines? 

Mr. Spear. I believe these w^ere guns to go on the boats. 

Senator Clark. You not only furnished boats, but you furnished 
armament for the boats whenever you could get the order ? 

Mr. Spear. As I remember, it was a separate order. 

Senator Clark. I am calling your attention to a letter dated 
October 19, 1925, from Commander Aubry to yourself, which I ask 
to be marked " Exhibit No. 71." 

(The letter referred to was marked "Exhibit No. 71 ", and appears 
in the appendix on p. 363.) 

Senator Clark. In this letter he says: 

In this respect, I may state to you that the Bethlehem proposal by wire to 
the Minister of Marine for the same guns and ammunition was $67,000. I 
have the cable in my hands, so the figures that they have given to you, as per 
your letter of Sept. 17th, para. 2, differs very much from the ones they quoted 
to the Government. 

In other words, Bethlehem told him they were going to submit 
one bid and actually submitted another? 

Mr. Spear. Either that or it may have been otherwise, I will 
have to look it up, but it may have been the figure they referred to 
Bethlehem was the price to us. We were not building guns, but only 
just getting what the Peruvian Government wanted, and we had to 
buy from somebody who made them. It may have been that, but I 
don't know which it was, the letter will explain it. 

Senator Clark. Then Aubry goes on and says : 

The $3,000 local commission authorized by you were necessary in order to do 
away with some sore feeling of some political friends of the Department that 
are trying to introduce Bethlehem into our small Peruvian market. 

That is the same sort of commission we were discussing a while 
ago, and people were trying to bring Bethlehem in to bid, and you 
concluded it was cheaper to buy off, than to fight them ? 

Mr. Spear. We did not want anyone of these political people 
working for somebody else. 

Senator Clark. I also call your attention to paragraph 6 on page 
2 of the same letter, which reads as follows : 

Now, regarding your letter of the 22nd Sept., to Admiral Woodward, the 
admiral sent a wire immediately to the Navy Department asking if lie could 
obtain an expert for the mission. He has not yet received any reply, but the 
admiral autliorized me, today, to wire you asking for tlie nam-.'s you mention 
at Para. 3, in order that, as soon as he has a reply from the Department, he 
will reciuest by cable the expert whom you will recommend. For your guid- 
ance, the admiral is intent to have that expert as the real inspectoi- : that is to 
say, his technical authority will be above the one of Commander Monge. 

Now that meant Admiral Woodward was willing to recommend 
to the Department any submarine expert you recommended to him? 

Mr. Spear. I think so. 

Senator Clark. And that expert you placed with the Americam 
Naval Mission to operate would actually be the inspector of the sub- 
marines which you sold to the Peruvian Government?. 

Mr. Spear. That was the intention; yes. 



MUNITIONS INDUSTRY 12S 

Senator Clark. That was the intention for you to appoint the 
man to inspect the submarines you sold to Peru '{ 

Mr. Spear. Yes; we wanted a competent man. 

Senator Clark. That was your only reason? 

Mr. Spear. I have had some disastrous experience with incompe- 
tent inspectors that did not know anything about it, and it is an 
exceedingly difficult matter. 

Senator "^ Clark. It always makes for harmony if the concern 
which is furnishing the goods also names the inspector to inspect 
the goods, does it not ? 

Mr. Spear. Good relations between the two were very essential 

and proper. 

Senator Clark. If the man doing the inspection is in the employ 
of the man making the goods, he is apt to make a good report. 

Mr. Carse. The goods speak for themselves. 

Mr. Spear. I think it is important to have people experienced in 
their business as inspectors. If you do not you will have all sorts 
of difficulties. 

Senator Clark. You said you made your contract with Aubry 
about the middle of 1924? 

Mr. Spear. That is my recollection. 

Senator Clark. It was renewed when? 

Mr. Spear. My recollection is he served us some time, then he 
went back into the active service. After resigning our service he 
went back into the active service which is permissible under the law, 
and went to Paris as naval attache. And when that was over he 
came back to our employ. That is a fact, isn't it? 

]VIr. Carse. He resigned his office with the Government and came 
back to us. 

Senator Clark. I have a memorandum agreement for services 
that Commander Aubry entered into the 14th day of October 1925. 
That was evidently from correspondence, not his original contract, 
but a renewal. 

Mr. Spear. I could not say without looking it up. 

Senator Clark. Correspondence in the record indicates he had 
been your representative for several years prior to 1925. 

Mr. Spear. I think he was. 

Senator Clark. So this was evidently a renewal contract in 1925, 
or a new contract, and what I was trying to get at is whether this 
memorandum agreement is in general terms the same as the original 
agreement, or involves a modification. This paper is the power of 
attorney, and is not what I thought it was. What I thought I was 
handing you was the memorandum agreement, and I will now 
show you this memorandum contract dated January 24, 1929, and 
will say briefly this memorandum provides for a salary of $6,000 
a year plus $1,000 a year for office expenses and for traveling ex- 
penses, and for commissions that might be agreed upon, and for 3 
percent on submarines, torpedoes, and ammunition. Was that sub- 
stantially the original contract, or did that involve a modification? 

Mr. Spear. AVithout looking at the original contract I could not 
tell you, but my impression would be that at first Commander 
Aubry represented us only in Peru, and later on that was extended 
to all South America; and it is quite possible a modification may 
have been made in our arrangemciit. 



124 MUNITIONS INDUSTRY 

Senator Clark, What compensation did he originally get, do you 
recall ? 

Mr. Spear. I do not recall. 

Senator Clark. Do you recall, Mr. Carse? 

Mr. Spear. Wouldn't it show in one of those exhibits ? 

Senator Clark. I do not believe it does in any exhibit I have. 

Mr. Carse. It was only on a commission basis, at first. 

Senator Clark. You did not pay him a salary at first? 

Mr. Spear. I do not remember whether we did or not. I think 
it does show in that statement everything paid to him. 

Senator Clark. I offer this power of attorney as " Exhibit No. 72." 

(The document referred to was marked " Exhibit No. 72 ", and 
appears in the appendix on p. 365.) 

Senator Clark. I offer the memorandum agreement as " Exhibit 
No. 73." 

(The document referred to was marked " Exhibit No. 73 ", and 
appears in the appendix on p. 366.) 

Senator Clark. Now, Mr. Spear, I direct your attention to a 
letter from Battle Creek, Mich., from Commander Aubry dated July 
10, 1926, which I offer as " Exhibit No. 74." 

(The letter referred to was marked " Exhibit No. 74 ", and appears 
in the appendix on p. 366.) 

Senator Clark. In the first paragraph of this letter, " Exhibit No. 
74 ", and in a question with a regard to which I desire to ask you, it 
happens to deal with a Brazilian question. I mention it because a 
part of the letter also deals with Peru. Commander Aubry mentions 
the fact you were making bids for the construction of Brazilian ves- 
sels to be constructed in Belgium. 

Mr. Speai?. Where is that? 

Senator Clark. It is in paragraph one. It says you could prob- 
ably meet them in London, and offers to give you letters of intro- 
duction to the Brazilian Commission in London. 

Mr. Carse. That is Argentine. 

Senator Clark. Yes, pardon me. That is Argentine. It says, 
" I think your idea of tendering for building in Cockerill, Belgium, 
is a very good idea." 

Mr. Spear. Yes ; that is right. 

Senator Clark. Why was it necessary to build these vessels in 
Belgium instead of the United States ? 

Mr. Spear. It was a matter of pi-ice. We were told the price 
had to be very low, and it was impossible to construct what they 
wanted if we constructed the vessels here. So we proposed to con- 
struct the vessels there with parts constructed in our own plant 
here, because it was the only way in which it could be done. 

Senator Clark. You had a standing contract with Cockerill in 
Belgium ? 

Mr. Spear. At that time Cockerill was our licensee ; yes, sir. 

Senator Clark. You had a regular contract with Cockerill as to 
the division of the overhead and other matters? 

Mr. Spear. We had a contract governing the whole matter of 
how the cost was to be paid and how it was to be determined and 
what our responsibilities were and what theirs were — a contract to 
permit such construction if it became necessary or desirable, there. 



MUNITIONS INDUSTRY 125 

Senator Clark. At this time you were trying to float further Peru- 
vian loans through the Chase National Bank? 

Mr. Spear. This has nothing to do with the Peruvian situation, 
this is the Argentine. 

Senator Clark. I understand, but it mentions Argentine and Peru- 
vian both in the same letter. When he comes to paragraph 3, he takes 
up the Peruvian matter when he says : 

Now regarding the most interesting part, in my opinion, of your letter, I 
am very glad that you are pushing this question of financing the new Peruvian 
orders with the assistance of the Chase Bank. 

So, I say you were negotiating at that time a further loan for the 
Peruvian Government with the Chase Bank? 

Mr. Spear. I presume so. 

Mr. Carse. I took Mr. Aubry over to the Chase Bank and intro- 
duced him and stated he would like to discuss with them the possi- 
bility of some kind of a Peruvian loan, and they took it up and 
referred it to their department. 

Senator Clark. So that at this time, Mr. Carse, in 1926 you were 
attempting to float this loan? 

Mr. Carse. I think it must have been at this time. 

Senator Clark. Was Aubry representing at that time the Peruvian 
Government or the Electric Boat Co.? This letter clearly indicates 
he was the representative of the Boat Co. at that time, and was he 
also, in addition to being your representative, trying to negotiate 
loans on behalf of the Peruvian Government? 

Mr. Carse. He was trying to find out whether he could take back 
to the Government some possibility of borrowing money here. 

Senator Clark. Did he have any authority to represent the 
Peruvian Government in such negotiations? 

Mr. Carse. No; he was just asking them if thej^ would consider it, 
and they turned it down. 

Senator Clark. Do you mean as your representative Commander 
Aubry went to the Chase National Bank and asked them if they 
would loan money to the Government of Peru ? 

Mr. Carse. Yes; I would not say he was our representative, but 
I think it was in his own personal capacity. 

Senator Clark. He was your representative at that time, 
wasn't he? 

Mr. Carse. Yes ; but he also still had his personal capacity. He 
was a person, we did not own him body, boots, and breeches. 

Senator Clark. There seems some doubt about that from this 
letter. In what capacity did he go to the Chase National Bank? 

Mr. Carse. He went there to see whether they would be interested ^ 
in considering making the loan to Peru. 

Senator Clark. You say at that time he had no authority to ask 
for a loan to the Government of Peru ? 

Mr. Carse. Not at all. They turned it down anyway. 

Senator Clark. Now, on October 11, 1926, Mr. Spear or Mr. Carse, 
you received a cablegram from Mr. Aubry at Lima, in code, and 
which, decoded, I offer as " Exhibit No. 75." 

(The cablegram referred to was marked " Exhibit No. 75 " and 
appears in the appendix on p. 368.) 

83876— 34— PT 1 



126 • MUNITIONS INDUSTRY 

Senator Clakk. This cablegram, Exhibit No. 75, decoded, reads 
as follows : 

Sisniecl today financial contrnr-t for two more submarine aurl I will sijiii 
IStli October consiruction contract for tbe same. I will communicate details on 
Weduesday evenint;. Indispensable that Ihe company remit us by cable 
12,000 dnliars of which lO.OOO referred to in our telegram 14th September 
and your rei)ly ISth September and 2,000 for expense incurred in contracts. 
Signed Aubry. 

What did that $12,000 represent, Mr. Spear? 

Mr. Spear, I don't think I can tell you. Possibly we may find 
some record of it. 

Senator Clark. You cabled that $12,000? 

Mr. Spear, I don't know. 

Senator Clark. There is a notation on the bottom of this cable- 
gram taken from your files, " $12,000 remitted Aubry, Oct. 14th." 

Mr. Spear. I don't know that. 

Senator Clark, That was another way of greasing the wa}'' to 
get the contract. 

Mr. Spear, I have no recollection of that. 

Senator Clark, You have no recollection of what you cabled that 
$12,000 to Aubry for ? 

Mr. Spear. No ; I didn't handle it. 

Senator Clark. Did you handle it, Mr. Carse? 

Mr. Carse, It was handled in our office. 

Senator Clark, Do you know what it was for? 

Mr, Carse, No; it was one of those special commissions, I don't 
know what it was. 

Senator Clark, As a matter of fact you would prefer not to 
know what it was ? 

Mr, Carse, Certainly. 

Senator Clark, Do you know what it was for, Mr, Sutphen? 

Mr. Sutphen, No, sir, 

Mr, Spear. There were some legal fees, some lawyer's fees we had 
to pay down there in drawing the contract that were paid out of 
that. " Just how much they were I could not tell you, but he em- 
ployed counsel to guide him in making these contracts and those 
fees were paid. 

Mr, Raushenbusii, Are you pretty sure that was not handled 
separately? 

Mr. Spear, I am not sure. It may have been handled entirelj- 
separate but I do not recall. 

Senator Bone, May we digress at the moment to ask if the Amer- 
ican Naval Commission went to Argentine? 
, Mr, Spear, I don't think so. 

Senator Bone. To what countries did this Commission or these 
various commissions go? 

Mr. Spear. To Brazil and Peru. 

Senator Clark. They were separate commissions in each case? 

Mr. Spear. Yes, sir. 

Senator Bone. My reason for asking is this: What reaction was 
there, if you can tell us, on the part of other South American coun- 
tries at this* very open and obvious aid. comfort, and assistance this 
Government was giving those two South American countries? 



^ 



MUNITIONS INDUSTRY 127 

Mr. Spear. I could not answer it. I am under the impression — 
I may be wrong — but I am under the impression that simultaneously 
the Chilean had an English commission, and what their reaction 
was to the appointment of those two American commissions, I do 

not know. 

Senator Bone. Were all of the major powers engaging in attempt- 
ing to stimulate the building of greater navies in South America. 

Mr. Spear. I do not know. 

Senator Bone. And to tire their imagination and stimulate them 
to the building of greater navies? 

Mr. Spear. I do not know what that was but what I think it was, 
was to have what they were buying, bought in this country. 

Senator Bone. Where was the sudden stimulus to get these people 
to buy battleships and submarines? 

Mr. Speak. I do not know that there was a stimulus. 

Senator Bone. It seems to have been inspired by the builders ? 

Mr. Spear. No; I do not think so. 

Senator Bone. The Government was not selling their own ships? 

Mr. Spear. No ; my understanding is the Navy asked the Govern- 
ment to appoint the commission. 

Senator Bone. There must have been some agitation down there. 

Mr. Spear. I naturally suppose they must have given some con- 
sideration to their political situation and their defensive situation, 
but it does not necessarily follow that somebody led them into 
doing it. 

Senator Bone. Do you think the agents of your firm and other 
tirms manufacturing munitions and battleships and the like had 
anything to do with stimulating this agitation? 

Mr. Spear. Not to my knowledge. We hope to negotiate business 
if we can get it, but I have no knowledge as to what may have 
taken place in an attempt to influence public opinion. 

Senator Pope. Weren't these missions very favorable to your get- 
ting the business of those countries? 

Mr. Spear. I do not know that they were. I should think they 
were not, because I think they knew a great deal more than our Nav}^ 
people did down there and were able to protect their governments 
against anybody who wanted to ask an unfair price or sell an in- 
ferior article. 

Senator Clark. Senator Bone and others who may be interested 
in this, we have a study in course of preparation covering the entire 
activity of the naval missions to South America which I will later 
on offer, and we can go into that in more detail. 

Mr. Spear. This ig a matter on which we have not direct knowl- 
edge, and it is only indirectly that we know the details of it. We had 
some contact with them in connection with negotiations and that is 
all of the contact we have had in the matter. 

The Chairman. Mr. Spear, speaking generally now, how far could 
the Electric Boat Co. have gotten as respects business in South 
America without guch aid as came from the State Department, the 
Navy Department, and your activities with money which you do not 
pretend to know definitely how it was spent — how far could you 
have gotten without resort to those influences? 



128 MUNITIONS INDUSTRY 

Mr. Speak. The only orders we did succeed in getting were the 
Peruvian orders. We competed for the Argentine orders and we 
competed for the Brazilian orders. In Brazil they had this angle 
that has been mentioned, and of course we had our diplomatic repre- 
sentative, and so forth. We were naturally trying to get all of the 
help from anybody who might help us, but we did not succeed. So 
it boils down to whether or not the interest the United States Govern- 
ment toolv in it was of a decided effect in the Peruvian order. That 
is what your question really boils down to. 

The Chairman, Are you wanting to say you might have gotten 
further if our State and Navy and Commerce authorities had not 
exercised any influence? 

Mr. Spear. No ; I think they were helpful, but I do not think they 
were the deciding factor. 

Senator Bone. One may aalsume, Mr. Spear, that the activi- 
ties of these major powers, England, the United States, Italy, and 
other countries that were exercising a political influence in South 
America to secure orders for their companies had a tendency to make 
South America one great armed camp. That would be the result, 
would it not, when they were each attempting to stimulate the pur- 
chase of munition^ of war. 

Mr. Spear. It would naturally result in more armament if they 
were interested in it, but whether you should call it an armed camp 
or not, I could not say. 

Senator Bone. AVeil, we have Bolivia and Paraguay giving an 
exhibition now which more or less resembles war, have we not? 

Mr. Spear. Yes ; very closely. I do not know that I could qualify 
as an expert in answering your question. Senator. 

Senator Clark. Mr. Carse, on this second order of submarines 
you were compelled to take Peruvian notes as part of your compen- 
sation in the amount of $1,000,000; were you not? 

Mr. Carse. The plan was to provide that we take notes payable 
so much a month, extending over a period of years. 

Senator Clark. And you made an arrangement by which you 
issued your company notes with these Peruvian notes as collateral? 

Mr. Carse. We did for a short period of time when we were 
waiting to collect some other money. 

Senator Clark. And those notes were sold to smaller banks 
throughout the country, were they not? 

Mr. Carse. I do not know. I sold them to Becker & Co. of 
Chicago. 

Senator Clark. I direct your attention to a letter from you, 
marked " Confidential ", longhand note, dated April 21, 1920, ad- 
dressed to Mr. Pedro Larranaga, at Lima, Peru. He was Com- 
mander Aubry's uncle, was he not? 

Mr. Carse. Yes. 

Senator Clark. And he was connected with some of these special 
missions from time to time. 

(The letter referred to was marked " Exhibit No. 76 ", and appears 
in the appendix on p. 368.) 

Senator Clark. In the thir"! paragraph of the letter of April 21, 
1927, " Exhibit No. 76 ", you stated : 

We have finally arranged with a very reliable firm here, Messrs. A. G. 
Beckpr & Co. of Chicago, for a loan to this company for one year of one 



MUNITIONS INDUSTRY 129 

million dollars secured as collateral by $1,300,000 of the Peruvian notes in 
our possession, and their lawyers drew up very elaborate papers, trust deeds, 
etc., in connection therewith, and they wished a lawyer's opinion as to the 
legality of all the steps taken in relation to the loan and tlie aspect of the 
notes. 

You had previously asked him about a lawyer, Dr. Calderon? 

Mr. Carse. Yes, sir. 

Senator Clark (continuing reading) : 

We had our counsel give his opinion, which the bankers accepted with the 
understanding however that we had cabled you and that we would receive the 
lawyer's opinion and file it with them, so that they would be able, in selling 
our notes to small bankers throughout the country, to say that they had this 
legal opinion, which seems necessary in connection with all bond and note 
issues. The commission we paid to the bankers was fairly substantial, some- 
wliat more than the interest which the notes carry within themselves, but we 
considered it well to develop the market for these so that in the future such 
obligations might be more readily disposed of. 

In other words, you were willing to suffer some loss at that time 
in order to develop a market for Peruvian securities in this country ? 

Mr. Carse. No, because we needed the money 

Senator Clark. What did you mean by the last sentence which 
I have just read, which reads as follows : " But we considered it 
well to develop the market for these so that in the future such 
obligations might be more readily disposed of? " 

That was accepting a loss on your part to develop the Peruvian 
market? 

Mr. Carse. We were willing to pay a little bit to start the com- 
mercial paper, but those things are all paid off. The notes paid 
themselves off. The}^ matured so much a month. Nobody lost 
anything from those notes. 

Senator Clark. Somebody may have lost something by develop- 
ing a market in this country for Peruvian securities, might they 
not? A good deal of money was lost in this country by the pur- 
chase of Peruvian obligations, was it not ? 

Mr. Carse. Not on our undertaking. 

Senator Clark. You state that one of the purposes was to de- 
velop the Peruvian market? 

Mr. Carse. Was to develop a market. 

Senator Clark. For such obligations? 

Mr. Carse. Yes, sir. For our paper 

Senator Clark. Secured by Peruvian notes? 

Mr. Carse. Such obligations, meaning obligations of any govern- 
ment for the same purpose. 

Senator Clark. Mr. Spear, I will direct your attention to a 
letter 

Mr. Carse. There were all sorts of propositions as to credit. 

Senator Clark. I will direct your attention to a letter from Com- 
mander Aubry, dated at Lima, Peru, May 12, 1927, which I will ask 
to have marked " Exhibit No. 77." 

(The letter referred to was marked " Exhibit No. 77 " and appears 
in the appendix on p. 369.) 

Senator Clark. " Exhibit No. 77 " first refers to Argentine business. 
It says : 



'J ' 



We will have the order for three submarines to be built in France * * 



130 MUNITIONS INDUSTRY 

Whv Avas it iiecossarv to build thoS3 submarines in France, Mr. 
Sprar? 

jSfr. Spear. The same reason as when we were talking about build- 
m(r in Belo;iuni, plus a prefereiice expressed by somebody in the 
Ar^rentine government that they would rather see them constructed 
in France, if it was possible. Somebody expressed that preference. 
I do not know who. 

Senator Cl.aek. It was immaterial to 3'ou where you manufactured 
them as long as you got the profit? ' ' ' 

Mr. Spear. I could not get it at all unless I built them in that 
country. 

Senator Clark. Who got the business? 

Mr. Carse. The Italians got the business. 

Senator Clark. So far as the labor interests were concerned there 
was really a conflict between French labor and Italian labor? 

Mr. Spear. Yes, sir. 

Senator Clark. American labor had no interest in it at all? 

Mr. Spear. Only to some extent, because we made the plans and 
some of the machinery and shipped it over there, but the hull work 
was done there. 

Senator Clark. On page 2 of that letter, Mr. Spear, we come 
directly to Peru. I will read the heading. [Reading:] 

No. 2. Peruvian Business. I acknowledge the receipt of yours of the 12tli, 
14th, iSth, 19th, 21st, and 2f7th April. 

Regarding yours of April the 12th, about .Juan Leguia's visit to you and 
the construcfon of the larger boats for Peru, I spoke last night, at length, 
with the president 

Juan Leguia was the son of President Leguia of Peru, was he not, 
Mr. Spear? 

Mr. Spear. He was. 

Senator Clark. He had been a commander in the Peruvian Navy, 
had he not? 

Mr. Spear. He Avns in the flying corps. 

Senator Clark. He is referred to here as a commander. 

Mr. Spear. I think he Avas an admiral, but he got that title. 

Senator Clark (continuing reading) : 

* * * and he told me that he has not instructed, commissioned, or re- 
quested his son Juan Leguia to act in any capacity whatever in regard to 
this and whatever he might do will be entirely in harmony with what he 
promised me in October last; that is, to increase the national defense funds 
and buy armaments for the army, which are required very badly, and order 
two more "R" boats. He promised me tbat at the end of .lune next he will 
be entirely prepared to discuss the matter thoroughly with me, as he expects 
to have by that time the financial scheme accomplished, wliich will very likely 
permit the withdrawal of the bonds issued by the National Defense Act (that 
is our bonds), and then contract two more boats on a capitalized cash basis. 

What had been the conference between you and Juan Leguia on 
which yon advised Mr. Aubry on April 12th? Do you recall? 

Mr. Spear, All I remember about it is that young Leguia came to 
see me with the suggestion that somebody had told him that they 
ought to have bigger submarines for Peru. I remember that part 
of it, but whatever else he had in his mind or talked about, I could 
not tell you, because I do not remember, Senator. 

Senator Clark. Did he talk to you about a special commission? 

Mr. Spear. No; he did not. 



MUNITIONS INDUSTRY 131 

Senator Clark. Did you not arrange to pay Juan Leguia a special 
commission ? 

Mr. Spear. I never arranged to pay Juan Leguia a special com- 
mission. 

Senator Clark. Did you, Mr. Carse? 

Mr. Carse. No; but I gave hira a retainer on the understanding 
that he go to Venezuela and endeavor to secure some business for us 
in Venezuela. He claimed Gomez was so close to his family he 
could get some business in Venezuela. 

Senator Clark. Did you not arrange to pay Juan Leguia $20,000 
on the Peruvian boats ? 

Mr. Carse. No, sir. 

Senator Clark. Your company did not? 

Mr. Carse. No, sir. 

Senator Clark. We will come to that in a moment. 

Then Mr. Aubry goes on in this letter of May 12, 1927, " Exhibit 
No. 77 ", as follows [reading] : 

He told me that he has not discussed the matter over with Admiral 
Howe * * * 

Admiral Howe had at that time become head of the American 
Naval Mission, had he not? 

Mr. Spear. Yes, sir ; head of the American Naval Mission. 
Senator Clark (reading) : 

He told me that he had not discussed the matter over with Admiral Hovv'e 
because he was perfectly aware that the Admiral did not want any more subs, 
but destroyers, and he added, smiling : 

" But you and I, we do not want any destroyers but subs, and, therefore, why 
should we discuss the matter with Howe when we have the opinion of his 
predecessor which is in line with ours." 

In other words, the Peruvian Government was paying these 
American naval officers to come down and supervise the building of 
a navy, and then you were arranging to go around the head of the 
American Naval Mission because you knew he was favorable more 
to destroyers than to submarines? 

Mr. Spear. We were adhering to that because his predecessor 
liked submarines. 

Senator Clark. You did not want to take a chance on the head of 
the American Naval Mission reversing that view ? 

Mr. Spear. We did not want it reversed and did not discuss it 
with him. 

Senator Clark. This was an arrangement between President 
Leguia and your predecessor, Mr. Aubry? 

Mr. Spear. Does it say that? 

Senator Clark. He refers to a private conference between him 
and President Leguia and goes on with a remark 

Mr. Spear. You are correct. That is what the letter says. 

Senator Clark. He says : 

My opinion, my dear Mr. Spear, is that I shall be able to do something 
here, probably in July, that is I shall be able to obtain, I think, an order for 
2 more " R " boats ; now what I re<iuest is that you should send me a price 
on cash basis, that is an independent contract entirely from the last one, 
including 50 torpedoes and ammunitions, guns, etc. You can quote a price 
only a little lower than the last ones, and I will, also try, as we are speaking 



132 MUNITIONS INDUSTRY 

about available casli, that the first payment should be very large, say 40% 
of the total contract price. 
You have also to consider the usual commissions plus the one for J. L, 

Does not he mean Juan Leguia by " J. L." ? 

Mr. Spear. If he means Juan Leguia, he must have had some 
arrangement with Juan. I did not have any arrangement with Juan. 

Senator Clark. You apparently had another matter on with the 
Peruvian Government at that time because in paragraph 3 of this 
letter Mr. Aubry says : 

Regarding your enquiry about the Callao Port improvements, before having 
a talk with the President upon my arrival I went through the different 
departments of the Government and obtained all tlie data concerning the past 
and present projects of improvements, but I stopped this activity as soon 
as I spoke with the President, last night. He told me that this matter is 
already committed with a gentleman named Mr. Clark, in which our old 
friend Chester has a hand to accomplish such an undertaking ; and, therefore, 
he could not promise anything at all in this respect. In other words, my 
dear Mr. Spear, there is nothing to do in regard to this matter. Somebody 
else will have the job, whatever Mr. Juan Leguia may have told you. 

What did that refer to? 

Mr. Spear. Mr. Juan Leguia tried to interest us in taking up this 
port construction, and I told the fact to Aubry. 

Senator Clark. Do you also construct ports as well as manufacture 
submarines ? 

Mr. Spear. We did not. We never have done that kind of work 
at all. It would have been a matter of getting some engineering 
firm who was familiar with it to do it. 

Senator Clark. You would simply have acted as a broker in the 
matter and gotten a commission? 

Mr. Spear. That would have been the size of it, if we had taken 
it on. 

Senator Clark. Who is " our friend Chester ", to whom Mr. Aubry 
referred ? 

Mr. Spear. He is the gentleman I told you about yesterday who 
negotiated the old contract, years ago, with President Leguia, 
during his first incumbency in office, which was subsequently can- 
celed and was never issued. 

Senator Clark. Now, Mr. Cnrse, a loan for Peru was floated 
through J. & W. Seligman & Co. on December 16, 1927, was it not? 

Mr. Carse. I think about that time. 

Senator Clark. That happens to be the date. And on December 
21, 1927, a loan was floated bv them for $50,000,000 and on October 
24, 1928. a loan for $25,000,000 was floated by them and the National 
City Bank? 

Mr. Carse. Yes, sir. 

Senator Bone, What were the totals of those loans ? 

Mr. Carse, That was $75,000,000. 

Senator Clark. $90,000,000, 

Mr. Eaushenbush. Some of that I think was refunded. 

Senator Clark. I think part of that loan was to refund the first 
loan. 

Senator Bone. Wliat was the net of the new indebtedness? 

Mr. Carse, Part of that was sold in Europe, I am not certain. 
There was first, as I understand it or recall it, a sale of $50,000,000 
of bonds, and then there was a sale of $25,000,000, and then there 



MUNITIONS INDUSTRY 133 

was a sale of $10,000,000, I think, or $15,000,000, in Europe, a sepa- 
rate part. The contract of Seligman and the City Bank with the 
Peruvian Government was to take a loan of $100,000,000, a 6-per- 
cent loan, vv-hich was not secured by any taxes, of any kind, but 
simply on the faith of the Government. All the other obligations 
of the Peruvian Government were secured by specific duties or taxes, 
and the idea of this $100,000,000 loan was to be in part a refunding 
loan, to retire all of the outstanding bonds, to retire all of the notes 
which we held, which were specitically secured by definite taxes, 
so that there would only be this one loan of $100,000,000 outstanding. 
They figured that the annual interest charge and amortization would 
not be much more or any more than the existing yearly payments, 
and they would have a difference of about $15,000,000 to spend on 
public improvements. 

Senator Clark. Juan Leguia was here in 1928? lie was ne- 
gotiating the sale of these notes with the City Bank, v^'as he not? 

Mr. Carse. I believe he was ; yes, sir. 

Senator Clark. At that time a proposition was taken up to repay 
the notes which you held under these loans? 

Mr. Carse. The act of Congress of Peru authorizing this 
$100,000,000 bond issue specifically stated the things that were to be 
redeemed, and our notes were specifically stated in this act of 
Congress, but they were not taken up. 

Senator Clark. You accepted the plan, and for their own reasons 
it fell through. Is not that what happened ? You told them that if 
the Peruvian Government wanted to do it, it was perfectly agreeable 
to you? 

Mr. Carse. Oh, yes. I went down to see the bankers to ask them 
when they expected to take up the notes, so that we could make a 
calculation of interest, and I was simply told that this issue which 
they were bringing out — I was told so in both cases — I was told that 
the head of the treasury of Peru had not included our notes in the 
obligations which were to be redeemed, and that apparently we would 
have to wait until the balance of the loan was negotiated, which 
never occurred. 

Senator Clark. I offer as " Exhibit No. 78 " a letter from Mr. 
Henry R. Carse to Commander Aubry, being dated February 6, 1928. 

(The letter referred to was marked " Exhibit No. 78 " and appears 
in the appendix on p. 371.) 

Senator Clark. Now, Mr. Carse, I direct your attention to a 
letter from Mr., Larranaga, which I v^^ill ask to have marked as 
"' Exhibit No. 79 ", addressed from Lima, Peru, to the Electric Boat 
Co. 

(The letter referred to was marked '' Exhibit No. 79 *' an<l appears 
in the appendix on p. 372.) 

Senator Clark. '' Exhibit No. 79 "' announced the arrival of R-3 
and i?-4 submarines and says that he has already started on the work 
of getting 2 additional boats ordered. He says ; 

I had an interview with Commander Juan Leguia lately, and he told me to 
inform you that his father had assured him repeatedly that not only would an 
order be placed for two more submarines, but for several additional units by 
and by, since the Government's scheme is eventually to complete a flotilla of ten 
submarines. 



134 MUNITIONS INDUSTRY 

This scheme of building 10 submarines down there really took form 
after they got all this American money in their pockets, did it not? 

Mr. Carse. Apparently it did. 

Senator Pope. Who was the writer of that letter? 

Senator Clakk. This was from Commander Aubry's uncle, who 
was also an agent for the Electric Boat Co., was he not? 

Mr. Spear. He was taking care of it. 

Senator Clark. It is from Carlos Lopez Larranaga. 

Mr. Spear. While Mr. Aubry was naval attache for Peru in Paris. 

Mr. Kaushenbush. Was not he connected with the treasury down 
there ? 

Mr. Spear. Not this Larranaga. 

Mr. Raushenbusii. There were two Larranagas? 

Mr. Carse. He was not connected with the treasury. 

Senator Clark. I direct your attention to a letter from you to Mr. 
Larranaga, dated December 11, 1928, which I will ask to have marked 
" Exhibit No. 80 ", in connection with these additional submarines 
to be filled. 

(The letter referred to was marked " Exhibit No. 80 " and appears 
in the appendix on p. 373.) 

Senator Clark. In the letter mai'ked " Exhibit No. 80 " you claim 
some credit for having extended the credit of Peru in this country 
in banking circles, because of the fact that jour notes, secured by 
Peruvian notes, had been sold to some of the smaller bankers 
throughout the country, do you not? 

Mr. Carse. Yes, sir. 

Senator Clark. I direct your attention to the next to the last para- 
graph on page 1. 

Mr. Carse. That is right. 

Senator Clark. It reads: 

We believe that we have done a great deal to extend the credit of Peru in 
banking circles in the United States, because the notes, which we issued and 
secured by the deposit of a portion of the Peruvian notes in one of the trust 
companies in New York City, were in different denominations, so that they 
were sold not only to large institutions in cities like Chicago, St. Louis, New 
York, and Boston, but also to some of the small banks throughout the country. 
To do til is, however, has cost us more than the interest which was included 
in the notes. 

Mr. Carse. Those were our notes. 

Senator Cl.\rk. I understand that, but j'^ou claim some credit with 
Peru for having extended their Peruvian credit in this country by 
your sale to small banks, do you not? 

Mr. Carse. You know we usually claim quite a lot of credit. 

Senator Clark. Yes, sir. I am not blaming you, Mr. Carse, but 
to that extent you were instrumental in " palming " off these later 
Peruvian bonds in the United States? 

Mr. Carse. I doubt it very much. 

Senator Clark. That was one of the incidents of the armament 
trade ? 

Mr. Carse. I doubt it very much. Those notes were for a period, 
running along and maturing so much a month, regular commercial 
paper. They were all met at maturity and that was the end of it. 
We got our money from the Navj^^ Department. 

Senator Bone. Those notes being met at maturity would rather 
tend to satisfy the average buyer of that type of security that Peru's 



MUNITIONS INDUSTRY 135 

credit was good, would it not. Mr. Carse? Would it not tend to lull 
the American people, the buyer, into the belief that that type of 
security was safe and sound? 

Mr. "Carse. I think it was more on our security, our obligation. 

Senator Bone. You were not underwriting those bonds, were you, 
the Electric Boat Co.? 

Mr. Carse. Certainly. 

Senator Bone. You did not guarantee payment of them ? 

Mr. Carse. We did not guarantee payment of them, but we issued 
our obligations and attached and deposited with the trust company 
as a general security for our notes, those Peruvian notes, but the only 
thing that the buyer had was our notes. He did not see any Peru- 
vian stuff, but our notes were sold on the basis of our financial 
statement. 

Senator Clark, What did you mean by saying in this letter, which 
I just read, Mr. Carse, that you had done a great deal to extend the 
credit of Peru in banking circles? 

Mr. Carre. Perhaps I was claiming a little undue credit. 

Senator Clark. I will read that again, Mr. Carse, in view of your 
last statement that the buyer did not know anything about Peruvian 
credit. 

Mr. Carse. No. 

Senator Clark (reading) : 

We believe that we have done a great deal to extend the credit of Peru in 
banking circles in the United States, because the notes, which we issued and 
secured by the deposit of a portion of the Peruvian notes in one of the trust 
companies in New York City, were in different denominations, so that they 
were sold not only to large institutions in cities like Chicago, St. Louis, New 
York, and Boston, but also to some of tlie small banks throughout the country. 
To do this, however, has cost us more than the interest which was included in 
the notes. 

Mr. Carse. Some of our notes in different denominations and not 
the others. They were secured by collateral. We described it on 
the notes. 

Mr. Spear. The buyer who bought knew what the collateral was. 

Mr. Carse. It was described on our note that they were secured by 
certain Peruvian notes. 

Senator Clark. That naturally extended Peruvian credit in this 
countrj'. 

Mr. Carse. It may be. 

Senator Clark. Mr. Carse, I understand you and Mr. Spear and 
Mr. Sutphin said a moment ago that you did not know anything 
about any payment to Juan Leguia. I w^ill ask you to refer again 
to that memorandum or contract with Commander Aubry, dated 
January 24, 1929, which has heretofore been marked " Exhibit No. 
73." Paragraph 4 of this contract with Commander Aubry, dated 
January 24, 1929, provides: 

Commander Aubry's personal commission on Peruvian business in submarines, 
toniedoes, and ammunition shall be three per cent (3%). Commissions on the 
other business in Peru as may be agreed upon in advance in each case. On 
Peruvinn submarines R-5 and R-6 the company had accepted and now confirms 
the following additional .commissions (payable through Commander Aubry) 
based on a price of One million two hundred fifty thousand dollars — ($1,250,000) 
per boat, viz: 

Twenty thousand dollars per boat to J. L, 

Five thousand dollars per boat to Senor Larranaga. 



f 



13G MUNITIONS INDUSTRY 

Five thousand dollars per boat to a certain third person agreed to with 
Mr. Spear. 

Who was" J. L."? 

Mr. Carse. Juan Leguia. 

Senator Clark. This contract was entered into by your company, 
was it not? 

Mr. Carse. No ; it never was. 

Senator Clark. What is this contract? 

Mr. Spear. That order was never received, Senator. We never 
received that order. 

Senator Clark. Yon stated a moment ago, Mr, Carse, that you 
had never arranged to pay Mr. Juan Leguia any commission on 
Peruvian business. 

Mr. Spear. I think he said he never did pay him any. 

Senator Clark. He said he had no negotiations with Juan Leguia 
and never arranged to pay Juan Leguia any commissions on any 
Peruvian business. 

Mr. Carse. This is not signed. 

Senator Clark. Was it signed? 

Mr, Carse. I do not know. I do not recall it. 

Senator Clark. Was not that the contract which was entered into 
with Commander Aubry in 1929? 

Mr, Carse, It is a draft of a contract. Whether it was signed or 
not, I do not know. 

Senator Clark. $20,000 per boat would be $40,000 on the order. 
This draft also states that $5,000 per boat was to be paid to a cer- 
tain third person agreed to with Mr. Spear. Mr. Spear, who was 
that third person ? 

Mr. Spear. I do not remember. 

Senator Clark. You have no recollection of the third party with 
whom you had agreed with Commander Aubry to pay $5,000 per 
boat? 

Mr. Spear. No, sir; absolutely no recollection of who the person 
was. 

Senator Clark. Are you in the habit of making payments of that 
sort, of that magnitude, without any recollection whatever of it? 

Mr. Spear. A matter of recollection is one thing. In all those 
commission matters we simply took the position that Aubry was 
handling this business and we did not deal with anybody but Aubry, 
I have no doubt 

Senator Clark. You knew at that time who the certain third 
party was? 

Mr. Spear. I imagine I did but I could not state. 

Senator Clark, It states it was agreed to with you. 

Mr. Speak. Yes ; agreed to the amount, but I do not know whether 
I agreed to the person. I really do not remember. Senator. If I 
knew, I would tell you. 

Senator Clark. Do you have any recollection about agreeing to 
the commission of $40,000 on two boats for Juan Leguia? 

Mr, Spear, I do not remember it, I cannot remember those things. 

Senator Clark, At that time also, Mr, Spear, you arranged that 
Aubry should also represent Vickers-Armstrong in Peru, as far as 
it did not conflict with your business? 



MUNITIONS INDUSTRY 137 

Mr. Speak. We agreed to it. He wanted to do it and get more 
income, and we agreed as long as it did not conflict with us that 
lie could. 

Senator Clark. In this contract the payments contemplated 
would involve a paj^ment to Aubry of $75,000 on a 21/2 million dollar 
order and you express in the contract a willingness to pay $70,000 
more if necessary to get the business. 

Mr. SpEriR. Whatever the figures are. 

Senator Clark. Yes. 

Mr. SuTPHE.Y. And we never got the business. 

i\Ir. Spear. That is correct; we never got the business. 

Senator Clark. The only thing was that you did not get the 
order; you could not get it. But these were things you were per- 
fectly willing to do if you could get the order. 

Mr. Spear. Yes; we were willing to pay that amount of money 
to get the order. 

Senator Clark. Mr. Carse, in 1931 you were expressing the great- 
est confidence in the stability and good faith of the Peruvian Gov- 
ernment so far as finances Avere concerned, were you not? 

Mr. Carse. Well, I believed in them then. 

Senator Clark. I offer as " Exhibit No. 81 " a letter from Mr. 
Carse to Mr. Aubry dated March 14, 1930. 

(The letter referred to was marked " Exhibit No. 81 ", and appears 
in the appendix on p. 374.) 

Senator Clark. In " Exhibit No. 81 " Mr. Carse says in the second 
paragraph : 

We have heard rumors of a new loan to be made by your Government but 
have not been able to trace it down as to whom the principals here might be. 
It however, is and will be entirely agreeable to us to hold the notes we have and 
accept payment on their respective due dates rather than to have them caslied 
at a discount, because we have full faith in the stability, the good faith and 
integrity of the Peruvian Government. 

That was jT^our attitude at that time, was it not ? 

Mr. Carse, I wanted to keep a stiff upper lip. I think the sug- 
gestion was probably made that we could get our notes caslied at 
some substantial discount. I did not want to show too much eager- 
ness to accept a heavy discount. That is the basis of that letter. 
This is simply to Aubry. This is not a public statement. 

Senator Clark. Yes, sir; but in August 1930 your friend Leguia. 
was forced out by the Peruvians, was he not? 

^Ir. Carse. Yes. Well, that happened over night. 

Mr. Spear. I do not remember the dates. 

Senator Clark. It was in 1930. The file indicates that it was 
August 1930. 

Mr. Carse. You will note what I say in this letter : 

We have also received from the Contabilidad a copy of the budget of the 
Peruvian Government for 1930 in which the amount to be paid to us on the 
notes is included, * * * 

Senator Clark. And shortly after that, about a year after that, 
you took up through Mr. Joyner, who by that time had become your 
Washington representative, with the State Department, the matter 
of Peru running behind with their debts, did you not ? 

Mr. Spear. Yes ; I think it was discussed. 



138 MUNITIONS INDUSTRY 

Senator Clark. And you were informed by the State Department 
tlirouo;h Mr. Joyner that Peru was running behind about $2,000,000 
a month at that time, according to the information. 

Mr. Spear. I do not recall ; whatever the amount was. 

Senator Clark. I offer as an exhibit a letter from Mr. Joyner to 
Mr. Carse, which I will ask to have marked " Exhibit No. 82." 

(The letter referred to was thereupon marked " Exhibit No. 82 ", 
and appears in the appendix on p. 374.) 

Senator Bone. Do you know whether other South American coun- 
tries, Mr. Spear, were at that time going behind in their efforts to 
balance the budget? 

]Mr. Spear. I do not know. 

Mr. Carse. I do not know the particulars of their finances. 

Mr. Spear. I think that they all went to pot at about the same 
time. 

Mr. Carse. Chilean bonds had always been very high credit in 
the United States and all over the world. Bolivia had an issue of 
8-percent bonds that had been selling around 110. Brazilian bonds 
had never defaulted. Different issues sold all over the world. Thej^ 
had a great market all over, in London and in Paris. In fact, Eu- 
rope has always been the market for South American loans. Argen- 
tine bonds, for instance, were the soundest credit in South America. 
They all slumped very badly when this depression came. 

Senator Bone. Do you associate this armament race in South 
America with the collapse of the Government credit there? 

Mr. Carse. I do not think so. The armament race down there, the 
armament purchases here in South America have not amounted to 
anj^thing in particular. 

Senator Bone. Well, they led to a great many refinancing opera- 
tions. 

Senator Clark. Where did Bolivia and Paraguay get the arma- 
ments with which they are carrying on the war now? 

Mr. Carse. I do not know. That is powder and shell. I am 
referring more to boats. Boats are really property. 

Senator Bone. Bolivia and Paraguay are both engaged in a war- 
fare that must be frightfully expensive to countries of that type. 

Mr. Carse. I suppose that is correct. 

Senator Bone. And I think we may all assume that it would 
naturally constitute an almost impossible burden on those countries. 

Mr. Carse. Yes. I think Bolivian bonds are selling at prac- 
tically nothing. I do not know whether Paraguay has any bonds 
outstanding, or not. They may have some in Europe. I never 
heard of them. 

Senator Bone. They probably will issue bonds, as a result of this 
war, if they can find anyone to buy them. 

Mr. Carse. If they can sell them; yes. But naval vessels are not 
wasted like shells and explosives and such things. 

Senator Bone. That may be true, but j^ou never heard of a naval 
vessel producing $1 of revenue for any country in the world, did 
you, Mr. Carse? 

Mr. Carse. Well, you have to have police. 

Senator Bone. I am Avell aware of that. What I am getting at is 
that a big navy is a very expensive thing. 



I 



MUNITIONS INDUSTRY 139 

Mr. Carse. a big navy is. 

Senator Bone. Any kind of a navy. 

Mr. Carse. But take submarine boats for the smaller nations; 
they are certainly the only defense they have. 

Senator Clark. That seems to be at variance with the opinion of 
Admiral Howe, the head of the American naval mission in Peru, 
as disclosed in the letter which was read a few minutes ago. 

Mr. Carse. Yes ; but those four submarines that Peru has came in 
might handy during that Tacna Arica dispute. 

Senator Bone. Did they utilize them in warfare? 

Mr. Carse. No; but they were there to defend their harbor. 

Senator Bone. But suppose none of those countries had had any 
large armaments. What position would they have been in? 

Mr. Carse. The only country that really had large armaments 
was Chile. 

Senator Bone. If one nation had no battleships at all and another 
nation with whom they were in controversy had no battleships, they 
would be in precisely the same position as though each one of them 
had 50 battleships, all things being equal. 

Mr. Carse. Yes. 

Senator Bone. That is what I am getting at. This race for arma- 
ments, continually adding and adding more armaments, means that 
the one that has more battleships than the other will have an ad- 
vantage. There is always an incentive on the part of the smaller 
nation to add to its navy. Where is this thing going to end? Per- 
haps you could enlighten us before you leave the committee room 
just where this is going to lead us if it continues. Manifestly, if 
your agents go to South America and say to Peru, '' Chile has 2 
more submarines and 2 more battleships than you have and you 
should add to your navy so that you will have 2 more than they 
have ", the siime argument could be made to Chile, that they should 
increase their navy to a point where it is larger than the navy of 
Peru. We are not doing violence to logic in discussing it in that 
fashion. That is true, is it not? 

Mr. Carse. Senator, I do not think that Captain Aubry was the 
man who put the iden into the mind of Peru to have submarine 
boats. President Leguia was about to go back into office in the 
coming election. He was a man who had had a world-wide ac- 
quaintance. He had lived in England, iind all that sort of thing. 
He considers — not Aubry — but he considers that the Peruvian Gov- 
ernment for its safety should have some submarine boats. How to 
get them was the problem. 

Back in 1910 they made a contract with the Electric Boat Co. 
to build some submarine boats and they gave them as a first pay- 
ment $250,000 of Peruvian Government gold notes to start the work. 
Then there was a change in the administration and some other fellow 
was elected. They stopped it. A representative of the Peruvian 
Government came up to see the company. That was before I was 
connected with the company, but I was acquainted with what was 
going on because I had been looking into the matter of finances. 
He said that the Government had decided not to build these sub- 
marine boats which they had ordered, and wanted to know on what 



140 MUNITIONS INDUSTRY 

terms and conditicins the company would return to them the $250,000 
of treasury gohl notes whicli they hekl. 

The corupaiiy studied the matter over and estimated that their 
expenses up to that time in sending a man down there, drawing 
plans, and so forth, would amount to $25,000. So on payment by 
the Peruvian Government to the Electric Boat Co. of $25,000, they 
surrendered the $250,000 of Treasury notes. 

That led to a very kindly disposed feeling in the minds of the 
Peruvians toward us, and in the course of time, when President 
Leguia came buck into oflice by election, not by revolution, he fav- 
ored in everything, of course, the Electric Boat Co. 

In addition. President Leguia was strongly pro-American, pro- 
United States. So that when offers came from other sources, he 
would not give them consideration. He was very strongly in favor 
of everything built in the United States. He was a very strong 
friend of the United States. 

All of these letters which have been read here from Aubrey — why, 
as I said before, salesmen try to sell things and in trying to sell 
them they will bring forward all kinds of florid propositions and 
make florid statements. So that you just have to sprinkle a little 
salt on them sometimes and not take them entirely too seriously. 

We were in business rightfully, because we were the origmal 
designers and patentees of the things absolutely necessary to con- 
struct a submarine boat. 

The United States Government is usually veiy slow in taking up 
new inventions. Mr. Rice went over to Europe and took up with 
Vickers this matter and they presented it to the British Admiralty 
and the British Admiralty thought they saw a future in it and 
gave Vickers an order for 5 or 6 boats to start with. 

So, in the course of years, it has developed until it is really a 
very complete machine at the present time. 

But we have always considered and have always preached that 
for small countries it was a means of defense from aggression by 
large countries. 

I think if you will check it out, you will find that to be the histor37- 
of submarine boats. There is not a submarine boat that we have 
built or that has been built on our licenses, that has not been used 
for defensive purposes. 

It is true tliat the Gei'mans, a little late in the war started build- 
ing submarine boats, simply taking all our plans and patents out 
of the Patent Office where we had filed them. Some of the patents 
had been allowed and some had been rejected. But the informa- 
tion got to the German builders, and they built boats which they 
did use for offensive purposes. 

Senator Clark. Mr. Carsc, after a submarine has been constructed 
and has gone into the hands of any nation, it can be used for 
defensive or offensive ])iirp()ses as they nuiy choose. 

Mr. Carse. Yes; but 

Senator Clark (inter})osing). You have no control over how a 
submarine may be used after you have sold it. 

]\Ir. Spear. It de[)ends on the type of submarine it is. 

Senator Clark. I understand that some types cannot be readily 
used for offensive purposes? 



MUNITIQXS INDUSTRY 141 

Mr. Spear. The smaller ones cannot be used for that purpose. 
You have to get right next door to the fellow almost before it can 
be used for anything but defensive purposes. These great big ones 
that they used to build 10 years ago, those could be used for offensive 
purposes. 

Senator Clark. This correspondence shows that you always tried 
to sell the largest ones that you could? 

Mr. Spear. No ; I think not. We were trying to give the customer 
what he thought he wanted. 

Mr. Raushexbusii. Mr. Carse, at the beginning of your reply to 
Senator Bone's question, which dealt with the matter of who started 
and kept going the armament race in South America, in that connec- 
tion I want again to call your attention to an exhibit put in yesterday 
in which your representative, Chapin, reports Admiral Niblack, who 
was head of the naval intelligence, on that subject. I am quoting 
again from Exhibit 56. He says : 

He tells me that the wliole balance of powei- has beeu destroyed by Chile 
getting six submarines and two warships from England, and that It has caused 
a good deal of uneasiness on the part of the Argentine, while Peru is abso- 
lutely helpless. 

Then, after that, according to this letter. Admiral Niblack, in talking with 
the Peruvian Ambassador told the Ambassador, that it had occurred to him 
it was now a matter of Peru going into the market and buying outright not 
only with respect to destroyers, but also as to submarines. 

We brought out later in the testimony, I believe, that these were 
the submarines that Chile got which started this whole armament 
race going and they were built originally for the British Government, 
although built up here in the United States. So it Avas the submarines 
built by your company which really started this armament race. 
Then Peru had to build up and Argentine had to build up and the 
whole race got going as a result of this unbalancing of power. Is not 
that true, according to Admiral Niblack, anyway? 

Mr. Spear. According to Admiral Niblack ; yes. 

Senator Bone. Mr. Spear, power in South America is not balanced 
now, is it? 

Mr. Spear. No; it is very unequal. 

Senator Bone. Well, will they ever be able to get it in balance 
with all of these commissions going down there and with every pri- 
vate munitions outfit in the world trying to unbalance it just as 
rapidly as possible? How in the world are we ever going to have 
any sort of international comity and peace with not only private 
munitions concerns, but the governments of the world, the naval 
powers that ought to have more sense than to do a thin.o; like that, 
going down there urging these countries in South America to each 
outrun the other in this race to be in a commanding position. 

If Peru, for instance, should get more submarines than Chile, then 
Admiral Niblack might very well say, " Well, the balance of power 
no longer exists and we have got to see that Chile gets more sub- 
marines." That is right, is it not? There is nothing wrong with 
that logic, is there? 

:Mr. Spear. No. 

Senator Bone. I think we can all agree on that. But where is 
this going to end? Every peace conference blows up because we 

83876 — 34 — PT 1 1 V. 



142 MUNITIONS IITDUSTRY 

have gentlemen like Mr. Shearer and other interested parties over 
there, seeing that it does blow up. 

Where are we to finally get when our peace conferences are 
thwarted and made a mere futility ? 

Is the world to end with that 'sort of a picture? Today prac- 
tically every organized government, every civilized government in 
the world is wondering what is going to happen. 

Mr. Spear. I think so far as naval matters are concerned, they 
have made quite a little progress toward the idea of not having 
these oj^en races, as you describe. We have made a good deal of 
progress by fixing limits in treaties, such as now governs this 
country. 

Senator Bone. Today the world is almost an armed camp. The 
great nations of the world today are maintaining greater armies 
than ever before and spending more money on them. 

The Chairman. There never has been as much money spent by all 
the powers as is being spent now for that purpose. 

Senator Bone. President Hoover pointed that out in 1928 in his 
appeal for international understanding and peace and after 6 years 
we are in a worse position than when President Hoover made his 
appeal. 

Mr. Spear. It is a very unfortunate state of affairs, unfortunate 
to m}^ mind, but it dates back to these enmities and animosities that 
have existed so long. There are political questions in Europe on 
which they cannot agree, do not seem to be able to agree. I think 
it is a political question. 

Senator Bone. Mr. Chairman, I have one other question that I 
think is very pertinent, that I should like to ask at this time. How 
do business men, the men who are really dominating the economic 
life of this country and of other countries, expect to have any se- 
curit}^ for themselves and their property if this condition con- 
tinues ? Because the world today is in no shape to stand very much 
more of this frightful expense. It becomes a practical matter, not 
a political question. It is not a question for curbstone oratory or 
anything of tliat sort. It is a question that involves the very 
financial integrity of all of the countries of the world. 

How can you, as a business man, feel secure in your person and 
property if this sort of program continues? I would like to have 
an expression from you. I think the country would like to know 
how you business men feel. 

Mr. Spear. I should say, Senator, if the present armament outlook 
continues in the world, until they get the whole world embroiled 
in a war, assuming that to be possible again — I do not know enough 
about it, but assuming it to be so — I should say that the answer to 
that would be that everybody's security, everybody's property all 
over the world would be injuriously affected. 

Senator Bone. It would be destroyed, would it not ? 

Mr. Spear. It would be, very nearly. 

Senator Bone. It is conceivable that our civilizations would crash 
and carry with them everything that we consider worth while. 

Mr. Spear. I do not myself believe, Senator, that in the present 
condition of the world, with the results of the war and this unfor- 
tunate false boom tliat occurred in this country after the war — I 



MUNITIONS INDUSTRY 143 

do not believe myself that the world could reasonably survive at this 
time another o:reat war, I think it might crash everything that 
exists, as we know it, in the western countries. 

Senator Bone. It would engulf and destroy possibly all our west- 
ern civilization. 

Mr. Spear. I should say that is not an exaggerated statement. 
That is my personal opinion, Senator. 

Senator Bone. I think you share that with all thoughtful people, 
Mr. Spear, that this would not only jeopardize and endanger, but 
possibly destroy, our western civilization. 

Senator Clakk. With the development of poison gas and other 
types of offensive armament, it would almost certainly mean that 
another great war would be very much more disastrous and de- 
structive than the last one; would it not? 

]\Ir. Spear. They are all the time, Senator, endeavoring to improve 
both the offensive and defensive weapons. As to gas, I do not agree 
with you, because the experts all say that that is a question of people 
feeling about a thing in a way not justified by the facts. In fact, 
the statistics show that of the casualties in the war due to gas that 
reached the hospital only 3 percent died, whereas of the casualties 
that reached the hospital on account of gunshot wounds and shell 
fragments, something like 25 percent died. 

Senator Clark. I heard before the conclusion of the armistice 
the head of the American Chemical Warfare Service addressing the 
General Staff College stated that they had developed a gas which 
would obliterate a great civilian population back of the line, if they 
desired to use it for that purpose. 

Mr, Spear, Perhaps they have ; I do not know anything about it. 
I do not know anything about it particularly, but I do know some 
of the people have talked to some of the people in the Army who 
do, as a matter of general interest. I find that their opinion is that 
the gas danger has been very largely exaggerated. Also, the idea 
that it is inhuman, that it is not humane as compared with these 
missile weapons is a mistaken one, in their judgment. They say that 
what they want to do is to put the other man out of business. They 
do not necessarily want to kill him. They would like to put him 
out of business and make it necessary for one of his own fellows to 
take him back in a train and hospitalize him and have to take care 
of him. They do not want to kill, but they want to put them out 
of business so that they cannot account for any resistance to them 
for the time being. 

Senator Barbour. Mr. Spear, I think that the thing in which the 
committee is interested, certainly as far as I am concerned, with 
respect to the activities of yourself that have been traced hj Sen- 
ator Clark through this correspondence is, whether that was an effort 
to get business that was going to be let by Peru and the other coun- 
tries, or whether you stimulated additional armament business. 
Perhaps that may not be a fair question? 

Mr. Spear. It certainly did not stimulate any additional business, 
I mean, we wanted to get business, but we understood the situation 
in Peru that the President wanted these things and naturally we did 
not discourage him. The inception of this was not with us. 

Senator Clark. What did one of these gentlemen mean when he 
wrote that Juan Leguia told him that his father had promised him 



144 MUNITIONS INDUSTRY 

that he was .<2;oin<:^ to biiihl a flotilhi of 10 submarines? What did 
Aiibry mean when he said that Lef^uia liad promised him — they use 
the term '' promise " again and again — promised him that as soon as 
lie could get some cash in there he was going to buy a lot of 
submarines ? 

Mr. Spear. That is a natural word for Aubry to use. But, answer- 
ing Senator Barbour's question, we certainlj^ did not inaugurate the 
idea. We did not put it in President Leguia's mind that Peru 
needed submarines. He arrived at his own conclusion. The ap- 
proach originally came from Peru, directly from tliem. We had 
nobody down there whatever, no connections with them. I think 
that answers Senator Barbour's question. 

Mr. Raushenbusii. But he arrived at his conclusion after Chile 
had gotten this fleet; is not that so? 

Mr. Spear. It dated back in his mind, I think, to 1910. Chile at 
that time had no submarines. 

Senator Clark. Was not this scheme for sending a fleet of sub- 
marines from the United States Navy down one South American 
coast and up the other for the purpose of encouraging the use of 
submarines, making South America submarine minded? 

Mr. Spear. I could not say what was in the minds of the Navy 
Department. 

Senator Ceark. I am not referring to the mind of the Navy De- 
partment. I am speaking about what was in the mind of your rep- 
resentative when he proposed that to the Navy Department. 

Mr. Spear. Well, the poor man is dead now and I cannot tell you. 
I should assume that he thought it would be a good advertisement 
and that if they had anj^ plans they would consider us. I would not 
attempt to say what was in Mr. Chapin's mind when he did this 
thing. 

The Chairman. Lieutenant, did your Electric Boat Co. have any 
representative observing or present at the conference in Montevideo 
last winter? 

Mr. Spear. No, sir. 

The Chairman. Did you have any reports upon it at all ? 

Mr. Spear. I never saw one that I remember. 

Mr. Carse. No, sir; nothing at all. 

The Chairman. There is pretty good authority, that may or may 
not be developed, indicating that while statesmen were at work on 
one side of the curtain trying to accomplish understanding and peace 
and to get together in those South American countries, on the other 
side of the same curtain at work were representatives of munitions 
makers writing orders that were occasioned by such fear and suspi- 
cion as they were able to build up in the minds of neighboring 
countries doAvn there. Have you had any information of that at all ? 

Mr. Spear. I have never had any information of that, Mr. Chair- 
man. Certainly, we did not. We had nobody there and had no 
reports from anybody. 

Mr. Cakse. We have never had anybody representing us in any 
shape or form at any armament conference, anywhere in the world. 

The Chairman. You were not then a party to the "Ante " that sup- 
ported Mr. Shearer and others at the Geneva conference ? 

Mr. Carse. We were not. 



MUNITIONS INDUSTRY 145 

The Chairman. Senator Bone raised an interesting point that 
we might develop for a moment or two. He asked you, as a busi- 
ness man, what your reaction was to goin^ to war, what you felt 
would be the security of your property; not only of your lives, but 
of your property. You responded that you did not think it would 
be very secure. 

Is there any assurance at all that in time of war any industry re- 
lated in any degree to the manufacture of munitions would be spared 
the injury that might be heaped upon other business? 

Mr. Spear. I think during the period of the war it would be 
natural to assume that whatever plants there were that could pro- 
duce what the Government wanted would be kept busy as long as 
the war lasted. 

The Chairman. That is not what I meant. 

Mr. Spear. I am sorry ; I did not get your point. 

The Chairman. Did you have any assurance that your plant at 
Groton, for example, would not be the target of any foe that might 
be ours in that war? 

Mr. Spear. We have no such assurance. 

The Chairman. Are you aware of the alleged agreement that ex- 
isted between the munitions makers of Germany and of France that 
their plants should not be the target of opposing armies? 

Mr. Spear. I have heard of some such thing or saw some such 
thing in the paper. 

The Chairman. Do you know of any munitions plant in either 
country that was destroyed or damaged during the 4 years of the 
WorlcfWar? 

Mr. Spear. I do recall that the French bombed the Krupp plant 
when they got big enough bombers. They also bombed some at 
Dusseldorf. This is just from memory of what happened as I read 
it during the war. So that I think there were occasions when such 
plants were attacked. 

The Chairman. As a concern manufacturing submarines or ma- 
chinery that would enter into the making of war, you have no se- 
curity at all that your plant would not be as subject to attack as 
any other piece of property? 

Mr. Spear. No; I should assume that it would be more so. That 
is, if the enemy were able to reach it. I mean, if I were the enemy 
I would like to destroy anything in my enemy's country that I 
thought could produce weapons. 

While we are on this topic, Mr. Chairman, I would like to add that 
we touched here on the question of these international conventions. 
Not only have we never sent anybody there, but people have offered 
to go and represent us there and we have declined to have them 
at all. 

Senator Clark. Were you ever invited to kick in on Shearer's 
expenses ? 

Mr, Spear. We were never invited to pay him. But we were in- 
directly approached, as I recall, to see whether we would agree to 
employ Mr. Shearer and we said we would not. 

Senator Clark. Who approached you? 

Mr. Spear. I do no^ recall. 



146 MUNITIONS INDUSTRY 

Senator Clark. Do you remember, Mr. Carse? 

Mr. Carse. They did not approach me. 

Mr. Spear. It was an indirect approach. It was not Shearer and 
it was not any of the people that did employ him. Somebody spoke 
to me and said, " I understand this man is going over there. Would 
it interest you?" And we said it would not. We did not want to 
have anything to do with it. 

Mr. Carse. They did not approach me. 

Mr. Spear. They approached me, but it was not Shearer or any 
of the firms that eventually were foolish enough to employ him. It 
was some intermediary who asked if we would be interested, and 
I said we would not. 

Senator Bone. What in your opinion blew up that conference and 
made it a futility ? 

Mr. Spear, The Geneva Conference? 

Senator Bone. Yes ; at which Mr. Shearer appeared ? 

Mr. Spear. I do not think Mr. Shearer had any more to do with 
it than I did. 

Senator Bone. There were some very smart long-headed business 
men who hired him. 

The Chairman. He feels that he did. 

Mr. Spear. I know he does, but I do not think so. The Senator 
asked ni}^ opinion, which I am perfectly willing to give. I have 
studied this pretty closely, because I have been interested in it, but 
my judgment is that it blew up because of the inability of the Ameri- 
can Government and the British Government to reconcile their differ- 
ences as to cruiser construction, the two countries having a different 
conception of v.hat they needed cruisers for. Each one was con- 
vinced that if it took the other's viewpoint, it would be doing the 
wrong thing. In the end, I think that did it. 

Another reason was that the Europeans did not believe that no 
matter what they did there, the United States Government Avould 
go ahead and do anything in the cruiser line. 

I prophesied that when that happened, as soon as Congress author- 
ized some cruisers, we would have our British friends sitting on the 
front door step and asking for another conference. You will recall 
that Congress did authorize eighteen 10,000-ton cruisers. 

The Chairman. When was that, 1928 ? 

Mr. Speah. No ; it was earlier tlian that. It was before the London 
conference. Whether it was a coincidence or not, before these ships 
were built, but so long as Congress had declared it to be the policy 
of the country to build a cruiser fleet, immediately another conference 
was held. Our European friends decided, "Well, perhaps those 
people will do something; we had better get a conference and get 
an agreement rather than stand off on the theory that they will not." 

So I think the sequence of that, in my judgment, was this: that 
they did not agree on the technical conditions, and the fuilher fact 
that the British and the Europeans were convinced that the United 
States did not propose in any case to go ahead and build any ships. 
But what we were after was to get them to stop, which was true, 
so far as that is concerned ; we wanted to get them to stop. 

Those two things, I believe, Avere responsible for the failure of 
the Geneva Conference. I am fortified in that conclusion bv the 



MUNITIONS INDUSTRY 147 

fact that as soon as the United States Government moved, there 
was immediately a wiHingness on their part to hold another confer- 
ence, which they finally did agree upon, for these other classes of 
ships. You will recall that the Washington Conference touched only 
battleships and airplane carriers. 

Senator Bone. One of the distressing things in this is the addi- 
tion of armaments and the building of ships. 

Mr. Spear. Like everything else in the world it has its good and 
bad sides. Thev all knew the armaments and what thev are entitled 
to. 

The Chairman. And what they have got. 

Mr. Spear. And what they have got; yes. 

And then they get into these arguments that creep out into the 
papers and stir up some unfortunate ill feeling that had not existed 
before they sat down at the table. 

The Chairman. It is now 1 o'clock and we will take a recess 
until 2 o'clock, for lunch. 

(Thereupon a recess was taken until 2 p.m.) 

after recess 

The hearing was resumed at 2 p.m., pursuant to taking of recess. 

The Chairman. The committee will be in order. Senator Clark, 
do you want to proceed ? 

Senator Clark. If I may. 

Mr. Spear, Senator Bone was asking questions when we adjourned, 
and I will now proceed. 

Senator Bone. If I may, I would like to ask one question. Mr 
Spear, there was one question I wanted to ask this morning, and 
forgot, in connection with these military and naval South American 
commissions. Can you advise the committee what other countries, if 
any, that is the major powers, sent military or naval missions to the 
South American countries of the same character as ours? 

Mr. Spear. My recollection about that, Senator, is that the British 
had a naval mission in Chile; the French had a military commis- 
sion, but whether that Avas in Peru, I don't recall. I am not certain 
about this> either, but I think the Italians also had a commission in 
one of the countries. 

Senator Clark. When Chile had the general training of the 
Columbian Army? 

Mr. Spear. I do not know who was responsible for that. I think 
they had a German general. I think I have seen in the paper they 
had a retired German general in charge of the Army. 

Senator Bone. It would appear then that it has been a common 
practice for the major powers to do that? 

Mr. Carse. They were existing before the United States appointed 
their commission to Peru. 

Senator Bone Then we merely followed suit? 

Mr. Spear. I think that was so, Senator. 

Senator Clark. Mr. Carse, in 1932, Peru endeavored to sell four 
of the boats they had purchased from you to China, did they not? 

Mr. Carse. No; they had stopped payment on our notes, and the 
suggestion was made that we might be willing to take back some of 



148 MUNITIONS INDUSTRY 

those boats and give tliem the notes in payment. That suggestion 
was made, I think, by Captain Aubry, and the idea was we might 
possibly sell them to China. But when Aubry took it up with the 
Peruvian Government to see if they would approve, he was very 
nearly mobbed by his naval associates for even dreaming of ever 
disposing of any of the submarine boats of Peru, so that ended it. 

Senator Clark. You went far enough to have your representative, 
Mr. Joyner, take it up with the State Department? 

Mr. Cakse. I may have. 

Senator Clark. And found that the State Department viewed it 
unfavorably. 

Mr. Carse. That may be true, but the Peruvians would not even 
dream of it. 

Senator Clark. I read from a memorandum from the State De- 
partment files which will be properly identified at tlie proper time, 
this being a memorandum of S. J. HornbecL:, as follows : 

Mr. Grummon, State, brought in Mr. .loyner, vice presiflent, Electric Boat, to 
see Mr. Hamilton and subsequently Mr. Hornbeck. 

Joyner reported that iiis company had a lien or about 20% of t'.je purchase 
price on 4 destroyers sold to Peru, and now in use. Electric Boat now in- 
formed that Pern prcposed to sell the destroyers to Chinese Government and 
so pay off the lien. 

Mr. Joyner stated that he personally did not favor the tran-saction for 
fear of possible complications between the United States and Japan or between 
Peru and Japan. He inquired whether this Department cared to express 
any view in the matter. 

* * * Mr. Hornbeck said to Mr. Joyner that the Department was not in 
a position to express ofScially either approval or disapproval but that, expross- 
inj? a personal view, a sale of such vessels to China would seem to him very 
much like a sale to a child of something useless to it and that, speaking unoffi- 
cially, he would hope that such a transaction would not be consummated. Mr. 
Joyner said that he thought it would not lie. 

Was that the end of that matter so far as you were concerned? 

Mr. Carse. That was the end of it. 

Senator Clark. Now, Mr. Carse, in 1933, you advised the board of 
directors of your company that there was an understanding that 
Aubry would be agent for Remington Arms, Colts, and Eico, as 
well as your company, and at that time there was an arrangement 
of some sort between your company and Colts, Remington, and 
Elco, was there not, as to the sale of munitions? 

Mr. Carse. There vfas not any arrangement. 

Senator Clark. There was an understanding, I believe your min- 
utes say — let me read from the minutes from a meeting of January 
17, 1933, which copy of minutes I offer as " Exhibit No. 83 ". 

(The copy of the minutes referred to above was marked " Exhibit 
No. 83 ", and appears in the appendix on p. 374.) 

Senator Clark. Reading from this " Exhibit No. 83 ", being the 
minutes of tlic l)oard of directors of the Electric Boat Co. of date 
January 17, 1933, it says that after the president advised that certain 
things having to do with the credit to Peru, as follows : 

And also reciting understanding with the Remington Arms Company, Inc., 
the Colt's Patent Fire Arms Mfg. Co.. and the Elco Works of Electric Baat 
Compan.v, for certain materials to be furnished, the payment for which is to be 
made with part of the above mentioned 7% bonds. 

What was that understanding and with what munitions did that 
have to do? 



MUNITIONS INDUSTRY 149 

Mr. Carse. Our payments on our notes had been stopped for some 
time and Captain Aiibry in Peru had been very active in endeavor- 
ing to secure resumption of those payments. About that time, I 
think, this trouble arose between Peru and Colombia about Loreto, 
and the Peruvians, because of the action of the Colombians wished 
to secure armaments of different kind. They wanted to secure, I 
think, a supply of rifles. Their army was very inadequately fur- 
nished with arms, and they discussed the question of whether we 
could arrange to secure them arms, but we could not see any way 
we wanted to advance more money when they were not paying what 
they owed us, so they appointed one of their senators, Senator 
Badani who came from Iquitos. 

Senator Clark. Came from what? 

Mr. Carse. He came from that place that is on the upper Amazon. 
He came to New York accompanied by Captain Aubry, because 
Badani did not speak English very well. 

Senator Clark. Was Aubry acting at that time for you or for the 
Peruvian Government? 

Mr. Carse. Acting for us. He acted as inteq^reter. They had in 
mind securing a certain number of rifles and a certain number of 
machine guns and they also thought they would hke to have some 
shallow launches for use on the upper Amazon; and that is where 
the Elco comes in. Of course we did not know anything about arms 
or ammunition, so we immediately got in touch with the Remington 
Arms people, and they brought in the duPonts. We did not know 
it. but it seems that duPont does not make ammunition, it only 
makes the powder, and the Remington Arms make the guns, and 
somebody else, or they, make the cartridges. We got into this con- 
ference, and the question arose as to how the thing was to be paid 
for and they had proposed that they would increase the taxes ap- 
plicable to our notes and apply that on the other thing, but no one 
wished to take anything but cash. So I thing we were just at a plain 
standstill. Then some member of either duPont or Remington 
brought forward the idea that they, for the part they were to fur- 
nish would accept notes running over a number of years, if the 
Peruvian Government would deposit in escrow from their gold hold- 
ings an amount sufficient to pay those notes if they were not redeemed 
immediately from current revenues, as provided. 

This money was to be deposited in some large bank which was 
not named, and we did not even discuss it with the bank to see 
whether they were willing to accept such a trusteeship; and it was 
to be held in escrow until all of the notes or bonds or whatever they 
might be termed, were paid. That seemed to Senator Badani some- 
thing that would meet the approval of the Peruvian Government, so 
we said if it was accomplished in that way we would be willing to 
exchange notes that we held for some of these new obligations secured 
by the deposit of gold. Then that memorandum proposition was 
drawn up and given to Senator Badani. What was the date of that 
memorandum? 

Senator Clark. This minute of your meeting of directors is 
dated January 17, 1933. 

Mr. Carse. Then, I think he sailed among the last days of Decem- 
ber prior to that, and we never heard any more from it. 



150 MUNITIONS INDUSTRY 

Senator Clark. Mr. Carse, was the Electric Boat Co. to receive a 
commission on the armament purchases from Colt and Remington, 
and of course you controlled Elco? 

Mr. Carse. Yes; Elco is ours. 

Senator Clark. Were you to receive a commission on the other 
arms purchased from Colt and Remington? 

Mr. Carse. No; we were not getting anything. I could not say 
just now offhand whether there was a commission, but it was not 
going to us. 

Senator Clark. There was a commission to Aubry, which, accord- 
ing to the minutes, you were to pay out of the funds received by 
you, but he was also to represent Colt, Remington, and Elco? 

Mr. Carse. Well, he did, and I suppose he would get a commis- 
sion, because the Remington people at that time appointed him 
their agent in Peru. He went down and got no orders, and they 
canceled it. 

Senator Clark. I am just trying to get at what the arrangement 
was and not the final upshot of it. It would appear from those 
minutes as I read them, that Aubry was to represent Remington, 
Colt Fire Arms Co., and Elco, and yourself, and was to receive as 
compensation a commission on all of the business sold, which you 
were to pay, and you were not paying the commission of companies 
who sold other than yourself, such as Remington and Colt, without 
some arrangement with them? 

Mr. Carse. That would simply pass through us. We would not 
make anything on it. 

Senator Clark. Who was Jose Virello Obregez? 

Mr. Carse. He was a lawyer down there who was Aubry's lawyer. 

Senator Clark. During the disturbance of 1933 down in Peru, 
your company asked the State Department to make inquiry for the 
safety of Captain Aubry, to see if he had been killed in any of these 
troubles. 

Mr. Carse. We had not heard from him in some time, and we 
were worried. 

Senator Clark. You got the State Department to do that, and 
they did it? 

Mr. Carse. Oh, that is done every day in the week. 

Senator Clark. Did your company ever try to induce the State 
Department to interfere for you in the matter of nn international 
loan in Peru, which threatened to weaken your financial position in 
that country? 

Mr. Carse. I don't know of any international loan ; I do not re- 
call anything of that. 

Senator Clark. Did you ever hear of Mr. Joyner doing that? 

Mr. Carse. I could not say. If j'ou will let me know just what 
you have in mind, I might know of any international loan that was 
proposed. There has been a lot of talk off' and on about a new 
loan and getting some oil companies to go down there and make 
them a big loan and clean up everything, but it was just gossip. 
I hear so many of those things ; I do not pay any attention to them. 

The Chairman. Mr. Sutphen, yesterday you inserted in the rec- 
ord a statement revealing your connection with certain oil com- 
panies. Have your companies had any interest in South America? 



I 



MUNITIONS INDUSTRY 151 

Mr. SrEAE, I think you are mistaken, Senator: it was myself. 

The Chairman. Yes; I believe you were a director in the oil 
companies, Mr. Spear. 

Mr. SpEi\R. Yes, sir. These are small companies that operate a 
few wells out in eastern Kentucky. They are not big enough fry 
to go to South American countries. I wish they were. 

The Chairman. You would be glad to go down there? 

Mr. Spear. No ; I wish these companies I own some some stock in 
had something of more value than they have got. 

Senator Clark. Mr. Carse, I again refer to the State Department's 
document to which I referred a moment ago where it says: 

June 14, 1933. Copy of letter, Henry R. Carse, president Electric B^at, to 
S. J. Joyner, quoting from cable and letter from Aubrey in Lima. 

Aubrey's cable, June 13, 1933 : " Indispensible now tbat ambassador should 
be instiucted to act." 

Aubrey's letter, June 9. 1933, says in part: 

The Congress pjissed last night in secret sess'ou a law voting 30 million 
sol (about six million dollars United Slates currency) for nnti.'>nal defense. 
The money will be provided by the National Reserve Bank and Congress has 
given authority to use as a guaranty any of the taxes in existence, therefore, 
they might mortgage internally for this loan these taxes which have already 
been pledged to us that are embodied in the national defense funds. 

It is desirable therefore for you to obtain support from the State Depart- 
ment at Washington in instructions by cable to the ambassador at T.ima 
for him to make a prerepresentation to the Government as to the fairness of 
the full payment of their debt to us. This is the right moment to act and 
the ambassador and myself are entirely in agreement with my friends. We 
can obtain full payment or at least one-half in cash and the other half in 
a Treasury draft — the national defense funds which have been pledged in 
payment of our notes to be liberated in exchange. This is the best proposi- 
tion and I believe only needs the push that the ambassador can give, as I 
have powerful friends who are in favor of this adjustment. 

You were trying at that time to get the State Department to 
interfere to help collect your debts from Peru? 
Mr. Carse. No; that is not what I did. 

Senator Clark. Did Mr. Joyner act under your instructions? 
Mr. Carse. What did Joyner do? 
Senator Clark. This memorandum states : 

Joyner showed Gnmimen tb.e above letter and asked Stnle to instruct the 
ambassador. He "hinted " at the possibility of a sale of another submarine and 
further armaments, but said this would have to be for cash. Promises to send 
full information. 

Before he left I asked Mr. Joyner whether he was familiar with the De- 
partment's policy announced early in the year that " in case of the possible 
armed conflict between two States it is the policy of this Govermnent to refrain 
from placing its facilities at the disposal of either country." He said that he 
had not heard of the policy and was glad to learn of it. I told him that I 
feared that representations such as his company desired would conflict with 
that policy. 

Even after receipt of full information in the premises it would seem diffli-ult 
in the circumstances for the Department to authorize representations on behalf 
of these creditors of the Peruvian Government, who have been supplying 
it with armaments, when it has taken no such action on behalf of other 
creditors. 

That is what the proposal transmitted through Joyner amounted 
to. that you wanted the Government of the United States to use its 
influence to collect a debt for armament, beyond what it was doing 
for other citizen^ of the United States. 



152 MUNITIONS INDUSTRY 

Mr. Carse. No; we didn't do that. Aubry, of course, was using 
every effort he could in every way to collect the amount due us. 

Senator Clark. Yes; and Joyner was cooperating with him. 

Mr. Carse. As soon as he sent us from Lima a cablegram telling 
me there was such a state of affairs, and if our State Department 
will do so and so why so and so will be accomplished, I sent that 
thing to Joyner and told him to take it around to the State Depart- 
ment to see what they had to say about it, not considering myself, 
that the State Department was going to do anything at all. 

Senator Clark. You just tried them out to see how far you could 
get them to go ? 

Mr. Carse. "vVhy shouldn't I do that. Supposing I turned Aubry 
down and did not do it, and he would say I had it all fixed, if 
you had done so and so you would have gotten the money, now 
where is ni}' commission. I had that to send out, but there was not 
really in my mind any idea it would be successful. 

Senator Clark. You just sent Joyner over to see how far he could 
get, and the State Department let the matter drop. 

Mr. Carse, They are going to the State Department all of the 
time with things like that. 

Senator Barbour. There is one thing that occurs to me from the 
evidence here, that it is a difficult thing for your company to sell 
submarines to a South American Republic? 

Mr. Carse. Yes; we only succeeded in Peru, because of the United 
States' attitude. 

Senator Barbour. Now, that presupposes that somebody else is 
trying to sell submarines to them? 

Mr. Carse. They have. The Italians have sold to Brazil. 

Senator Barbour. But you would not have any difficulty if you 
were the only people who could do it? If you did not have to exert 
the effort which has been described to us of late, as far as America is 
concerned, you would not get that business? 

Mr. Carse. No, sir; not at all. 

Senator Bakbour. It would go to somebody else ? 

Mr. Carse. Surely. 

Senator Clark. Approximately at the same time, Mr. Carse, you 
were asking the State Department to help you through the am- 
bassador to send certain river gunboats to Peru, were you not? 

Mr. Carse. I do not think so. 

Senator Clark. I quote from a telegram from the State Depart- 
ment, also contained in this memorandum to which I have referred 
from the State Department, signed by Mr. Phillips, who is now 
Under Secretary of State, to the Ambassador to Peru, dated June 30, 
1933 : 

Joyner * * * rf(|npstpd that wo iiistnu!t yon to suppovt the company's 
efforts to obtain contract for construction of new gunboat. He was informed 
that the Department could not appropriately tak(^ such action. He was in- 
formed that if he should submit in writing to the Department this latter phase 
of rlic question, i.e. Mllcged infriugeiuent of rights, the Department would give 
appropriate consideration to it. 

Do you have any recollection of Joyner being given instructions 
to make such a request of the State Department? 

Mr. Carse. I do not know. He might have gone around to see 
what the State Department thought about it. 



fc- 



MUNITIONS INDUSTRY 153 

Senator Clark. Did you ever notify Aubry that the State De- 
partment had also objected to the ambassador intervening in this 
matter ? 

Mr. Carse. I do not think so, sir. 

Senator Clark. Here is a communication under date of July 5, 
1933, from the ambassador to the State Department, which reads 
as follows : 

Please cable whether I may speak orally and informally to the President, 
whom I expect to see on husiness very soon, in the sense last part my dispatch 
number 2869 (June 12th having to do with this matter). Aubry understands 
from his principals department has no objection to informal inquiry regard- 
ing settlement of old debt. 

Did you instruct Aubry to that effect? 

Mr. Carse. I must have. 

Senator Clark. You have no recollection? 

Mv. Carse. I have no recollection. England uses its ambassadors 
all around the world to help collect debts due its people, and other 
governments do. You take a Peruvian down in Lima and he thinks 
that all we, for instance, would have to do would be to ask our 
State Department and our State Department would advise our 
ambassador, the same as the British. 

Senator Clark. He thinks all the American ambassador has to do 
is to act as a collecting agency for armament companies? 

Mr. Carse. The same as the others. He sees the British ambassa- 
dor going around collecting, which he has done during the last year 
or two, right down in Peru, and he cannot see why our ambassador 
cannot do the same. Of course I understand differently. I under- 
stand that our State Department will not take any action toward col- 
lecting any obligations. 

Senator Barhour. Who were the other manufacturers of sub- 
marines? 

Mr. Carse. Vickers have built submarines for Chile and the Ital- 
ians for Argentine and Brazil. 

Senator Clark. You built some submarines for Chile, too, during 
the war? 

Mr. Spear. They were built for England. 

Senator Clark. I know they were built for England, but did you 
not; promote them ? 

Mr. Spear. They finally got into Chilean hands. 

Senator Barbour. I want to ask you a question in connection with 
the point of view as to which I think the committee is anxious 
to know, which is whether you are promoting the use of submarines 
which you make, or whether you are trying to get submarine busi- 
ness which is going to be placed either with you or somebody else? 

Mr. Spear. That is the situation. We try to get the business 
which develops. 

Senator Barbour. That means that there must be somebody else 
who will get it if you do not? 

Mr. Spear. Yes, sir ; there are four or five European concerns who 
specialize in this. In fact, they have made a great many more for 
South America than we have had and have been more successful than 
we have in obtaining contracts. 



154 MUNITIONS INDUSTRY 

Senator Clark. Mr, Carse, finally in October 1933, last year, 
voii did enter into a contract for two river gunboats for Peru at 
1450,000 each, did you not i 

Mr. Carse. Yes, sir. 

Senator Clark. Did Vickers profit on that? 

Mr. Cakse. Not that I know of. 

Senator Clark. Do j^ou know, Mr. Spear? 

]Nir. Spear. Not to my knowlcdoe. I think not. 

Senator Clark. That was just about a month after the commission 
of the League of Nations had taken over policing Leticia, was it 
not? 

Mr. Carse. I could not tell the date. 

Senator Clark. Shortly after? 

Mr. Carse. I know they wanted some boats there, and their first 
inquiry was to see whether we could buy for them some second- 
hand yachts similar to those vessels which Colombia had bought 
up in this market, and we had some yacht brokei's canvass the market 
and found that there were very few^, if any, which would suit their 
requirements. Most of them had 12- to 15-foot draft, and what they 
wanted was something from 3- to 5-foot draft. It was absoluteh'' 
impossible to find anything with 3- or 5-foot draft in the market 
that could make the voyage from here to the Amazon River. So 
that we made some sketches and so forth and sent them down and 
came to a sort of general understanding and Aubry came up, ac- 
companied by a representative of the Peruvian Government, Com- 
mander Ontaneda. 

Senator Pope. For how many of those South American countries 
have you done business? 

Mr. Carse. Peru. 

Senator Pope. Alone? 

Mr. Carse. That is all. We have tried to do business with others. 
We did way back in 1911 or 1912. We built a boat for Chile, which 
Chile rejected and demanded the money back, which had been paid 
on account. That was up in Puget Sound. While they were demand- 
ing their money back people up in British Columbia, just before the 
declaration of war, thought they would like to buy it, and so we sold 
it to them and got the money and paid Chile back the money they 
had advanced. 

Senator Barbour. Mr. Spear, do you know how many South 
American republics have su,bmarines? 

Mr. Spear. Yes, sir; Peru, Chile, Argentina, and Brazil. 

Senator Barbour. And so far as your company is concerned, you 
have only sold to Peru? 

Mr. Spear. That is all. The British have sold not so very long 
ago, in recent times, some rather large boats to Chile, built especially 
for them, and Argentina has purchased boats from Italian builders, 
and so has Brazil. 

Senator Clark. Those Chilean boats were the ones you got 10,000 
pounds apiece for, were they not? 

Mr. Spear. I do not remember what we got. We got our license 
fee on them, whatever was agreed to. 

Mr. Carse. So that they came up and we entered into a contract 
with this representative of the Peruvian Government to build these 



MUNITIOXS INDUSTRY 155 

two boats. They were built of steel, with a 4-foot draft. They drew 
4 feet of water because they wanted to use them on the upper waters 
of the Amazon, and they were finished on time and delivered and 
accepted and sailed. 

Senator Clark. When were they delivered? Do you know? 
These boats were built at Groton, were they not? 

Mr. Spear. Yes, sir. My recollection is early in June, Senator. 

Senator Clark. One was launched April 5 and another April 12, 
were they not ^ 

Mr. Spear. Yes ; I think they were delivered about June 9. 

Senator Clark. My notes show they sailed some time in May, 
but that is immaterial. That was after a state of hostilities had 
developed between Peru and Colombia, was it not, Mr. Carse? 

Mr. Carse. There was not any fixed state of hostilities. 

Senator Clark. There was a state of hostilities existing, a Imown 
state of hostilities existing at that time, was there not? 

Mr. Carse. No, sir, it was quiet. 

Mr. Spear. I think they had all agreed to a truce. There was 
no state of hostilities, for otherwise those boats could not have 
sailed. 

Mr. Carse. The boats are at Iquitos now. 

Senator Clark. Was not there a boundary dispute between Peru 
and Colombia over Leticia ? 

Mr. Spear. Yes, sir. Over a treaty which was made between the 
two countries with regard to the upper Amazon River belonging to 
Peru, which was ceded to Colombia, but it was inhabited by Peru- 
vians. These people on their own account, not in connection with 
the Colombian Government, arose and drove the Colombians out of 
Leticia and they raised a terrible issue because the Colombians did 
not want to go back on their native sons and yet they knew the legal 
situation was not favorable to Peru. 

Senator Clark. Do you know whether that uprising was before 
or after the so-called Leticia incident, in which the American Naval 
Mission to Peru was involved? 

Mr. Spear. I did not know they had been. 

Senator Clark. You are familiar with that incident, are you not? 

Mr. Spear. No, sir. 

Senator Clark. By which the American Naval Mission to Peru 
worked out a war problem involving this town of Leticia, which 
could not possibly involve anything except conflict between Peru 
and Colombia, and protests were made by the Colombian Govern- 
ment and a very serious international incident Avas created by that 
action of the American Naval Mission. 

Mr. Spear. That is all news to me, Senator. I never have heard 
that. 

Senator Clark. There is repeated reference to that Leticia in- 
cident in the correspondence from Commander Aubrj to you. 

Mr. Spear. Yes, sir; of course. 

Senator Clark. I took it that you were familiar with it. 

Mr. Spear. Not that. 

Senatf^r Clark. Tlie actual mission was the Leticia incident, was 
it not ? 



156 MUNITIONS INDUSTRY 

Mr. Spear. The situation was just as I explained it to you. The 
inhabitants of Leticia, who were Peruvians by birth and had pre- 
viously been Peruvians, decided they did not want to be under the 
sovereignty of Colombia any more, and rose up by themselves and 
rejected the Colombian authorities. 

Senator Clark. The Leticia incident is frequently referred to in 
the correspondence between the Naval Mission and the ambassador 
and the State Department as being connected with the war map 
problem with regard to Leticia. 

Mr. Spear. There was no question about Leticia until that incident 
occurred. 

Mr. Carse. Only two or three hundred people there. 

Senator Clark. That Leticia incident has to do with the war 
problem. 

Mr. Spear. That must have been worked out after it arose. I have 
never heard of it before. 

Senator Bone. Did your firm ever have any negotiations with 
Colombia? 

Mr. Carse. We have never. They tried to have negotiations with 
us, but we would not answer the letters. 

Senator Bone. At or about the time of this incident which Senator 
Clark speaks about, was not the United States undertaking to help 
Colombia and giving them some friendly naval advice^ 

Mr. Carse. I do not know. We had inquiries especially about 
the river boats which we were building for Peru, but we did not 
respond. I have never thought it was necessary to try to carry water 
on both shoulders. 

Senator Clark, You also at the same time you sold these gun- 
boats sold them 1.200 rounds of 3-inch ammunition, did vou not. 
Mr. Carse, for $50,000? 

Mr. Carse. Yes, sir. 

Senator Clark. That was suitable on either gunboats or sub- 
marines ? 

JNIr. Carse. Yes, sir. 

Senator Clark. Did Vickers supply part of that ammunition? 

Mr. Carse. Yes, sir; they did; they supplied it all. 

Senator Clark. They shipped it to Para in Brazil, did they not? 

Mr. Spear. They finalh'^ took delivery of it at a West Indian port. 
Final delivery was made to the Peruvian Government at a West 
Indian port. 

Senator Clark. Why was a West Indian port selected? Do you 
know? Except to evade violation of the neutrality laws? 

Mr. Spear. There was no question of the neutrality laws. No 
state of war existed. These ships could not have left this country 
if there were hostilities. 

Senator Clark. I understand they could not under the law. That 
is what I am trying to get at. 

Mr. Spear. They could not any way. It would have been illegal. 

Senator Clark. A great many things appearing in this file were 
done in violation of neutrality. I am trying to find out if this 
was one of them. 

Mr. Spear. It had nothing to do with neutrality. It was a 
matter of convenience for this shipment from England to be picked 



MUNITIONS INDUSTRY 157 

up by a Peruvian ship, which was to connect with it. The first 
intention was to have the river boats pick it up on the way down, 
and they found out that did not work out with their program 
and any shipment applicable from England, and they changed it 
and delivered it to another ship at one of the West Indian ports. 
I have forgotten which one now. 

Senator Clark. It was originally intended to have been delivered 
at Para? 

Mr. Spear. At the start is was to have been in the West Indies and 
was shifted to Para and then they got back to the West Indies. 

Senator Clark. Mr. Carse, I draw your attention to a letter from 
you to Mr. Spear, dated January 15, 1934, which I will ask to 
have marked " Exhibit No. 84." 

(The letter referred to was marked " Exhibit No. 84 " and appears 
in the appendix on p. 375.) 

Senator Clark. That letter, " Exhibit No. 84 ", reads in part as 
follows : 

Dear Me. Speae : In the January issue of " Marine Progress " Gerish Smith 
in an article on page 20 makes reference to " 2 river boats " for Peruvian 
owners' * * * 

Those are the two river boats which we have been talking about, 
Mr. Carse? 

Mr. Carse. Yes, sir. 
Senator Clark (reading) : 

* * * and on page 21 refers to " 2 145-foot River Boats Electric Boat 
Company for Peruvian owners." 

I understand It wa§ our intention to camouflage this transaction so as to 
avoid any complaints being raised in Washington by the Colombian authorities, 
which might prevent delivery of the vessels. 

What did you mean by that, and why did you want to " camou- 
flage"? 

Mr. Carse. We do not believe in telling every Tom, Dick, and 
Harry of what we are doing for customers. Our business is with 
nations. 

Senator Clark, Yes; but conceding that your business is with 
nations, if you were doing an entirely legal thing, why did you feel 
that a complaint from the Colombian Government to the State 
Department would prevent deliA^ery of those boats? 

Mr. Carse. The State Department knew that we were doing it, 
but we did not particularly care for some representative of the 
Colombian Government to be advised of the particulars, so that he 
could go to the State Department with some definite complaint, 
which the State Department might feel they had to act upon. 

Senator Clark. The only definite complaint that would have 
justified the State Department in interfering would have been the 
existence of a state of war between Peru and Colombia, would it 
not? 

Mr. Carse. I do not know. 

Senator Clark. Wliy did you want to "camouflage" it? You 
used that term yourself. 

Mr. Carse. It is nobody's business. 

8.'}876 — 34— PT 1 11 



158 MUNITIONS INDUSTRY 

Senator Clark. It was the State Department's business, was it 
not? 

Mr. Carse. The State Department knew about it. 

Senator Clark. Then if the State Department knew about it, why 
were you fearful of the Colombian representative making a repre- 
sentation against it? It was either legal or illegal, was it not? 

Mr. Carse. I objected to Mr. Smith butting in on our business 
and publishing it. If we wanted to publish what we were doing, 
it was for us. 

Senator Ci^\rk. I am not concerned with Mr. Smith, Mr. Carse. 
What I want to find out is what you mean by saying : 

I understaud it was our intention to camouflage this transaction so as to 
avoid any complaints being raised in Washington by the Colombian authori- 
ties, which might prevent delivery of the vessels. 

Mr. Carse. Yes, sir. 

Senator Clark. Thej^ could not prevent delivery of the vessels 
unless a state of war existed between Peru and Colombia. 

Mr. Carse. I do not know what might happen. I might tell you 
an ancient-history story. During the war, when we were building 
some submarine chasers, motor boats up in Canada for the British 
Government, the German ambassador filed complaint with the State 
Department that they understood that the Electric Boat Co. was 
doing so-and-so and so-and-so and so-and-so, and wished it stopped. 
The State Department just transmitted that letter to me and I 
simply gave them the categorical reply that " In reply thereto, we 
would say that we are not doing so-and-so and so-and'-so and 
so-and-so" because the Germans did not have it right. We did 
not tell them that we were not doing what the Germans wished to 
complain about, but told them that we were not doing w^hat the 
Germans actually had said, and that satisfied the State Department 
and everybodj^ else. 

Senator Clark. Now to come back to this Peruvian transaction, 
Mr. Carse, it is not necessary for you to camouflage a legal action 
or to keep the State Department from finding out and interfering 
in it and preventing delivery of it, when the transaction is legal. 

Mr. Carse. To prevent other people from finding out what we 
do; the Colombian people might have had somebody get in there 
and have done some sabotage on those boats. 

Senator Clark. You did not express a fear about sabotage in your 
letter, but you expressed a fear on the part of the Colombian au- 
thorities that it would prevent delivery of the vessels. 

Mr. Carse. Yes, sir. 

Senator Clark. You did not express any fear of sabotage. 

Mr. Carse. When we are doing something like that, we do it. 
We had inquiries from newspapers and all around trying to get 
information about them, and we never gave them any information. 

Senator Clark. I think the reason for your desires in that regard 
appears in the letter. 

Mr. Carse, I direct your attention to a letter dated March 5, 1934, 
from Commander Aubrj^, at Lima, Peru, to you. 

(The letter referred to was marked " Exhibit No. 85 " and appears 
in the appendix on p. 375.) 



Munitions industry 159 

Senator Clark. In that letter of March 5, 1934, Commander Aubry 

says: 

Commander Ontaneda has written to the Minister and to me in regard to 
appointing a sponsor and having a ceremony for the launching of the boats. 
Kindly tell him that nothing of such a nature is wanted. Those boats do not 
require a ceremony to alarm the Quakers in tlie States. 

What did you understand he meant by that ? 

Mr. Carse. I suppose he means the pacifists. 

Senator Clark. Have you been having any trouble from Quakers ? 

Mr. Cakse. You must not hold me responsible for the words and 
phrasing of everybody who happens to write me a letter. 

Senator Clark. There seems to have been a pretty close meeting 
of the minds between you and Mr. Aubry throughout these affairs, 
Mr. Carse, and I w^as wondering what your reaction was to this 
matter. 

Mr. Carse. I could not tell what point of view the Colombians 
might have, although I learned afterward — I do not know, by the 
way, exactly how — that the Colombian authorities had made com- 
plaint to the State Department and the State Department told them 
that the thing did not come within their province. 

Senator Clark. Mr. Aubry goes on to state : 

They are so small they can easily leave the United States without any press 
news and the wise thing should be to arrange that the guns will be stored in 
the holds. 

What guns were they? 

Mr. Carse. They would be stored in the holds anyhow, because they 
were too heavy to be put on the deck of a 4-foot-draft boat, because 
the boat would turn upside down. They were 3-inch guns on those 
boats. They had to be put in the holds, so that that was superfluous. 

Senator Clark. How much money cloes Peru owe you now, Mr. 
Carse ? 

Mr. Carse. I think with accrued interest about $1,000,000. 

Senator Clark. Do you know how much, Mr. Spear ? 

Mr. Spear. No. Mr. Carse could answer it better than I could. 
That would be my impression. 

Senator Clark. Are they making you any payments from time to 
time? 

Mr. Carse. No. 

Senator Clark. Did they pay you for the river boats? 

Mr. Carse. Yes, sir ; we got that in advance. 

Senator Clark. You got that cash on the barrel head before they 
delivered the boats ? 

Mr. Carse. We had it on a letter of credit, irrevocable. 

Senator Clark. Referring again to this American Naval Mission 
to Peru, Mr. Carse, how did you happen to be paying for the passage 
to Europe of the wife and son of Admiral Howe, the head of the 
American Naval Mission? 

Mr. Carse. Did we do that? How long ago was that? 

Senator Clark. First let me put in the last letter. 

I quote from a letter dated February 28, 1928, from yourself to 
Mr. Spear, which will be offered as " Exhibit No. 86." 

(The letter referred to was marked " Exhibit No. 86 " and appears 
in the appendix on p. 376.) 



160 MUNITIONS INDUSTRY 

Senator Clark. " Exhibit No. 86 " reads in part as follows : 

We have today paid for the cahiii accommodation for Mrs. Howe and sou 
on the " Leviathan ", and note that the other outlay will not be called for until 
next month. Is the money we have just paid a part of the agreed outlay or 
is that something extra? 

Mr. Spear. Have you got the answer to that ? 

Senator Clark. No; I have not. 

Mr. Spear. I would want an answer to that. Is that letter to me? 

Senator Clark. Yes, sir. 

Mr. Spear. I do not recall it. There must be an answer to that 
letter. I think the answer to that letter would probably give the 
facts, whatever they were. I do not recall it. I have an impression 
about it, but I would not want to testify to an impression. I do not 
know whether that was an accommodation we paid, or what it was, 
but I will make a note of that letter, Senator, and try to turn up an 
answer. 

Senator Clark. If you find out anything about it at any time, 
Mr. Spear, I would be very glad to have you write a letter to the 
committee and it can be put in the record. 

Mr. Spear. Anything I can find in the records I would be glad to 
let you have. Senator. 

Mr. Raushenbush. That was an accomplished transaction. That 
was all over. 

Mr. Spear. I do not know that at all. 

Mr. Raushenbush. It seems to have been an accomplished trans- 
action because Mr. Carse asks how it should be charged. 

Mr. Spear. I do not know. I cannot remember it, but there should 
be some record of what it was all about. It might have been noth- 
ing but an adA^ance of an accommodation to this lady, which was 
repaid, but I do not know. 

Senator Clark. Mr. Carse, you had no interest in the securing of 
torpedo business for American companies against French companies, 
did you ? You are perfectly willing that the French sell torpedoes, 
provided you get a commission on them ? 

Mr. Carse. We never did any business with a French company 
that I know of. 

Senator Clark. I call your attention to a letter dated May 17, 
1927, from you to Mr. Spear, which I will ask to have marked 
" Exhibit No. 87." 

(The letter referred to was marked " Exhibit No. 87 " and appears 
in the a]:)pendix on p. 376.) 

Senator Clark. I will read in part from " Exhibit No. 87." 

Di<i\R Mr. Spear: Referring to yours of Miiy 16, enclosing copy of letter from 
Koster rognrdin.ir torpodoi's for Peru, as the torpedoes we furnished in con- 
nection with R-1 and R-2, were made by Bliss. 

Bliss was an American concern ? 

Mr. Spear. Bliss was an American concern. 

Senator Clark (continuing reading) : 

I had understood that that type would be standard in Peru, but if the French 
company can make a torpedo that would be satisfactory to tlie Peruvian Gov- 
ernment we have no special interest, as I understand it, in BTi.ss, especially 
considering the way in which they acted regarding the last shipment. 

(At this point Senator Clark read the last paragraph of " Exhibit 
No. 87.") 



MUNITIONS INDUSTRY 161 

Mr. Carse. That is right. 

Senator Clark. That is your attitude? 

Mr. Carse. Yes ; surely. We have no interest. If the}' wanted to 
do it, I suppose the French could sell it cheaper than the other 
fellow would. On the last shipment Bliss insisted, although he 
knew we were taking the thing on a deferred payment, he insisted 
upon full payment before he would even load the torpedoes. 

Senator Clark. Mr. Carse, along about 1930, Mr. Joyner was 
worried about the report that Juan Leguia had made, confessing to 
all of his international deals, was he not, and so advised you? 

Mr. Carse. He sent me a little chit-chat letter of gossip around 
Washington. 

Senator Clark. Yes, sir. I call your attention to a memorandum 
from Mr. Joyner to you, under date of August 28, 1930, which I will 
ask to have marked " Exhibit No. 88." 

That letter reads as follows: 

EsT'EEMED Friend : Confidential — private. 

A lot of gossip is flying about- — probably to be all discounted — however — 
confidentially for what it is worth. 
There is a story that J. L. 

That was Juan Leguia, was it not? 

Mr. Carse. Yes, sir. 

Senator Clark (continuing reading) : 

has confessed all his deals in the United States, his participations, and etc., 
and is to be tried. That he confessed to save his life and his father's life. 

They say he was specific in his compensations, etc., and through who and 
how. That the rest L. set up was a false step and that the Government of 
the South found it out and caused the recall of the cruiser. That the Lima 
set-up was to let L. get away to Panama: That Ponce was in on that move 
and that he set up the Government on L.'s arrangement. 

That all foreign contracts financial will be accepted. That the match and 
one or two other concessions are canceled — that a lot contracts will be ended. 
That most of the American Naval Mission are on the cruiser — and etc., etc.^ etc. 

That a new cabinet will furnish a new Government plan to all foreign 
governments. 

That all is turmoil, etc. Up to this hour this Government has not recognized 
the new set-up and may not do eo. 

That cabling is unwise. 

With much affection, 

I am. 

Yours truly, 

S. J. JOYNES. 

That was sent to you in pen and ink, was it not ? 

Mr. Carse. That was just gossip. 

Senator Clark. Mr. Carse, at one time Vickers undertook to in- 
duce you to let them in on the Peruvian business, did thej'^ not? 

Mr. Carse. In what way? 

Senator Clark. It does not appear in this letter, but I call your 
attention to a letter from you to Sir Trevor Dawson who was the 
managing director of Vickers, was he not? 

Mr. Carse. Yes, sir. 

Senator Clark. It is dated January 16, 1921, and I will ask to 
have it marked as " Exhibit No. 89." 

(The letter referred to was thereupon marked " Exhibit No. 89 " 
and appears in the appendix on p. 377.) 



162 MUNITIONS INDUSTRY 

Senator Clark. And the letter reads as follows : 

January 16, 1924. 
Peruvian Business. 
Sir Tue\()e Dawson, 
Vickers Limited, 
Vickcrs Jloftifte, 

Broiuhcay, Westminster, London. 

Dear Sir Trevor: 1. I beg to acknowledge with tlianks the receii)t of yours 
of December 12th enclosing extract of a letter to you from (Jai)tain Deane 
and as I am now also in receipt of a full report from Commander Auhry 
dated December lOlh : we are now, I think, in a position to arr;.nge a policy 
for the condutt of the Peruvian submarine negotiations. 

2. Our present position in Peru, which is a very special and sti-ou-r one. is 
the result of many years of effort. In fact, it dates back to the first i)residency 
of the present President, Seiior Leguia, who then entered into a eontr.ict with 
us for submarines, which was dishonored by his successor. Conmuinder Aubry, 
who is a Peruvian naval officer, was intimately connected with the restora- 
tion of President Leguia to power in Peru and prior to his retirement from 
active service, was entrusted by President Leguia with many important mis- 
sions, among which was the arrangement with the United States Government 
under which the American Naval Mission was sent to Peru. Under these 
circumstances, he is naturally on the best of terms not only with the Adminis- 
tration but with the American Naval Mii^sion." 

So that the American Naval Mission was originally sent to Peru 
as a result of the negotiations by Captain Aubry, acting at that 
time for the Peruvian Government and the Navy Department of 
the United States. 

Mr. Carse. Yes. 

Senator Clark. How long was that before he became your repre- 
sentative down there, Mr. Spear? 

Mr. Spear. I do not recall, Senator, but it was before that. 

Senator Clark. Commander Aubry has changed his relationship 
so often, I am just trying to find out what he Avas doing at that 
time. The letter continues [reading] : 

It seems clear to me from Captain Deane's letter 

Just who was Captain Deane? 

Mr. Spear. I think that letter was written by me, w^as it not? 

Senator Clark. It is signed by you, that is right; I beg your 
pardon. 

Mr. Spear. Captain Deane was a traveling agent of Vickers, one 
of their agents in South America. 

Senator Clark (reading) : 

It seems clear to me from Captain Deane's letter that he did not fully 
understand the actual situation, since he speaks of the propinquity of the 
American Naval ]\Iission as a difficulty confronting us. My impression is 
strengthened by the conception v/hich he appears to have formed with regard 
to the Pro Marina Fund. The balance of this fund, which is fl66,(K)0 and 
not £300,000 is now by decision of the Supreme Court of Peru at the direct 
disposal of the Government without obligation to the Italians. The commit- 
ments of the private management of the Pro Marina to an Italian firm did, 
in the past, ccmstitute a very serious obstacle which our friends finally suc- 
ceeded in removing as indicated above. 

Then this letter goes on, in paragraph 5 : 

5. Under the special circumstances of this case, we feel that we cannot at 
the present time include Peru in the list of countries where our policy will 
be friendly competition with compensation to the loser. * * * 



MUNITIONS INDUSTRY 163 

That was the general arrangement that you had in South America 
with Vickers, was it not, Mr. Spear, by which Vickers and Electric 
Boat Co. would ostensibly bid against each other, but the company 
which got the contract would pay compensation to the company 
which did not get the contract? 

Mr. Spear. Just a minute. Senator, you have not expressed it 
exactly right. 

Senator Cl.^rk. Will you express it exactly right for us ? 

Mr. Spear. We brought out the facts yesterday in this agreement 
with Vickers. They were our licensees and under that agreement 
we set aside certain territory in the United States into which they 
could not come. 

Then we specified certain other countries, as you will recall in 
the agreement, where they could come without a special arrangement 
with us. 

In other words, they were not allowed, as our licensees to come in 
there unless we thought it was to our interest. We left certain 
other sections of territory where we were free to compete with each 
other and if those Governments wanted British construction, it would 
go to Great Britain. But as they were our licensees, we insisted 
on their paying us. 

Senator Clark. But you were not their licensees were you? 

Mr. Spear. No, sir. 

Senator Clark. Did you not have arrangements that in certain 
countries if you were to get the business you were to pay Vickers? 

Mr. Spear. We did. 

Senator Clark. What would you call that? That was not in the 
nature of a license fee? 

Mr. Spear. No. 

Senator Clark. What was that arrangement by which in coun- 
tries where you got the business you were to pay Vickers some com- 
pensation ? 

Mr. Spear. We thought that was good business. 

Senator Clark, In what countries did you have such an arrange- 
ment as that, do you recall ? 

Mr. Spear. We would have to look at that document that was 
placed in the files yesterday. 

Mr. Carse. It was not Peru. 

Senator Clark. I understand that it was not in Peru, but you did 
have it in some countries. And in this letter you say that you could 
not include Peru in that category. 

Mr. Spear. That is correct. What we did was to specify the coun- 
tries where special conditions existed and where we would not let 
them come in unless the conditions changed. Then we left the rest 
of the world free to competition. 

Senator Clark. Paragraph 5 of this letter says : 

Under the special circumstances of this case, we feel that we cannot at the 
prei^ent time include Peru in the list of countries where our policy will be 
friendly competition with compensation to the loser and I must, therefore, ask 
you not to make any submarine proposals to the Peruvian Government direct 
•or indirect except as may be agreed to in advance by us. 

Mr. Spear. That is perfectly correct. 



164 MUNITIONS INDUSTRY 

Senator Clark (continuing reading) : 

We do not feel that the i)osition which we ai-e ohliged to take in this matter 
will necessarily result in excluding you from participation in this business and, 
in fact, we are endeavoring to arrange the matter so that the hulls can be con- 
structed at Barrow to our design. 

Mr. Spear. That was the point that we covered this morning. 
Mr. SuTPHEN. Intense friendly competition. 

RELATIONS WITH BRAZIL 

Senator Clark. And now, Mr. Carse, turning for a few minutes 
to BraziL Mr. Carse, right after the war, 1920, when you were be- 
ginning to go after Brazilian business, you got the report the Bra- 
zilian Government, through Bethlehem, was tied up with Vickers 
and Armstrong, did you not? 

Mr. Carse. Well, I do not recall. 

Senator Clark. Just to refresh vour memory, I have here a letter 
dated September 13, 1920, which iVill offer as " Exhibit No. 90 " to 
Mr. Carse from Mr. Spear. 

(The letter referred to was marked " Exhibit No. 90 ", and appears 
in the appendix on p. 378.) 

Senator Clark. The letter reads : 

Dear Mr. Caese : On my last visit to Washington I had a talk with Captain 
Azevedo, the Brazilian Naval Attache, and found him considerably disturbed 
about the activities of Bethlehem, both here and in Rio. He seems to think 
that they have formed some kind of a combination with Vickers and Armstrong 
to go after everything in sight in Brazil, and in any case they have approached 
him here and he understands that the Rio agent has been endeavoring to dis- 
cuss submarines with the Minister of Marine. 

Do you recall the circumstances, Mr. Spear, that came up? 

Mr. Spear. Just what is in the letter. Captain Azevedo was the 
Brazilian naval attache here. I met him here in Washington and 
discussed the situation down there. This is evidently what he told 
me, which I reported to Mr. Carse. 

Senator Clark. Did j^ou pursue the matter any further with 
Bethlehem? 

Mr. Spear. I do not recall. Later on, I think we did. To my 
best recollection we did later on. 

Senator Clark. You finally made an arrangement by which Beth- 
lehem paid part of the expenses of Aubry in South America? 

Mr. Spear. I think so, with the understanding that if we received 
an order at that time — we did not at that time have the hull depart- 
ment in the yard — and my recollection of this is that it was with 
the understanding that if we received any order we would give them 
subcontracts for the hulls. 

Senator Clark. Did that understanding include an understanding 
that Bethlehem would stay out of your business 

Mr. Spear. So far as Brazil was concerned? 

Senator Clark. That is what I mean. 

Mr. Spear. I considered that they had no right there, anyway, 
under their contractual relations with us. 

Senator Clark. In other words, you had a contract with them. 

Mr. Spear. That had not expired. 



MUNITIONS INDUSTRY 165 

Senator Clark. In 1921, Mr. Carse, you cabled Vickers and pro- 
tested that they were bidding too low on the Brazilian business, 
did you not? 

Mr. Carse. I do not remember those things. 

Senator Clark. I have here a letter dated December 22, 1921, 
to Sir Trevor Dawson from vou, which I will offer as " Exhibit No. 
91." 

(The letter referred to was marked " Exhibit No. 91 " and appears 
in the appendix on p. 378.) 

Senator Clark. " Exhibit No. 91 " reads : 

Dkab, Sib Teevob: Referring to the cables which have passed between us in 
relation to bickling fur subuiavmes tor the Brazilian Government, we today 
cabled you as follows : " Considered matter thoroughly, but still believe Bra- 
zilian quotations too low. Unwilling to approve except upon allowance 40 per- 
cent of profit with guarantee of not less than 20 pounds per surface ton com- 
pensation for us." 

Mr. Carse. Yes; we were interested in their profits. 

Senator Clark. What this means is that you were using your 
power as the holder of the patents to compel Vickers to raise their 
bids to South America? 

Mr. Carse. Or else they could pay us that sum, if they wanted to 
take less. But we considered that the price that they were quoting 
would not leave any profit to divide with us. 

Senator Clark. You say here in the last paragraph of that letter 
on the first page : 

As we have been working on this matter ourselves and believe that any 
builder of submarine boats in the future should figure on obtaiuing a reason- 
able profit we do not believe it would be for the best of the business to quote 
very low figures, and the figures indicated by you are lower than we could see 
our way to quote for boats built in the United States, and have thought that 
perhaps your people might have been anxious to secure work to maintain the 
operation of your plant and have not been very greatly concerned about any 
profit that might inure, and it was for that reason that we indicated that while 
we wish to help you in every possible way, if you wished to put in the price 
quoted we should be guaranteed something approaching what would ordinarily 
come to us on the usual division, that is to say, 40 percent of the profit whichi 
you might make, with the guarantee that such profit would not be less than 
£20 per surface ton for any or all vessels built by you for the Brazilian 
Government. 

Mr. Carse. That is right. 

Senator Clark. You finally got together with Bethlehem on bid- 
ding for this work and at the same time you authorized Vickers to 
submit a bid for the work to be done in England at prices " which 
they submitted to us and which we approved." 

That was, in effect, rigging up a fake bid on behalf of Vickers, 
was it not? 

Mr. Spear. No. 

Mr. Carse. No. 

Senator Clark. If you were bidding for the work and refused to 
let Vickers put in a bid except at a figure that you approved, it 
naturally meant that Vickers' bid could not be a bona fide bid ; is not 
that correct? 

Mr. Spear. No. If Vickers put in a bid at a price which we 
thought was reasonable and it afforded us reasonable profit and they 



166 MUNITIONS INDUSTRY 

g;ot the work all right. That does not necessarily mean that Vick- 
ers' price was higher than ours. 

Senator Clark. You controlled the bids both of your own com- 
pany and the bid from Vickers. 

Mr. Caese. As a matter of fact, neither one of us got the business. 

Senator Clark. And you refused to license a French company to 
submit a bid because that would be a real competitor, a real com- 
petitive bid, 

Mr. Carse. a French company? 

Senator Clark. I am referring now to a letter dated December 28, 
1921 to Captain Paul Koster by Mr. Carse, which I will offer as 
" Exhibit No. 92." 

(The letter referred to was thereui)on marked " Exhibit No. 92 " 
and appears in the appendix on p. 379.) 

Senator Clark. After saying in this letter, " we propose to submit 
a tender ourselves in conjunction with the Bethlehem Steel Corpora- 
tion, and have authorized Vickers to submit a tender for the work to 
be done in England at prices which they submitted to us and which 
we approved ", you say : 

We do not see how we could go further and grant licenses to a French yard 
to put in another competitive price. 

Mr. Carse. I do not see why we should grant a license to a French 
yard on one order when they had for years declined to take any 
license from us. Why should we allow a French company to use our 
patents and designs for one boat? It was absurd. It was one of 
Koster's^ absurd propositions. The French company would not take 
a licensing agreement with us, the same as the English and the 
Spanish and the Dutch and the Norwegians and the Danish. 

Senator Clark. What you say in this letter, Mr. Carse, is that you 
had permitted the Vickers Co. to submit a bid at a price to be 
approved by you for submission, but you would not let the French 
company put in a competitive bid. 

Mr. Carse. No; we did not see how we could grant licenses to a 
French yard to put in a bid of any kind. Why should we? We had 
no interest in the French company who had always declined to do 
business with us and probably would have cheated us out of anything 
that they owed us, anyhow, the same as the Italians did. 

Senator Clark. You took the trouble to notify the Brazilian 
Government that Bethlehem was tied up, so that they were not in a 
position to bid on any submarines, did you not? 

In that connection, I am referring to a letter dated September 13, 
1920, to Capt. Marquis Azevedo, naval attache of the Brazilian 
Embassy, which I offer in evidence as "Exhibit No. 98." 

(The letter referred to was thereupon marked " Exhibit No. 93 " 
and appears in the appendix on p. 380.) 

Senator Clark. This letter says in the third paragraph: 

In addition to the above, our contract arrangements with them, which are 
still in force, specifically prohibits them from constructing submarines for any 
one except ourselves, and possibly the United States Government. 

Mr. Carse, That is true. We had an agreement with them by 
which they had constructed our hulls ancl it provided that they 
should not put in bids for the construction of submarine boats within 
a certain period of time after the expiration of our contract. 



MUNITIOISrS INDUSTRY 167 

Senator Clark. But at the same time that you were notifyins, or 
shortly after you had been notifying the Brazilian Government, 
warning them against dealing with Bethlehem, you wrote Mr. Grace, 
the president of Bethlehem a letter, in which you said that you v/ere 
practically partners and that one partner ought not to indicate any 
lack of confidence in the other; that is correct, is it not? 

Mr. Carse. I do not know. 

Senator Clark. X call your attention to a letter dated January 26. 
1922, to E. G. Grace, president Bethlehem Steel Corporation, from 
Mr. Carse, which I will offer in evidence as " Exhibit No. 94." 

(The letter referred to was marked " Exhibit No. 94 '' and appears 
in the appendix on p. 380.) 

Senator Clark. This letter says, 

The Bethlehem and Electric Boat companies are in many respects practically 
partners and are so looked upon by the Navy Department in relation to sub- 
marine-boat construction, and I think you will agree with me that it is not 
advisable that either partner act in a manner to indicate any want of confi- 
dence in the other partner. 

IMr. Carse. These letters are 16 months apart, are they not ? 

Senator Clark. From September 1920 to Januarv 1922. 

Mr. Carse. That is 16 months, you know. We might change our 
views, in a small matter like that, anyhow. 

This is based apparently upon some word I received from Wash- 
ington about some action of the Bethlehem representative. I do 
not think it has any reference to the Brazilian business ; probably 
something else. 

Senator Clark, It does not speak of the Bethlehem representa- 
tive. It says : 

I enclose a letter from our representative at Washington, * * * 

Mr. Carse. Yes. They must have told us something about some 
action of some Bethlehem representative. Well, the business went 
to the Italians — the Brazilian business. 

Senator Clark. Mr. Carse. do you know of any other munitions 
firm or armament firms that are hooked up in such a way as the 
Electric Boat Co. and the Bethlehem Co., who you say were prac- 
tically partners. 

Mr. Carse. Well, we were not at that time exactly partners. 
We took a partnership with the butter all on one side of the bread. 
We took contracts with submarine boats on a straight-price basis 
and what Bethlehem did was on a cost-plus basis. We took all the 
risks and they simply did their work on a cost-plus basis with no risk 
or anything of the kind. 

Senator Clark. Mr. Carse, in a letter to Sir Trevor Dawson dated 
June 19, 1922. speaking of this Brazilian business, you say as fol- 
lows — and before reading the letter, I will offer it as " Exhibit 
No. 95." 

(The letter referred to was marked " Exhibit No. 95 ", and appears 
in the appendix on p. 380.) 

Senator Clark. You say in this letter that — 

Italian competition special nature not related to price or type, but believe 
not successful as Government will insist upon best product obtainable. 



168 MUNITIONS INDUSTRY 

A little later on you say that — 

The Italians base tlieir efforts more upon the securing of personal influence 
to award the contract rather than to any superiority of workmanship or de- 
sign, and alter they once accomplish the purpose tiiey have in view of secur- 
ing influence they will agree to any form of contract providing for any trial 
qualities desired and for delivery in any space of time, no matter how short, 
with the idea that the peculiar influence which they have secured will enable 
them to- change and modify the contract from time to time to suit them. 

With those expressions, Mr. Carse, you simply meant that the 
Italians bribed the officials doAvn there?" 

Mr. Carse. No; I did not. 

Senator Clark. What did you mean by that " peculiar influence 
which they have secured " ? 

Mr. Carse. They are of a Latin race, the same as the other peo])le 
and are entirely different in their points of view from the Anglo. 
The Italians have many connections in South America, especially 
in the Arj^entine vvhere there are a great many Italians. Then there 
is traffic back and forth and they make connections Avith people 
there and they influence a modification of the contracts and every- 
thing of that nature. 

I do not know specifically of anything, except that they did put 
in prices for the construction of submarines, boats which we knew 
would not pay for the boats as called for in the specifications. We 
did not know how they would really handle it. The boats we have 
been advised, have proven very unsatisfactory for the Government. 

Senator Clark. Well, v>e are not concerned about the actual boats 
that the Italian company sold to Brazil. What I want to find out 
is what you meant by referring to the peculiar influence which the 
Italians had secured, saying that they based their hopes of getting it 
on the personal influence — the hopes of getting the award. 

Mr. Carse. Well, that is just personal influence; just who, or why, 
or how, I do not know. 

Senator Clark. Did you ever discuss your Brazilian business with 
your representative, Mr. Chapin, after he returned from Brazil? 
You sent him down to Brazil to try and get this business. 

Mr. Carse. I think we talked about it. He came back and the 
agent representing the Italian Government told him that he was 
wasting his time, because he had it alread}'^ arranged. 

Mr. Spear. That was away back? AVas not that the previous 
negotiation ? 

Senator Clark. I am referring to the one in 1922, 

Mr. Spear. I think what Mr. Carse is talking about is a previous 
negotiation when Mr. Chapin did go down. 

Senator Clark. Mr. Chapin had just returned from Brazil in No- 
vember 1922. That is what I am referring to. 

Ml'. Carse. Yes; that is the time. 

Senator Clark. I refer you to a letter dated November 28, 1922, 
from Mr. Chapin to His Excellency Edwin A. Morgan, Amliassador 
to Brazil, which I will ask to have marked " Exhibit No. 96." 

(Tlie letter referred to Avas marked " Exhibit No. 96 ", and appears 
in the appendix on p. 381.) 

Senator Clark. In this letter, " Exhibit No. 96 ", Mr. Chapin 
speaks at some length about his disgust with the integrity of the 
Brazilian officials and uses this language : 



MUNITIONS INDUSTRY 169 

I * * * returned to this country with a most disappointed impression of 
the steadfastness and integrity of tlie Brazilian officials. 

Do you know what Mr. Chapin was referring to there? Did he 
ever refer to his impression of the integrity of Brazilian officials to 
you? 

Mr. Carse. No; he never went into any particular. 

Senator Clark. Did he ever discuss the matter with you, Mr. 
Spear? 

Mr. Spear. Yes ; I talked with him. 

Senator Clark. What did he have to say about their integrity? 

Mr. Spear. I cannot tell you exactly. 

Senator Clark. What does he base that remark on, if you know ? 

Mr. Spear. I can tell you broadly what he said, so far as I can 
remember it. I cannot give you the details. He said that when he 
got down there, while the understanding from the technical people 
was that our proposal suited them better, and so forth and so on, he 
could make no progress and everywhere he turned he found an of- 
ficial apparently under the influence of the Italians; that he could 
get nowhere with the things and he thought his trip had been use- 
less. I know what you want to know, whether he told me that he 
had any knowledge of anybodj'^ buying a Brazilian official. 

Senator Clark. What I am trying to find out is what he meant 
by that remark in his letter to the Ambassador. 

Mr. Spear. He never told me that, but I think he had a suspicion 
of the whole situation; I mean, he felt that there was an influence 
there that he could not combat in any ordinary American way. 

Senator Clark. He is trjdng to interest the Ambassador in the 
proposition that this contract with the Italians, if it were made, 
could be upset by the American naval mission to Brazil when they 
arrived. In that connection, let me call your attention to this letter. 
He says, on page 2 : 

It is my hope that if the contract for submarine boats has not yet been 
awarded, you will be able to use your good offices to have it deferred until 
the naval mission arrives, so that the opinion of that mission may be obtained. 
It is my belief that the naval authorities in Rio will not be precipitate in 
entering into a contract for a naval project which has not been passed upon 
by the mission which it has invited to advise them in this respect. 

Did Mr. Chapin say anything to you about that hope ? 

Mr. Spear. I do not recall. 

Mr. Carse. He may, it was a long while ago. 

Senator Clark. He tried to enlist the aid of the American Am- 
bassador in selling these boats for the Electric Boat Co., did he not? 

Mr. Spear. Yes. He was endeavoring to get all the help that he 
could from the Ambassador. 

Senator Clark. And the Ambassador replied that he had been 
active for 3 months in trying to sell those boats for the Electric Boat 
Co., did he not? 

Mr. Spear. That I do not know. Did he ? 

Senator Clark. Well, I refer you to a letter dated December 22. 
1922, which I will ask to have marked " Exhibit No. 97." 

(The letter referred to was marked " Exhibit No. 97 ", and appearg 
in the appendix on p. 383.) 



170 MUNITIONS INDUSTRY 

Senator Clauk. This letter is directed to Mr. Chapin and is from 
Edwin A. Morgan, the American Ambassador to Brazil. He says: 

I received today your letter of November 2Sth, relating to future orders for 
submarine boats for the Brazilian Navy. For the last three mouths or more, 
I have been in conference with Commander Aubry and took steps with the 
late President to check the signature of a contract for boats of Italian manu- 
facture. Before Commander Aubry returned to Montevideo at the beginning 
of November, it was evident that no order would be placed at once. 

Now, Mr. Spear, a very short time after Mr. Chapin had been ex- 
pressing his disgust of the integrity of the Brazilian officials, so far 
as their dealings with Italy were concerned, your own South Ameri- 
can agent. Commander Aubry, reported that he had been held up 
for $80,000 for nine submarines, amounting to something over 
$180,000, did he not ? 

Mr. Spear. I do not know whether he did or not. 

Mr. Carse. He was not held up ; he did not get it. 

Mr. Spear. He was approached, apparently. 

Senator Clark. I refer you to a letter from Mr. Aubry to Mr. 
Spear, dated March 11, 1923, which I ask to have marked " Exhibit 
No. 98." 

(The letter referred to was marked " Exhibit No, 98 ", and appears 
in the appendix on p. 383.) 

Senator Clark. This letter says in the second paragraph : 

Last Thursday I had a long interview with the Minister of Marine, Almirante 
Alejandriuo. I went to see him because Boettcher 

Boettcher was another one of your agents, was he not? 

Mr. Spear. Yes. 

Senator Clark, (continuing reading) : 

togetlier with the crowd that is around him, most intimately gave me warning 
to go there in the morning at his residence. The Minister started out by 
telling me that if we could arrange a loan in the States to cover the price 
for the submarines he will give us the order at once without delay, providing 
Admiral Vogelgesang will give his O.K. as to the technical aspect of the 
thing. Of course, I answered the Minister that I would have to cable you 
(I had already before uie by that time your letter of Feb. 8th) with the 
precise data and therefore it was essential that I should know the amount of 
money ri.'quired, that is to say the number of units decided upon and the 
models ; also what guarantees will be given by the Government for the loan. 
I suggested to him that the most suitable guarantee for a loan will be tlie 
Brazilian consular fees in the U.S. (I understand that they amount to $2,500,- 

000 per annum and they are collectible in the States.) 

The people around Almirante Alejandrino came to see me that very same 
afternoon and told me that they will expect from me live letters obligating 
myself, if the business was done, to pay 2,500 contos for the nine submarines; 
that comes to about $30,000 per submarine, a sum that will have to be added 
to the price. Of course, I told them that I was not authorized to do this 
but that I would write to my people about it. They then asked me to cable, and 

1 told tlum I would as soon as I received the memoranda relating to the 
data, and they agreed to that. Ever since then I know that they are with- 
holding the memoranda up to today because they have tried again, and again 
that I should give them sort of a promise that I would do it. I do not 
want 10 ask you to do this yet until I find that it is strictly indispen- 
sable, * * *. 

In other words, as I understand it Aubry did not want to pay the 
commission if he did not have to, but was willing to if he did have 
to? 

Mr. Spear. Yes. 



MUNITIONS INDUSTRY 171 

Senator Clark (reading further) : 

I am afraid that it does not matter how much would be to our credit in 
regard to the essentials of our tenders and the difte;ent factors that we 
have on our side ; there will always be someone that will profit on the trans- 
action by increasing the agreed price. I am expecting the memoranda tomor- 
row, or the day after, and then I will be in position to wire you the exact 
data. 

Do you remember what your attitude was about that proposition ? 

Mr. Spear, I do not remember now what happened with regard 
to that. I presume the record will show that. 

Mr. Carse. I know we did not pay it. 

Senator Clark. You did not get the contract? 

Mr. Carse. No, 

Senator Clark. Did you agree to pay it if you did get the 
contract ? 

Mr. Spear, I do not recall that. 

Senator Clark, You do not recall whether you did agree to pay 
it if you got the contract? 

Mr, Spear, No. 

Senator Clark, All you know you did not get the contract and 
therefore you did not pay it? 

Mr, Carse, Yes, 

Senator Clark. On page 2 of this letter, " Exhibit No. 98 ", Mr. 
Aubry continues as follows : 

Regarding this question, I liave already told you that Dr. Machado Coelho, 
our agent here, is well related and has a good position, but his influence with 
the present administration is nil, and the Minister of Marine, I have discovered, 
does not like him at ail. Dr. Machado has many other interests to attend to 
besides ours ; he is a director in several companies, and he therefore cannot 
devote his attention to our interests in proportion to the benefit he is going 
to reap therefrom. On the other hand, there are many people who are helping 
us in this business, and Dr. Machado always tried to evade the engagement of 
the obligations that I want to take with tlie riglit ones for the proper distribu- 
tion of the SY2 percent commission that is allocated to the agency. In other 
words, he takes the attitude that this business is sure ; that it will be done 
in two, four, six months, or a year, and it is foolish for him to give away money 
that he already considers as in his own pockets. My attitude is utterly difCerent. 
I believe that the money shall be obtained by the people that earn it and help 
in the matter, and I also strongly believe that vre will obtain the order quicker 
by having allies that can really help us. 

NoM^, about that time, to be exact, May 16, 1923, this letter was 
written, which I offer as " Exhibit No. 99." 

(The letter referred to, dated May 16, 1923, was marked " Exhibit 
No. 99 ", and appears in the appendix on p. 385.) 

Senator Clark. You offered Vickers an interest in this Brazilian 
business if they would withdraw their bid, and a much larger inter- 
est if they could float a loan in London to handle this business, did 
you not, Mr. Carse ? 

Mr. Carse. Wliat is that? 

Senator Clark. This is a letter dated Ma}' 16, 1923, from your.self 
to Aubry. 

Mr. Carse. I should not be surprised we did that. 

Senator Clark. Perhaps I can save time by directing your atten- 
tion to the part of the letter I have in mind. In the third paragraph 
you say that : 

Naturally we considered this very important and that it was our duty at 
once to make such investigation as was necessary as to the possibility of 



172 MUNITIONS INDUSTRY 

handling a Brazilian loan. Our first effort in this direction was in cabling to 
Vit'kers. We offered them a certain interest if they would v/ithdraw their bid 
and cooperate with us in securing the business and a much larger sum if they 
could arrange to flout a loan or finance the order in London. They replied it 
was imiKJSsible to finance in London a piece of business to be done in the United 
States. 

Mr. Carse. That is right ; we knev/ we could not finance it in New 
York. It is different in London ; the London bankers take the obliga- 
tions received by their manufacturers and advance money against 
them. It is not done to that extent in the United States by any 
means. 

Senator Clark. When you say in this letter, Mr. Carse, the 
following : 

The fact that they spoke to me on the telephone, even though I denied it, 
^ave them a chance of using my name in their statement. The reporter from 
the United Press, having cable correspondents all through Soutii America, 
copied this message from the papers and forwarded it without consultation 
with me, but the following day he came in to see me and after talking the 
subject over he stated he would send a message quoting me as denying the 
report, but said then that the first newspaper statement had caused considerable 
commotion in South America. 

Will you explain that ? 

Mr. Carse. That was the reporter of the New York Mail. 

Senator Clark. The first part of the paragraph reads : 

A reporter of the New York Mail called me on the telephone one afternoon 
and asked me about the order for Brazil, which I denied, but he published the 
statement about the same and the other papers copied him. 

What did you mean by that entire paragraph ? 

Mr. Carse. I think they were holding one of those conferences 
about naval affairs. 

Senator Clark. And the mere fact j^ou were negotiating with 
Brazil had an effect on that conference, did it ? 

Mr. Carse. No; the fact that this paper published that we had 
received an order from Brazil was what had an effect. Since then 
I do not even talk on the telephone to a reporter. 

Senator Clark. Now you say further : 

We have the assurance from Viekers that they will cooperate with us in 
every way possible in Brazil, and I do not think that ultimately It will be 
necessary to have the order pass through that channel. We have a number of 
subsidiary companies, and any of the names could be used in closing the con- 
tract if necessary, although the Electric Boat Company is the logical company 
to do that work, the Submarine Boat Corporation itself never appearing in 
connection with any submarine boat work, it simply being the holding company 
of the Electric Boat Company stock. 

Why would it have been necessary to have a subsidiary company 
make that contract, Mr. Carse ? 

Mr. Carse. Because this newspaper article caused Brazil to deny 
they had given that order to the Electric Boat Co., so if the thing 
should have been revived, I suggested it would be better to use some 
other name. 

Senator Clark. In that same letter in the last paragraph on page 1, 
you say : 

No announcement or any information was given out, from this office, as we 
appreciate 'and thoroughly understand the necessity of secrecy in all negotiations 
with governmental bodies. The fact that we successfully carried through the 
construction of submarines for Japan during the Russo-Japanese War ; the con- 



MUNITIONS INDUSTRY 173 

struction of submarine boats and submarine chasers for Great Britain, France, 
and Italj' during the last war without interference from Washington officials, 
and despite the constant surveillance of German spies, indicates that this office 
appreciates the necessity of secrecy in relation to all governmental transactions. 

Weren't those all violations of the American laws of neutrality, 
Mr. Carse? 

Mr. Cakse. No; I don't think so. I will take the Japanese first. 
At the time of the Russian-Japanese War, we built submarine boats, 
knocked them down and shipped them as freight across the continent, 
and shipped them over to Japan just as material — that is, all plates, 
and so forth, and our crew went over there to Japan and helped 
assemble them. 

Senator Clark. Did the State Department rule that was not a 
violation of our laws of neutrality? 

Mr. Spear. No, sir; the law of neutrality was that no arms shal\ 
leave the country under its own bottom, but anything shipped on a 
vessel could be seized, the theory being if it goes on its own bottom 
it is a vessel of that countr3^ That was the law but they would not 
permit us to do it. They said it was the law, but we do not want 
you to do it. That has happened to us since. 

Senator Clark. A^-liat was the fact about the manufacture of sub- 
marine boats and chasers for Great Britain and Italy ? 

Mr. Carse. We built them in Canada, in Montreal and Quebec. 

Mr. Spear. As far as that is concerned, the British Government, 
on the first Government order was carried out just as the Japanese 
order was — that is, it was to be carried out in that manner, the parts 
and material to be shipped to England and put together there, and 
Mr. Bryan who was then Secretary of State said, while that is accord- 
ing to international law and is legal, we would prefer as a matter of 
policy that you do not do that, because it makes trouble. The 
German Ambassador worries us, and it is our policy for you not to 
do that, so we abandoned that idea and had the vessels built in 
Canada, except 10 of them were built here, and stayed here until we 
went in the war. 

Senator Clark. Mr. Carse, if these transactions were entirely legal, 
why did you feel it necessary in this letter to Mr. Aubry to boast you 
have been able to do that without interference from Government 
officials, as a tribute to your own discretion in the matter ? 

Mr. Carse. I told you a few minutes ago about this German Am- 
bassador, and they had their spies around trying to check up. We 
found a fellow in Bayonne had taken a house where he could look 
over our plant with a telescope so that he could advise the Embassy 
at Washington what we were doing. We were not doing anything 
and he did not see anything, because we were doing it up in Canada. 

Senator Clark. At this time you knew that Commander Aubry 
was representing Bliss torpedoes in South America? 

jMr. Spear. Yes. 

Senator Clark. And you ImeAV his emploj^ment had been on the 
advice of the office of intelligence in Washington ? 

Mr. Spear. I do not know on whose advice. 

Senator Clark. I offer as " Exhibit No. 100 " a letter from E. W. 
Bliss Co. to Commander Aubry. 

(The letter referred to was marked " Exhibit No. 100 ", and appears 
in the appendix on p. 386.) 

83876— 34— PT 1- 12 



174 MUNITIONS INDUSTRY 

Senator Clark. In this letter, " Exhibit No. 100 ", the writer states 
to Commander Aubry that his appointment was at the suggestion of 
the Office of Naval Intelligence at Washington. 

Mr. Carse. a United States naval attache. 

Senator Clark. It states as follows: 

At the suggestion of the Office of Naval Intelligence at Washington, we 
cabled you to know if you would be willing to represent us in the matter of 
making a tender for our Bliss-Leavitt torpedoes for the Brazilian Goveniment, 
and we are very gratified that we liave been able to come to an arrangement 
with you and liope that the arrangement will be beneficial both to you as 
well as to ourselves. 

Mr. Spear. They wanted a representative and probably asked who 
was a good man. You did not get this from our files, you must 
have gotten it from Bliss. 

Senator Clark. It was in your files. Germano Boettcher was 
another agent? 

Mr. Spear. Yes. 

Senator Clark. He was a sort of subagent to Aubry? 

Mr. Spear. I think he went there before Aubry went there. 

Mr. Carse. That didn't amount to anything. 

Senator Clark. He wrote you a letter in 1924 reporting that 
Rothschild was financing Brazil and therefore the English would get 
the submarine business. 

Mr. Carse. I do not know, and I did not pay much attention to it. 

Senator Clark. I offer in evidence this letter from Germano 
Boettcher to the Electric Boat Co., dated May 23, 1924, as " Exhibit 
No. 101." 

(The letter referred to was marked " Exhibit No. 101 ", and ap- 
pears in the appendix on p. 387.) 

Senator Clark. It did not make any difference whether you got 
ihis business or Vickers got it, it was about as broad as long, from 
3' our standpoint? 

Mr. Carse. Yes ; that is right. 

Senator Clark, Now, I direct your attention to a report submitted 
to you by Mr. McNeir, dated Mtiy 7, 1923, and I offer this as " Ex- 
hibit Noi; 102." 

(The document referred to was marked " Exhibit No. 102 ", and 
ap])ears in the appendix on p. 389.) 

Senator Clark. This report, " Exhibit No. 102 ", says : 

I was given the opportunity today of reading a report on the Brazilian 
matter from an official source wluch I nm not at liberty to state in writing, 
but wldch Mr. Spear I believe, will readily recognize. 

Mr. Spear, what was the source of that report, do you recall? 

Mr. Spear. I could not tell you now. 

Senator Clark. Mr. McNeir at that time was your Washington 
representative, Mr. Spear? 

Mr. Spear. Yes. 

Senator Clark. He succeeded Joyner on his death, and preceded 
Cliapin? 

Mr. Spear. I do not think he preceded Mr. Chapin. but Mr. 
Chapin had attended to one thing and Mr. McNeir had attended 
to another kind of thing. 



MUNITIONS INDUSTRY 175 

Senator Clark. You do not know what the source of this report 
was, whether the State Department, the Navy Department, or 
where ? 

Mr. Spear. I do not recall. 

Senator Clark. Do you recall in that report, Mr. Carse, Mr. 
McNeir reported that Rear Admiral de Silva of the Brazilian Navy 
was described as being in the pay of the British naval constructors, 
and specified the amount of pay he was receiving from these sources ? 

Mr. Carse. No; I do not know anything about de Silva. 

Senator Clark. It speaks of him having a great influence over 
the Minister of Marine. 

Mr. Carse. Yes. 

Senator Clark. And Admiral de Silva was at that time a member 
of the Commission to the Pan-American Conference at San Diego? 

Mr. Carse. I do not know anything about it at all. 

Senator Clark. Do you recall anything about that report at all, 
Mr. Spear? 

Mr. Spear. No; I don't remember that, but I remember there was 
a Brazilian officer of the name of de Silva. I assume that report 
originated with one of the American officials in Rio. Whether it 
was the Navy Department or the State Department, I do not recall. 
The report must have come from a United States Government 
official in Rio. 

Senator Clark. The report states that Admiral de Silva was re- 
ceiving $110 per month from British constructors. You don't know 
whether that was Vickers paying de Silva ? 

Mr. Spear. No ; I do not know anything about it. 

Senator Clark. In other words that is something Vickers did not 
notify you about? 

Mr. Spear. If they were doing it, they did not tell me. 

Senator Clark. Who was doing the building of the two large 
naval vessels for Brazil at this time? 

Mr. Spear. Armstrong, not Vickers. 

Senator Clark. That is part of Vickers now, it has been merged 
with Vickers? 

Mr. Spear. Not entirely. Armstrong went bankrupt and when 
it was sold Vickers bought some of that. 

Senator Clark. Vickers is now known as Vickers-Armstrong? 

Mr. SPEiVR. Yes; but they did not buy all of the assets. They 
had several shipj^ards and locomotives, cranes, and so on, and was 
one of the big engineering firms of England. 

Senator Clark. This report also says that Argentina would look 
with disfavor on any increase in the Brazilian Navy. That did 
not influence you against going ahead and trying to sell Brazil 
all of the ships you could? 

Mr. Carse. No, sir. 

Senator Clark. You asked Mr. McNeir in 1923 to take up with 
the State Department a question raised by bankers as to what would 
be the State Department's attitude toward a loan to Brazil floated 
in this country to buy submarines? 

Mr. Carse. I mav have done that. 



176 MUNITIONS INDUSTRY 

Senator Clark. Do you recall what the answer of the State De- 
partment was? 

Mr. Carse. No. 

Senator Clark. I offer " Exhibit No. 103 ", being a letter from 
Carse to McNeir. 

(The letter referred to was marked " Exhibit No. 103 ", and ap- 
pears in the appendix on p. 390.) 

Senator Clark. You say you do not know what the answer of the 
State Department was to this question? 

Mr. Carse. I do not know what the answer was, but nothing 
came of it. 

Senator Clark. It was true Brazil was trying to get the United 
States to lend them money with which to buy submarines? 

Mr. Carse. They wanted us to build them on credit, that is, to give 
them a specific loan to pay for those boats. It was really for us to 
take their obligations and raise the money if we could. 

Senator Clark. Your agent reported to you on March 4, 1923,. 
that — 

The Minister of Marine tells me if I can provide the money, a loan of 
$15,000,000, he will sign the contract with me in 24 hours. 

Is that what Commander Aubry reported to you? 

Mr. Carse. There are often conditions made when you do not 
want to go through with the trade. 

Senator Clark. I offer this letter from Aubry to Spear dated 
March 4, 1933, as " Exhibit No. 104." 

(The letter referred to was marked "Exhibit No. 104", and ap- 
pears in the appendix on p. 390.) 

Senator Clark. In this letter, " Exhibit No. 104 ", the statement is 
made to which I have just referred, and now in 1933 the Brazilian 
matter again came up and Vickers approached y.ou as to what the 
terms of their bid would be. 

Mr. Spear. I think so. 

Senator Clark. I offer as " Exhibit No. 105 " letter of Commander 
Craven to Mr. Spear, asking the attitude of Electric Boat with 
regard to their bid. 

(The letter referred to was marked " Exhibit No. 105 ", and ap- 
pears in the appendix on p. 392.) 

Senator Clark. At that time a Japanese company was trying to 
get in on the Brazilian business, was it not? 

Mr. Spear. As far as I know everybody that knew how to build 
them was trying to get in on it. 

Senator Clark. You objected strenuously to Japan being allowed 
to bid ? 

Mr. Spear. I did not want anybody to bid. 

Senator Clark. I offer as " Exhibit No. 106 " a letter from Carsc' 
to Craven. 

(The said letter was marked " Exhibit No. 106 ", and appears in 
the appendix on p. 393.) 

(" Exhibit No. 107 " was marked in evidence, and appears in the 
appendix on p. 393.) 

Senator Clark. In part, this letter, " Exhibit No. 106 ", reads as 
follows : 

I have seen your letter of November 6th to Mr. Spear regarding the Brazilian 
naval program and note that you say : " I am told that Japan is going all out 



MUNITIONS INDUSTEY 177 

for fhp whole programme, and therefore I think it reasonable to suppose 
that pressure may be brought on me to put forward an attractive offer.'" 

Do you know what he meant by that, Mr. Carse, who was going to 
put pressure to bear on him to put up an attractive offer? 

Mr. Carse. Either Brazil or his own people, if they wanted to get 
the business. 

Senator Clark. The letter reads further : 

I do not understand how Japan has secured the right to bid on building 
submarine boats for other countries, for in the agreement which I signed 
for the Electric Boat Company on November 15, 1916, and sent to Vickers 
on November 17, 1916. after cable correspondence between us, for them to 
have executed by the Mitsubishi peojile. the right for a period of twenty years 
was given only to build boats for the Government of Japan, and while that 
agreement apparently was never executed but without any notice to us re- 
placed by your agreement of September 22, 1917, with Mitsubishi for a period 
of twelve years, which limited their right to build vessels for the Government 
of Japan, and also China and Siam, I do not now question the agreement 
made in the name of Vickers because on October 25, 1923. I accepted your 
action in the premises. The matter, however, of the Japanese entering into 
a world competition in the construction of submarine boats for other countries 
might be very important to both Vickers and ourselves in the future because 
of the low cost of wages and material in Japan, and. therefore, the right of the 
Japanese firm to do this business I think should be carefully scrutinized. 

We have not yet received the full details in regard to the Brazilian propo- 
sition, but as soon as we have an opportunity to study the matter wo will 
be very glad to take it up with you further, as the question of the Brazilian 
Government expending the amount necessary for such a great naval program 
at a time when they are not paying the interest on their foreign obligations 
may cause some action by other governments in regard to their subjects taking 
the business on the conditions indicated. 

What was the up-shot of the Japanese negotiations? 

Mr. Spear. Nothing. 

Senator Clark. Did Vickers do anything to keep Japan from 
beinjT in a position to bid? 

Mr. Spear. I have not heard anything about it, but nothing has 
been done. 

Senator Clark. Did Craven make any reply to this communica- 
tion of yours on the subject of Japanese competition ? 

Mr. Spear. I do not recall. 

Senator Clark. Did he make any reply, so far as you know, Mr. 
Carse? 

Mr. Carse. I do not recall that he did. The Brazilian proposi- 
tion was so ambitious it was absurd. They were asking people to 
bid on a complete navy, and where could they get the money when 
they were not paying interest on their debts, so I considered it a 
joke myself. We have not gone in and spent any money trying to 
make proposals to them. 

Senator Clark. There was no way in which the Japanese could 
bid on this Brazilian business without ignoring your patents ? 

Mr. Carse. No. 

Mr. Spear. Let me correct that, if I may, because Mr. Carse is not 
as well informed as I am. 

Senator Clark. Go ahead, Mr. Spear. 

Mr. Spear. There are several yards in Japan that have been en- 
trusted with business by the Government, and with those yards no- 
body had any agreement with them that they would not violate a 
patent. 



178 MUNITIONS INDUSTRY 

Senator Clark. That is what I asked Mr. Carse, if they would 
not have to disregard your patents? 

Mr. Spear. If there were any patented designs in the boat that 

we had. 

Senator Clark. I was basing my question on Mr, Carse's state- 
ment of yesterday that it Avas impossible to build a submarine with- 
out infringing your patents? 

Mr. Carse. But how are you going to tell if they infringe patents 
unless they let you look into the boat? 

Mr. Spear. Some years ago when we had what we considered the 
basic patents, that would be correct, but those patents have expired. 
We have a number of detail patents, but the basic original patents 
are no longer in force in any country. When you come to a detail, 
we have patented the best way of doing it, but a man can do it some 
other way if he wants to. The point I wanted to bring out there 
were no contractual relations with these Japanese shipyards that 
would prevent them from building a boat if they wanted to. 

Senator Clark. I was speaking of your patents, Mr. Spear. 

Mr. Spear. I misunderstood you. 

Senator Clark. Commander Craven wrote you on December 16 
a letter, Mr. Carse, which I offer as " Exhibit No. 108." 

(The letter referred to w^as marked " Exhibit No. 108 ", and ap- 
pears in the appendix on p. 393.) 

Senator Clark. In this letter, " Exhibit No. 108 ", Commander 
Craven says : 

With regard to your first letter, you will realize, of course, tliat I am not 
thinking only of the Mitsubishi people as competitors. I am told that the 
Japanesie Ambassador has definitely stated that the Japanese shipbuilding in- 
dustry will put forward offers which will be better than anything that can 
come from other countries, and, of course, It may pay the Japanese Government 
to give some veiled subsidy to their shipyards in order to have a small navy 
building in Japan in case an emergency arose. 

Do you know anything about that? 

Mr. Carse. Except this letter, that is all I know. We have no 
information from Japan. 

Senator Clark. Now, Mr. Spear, on January 30, 1934, you w^rote 
Mr. Carse about the plans proposed by Mr, Bardo of the New York 
Shipbuilding Co. in connection with Brazilian business. I offer that 
letter as " Exhibit No. 109." 

(The letter referred to was marked " Exhibit No. 109 ", and ap- 
pears in the appendix on p. 394.) 

Senator Clark. What was that letter about, Mr. Spear? 

Mr. Spear. That was this, as Mr. Carse has said this Brazilian 
business was practically a whole nav}'', including all kinds of shipfa. 
The New York Shipbuilding Co. is a large shipbuilding company in 
Camden, and they thought they would like to make a tender, or they 
wanted to make a tender where they could tell the Brazilian Gov- 
ernment they could take all of the elements of their program. Foi 
this reason Mr. Bardo approached me to see if we would be willing, 
if they got the order, to build the submarines, and I said, " Yes, if 
we get the money for it and not nuts ", because there was a good 
deal of talk about bartering at that time. So I gave Mr. Bardo a 
letter which he could show, that if he was entrusted with this 
contract, and if conditions were satisfactory, that we could take 



MUNITIONS INDUSTRY 179 

care of the submarine program. I also wrote a letter to the Minister 
of Marine in Brazil indicating we did not care to submit any bid on 
this work, but if when he came to the submarine item he cared then 
to negotiate with us we would be glad to take the matter up with 
him. That is the last I ever heard of it. I do not think they have 
placed any orders with anybody. 

Senator Clark. You recommended to Mr. Carse, at that time, did 
you not, if 3'ou were going in with anybody on such a deal, that it 
would be to "your advantage to go in with Vickers, and have the work 
done in Vickers' yard in preference to having the work done in the 
New York shipyard. 

Mr. Spear. I do not recall it, but if you have the letter, that is so. 

Senator Clark. You say in the middle of the third paragraph of 
that letter that — 

If, therefore, we wish to submit any tender at all, the only practical way 
to do it would be to bid lor construction by Vickers. 

Mr. Spear. That was the question of our submitting a tender of 
our designs and having the order executed in England. 

Senator Clark. Mr. Spear, how close to capacity have your plants 
been operating. 

Mr. Spear. At what time? 

Senator Clark. At January 30, 1934, this year. 

Mr. Spear. That depends on what you call capacity. 

Senator Clark. I asked that question, Mr. Spear, because in this 
letter you say: 

There is a distinct limit to our ultimate capacity 

Mr. Spear. Yes, sir. 

Senator Clark (continuing quotation) : 

and it looks to me as if we are likely to reach that limit before very long 
without any Brazilian business. 

Mr. Spear. Yes, sir; because we anticipated business from the 
United States Government and also some other government which 
would j)retty well fill us up. 

Senator Clark. Mr. Spear, I call your attention to a letter dated 
December 26, 1925, from you to Commander Aubry, who was at that 
time in Argentina. I will introduce that as " Exhibit No. 110." 

(The letter referred to was marked " Exhibit No. 110 " and ap- 
pears in the appendix on p. 395.) 

Senator Clark. In that letter you state as follows : 

Deub Commandek Axibry : 1. I am in receipt this morning of your cable of 
the 24th in reply to my no. 8 and after further consideration of the matter 
of Brazilian commissions, I am today authorizing Mr. Sloat to add to the net 
prices as follows, viz, "7i/^% for special commission." 

What is that, Mr. Spear? Do you know? 

Mr. Spear. I do not know to whom it was to go. It was some 
kind of a special commission. 

Senator Clark. He did not tell you who he was going to pay ? 
Mr. Spear. I do not think so. I have no recollection of it. 
Senator Clark (reading) : 

" 2% for you." 



180 MUNITIONS INDUSTRY 

That was Aubry ? 
Mr. Spear. Yes, sir. 
Senator Clark (reading) : 

" 3% for him." 

Whom did you mean by " him " ? 
Mr. SrEAR. Mr. Sloat, I presume. 
Senator Clark. Who was Mr. Sloat? 
Mr. Spear. Sloat was the local agent. 
Senator Clark. And you continue: 

* * * and, if necessary, local commissions up to 2i^% making the niaxi 
mum 15%. 

Was not that a heavy commission, Mr. Spear, in selling sub- 
marines? 

Mr. Spear, Yes, sir; I think that was the heaviest one we ever 
agreed to. 

Senator Clark. But you did not get the business and it did not 
cost you anything? 

Mr. Spear. We did not get the business and it did not mean 
anything. 

relations — ARGENTINE REPUBLIC 

Senator Clark. Now, Mr. Carse, after the war, when you went 
after South American business and got into the Argentine situation, 
you found that there was competition there from Germany and 
from Sweden, did you not? 

Mr. Carse. There was competition from all over. 

Senator Clark. You were particularly sensitive about the Swedish 
competition, were you not? 

Mr. Carse. I think some Swedish firm had some submarine boats, 
old boats, which they were trying to sell, or something of the kind. 

Senator Clark. I direct your attention to a letter from Mr. 
Chapin, your Washington representative, to the Secretary of State, 
dated February 15, 1922, which I will offer as " Exhibit No. Ill ", in 
which he asked the State Department to examine into the situation 
and protest against Swedish competition in this matter, did he not? 

Mr. Carse. I do not know whether he did or not. 

(The letter referred to was marked " Exhibit No. Ill " and ap- 
pears in the appendix on p. 395.) 

Senator Clark. Do you know whether you directed him or au- 
thorized him to do that? 

Mr. Carse. I do not think I directed him to. 

Senator Clark. I will read the letter in part. 

Mr. Carse. Mr. Chapin was a lawyer and had a lot of ideas. 

Senator Clark. This is the last paragraph of the letter, Mr. Carse : 

An answer to this cable is expected within a few days, and in the meantime 
it is respectfully requested the Department will exercise its good offices to 
ascertain from its legation in Sweden or its representatives in Germany the 
actual state of affairs and, if proper, make protest to the Powers concerned 
against conducting an enterprise which is so palpably contrary to the intent 
of the Treaty of Versailles. 

Do you remember anything about that? 

Mr. Carse. That means that Germany, who had been prohibited 
by the Treaty of Versailles from doing anything in relation to sub- 



MUNITIONS INDUSTRY 181 

marine boats, had established yards iii. Holland and in Sweden, and 
from those places they were offering to build submarine boats all 
around the world, and it was a clear transgression of the terms of 
the Versailles Treaty, and that is the reason that Chapin presented 
that to the State Department. 

Senator Clark. Your agent in South America, Mr. Aubry, on 
whose report this protest was brought, had been the Peruvian dele- 
gate to the Reparations Commission shortly after the war, had he 
not? 

Mr. SuTPHEN. Yes, he went there. 

Senator Clark. He mentions that in one of his letters. Tliat is 
where I got the information. 

Mr. Carse. It was in connection with those German boats that 
were interned and sold, which you had up a little while ago, I think. 

Senator Clark. When you started into the Argentine, Mr. Carse, 
you realized that the matter of selling submarines in Argentina 
depended entirely on the attitude of the bankers in floating loans, did 
you not, and approached the bankers to find out what was going on? 

Mr. Carse. Did I? I thought Argentina was good. 

Senator Clark. Here is a letter from Mr. Spear to you, under 
date of January 13, 1922, which I will offer as " Exhibit No. 112." 

(The letter referred to was marked "Exhibit No. 112", and ap- 
pears in the appendix on p. 397.) 

Senator Clark. Mr. Spear states in that letter in part: 

The morning papers refer to negotiations now going on in New Yoric with 
regard to additional loans to the Argentine. In my judgment the financial 
aspect of the matter will ultimately control the placing of tlie order and I 
therefore think that it is of vital importance that we should get in touch with 
the banking people who are negotiating this loan. I passed the same thought 
on to Bethlehem but do not think that it would be well to rely wholly on 
them. 

Mr. Carse. The loans made by European countries to South Amer- 
ican countries, and countries in other parts of the world, for many 
years have been largely based upon the amount of the loan being 
spent in that country that advanced the money, so that the European 
manufacturers always had that definite advantage over the Ameri- 
can manufacturers. 

We came in touch with it quite some years ago, and I talked with 
different banking houses in New York Cit}^ who were taking such 
loans as the Argentine loan and the Brazilian loan, and so forth, 
as to their takine: the same attitude in relation to these foreign loans 
as the European bankers did, but it never appealed to them to make 
that provision. I explained to them that I thought it was the custom 
of the European bankers, because of their close connections with the 
manufacturers. In Germany, for instance, they very largely own 
the manufacturers. But they could not see it. 

So that this thought of Mr. Spear — and a good many people had 
that — was that I ought to talk to the bankers and get them to offer 
to lend money to these different countries on the basis that they 
were spending money here, which I knew was impossible of accom- 
plishment. 

Senator Clark. Did you talk with the bankers? 

Mr. Carse. I talked in a general way, and they always said that 
they were not interested in that phase of the business. All they 



182 MUNITIONS INDUSTRY 

considered was whether the obligation was a good one, so far as 
the}^ could ascertain, and whether it could be sold. They did not 
care to follow on and be responsible for the application of the money. 

Senator Clark. Mr. Spear, about this time, that is to say, about 
in 1922, you made an arrangement with Bethlehem to defray one- 
half of the expenses of Commander Aubry's agency in South 
America, did you not? 

Mr. Spear. I think with respect to Brazil. I do not remember 
exactly. 

Senator Clark. In that connection I will offer a letter dated May 
25, 1922. from Mr. L. Y. Spear to Mr. H. jR. Carse as " Exhibit 
No. 113." 

(The letter referred to was marked " Exhibit No. 113 " and 
appears in the appendix on p. 397.) 

Senator Clark. " Exhibit No. 113 ", in part, reads as follows : 

I have made definite arrangements with Bethlehem under which they as- 
sume one half of this expense which should be accordingly charged against 
them. I expect to make definite arrangements with Bethlehem, under which 
so long as we are working with them, they will carry one half of the expense 
involved by special representation in South America, and if that goes through 
they will be charged one-half of our future payments to Commander Aubry. 

Did you make such an arrangement covering all of South America, 
Mr. Spear? 

Mr. Spear. We apparently did. 

Senator Clark. This said you made an arrangement with regard 
to the Bethlehem venture and that you intended to make one cover- 
ing all of South America. 

Mr. Spear. I do not recall, but to the best of my recollection it 
never went beyond this, but I would not be certain. I feel fairly 
sure that is where it stopped. 

Mr. Carse. I do not recall having received any remittances from 
Bethlehem. If there had been any such as to Bethlehem, they would 
have come to our office. 

Senator Clark. They did definitely make an arrangement to as- 
sume one-half of the Brazil solicitation, according to Mr. Spear's 
letter. 

Mr. Spear. Yes, sir. 

Mr. Clark. And he states he is charging against them, but I 
do not know what that means. 

Now, Mr. Spear, on September 2, 1923, you got a letter from Mr. 
Aubry in which he explained the situation in the Argentine and the 
delay on their part in ordering any munitions or armaments in terms 
of competition. I will offer that as " Exhibit No. 114." 

(The letter referred to was marked '' Exhibit No. 114 ", and 
appears in the appendix on p. 398.) 

Senator Clark. Mr. Aubry in that letter says in part as follows: 

The news that I have from the Argentine from very reliable sources has 
been always the same, that is, that the Government is developing a plan there 
which consists in presenting to Congress bills for armament so exaggerated 
that they know cannot be parsed and, at the critical moment if they see Brazil 
building anything, they will agree to a logical reduction and then also build. 
In other words, they are blufiing because they think in that way they will pre- 
vent Brazil from building anything. Here they have absolutely ignored these 
tactics, and if they have not ordered what they so badly need it is because they 
cannot do it for the reasons I have already explained. 



MUTTITIOXS INDUSTRY 183 

In other words, it was Mr. Aubry's opinion that Argentina did not 
want to build ships and would only do it if they were compelled to 
do it by construction by Brazil. 

Mr. Speak. That was the advice apparently which we had from 
Aubry. 

Senator Clark. Nevertheless, Mr, Aubry, as your representative 
was actively engaged in trying to induce both Brazil and Argentina 
to enter on a building program, was he not? 

Mr. Spear. He was engaged in trying to get business in both 
countries. 

Senator Clark. Knowing that if you sold to Brazil, it would start 
Argentina building and would start a building program? 

Mr. Spear. He says that it was so reported to him. 

Senator Clark. You were trying to sell both countries at that 
time ? 

Mr. Spear. Trying to sell whatever market existed. 

Senator Clark. At that particular time you were trying to sell 
both Argentina and Brazil? 

Mr. Spear. I think they were both reasonably active at that time. 

Senator Clark. In this same letter there is a suggestion from Mr. 
Aubry to you that you could secure information from your friends 
in the American mission. Who were those friends? 

Mr. Spear. If Admiral Vogelgesang was still there, he was a class- 
mate of mine at Annapolis, and a life-long friend and acquaintance, 
and I knew personally, and had for a number of years one other 
member, perhaps two other members of the mission. 

Senator Clark. In 1923 you were engaged in fixing up matters, 
not only with Vickers but with the Italian builders, were you not, 
or trying to? 

Mr. Spear. Yes, sir; we had some dealings with Italian builders. 

Senator Clark. I offer " Exhibit No. 115 ", being a letter from you, 
Mr. Spear, to Mr. Carse, under date of September 20, 1923. 

(The letter referred to was marked "Exhibit No. 115". and 
appears in the appendix on p. 399.) 

Senator Clark. I will read in part from " Exhibit No. 115." 
[Reading :] 

As Dawson has agreed in pi-inciple — 

I assume that is Sir Trevor Dawson — 

I propose to communicate now with Passano. 

Passano was one of your European representatives ? 
Mr. Spear". Yes, sir." 

Senator Clark. He was a marquis, was he not? 
Mr. Carse. Marquis de Passano. 
Senator Clark. Where did he live? 

Mr. Spear. He was an Italian. In the last years of his life he 
lived in Paris, and in the early years of his life in St. Petersburg. 
Senator Clark. I Avill read that quotation again: 

As Dawson has agreed in principle, I propose to communicate now with 
Passano with a view of ascertaining whether our Italian friends want to go 
into the matter and if so, whether they are in a position to do the needful 
with regard to Italian diplomatic support. 



184 MUNITIONS INDUSTRY 

What did he mean by " to do the needful with regard to Italian 
di])lomatic support " ? 

Mr. JbPEAR. The Italian diplomatic support. 

Senator Clahk. AVhat was involved? Have you any very definite 
idea about that, Mr. Spear? 

Mr. Spear, The Italian Government gives its industry the strong- 
est kind of diplomatic support. In fact, it was reported that they 
guaranteed their builders against a loss. 

The Chairman. Mr. Spear, we had a letter introduced here ycb- 
terday, written by Basil Zaharoff, in which he used that same iden- 
tical expression. Has it become rather contagious? 

Senator Clark. Maybe it is a code word. 

Senator Bone. Is that a trade expression? 

Mr. Spear. I think Sir Basil is the real author and some of us 
have quoted it. 

Senator Clark. You did not actually expect Italian business? 

Mr. Carse. We had an Italian licensee. 

Senator Clark. You did not actually expect to get the business? 

Mr. Carse. We had an Italian licensee. 

Senator Clark. I understand that, but you say in the next para- 
graph of this letter 

Mr. Carse. Who was different from the other Italian yards. So- 
that if our licensee could arrange to get business then, offering our 
type of boat rather than the type that was built by the other Italian 
yards, which we do not of course consider comparable to ours, 
then we would get a royalty on that construction. 

Senator Clark. But you did not expect 

Mr. Carse. If you cannot get the business one way, you can 
probably get it another way. 

Senator Clark. That is the rule in the armament business is it 
not, Mr. Carse ? 

Mr. Carse. I think it is the rule in any business, Senator. 

Senator Clark. You did not actually expect your Italian licensee 
to get the business, did you, Mr. Spear, because you provided that 
they should make a bid higher than Vickers'. Why was that? 

Mr. Spear. Because we felt if it was a matter of Italian influence 
they could stand a higher price. I presume that is the reason. 

Senator Clark. You say in the next part of that letter [read- 
ing] : 

The general idea, of course, is lo fix the Italian price a little higher than 
Vickers" price and if by any chance they should get the order, the profit will 
be ample to take care of them as well as Vickers and ourselves. . 

In other words if Vickers got an order or you got the order, there 
would simply be a split between you and Vickers, but if you had ta 
give the Italians any, you would give them a split ? 

Mr. Spear. Not if we got it, there would be no split. 

Senator Clark. Did you not have an arrangement in Argentina 
that if Vickers got it, they got a split out of it ? 

Mr. Spear. I do not think so. 

Mr. Carse. Vickers had no rights in South America, 

Mr. Spear. I do not think they had any arrangement where they 
would share with us if we got an Argentine order. 



MUNITIONS INDUSTRY 185 

Mr. Carse. The equalizing things were with respect to Europe 
and the Asiatic stuff. 

Senator Clark. Now, instead of building these submarines, Ar- 
gentina finally bought battleships from Bethlehem, did they not? 

Mr. Carse. Not at that time. 

Senator Clark. And all you got out of it was a matter of some 
guns and bombs. 

Mr. Spear. No; I think the old Argentine battleships, Senator, 
were built a good many years ago. 

Senator Clark. Mr. Spear, here is a letter under date of January 
7, 1925, from yourself to Mr. Carse, which I will offer as " Exhibit 
No. 116." 

Mr. Spear. Yes, sir. 

(The letter referred to was marked " Exhibit No. 116 " and 
appears in the appendix on p. 400.) 

Senator Clark. In that letter you state in part as follows: 

When this negotiation stai'ted, the order was of substantial size, but owing 
to the diversion of their funds to battleship construction by Bethlehem, they 
have had to cut it down to small proportions, so that the importance lies not 
in the amount of money involved but in tlie fact that they have adopted 
our type of stuff in competition with the British, which, of course, puts us 
In a preferred position to get the business when they are ready to place a sub- 
stantial ordei-, as they well may be next year. 

Mr. Spear, Senator, that was a reconditioning of the old job. 
The word " construction " was not the proper word I should have 
used. The ships were actually built 10 or 12 years ago. 

Senator Clark. You got the contract for the Y-guns. arbors, 
cartridge cases, and depth charges ; did you not ? 

Mr. Spear. Yes, sir ; as I recall it, that is what we got. 

Senator Bone. Mr. Spear, may I ask what your firm manufac- 
tures or can manufacture in the way of armament? Did you ever 
make torpedoes, also? Do 3'ou manufacture guns? 

Mr. Spear. We have made a few guns. 

Senator Bone. How large a gun can you make with your equip- 
ment? 

Mr, Spear, It has never been studied out, but I think about a 
4-inch. 

Senator Bone, Some of these submarines carry a pretty big gun, 
6-inch. 

Mr, Spear. The great big ones they used to build did, but the 
modern ones are limited by treaty. 

Senator Bone. Do you undertake to make cartridges and cartridge 
cases ? 

Mr. Spear. No, sir. 

Senator Bone. If you get a contract of that kind, you shop it 
out to some firm which makes them? 

Mr. Spear. If we get an order regarding supplying ammunition, 
we simply buy it. 

Senator Clark. In this case, did you shop it out to some manu- 
facturer? 

Mr. Spear. Those depth charges and Y-guns, and those things we 
could build ourselves. 

Senator Clark. Depth charges, arbors, cartridge cases, and Y- 
guns. 



186 MUNITIONS INDUSTRY 

Mr. Spear. We did make the cartridge cases. 

Senator Clark. Do you make guns? 

Mr. Spear. It is not a gun but an antisubmarine weapon. 

Senator Bone. Do you make torpedoes? 

Mr. Sfear. No, sir; we do not. 

Senator Clark. Did you have an interest in Whitehead at one 
time ? 

Mr. Spear. No, sir ; they were licensees of us. 

Senator Clark. You had nothing to do with torpedoes? 

Mr. Spear. No, sir. 

Senator Bone. What outfit makes torpedoes? 

Mr. Spear. I do not think any of them do. 

Senator Bone. Tlie Government makes them? 

Mr. Spear. The Government makes them themselves. The E. W. 
Blis^ Co., of Brooklyn, for many years was the only private source 
of supply. The Government gave some of them to them, and the 
Government built some of them, but my information is that the 
Government is doing it itself, because it put up extra factories. 
Their requirements are not very great, and they do it all themselves. 

Senator Clark. Mr. Carse and Mr. Spear, to refresh your mem- 
ory on the arrangements which you had with Vickers with regard 
to the Argentine business, I call your attention to a memorandum 
of agreement dated February 27, 1924, and signed on behalf of 
the Electric Boat Co. by L. Y, Spear, which I will ask to have 
marked as "" Exhibit No. 117.'' That letter reads as follows : 

Exhibit No. 117 

February 27, 1924. 
Messrs. Vickers, Limited. 

London. 
Argentine Submarine Business. 
Deiar Sirs : 1. In conference with General Livingston, representing you, the 
following arrangetuents have been agreed to with respect to Argentine sub- 
marine business. 

2. All previous understandings and agTeements are hereby canceled and 
replaced by what follows below. 

3. Both companies will do their utmost to eliminate all other competition in 
Argentine and will cooperate fully to that end, each consulting and advising 
with the other as may be necessary to effect this purpose. 

4. In the event of the Electric Boat Company receiving an order for construc- 
tion in the United States or in the Argentine it shall pay to Vickers Limited 
five percent of the gross contract price thereof, exclusive of armament. Recip- 
rocally, in the event of Vickers Limited receiving an order for construction in 
Great Britain or the Argentine it shall pay to Electric Boat Company five i)er- 
cent of the gross contract price thereof, exclusive of armament. 

In the event of it being necessary for either party to supply its own special 
designs, including working drawings, to the other party the party obtaining the 
order shall pay ten percent instead of the five percent above mentioned. 

In the event of the Electric Boat Company receiving an order and electing to 
cari-y out the construction work in whole or in part in Barrow the above 
mentioned five percent will be payable to Messrs. Vickers Limited and the 
construction will come under the proposed general agreement for any such 
construction work. 

5. The above provided percentage payments shall be due and payable pro rata 
as and when payments are received from the Argentine Government. 

6. Neither party shall submit nor have submitted any tender from any outside 
controlled source except with the consent and approval of the other. 

Yours very truly, 

Electric Boat Company, 
By L. Y. Spbbar. 



MUNITIONS INDUSTRY 187 

That payment to Vickers was not in the nature of a royalty, was it, 
Mr. Spear? 

Mr. Spear. No; it was just a business arrangement. 

Senator Clark. That is what is ordinarily known in common par- 
lance as an agreement in restraint of trade, is it not, Mr. Spear ? 

Mr. Spear. I think it would be called so in the United States. 

Senator Clark. In other words, you divide up the territory and 
each divvies, no matter who gets the business? 

Mr. Carse. Just us two as against the others. 

Senator Clark. Just you and Vickers, in accordance with your 
understanding, and you agree to split the returns no matter who gets 
the business? 

Mr. Spear. That is the way of it. We considered that was the 
wise thing to do. 

Senator Barbour. "Was there pretty keen competition on basic 
patents ? 

Mr. Spear. That was when? 1923? 

Mr. Carse. 1924. 

Mr. Spear. I should doubt, Senator, if there were many patents 
left at that time. 

Senator Bone. That is a practical adaptation of the " hands across 
the sea " policy, is it not? 

Mr. Spear. I should call it a practical application, yes, sir. 

Senator Clark. Now, Mr. Spear, in 1926 you told your European 
agent, Mr. Koster, that if you got this business you were going to 
have the construction work done in Italy and Belgium, did you 
not? 

Mr. Spear. Which business is that, sir? 

Senator Clark. That is the Argentine business. I call your atten- 
tion to a letter from Captain Koster, under date of July 10, 1926, 
addressed to you, which I will offer as " Exhibit No. 118." 

(The letter referred to was marked " Exhibit No. 118 " and 
appears in the appendix on p. 401.) 

Senator Clark. " Exhibit No. 118 " starts off in this fashion : 

Subject: Argentine. 

Deab Speab : I have received your cablegram of July the Sth, as follows : 
" European construction for Argentine probably essential account price. Pro- 
cure immediately all information and requirements from Galindez mission in 
London. Subject to necessary arrangements with Vickers to be made later 
contemplate construction Itiily or preferably Belgium. Ample time prepara- 
tion design and estimate essential. Unless Johnstone presence Finland essen- 
tial suggest that you recall him soon to assist you." 

In referring to Galindez mission, that was the Argentine Mission 
in London at that time, Avas it not? 

Mr. Spear. Yes. 

Senator Clark. At that time Captain Koster was complaining 
about his compensation, was he not, Mr. Spear, he being your Euro- 
pean representative ? 

Mr. Spear. I know he was at one time. I do not know whether it 
was then or not. 

Senator Cl^vrk. He says : 

I am now handling outside the usual negotiations for submarines, the fol- 
lowing matters — 

and he enumerates what he is doing for you in various places. 



188 MUNITIONS INDUSTRY 

Mr. Carse. Under an arrangement which Mr. Rice made with him 
in 1912, his compensation was either in pounds or dollars, and some 
time during the period he wanted to change to francs. It would 
have been 100,000 francs. 

Senator Clark. He enumerates what he is doing for you. First — 

Obtain affidavits for plans covering claim against the German Government. 

2. Direct campaign in Holland with the aid of French and Italian, and 
perhaps the United States Government — if you can obtain that instructioms be 
sent to your Ambassador at The Hague — in view of the combating of the " N. V. 
Ing. Kant v. Scheepsbouw ", as well as further German activities. 

3. Obtain information, data, and, if possible, plans about German torpedoes. 

What was it that he was trying to obtain about German torpedoes, 
Mr. Spear? 

Mr. Spear. We were trying to get some information about it. 
Senator Clark (continuing reading) : 

4. Obtain requirements and information about Argentine submarines. 

5. Direct lawsuit against Whitehead-Fiume, in which the company has a 
50 percent half interest. 

6. Follow up orders for guns, etc., for Peru. 

The Chairman. For what company? 

Senator Clark. That company. Mr. Carse testified on yesterday 
that they did not want to put up their money for the suit and if 
Koster would go ahead and do it, they would give him half of what 
he got. [Continuing quotation:] 

6. Follow up orders for guns, etc., for Peru. 

7. Development business Y-gun, Davis gun, and depth charge. 

8. Reception of directors and friends of the company. 

What did that duty consist of? 

Mr. Spear. Showing them the right place to get lunch. 
Senator Clark. He feels as if he has not been rightly treated, for 
in the next to the last paragraph he states : 

For all this important work, outside of the normal business, the company 
pays me a salary in francs, which is equivalent to what, I suppose, your drafts- 
men or your stenographers get, and whilst you wrote to me that for some time 
you had been thinking about this matter, I wish to say that the time to act is 
now, and I request to be paid a suitable salary which will allow me to live 
like a man in my station of life, and which I beg you to fix at one thousand 
dollars a month, payable in dollars. 

What did you do about that? 

Mr. Spear. Mr. Carse arranged that. 

Senator Clark. How much did you pay him? 

Mr. Carse. It was not as much as that. 

Senator Clark. How much was it? 

Mr. Carse. Because I think he wanted 50,000 francs, but when 
the franc got down to about 3 cents, he was not getting very much, 
about $1,500 or $1,800 a year. Of course, we had to give him some 
decent compensation, and*^ I think we raised him up to perhaps seven 
or eight thousand dollars. 

Senator Clark. In 1926 you did actually obtain the intervention of 
the State Department to assist you in obtaining business for con- 
struction in Belgium, did you not? 

Mr. Carse. I do not know. We tried to arrange it. 



MUNITIONS INDUSTRY 189 

Senator Clark. I call your attention to a letter dated September 
16, 1926, which I will oU'er as " Exhibit No. 119." 

(The letter referred to was mai'ked " Exhibit No. 119 ", and ap- 
pears in the appendix on p. 401.) 

t^enator Clark. This letter is addressed to Mr, C. S. McNeir, 
Hibbs Building, Washington, D.C., and is signed by Butler Wright, 
Assistant Secretary of State. The letter reads : 

Oil September 9 the Department at your request informed the American 
Ambassador of Buenos Aires by cable that the Electric Boat Company of 
New York was C(;mpeting before an Argentine Commission in Paris for an 
order for three submarine torpedo boats of about 9U0 tons each, which it was 
proposed to build at the works of the Cockerill Company in Belgium from 
designs and under the superintendence of the Electric Boat Company which 
would also furnish certain parts. The Ambassador was instructed to seek an 
early opportunity informally to request the appropriate Argentine authorities 
that American firms be given an equal chance to compete for the business 
and that their offers receive consideration equal to that accorded to any other 
foreiiiii companies. 

The American State Department certainly was not doing anything 
particularly for American labor when they tried to obtain work for 
the Cockerill Shipbuilding Yards in Belgium, was it? 

Mr. Caese. The Cockerill proposition w^as based entirely on price. 
It was absolutely impossible to get the work done in the United 
States because of the cost of wages. 

Senator Clark. Yes, but wdiiit business was it of the Department 
of State to be trying to procure business for the shipyards of Cocke- 
rill in Belgium? 

Mr. Caese. It would help us. 

Mr. Spear. It. would benefit us. 

Senator Clark. It would help you, yes. 

Mr. Spear. ^Ye make all of the plans here and supply certain 
parts and get a royalty. 

Mr. SuTPHEN. We supply the engines. 

Mr. Carse. We made an arrangement with Cockerill to do the 
work. Cockerill was considered one of the finest epgine plants in 
the world. 

Senator Clark. It may be a very fine engine plant but it does not 
employ any American labor, does it? 

Mr. Carse. No. But the Argentine Commission, when we sub- 
mitted Cockerill, they sent a representative to examine them, and 
they reported that he was not competent to do the work. Of course. 
we knew that was not so, and there was expressed a desire to have 
the work done by France because of some diplomatic relations. So 
we made an arrangement with a French concern to act as a licensee. 
Well, something went wrong there. Also with an Italian firm and 
something went wrong with that. 

We might as well be frank about it and tell you what the real 
story was. It was this. Gaiindez, the admiral who was the head 
of this commission to place this order, his wife was a niece of 
Orlando, the head of a shipbuilding concern in Italy who had been 
at one time Premier of Italy. So the contract was given to the 
Orlando shipbuilding firm. Of course, everybody did not under- 
stand that at first and so we wasted a lot of typewriting and both- 

83876— 34— PT 1 13 



190 MUNITIONS INDUSTRY 

ered other people trying to present a proposition that would be 
accepable to them. 

Senator Clark, Mr. Carse, in 1926, in November, you got a cable- 
gram from Commander Aubry from Buenos Aires, in which he said 
he could get n contract if you Avould pay $50,000 special commission. 
I refer vou to this cablegram which I will ask to have marked 
" Exhibit No. 120." 

(The cablegram referred to was tliereui)on marked " Exhibit No. 
120 ", and appears in the appendix on p. 402.) 

Senator Clark. This cablegram is dated November 14, 1926. Do 
you know whether that had to do with Argentine business or Peru- 
vian business, both of wdiich Aubry was handling at this time? 

Mr. Carse. This was undoubtedly Argentine. 

Senator Clark. He was in the Argentine? 

Mr. Carse. Yes. 

Senator Clark. In that cablegram Mr. Aubry says: 

No. 3. I am of opinion that we will obtain orders for six — 

I suppose he means six submarines? 

Mr. Carse. Yes. 

Senator Clark (continuing reading) : 

for six now, but we must agree to pay 50,000 dollars cash against signing (on) 
contracts as an extra local commission. In return, they will also maintain 
price of your tliree therefore such net amount ought to t»e reduction of price 
not to be included. Writing contracts. Cable if you accept. Juan Leguia due 
to arrive New York loth November. He may be interested in amphibians. 
Reply by Postal. 

What did he mean by amphibians? 

Mr. Carse. Amphibian airplanes? 

Senator Clark. Did you do any business with Juan on the subject 
of amphibians? 

Mr. Spear. No; we tried to. "We were not directly interested, but 
we knew the people who built them very well. 

Senator Clark. What was that special commission of $50,000, was 
that bribery? 

Mr. Carse. I do not know whether it was bribery. He had to 
pay it to some people down in Buenos Aires. I do not know to whom. 

Sen;itor Clark. And you were perfectly willing to do that, were 
you, Mr. Carse? You responded on November 15th by cable, which 
I will offer as " Exhibit No. 121." 

(The cable referred to was marked "Exhibit No. 121", and 
appears in the appendix on p. 402.) 

Senator Clark. The translation of this cable is: 

No. 4. With understanding that unit price for six will be same as already 
quoted for three that is i?713.50O we agree to additional commission total 
$50,000 payable cash on signature contracts. Important you defer submitting 
contract form until after receipt information fi'om us by next steamer. Tele- 
graph wliether such delay permissible also your opinion regarding maximum 
pormissible time for delivery of six. Congratulations on prospects. 

Mr. Carse. Yes; that is true. I agreed to pav $50,000. 
Senator Bone. That would be considered as '^ doing the needful ", 
would it not? 

Senator (^lark. " Greasing the waA^s ", is anotlier expression. 
Senator Bone. That is perhaps a more euphonius term. 



MUNITIONS INDUSTRY 191 

Mr. Carse. Call it what you please, but he got down there and 
talked around to people who had access or something of that nature. 
This man coming from the outside could not secure the business in 
Buenos Aii-es and keep all the commission in tlie transaction, and 
this man thought that he was to give some to him. 

Senator Bone. Did you get the business? 

Mr. Carse. No, sir; we did not. 

Senator Bone. Then evidently somebody else did more than the 
needful down there, if they got the business. Is that a fair 
assumption? 

Mr. Carse. I think I explained to you our understanding of how 
the business went otherwise. Ap]Darentl3' Admiral Galande v.as more 
important than some other person in Buenos Aires. 

Senator Bone. That particular gentleman may be more in need 
of the needful and was willing to meet other offers that were ten- 
dered. Is that a fair assumption? 

Mr. Carse, I do not know about Admiral Galande. Mr. Aubry 
evidently was putting his money on the wrong horse. 

Senator Clark. Then you did get a later explanation from Mr. 
Aubry as to this transaction on March 24, 1927, which I would like 
to offer as " Exhibit No. 122." 

(The letter referred to was marked " Exhibit No. 122 ", and 
appears in the appendix on p. 402.) 

Senator Clark. This evidently has to do with the same $50,000 
special commission. It is dated March 24, 1927. It reads: 

My Dear Fpear: I wisli to acknowledge receipt of your personal letter of 
February lOlh and your 3 letters of Fel)ruary 10th. Nos. 124, 125, and 23; 
also yours of Feb. 11th, for all of which please accept my best thanks. 

I must apologize for not having written after my letter of February 24th, 
with the exception of a very short one under date of March 10th. The reason 
for this beins; that the impressions received since February 24tl!, until recently 
have caused many unceitainties wiiicii placed me in the position of preferrini? 
to write you as soon as I was certain of what I was sayins?, and that, unfor- 
tunately, was not the case from February 24th up to March IQih. My cable 
of March 8th requesting the $20,000. in advance of commission promised, duly 
ar-ived on the lOtli March. I cabled you in regard to this because it was 
imperative to get action from the man to whom we have offered $.50,000, and 
I knew at the moment that only he could avoid t!:e consinumation of the plans 
of the Minister of Marine and the Minister of the Treasury in regard to 
French construction. That man told Ribero that he would not undertake 
any action that might compromise himself in any way unless he coulil see part 
of the money offered in sight. 

In other words, he was perfectly willing to compromise himself 
if he could see the color of his money. 

* * * and I therefoi-e made arrangements by which he might be sure of 
obtaining this amount of $20,000 — and I also made sure that he cannot touch 
the money until the contract is signed, so I am therefore responsible, as I 
.stated in my cable, for the refunding of the money to the Company in case the 
Company or our licensees do not obtain the contract. 

Then further on in the letter, if you may recall, he says: 

* * * but I certainly can tell you that my strong opinion is that we will 
not lose the order, one way or anotl^er. 

So apparently Mr. Aubry was willing to resort to one way if he 
could not get the contract in another. 

Mr. C\RST'. He was very sure of that business. We did not get it, 
and wo uc'dod it. too, verv badly. 



192 MUNITIONS INDUSTRY 

Senator Clark. Mr. Aubry was even able to insert editorials in 
prominent Argentine newsj^apers from time to time, was he not, 
Mr. Carse? 

Mr. Carse. Well 

Senator Clark. He says further in this letter : 

Your cable No. 68 in reply to my Xo. 33 was also very welcome, because 
we are iiiakin« a very, very big fffort to deveb^p a jrrent campaign to .see 
tbat all our work is not lost at the la:<t minute by a combination t-ucli as tbe 
Frencli one wbicb 1 explained to you in my letter of February 21tb. We 
have been able, in this respect, to get an editorial in the most reiialtle news- 
paper in the Argentine. "La Prensn ", which I herewith enclose iu order tliat 
you may have an idea of what it says. 

And then he says very modestly : 

You can, I suppose, imagine W'lio is responsible for this editorial. 

Did he receive any compensation for controlling the newspapers 
of Argentina ? 

Senator Bg^je. That is the good old InsuU and power trust 
technique? 

Mr. Carse. Some Argentinean wrote it for him, probably. He 
could not do it himself. 

Senator Clark. Then a little .later, in 1927, Mr. Spear, you had 
a scheme on for gettnig some Argentine business which was to be 
built in France, did you not? 

Mr. Spear. Was it not the same business? 

Senator Clark. I understood from Mr. Carse that he never had 
any arrangement with a French concern; I understood him to say 
that this morning. 

Mr. Spear. I think we did have a temporary arrangement at 
one time. 

Mr. Carse. I explained to you that we did have an arrangement 
at that time. At the same time that we had the Cockerill matter 
we arranged I think with Normand, a French concern. 

Senator Clark. I offer as " Exhibit No. 123 " a letter cfated Lima, 
Peru, May 12, 1927, to Mr. Spear, from Mr. Aubry. 

(The letter referred to was marked ''Exhibit No. 123", and 
appears in the appendix on p. 403.) 

Senator Clark. Referring to the Argentine business, Mr. Aubry 

says: 

We will have the order for three submarines to be built in France and I 
entirely agree with tlie suggestions contained in your letter of the 26th April 
to Sr.'Ribero, especially as regai-ds paragraph No. 2, where you refer about 
how exceedingly difficult it is to deal with the French firms, especially when 
they think that the Government has designated any particular yard for the 
construction. Tl'.e selection of the building yard, I hojie, is going to be left 
entirely in our hands, and I have sent, today, a very impressive wire to Ribero 
to that effect in order that our friend Captain Koster will not suffer the same 
ordeal as in the past in Buenos Aires. 1 am in touch by wire with Ribero 
all the while and I have also received already letters from him. In his last 
letter of the 27th April he sent a copy of the wire he had forwarded to you 
on that date, in which he pointed the specified commission of £-",()00 per 
boat for the friends and, besides, the special commission agreed with me 
sometime ago ; * * *. 

What does that refer to, Mr. Spear, this special commission of 
5,000 pounds per boat that you agreed on with this man Ribero. 
Who is he? 



MUNITIONS INDUSTRY 193 

Mr. Spear. Ribero was a citizen of Buenos Aires. He was a man 
of wide political acquaintance and a good deal of influence there 
whom Aubry frequently used, whom he emploj-ed on a commission 
basis to help him secure this order. 

Senator Clark. Apparently you had arranged with Ribero to pay 
him a commission of 5,000 pounds, and in addition to that tlirough 
Aubry there had been another arrangement for a special commission 
with Ribero. He said : 

* * * and, besides, the special commission agreed wirh me sometime aso ; 
and lie said to me that everything is in order in regard to this matter excepting 
that he had noticed that in his document covering his personal commission the 
expiration date is 9th June. 1927, and although lie felt sure that morally he 
is absolutely well covered because any contract that will be sijmed weeks or 
even months after the 9th or June v\ill be the I'esuit of our work and efforts 
and recognized so by the company, he would very much prefer to have every- 
thing legally in order. 

Did you give him a written memorandum extending that period? 

Mr. Spear. I think we did. 

Mr. Carse. We did not have any direct arrangement with Ribero, 
did we? 

Mr. Spear. I think so. I merely confirmed the arrangement that 
we had. 

Senator Bone. Mr. Snear, can you inform us whether or not the 
French and Italian and English munitions concerns and submarine 
builders and sliipbuiklers paid commissions on business acquired in 
South America? 

Mr. Spear. I think they all did. 

Senator Bone. They all pursued about the same course in getting 
business? 

Mr. Spear. Yes. You will find it is impossible to do business in 
those countries without enlisting the local people. 

Mr. Raushenbush. There is one more question. That commis- 
sion of $50,000 to somebody in the Argentine; after all, that is a 
very considerable sum to be paid to one individual. 

Does not any one of you three gentlemen know to v/hom that large 
sum was to be paid. 

Mr. Spear. If I ever knew, which I doubt, I do not know now, 
unless there is some record of it. 

Mr. Raushenbush. You mean that you would authorize an agent 
to pay out $50,000 without knowing to whom it was going ? 

Mr. Carse. Yes. You see, there was an order there for $735,000. 
They talked about four or six boats. Four boats would be 3 million 
dollars, and six boats would be 41/2 million dollars, and a ct>mmis- 
sion of 50 thousand dollars is not excessive on that. On the larger 
aijiount it Avould be about 1 percent. 

Mr. Rauspienbush. That was in addition to Aubry's commission, 
was it not? 

Mr. Carse. Yes. 

Senator Bone. You did what you thought was necessary to get 
the business? 

Mr. Carse. Yes. It was absolutely necessary. You have to em- 
ploy some local personage. 

The Chairman. In addition to the salary that was paid Aubry, 
it has appeared that you paid commissions yearly as well. Were 
those commissions directly to him ? 



194 MUNITIONS INDUSTRY 

Mr. Carse. Yes. "We had no dealings with others. We paid com- 
missions to Aiibry. 

The Chairman. Suppose you had gotten the contract and a call 
had been made upon you for the $50,000 of commission in this case. 
How would 3'()U have charged that up on your books'^ 

Mr. Cai!se. We would have paid that to Aubry. 

The Chairman. You would have charged that as commission to 
Aubry? 

Mr. Carse. Yes; and Aubry would have passed it along. 

The ChairxMan. In 1924 you paid him $32,000: in 1925, $42,000; 
in 1926, $40,000; in 1927, $38,000. Vvliat were those commisriions 
for? 

Mr. Carse. Those were percentages on the amounts that we re- 
ceived from the Peruvian Government on either the construction 
or on the payment of the notes. Our arrangement with him was to 
pay him a certain commission as and when we received the pay- 
ments on the contract. 

The Chairman. In 11 years, up to August 15th of this year, the 
total paid him in commissions was $253,000. 

Mr. Carse. Yes, sir. 

The Chairman. Would you have any way of knowing what part 
of that was direct commission to him and what part of it was com- 
mission paid through him to others? 

Mr. ('arse. No; I do not think we have any way of knowing 
definitely. 

^lenuK^r Bone. I gathered from your statement a few minutes 
ago that the Peruvian Government still owes you about a million 
dollars. 

Mr. Carse. Yes. 

Senator Bone. If that sum should be realized in collections, you 
would then have a very large commission to pay out of that to 
Mr. Aubry? 

Mr. Carse. $30,000 or $40,000. 

Senator Bone. That would be paid only in the event that the 
Peruvian Government should discharge its obligation to you? 

Mr. Carse. That is correct. 

relations with VICKERS in south AMERICA 

Senator Clark. Mr. Carse, all the time that you were selling to 
Peru and trying to sell to Argentina and Brazil, your associate, 
Vickers, was selling to Chile and asking you from time to time to 
reduce the royalties to facilitate that sale; is that correct? 

Mr, Carse. Yes. Craven always asked us to reduce royalties. 

Senator Clark. He was a pretty good trader? 

Mr. Carse. Oh, yes. 

Senator Clark. He would not be holding that job with Vickers 
if he was not? 

Mr. Carse. Yes; that was his job. 

Senator Clark. He wrote you in 1928 that he was trying to 
ginger up the Chileans to take three more boats from him, did 
he not? 

Mr. Carse. Yes. 



MUNITIONS INDUSTRY 195 

Senator Clark. I offer that letter, which is dated the 24th of 
September, 1928, as " Exhibit No. 124." 

Senator Clark. This "Exhibit No. 124" is a letter from Mr. 
Craven to Mr. Spear, dated the 24th of September 1928, and it says : 

My De^\r Spear: I am trj'ing to giuger up the Chileans to take three more 
boafs, and want to ask if yuu will accept the same royalty as yon did last time. 
You will remember this was £10,000 per boat. I may avoid price cutting in 
view of the fact that we reduced our tender price last time to meet all com- 
petition, and I am trying to bring a few stunts into the design which will make 
it more or less our show and no one else's. It vrill naturally take a little time 
to work up, but the sooner I can get the thing guing i)roperly the better, and 
I should much appreciate an early reply. 

You can assume now that I shall be asking you to treat us for this year's 
British boats in the same way that you did last year. Competition is going to 
be just as keen, if not more so, as merchant ship orders are worse than ever, 
and according to the latest reports 539c of the siiipbuildiug berths in the 
country are empty. 

Yours sincerely, 

C. W. Craven. 

What did he mean by the way in which you treated him before, 
Mr. Spear ? Do you recall ? 

Mr. Spear. Yes; a reduction. He asked us to agree to a smaller 
royalty than our contract provided. 

Senator Clark. How much did you finally agree to take, Mr. 
Spear ? 

Mr. Spear. The year before, what was it? 

Mr. Carse. I am not certain. 

Mr. Spear. It was less than the 3 percent to which we were entitled 
^by our contract. 

Mr. Carse. We used to split the diiference with them, generally 
•speaking. He put up such a tale of woe. 

Senator Clark. He probably asked you to take more of a reduc- 
tion than he expected to get, if you were splitting the difference. 

Mr. Carse. That is what I figured. I was the wicked partner in 
that matter, to let Mr. Spear out. 

Senator Clark. It seemed to be Commander Craven's idea, did it 
not, that when the business was dull in the construction of merchant 
vessels, as it apparently was in this year, it was necessary to step 
out and ginger up these fellows for the manufacture of war vessels 
to keep the old shipyard going. 

Mr. Carse. To keep the plant going; yes. 

Mr. Spear. That was his idea. 

Mr. Carse. If you have a large organization it becomes a very 
serious matter at times to be able to get business to keep things 
going. Otherwise you might have to discharge thousands of men. 
Vickers employed at times many thousands of men. 

Senator Clark. In 1927 he managed to get the price of vessels 
to Chile put up, did he not? 

Mr. Spear. I do not r^ecall, but if he said so, I do not doubt it. 

Senator Clark. He wrote you on the Tth of November 1927 a letter 
which I will offer as " Exhibit No. 125." 

(The letter referred to was marked " Exhibit No. 125 " and appears 
in the appendix on p. 405.) 

Mr. Carse. He did not get those three extra boats. 



196 MUNITIONS INDUSTRY 

Senator Clark. He sa5's in this letter; 

During the last few dnys by skillful nmTionvcring wo have nuinaserl to get 
some of our competitors' prices in the Chilean competition put up * * *, 

It was the competitors' prices that he was getting put up, I see. 
He continues : 

And so may have prevented a reitl prlce-outtinir war which would have re- 
sulted in our taking the boats at a loss. However, I Imiip we shall know our 
fate soon, and, of course, I will cable you immediately I hear anything. 

You do not know what skillful maneuvering it was that enabled 
him to get his competitors' prices raised ? 

Mr. Spear. I never knew anything about it except what was in 
the letter, just as you read it. 

Senator Clark. Mr. Spear, who was Mr. H. G. Gamble? 

Mr. Spear. "Wliat was his address? 

Senator Clark. The letterhead is the Electric Boat Co., inter-office 
correspondence between H. G. Gamble and S. A. Gardner. 

Mr. Spear. What was it about? 

Senator Clark. It is about a steel patrol boat to be sold to Vene- 
zuela. This was in 1931. 

Mr. Spear. Mr. Gardner is one of my staff at New London. For 
the moment I cannot place Mr. Gamble. Did we have a salesman by 
the name of Gamble? 

Mr. SuTPHEN. We did. 

Mr. Spear. He was one of our salesmen. 

Senator Clark. He says in this letter that he quoted a price to 
Mr. Gamble on this Venezuelan patrol boat of $26,500 and offered a 
commission of $15,000. Was that a very unusual commission simply 
for the purpose of getting a toe hold in Venezuela, or why did j'ou 
offer such a commission? 

Mr. Spear. I think that is a typographical error. It must have 
been $1,500. 

Mr. Carse. How manj^ boats did he have in mind, just one? 

Mr. Spear. Yes. 

Mr. Carse. Of course, that is foolish. 

Mr. Spear. It must be a typographical error. It should be $1,500. 

Senator Clark. Now, Mr. Spear, I read you this morning a letter 
from you to Commander Craven with regard to these Chilean boats 
in which you told him ^''ou did not think it was wise to talk of any- 
thing except British construction and had him make an offer to the 
Chileans. Then, some time later he wrote you about that matter, 
in a^ letter which I will offer as " Exhibit No." 126." 

(Tlie letter referred to was marked " Exhibit No. 126 " and appears 
in the appendix on p. 406.) 

Senator Clark. This letter is dated the 31st of March 1928, and 
says : 

Mt Dfak Spear. I apologise for having taken so long to answer your letter 
of the 28th February, but I wanted to have a talk with Thurston about it. 

First, let me tell you that " Z " has written and asked for a copy of the " O" 
class design to be sent to Fuster. 

Does the " Z " refer to Zaharoff ? 

Mr. Spear. That was Sir Basil Zaharoff. 



MUNITIONS INDUSTRY 197 

Senator Clark (reading) : 

Wo took some fonsirlerable time to deal with the matter, but a hastener came, 
and as the admiralty allowed us to send the design, minus certain secret 
fittinsf.s. we had to agree. I am afraid you will be upset, but it really could not 
be helped. 

What does that refer to? Did he give out some of your confi- 
dential stuff without your permission? 

Mr. Spear. No, sir. 

Senator Clark. What were you going to be upset about? 

Mr. Spear. Upset because this refers to Spanish business. Fuster 
was the managing director of the Sociedad. All that business had 
been done directly by us. to our design. He thought I would be 
up^et if Vickers mixed the thing up by submitting design. 

Senator Clark. Was the " O " class design your design or 
Vickers'? 

Mr. Spear. That was a British design. 

Senator Clark. That was the Vickers' design? 

Mr. Spear. Yes. 

Senator Clark (continuing reading) : 

"With regard to paragraph 2 of your letter, the price is £1.094.000, including, 
of course, all the usual admiralty supplies, wireless, torpedo tubes, etc. It is 
not as good as I hoped for. I have included £10,000 per boat for you, * * • 

That would be only $150,000 on the three boats, would it not? 
•Mr. Spear. I do not know what the exchange was. 
Senator Clark. It was in that neighborhood? 
Mr. Spear. If the exchange was at parity. 
Senator Clark. I read further: 

And the delivery dates in the contract are June. July, and August 1029. 
The whole thing has been most secret, and as Dawson negotiated the final 
contract with the Chief of the Commission in London. I had to accept his 
ruling, that I was not even to mention the mater to you in writing, hence the 
message by Roberts, 

Roberts was the Vickers agent in the United States and a member 
of TOur board of directors. 

Mr. Spear. Yes, sir. 

Senator Clark. So that after promising that he would not com- 
municate the matter to you in writing, he violated the spirit of it by 
sending his agent over to tell you about it. Is that correct? 

Mr. Spear. I don't think so. Senator, as I read it. 

Senator Clark. I read further: 

Even today, we are bound to secrecy, so will you please promise me not to 
let .vour little friends from the other South American country know what is 
going on at pre.sent. 

In other words, he did not want you to tell there had been a con- 
tract from Chile until Chile said you were released from the obliga- 
tion of secrecy. 

Mr. Carse. I don't think so. 

Senator Clark. What does he mean when he says : 

so will you please promise nie not to let your little friends from the other 
Soutli American country know what is going on at present. 

Mr. Spear. He thought that would be injurious to his affairs in 
some way. 



198 MUNITIONS INDUSTRY 

Senator Clark. Reading further he says: 

Delivery, as you will see, is a terribly tight one, and I have heavy iiennlties 
against them, but I am afraid that cannot be helped. 

Mr. Carse. That refers to the bid, I think, because he bid, and we 
were building boats for Peru. 

Senator Clark. Evidently he was afraid you would tell the other 
South American countries about his Chile negotiations, unless he 
got 3^ou to promise not to do it. 

Mr. Carse. Everybody knew it. 

Senator Clark. Reading further, this letter says : 

Regarding paragraph 3 of your letter, I have now been able to have a talk 
with Thurston. 

Thurston was a naval architect associated with Vickers; was he 
not? 

Mr. Spear. He was the chief naval architect with Vickers at that 
time. 

Senator Clark. Reading further he says: 

He tells me it is really rather difficult for him to support your contention 
about the stability of the " C " class. He says that we have nothing in our 
records to support the figures obtained by the Spanish boats, and he would find 
it rather difficult as a naval architect to definitely say they are good for the 
Spaniards. However, he has promised to do what he can if we are consulted." 

What does that mean, Mr. Spear? 

Mr. Spear. That means these boats were designed by us and 
built under our supervision, and in the contract it provided that 
they should have a certain amount of stability measured by what 
the naval architect called " metro centric height." The boats were 
finished, and it came out they had more metro centric height, rather 
than less, and some of these Spanish officers thought under those 
conditions boats would not behave well at sea. In other words, 
there was too much metro centric height. There was nothing in the 
contract as to how much it should be, but simply that it should have 
this limit. 

Senator Clark. Had you written to Craven to find out what 
Thurston's opinion would be if you submitted him figures as an 
authority? 

Mr, Spear. No; they were supposed to consult Vickers as one of 
the technical officers, giving the facts, and I supposed they would 
support what we would say to the Spanish, that the boats would 
speak for themselves, that we had complied with the contract, and the 
stability was not excessive. But I find that Mr. Thurston never 
likes to take any ideas from me about design, hence this attitude. 

Senator Clark. Thurston's attitude was that he did not want to 
risk his reputation as a naval architect on your contention, but he 
would give you the best break he could. Isn't that what he said? 

Mr. Spear. Thurston's attitude was he did not care to take any 
suggestions from me. He thought he knew more about those matters 
than I did, and I did not agree to that. 

Senator Clark. Then he goes on to say further [reading] : 

With regard to paragrnph 4, I wish you the best of luck, and hope you may 
be able to knock out some of your Government dockyards. They seem to be 
even more of a nuisance with you than they are here. 



MUNITIONS INDUSTRY 199 

What did he refer to there? 

Mr. Spear. He meant our efforts to get the Navy Department to 
place some of its orders with other nav^^ j^ards for submarines. 

Senator Clark. Had you referred to these yards as nuisances? 

Mr, Spear. No; that is his expression. 

The Chairman. Certainly the American dockyards would not be 
nuisances to him, would they? 

Senator Clark. No; he says they seem to be more of a nuisance 
with you than they are here. He had had some trouble with the 
Government dockyards in England; had he? 

Mr. Spear. Yes ; some with the Government yards and some with 
private industry. 

Senator Clark. However, he exerted some influence in the ap- 
pointment of the director of dockyards. What is the office of the 
director of dockyards? 

Mr. Spear. I think the director of dockyards had general super- 
vision over the dockyards. 

Senator Clark. He says: 

I wonder whether you have heard that our old friend Percy Addison is now 
the director of dockyards. I helped him all I could to get the job, and I 
think he will be an ideal fellow for it. It means his retirement, but it also 
means his having a permanent job for about ten years if he behaves himself. 

Mr. Spear. I might say for your information the Director of 
Dockyards has nothing to sa}^ about what ordeis will be placed in 
Government dockyards or in the private industries. He is respon- 
sible for the operation only when the Admiralty says you are to 
do so and so. Then, the responsibilitv passes to him. 

The Chairman. He says here, if he behaves himself he could 
have it for 10 years. Who would he have to satisfy? 

Mr. Spear. He would have to satisfy the Admiraltj'^ authorities. 

The Chairman. And not Mr. Craven necessarily? 

Mr. Spear. No; not Mr. Craven. 

Senator Clark. Now, Mr. Spear, I call attention to a letter dated 
August 6, 1928, which I offer as " Exhibit No. 127 ", from you to 
Admiral Craven. 

(The letter referred to was marked " Exhibit No. 127 " and appears 
in the appendix on p. 407.) 

Senator Clark. The first paragraph of this letter, " Exhibit No. 
127 ", seems to have to do with Vickers securing for you certain 
patent rights in England on a new compensating system for fuel oil. 
Was Vickers your agent in Europe for that sort of business? 

Mr. Spear. They did not do the actual patent work; no. 

Senator Clark. They had suggested to you new patent protection 
in England, and you acted on that suggestion, 

Mr. Spear. Yes. 

Senator Clark. I am interested in this language in this letter, Mr. 
Spear as follows: 

It is too bad that the pernicious activities of our State Department have put 
the brake on armament orders from Peru by forcing the resumption of formal 
diplomatic relations witli Chile. My friends advise me that this gesture 
means tliat all contemplated orders must go over until next year. 

And did you regard it as a calamity when the United States State 
Dei^artment was able to bring about the resumption of diplomatic 
relations between Peru and Chile and prevent a war? 



200 MUNITIONS INDUSTRY 

Mr. Spear. No; I certainly regartled at the time it would have a 
bad irifluence on our negotiations. I did not think they would 
proceed. 

Senator Clark. You regarded the activities of the State Depart- 
ment in attempting to preserve peace and improving diplomatic 
activities in South America as pernicious? 

Mr. Spear. That is the word I used. 

Senator Clark. You also say : 

This hitch also means that we must not delay too long" in i^etting Aubry 
back on the job in Lima. 

What was Aubry going to do since the diplomatic relations had 
been resumed, was he going to bring them U]) again? 

Mr. Spear. No; it meant conditions would be more difficult and 
he would have to get back there. 

Senator Bone. What do you think he might have done to inter- 
rupt these diplomatic relations in any way? 

^Ir. Spear. Senator, I do not think he could have done anything. 

Senator Bone. What do you think he might have done? 

Mr. Spear. I might have told what he might have tried to do. 

Senator I'«one. What do you think he would have tried to do? 

]\Ir. Spear. Senator, I do not think he could have done anything. 

Senator Bone. What do you think from your experiences he might 
have done? 

Mr. Spear. I could tell you what he might have tried to do. 

Senator Bone. What do j^ou think he would have tried to do? 

Mr. Spear. I do not think he would have tried to do anything, 
because he was too sensible a man to try it. But I think he might 
have tried to persuade the authorities that the mere resumption of 
tiiplomatic relations would not solve their problems, and persuade 
them to go on with the plans they had in mind. I think that is 
what he would have done. 

Senator Bone. As one member of the committee I am wondering 
whether the building up of a larger Navy and a larger force would 
aid diplomatic relations or whether it might thwart diplomatic 
measures. 

Mr. Spear. Diplomatic methods are fine when they w^ork. 

Senator Bone. At least when they work, they work. We had a 
war not long ago, and it did not work ai all, we are worse now 
than we were before the war. Am I correct in that? 

Mr. Spear. I think so. 

Senator Bone. I am happy you agree with me in that conclusion. 

Senator Clark. Mr. Spear, I bring to your attention this letter 
dated the 8th of February, 1929, addressed to you from C. W. 
Craven, which I oifer as "Exhibit No. 128." 

(The letter referred to w^as marked " Exhibit No. 128 ", and ap- 
pears in the appendix on p. 407.) 

Senator Clakk. In this letter, Mr. Spear, Admiral Craven thanks 
you for sending him copies of the instruction books which were 
issued by you relating to the TI type of submarine for Chile and 
the II type of submarines for Peru. That would indicate at the 
same time Vickers was selling submarines to Chile, and j^ou were 
selling submarines to Peru possible adversaries, you and Vickers 
were collaborating on the instruction books you and Vickers would 
use on those submarines. 



MUNITIONS INDUSTRY 201 

Mr. Spear. He knew we had had experience in preparing for 
Spanish people a book of instruction on what they should do, and 
he wanted that as a guide for his book. They have different ways of 
looking at things, and instruction books for them are quite different 
from what you would write for English peoi)le, with more sea-far- 
ing experience. 

Senator Clark. Now, during this year 1929 there was some cor- 
respondence between you and Commander Craven indicating some 
apprehension about the result of the movement for limitation of 
armaments, was there not? 

Mr. Spear. I think there was. 

Senator Clark. I call your attention to a letter from Commander 
Craven dated July 13, 1929, which I offer as " Exhibit No. 129." 

(The letter referred to was marked "Exhibit No. 129", and ap- 
pears in the appendix on p. 408.) 

Senator Clark. In " Exhibit No. 129 " Commander Craven says : 

Your note regarding the limitation of armaments is very interesting, and 
I can assure you I am extremely anxious about some of our present contracts. 
Although the papers say that certain submarines have been cancelled, nothing 
has yet taken place although there is always a possibility of it happening. 
However, we shall know our fate within the next week cr two and if I hear 
anything I will at once let you know. 

Were j^ou apprehensive too about the result of those movements 
for limitation of armament? 

Mr. Spear. I was not particularly apprehensive, because I did not 
think the situation would permit an agreement which would do more 
than limit the tonnage of submarines. I did not think there was 
a possibility diplomatically of carrjdng out any abolition of sub- 
marines on account of the position of France and Japan. There 
was a proposition of limiting the tonnage, and eventually they 
did that. 

Senator Clark. He was naturally apprehensive of any limitation 
of armament was he? I mean Commander Craven. 

Mr. Spear. He was in a worse position than I was, because he had 
contracts, and if they had a limitation, those contracts would be 
canceled. 

Senator Clark. He, also, or his company, manufactured other 
arms. 

Mr. Spear. His company did. and we did not. 

Senator Barbour. With the Chair's permission I would like to 
ask a rather academic question of the witness, and I do not care 
which one of the three answers it. But which question I think 
important as far as the committee's point of view is concerned, but 
perhaps not so important so far as this particular instance is con- 
cerned or this com])any. On tlie basis of the methods wliich have 
been disclosed by this correspondence here, wise or unwise, whether 
necessary or otherwise, I wonder whether in the light of this dis- 
closure at a public hearing two things may result: One, whether 
you feel that you can sell your product in the future, and, secondly. 
if you cannot, whether in your opinion someone else can do so. 

Mr. Spear. I assume, Senator, the fact that these intimate details 
and correspondence appear in public would naturally have a ten- 
dency to cause our European and South American friends to say 



202 MUNITIONS INDUSTIiy 

we will not do business with them, because you can never tell 
when tlie details of your business will be revealed, and how much. 
It would be much more difficult to obtain foreign orders on that 
account. The other part of question was what? 

Senator Barboue. Now, that was assuming this disclosure made it 
impossible for you, whellier justili;d)le or not, to get the character 
of business you enjoyed before, assuming this lost to you because 
you are here and this correspondence has been disclosed and ques- 
tions liaving been asked and answered, whether someone else is 
going to get that business. 

Mr. Spear. Oh, yes; certainly, all of that business would go to 
the European firms that specialize in it. 

Mr. Kaushenbush. Mr. Spear, may I supplement that? Of 
course, Vickers is not one of tlie firms that are directly comi)etitive 
with you, but if they get the business, you still get a royalty on it. 
But, leaving them- out and just considering the Italians and the 
French as possible competitors 

Mr. Carse. And the Germans. 

Mr. Hausiiexbush. You say the Germans are coming back in 
the Dutch companies, under German control? 

Mr. Spear. Yes; they have started it already. 

Mr. Kaushenbush. If the Dutch Govei-nment, the French Gov- 
ernment, and the Italian Government go into their affairs, then all 
of those companies will be on a par too, because it seems to indicate 
the foreign firms have done pretty much the same, or more so than 
you have. 

Mv. Spear. I presume those foreign companies have been seeking 
business. 

Mr. Kaushenbush. And in cases they have taken it away from 
you ? 

Mr. Spear. Yes ; they have taken it away from us. 

Senator Barbour. Mr. Chairman, I do not want to be put in a 
position that I am not in sympathy with this committee, nor do I 
want to be put in a position where I am in sympathy with what 
has been revealed here, but we have started a series of hearings, 
and I want to know whether that will be detrimental to the Ameri- 
can manufacturer. 

Mr. Spear. In my judgment it will be. 

Senator Barbour. Or whether it will be in the whole field of these 
undertakings, and not simply at the cost of the American manu- 
facturer. 

Mr. Spear. To answer 3'our specific question, my own judgment is 
it will make it exceedingly difficult for us or anybody else in the 
same position to negotiate with any real prospect of success for 
foreign orders for a long time. That would be my judgment. 

Senator Barbour. Other countries are not holding these same 
investigations. 

Mr. Spear. No ; this is the first one I know of. 

Senator Barbour. I do not say that I am in sympathy with the 
way in which you have conducted your business and I am not passing 
on the facts at all, whether it is necessary or unnecessary. The testi- 
mony has been very well presented and the picture very well j^ainted, 
but I am interested from the point of view of this committee of which 



MUNITIONS INDUSTEY 203 

I am a member, on what we are ultimately going to accomplish, and 
that is why I asked 5'ou as to what you felt will be the result of 
your having testified as you have been requested to do. 

Mr. Spear. That is my feeling really, just what I told you. Natur- 
ally these European matters are dealt with with some confidence, and 
if they feel their negotiations are going to be made a matter of pub- 
licity, I should judge they would go to some other country where 
it is not so made. 

Mr. RAUSHENBrsH. For my own curiosity, along the same line, j^ou 
will probably notice we have been scrupulous to bring out where 
your Italian, French, or Dutch competitors have entered into the 
same thing. Now would you not prefer to have this whole method 
of getting business abroad changed, and go back to the simple 
method of getting business on quality ? 

Mr. Spear. Oh, yes. 

Mr. Raushenbush. And if this does occur through the testimony 
with regard to Vickers or later testimony that comes out with regard 
to the Italians or things done by other governments, perhaps even 
the so-called "■' League of Nations " going into the matter, and the 
whole price and competition system is changed in that way, you 
would appreciate it very much? 

Mr. Spear. I would regard it as a distinct improvement all around. 

The Chairman. Mr. Sutphen, you called my attention to the ex- 
istence in today's Washington Times of a dispatch from London 
dated September 6th being an International News Service dispatch 
which 5^ou thought in the light of what was developed yesterday 
ought to be printed in our record. 

This dispatch says : 

London, September 5, (I.N.S.) — The British Government fully approved ne- 
gotiations between the munitions firm of Vickers, Ltd., and the Electric Boat 
Company of America regarding submarine construction, Comdr. Sir Charles W. 
Craven, managing director of Vickers, announced today. 

In a brief statement, Sir Charles paid tribute to the ingenuity of American 
submarine designers and manufacturers. Letters written by him figured in the 
testimony introduced in Washington yesterday before the Senate committee 
investigating munitions contracts. 

If there is no objection on the part of any member of the com- 
mittee I would also ask that there be inserted a dispatch from Lon- 
don printed in the Washington News of toda}'' again quoting Sir 
Charles Craven, among other things that he says, the British Gov- 
ernment knew all the time about the existence of the contract between 
the Electric Boat Co. and Vickers. However, it appears from 
dispatches which are also coming from London that the people of 
Britain have known absolutely nothing about it, and that it was a 
very positive surprise to them. Let that dispatch be printed in the 
record as follows : 

London. — Vickers-Armstrong, powerful British munitions firm, S'r Basil 
Zaharoff, the world's m.ost noted salesman of weapons, and the Electric Boat 
Co., American submarine builders, were admittedly linked today in a general 
scheme to split the world's businet's in undersea boats, by Comdr. Charles W. 
Craven, a Vickers executive. 

Questioned regarding the disclosure before the U.S. Senate's investigating 
committee that Zaharoff had been paid $2,000,000 by the American concern, 
Craven said that an agreement between Electric T^oat and Vickers had been 
operative 35 years. 



204 MUNITIONS INDUSTRY 

" The agreement was drawn up 5 years ago ", he said, " with the full knowl- 
edge of the British Goveninicnt. The Ele^rtric Boat Company produced designs 
for the first practical suhniarine, and hruught the first order to Vicliers-Arm- 
strong. Since tiien we liave always iionored the company patents." 

It was pointed out that the Electric Boat Co., which has its phmt at Groton, 
Conn., for years has advertised itself as rotidy to supi)ly suimiarines to any 
nation. Tlie most recent publication of " Jane's Figliting Shiiis ", a British 
publication, displays a full-page advertisi'ment in which the comitany announces 
it has built submarines for: United States, Great Britain, Japan, Italy, Hol- 
land, Russia, Spain, Austria-Hungary, Denmark, Norway, Peru, (Jhile, and 
Canada. A total of 3!J4 undersea ships had been constructed by the company 
up to the time of the present i)ublicalion. 

The Chairman. We will have to ask the witnesses to appear again 
at 10 o'clock tomorrow morning. We had hoped that we were going 
to get through with them this afternoon, but we are going to be here 
late if we do. I am going to strive earnestl}^ to get through by noon 
tomorrow. 

The committee will stand recessed until 10 o'clock tomorrow morn- 
ing- 

(Thereupon the committee recessed until 10 o'clock a.m. tomorrow^ 

Thursday, Sept. 6, 1934.) 



I 



MUNITIONS INDUSTRY 



THUBSDAY, SEPTEMBEE, 6, 1934 

United States Senate, 
Special Committee to Investigate 

THE Munitions Industry, 

Washington, D.C. 
The hearing was resumed at 10 a.m., in the caucus room, Senate 
Office Buildino-, pursuant to the taking of recess, Senator Gerald P. 
N5^e (chairman) presiding. 

Present: Senators Nye (chairman), George, Clark, Bone, Pope, 
Vandenberg, and Barbour. 

Present also: Stephen Raushenbush, secretar}'-, and Robert Wohl- 
forth, assistant to chief investigator. 

The Chairman. Let the committee be in order. Of course, the 
reporter will note the presence of the seventh member of the com- 
mittee this morning. Senator Vandenberg. 

FUKTHEE TESTIMONY OF HENKY R. CARSE, LAWREImCE Y. 
SPEAR AND HENRY R. STJTPHEN 

RELATIONS WITH ZAHAROFF AND SPAIN 

Senator Clark. Mr. Spear, in 1916 jou arranged to have two 
officers of the Spanish Navy taken through an American submarine 
at the Boston Navy Yard, did you not? 

Mr. Spear. I think so. 

Senator Clark. I will direct your attention to a memorandum 
to vou, dated February 1, 1916, the memorandum being signed b'/ 
S. B. Smith. Who is S. B. Smith? 

Mr. Spear. S. B. Smith at that time was in our employ as a trial 
captain. 

Senator Clark. Was it not against the law or against the regu- 
lations to take officers of a foreign navy through an American sub- 
marine without disclosing that fact at that time? 

Mr. Spear. I think you will find, Senator, that those matters are 
all taken care of by being referred to Washington, as to whether 
or not thej'^ are allowed to go. That is the practice now anyway. 

Senator Clark. What I am getting at, Mr. Spear, is this, and I 
direct j^our attention to this memorandum again; it says: 

At 9 : 00 a.m. on January 31st I met Captains Carranza and Garcia, of the 

Spanish Navy, at tlie Pai'ker House, Boston, by previous npiJointment. 

I expressed Mr. Davison's regret that he way unable to he presput. 

Previously, requests for passes had been obtained signed jointly, as is 
customary, by Mr. Gardner 

Who is he? 

Mr. Spear. Mr. Gardner was then one of our engineers. 

8.3876— 34— PT 1 14 205 



206 MUNITIONS INDUSTRY 

Senator Clark (continuing reading) : 

and a Fore River Co. official. 

]\Ir. Spear. Yes, sir. 
Senator Clark (reading) : 

TIie.se requests referred to Mr. S. B. Smith, of the Electric Boat Company, 
and two assistants. 

Mr. Spear. Yes, sir. 

Senator Clark. Why was the request made in that way? 

Mr. Spear. I do not know. I do not think that was the proper 
way to do it. 

Senator Clark (continuing reading) : 

We wont to tlie Boston Navy Yard, whore the commandant's aide infonuod 
me that the captain of the yard, Commander Haswell, handled such matters 
personally. 

Mr. Spear. Yes, sir. 

Senator Clark (continuing reading) : 

Commander Haswell gave nie the necessary order to Mr. Roth and we went 
on hoard the boats. During our visit these two officers were not recognized. 

Mr. Spear. Yes, sir. 

Senator Clark. Why was there necessity for this surreptitious- 
ness if the matter had been referred to Washington and the matter 
was disclosed? 

Mr. Spear. I know of no reason for surreptitiousness. The boats 
were not American boats, you understand. 

Senator Clark. What were they? 

Mr. Spear. They were the vessels about which I told you yester- 
day, which were interned in the Boston Navy Yard, which were 
built originally for the British Admiralty, and it was not a matter 
in which the United States Goverimient was interested. 

Senator Clark. You think your officials simply went out of the 
way on this matter of surreptitiousness? 

lifr. Spear. I certainly do. There was no reason for them being 
surreptitious. 

Senator Clark. I offer that memorandum as " Exhibit No. 130." 

(The memorandum referred to was marked " Exhibit No. 130 " 
and appears in the appendix on p. 408.) 

Senator Clark. I now offer as " Exhibit No. 131 " a letter under 
date of January 9, 1920, being a letter from Mr. Carse to Mr. Spear. 

Mr. Carse, as far back as 1920 you were objecting to the payment 
of the 5 percent of the selling price on the Spanish business to 
Zaharoff, were jaut not? 

Mr. Carse. I do not know. I do not recall. 

Senator Clark. You said the business would not stand it and it 
was not justified. 

Mr. Carse. It is a long while ago. 

Senator Clark. I will read that letter into the record [reading] : 

Exhibit No. 131 

January 9, 1920. 
L. Y. Spear, Esq., Vice President, 

Groton, Conn. 

Dear Mr. Spear: I have yonr letter of the 5th instant in regard to business 
in Spain, and it seems to me thnt the payment of 5 percent of the selling price 
\(i Zaharoff is a very onerous burden and one which I do not believe the business 



MUNITIONS INDUSTRY - 207 

can or should st:ind. Such agreements were entered into many years ago at 
a time when the business expected was very small volume and the actual 
costs were low. Now, when business presents in large volume and the costs are 
high the addition of such burden tends to prevent any business being con- 
sumated. especially when it is such an excessive charge. I think this is one 
of the things we must have in mind to take up and secure modific.-ition of, 
because I do not believe originally or fundamentally there is any basis for 
such allowance. It is simply one of those things these people secured from 
Mr. Rice when he was giving up everything they asked for. 

Now, in regard to joining in the construction of such boats and the furnish- 
ing of material, I ihink we should make a very careful unbiased study of the 
material we are to furnish, put aside any pride of opinion and give machinery 
that operates without having to go through all the children's diseases that 
have been experienced in the past. 

I hear from very many sources that the real trouble with the S engine is 
that the crank shaft is not heavy enough, and I certainly would not consider it 
wise to ship machinery abroad with any defect known to us. If there are 
any other questions that have arisen I think we should also work there on 
the safe side. 

Yours very truly, 

Signed Cakse. 

When you referred to Mr. Rice in that letter, Mr. Rice was your 
predecessor as president of the Electric Boat Co., was he not, Mr. 
Carse ? 

Mr. Carse. Yes, sir. 

Senator Clark. Had you had any trouble with the vessels being 
furnished to Spain, Mr. Carse? 

Mr. Carse. Not that I know of. 

Senator Clark. Where did you get this information about the 
trouble with respect to the S engine? 

Mr. Carse. We had built an engine for some boats for the United 
States Navy, which they thought were not quite heavy enough. 

Senator Clark. You expressed a very clear opinion in this letter, 
Mr. Carse, with respect to those that Sir Basil Zaharoff had bilked 
in the original contract. 

Mr. Carse. It does not say " bilked." 

Senator Clark. You say that it was an unjustifiable payment 
granted at the time that Mr. Rice was giving up everything they 
asked for. I do not wish to quibble with you about terms. You say 
that the commission was not justified and was given by Mr. Rice at 
the time he was giving up everything they asked for. -What did 
you do about cutting down that commission? 

Mr. Carse. The newspapers in this country and all over Europe 
are using your words as coming from me. I do not want to use 
words that I never had in mind, I was trying to reduce all of our 
expenditures that I could, and in 1920 

Senator Clark. Just a minute, Mr. Carse, if you please. So that 
there will not be any possible misunderstanding as to the use of 
words, I will simply repeat your own words as the basis of my ques- 
tion. You say: 

I do not believe originally or fundamentally there is any basis for such 
an allowance. It is simply one of those things these people secured from Mr. 
Rice when he was giving up everything they asked for. 

What did you do about reducing that commission ? 
Mr, Carse, That was my opinion. Whether my opinion was a 
good one or not is, of course, open to question. 



208 MUNITIONS INDUSTRY 

Senator Clark. Yes, sir; but did you take any steps to back up. 
your opinion'^ 

Mr. Cause. Yes, sir; I discussed it. 

Senator Clark. With whom? 
• Mr. Carse. With Sir Basil Zaharoff in 1924. 

Senator Clark. What did he say? 

Mr. Carse. He said that it was a proper allowance to make. 

Senator Clark. Did he convince you that it was the proper 
allowance? 

Mr. Carse. Yes, sir. 

Senator Clark. Now, by 1924 .there was in Spain a Sociedad 
Es])anola de Constructora Naval, was there not? 

Mr. Carse. That was the concern 

Senator Clark. Which was protesting to you at that time against 
the terms which you and Vickers were making with them. Is not 
that correct? 

Mr. Carse. It may have been. Ever3^body always tries to get all 
they can and everybody tries to pay as little as they can. 

Senator Clark. Who is Mr. Ernest B. Sansom of London, ad- 
dressed to London? 

Mr. Carse. I do not know. 

Senator Clark. I direct 5?our attention to a letter dated June 5, 
1924, addressed to Ernest B, Sansom, Esq., London, signed by N. F. 
on behalf of the Spanish company, which I will ask to have marked 
" Exhibit No. 132." 

(The letter referred to was marked " Exhibit No. 132 " and appears 
in the appendix on p. 409.) 

Senator Clark. Do you know who " N. F." was, Mr. Spear, writ- 
ing on behalf of this Spanish company? 

Mr. Spear. In this letter which I have here? 

Senator Clark. Yes, sir ; signed simply by the initials " N. F." 

]Mr. Spear. No ; I do not know, sir, who " N. F." could have been. 
You are referring to a letter written to Mr. Sansom on June 5, 
1924? 

Senator Clark. Yes, sir. It refers to your business and a copy 
of it, which I have, was taken from your files, so evidently it was 
called to your attention. 

Mr. Spear. I do not think it has ever been called to my attention, 
that I remember, but I do not know what official those initials 
" N. F." stand for. 

Mr. Raushenbusii. Would not that be Fuster? 

Mr. Spear. Nicholas Fuster; yes, sir. 

Mr. Raushenbusii. He was president of the Constructora Naval. 

Mr. Spear. He was managing director. 

Senator Clark. Mr. Sansom was probably connected with Vickers 
because they are mentioned in the letter, of which you were furnished 
a copy. 

Mr. Spear. I do not know that, Senator, but I know they had a 
London board in addition to the Spanish board, a sort of advisory 
board in London, and I should judge that Mr. Sansom, whose name 
is referred to here in connection with Vickers, was probably a 
member of that board. 

Mr. Carse. I do not know. I never heard of him. 



MUNITIONS INDUSTEY 209 

Senator Clark. This letter says on the bottom of page 1 the fol- 
iUawing, Mr. Spear: 

When I was in England in tlie montli of June of last year, tlie question 
"was brought forward in the terms which you perhaps are familiar with, and 
Sir Trevor Dawson and Lieut. Spear of the E.B.C. delivered to ms a "Rough 
draft", of which I include a copy herewith, (document A) ; also send enclosed 
« copy (document B) in which are set forth the amounts which we would 
have to pay the E.B.C. and to Vickers, Ltd., if we made with both firms 
the contract which they proposed to us. This proposition could not be ac- 
cepted by our .society, and in order that you may t-ee that it is completely un- 
acceptable, I include a statement which we have made out (document C) in 
which we have sought to apply the '" Rough draft " to various assumed cases 
of estimates for submarines. Also I am sending you (document D) a note 
in which is explained the intention (or basis V) on which we have prepared 
the above mentioned statement. 

Was this contract afterward entered into in spite of the objections 
of the Spanish company? 

Mr. Spear. I think on modified terms. That is a matter of recol- 
lection, Senator, and I have not looked it up, but my recollection is 
that the terms ^vliich we proposed were not acceptable to them and 
they proposed different terms and we finally reached an agreement. 

Senator Clark. They told you at that time, did they not, Mr. 
Spear, that the prices which had been charged by them, by this 
Spanish company in Spain, had been so high that they had attracted 
the competition of another Spanish firm known as the " Union Naval 
de Levante ", a rival firm using Krupp plans'^ 

Mr. Spear. Yes, sir. 

Senator Clark. And suggested that you ought to reduce your 
price or the competition would put them out of business? 

Mr. Spear. It appears in that letter ; yes, sir. 

Senator Clark. Who is this Captain Fuster? What does he 
mean by referring to you and Vickers as guaranteeing firms? 

Mr. Spear. We guarantee the technical results. 

Senator Clark. In other words, it is the technical end you guar- 
antee and not the financial responsibility? 

Mr. Spear. We do not guarantee the financial responsibility. 
That is his own business. He makes his own prices and does his own 
■dealings, but we are responsible for the technical performance. 

Senator Clark. That is the guarantee to which he refers? 

Mr. Spear. That is the guarantee to which he refers. 

Senator Clark. Now, Mr. Spear, in 1925 j^ou were expecting an 
income from six Spanish boats, on which the income of your firm 
would be $1,750,000, after you had taken care of Zaharoff's 5 per- 
cent, were you not? 

Mr. Spear. I cannot remember the figures. If you have the record 
there, all right. 

Senator Clark. To refresh your memorv. I will offer as " Exhibit 
No. 133 " a letter from you to Mr. Carse, dated July 16, 1925. 

Mr. Spear. Yes, sir. ^ 

(The letter referred to was marked " Exhibit No. 133 " and appears 
in the appendix on p. 410.) 

Senator Clark. In that letter, marked " Exhibit No. 133 ", you 
say in part as follows : 

Vy'lien I broached the idea, I had in mind the profits on the six C boats, but 
before dealing with that it may perhaps be well to refresh your mind as to the 



210 MUNITIONS INDUSTRY 

six B boats. We have had an accounting on four of these, and while we think 
we have not received everything that is due us on them, the whole situation is 
quite hazy and there is no certainty that we will ever receive anything more. 

In other words, 5'ou had an idea at that time that you Avere being 
short-clianged by the Spanish Government, did 3'ou not, ]\Ir. Spear? 

Mr. Spear. Not by the Spanish Government. 

Senator Clark. The Spanish company. 

]\Ir. Spear. I would not say " short-changed." 

Senator Clark. You did not think you were getting everything 
you were entitled to ? 

Mr. Spear. I thought our accountant might go over the accounts 
and find we were entitled to a little more. 

Senator Clark (continuing reading) : 

Turning now to the six C boats, the contract jirice of these is 13,186 pesetas 
each and the lowest estimated gross profit per boat (after taking care of 
Zedzed's 5%) 

That was Zarahoff, was it not? 
Mr. Spear. Yes, sir. 
Senator Clark (reading) : 

is a little over 4,000,000 pesetas, so that our anticipated minimum total income 
from the six boats is $1,750,000. 

Did you collect that $1,750,000, Mr. Spear? 

Mr. Spear. No, sir. What was eventually done was this: These 
boats to which they refer now were never settled on the basis of 
the old contract. We arranged a modification of the contract under 
Avhich they paid us a fixed percentage of the contract price. Instead 
of dividing what profits there might be, when they were through 
with construction, it was changed into a royalty percentage. 

Senator Clark. At that time you were contemplating using those 
prospective profits as the basis for a loan on which you expected or 
hoped to have the help of Sir Basil Zarahoff. Did you ever go 
through with that transaction? 

Mr. Spear. No, sir. 

Senator Clark. Now, Mr. Spear, I will ask you to direct your at- 
tention to '• Exhibit No. 134 ", being a letter from you to Mr. Carse, 
dated October 24, 1929. 

(The letter referred to was marked " Exhibit No. 134 " and appears 
in the appendix on p. 411.) 

Senator Clark. In that letter of October 24, 1929, Mr. Spear, you 
i-eferi'ed to the financial aid which the Sociedad, which was your 
Spanish associate, has been rendering to the Government, and ex- 
pressing the hope that you did not believe there was any real danger 
in view of tlie money vrliich the Sociedad had loaned the Spanish 
Government, of the order going anywhere else. 

What do you knovf about the money advanced to the Spanish 
Government by this armament concern? 

Mr. Spear. I do not think they advanced any money. 

Senator Clark. What did you refer to as financial aid, Mr. Spear? 

Mr. Spear. They had undertaken to do some work for the Gov- 
ernment with deferred pajmients. 

Senator Clark. That is the " financial aid " to which you re- 
ferred ? 

Mr. Spear. That is what I had in mind ; yes, sir. 



MUNITIONS INDUSTRY 211 

Senator Clark. Now, Mr. Carse, I will ask you to refer to " Ex- 
hibit No. 135 ", being a letter from you to Mr. Spear, dated December 
9, 1932. 

IVIr. Carse. Yes, sir. 

Senator Clark. By that time it had become clear to you, had it 
not, Mr. Carse, that the Spanish concern, the Sociedad, was com- 
pletely under the influence of Vickers and would do anything that 
Vickers wanted them to do, because the Spanish concern owed money 
to Vickers? 

Mr. Carse. I had so understood. 

Senator Clu\rk. So that you had the situation of the Spanish Gov- 
ernment having to give its business to the Sociedad because the 
Spanish Government owed money to the Sociedad, and of the Socie- 
dad being under the influence of Vickers because it owed money to 
Vickers ? 

Mr. Carse. Well — that is all right. 

Senator Clark. I will read you this letter in full : 

Exhibit No. 135 

December 9, 1932. 
Mr. L. Y. Spear, 

Vice President Electric Boat Co., 

Groton, Conn. 

Dear Mr. Spe^vb : I have your letter of the 6th with copy of one from Colonel 
Fuster advising that Sociedad Espanola has secured a contract with the 
Spanish Government for tlie construction of one new submarine boat, and it 
certainly is very nice to know that he expects to proceed as with provious 
boats. 

I note what you say about the question raised by Commander Craven regard- 
ing the percentage that should accrue to us. and that is like our dear com- 
mander, for you understand that lie lias become vice president or officer of sim- 
ilar title of the Sociedad Espanola and that the Sociedad owes Vickers large 
sums of money, so that he is looking after his interest very promptly. They 
certainly intruded into our Spanish arrangement at the time we had to make 
the last adjustment, but I certainly consider that we should hold out against 
any further reduction. 

I trust our new engine may prove very successful and that we will be able 
to show them the superiority. 
Yours very truly, 

Henry R. Carse, President. 

How did Vickers intrude into your arrangements with Spain? 

Mr. Carse. Mr. Spear can tell j^ou. 

Mr. Spear. I can perhaps tell you better. Senator. In the be- 
ginning of all this Spanish business, the first contract, we were the 
sole licensors of the Spanish compan}^ When that contract was 
drawing to a close it was replaced by a contract under which both 
Vickers and ourselves became their licensors, so that they could ob- 
tain their technical information from either of the two firms which 
they desired, and that is what Mr. Carse had in mind in saying that 
they intruded into our business, into what had originally been our 
exclusive business. 

Senator Clark. You felt that they had intruded in on you ? 

Mr. Spear. Mr. Carse thought so, evidently. He wrote it. 

Senator Clark. You thought that they had been able to do that 
because the Sociedad owed a large amount of money to Vickers, and 
you found that Commander Craven had recently become an officer 
in the Sociedad? 

Mr. Carse. Of course. 



212 MUNITIONS INDUSTRY 

Senator Clark. So that in 1933 you complained to Sir Basil Zaba- 
rolf about the whole thing, did you not? 

Mr. Cak.se. Did I? 

Senator Clark. As to the conduct of the Sociedad. 

Mr. Carse. In 1933? 

Senator Clauk, October 11, 1933; yes, sir; in a letter from you, 
Mr. Carse, to Sir Basil Zaharofi', which I will ask to have marked 
" Exhibit No. 136." 

Senator Clark. That letter reads : 

De-\e Sir Basil: I tiust that you are enjoying very good health, notwith- 
standing the reports that appear in tiie i)apers from time to time of your 
being luaisposea, and that you will continue to be active in your numerous 
affairs for many years to come. 

In fact, reports appeared from time to time that he was dead, 
did they not? 

Mr. Carse. All sorts of things. 
Senator Clark (reading) : 

On September 21st we received a letter from the Sociedad Espanola, of 
which the enclosed is a translation. You will note that nothing is said about 
the five percent of the contract price heretofore remitted to us and by u» 
transmitted to you, and that they advise of a payment to us of one and one- 
half percent instead of three and one-half percent. According to our contract, 
the one and one-half was to have been paid to us if they should build sub- 
marine boats not of our design or related to any advice or information we 
might give in relation to the construction of the boat. As a matter of fact, 
we have supplied at the request of Sociedad, valuable information and assist- 
ance, and tiieir plans were modified in a number of respects in accordance 
with our advice. On November 25, 1932 Captain Fuster wrote us that " we 
shall proceed in accordance with your good selves and Messrs. Vickers-Arm- 
strong during the construction of same." In addition, our technical people 
advise that undoubtedly the Sociedad necessarily are making use of seven of 
the Spanish patents of the Electric Boat Company relating to submarine-boat 
construction. Vv'e have communicated with Commander Craven in regard to 
the subject and he cabled us on October 6th '"After meeting Spanish directors 
am convinced that best advice I can give you is to accept their offer regarding 
submarine royalty." 

That was when Craven was both an officer of Vickers and an 
officer of the Sociedad, was it not? 
Mr. Spear. Yes, sir. 
Senator Clark (continuing reading) : 

As this connection with the Sociedad was arranged years ago through your 
good self, we have not replied to their comnmnication of September 11th until 
we could communicate with you and receive your advice and instructions on 
the subject. 

With the highest esteem and ))est wishes for your continued good health, in 
which Mrs. Carse joins me, I remain. 
Very sincerely yours, 

H. R. Carse3, President. 

What did Sir Basil tell you when you applied to him for help and 
instruction ? 

Mr. Carse. He told me to send on the money, and I wrote him an- 
other letter in further explanation, and I suppose his secretary did 
not understand the matter. 

Senator Clark. You had already told him in this letter that you 
did not have the money and they had not paid you his cut. 

Mr. Carse. I think most of Zaharoff's correspondence now, and so 
forth, is conducted by his staff in his office. Sir Basil Zaharoff is_85 
years old. We did not pay him any money. 



MUNITIONS INDUSTRY 213 

Senator Clark. Did he give you any advice as to what 3'ou should 
.Jo about this arrangement with Spain, which was the subject on 
vvhich you asked him for advice and instruction ? 

Mr. Cakse. He did finally. I wrote him further and sent him more 
detailed information, and he advised us to agree to accept the 1^- 
percent payment, which we did, and we have not received it. 

Senator Clark. You never got the rest of your mone}'^? 

Mr. Carse. No ; and perhaps now we won't. 

Senator Clark. You did not think that you could interfere 
directly in the Spanish business as long as Sir Basil was alive, did 
you. Mr. Carse? 

Mr. Carse. Of course not. Sir Basil had handled the matter. 

Senator Clark. And even if they breached the contract with you, 
as to what j-ou were entitled to under the contract, if Sir Basil did 
not choose to act, there was nothing you could do about it? 

Mr, Carse. What can you do in a foreign country 

Senator Clark. You had to accept the 1% percent as what they 
choose to pay? 

Mr. Carse. What can you do in a foreign country? You have to 
depend on the good faith of the people with whom you are dealing, 
and nothing else. It would be rather absurd for an American con- 
cern to bring an action of some kind in a foreign court, except Eng- 
land, against anybody who is a resident of that foreign country. 

Senator Clark. So that you were without help in the matter? 

Mr. Carse. You have to get down to practical matters. 

Senator Clark. This is a very practical matter, is it not, Mr. 
Carse? 

Mr. Carse. Like any other business. It is not any different than 
any other business, Senator. 

Senator Clark. Now, Mr. Spear, I direct your attention to " Ex- 
hibit No. 137 ", being a letter dated the 14th of March 1934 from 
Commander Craven to you. 

(The letter referred to was marked " Exhibit No. 137 " and appears 
in the appendix on p. 412.) 

Senator Clark. This letter, which has been marked " Exhibit No. 
137 ", reads as follows : 

Naval Construction Works. 
Barrouy-in-Fwness, March 14, 1934. 
Personal and confidential. 

L. Y. Speae, Esq.. 

Electric Boat Co., 

Groton, Conn., U.S.A. 

My Dear Spe.\r : I am awfully sorry that I ne,£rlected to answer your letter 
of the 9th February, reference 12r)9/283/LTS, and that you therefore have to 
send me a shakeup on the 28th February. I have wired you this morning as 
follows : 

"Apologize my neglect answering your letter 9th February. Consider your 
proposals paragraph three for payment for work done reasonable. Leave you 
to approach Sociedad in view my dual position. Writing." 

As I am deputy chairman of the Sociedad — and I can assure you that I am 
having plenty of difBculties with them by virtue of that position — I should 
much prefer that you should take up the question under discussion. If it is 
referred to me. as I think it will be, I shall say that I consider your proposal 
very reasonable. 

To what did that refer, Mr. Spear ? That was in this year. 



214 MUNITIONS INDUSTRY 

Mr. Spear. That refers to this order which was received last year, 
I believe, for one submarine under which the Spanish company, 
about which Mr. Carse has told you, elected to say that it would be 
built under that provision of the contract which provided for li^ 
percent. That contract was written this way 

Senator Clark. They said the same thing to Vickers, did they 
not? 

Mr. Spear. I presume so. 

Senator Clark. Vickers was to get the same cut out of it that 
you got? 

Mr. Spear. Yes. We were joint licensors. 

Senator Clark. Vickers got the same under the Spanish contract, 
as modilied, that you got? 

Mr. Spear. Precisely. They would pay the licensors 3 percent, 
half of which went to Vickers and half of which went to us and they 
were entitled to appeal to each of us for advice and assistance. 

Senator Clark. Originally they were to pay each of you 3 percent, 
were tiiey not? 

Mr. Spear. That was under the original contract. I am trying to 
explain to you what that contract was. 

Senator Clark. Very well, please proceed. 

Mr. Spear. Under the terms of the contract, if, as defined in the 
contract, the ships were built to plans and under our supervision, 
we supplied all of the plans and they paid us jointly 7 percent. Now, 
there was another provision in the contract tliat if they should build 
any submarines under which we did not supply them the design, they 
w^ouJd then pay a total of 3 percent. Under that contract, with the 
3 percent provision, they were not entitled without compensation to 
receive technical advice and assistance from us. Under the other 
contract they were. That was all covered by the 7 percent, or the 
working plans and everything. We played grandfather to them. 
But if they elected or did build in any other way, then they were not 
entitled to that. 

Now, they elected to build the other way, and the design of that 
boat was not prepared by us. It was prepared by them. But after 
they got the contract, 1 think they got what we might call collo- 
quially a little cold feet about the technical features of the contract 
and they wrote us a number of letters asking our advice and opinion 
about it. Now, to investigate those matters required engineers and 
designers to spend time on it and that costs money. As they were 
not entitled to free service when they were paying li/^ percent, I 
took it up with them and said that we did not feel that they should 
ask us to work for them on something which was not covered by the 
contract for nothing. I proposed that they pay the actual cost of 
that material and the labor, plus a percentage for overhead, what- 
ever it might be. That was the proposal that I wrote to Commander 
Craven. 

Senator Clark. Did that affect Vickers as well as yourself? 

Mr. Spe^vr. Well, if they asked Vickers for opinions also, I pre- 
sume the terms to the two companies would probably be the same. 

Senator Barbour. Senator Clark, with your permission and that 
of the chairman, I would like to ask a question at this time. 



MUNITIONS INDUSTRY 215 

While we have a wealth of information here as to your prob- 
lems on how to get this business, one thing that is not clear to me is 
whether your concern had a monopoly so that you would get the 
business anyway, or whether you were confronted with a competitive 
situation; in other words, whether your problem was to try to get 
business that would accrue to an American manufacturer of these 
boats or whether the business would go to somebody else somewhere 
else who made this kind of boat. I do not think that has been clearly 
brought out at any time during this discussion. 

Mr. Spear. Perhaps I can clear that up, Senator. There does not 
exist anything in the nature of a monopoly; nothing of the sort. 
There are four or five concerns, possible more now, all over the 
world who have finally specialized in constructing submarines, and, 
in addition to that, a great many of them are constructed in Govern- 
ment yards. There does not exist any such thing as a monopoly. 

If you take ail the submarines now on the Navy list — of course, 
there have been boats built in the past that have been outworn and 
discarded and I do not know — it would take a long time to collect 
all those figures — but, if you take the boats now on the list, and 
take for instance, the French and the Japanese who have the greatest 
number of submarines of anybody, nojie of those were built by us. 
None were built by any one concern. All of the French boats were 
built in France, partly by private French shipbuilders and partly 
hj Government French shipyards. The same is true in Japan. 

In England, Vickers does the bulk of it, but not all of it. 

In this country we have received only three contracts for sub- 
marines, or contracts for only three submarines since 1918. The 
navy yards have done much more than we have. 

The Italians have several yards engaged in this work and no 
one of them has a monopoly with the Italian Government. 

When you go into the countries which desire to purchase sub- 
marines, as many of them do, who have no building facilities or 
are not able to produce, then it becomes a world-wide competition 
between ourselves, the British, the French, the Italians, and possi- 
bly the Japanese and the Holland and German concerns operating 
in Holland and Sweden. 

All of the business that has been done in the countries who have 
built submarines, as I recall it now — and I am talking about recent 
years — outside of the large countries which I have covered — I am 
now referring to Turkey, Greece, Jugoslavia, Argentine, Brazil, Fin- 
land, Kussia, and Peru — I say, of all of that business — I cannot tell 
you exactly because I do not have the figures in front of me, but I 
have them somewhere as to just how many boats that would make — it 
is quite a large number — but of all of that business, the amount that 
we secured was the four submarines for Peru and none other. 

There was no one concern that obtained a monopoly in the busi- 
ness of the countries where they do not produce their own. And 
there was no one concern that I know of that has obtained a mo- 
nopoly of the business in their own country. In other words, it is 
quite a widely distributed business. 

Senator Barbour. The point that I wanted to clear up was this: 
This effort, which has been developed here through letters of your 



216 MUNITIONS INDUSTRY 

own compaiij' that have been taken from your files, letters between 
officers of j'our own company, and so forth, shows that it has been 
an effort that has been made on the part of your organization to get 
business. The point that I think is important to the committee is 
whetlier that etTort was necessary to get the business for the United 
States or whether, if you had not made any effort at all, the same 
shi])s would have been ordered from somebody else? 

Mr. Spear. The same sliips would have been ordered from some- 
body else; the contracts would have been awarded to somebody else. 

Senator Boxe. Let me ask in that connection if you can enlighten 
us. as to whether all your competitors in Europe were also very 
aggressively pursuing business over there, Mr. Spear. 

Mr. Spear. We always found very keen competition, Senator. 

Senator Bone. And these competitors were not always ethical; 
they were engaged in a lot of what we might call, well, funny 
business ; can we put it that way ? 

Mr. Spear. I would say some of the methods used would not be 
considered ethical in this country, Senator. 

Senator Bone. That is what I am getting at. In other words, 
considered in the light of our own business standards it would look 
pretty rotten, would it not, Mr. Spear? Let us be frank about it. 

Mr. Spear. I am being frank ; some of it w^ould. 

Senator Bone. That is what I am getting at. Senator Barbour 
has asked you about the necessity of doing what you did in order 
to get the business. What I am developing for the record is this: 
You were running up against competition that was anything but 
ethical; is that right? 

Mr. Spear. Yes. We frequently thought that some of the tactics 
were very unfair. 

Senator Bone. That is what I had in mind. In other words, they 
were pretty raw; is that right? 

Mr. Spear. I think so, sir. 

Senator Bone. When you went out into this world market, j^ou 
ran into a bunch of fellows doing business on the other side of "the 
fence who were prettj'' tough customers to deal wath ? 

Mr. Spear. That is true. 

Senator Clark. Returning to Spain, Mr. Spear, the situation wdth 
regard to Sir Basil's monopoly — the matter of monopoly has been 
discussed here in other countries — the situation in regard to Sir 
Basil Zaharoff's monopoly of the Spanish business was somewhat 
disturbed when the Spanish people rose up and threw Sir Basil's 
cousin out of the country ; is that right ? 

Mr. Spp:ar. I do not know what Sir Basil's position was in Spain. 

Senator Clark. Prior to that time there had been a practical 
monopoly in Spain, had there not. controlled by Sir Basil ? 

Mr. Spear. There was only one builder in Spain. 

Senator Clark. As is evidenced by a letter from Sir Basil Zaharoff 
to Mr. Carse, which has been introduced in evidence and to the 
following paragraph of which I direct your attention — I am refer- 
ring to " Exhibit No. 35 " : 

Our Spanish company are very nuicli disturbed, because they fear their 
Government may suspect their good faith, and they tell me that it has always 



MUNITIONS INDUSTRY 217 

been an exceedingly difficult and delicate problem to create a monopoly for 
the Electric Boat Co. products, and tliat this unusual intervention has already 
caused serious friction. 

So that there was, so far as Spain was concerned before the revolu- 
tionists overthrew the Government, a monopoly controlled by Sir 
Basil Zaharoif in your behalf ; was there not ? 

Mr. Spear. Not entirely. Senator. The Spanish at one time did 
acquire some submarines from Italy. "VATiether that was after the 
Sociedad began construction on that, I do not recall. But I do 
recall that they did acquire some submarines from Italy. 

Mr. Carre. It was a patent monopoly, if it were a monopoly. 

Senator Clark. If it was merely a patent monopoly, why does Sir 
Basil speak of the great difficulty and delicacy of maintaining it? 
There is no difficulty or delicacy in maintaining a patent monopoly, 
is there! 

Mr. Spear. There is. 

Mr. Carse. There is. 

Mr. Spear. There is, unless your customer feels absolutely con- 
vinced that yours is the best patent. 

Senator Clark. But Sir Basil's reference has to do with the diffi- 
culty wliich the Sociedad had with the Government in maintaining a 
monopoly in Spain. That does not seem to have any reference to 
a patent monopoly, does it? 

Mr. Carse. No; but if it were a monopoly, it was based on our 
patents. 

Senator Clark. Mr. Spear, returning to this letter to you from 
Commander Craven, of the 14th of March 1934, the last paragraph 
of that letter would seem to indicate that you were still pretty well 
hooked up in Spain, even since the revolution, through the Sociedad, 
would it not ? He says : 

I can tell you -at once that there is every possibility of the Government ap- 
proving the consti-uction of certain warships, includina: two repeats of the sub- 
marine now building. Of course, things look very stormy in Si);;in at present, 
and I sincerely hope nothing will be done to check the swing to the right which 
has recently taken place, because the present Government look as if they are 
going to be most sympathetic to the Sociedad and give us a modest naval pro- 
gramme, which, I can assure you, is very sorely needed to keep the place going. 

Mr. Speak. Yes. 

Senator Clark. What was that " swing to the right " in Spain, 
Mr. Spear? Do you know anything about it? 

Mr. Spear. I do not know anything about it, except that that 
probably referred to what the press reported as the political trend 
in Spain. At one time it looked as if they might have very serious 
trouble there after the revolution. I recall that the newspapers dealt 
with the subject all the time. I presume that is what he was talking 
about. 

Senator Clark. Of course. Commander Craven, being a leading 
official of the Spanish company as well as Vickers, would naturally 
be closely in touch with that situation? 

Mr. Spear. Naturally he would know a great deal more about it 
than I would. 

Mr. Carse. That yard was the only shipyard in Spain that was 
competent to build naval vessels. 



218 MUNITIONS INDUSTRY 

Senator Clark. You do not think that this Sociedad dc Levante^ 
or whatever it was, that were using Krupp phmts, was competent ta 
build vessels? 

Mr. Carse. Apparently not. It did not get anj;- business. 

Senator Clark. That does not necessarily follow with Sir Basil 
on the job, that the competency of the yard had anything to do with 
their getting business. 

Mr. Carse. Just because one concern has got a shipyard, that does 
not mean that they have an organization and experience. 

Senator Clark. These Spanish representatives of j-ours, the Socie- 
dad, w^ere evidently very much alarmed, according to the letter which. 
1 just read, by the intervention of the other organization. They said 
nothing about their incompetency. 

Mr. Carse. No ; but they apparently had not built any boats ; had. 
not had any experience in building. 

Senator Clark. Of course, you will agree that in the Spanish busi- 
ness, the adequacy of the yard has very little to do with their get- 
ting business, with Sir Basil on the job? 

Mr. Carse. I do not know about that. 

Senator Clark. Now, Mr. Carse, in 1920, your representative in 
Europe, Captain Koster, notified you that he had been decorated by 
the Italian Government with the Crown of Italy, did he not? 

Mr. Carse. Maybe; I do not recall. 

Senator Clark. Referring to a letter to you from Captain Koster,. 
dated the 9tli of November 1920, which I will offer in evidence as 
"Exhibit No. 138." 

(The letter referred to was marked " Exhibit No. 138 " and appears 
in the appendix on p. 412.) 

Senator Clark. Do you know why he was decorated? 

Mr. Carse. No. 

Senator Clark. By the Italian Government? 

Mr. Carse. No; I do not know why. That did not impress me. 
What did it mean ? It did not mean anything, anyhow. 

Senator Clark. Captain Koster evidently failed in his purpose, 
because he immediately sat down and wrote you when he got this 
decoration. You did not increase his pay on account of the decora- 
tion, did you? 

Mr. Carse. Not a cent. 

relations united states government 

Senator Clark. Noav, Mr. Carse, in 1923 you asked and received 
the help of the State Department of the United States in bidding 
for Italian business, did you not? 

Mr. Carse, I do not remember. 

Senator Clark. I direct your attention to a letter which I will ask 
to have marked as " Exhibit No. 139." 

(The letter referred to was marked " Exhibit No. 139 " and appears 
in the appendix on p. 412.) 

Senator Clark. "Exhibit No. 139" is a letter dated June 5. 1923, 
to the Secretary of State from Mr. Carse. in which you asked the 
intercession of the State Department in this matter and in which 
you say : 



MUNITIONS INDUSTRY 219 

The work of the Electric Boat Company is well and favorably known in 
Italy, as during' the late war eight sultmarines were constructed by the Elec- 
tric" Boat ComiJany at Montreal for the Italian Government, which made the 
trip to Italy under their own power. 

Did you have a shipyard at Montreal during the war? 

Mr. Spear. No. We had the use of one. We arranged for the use 
of an existing plant. We did not own it. 

Senator Clark. You simply made an arrangement like the ones 
that you had made in Belgium and in France? 

Mr. SrEAR. Not a similar arrangement. It was an arrangement 
to place the facilities at our disposal. We actually conducted the 
work ourselves. 

Senator Clark. The State Department wrote back, which letter I 
will oiler as " Exhibit No. 140 " at this time. 

(Tiie letter referred to was marked " Exhibit No. 140 " and was 
read by Senator Clark in full, as follows:) 

Exhibit No. 140 

Department of State, 

Washington, June i), 1923. 
Mr. Henby R. Cakse, 

President Electric Boat Company, 

Nassau and Pine Streets, New York City. 

Sib: The receipt is acknowledged of your letter of June 5, 1923, setting 
foi'th certain details in connection with the bid that the Electric Boat Com- 
pany is about to submit, through the Cantieri Navali della Spezia, for the 
construction of submarine for the Italian Government. You state that com- 
petitive tenders are to be submitted to the Italian Government on or before June 
11, and request the intercession of this Department, in so far as it is considered 
proper and desirable in this matter. 

In replying you are informed that pursuant to your request the American 
Ambassador to Italy has been authorized to lend your representative such 
appropriate assistance as he may consider warranted under the circumstances 
and having in mind the interest of this Government in the limitation of arma- 
ments. I am, sir. 

Your oliedieut servant, 

(Signed) Lei,and Haerison, 

Assistant Secretary 
(For the Secretary of State). 

What you were really doing, Mr. Carse, was asking the United 
States Government to intervene in behalf of one Italian company 
in competition in business with other Italian companies; is that 
correct ? 

Mr. Carse. Not to intervene. 

Senator Clark. Well, to intercede, using 3?our own expression. 

Mr. Carse. These things, as I explained a day or so ago — this 
was brought to Mr. Spear's attention apparently by our ambitious 
agent to Europe, Koster. These agents were always asking the 
head office to do all sorts of things. Well, we did not agree to all 
their requests, but if we turned them down, the^'' would say, " Well 
we do not get any help from home, how can we expect to secure any 
business." So I simply passed this along to the Secretary of State. 

Senator Clark. You asked his intercession, did you not? That is 
the term that you used? 

Mr. Carse. As far as it was considered proper and desirable. He 
just said that he would give the information to the Ambassador to 
do as far as he thought proper and desirable; which was nothing. 



220 MUNITIONS INDUSTRY 

Senator Clark. But you were askinfj the American State Depart- 
ment to intervene on behalf of the bid of one Italian company against 
the bid of another Italian company or companies, were you not? 

Mr. Cakse. As far as it was proper for him to do so. 

Senator Clark. But it was in behalf of the bid of one Italian 
company against other Italian companies? 

Mr. Carse. Our licensee. 

Senator Clark. Yes; but you recognized this fact yourself in a 
letter to Mr. Spear who was at that time in Paris, which I will offer 
as " Exhibit No. 141." 

Senator Clark. In that letter, which is dated June IG, 1923, you 
say: 

Dear Mr. Spear: In relation to your cablegram about having the State De- 
partment instruct the Ambassador at Rome to assist you in your negotiation 
with the Italian Government — 

It was evidently Mr. Spear instead of Koster who asked you to 
have the State Department intervene, was it not? 
Mr. Carse. Yes. 
Senator Clark (continuing reading) : 

as McNeir was absent for a day or two (although outside of this he has been 
a very regular attendant since the death of Mr. Chapin), Frank B. Lord took 
the matter up with the State Department, and — 

Who was Frank B. Lord? 

Mr. Carse. He was a man in Washington who was a friend of 
McNeir 's. 

Senator Clark. Was he one of your representatives, too? 

Mr. Carse. He acted as a substitute for McNeir. He was a friend 
of McNeir's. 

Senator Clark (continuing reading) : 

Frank B. Lord took the matter up with the State Department, and McNeir 
continued it later, and upon my assurance that you personally would be in 
Rome handling the negotiation they sent a cablegram to the Ambassador at 
Rome, the general tenor of which we understand was favorable, but they de- 
clined to give us a copy of it. They took the position that unless an American 
citizen was on the ground and interested they would not care to take any 
action, as their intercession on behalf of one Italian shipbuilding concern 
against another might be questioned. I cabled you at Paris as follows: 

"Assuming you will go Rome State Departmeiit cabling our Ambassador 
to lend you assistance and extend courtesy consistent with his position. ' 
Yours very truly, 

(Signed) Henry R. Carse, Pres. 

Mr. Carse. Nothing came of it. 

Senator Clark. Nothing came of it? 

Mr. Spear. No ; I went to Rome. 

Senator Clark. To give some color of American interest to the 
matter? 

Mr. Spear. We were interested in it, Senator. We wanted very 
much to get it if we could. But I did not succeed. 

Senator Clark. Mr. Carse, you were making submarine chasers 
for Italy before the entrance of the United States into the war, 
were you not? 

Mr'. Carse. Italy? I do not think so. No, no; it was after the 
war, after the United States went into the war. 



MUNITIONS INDUSTRY 221 

Senator Clark. I direct your attention to a letter signed by you 
to Mr. C. F. McNeir, Hibbs Building, Washington, D.C., dated 
November 9, 1923. which I will offer as " Exhibit No. 142." 

(The letter referred to was marked " Exhibit No. 142 " and appears 
in the appendix on p. 413.) 

Senator Clark. This letter says in part: 

I wish you coulil call on Commander Sommati and try to find out what he 
has in mind. The contract of November 1916 was for 4 motor yachts instead 

of 2S— 

This was in response to an inquiry which had come to you from the 
naval attache of the Italian Government as to the work that you 
had done for the Italian Government during the war, was it not, 
Mr. Carse? 

Mr. Carse. I do not recall. 

Senator Clark (continuing) : 

was for 4 motor yachts instead of 28 and was between the Elco Company and 
Paul Koster (our representative in Europe) and not the Royal Italian Navy, 
and the price for the boats was .$48,000 each and not $44,500, and only 25 
percent was paid at the signing of the contract, and not 75 percent. The 
order was negotiated by Koster in Paris through the Italian Embassy there 
and was executed by Koster as the party of the first part because the United 
States was not then at war with Germany and the State Department had 
ruled that these motor boats would be considered as war craft, and it was 
therefore considered unwise to have any of the belligerents a party to the 
contract. 

Now, what you were doing, Mr. Carse, was this: Having had a 
ruling from the State Department that these vessels would be con- 
sidered vessels of war, you entered into a fake contract, not with 
the real purchaser, which was the Italian Government, but with your 
own agents in Paris, for the purpose of violating the neutrality laws 
of the United States, is not that correct ? 

Mr. Carse. No. 

Senator Clark. Well, what is the fact about it? 

Mr. Carse. I am trying to recall this. I could not tell about the 
four boats because that has passed from my mind. We afterward 
built quite a few. 

Senator Clark. I am not interested in what you did after the war. 
Your own letter here, dated November 9, 1923, shows in your own 
language that these boats were furnished to the Italian Govern- 
ment; that there had been a ruling by the State Department that 
those boats would be considered vessels of war and, therefore, pro- 
hibited by the neutrality laws of the United States from being sent 
to a belligerent; that you entered into a contract with your own 
agents in Paris so that the name of the belligerent would not appear 
in the contract, and the shipment of the vessels would not be stopped 
by the United States Government. 

Does not that appear in that letter ? 

Mr. Carse. Yes ; that appears in the letter. 

Senator Clark. Mr. Carse, I will direct your attention to a letter 
<lated November 15, 1923, which I will ask to have marked " Exhibit 
No. 143." 

(The letter was marked " Exhibit No. 143 " and appears in the 
appendix on p. 414.) 

83876— 34— PT 1 15 



222 MUNITIONS INDUSTRY 

Senator Clark. This letter is from Henry R. Carse to Comdr, E. 
Sommati Di Mombello, naval attache, Italian Embassy, Washington, 
D.C. The second paragraph of the letter reads: 

We find the hulls numbers 7 and 10 (the Italian numbers of which were 71 
and 12) were part of the first contract for the construction of 4 motor boats, 
which contract was executed between Paul Koster, our representative in Paris, 
and the Electric Boat Co., in order to avoid any question being raised of 
neutrality in regard to building for a belligerent what might be claimed by the 
German Government to have been war boats, and I enclose herewith a copy 
of said contract for your confidential information. 

Does that refresh your memory on the subject, Mr. Carse? 

Mr. Carse. No. I do not just remember when these boats were 
built or where these boats were built. 

Senator Clark, It is not a question of where they were built. 

Mr. Carse. Well, if they were built up in Canada, it would not 
have 

Senator Clark (interposing). If they had been built in Canada 
why would it have been necessary to execute the contract in the 
name of Koster? You state in your letter to McNair of November 
9, that you had the contract entered into in the name of Koster, your 
own agent who was a dummy, 

Mr. Carse. Well, he got the order. 

Senator Clark (continuing). To keep it from appearing that 
you were contracting with a belligerent, in view of the fact that the 
United States Government had ruled them to be war vessels. 

Mr. Carse. Well, to keep the United States Government from being 
bothered by complaints from the German Government. 

Senator Clark. Oh, it was just to save the time of the United 
States Government officials, was it? 

Mr. Carse. Oh, yes. 

Senator Clark. Is that why Koster was decorated by the Italian 
Government ? 

Mr. Carse. I do not know. We had built in Canada very many 
of these motor boats, which were known as " submarine chasers ", 
and which went over there for England and France. 

Senator Clark. I understand that, but you stated in this letter 
that it was necessary to execute this contract in the name of Koster 
to keep the United States from interfering with you, because you 
would be dealing with a belligerent. 

Mr. Carse. To keep the United States from being bothered is the 
question raised. I do not know whether they would have interfered 
with four 80-foot motor boats going over without any armament, 
and so forth. I do not think they would have. 

Senator Clark. That was your explanation to Mr." McNair why 
you wanted to execute the contract in the name of Koster? 

Mr. Carse. Yes. Of course, it is there. I cannot deny that that 
is what I said. 

Senator Pope. Did you advise the United States Government of 
this transaction? 

Mr. Carse. No. 

Senator Clark. That was the purpose of executing the contract 
in the name of Koster, so that the United States Government would 
not be advised of it, was it not, Mr. Carse ? 

Mr. Carse. I don't think they were shipped until after the war. 
^t would have taken us sometime to have btiilt them. I know after 



MUNITIONS INDUSTRY 223 

we entered the war we executed a contract to Mr. Baruch for a 
number of these motor boats for the Italian Government. I think 
we shipped them more than a hundred. 

Senator Clark. But I am referring to the contract made m the 
name of Koster. 

Mr. Carse. Mr. Sutphen says they did not go out until after we 
had entered the war. I do not recall the thing. 

Senator Barbour. If you had manufactured these boats m 
Canada 

Senator Clark. There is no testimony they were manufactured in 
Canada. 

Senator Barbour. If you had not manufactured these boats some- 
where whether in Canada or not, would anybody else have manufac- 
tured them? 

Mr. Carse. Other people on the other side were making propo- 
sitions to the Government over there, but our 80-foot boats which 
we had designed and built for the British Government after the 
Lusitania was sunk was a very happy design ; they kept the seas in 
very rough weather. They used to go up north of Scotland and stay 
out there 4 days in the roughest kind of winter weather. Then 
France bought some and Italy bought some. 

Senator Clark. How do you know if you had not sold these boats 
to the Italian Government during the war in violation of the neu- 
trality law, they would have gotten them somewhere else? As a 
matter of fact, all of the belligerents were buying boats anywhere 
they could, but what assurance have you, that if you had not sold 
these boats through Koster to the Italian Government, that the 
Italian Government would have gotten them somewhere else? 

Mr. Carse. Anybody can make a wooden motor boat. 

Senator Clark. What assurance have you that if you had not 
sold them these boats through Koster, that the Italian Government 
would have gotten them themselves ? 

Mr. Carse. I do not know. 

Senator Clark. You had no assurance whatever that it was neces- 
sary for them to have you make this fake contract with your agent 
to have the boats constructed. He was your own agent ? 

Mr. Carse. I had no connection with the Italian Government. 

Senator Clark. I am not speaking about your having any con- 
nection with the Italian Government, but you did make a contract 
nominally with your own agent when he was really in truth and 
fact representing belligerent power, and you did that to escape the 
ruling of the State Department on the subject? 

Mr. Sutphen. There had not been any ruling, Senator. 

Mr. Spear. No ; I think there had been no ruling. 

Senator Clark. Mr. Carse states there was a ruling. 

Mr. Sutphen. No; there was no ruling. 

Mr. Spear. Under our international law there was no violation of 
neutrality. The boats were shipped on the decks of vessels. 

Senator Clark. I will read what Mr. Carse says, as follows : 

The order was negotiated by Koster in Paris through the Italian Embassy 
there and was executed by Koster as the party of the first part because the 
United States was not then at war with Germany and the State Department 
had ruled that these motor boats would be considered as war craft, and it was 
therefore considered unwise to have any of the belligerents a party to the 
contract. 



224 MUNITIONS INDUSTRY 

Do you know of any other manufacturers of munitions in this 
country that resorted to similar practices during the war? 

Mr. Cahse. I do not know about the others. 

Senator Clark. Do you know whether the Bethlehem did? 

Mr. Carse. I do not know anything about their business at all. 

Senator Clark. You were intimately associated with Bethlehem? 

Mr. Carse. Yes, sir ; but they do not tell us their business. 

Senator Clark. In fact in 1925 you were really, hurt because Beth- 
lehem had not furnished you all of the business they had, weren't 
you, Mr. Carse? 

Mr. Carse. That was with another corporation, not the Electric 
Boat. 

Senator Clark. Mr. Carse, I call your attention to this letter dated 
December 28, 1925, from yourself to W. B. Benson, which I offer as 
'' Exhibit No. 144." 

(The letter referred to was marked " Exhibit No. 144 ", and 
appears in the appendix on p. 414.) 

Senator Clark. Mr. Benson, to whom this letter was addressed was 
your Pacific coast manager? 

Mr. Carse. Of the Transmarine Transportation Corporation, but 
he had nothing to do with the Electric Boat. The Transmarine 
Transportation Corporation was trying to operate the ships we had 
taken over from the Shipping Board, and he had nothing to do with 
the Electric Boat. 

Senator Clark. Whether or not he had anything to do with Elec- 
tric Boat, it will appear from the letter who he did represent. I read 
from the letter as follows : 

I have your confidential letter of the 21st instant, which I have read with a 
great deal of pleasure, but I am surprised that Mr. Hill should have taken 
such a position as indicated, hecause our relations here have been so intimate 
for many years, and certainly not to the loss or detriment of the Bethlehem 
Company. I figured up about a year ago that since 1915 we have paid the 
Bethlehem Company between twenty and twenty-five millions of dollars for 
work done for us. 

Was that the Electric Boat Co. of which you were speaking, or 
the other company — what was its name? 

Mr. Carse. The Transmarine Transportation Corporation. 

Senator Clark. Which one was it paid Bethlehem between 20 and 
25 millions of dollars? 

Mr. Carse. The Electric Boat Co. 

Senator Clark. So it doesn't have reference to Electric Boat Co. 
affairs. 

(Reading further:) 

We have paid the Bethlehem Company between twenty and twenty-five mil- 
lions of dollars for work done for us, all on a cost-j)lus basis, in connection with 
contracts which we were doing niostl.v on a straight price contract, and in this 
connection we paid the Bethlehem Company three millions or more for in- 
creased wages paid during the war time on construction for the Navy Depart- 
ment for work they were doing on submarine boats for us, which we have 
not yet been able to recover from the Navy Department, but on which we have 
lost interest these seven or eight years, and you can figure up very readily 
that it runs into extremely large figures. There are some unsettled accounts 
between us, but we have paid them every penny of theirs out of pocket and 
the only unsettled items are some which depend upon whether the Navy 
Department allow certain claims and pay to us, in which case we will pay 
them over to Bethlehem, and if we do not receive payment they cancel them- 
selves; and others, where they were to receive a certain bonus if they turned 



MUNITIONS INDUSTRY 225 

out certain work at a lesser amount than the certified cost, or in quicker time ; 
but, as we have not come to a full and final settlement with the Navy Depart- 
ment, we do not feel that such comparatively small items are pressing. 

We know very well the very friendly relations between ourselves and Mr. 
Tynan. 

Who was Mr. Tynan ? 

Mr. Carse. He was with the Union Shipbuilding. 

Senator Clark. He was also with Bethlehem, was he not? 

Mr. Carse. Yes. 

Senator Clark. I read further from this letter as follows: 

We know very well the very friendly relations between ourselves and Mr. 
Tynan, because, in connection with his splendid services we did a remarkable 
stunt in 1914-1915 in building submarine boats for England at Montreal, where 
a bonus of one million dollars was earned. 

What was the remarkable stunt you performed ? 

Mr. Carse. We turned out those submarines in 7 months. 

Senator Clark. The letter continues as follows: 

Our friend Tynan received from Mr. Schwab a substantial acknowledgement 
for his extraordinary services, and in addition to that, which gave prestige and 
reputation he gained by that work, which brought to the Bethlehem Company 
ordei's for over three hundred millions worth of work from Great Britain. 

Now, did this letter correct that condition, Mr. Carse ? 

Mr. Carse. No; it did not. That evidently was caused by Mr. 
Benson writing me saying that some Bethlehem representatives had 
refused to consign any of their shipments in our vessels, for some 
reason, I don't recall what it was, and I thought such a letter as 
that which he might show the Bethlehem man would cause him to 
change his plans and direct some of his traffic over our boats which 
very badly needed the freight. 

Senator Clark. Mr. Carse, you have heard of shipbuilding com- 
panies combining on a bid and making the same bid for boats, 
haven't you? 

Mr. Carse. No ; I don't know. 

foreign relations — roumania 

Senator Clark. In 1925 you discussed with Mr. Spear, or rather 
Mr. Spear discussed with you the question of bidding on some 
Rumanian boat, did you not? To refresh your memory I refer 
to this letter dated November 3, 1925, addressed to you by Mr. Spear, 
which I offer as " Exhibit No. 145." 

(The letter referred to was marked " Exhibit No. 145 " and 
appears in the appendix on p. 415.) 

Senator Clark. In this letter, " Exhibit No. 145 ", Mr. Spear says : 

To refresh your mind, I will say that when the Roumanians got in tenders 
sometime ago, everyone expected that the order would go to Italy. All the 
Italian yards, however, grouped themselves into a syndicate and offered exactly 
the same price at which the Roumanians took offense and consequently re- 
opened the business. As the thing now stands, they are asking for quotations 
on six boats on which they have placed a price limit of £120,000 each. To 
fully meet their specifications would require a boat of about 600 tons dis- 
placement which is too big for the money available and we have accordingly 
worked out a project with a 500-ton boat which comes pretty close to meeting 
their requirements. As construction in Italy in this case is out of the question, 
our best bet would seem to be Cockerill in Belgium. On this business, we 
would have to pay an agent's commission of 2% and a participation to Vickers 
of 3% so that the net price would be $551,000 per boat. 



226 MUNITIONS INDUSTRY 

Why did you have to give a cut to Vickers on boats for the Ru- 
manian Government? 

Mr. Spear. That came within the provisions of the contract which 
has been elaborated here, it was in their territory under that contract. 

Senator Clark. That Avas on the cut you had to pay Vickers if 
you got the Argentine business ? 

Mr. Spear. No; the Argentine was a special agreement, and this 
is a part of the agreement which has been si:)read in the record here. 

Senator Clark. You had a standing contract Avith Cockerill in 
Belgium to manufacture in their yards, allowing 100 percent over- 
head, and you took a split of 50-50 on the profits. 

Mr. Spear. That was the contract. 

Mr. Carse. Nothing ever came of it. 

FOREIGN relations ITALY 

Senator Clark. Now, Mr. Carse, what was the arrangement you 
had with Premier Orlando of Italy as to business ? 

Mr. Carse. It was long before my time. 

Senator Clark. You seemed to know about it as indicated in this 
letter of date January 21, 1929, which I offer in evidence as " Exhibit 
No. 140." 

(The letter referred to was marked " Exhibit No. 146 " and 
appears in the appendix on p. 416.) 

Senator Clark. In this letter, " Exhibit No. 146 ", to Mr. Spear, 
you state : 

Ye;irs a,i,'o we had an arrangement with Orlando, who was Premier of Italy, 
and he ignored his obligations under the agreement. 

You were evidently familiar with the agreement before tliat time. 

Mr. Carse. Mr. Spear knows about that. 

Mr. Spear. I can tell you about that, Senator. 

Senator Clark. All right; you may. 

Mr. Spear, Many years ago we entered into a license agreement 
with an Italian shipbuilding concern known as " Orlando." They 
never did any business for us, and we found out afterward these 
various Italian yards were interlocked in such a way that we felt — 
I do not want to make this charge definitely — ^biit we felt we had 
been " gypped ", in plain language. I went there with Mr. Rice, 
and we consulted Italian counsel as to whether we could get any 
legal redress for what happened, and he strongly advised us to 
let it alone on account of the political influence of Mr. Orlando. I 
think Mr. Carse is mistaken there in identifying that Orlando with 
the Orlando who was subsequently Prime Minister. But this is an 
old matter. 

Senator Clark. That was the interest I- had in Mr. Carse's state- 
ment you referred to. 

Mr. Carse. I understood it was the same Orlando, but I had no 
knowledge myself. 

Mr. Raushenbush. In your testimony the other day with refer- 
ence to Orlando and the ship company and the Argentine party, I 
forget who it was 

Mr. Spear. Admiral Gelindez. 



MUNITIONS INDUSTRY 227 

Mr. Raushenbush. At that time I believe you testified it was the 
same Orlando? 

Mr. Spear, I think that was Mr. Carse's testimony, because it is 
my impression it is a different man. I believe they belong to the 
same family. 

Senator Clark. Mr. Carse, I direct your attention to this letter 
dated June 17, 1927, from yourself to Mr. Spear, which I offer as 
" Exhibit No. 147." 

(The letter referred to was marked " Exhibit No. 147 ", and 
appears in the appendix on p. 416.) 

Senator Clark. At that time, Mr. Carse, you were considering 
your whole European representation, were you not? 

Mr. Carse. Yes. 

Senator Clark. In that letter, at the bottom of the last paragraph 
on page 1, you stated that the submarine business was paid out of 
the United States Treasury. What does that mean? 

Mr. Spear. I think they paid for everything they got. 

Mr. Carse. When we declared war, you will recall there was a war 
board created, of which Mr. Baruch was the head, and they ordered 
a number of things, among others these motor boats. Now, what I 
meant was that the money was paid to us through the war board. 
I signed the contract with Mr. Baruch. 

Senator Clark. At that time Mr. Aubry was undertaking to get 
the job as your European representative, was he not? 

Mr. Carse. He was suggesting it. 

Senator Clark, He had been appointed naval attache of the Peru- 
vian Embassy in Paris. 

Mr. Carse. He thought he would like to give that up to take a 
position with us as the European agent. 

Senator Clark. You say in this letter : 

Your letter of the 16th at hand in regard to Aubry. When he was 
last in this country he discussed with me the subject of being our repre- 
sentative in Europe, which I believe I mentioned to you, and indicated that 
that arrangement would be very agreeable to him because he felt that the 
South American field was nearing the point of exhaustion. 

Senator Bone. When was this ? 

Senator Clark. This was in 1927. Aubry felt he had about out- 
lived his usefulness in South America. The letter then continues 
as follows: 

The record that Aubry has made in South America shows his efficiency, and 
we have not been burdened by spending large sums of money and chasing 
rainbows as in Europe in the past. The position might be taken that if 
we did not go after business we would never get any, but I fhink there is a 
difference between spending your energies on possibilities after close analysis 
rather than chasing matters that if secured would not prove profitable or 
beneficial. I consider that Passano 

That was the man who represented you in Italy ? 

Mr. Carse. Yes. 

Senator Clark. What was he, Spanish or Italian? 

Mr. Carse. He was Italian. 

Senator Clark. I read further from this exhibit : 

I consider that Passano is an absolute loss to the company, and all the 
money spent by him is vanity and vexation of spirit. The people with whom 
he discusses these matters are simply looking for what they can get out 
of him and I cannot see that there is any reason for continuing him. 



228 MUNITIONS INDUSTRY 

Now, when had Sir Basil communicated with you about Koster? 

Mr. Spear. It is in the record. 

Senator Ci.ark. What did he say to you about Koster? 

Mr. Spear. He did not say anything definite. He did not consider 
him a man who would be able to secure business for us. 

Senator Clark. Did he tell you he was an international spy? 

Mr. Carse. I do not know that Sir Basil did, but I heard that. 

Senator Clark. Where did you hear it? 

Mr. Carse. I can't exactly state it. Back in the War our Navy 
Department demanded the right to use some of the patents we had 
from Germany which called for certain royalties to be paid to the 
Germans, and we could not give them a license. So after the 
Armistice I wrote a letter to Koster asking him if it was permis- 
sible for him to try to get in touch with the German patentees 
and secure their patents. That letter was opened by the French 
authorities and it might have caused trouble only he cabled me, and 
1 cabled to a personal friend of mine in Paris, an American who 
was almost a Frenchman, his mother had been intimate with the 
Queen, and he went around and saw the Secretary of the Navy 
and vouched for Koster. I think it was in that connection I was 
told that the French office looked upon Koster, because he was a 
Dutchman, more or less as what you might call an international 

spy. 

Senator Clark. You go on in this letter, Mr. Carse, and say : 

In regard to Koster, the strong adverse opinion of Sir Basil should not be 
ignored because there evidently is some ground work for his antagonism, and 
since Koster was appointed by Mr. Rice in 1912 he has not secured a dollar's 
worth of business except the submarines and motor boats from Italy which 
were paid for from the United States Treasury, and he led us into the cargo 
ship proposition, which almost proved a mortal blow. I like Koster and admire 
his persistence but he does not produce anything, evidently not proving himself 
personna grata to the powers that be. 

Our experience with Aubry shows that he has proper understanding and has 
been able to accomplish things which would probably have been impossible with 
anyone else. Of course if he were our representative in Europe he would not 
have any connection with our Spanish business, because Sir Basil insists upon 
that being kept away from our European representative, and, of course, the 
question is how would a Spaniard be received by the people of other European 
countries. Regarding that, my opinion would be of no value. I should say that 
we could agree to proposition (a) as outlined by Aubry, because he would be 
entitled in any event, at least morally, to commissions on any business we 
should develop in the near future from either Peru or Argentine and, as he 
states, he would not look to us for any other compensation while he was 
naval attache for Peru. If we could retain an option on his services for the 
future without any obligation on our part, that would also be wise, but I do 
not believe that- we should obligate ourselves to employ him as European agent 
until such time arrives as we may wish to decide the question. 

Senator Pope. Mr. Carse, when was this man Passano your agent 
in Italy? 

Mr. Carse. He was not our agent in Italy. Passano had been our 
agent in Russia before the war, and through him we had secured 
some large contracts from Russia for submarine boats. When the 
revolution broke out in Russia, Passano went with some of his family 
east, and came around to this country, and we paid to him certain 
commissions that were due to him for the work he had done. He 
was a very presentable man, a great tall man with quite a showy 
figure. We retained him in our service because it was thought at 
that time by a great many people that the revolution would not last 



MUNITIONS INDUSTRY 229 

and that there would be a resumption of a new government based 
upon the old, and in that event Passano would be very helpful in 
being able to get in touch with the business we had established in 
Eussia, The Duma had voted quite a large program for submarine 
boats and had named our type of boat as the one to be used. 

Senator Pope. Did he operate for you in Turkey ? 

Mr. Carse. Yes; we sent him to Turkey on that business. 

Senator Bone. Was he able to produce any business for you in 
the Turkish market? 

Mr. Carse. No ; we have never had any business in Turkey. While 
we followed up all of these possibilities, in my mind I thought they 
were the barest possibilities and not probabilities, but we could not 
ignore anything, we needed the business to maintain our organiza- 
tion, so we followed these different matters, until I came to the 
definite conclusion that it was not possible for an American concern 
to secure any orders for submarine boats from a foreign government 
in continental Europe. 

Senator Pope. Do you know when his connection with your com- 
pany ceased? 

Mr. Carse. I think probably Senator Clark has something there 
that will show. 

Senator Pope. In 1929 he was acting for you? 

Mr. Carse. Yes. 

Mr. Spear. I think his connection ceased in 1930 or 1931. That 
was when Mr. Carse decided to abolish entirely the European repre- 
sentation. 

Senator Bone. Who did the Turks buy submarines from? 

Mr. Carse. From Italy. 

Senator Bone. What outfits down there manufactured subma- 
rines ? 

Mr.sCARSE. There were a number of yards, but they are all Italian 
names, and I do not know them. 

Senator Bone. Are they tied in with Vickers or Krupp by any 
stock relationship or anything of that character? 

Mr. Spear. I do not think there is any stock interlocking. I 
never heard of one. There was one company in Italy that had some 
connection with Vickers, but whether that particular yard ever built 
a submarine I do not know. I think there are four private yards 
in Italy that build submarines. 

Senator Vandenberg. May I inquire, Mr. Carse, It was your opin- 
ion in 1927 that Mr. Koster — quoting you — " does not produce any- 
thing ". and if that was your opinion of Mr. Koster in 1927, why 
did you double his salary in 1927? 

Mr. Carse. Did I double it? 

Senator Vandenberg. It went from $6,000 to $10,000 and it was 
$5,000 previous to that; and that is in 1927 when it appears to be 
your opinion that he does not produce anything. 

foreign relations GERMANY 

Mr. Carse. Well, Mr. Spear did not agree with me. Mr. Spear 
thought he was very helpful and useful over in Paris. And, then, 
we could not let him go because we were working on this Mixed 
Claims Commission with Germany for the infringement of our pat- 



230 MUNITIONS INDUSTRY 

ents, and Koster was necessary to try to secure some data, which we 
could use in the suit. 

Senator Vandenhekg. Would Koster make any threats of disclo- 
sures, and so forth, in the event you proceeded with his discharge at 
that time? 

Mr. Carse. No; he did not. 

Senator Pope. What was the date that Sir Basil Zaharoff talked 
to you against your employment of this man Koster? 

Mr. Carse. I saw him in 1924, but this suit in this Mixed Claims 
Commission was pending for years, and Koster got us some data 
that proved to be the basis of any action at all, because the Germans 
refused to produce the plans of their boats that they built and said 
there were none in existence. After we had secured some data from 
Koster, the Germans produced the drawings of the interior of the 
boats. 

Senator Clark. Mr. Carse, your claim against Germany was for 
the manufacture of U-boats during the war? 

Mr. Carse. It was for the use of our patents in the building of 
submarine boats during the war. 

Senator Clark. You had never licensed Krupp? 

Mr. Carse. We had licensed the Vulcan Co. in Germany in the 
same manner we had Vickers, I think in 1909. Vulcan had not 
gotten any business, so Mr. Rice arranged with Krupp and during 
this agreement in the negotiations it was agreed to, as I understand, 
by the parties in the conference subject to confirmation by the 
directors of Krupp, and the directors finally refused to ratify it. 
But Krupp took all of the patent information from the Patent Office 
and proceeded to build submarine boats. 

Senator Clark. Was that during the war or before the war? 

Mr. Carse. Before the war. 

Senator Clark. How long before? 

Mr. Carse. Several years. We brought action against Krupp in 
the patents courts. 

Senator Clark. Of Germany? 

Mr. Carse. Of Germany; and the Government wanted to inter- 
plead as a party, and the court rejected that thing. We sued Krupp 
for a certain sum per boat or per tube, which was the thing in ques- 
tion, and they offered just a nominal sum, because they claimed that 
it was a minor part of the boat. It was the absolute essential part 
of the boat. That patent was very good. 

So there wasi a judgment handed down in the patents court, and 
both parties appealed from it, being thought by one that it was too 
much and by the other that it was too little. Finally the Court of 
Appeals of Leipzig in 1913, I think, rendered a judgment in our 
favor, that they should pay so much for every torpedo tube in any 
submarine boat that was built, and then the war came on. I do not 
know whether Ave had appealed or not, but a settlement was made, 
and the war came on, and after a while they engaged in an intensive 
building of submarine boats, and after the war was over there was 
this American-German Mixed Claims Commission that was created 
to receive any claims from American firms. And from our Navy 
Department we obtained information that their records showed 
that Germany had built 441 submarine boats. So that we filed a 



MUNITIONS INDUSTRY 231 

claim for a royalty of $40,000 on each boat. And that, of course, 
pended for years. They simply denied any infringement of our 
patents and told us to produce the evidence. 

The German submarine boats had all been sunk, as it was thought. 
Those that were taken by Great Britain had been sunk, and the 
couple which the United States had taken had been sunk, but we 
found that the French, instead of sinking all of theirs, had kept a 
couple. So that through Koster we arranged to have a commission, 
French commission, appointed by the French Government to make 
an examination of those boats, and they made certain drawings and 
sketches of certain of the internals of those boats, and they found 
in some way some drawings, some German drawings, that had been 
left in those boats. And on the basis of that we presented this 
thing as evidence of the infringement of our pat^snts, and then the 
Germans found drawings which they said did not exist, and they 
presented them more or less in rebuttal. 

Senator Clark. You presented a claim for 441 times $40,000? 

Mr. Carse. Yes, sir. 

Senator Clark. Which is roughly $17,000,000? 

Mr. Carse. That is right. 

Senator Clark. Then in December 1925 Koster notified you that 
Germany had also made a number of U-boats for Austria ? 

Mr. Carse. Yes, sir; I believe he did. 

Senator Clark. Twenty-seven. Did you include them in your 
claim ? 

Mr. Carse. No. 

Senator Clark. You had licensed one German concern and one 
Austrian concern prior to the war, had you not, for the manufacture 
of U-boats? 

Mr. Spear. There had been a license for the Vulcan Co., Senator, 
which I can tell you about, which existed for a number of years; 
and then the Vulcan Co. advised us that the German Government 
did not desire to have any German firm which was a licensee of any 
foreign company building submarines for it, and that they had 
made up their minds, as a matter of policy, that their construction 
of submarines should be by a private yard, Krupp, and in their own 
Government dockyard at Danzig, and, accordingly, the license was 
of no use to anybody, and it was canceled. 

Senator Clark. You had also issued a license to Whitehead in 
Austria? 

Mr. Spear. We had issued a license to Whitehead in Austria, and 
they did some business, but the Vulcan Co. never did. 

Senator Clark. In other words. Whitehead had your plans, if 
they had done some business? 

Mr. Spear. Whitehead had the plans of the boats we were building 
many years ago. 

Senator Clark. It was your idea, Mr. Carse, that these U-boats 
could not have been constructed except under your patents? 

Mr. Carse. They could not have been operated except under our 
patents. Is not that right ? 

Mr. Spear, It was our idea they used our boats, and the particular 
patent on which the issue came down was vital on the small-size 
boats and not the bigger ones, but we never supplied any plans to 



232 MUNITIONS INDUSTRY 

them. I want to make that clear. There were no phms made by us 
in the hands of the Germans that they ever <i:ot from us. 

Senator Clark. Were they in the hands of the Austrians? 

Mr. Spear. Naturally they had the plans of the particular boat 
which they built — one class of boat. 

Senator Clark. Of course you recognize, Mr. Spear, when you 
file your plans in another country, that in the event of war they 
will be seized by the government and will be used for any belligerent 
purpose ? 

Mr. Spear. Anybody knows that, Senator. 

Senator Clark. Yes; of course. So, really, the construction of 
the U-boats would not have been possible except for your patents? 

Mr. Spear. I would not say that. 

Senator Clark. That is a statement that Mr. Carse made before. 

Mr. Carse. That is a claim. 

Mr. Spear. That is a claim. I would not agree with it. 

Senator Barbour. Mr. Spear, how many U-boats or submarines do 
you think were made b}^ you or by others, that is, made under a 
license to use your patents? What would be the total number of 
boats ? 

Mr. Spear. I should think, going back to the beginning. Senator, 
and taking all the boats we built and those built b}'^ anybody who was 
our licensee, I should think it would be in the neighborhood of 175. 

Senator Barbour. One hundred and seventy-five? 

Mr. Spear. I should think so. (Conferring with associate.) Mr. 
Carse says I gave him some figures, and I want to correct that. 
Those figures were given to him some years ago, showing a larger 
number than that. I do not recall the number. I have the data in 
my office. My records show that. 

Mr. Raushenbush. I think we will get to that later. 

Senator Barbour. That would account directly or indirectly, so 
far as you people are concerned, for 175 submarines, approximately? 

Mr. Spear. Whatever it may be. Mr. Carse thinks the figure was 
about 300. As I say. I do not remember the exact figure. Senator. 

Mr. Carse. 1 think Mr. Raushenbush has it in his papers; have 
you not? 

Mr. Raushenbush. I think we will come to that a little later on. 

Senator Barbour. I am trying to figure from my point of view, as 
a member of the committee, what that represented as to all U-boats 
at that particular time. 

Mr. Spear, Of course, that dates back 30 years ago. Senator. This 
is just a mere guess, without the figures before me, but I should say 
that that represented 20 to 25 percent. That is a guess without 
figures in front of me. Senator, and I should say it represented 
between 20 and 30 percent. 

Senator Barbour. That is what I wanted. 

Mr. Spear. It may be inaccurate. 

Senator Clark. Mr. Carse, you said a moment ago that the French 
had two submarines. Was not that a violation of the Treaty of 
Versailles? 

Mr, Carse. I do not know. 

Senator Clark. Is it not? 

Mr. Spear. I can tell vou about that. 



Munitions industry 233 

Senator Clark. I would be glad if you would. 

Mr. Spear. When the war was over, Germany was obliged, of 
course, to surrender all these submarines. The greater part of them 
were taken to Scapa Flow, as you will remember, and were eventually 
sunk by the Germans, but the victors proceeded to do what they liked 
to the" defeated, and a certain number of ships were assigned to 
France, with an agreement between France, Great Britain, Japan, 
and everybody else on the other side, on the theory that during the 
war the French dockyards had been entirely devoted to building 
for the army and had not built any ships for themselves, and could 
not, and therefore their navy was getting worn out, and they were 
permitted b}^ agreement between the powers to keep some cruisers and 
some submarines and some destroyers and were permitted to add 
them to their navy. 

The agreement on the part of the other people, where they were 
permitted to take the things and look them over and sink them — • 
and not add them to their navy, but sink them in a certain period of 
time — was carried out. That was what was done. As I recall it, 
there were 2 or 3 German submarines brought here by the Navy 
Department, which were kept for examination two or three months 
and then they sank them. The British Government did the same 
thing, and I think the Japanese Government did. That is my 
recollection. 

Senator Vandenberg. I am still interested in the fact that Mr. 
Koster's pay was doubled at the time that the president of the cor- 
poration said he did not produce anything. I would like to ask, 
Mr. Spear, if in 1927, when this paradox arose, Mr. Koster had any 
correspondence with you, in which he discussed, at least indirectly, 
threats of what he might do in the event that he was asked to resign. 

Mr. Spear. I do not recall. There might have been such corre- 
spondence, Senator. If there is, it would be in the record. 

Senator Vandenberg. I have before me — I think there is no copy 
available — but I have before me a letter from Mr. Koster under 
date of June 28, 1927, in which he says among other things to you: 
" I have the impression that certain intriguers are playing a hidden 
hand." 

Then he says: 

I have always remembered what the hite Mr. Albert Vickers told me: 
" Koster ", he said, " never threaten."' 

That reads to me like a very adroit method of threatening. Does 
it not read that way to you? 

Mr. Spear. It might bear that interpretation. 

Senator Vandenberg. Did any fear of what Mr. Koster might dis- 
close enter into the doubling of his salary at a time that the president 
of the corporation said he was worthless? 

Mr. Spear. Not the slightest. There was nothing which Koster 
could disclose which would cause us any alarm whatsoever. 

Senator Vandenberg. Apparently Mr. Koster thought there was 
something. 

Mr. Spear. He might have thought so. 

Mr. Carse. I think I can explain that, Senator. I am just speak- 
ing from memory now, but you have a record of the salaries received 
from year to year by Koster. 

Senator Vandenberg. Yes, sir. 



234 MUNITIONS INDUSTRY 

Mr, Carse. Do you have them there ? 

Senator Vandenberg. Yes, sir. 

Mr. Carse. You will note how small it became. That was caused 
by this: I think the original agreement made by Mr. Rice in 1912 
provided for the payment to Koster either in pounds or dollars, and 
sometime afterward he asked to have that pay changed and made 
in francs. 1 think it was 50,000 francs, which was about the equiva- 
lent of $10,000. Well, when the franc commenced to dwindle, of 
course his compensation, as far as we were concerned, dwindled 
until, as you will notice there, in some years it was very moderate, 
and he says in that letter that it was about the compensation that 
a stenographer might receive. We had had that in mind as being 
unfair to a man who had to have a certain standard of living, so 
that we increased his pay to make it a fair compensation. 

Senator Vandenberg. His utility was decreasing in the same pro- 
portion, according to your viewpoint? 

Mr. Carse. I did not think that he was accomplishing very much 
in the way of getting new business, but we had to keep him to 
trace out this German claim. We had to have somebody on the 
ground there. We had him go and consult the German consul from 
time to time, to meet some of the contentions of the opposition, and 
he got the information. It was based on that that we finally in- 
creased his salary. 

Senator Vandenberg. I would like to ask Mr. Spear, finally, 
whether he knows what Koster is talking about when he refers to 
" intriguers who were playing a hidden hand." 

Mr. Spear. I think I know what he meant. His relations with 
Sir Basil Zaharoff were very bad, and he knew it. I think he was 
aware of the fact that Sir Basil was recommending to Mr. Carse 
that he dispense with Captain Koster's services. I think that is 
what is meant, Senator. In fact, I am quite sure of it, because at 
various times he had spoken to me about knowing that Sir Basil 
did not approve of him and was endeavoring to persuade Mr. Carse 
to dispense with his services. 

Senator Bone. Mr. Spear, may I ask one question about a matter 
which has been touched on by Senator Clark? I gather from your 
testimony throughout this hearing that practically every country in 
the world has recording statutes which protect patents when they 

are filed. 

Mr. Spear. Nearly every country; I think so. 

Senator Bone. That is correct, I take it? 

Mr. Spear. Practically every one. They ought to have, and I 
think they have. 

Senator Bone. When you prepare or discover a new device in con- 
nection with your business, do you make a patent record of it in 
each of these countries to protect your patents? 

Mr. Spear. Not now. We did in the early days of the company's 
existence. 

Senator Bone. How do you record it now ? 

Mr. Spear. We record it in the United States. 

Senator Bone. You would have to record it in Canada and Great 
Britain to protect yourself? 

Mr. Spear. Not necesarily. I am trying to answer you accu- 
rately, Senator. For some years past we have concluded that it was 



MUNITIONS INDUSTRY 235 

not good busines policy to attempt to take out patents on every im- 
provement we made in a submarine all over the world, so that we 
have limited it primarily to those countries for which we have been 
able to obtain business, or where we have had a licensee, whose inter- 
est we thought we should protect. We generally apply — not always, 
but w^e generally apply for it in Spain to protect our Spanish 
licensee. 

Senator Bone. That is, in any of these various countries, wnen a 
company becomes your licensee, they have this information in their 
possession ? 

Mr. Spear. They Avould have the right. 

Senator Bone. They would have the right to them? 

Mr. Spear. To use the patent on boats built under license from 
us, and not on any other boats. If they built any other boats, they 
would have no legal right. 

Senator Bone. How do you deal with the United States in rela- 
tion to these patents? 

Mr. Spear. There is no special arrangement about it now. From 
time to time, when we have got something which we think is quite 
important — and the Government does not always agree with us — we 
unofficially consult the Navy Department as to whether or not that 
is a matter that they think they would like to have kept confidential. 
It is not a matter of record, but I go personally. If they say, " This 
is something which we think we w^ould be very much interested in ", 
and they would probably not want us to apply for some patents on 
it, we do not do it. But unless they say they are particularly in- 
terested in it, then we use our own judgment. 

Senator Bone. Who fixes tlie price for the use of these patents in 
the event the United States Navy wishes them? The Navy Depart- 
ment itself? 

Mr. Spear. The Navy Department would fix the price. The only 
time that the Navy Department has ever paid us anything on account 
of patents was in this case : It was not patents solely, but patents 
and plans, and they fixed the price and said they wished to build 
2 boats of a certain type, of which we were building 6 or 8 for them; 
they wished to build 2 in the navy yard, and they said, " This will 
be what we will pay you ", and that was the end of it. I think they 
jmid for the plans and patents, $35,000 or $40,000. It was some years 
ago, but it is a matter of record. Those are the only transactions for 
submarines. There have been one or two cases where they took a 
license for engines, Avliich they wanted to build, and they paid a 
nominal sum for that license, but ordinarily they have felt free, I 
think, not to bother very much when they were designing a boat 
whether they used our patents or not, and we have not thought it 
was good policy for us to be pestering possible customers about pay- 
ing for patents that we thought they were using, which they might 
not think the}'^ were. So that we have never felt, as I remember it, 
that we should do that. We prepared some papers once but never 
filed any claim, did we? 

Mr. Carse. No. 

Mr. Spear. I think not. We have never claimed it. 

Senator Clark. Mr. Spear, or Mr. Carse, in 1929 Koster informed 
you that Dutch companies were helping German companies evade 



236 MUNITIONS INDUSTRY 

the Treaty of Versailles in the manufacture of submarines, did he 
not? I refer to a letter dated the i^otli of March 1929 from Koster 
addressed to the Electric Boat Co. at Groton, Conn., dated in Paris, 
which I will ask to have marked " Exhibit No. 148." 

(The letter referred to was marked " Exhibit No. 148 ", and 
appears in the appendix on p. 417.) 

Mr. Carse. As I remember it, the German shipbuilders organized 
a corporation or corporations in Holland. 

Senator Clark. There are several enumerated in this letter, but it 
is not worth going into detail. 

Mr. Carse. I never realized existing Dutch shipbuilding concerns 
were utilized. 

Senator Clark. He says certain companies in Holland, and he 
names the German companies. 

Mr. Carse. He would know. 

Senator Clark. He was very much worked up about that, Mr. 
Carse, was he not? 

Mr. Carse. He was rather. 

Senator Clark. He said : 

If I did let myself go, I would say that the entire thing is a huge camouflage 
and a lie, and I suppose that Mr. von Levinsky is shaking in his shoes as to 
the military sanctions which the Fatherland may incur (see objection 9). I 
will volunteer in the invading army, and I might go on in this strain, if I 
were not in such a hurry. 

Koster has changed his mind after that, has he not, Mr. Spear? 

Mr. Spear. I do not get the import of your question, sir. 

Senator Clark. In his letter to you of the 13th of February, 1934, 
he informed you that there was a company'- by the name of the Berg- 
mann Co. in Berlin which was secretly manufacturing submachine 
guns for certain organizations in Germanj^ 

Mr. Spear. He was not as familiar with German activities then. 

Senator Clark. That is my thought. Mr. Carse, when the war 
started you had under contract certain submarines which you were 
building under your supervision on the Black Sea for Russia, did 
you not? 

Mr. Carse. Yes, sir. 

Senator Clark. And the engines for those submarines were being 
manufactured in Germany? 

Mr. Carse. Yes, sir. 

Senator Clark. And at the outbreak of the war, of course the 
engines were seized by the German Government and used for their 
own purpose? 

Mr. Spear. Yes, sir. 

Senator Clark. So that it follows that when you start in building 
in foreign countries, as has frequently seemed to be your plan by 
various bids which you have made, and when you manufacture 
abroad it is imi^ossible for you to prevent some of the material from 
getting into the hands of a belligerent in the event of war? 

Mr. Spear. I do not see that you can prevent it. 

Senator Clark. That is what I say. For instance, if you manu- 
factured the submarines which you bid on for Argentine or Brazil 
in Belgium and there came a war between Belgium and Germany, 



MUNITIONS INDUSTRY 237 

or Belgium and France, your submarines would be seized, if Belgium 
wanted them, and would be used by a belligerent power? 

Mr. Spear. I presume they would. 

Senator Clark. That follows inevitably from the manufacturing 
of them in foreign countries; that is, that you cannot control the 
disposition of j^our product in the event of war, does it not? 

Mr. Spear. I think not ; that is correct. 

Senator Clark. In 1930, Mr. Carse, you were told by the State 
Department that they viewed with disfavor the exportation of mili- 
tary equipment to Russia, were you not? 

Mr. Spear. Yes, sir. 

Senator Clark. And to discontinue it? 

Mr. Spear. We were not doing any other. 

Senator Clark. You were talking about that? 

Mr. Spear. We had an inquiry which we took to the State Depart- 
ment. 

Senator Bone. To what country? 

Senator Clark. Russia. 

Mr. Spear. We had an inquiry from the Russian representatives, 
the Amtorg Co., and we went to the State Department. 

Senator Bone. At that time was the State Department looking 
with favor upon the exportation of munitions of war to other 
countries ? 

Mr. Spear. I could not answer that. Senator. I do not know. 

Senator Bone. Is that a fair assumption? 

Mr. Spear. I do not think at that time they were particularly con- 
cerned unless there was some disturbance. 

Senator Bone. They must have come out against the munitions 
companies exporting munitions to the other countries at that time. 
Why should they put a barrier against the exportation of arms to 
Russia and not against other countries? 

Mr. Spear, I do not know their reasons, Senator, but at any rate 
they looked upon it with disfavor, so that we dropped it. 

Senator Clark. I offer as " Exhibit No. 149 " a letter dated in 
Paris, February 13, 1934, from Mr. Koster to Mr. Spear, to which I 
referred a moment ago. 

(The letter referred to was marked " Exhibit No. 149 " and 
appears in the appendix on p. 419.) 

Senator Clark. Mr. Spear, at that time you were communicating 
with Mr. Koster to represent you or represent somebody in Eurojje 
for the Davison gun, were you not? 

Mr. Spear. I was in communication with him ; yes, sir. 

Senator Clark. What is the Davison gun ? 

Mr. Spear. It is a new anti-aircraft gun for defense against air- 
craft attacks. 

Senator Clark. Is that controlled by the Electric Boat Co.? 

Mr. Spear. It is not, sir. 

Senator Clark. That was a private venture ? 

Mr. Spear. That has nothing to do with the Electric Boat Co., 
which has at the present time no interest in the matter. 

83876—34 — pt 1 16 



238 MUNITIONS INDUSTRY 

FOREIGN RELATIONS — HOLLAND 

Senator CLiVRK. Now, Mr, Spear, in 1921 Koster wrote you at 
length, which I will offer as " Exliibit No. 150 ", which is an undated 
letter from Paris, in 1921, evidently from the comment on it subse- 
quently in the file. 

(The letter referred to was marked "' Exhibit No. 150 '' and 
appears in the appendix on p. 419.) 

Senator Clark. Koster wrote you at length about an understand- 
ing which he said existed between Schelde, which was your Dutch 
licensee at that time, was it not, Mr. Carse ? 

Mr. Carse. Yes, sir. 

Senator Clark (continuing). And Feyenoord, another Dutch con- 
cern. 

Mr. Carse. Another Dutch shipbuilding concern. 

Senator Clark. Schelde, your licensee, had failed to bid on some 
submarines and allowed the matter to go to Feyenoord, and 
Feyenoord got the business, and Koster considered that a violation 
of your contract with Schelde. Is that con-ect ? 

Mr. Spear. That is correct. 

Senator Clark. And he wrote you a long letter, in which he set 
out that after consultation with Johnstone — he was another of your 
European agents, was he not? 

Mr. Spear. He was not an agent but a technical engineer attached 
to the office for technical purposes. 

Senator Clark. You had him in Europe at that time ? 

Mr. Spear. Yes; and he had been in Holland. 

Senator Clark. And he did participate at times in the sale of 
submarines? 

Mr. Spear. Yes, sir; as a technical man. 

Senator Clark. He was working with Koster at that time ? 

Mr. Spear. At that time. 

Senator Clark. Koster writes of a form letter which he suggests 
you write to Schelde with respect to this matter, and to make a com- 
plaint about the situation in connection with Feyenoord, for not bid- 
ding on the submarines, and threatening to take the matter into 
court; did he not, Mr. Spear? 

Mr. S'pear. Yes, sir; he attached here a draft of letter which he 
suggests we write. 

Senator CliVRK. And, Mr. Spear, under date of February 2, 1921, 
you wrote to Mr. Carse a letter, which I will ask to have marked 
" Exhibit No. 151 ", with reference to Kost^r's report. 

(The letter referred to was marked " Exhibit No. 151 " and 
appears in the appendix on p. 422.) 

Senator Clark. In that letter, " Exhibit No. 151 ", you say in part: 

You will note that Koster makes some specific recommendations as to the 
steps that he thinks we ought to fake. 

You will recall that the whole situation is hooked up with our general con- 
tract with Vickers and that they have an interest in the Dutch profits. In 
view of the somewhat delicate naiure of our general relations with Vickers 
and their recent active intervention in Holland, I am inclined to the helief 
that we .should not open up the matter with Schelde hy correspondence or other- 
wise until after we have conferred with Vickers. The main point in ray mind 
is to avoid taking any action which Vickers might possibly construe into a vio- 
lation of our contract with them. 



MUNITIONS INDUSTRY 239 

What was the active intervention of Vickers in Holland, Mr. Spear, 
to which yon referred, and why did you have to consult with Vickers 
before you could take up the matter with Schelde ? 

Mr. Spear. What happened was this, Senator : The Dutch company 
wished to acquire some submarines in one particular year — I do not 
know what it is — and in that year, instead of simply asking the Dutch 
builders or instead of placing tlieir own designs and asking the Dutch 
builders to provide their own specifications, they attempted to spread 
it out and asked foreign bidders to tender also, and, as I recall it, 
they also asked some bids on these, and the tender was accepted 
to make some, so that the actual work would be done in Holland. 
And in that connection Vickers, with our consent, submitted a tender 
and a design, and that tender was eventually accepted by the Dutch 
Government, and provision was made between the Dutch Govern- 
ment and Vickers, I think, Schelde — I am not sure of that — to carry 
out the actual construction in Holland. That is it. 

Senator Clark. So that you did not feel yourself free to deal 
with your own licenses without consultation with Vickers ? 

Mr. Spear. They left it to them. Under that arrangement with 
Vickers, Vickers was then doing business with them, under that 
arrangement, which was more or less dictated by the Dutch com- 
pany. We naturally felt that we did not want to start something 
about Schelde without consulting the other person who also was 
working with him at that time. 

Senator Clark. Did Bethlehem get into this Dutch picture at all? 

Mr. Spear. I do not recall. 

Senator Clark. It was at about the same time they were trying 
to " chisel " in on the submarine business, was it not ? 

Mr. Spear. What date was that? 

Senator Clark. It is undated, Mr. Spear. Roster's letter is un- 
dated. You mean your letter referring to it? 

Mr. Spear. It is February 2, 1921. 

Senator Clark. Yes, sir. 

Mr. Spear. I do not recall. Senator. I do not recall any attempt 
by the Bethlehem Co. 

Senator Clark. I was trying to find out what this was, Mr. Spear. 

I now offer as "Exhibit No. 152 " a letter from Mr. Carse to your- 
self, under date of October 30, 1920, which reads as follows : 

Exhibit No. 152 

Electric Boat Company, 
Groton, Conn., October 30, 1920. 
Mr. H. R. Caese, 

President Electric Boat Company, 

New York City. 
Deiar Mb. Cabsb: Enclosed herewith please find copies of Vickers cable of 
October 27th, ours of October 29th, and our letter to them of today, all in 
reference to the question of a submarine engine tender to Bethlehem. 

As there is a rumor going around to the effect that Bethlehem has recently 
come to an understanding with the English armament ring, viz, Vickers, 
Armstrong, etc.. I have thought it just as well not to reveal in any detail our 
plans and policies with regard to enforcing the provisi(ms of our contract with 
Bethlehem to which the letter briefly refers. In this general connection, I 
may say that we now have letters from practically all the Embassies acknowl- 
edging the receipt of the notice which we sent them and stating that their 
Governments would be informed in the premises. 



240 MUNITIONS INDUSTRY 

While on the general subject, I might add that in view of Mr. Chapin's- 
last letter, I feel that we ow^ht not to accept Mr. Edmond's opinion as final, 
and as an opinion from a third source cannot be obtained on a moment's 
notice, I suggest that it might be wise to make a start now towards obtaining 
one. 

Very truly yours, 

L. Y. Speab. 
LYS/NM 
Enc. 

That was the letter that you sent to all the embassies notifying 
them that Bethlehem was under contract with you and that they 
were not free to deal with others? 

Mr. Spear, Yes, sir. 

Senator Clark. What does this refer to where they speak of a ten- 
der to Bethlehem? Was Bethlehem getting bids from Vickers on^ 
the building of submarines at that time? In the first paragraph they 
say, " all in reference to the question of a submarine engine tender 
to Bethlehem." 

Mr. Spear. The question of submarine-engines tender to Bethle- 
hem — yes. 

Senator Clark. To Bethlehem? 

Mr. Spear. Yes. 

Senator Clark. Would that indicate that Bethlehem was getting 
in on the business of building submarines and getting bids from 
Vickers ? 

Mr. Spear. I do not recall, but what I should assume it to mean 
is this, that Bethlehem had asked these other people to give them a 
tender on engines for submarines and that had come to our notice. 
We would naturally think that they were asking somebody to get 
engines 

Senator Clark. You mean that they were preparing to build some 
submarines ? 

Mr. Spear. That they were getting ready to make some bids on 
submarines, which was not permissible at that time. 

Senator Clark. That was at the time when you Avere notifjdng all 
these embassies that they could not deal with Bethlehem because 
Bethlehem was under contract with you; is that right? 

Mr. Spear. In the contract it was provided that they had no 
right at that time to enter the business. 

Mr. Kaushenbush. When did that contract expire? 

Mr. Spear. I think in 1923 or 1924. I cannot tell you exactly be- 
cause there was a question of so many years — I think two or three — 
after the completion of the last work that we placed with them, that 
entered into it. 

Senator Clark. In this same letter that Kost^r wrote to you on 
this general situation, he informed you that he had recently been 
offered a prize in Holland for an essay on " The use and future use 
of submarines for our East Indian colonies." Also that the Naval 
Society had accepted his offer and had issued a call for competitors. 
He goes on to say : 

Duriiiff my stay in Holland. I visited my friends of the Navy League, which 
a.s yon know, I created about 16 years ago, under wnich I am the only honorary 
meraber. We have agreed on a campaign for the strengthening of the naval 
defenses in Holland and India for which a prominent part A'ill be played by 
snhmariiies. 



MUNITIONS INDUSTRY 241 

He was doing all of that as part of his agency for you, Mr. Spear, 
was he not? 

Mr. Spear. Yes. 

Senator Clark. Drumming up business for submarines by organ- 
izing the Navy League and offering prizes. 

Mr. Carse. But we were not getting the business. 

Senator Clark. But that was the purpose of the Navy League in 
Holland, was it not? 

Mr. Spear. Mr. Sutphen just called my attention to the fact — 
although I do not think it is material at all — that the League was 
established long before. 

Senator Clark. This was in 1920 that he went over there and got 
the League to put over this program, and he was an honorary 
member. 

Mr. Spear. There is no question that he was trying to promote 
"his business. 

Senator Clark. Later, Vickers cabled you in regard to the Shel- 
'ders matter, which cable I offer as " Exhibit No. 153." 

(The cable referred to was thereupon marked " Exhibit No. 153.") 

Senator Clark. This cable reads: 

Exhibit No. 15.3 
confirmation 

Elecboatco, New York: 23-8-21. 

For Sutphen Bentleys Code referring to Dutch submarine business for sake 
of good order we confinn arrangement made at interview with you when last 
in London as follows that fl2,000 sterling is the total amount which Electric 
Boat Co. will receive on account of submarine ordered through Vickers from 
Schelde and also on account of drawings which we supply to other 2 builders 
and that neither we nor Schelders nor other 2 builders are under any other 
obligation to you stop we surrender all claims of division of Scheldes profits 
stop for record purposes kindly cable your agreement which we require so 
that we may formally confirm to the Schelde that they are under no obligation 
to you. 

Vickers. 

That was the arrangement that you finally entered into ? 
Mr. Spear. Yes. 

Senator Clark. That was made through Vickers? 
Mr. Spear. Yes. 

Senator Clark. So that submarine construction was according to 
Vickers' plans and patents rather than your own ? 
Mr. Spear. Yes; in Dutch yards. 
Mr. Carse. It covered our patent, too. 
Mr. Spear. It covered our patents also. 

FOREIGN relations FRANCE 

Senator Clark. Mr. Spear, in 1919 Koster wrote a letter to the 
Submarine Boat Corporation, which I will offer as " Exhibit 
No. 154." 

(The letter referred to was marked " Exhibit No. 154 " and 
appears in the appendix on p. 423.) 

Senator Clark. In this letter Mr. Koster informs you that a 
representative of a French newspaper called " Lloyd Francais " had 



242 MUNITIONS INDUSTRY 

called on him and undertaken to sliake him down for 2,000 francs 
for publishing a letter which Mr. Koster had written to the paper; 
is that correct ? 

Mr. Spear. So I gather from what he said. 

Senator Clark. And he had indignantly repudiated this sugges- 
tion and told the newspaper man that, if he did not print it exactly to 
suit him, he would publish this offer of 2,000 francs. That is correct, 
is it not, Mr. Spear? 

Mr. Spear. This was a letter to the Submarine Boat Corporation, 
but has nothing to do with the Electric Boat Co. 

Senator Clark. Well, the Submarine Boat Corporation controlled 
all the stock in the Electric Boat, Co., did it not? 

Mr. Spear. Yes. But just to get the record clear, they are not 
talking about submarines here, but about merchant ships. 

Senator Clark. In any event, it is the same concern. The Sub- 
marine Boat Corporation was the holding company. 

Mr. Spear. At that time; yes. 

Senator Clark. That is what I mean, at that time. 

The Chairman. The Submarine Boat Corporation was a holding 
corporation ? 

Mr. Spear. It was. It is out of existence now. But, if you will 
allow me to interrupt you a moment, Mr. Chairman, it may help to 
explain matters, the Submarine Boat Corporation in its own name 
and not through the Electric Boat Co., constructed a large number 
of ships for the Government, the United States Government, during 
the war at Newark Bay. Subsequent to the war, they were unwise 
enough to take some of those ships from the Government, which 
they attempted through a subsidiary which they formed to operate. 
They were verj^ anxious for a long time to get rid of them, to get 
somebody to buy them. 

The Chairman. And the ownership or stockholdings of the Elec- 
tric Boat Co., are they much smaller than they were in the Submarine 
Boat Corporation? In other words, was the ownership of the 
holding company confined to fewer hands ? 

Mr. Spear. I think it was about as widely spread as the original • 
boat company was. It was very widely spread; yes, sir. 

Mr. Carse. We had at one time about 5,000 shareholders. I think 
it runs about 3,500 now. 

The Chairman. Was Zarharoff a holder of stock in that 
corporation ? 

Mr. Spear. I do not know. 

Mr. Carse. I did not have any knowledge. He told me at one 
time- that he was a stockholder in the company, but he never indi- 
cated how much nor did I ever ask him. 

The Chairman. In the company, you say. Did he ever indicate 
to you that he was a stockholder in the corporation? 

Mr. Carse. Well, it was a corporation at that time, in 1924. It 
would have been the Submarine Boat Corporation in 1924. 

The Chairman. Rather than the Electric Boat Co. 

Mr. Carse. Yes. 

Senator Clark. Mr. Spear, although Mr. Koster had exhibited 
great indignation, on the 27th of June, 1919, at this suggestion that 
he cough up 2,000 francs to this newspaper, by the 23d of July 1919, 



MUNITIONS INDUSTKY 243- 

just a month later, a change had come over the spirit of Captain 
Koster's dreams, had there not? 

Mr. Spear. I do not know, sir. 

Senator Clark. In that connection I will offer a letter which I 
will ask to have marked " Exhibit No. 155." 

Mr. Spear. I will have to refresh my memory on that, Senator. 

Senator Clark. This is a letter to the Submarine Boat Corpora- 
tion signed by Koster. It is dated in Paris the 23d of July 1919. 
I will read the letter [reading] : 

Gentlemen : I have received your favor of July 3d re Lloyd Francais and 
take great pleasure in sending enclosed clipping from this weekly paper which 
contains the article I sent them. I am glad to see that they were decent 
enough to publish without further asking for money, which I certainly would 
not have given them. Moreover, I have obtained that publications adverse 
to American shipping interests will be refrained from. This is quite satis- 
factory results, I believe, and I am glad to be able to report it. 

I now want them to change their attitude entirely and to help us build up a 
fine reputation. For this I may need some funds from time to time and would 
request you to authorize me to do the necessary in a reasonable and rational 
way. 

Yours faithfully, 

(Signed) Koster. 

What was your reply to that, do you recall ? 

Mr. Spear. I never saw the letter. I never got it. 

Senator Clark. Did you, Mr. Carse? 

Mr. Carse. I do not recall it. 

Senator Clark. You do not recall whether you authorized him 
" to do the necessary " or not? 

Mr. Carse. I do not think I did. 

Senator Clark. I take it that " doing the necessary " is about the 
same as " doing the needful " or " greasing the ways ", using these- 
trade terms, is it not? 

Mr. Carse. No; I think the larger part of this audience will con- 
cede that in order to get certain articles in newspapers, some pay- 
ment has to be made of an advertising character, as that would be. 
But I do not recall what this was. 

Senator Clark. You understood Koster's negotiations with the 
French press had to do purely with advertising matters? 

Mr. Carse. I did not see why I should contribute. I would not 
sa}^ now, but I should say that my thought was that I could not see 
why I should spend any money influencing the press in France. 

Senator Clark. Let us step on further, Mr. Carse, in this matter, 
and go to the 13th of February 1922, when there was a letter written 
by Koster to you, Mr. Carse, which I will ask to have marked 
" Exhibit No. 156." 

Senator Clark. This letter is addressed personally to you in your 
capacity as president of the Submarine Boat Corporation, and it 
reads : 

Confidential. 

Deab President : I address this letter personally to you as it contains a matter 
which is extremely delicate and about which I would not like to have misunder- 
standings later on. 

As you know through former correspondence, the general director and the 
secretary general of " Peuhoet " each want to get fifty thousand francs out of 
the contract which they eventually will make with us. 



244 MUNITIONS INDUSTRY 

What was "Penhoet"? 

Mr. Carse. One of the large shipbuilding yards in France. 

Senator Clark. And the general director and the secretary general 
of " Penhoet " each wanted to get 50,000 francs out of the contract, 
Mr. Koster informs you. The letter continues ; 

Further, there are Mi'. Aubin, the director of tlie oflQce for foreign affairs of 
the French shipbuilders, and Mr. Delpierre, general business man and editor of 
the Moniteur de la Flotte, wlio have acted as intermediaries and helpers, and 
who expect to bo paid. 

They proposed that one hundred thousand francs should be divided in equal 
parts between them and me. This undoubtedly will surprise you, and they seem 
to think that I have the same mentality as their " Penhoet " friends. I think 
that it is unnecessary to say that I cannot for a single moment entertain 
this proposal, but in order to get the inside information about the matter which 
I wanted, I had to act as if I consented to the arrangement. As they think 
that I am cut out of the same kind of wood, and would take money belonging to 
my company, they talk very much freer before me than they would do 
otherwise. 

One never knows how such things go, and I therefore want to have the matter 
on record, as I cannot let my reputation suffer, even if I am willing to act a 
part becaiise of the business. 

Without this kind of arrangement no deal can be made in France. Later, 
when the business is concluded. I will find means of letting the people here know 
that I did not abuse the situation, as they now think I do, and which, I am 
sorry to say, they think quite material. I am rather disappointed that they 
have thought that I would go in for their proposal, but on the other hand I 
must say, that nobody in the crowd knows me very well. 

Having in this way unburdened my heart and eased my conscience, I will 
continue to play the villain. 

With best regards and respects. 
Yours faithfully, 

KOSTEB. 

So that, according to Captain Koster, Mr. Spear, they do business 
in France so that it is not only necessary to grease the ways and do 
the needful with the press and with the officials of the companies 
with which you were doing business, but it was also necessary for 
your own agent to be pretending to plunder his company's treasury. 

Mr. Carse. Apparently. 

Mr. Raushenbush. And there is an implication there that the 
French shipbuilding company was doing the same. 

Mr. Carse. Yes. Well, he did not get the money; I know that. 
I do not remember what I answered to him, but I know that he did 
not get the money. 

Senator Bone. Mr. Carse, is that the general psychology of Eu- 
rope ? Does that letter present a fairly accurate picture of the way 
of doing business over there ? 

Mr. Carse. Well, I do not like to say that, Senator. This is one of 
the cases that shows that in this particular instance it was. But, 
because one man or one group of men acted a certain way, it is not 
right to classify all Europe in that same class any more than you 
would do so in the United States. 

Senator Bone. But this chap Koster seems to be giving a fairly 
accurate picture of the reaction that one would get from the way of 
doing business over there. That is correct, is it not, Mr. Spear? 

Mr. Spear. I should say his judgment is pretty good. He is a 
European himself. 

Mr. Carse. We never heard of that in Holland, for instance, did 
we — anything of that nature? 



MUNITIONS INDUSTRY 245 

Mr. Spear. No; not that kind of thing, so far as I remember. I 
think they have a little different standard from some of the other 
European countries. 

Senator Clark. You heard of your licensee going into cahoots 
with a rival company. That may not be exactly the same sort of 
thing, but that is pretty bad. 

Mr. Spear. Yes. My own personal opinion is that it varies a good 
deal in the different European countries. I think in some it is more 
widespread than it is in others. 

Senator Clark. Mr. Spear, you had an equally bad opinion of the 
Balkans, as would be gathered from this exhibit was had in connec- 
tion with France ? 

Mr. Carse. We have never done any business in the Balkans. 

Senator Clark. I direct your attention to a letter which I will ask 
to have marked " Exhibit No. 157." 

(The letter referred to was thereupon marked " Exhibit No. 157 ", 
and appears in the appendix on p. 423.) 

Senator Clark. This letter is to Mr. Carse from Mr. Spear and is 
dated September 14, 1931. At that time you had under considera- 
tion appointing a certain Mr. Menelas Metaxa of Athens as your 
agent in Greece for the sale of Davis guns, Y-guns, and depth 
charges to the Greek Government. 

At the bottom of the page, I direct your attention to this language : 

As to commission, I think it would be best to keep some elasticity in the 
arrangement. Unless there has been some recent improvement in morals in 
the Balkans, I judge that the commission will have to be rather liberal 
in order to make business possible. 

Mr. Spear. I think that was the common opinion. 

Senator Clark. That indicated a rather low opinion of the Balk- 
ans as a whole. 

Mr. Spear. I do not think anybody had a very high opinion of 
their business practices. 

Senator Clark. I do not either. I agree with you entirely. 

Mr. Spear. I hope we do not do them any injustice. 

Mr. Carse. That had nothing to do with the Electric Boat Co. 

FOREIGN RELATIONS — TURKEY 

Senator Clark. Mr. Spear, in 1924 you were trying to negotiate 
some business with Turkey, were you not? 

Mr. Spear. Yes, sir. 

Senator Clark. You had your agent Mr. Johnson down there? 

Mr. Spear. Yes. I do not remember the exact date. 

Senator Clark. I will refer you to a letter written in Genoa dated 
October 22, 1924, which I will ask to have marked as " Exhibit 
No. 158." 

(The letter referred to was thereupon marked " Exhibit No. 158 ", 
and appears in the appendix on p. 424.) 

Senator Clark. This is rather a long letter, but parts of it are 
rather pertinent and I should like to refer to them. On the first 
page, you will note this language : 

The armament wanted for these two boats is apparently the final decision 
of the technical committee and was supposed to have been given to us on the 
8th of September but we did not receive the letter until the 29th. I am 



246 MUNITIONS INDUSTRY 

certain that not one firm .submitted bids to meet these requirements except 
us. The boat is to liave four internal bow tubes and twin deck revolving tubes, 
total number torpedoes carried to be ten (10). Size of torpedoes. 18. 

My letter no. 18 and my cable no. 7 explains what is meant by European 
prices. 

I called on C.N.R. yesterday afternoon and saw Mr. Piaggio and told him 
what I wanted. Mr. Calcagno is in Palermo but is expected back here on 
Sunday. In the meantime I have started things going here in obtaining 
prices for main engines, main electric motors, and storage battery. When Mr. 
Calcagno returns I can take up the other questions and hope to be able to 
give you their figure within ten days from now. 

Then I direct your attention to the following : 

Shortly after I arrived in Angora the first time I was showing some of the 
designs to the officers of the Navy office. One young officer, Escher Bey, came 
to me and started talking about torpedoes. He is the torpedo expert in the 
Navy office and was trained in the British Navy and at Vickers. After I had 
finished with the designs he came to me and asked if I would write a letter 
for him in Elnglish. I told him I would be glad to and he gave me a draft 
of a letter to the Bucharest agent of the Baldwin Locomotive Works about 
a 14" railway-gun battery the Turks are interested in. He told me that he 
would come to my room at seven as he did not wish to be seen in any cafe 
ivith me. 

At seven the same evening Escher Bey arrived at my room and I gave 
him the letter as I had written it. After a short talk about his stay in 
England he told me that the letter was only an excuse for him to come and 
Bee me as he had been waiting for several days to get a chance to speak to 
me but as I had not mentioned torpedoes befoi*e he was unable to do so. He 
Baid the main object of his visit was to tell me that if we wanted the business 
we would have to deal through an office called " Tessund " which handles all 
matters for the Minister of Defense. Two of the officers of the technical 
committee, Escher Bey and Avni Bey, are in this business and that unless we 
wished to discuss this with Tessund it would just be luck if we ever obtained 
anything in Turkey. I told Escher Bey that I had nothing to do with that 
end of the business but that I would speak to the Marquis and arrange a 
meeting with him the following day. He agreed to this and left. 

Was that Marquis, Pesano who was down there representing you, 
as was Johnson? 
Mr, Spear. Yes. 
Senator Clark. He continues: 

I told the Marquis the whole story and advised him that we would look 
Into the matter and see just what could be done. The following day that 
Marquis met Escher Bey and Ismail Hakki Bey at the office Tessund and they 
asked for Turkish pounds 50,000 for their help in case we got a con- 
tract. * * * — 

That was about $25,000 in our money at that time, was it not, 
Mr. Spear? 

Mr. Spear. I think so, about that. 
Senator Clark. The letter continues: 

As 50,000 pounds would not lose us the contract in any case the Marquis 
agreed to their terms and when he returned to Constantinople drew up a 
paper before a notary agreeing to pay to Tessund 50,000 pounds in case we 
received an order for a submarine, half to be paid with the order and the 
other half in pi-oportion to payments received from the Government. The 
first half was to go to the Minister of Defense. Tessund then told us that 
we would receive a call from Colonel Edib Bey who is Tessund and the right- 
hand man of Kiazim Pacha. Edib Bey called in due time and talked with 
• us about the business. Said our great trouble was our very high price and 
we went into detail explaining why our prices were high as compared to 
foreign firms. He said that he was going to Angora soon and that he would 
see the Minister. 



MUNITIONS INDUSTRY 247 

One reason the price had to be high was that you had to pay 
50,000 pounds to the Minister of Defense and his friends, is that 
correct ? 

Mr. Spear. I do not think so. The price had all been settled 
before that, so far as I Ivnow. 

Senator Clark. The letter continues : 

Wlien the Marquis joined me in Angora on the 27th of September Eilib 
Bey was also there and it was through him we obtained tlie twelve-day 
extension to submit a tender for the boat \\ith the deck tubes and the four 
internal bow tubes. The INIarquis also saw Kiasim Pacha with Edib Bey and 
started the conversations which finally led the Minister to promise the Marquis 
two boats if we could give European prices for them. My letter no. 18 
explains this matter. 

Admiral Bristol's remarks about baksheesh do not hold good." 

Do you know what he meant by that? 

Mr. Spear. I think Admiral Bristol, who at that time was our 
diplomatic representative in Turkey 

Senator Clark. I know he was. 

Mr. Spear. I think Admiral Bristol was quite pro-Turkish and 
had reached the opinion that there had been a complete reform in 
Turkey at that time and that baksheesh had died out. 

Senator Clark. And Johnson found out that that was not true 
very soon after he arrived in town. He continues in this letter : 

We watched the office Tessund during our stay in Angor;i but (iid not see 
any of our competitors enter there. De Per rot once told me that he had tried 
to talk to Escher Bey but that he was turned down by him. So it appears 
that they were not playing the game in every direction but acted on the square 
with us. 

In other words, Mr. Johnson thought there was honor even among 
thieves, apparently. 

This naturally brought up the question of the 5% to Ben Ayad. We told 
the Prince that owing to the keen competition we would have to reduce his 
commission and he agreed to accept one percent (1%). Thus to the price we 
submitted with his one percent we added $25,000 to cover Tessund and also 
for the necessary stamps duties we would have to pay in case we received a 
fon tract. 

Who was the Prince, Mr. Spear ? 

Mr. Spear. I have a very vague recollection, Senator, that this — 
whatever his name was — 

Senator Clark. Ben Ayad? 

Mr. Spear. Yes. He had approached us sometime before — not 
us directly, but I think the Paris office and made some arrangement 
with them to act for Turkey. 

Senator Clark. And it was proposed to cut down his commission 
from 5 percent to 1 percent? 

Mr. Speajr. I should judge that would be the case from this letter. 

Senator Clark (reading) : 

Up to the time I left, a decision had not been given as to what firm would be 
given the one boat but general opinion was that Chantiers de la Loire would 
get it. It will be a French firm we knew. Just before the 28th of September, 
General Mougin arrived in Turkey on a mission and was in Angora that week. 
Edib Bey, who had told us that he would not go to Angora unless absolutely 
necessary, left hurriedly for Angora in response to a wire from Tessund. Also, 
just previous to that, France had given Turkey 50,000 pounds for the Ezerum 
earthquake victims. Putting all this together and adding the remarks of the 



248 MUNITIONS INDUSTRY 

Minister to the marquis that he was " controlled ", it seems to me that it de- 
veloped into a political question and Turkey repaid France by giving the French 
firm the order for the first submarine. 

The marquis had a very severe time of it with the Prince and worlied for 3 
or 4 days with him to Iceep liini (the Prince) from making a scandal and 
injuring our future chances in Turkey. The Prince when he heard tliat we 
would not get the order went wild. He wanted to write open letters to the 
Opposition press in Constantinople about the submarine business and also 
wanted to send a telegram of protest to Ismet Pacha, the Prime Minister. For 
3 days there was a struggle and at last the marquis convinced the Prince that 
the only thing to do was to keep quiet and keep on fighting for the future. The 
Prince agreed to this. Undoubtedly the l*rince ^^•as a great help in the be- 
ginning and through him the marquis met Ohukri Bey and several other very 
influential naval officers in Constantinople and who have and will do everything 
in their power to help us in obtaining orders there. The marquis acted prop- 
erly after he got to Angora and did not take the Prince into his confidence in any 
way. That was why the Prince wrote to Captain Koster complaining about the 
way he was treated. We were told by many people in Angora to get the 
Prince out of that place as soon as possible and keep him away as he was doing 
us more harm than good by his everlasting talking about things he knew noth- 
ing about. We did get him away and he remained in Constantinople the rest of 
the time. His uncle owns the paper of the Opposition and anyone connected 
with that crowd is not at all welcome in Angora. Another thing the marquis 
handled extremely well was the deputies. 

Senator Clark. I take it " deputies " in this case correspond to 
Senators and Congressmen over here? 

Mr. Spear. I suppose so. 

The Chairman. Did you say "correspond" or "resemble"? 

Senator Clark. I mean they would have the same functions in 
the government. [Reading:] 

They hang about Angora and Constantinople trying to obtain their 1 percent 
commission on orders for the Government and really do more harm than good. 
They have no direct influence at all and only hope that luck will get them a 
commission. The marquis was approached by any number of such men but 
always turned them down. I, too, was approached in Angora by several men 
but passed them by. Here, people have come to grief in their dealings in 
Angora by mixing up with the deputies. 

The marquis is in excellent relations with the Minister of Defense and the 
oflieers of the technical committee. Abdul Rahim Bey is the only man I am 
not sure of, but he is such a fool that one cannot expect anything from him 
at any time. 

The marquis is also in good relations with very prominent members of the 
oppo.sition, including Enver Bey, Rizza Bey, and the leader of the opposition, 
Renuff Bey, who was Prime Minister before Ismet Pacha. 

The political situation in Turkey is serious and they expect a lively time 
at Angora during the special session which met last Saturday. Kiasim Pacha 
has held the office of the pre.'^ident of the national defense under both Prime 
Ministers and, no matter what happens to the present Cabinet, Kiasim will 
certainly remain at his post. 

Chukri Bey, who is commander of all light craft and will also have tlie sub- 
marines under him when tliey are in commission, has written to the Minister 
of Defense protesting against awarding a contract for the submarine until 
after he has had a chance to examine tlie various projects submitted and can 
make his recommendations also. This the marquis asked of Chukri. Just 
what will come of it I do not know btit, when I left, the rumor was about that 
a special committee would be formed to examine into the plans. I wrote you 
about that before but it then seemed to have died a natural death, but now 
seems to have come to life again. Constantinople is full of rumors all the 
time and one must use care in believing anything. 

The marquis will stay in Constantinople until he receives the Y gun letter 
and then will go to Angora and see the Minister about the ordnance business. 
It is again a question of price, especially for the depth charges, and I sug- 
gested to the marquis to make a strong talk about the safety features of our 
type of charges. He has a copy of Winkler's letter to you, and there is also 
a short notice in Jane about the charge. 



MUNITIONS INDUSTRY 249 

As soon as Mr. Calcagno returns we can set down to work and have the 
offer for you in plenty of time. We have until the middle of November and 
can probably get an extension if absolutely necessary, but I do not think 
that it will be necessary. I can talk to anyone at C.N.R. now that Mr. Calcagno 
is away and Ing. Ferrari has left. I can make Mr. Piaggie understand, but 
in the technical office it is hard work. Use a mixture of English, French, 
German, and Italian, and in that way can get things started, but I am not sui-e 
at all times that I am understood. 

Captain Battaglio is in Rome and last night I wired him that I would be here 
for a week. This noon I liad a wire from him saying that he would be 
here Friday. I will find out what the situation is in Italy and also about the 
two destroyers C.N.R. are building at Riva Trigossa. 

Senator Clark. Now, did anything come of all these negotiations 
with Escher Bey and all of the other Beys ? 

Mr. Spear. Nothing at all. 

Mr. Carse. The Italians got the business. 

Senator Clark. Now, in 1928, some several years afterward, you 
resumed negotiations with Turkey again; did you not? 

Mr. Spear. Yes. 

Senator Clark. Your negotiations and your communication came 
to you through Mr. Sterling J. Joyner. 

Mr. Spear. Yes, sir. 

Senator Clark. What is Mr. Joyner's connection with the 
company ? 

Mr. Spear. Vice president of the company, located in Washington. 

Senator Clark. What are his duties in Washington? 

Mr. Spear. His duties are to handle any business we have here 
with foreign embassies, and things of that character. 

Senator Clark. Does he occasionally do a little lobbying on naval 
bills? 

Mr. Spear. I do not know of any. 

Senator Clark. Or on construction bills? 

Mr. Spear. I do not know of any. 

Senator Clark. He is vice president of your company? 

Mr. Spear. Yes. 

Senator Clark. I now direct your attention to a letter dated 
January 19, 1928, from S. S. J. to yourself, which I offer as " Exhibit 
No. 159." 

(Said letter was marked "Exhibit No. 159", and appears in the 
appendix on p. 427.) 

Senator Clark. I note this letter is signed " S. J. J.", that would 
be Mr. Joyner? 

Mr. Spear. Yes ; that would be Mr. Joyner. 

Senator Clark. I think this letter should be read in some detail 
although I dislike to take the time. I will read it as follows : 

Dear Lawrence: I ran into a situation that may prove to be veiT attrac- 
tive and profitable. However, there are certain conditions that go with it 
which are absolutely and positively part of the bargain or understanding at 
the start — conditions over which I had no control, and which were not sug- 
gested by myself, and which are most arbitrary because of the fact that this 
whole proposition had been carefully canvassed before I was brought into it 
at all. It has to be absolutely confidential in every manner, shape, and form. 
However, for your information, on a separate card I will tell you who has 
approved of the primary proceedings. 

I have been in long conferences with no. 1, no. 2, and no. 3, with no. 3 and 
no. 4 present and, secretly, this is the story : Because of certain conditions 
developing in their country, and " forewarned being forearmed ", Kemal Pasha, 
head of the Republic, has communicated with his representatives, nos. 1 and 2, 



250 MUNITIO>rS INDUSTRY 

expressing a desire to arrange to place orders in the United States immediately 
for submarines, for antiaircraft guns, for aircraft, machine guns, and for 
other necessary munitions for this equipment. When this request was for- 
warded to nos. 1 and 2, they immediately took it up with no. 4, and nos. 1 and 2 
discussed it with no. 4. I think nos. 4 and 5 discussed it between themselves. 
Then it resolved itself upon the question of picking the man whom all parties 
could tru.st. That party was no. 6. 

Now, no. 6 was the man that was writing the letter. 

Mr. Spear. I think so. 

Senator Clark. He was the man that all parties could trust. 

Mr. Spear. I think so. 

Senator Clark. No. 1 was Ahmed Mouhter Bey, Turkish Am- 
bassador; no. 2 was Ahmed Bedy Bey, counsellor; no. 3 was Kemal 
Djenany Bey, second secretary; no. 4 was Admiral H. E. Long; 
no. 5 was Admiral Hilar}^ Jones; and no. 6 was Mr. Sterling J. 
Joyner. 

Mr. Spear. Yes, sir. 

Senator Clark. Who was Admiral H. E Long? 

Mr. Spear. Admiral H. E. Long at that time was in active serv- 
ice of the Navy and I think he was the president of the Naval Board. 

Senator Clark. Who was Admiral Hilary Jones? 

Mr. Spear. He is a very distinguished retired officer in the Navy. 

Senator Bone. He had attended the Geneva Conference as an 
attache, previously. 

Mr. Spear. I think he was at both the Geneva and London Con- 
ferences as one of the officers of the naval delegates. 

Senator Clark. I read further from this letter as follows: 

Of course, no. 6 was delighted to have an oppoi'tunity to discuss the matter.. 
Nos. 4 and 6 met with nos. 1 and 2 at uos. 1 and 2's I'esidence and had a very 
long discussion. It was then and there decided that no. 6 was to proceed to 
secure the information, arrange for a conference at no. I's residence, and to 
bring about, if possible, a defensive program so far as the parties concerned 
were in a position to prepare and supply. This will necessitate certain men 
from various companies — after a conference here proceeding to Turkey and 
conferring with Kemal Pasha and his officials for the closing of the orders, 
meaning terms, payments, prices, deliveries, and types of equipment to b«» 
approved of in Turkey. This may lead to program of reorganizing to a fair 
extent their military program at this time. They hiive been buying large 
supplies of material in England, France, and other countries. They are now in 
a position to really purchase in the United States, and it is their desire and 
absolute disposition to do so because they believe that the United States Gov- 
ernment has no selfish interest from a territorial point of view, and that the 
other nations really have. Also that the placing of the business in the United 
States will equip them in a diplomatic way to treat on other subjects which 
are being diplomatically considered at this time. The strength of our position 
is the fact that we are the only ones called in and that we will be the ones who 
will bring in the others, and that our position is absolutely confidential \ip to 
this point, and that you and the writer will brhig nbout the meeting and 
will from time to time have private conferences and that we will be in a position 
to control the activities of anyone we bring in, i)rovided we are careful in our 
choice and that we have the proper understanding in advance with those whom 
we bring into the picture. The machine gun they have in mind is the Brown- 
ing gun, which is m.inufactured by license through the Browning interests by 
the Hartford, Colt Arms Company, of Hartford, Conn. They are also quite 
willing to consider other machine guns. They have spoken of the Driggs Com- 
pany. However, having had dealings with that company and with the most 
friendly relations existing at this time. I do know their methods and strongly 
recommend against even giving them a hint of a possibility of an alliance in 
this business. I shall be glad to explain in detail. 

The antiaircraft guns should be in line with our own recommendations and 
types. 



MUNITIONS INDUSTRY 251 

The confidential feature of the matter is that no. 4 will really be the one 
whom they will largely depend upon in private conference, and it was no. 4 
who, through courtesy and kindness, brought me into the picture, on the advice 
of no. 5. There are certain oriental conditions, quite confidential and personal, 
which will enter into this matter, which we will also have to discuss and which 
we will also have to control. 

Do you know what those oriental conditions were? 
Mr. Spear. I do not know what he had in mind. 
Senator Clark. I read further: 

The last part of the picture is that they insist that I close the contracts 
with Kemal Pasha, and that such men as go over are simply technical experts, 
because they do not want to complicate the situation with too many executives, 
and unless these conditions can be met, they would discourage any further 
consideration. They give us considerable latitude, saying that they are i)er- 
fectly willing to have us recommend various companies, so long as we can 
assume responsibility for their integrity and gTiarantee the quality of their 
output. I can arrange quite readily any time for a conference at no. I's resi- 
dence with you and such representatives of organizations that might be identi- 
fied with our organization, and will do so after you have had a chance to 
discuss the situation thoroughly with the people whom you care to bring into 
the matter. So far, this is a cash proposition, properly protected and fortified 
in a business-like way. In addition to that, there are certain military require- 
ments that will be purchased, such as tanks, etc. Also guns, one-pounders, etc., 
which will be used for antitank warfare. Aside from the above, there are 
certain industrial requirements, machinery and equipment for arsenal purposes 
and commercial purposes, which will also be purchased. 

This business will be without competition because of its confidential nature, 
if I am correctly informed at this time. One of the essences of the whole 
future is speed. If you can arrange with the Colt people, or any other people 
who manufacture machine guns, to show to nos. 1 and 2 certain samples of 
their guns, or in any case to present photographs, specifications, and such other 
information as they may have available, it will serve the purpose of nos. 1 
and 2 so far as their position here is concerned, and they in turn will then 
communicate with Kemal Pasha and such other officials as are to be associated 
in this matter, and make the necessary arrangements resulting from any deci- 
sions arrived at during our conferences. Am quite interested in learning your 
reaction just as soon as possible. Keep this entirely confidential, please. 
Very sincerely yours, 

(S) S. J. J. 

Then there is a postscript as follows : 

Since dictating the above, have talked to you on the telephone. 

Now, Mr. Spear, what was done in pursuance to that communi- 
cation ? 

Mr. Spear. In pursuance of that I got in touch with Mr. Lowney 
and the Wright Company. 

Senator Clark. They make airplanes? 

Mr. Spear. Yes ; they make airplanes, and I also got in touch with 
the representative of the Colt Co. and those two gentlemen, myself 
and Mr. Joyner held a conference with the Ambassador and his coun- 
sellor in regard to this subject, at which time they discussed a great 
many things they thought they were interested in. I do not recall 
what the net result of it was except that we went over the whole 
situation, endeavoring to check up whether Mr. Joyner had received 
the correct impression. I got the impression from that conference 
that the Ambassador who considered this matter was instructed by 
the Pasha to make these arrangements in the United States. 

Senator Clark. Were they executed here? 

Mr. Spear. No, sir. 



252 MUNITIONS INDUSTRY 

Senator Clark. Did the scheme fall through? 

Mr. Spear. It fell through. 

Senator Clark. Now, Mr. Spear, or Mr. Carse either one, can you 
tell us how long it has been the practice of the Electric Boat Co. of 
using naval officers as agents? 

Mr. Spear. It has never been our practice. 

FOREIGN RELATIONS — JAPAN 

Senator Clark. I refer you to a letter from Mitsui & Co., of Japan, 
dated 34 Lime St., London, June 6, 1912, which I offer as " Exhibit 
No. 160." 

(The letter referred to was marked " Exhibit No. 160 ", and appears 
in the appendix on p. 428.) 

Senator Clark. This letter, " Exhibit No. 160 ", addressed to I. L. 
Rice, Esq., President of the Electric Boat Company, London, reads 
as follows : 

In confirmation of the conversation the writer had witli you on the 4th 
instant at the office of Messrs. Vickers L., Victoria Street, S.W., we beg to 
record by this letter the arrangement made with reference to our sole agency 
in Japan for the sale of your submarine or rearly submerged boats, on a 
commission basis, as follows : 

We undertake to exercise due diligence and to make our best endeavor 
to secure orders, either directly or Indirectly, from the Japanese Government. 

What is meant by " We undertake to exercise due diligence and 
to make our best endeavor to secure orders, either directly or in- 
directly, from the Japanese Government " ? 

Mr. Spear. I do not know, sir. I do not think I ever saw this 
letter in my life. 

Senator Clark. I read further : 

We will employ the services of Admiral T. Matsuo to cooperate with us 
in securing such orders from the Japanese Government. 

Do you know who Admiral T. Matsuo was ? 

Mr. Spear. I have no direct knowledge. 

Senator Clark. Do you know whether he is on the active list or 
retired ? 

Mr. Spear. I presume he was retired or they would not have been 
so open in saying they had employed him. 

Senator Clark. Reading further, the letter says : 

On nil orders received by the Electric Boat Co., either directly or indirectly 
they will pay a commission of 10 percent on the total value of such orders. 

Out of this commission we agree to pay for Admiral jNIatsuo's services as 
well as such other expenses as cablegrams and other incidental items. . 

Payments in respect of the above commission to be made to us as and when 
the p]lectric Boat Ca). receive payments in cash. 

It is clearly understood that, notlnvithstanding the agreement now recorded, 
we shall be at liberty to work for Messrs. Vickers L. for similar products 
whenever we are called up(m to do so. 

The agreement in question is terminable at any time by one year's notice to 
that effect, given by either party. 

We shall be glad to have your confirmation of the above. 

Then that was confirmed by Mr. Rice ? 
Mr. Spear. Yes. 

(The letter of confirmation was marked " Exhibit No. 160-A", 
and appears in the appendix on p. 429.) 



MUNITIONS INDUSTRY 253 

Senator Clark, Do you know how long that agreement was in 
existence ? 

Mr. Spear. No; but from memory I should say that expired 
about — I think there is some mistake in copying tliat letter. I think 
that is of a much earlier date. 

Senator Clark. It is dated 1912, the copy I have. 

Mr. Spear. The reason I say that, Senator, I recall having an 
agreement, and this makes no reference to any previous agreement 
of any sort from which you would infer one had previously existed 
and it does not refer to being a modification or continuation, and it 
is my knowledge that Mitsui was our agent in Japan as early as 
1903, and I imagine this letter was 1902 instead of 1912. 

Senator Clark. How long did they remain your agents over 
there ? 

Mr. Spear. I think they were our agents for about 6 or 8 years. 

Senator Clark. Did you ever get any business out of them ? 

Mr. Spear. Yes; we received one order. 

Senator Clark. What was that order? 

Mr. Spear. An order for some submarines. 

Senator Clark. For the Japanese Government ? 

Mr. Spear. Yes. 

Senator Clark. You never licensed them to manufacture for any- 
body except the Japanese Government? 

Mr. Spear. We did not license them to manufacture for anybody. 
We never had any license agreement with them. T]\ey acted merely 
as our agents to sell our products in Japan. 

Senator Clark. Wasn't that 10 percent you gave them an unusu- 
ally large commission on submarine business ? 

Mr. Spear. I should not think so at that time. I should say that 
is about what the business was able to pay. 

Senator Clark. Then, when it came along to 1926, you then found 
Mitsubishi, a different concern, were manufacturing submarine boats 
for the Japanese Government. 

Mr. Spear. Yes. 

Senator Clark. You suspected they were infringing your patents, 
and I refer you now to " Exhibit No. 161 " offered in evidence, which 
is a letter dated September 17, 1926, addressed to Mr. Spear from Mr. 
Carse. 

(The letter referred to was marked " Exhibit No. 161 ", and appears 
in the appendix on p. 429.) 

Senator Clark. This letter, " Exhibit No. 161 ", says : 

Mr. Joyner has returned and has gone over things very elaborately with 
us and, as previously advised you by cable and letter, he has in hand two 
submarines of 2,500 H.P. ; two of 3,000 H.P. and two mine layers, also several 
of the other vessels mentioned. There is no doubt from the details he has 
gone over with us that he has this business in hand, and he having spent 
two days at Groton with Mr. Sutphen, they feel there that the company can 
without doubt fulfill the requirements. Mr. .Joyner sails on the Berengaria 
on the 22nd and will meet you in London to discuss matters. 

Were those boats to be constructed for Japan? 
Mr. Spear. Yes. 

Senator Clark. When you said, " Mr. Joyner has this business 
in hand ", you were referring to Japanese business, Mr. Spear ? 
Mr. Carse. I wrote that letter. 

83876— 34— PT 1 17 



254 MUNITIONS INDUSTRY 

Senator Clark. You had in mind the Japanese business, when 
you made that statement in the letter? 
jNIr. Carse. Yes. 
Senator Clark. I continue readinii; from this letter as follows: 

He mentions tliat Jfitsnbishi has been building a large number of submarine 
boats for .Tapan for some years b,i<-k and elaims that the boats are from our 
designs. They have even been figuruig with tlie Argentine Minister about build- 
ing the Argentine lioats in Japan. He staters that Viclier.s had a very large 
oflice ut Mitsubislii's plant and that Vicivors has a claim against the Japanese 
Government of twenty four million yen. but just what it covei's he does not 
know exacrtly but has an idea there is something in it about submarine boats. 
He states that Japan has offered Vickers twelve million yen in settlement, and 
T have thought that perhaps we might have some interest in this claim. 
li would seem as thougli Vickers had double-erossed us in Japan in not 
having tlie contract executed by Mi^subislii which I sent tliem in 1916, which 
pro\-ided for a royalty of ten per cent of the gross price. I know they have 
given you an explanation that the British Government had given the plans of 
the " k " boats to Japan and tliereforo Mitsubishi did not think it necessary 
to go forward with our contract, but this might be something that would be 
worth while your investigating pretty closely while in London. I do not 
like to say anything harsh about Vickers because they have proved to be our 
friends in' a number of other cases. You will see Joyner and he will give you 
all this at first hand. 

Did you pursue that investigation closely, Mr. Spear? 

Mr. Spear. I looked into it as best I could. I think the question 
referred to was as to whether or not the Vickers people had any right 
or authority to make a license to Mitsubishi which allowed Mitsubi- 
shi to think they could use our patents, and that had been discussed 
with them before. 

Senator Clark. Yes ; Mr. Carse says here : 

I know they have given you an explanation that the British Government 
had given the plans of the " K " boats to Japan. 

What were those plans? 

Mr. Spear. They were special plans of a boat built by the British 
Government, a very high-speed boat. 

Senator Clark. As I understand, the British Government had 
given them those plans and they were not operating under your 
plans, but operating under the plans given them by the British 
Government, and they did not have to pay you anything. 

Mr. Spear. That was the understanding. 

Senator Clark. Did you have any other negotiations about it? 

Mr. Spear. No ; it happened that we could not do anything, so it 
was dropped. 

Senator Clark. On page 2 the letter says : 

Joyner, at request, is going to London to consult with Hayashi in regard to 
the trip of the Prince here next year, and it is further intimated that perhaps 
Hayashi has additional business. Matsaduria telephoned Joyner this morning 
that his business would probably be increased to three of the smaller 
submarines. 

Now, who was the Prince ? 

Mr. Spear. That was some Japanese prince arranging a visit to 
the United States, Chicabu, I think. 

Senator Clark. Joyner was arranging this trip for the Prince to 
the United States, arid was called to London to make the arrange- 
ment? 

Mr. SuTPHEN. That was a brot^^er of the Emperor. 



MUNITIONS INDUSTRY 255 

Mr. Raushenbush. Senator Clark, Mr. Sutphen says that was a 
brother of the Emperor. 

Senator Clark. Down here it further says : 

I have not heard anything from you in relation to the quotation on the cargo 
vessels and Joyner seems to be extremely confident that the Japanese friends 
will take six of our boats at at least $1GO,000 a piece. If this should he so, 
we would of course prefer not to sell any more just now, especially at the 
lower price. 

What were those cargo boats, Mr. Spear ? 

Mr. Spear. They were the same ones we have discussed before, 
built by the Mitsubishi Shipyards. 

Senator Clark. Did the sale of those boats go through? 

Mr. Spear. No. 

Senator Clark. What happened to it? 

Mr. Spear. It just died. 

Senator Clark. Did Joyner proceed and arrange for the trip for 
the Prince? 

Mr. Spear. I think he continued to arrange where he would go, 
and made reservations. 

Senator Clark. Still you did not get the business, although he 
continued to entertain the prince? 

Mr. Carse. We did not entertain the prince. The Prince of 
Japan, I do not think, accepts those things. He was in mourning at 
that time, because his brother had died. 

The Chairman. He was different from the ministers from some 
of these Balkan States? 

vigkers 

Senator Clark. Now. Mr. Spear, in 1930. you were informed by 
Vickers they were making contracts for Portugal's business and 
they were splitting that business with two other concerns. I refer 
you to this letter which I will ask to be marked " Exhibit No. 162 ", 
being a letter from Commander Craven dated November 28, 1930. 

(The letter referred to was marked " Exhibit No. 162 ", and appears 
in the appendix on p. 431.) 

Mr. Spear. What is the question about the letter, Senator? 

Senator Clark. They asked you again to cut your commission in 
order to get that business? 

Mr. Carse. I think they always did that. 

Senator Clark. Did you do it? 

Mr. Carse. I think I told them we would do the right thing that 
was necessary, if they secured the business. I think they never se- 
cured the business. 

Senator Clark. He says they had the business, in this letter. 

Mr. Spear. It was some time later they secured the business. 

Mr. Carse. I suppose I met them half way; that was the usual 
custom. 

Senator Clark. Now, coming back to the Marquis Passano, how 
long was he your agent over there, Mr. Carse? 

Mr. Spear. I can tell perhaps better than Mr. Carse. From about 
1912, I should say, until the second revolution in Russia he was our 
representative in Russia. We had licensees there who did the busi- 
ness for the Government, but he was our representative. As Mr. 
Carse told you a while ago, he came to this country, and he stayed 



256 MUNITIONS IXDUSTRY 

for a while, possibly a year or more, then we moved him on to Eu- 
rope, and he was attached to our Paris office up until we closed the 
office about 1930 or 1931. He has subsequently died. 

Senator Clark. Was he in the employ of your company when he 
died? 

Mr. Spear. No, 

Senator Clark. I refer you to your letter of April 13, 1925, which 
I ask to be marked " Exhibit No. 163." 

(The letter above referred to was marked " Exhibit No. 163," and 
appears in the appendix on p. 431.) 

Senator Clark. To quote this letter of yours of April 13, you had 
concluded that the whole record of Passano for 4 or 5 years seems 
to be a regular opera bouffe, and yoii said you could not let him 
know Koster had anything to do with his expense account, because 
he would run Koster crazy, deviling him for money for expenses. 
Yet, in spite of that, Passano received more compensation than 
Koster? 

Mr. Carse. He did; yes. 

Mr. Spear. That was on account of the franc depreciation. 

Mr. Carse. Yes; his contract was in dill'erent money. But you 
know you cannot always do business the way your business judgment 
dictates. You have to have a heart sometime. Passano had worked 
very earnestly in our favor in Russia, and he had been driven out 
with his wife and boy, and the boy was not just exactly all there. 
He had a daughter that was left in the interior of Russia and I had 
located her; she had not been killed. Passnno was a great big fellow 
with big bushy whiskers and carried himself like the emperor of the 
world. He had used up the commissions we paid him when he came 
from Russia, and if we had thrown him overboard, I do not know 
what would have happened, and naturally we kept him on the pay 
roll. 

Senator Clark. You did finally fire him in 1927, in spite of the fact 
you did not know what he would do to keep from starving ? 

Mr. Carse. His wife had had a very serious illness and had died. 
We hacl advanced them money at that time for expenses in the hos- 
pital, and so forth, which he repaid, but times were getting so that 
our own finances were in such a position we had to stop and figure 
where we were going to get the money from, and as that office had 
not produced any money for a very long period of time, we had to 
take the bit in our teeth and do what was absolutely necessary. As I 
say, we hesitated and dragged along for some time, because it seemed 
cruel to treat a man, who had given us the best he had, any other way. 

Senator Clark. Mr. Carse, did you pay Koster in shares in your 
company at any time? 

Mr. Carse. No. 

Senator Clark. He bought shares. 

Mr. Carse. Yes; he bought shares. 

Senator Clark. He mentions in the letter he had 3,400 shares in 
your company. 

Mr. Carse. Yes, sir. 

Senator Clark. Do you know whether he still has them? 

Mr. Carse. I do not think so. There is no indication he has. 

Mr. Spear. I understand he does not have them. 



MUNITIONS INDUSTRY 257 

Senator Clark. Now, Mr. Spear, in this letter from Carse about 
the Japanese business to which I referred a moment ago, it winds up 
with the statement, " If you see Sir Basil give him my very best re- 
gards." Did you see Sir Basil on that trip? 

Mr. Spear. Yes, sir. 

Senator Clark. Did he have anything to do with the Japanese 
business ? 

Mr. Spear. Not a thing. 

Senator Clark. Did he have any connection with you at any time 
except on the Spanish business? 

Mr. Spear. Yes ; at one time he did. 

Senator Clark. What was that aside from the Spanish business? 

Mr. Spear. From 1902 or 1903 to about 1912 he was our general 
representative for continental Europe, and about 1912 or 1913 Mr. 
Rice, then president of the Electric Boat Co., terminated that, and 
thereafter he has had no connection with our business except, as we 
already know, the Spanish business. 

Senator Clark. I direct your attention to a letter dated August 
11, 1933, when you were contemplating a trip to Europe, which I 
offer in evidence as " Exhibit No. 164." 

(The letter referred to was marked " Exhibit No. 164 ", and appears 
in the appendix on p. 432.) 

Senator Clark. In this letter, which is from Mr. Carse, on page 
1. he says: 

There is notliing oi importance for i:.s in Europe except the Lanova develop- 
raut at Munich, where Mr. Nibbs will be. 

What was the Lanova development at Munich ? 

Mr. Spear, That was an improvement on an engine. We had 
built up a new engine and it was in a laboratory in Munich and it 
was being tuned up under the direction of an engineer named Lang. 

Senator Clark. I read further from this letter: 

If, however, you should visit Spain, while a rumor was current sometime 
ago that Sir Basil Zarahoff had died, I saw an article in one of the papers a 
lew days later denying the early statement and declaiming that he was 
apparently in very good health ; so that if Sir Basil is still alive, we would 
not be at liberty to discuss with either the Spaniards or with the Vickers 
any modification of the current agreement with the Spanish concern, as that 
is absolutely the business of Sir Basil. 

Senator Clark. Did you see Sir Basil on that trip ? 

Mr. Spear. I did. 

Senator Clark. You found him still alive? 

Mr. Spear. He was still alive ; yes, sir. 

Senator Clark. Now, in 1929 Mr. Koster proposed to you that he 
go to the Naval Conference at London as your representative, did 
he not ? 

Mr. Spear. He did ; yes, sir. 

Senator Clark. I offer a letter from Mr. Carse to you, Mr. Spear, 
under date of November 20, 1929, as " Exhibit No. 165." 

Mr. Spear. Yes, sir. 

(The letter referred to was marked " Exhibit No. 165 ", and appears 
in the appendix on p. 433.) 

Senator Clark. And Mr. Carse very definitely turned down this 
representation ? 

Mr. Spear. Absolutely, and told him to stay away. 



258 MUNITIONS INDUSTRY 

Senator Clark, He said in that letter: 

The conference will work itself out in its own way and without any advice, 
assistauce or interference, actual or claimtMl, on the part of any of our repre- 
sentatives. 

Mr. Spear. Yes, sir. 

Senator Clark. Mr. Joyner was actually there, was he not? 

Mr. Spear. No, sir. 

Senator Clark, He was not? 

Mr. Spear. No, sir. 

Senator Clark. What was your contract with Vickers with re- 
gard to paying them for contracts made by your own licensees in 
Dutch territory ? 

Mr. Spear. Let me see if I get the import of that. Paying them 
for contracts? You mean paying them something for work done 
by our licensees? 

Senator Clark. Yes, sir. 

Mr. Spear, That is all covered. Senator, in the agreement which 
has been spread upon the record, I thing that is what you refer to. 
If 5'ou will let me see the letter I can tell. 

Senator Clark, I do not believe it is of any importance; if it is, 
I can come back to it. That is all I have. 

Senator Vandenberg. I would like to ask Mr. Spear a general 
question. Mr. Spear, has there been any commercial utility de- 
veloped with respect to submarines? 

Mr. Spear. So far as submarines themselves are concerned, noth- 
ing of any importance, Senator. 

Senator Vandenberg. In other words, the submarine is exclusively 
an instrumentalitj^ of war? 

Mr. Spear. Yes, sir. 

Senator Vandenberg. Then if the Government, either in the 
United States or in conjunction with other governments, were to 
undertake to control the submarine business, there would be no diffi- 
cult question arising as to whether or not there is anything except 
a war use involved for the submarine? 

Mr. Spear. No; the few applications which have been made in a 
very minor way to use it commercially are of no importance, Senator. 
Primarily it is a defensive weapon in war. 

Senator Vandenberg. It would be the simplest possible thing to 
use in the curtailment of war instrumentalities, in that it would not 
involve anj^ collateral uses? 

Mr. Spear. That is true of all types of war vessels. 

Senator Vandenberg. It is not true of airplanes and so forth. 

Mr. Spear. No; not strictly of airplanes. It is of war vessels. 

Senator Vandenberg, Let me ask you this question : If the sub- 
marine production, being the production of a war instrumentality, 
were controlled exclusively in the United States, the net result would 
simply be to leave this field open in other countries. Is that cor- 
rect? 

Mr. Spear. Yes, sir. 

Senator Vandenberg. Now, will you state for the record what 
countries would have to join in an international agreement in order 
completely to control a submarine situation ? 



MUNITIONS INDUSTRY 259 

Mr. Spear. Great Britain. France, Italy. Spain, Russia, Holland, 
Denmark, Sweden, Nor\va,v, Finland, Argentine, Brazil, Peru, Yugo- 
slavia, Rumania, and Turkey. 

Senator Vandenberg. Japan? 

Mr. Spear. I should have mentioned Japan if I did not — Japan 
and Chile. 

Senator Vandenberg. In other words, there is submarine produc- 
tion in all of those countries? 

Mr. Spear. No, sir; there is not submarine production in all of 
those countries. They all possess submarines. Some of them ac- 
quire them and some of them have no facilities for building them. 
Was your question directed to where they are produced? 

Senator Vandenberg. I am asking about the production. 

Mr. Spear. Then I will give you a different answer. Great Brit- 
ain, France, Italy, Spain, Holland, Denmark, NorAvay, Sweden, Rus- 
sia, and I am not sure Yugoslavia, because there was a place down 
there wdiich I do not know who got it. I am not quite sure of them, 
but I do not think they belong in the picture. 

Senator Vandenberg. You have not mentioned Japan in this list. 

Mr. Spear. Japan. There are no South American countries which 
produce them now. I suppose we should mention Canada, because 
they have been produced in Canada in the past. 

Senator Bone. Germany has facilities for producing them? 

Mr. Spear. They have the facilities, but they are restricted by the 
Versailles Treaty. 

Senator Bone. I understand that. 

Mr. Spear. If that were abrogated, you would have to add Germany 
to the list. 

Senator Vandenberg. This list which you have now indicated 
would include all the countries which at present produce submarines 
or have production facilities ? 

Mr. Spear. I would not say it includes all the countries which 
possess production facilities, but I would say it includes all the 
countries which possess the facilities, together with the other things 
which go with it, like an organization and some experience. You 
might have the facility to do it and could not do it if you did not 
have the proper direction and knowledge, but those countries all 
produce submarines and have for a great many years past. 

Senator Vandenberg. Then an effective, world-wide control of 
existing production would require the cooperation of all these 
countries which you have indicated? 

Mr. Spear. All of these countries which I have mentioned. 

The Chairman. I am sorry to have to say to the witnesses that we 
have not accomplished our purpose in getting through by 1 o'clock. 
We must take a recess at this time until 2 : 15. I have good reason 
to believe that an hour more after we reconvene will enable you to 
be excused. So, if you will be back at 2 : 15, we would appreciate it. 
Until that time the committee now stands in recess. 

(Thereupon the committee took a recess until 2: 15 p.m.) 



260 MrNITIONS INDUSTRY 

AFTERNOON SESSION 
UNITED STATES GOVERNMENT RELATIONS 

(The committee reconvened at 2 : 15 p.m., pursuant to the taking 
of recess.) 

The Chairman, The committee will be in order. 

The August 4, 1934, issue of The Economist, a British publication, 
contains a study revealing the interlocking interests of Vickers, a 
part of which I think properly belongs in the record of this hearing, 
and I offer it as " Exhibit No. 1C6." 

(The statement referred to was marked "Exhibit No. 166" and 
appears in the appendix on p. 433.) 

The Chairman. Mr. Spear, just a little in furtherance of matters 
with which we have already dealt: What is Eear Admiral A. T. 
Long doing at the present time? 

Mr. Spear. He is in the marine geographic section under the 
League of Nations, I believe, and the director of that is elected by 
the different nations, and, so far as I know, he has always been a 
retired naval officer. It has to do with oceanography and that sort 
of thing. 

The Chairman. I think you testified that he had been a delegate to 
the conference in Geneva. 

Mr. Spear. Not a delegate. I think he went as one of the technical 
advisors to the delegates. I do not think he was a delegate. 

The Chairman. Under date of April 9, 1925, from the State 
Department there comes a release to the press announcing as follows : 

The President has designated the following as the American delegates to 
the conference to be held at Geneva on May 4 to consider the conclusion of 
a convention with respect to the control of the international trade in arms, 
munitions, and implements of war : 

Hon. Theodore E. Burton, chairman. 

Hon. Hugh S. Gibson, Am. Minister to Switzerland, v. chrman. 

Adm. A. T. Long, Navy Dept. 

Allen W. Dulles, Chief of the Div. of Near Eastern Af., Department of 
State. 

Brig. Genl. Golden L'H Ruggles, Asst. Chief of Ordnance. 

In addition, attached to delegation as technical advisors and secretarial 
staff: 

Mr. Chas. E. Herring, Commercial Attach^ at Berlin. 

Mr. Alan F. Winslow, Secy of Legation at Berne. 

Maj. Geo. V. Strong of tlie War Dept. 

Commander Herbert F. Leary, U.S. Navy. 

Does that serve to freshen your memory ? 

Mr. Spear. Yes, sir. 1 was obviously mistaken in thinking he was 
merely an adviser. 

The Chairman. You do not know whether there was any change 
from this order at that time? 

Mr. Spear. I do not knoAv about any change. It was just a mis- 
taken recollection as to his exact status. 

The Chairman. Mr. Spear, you have testified that you had access 
to the United States Departments of Government in furthering 
your negotiations abroad for contracts. In your contact with the 
State Department, for example, who there principally was the one 
dealing with matters in which you were interested? 

Mr. Spear. It depended, Mr." Chairman, upon the country that was 
up. I'he State Department is so organized into sections that a 



MUNITIONS INDUSTRY 261 

different personnel, for instance, would be dealing- with it if it were 
Rumania, and another set of gentlemen would be dealing with it 
if it were some other country. So that it would depend upon what 
country was in question who the personnel would be which you 
would discuss it with. 

The Chairman. Then, I take it, your contact was not of necessity 
directly with the Secretary of State. 

Mr. Spear. Very seldom. 

The Chairman. Very seldom? 

Mr. Spear. I do not know when it ever was personally. A few 
letters were written to him, but, so far as I am concerned, I never 
myself discussed anything with the Secretary of State. 

The Chairman. Through your own contacts with these depart- 
ments, is it not true, as a general thing, that those whom you have 
had to deal with have been men who have served through various 
administrations ? 

Mr. Spear. As a rule I think so. They have been gentlemen who 
have been connected there for some years with the Department, 
although there would be changes from time to time. 

The Chairman. Mr. Spear, I offer as " Exhibit No. 167 " a letter on 
the stationery of the Electric Boat Co., addressed to Mr. Lawrence 
Y. Spear, signed by Luis Aubry. 

(The letter referred to was marked " Exhibit No. 167 " and appears 
in the appendix on p. 434.) 

The Chairman. In that letter, " Exhibit No. 167 ", Mr. Aubry says : 

I am glad to know, that you with your extraordinary foresights could see 
trouble ahead, by having any contract with Shearer. 

Mr. Spear. Yes, sir. 

The Chairman. Do you know Mr. Shearer? 

Mr. Spear. I have met him ; yes, sir. 

The Chairman. I think you have testified that you never utilized 
his services. 

Mr. Spear. In no respect whatsoever. 

The Chairman. Never contributed to his employment? 

Mr. Spear. Not one cent. 

The Chairman. Wliat is the meaning of this language here which 
rather indicates that had you used him, there would certainly have 
been trouble ahead? 

Mr. Spear. I think that I had probably indicated — I am speaking 
by inference now, Mr. Chairman — I should judge from that, that 
I had probably indicated to Commander Aubry, in speaking of the 
matter, that the thing was obvious to my mind, that employment 
by a private concern was a matter that we 

The Chairman. This letter is dated the 9th of October, 1929. 

Mr. Spear. Yes, sir; I think that was after the episode. 

The Chairman. Shearer was in rather bad repute at that time? 

Mr. Spear. Yes, sir. 

The Chairman. Mr. Aubry's letter goes on to state: 

I am afraid that the British-American negotiations, will tend to stop for 
some time any activities in regard to armaments in these countries, who are 
so emotives, and liable to copy. 

Mr. Spear, what is the meaning of that? 

Mr. Spear. I think at that time, Mr. Chairman, either the London 
Conference was going: on or there were some other neofotiations, 



262 MUNITIONS INDUSTRY 

public negotiations, relating to the question of the limitation of 
armaments, and I think that the thought which he is trying to ex- 
press is that the minor countries of that sort, are apt to copy what 
the bigger countries do. 

The Chairman. I notice the word he resorts to there, that is 
" emotives." 

Mr. Spear. He means emotional, sir. His English is not always 
perfect. He means that they are not governed simply by cold logic, 
or some other choice of words. 

The Chairman. In other words, these negotiations being entered 
into between Great Britain and the United States and other powers 
would naturallj'^ be reflected in the action of the other countries, 
that is what he has in mind ? 

Mr. Spear. Yes, sir; I think that is the meaning. 

The Chairman. He goes on in that letter to state : 

I am expecting soon the data that you request regarding sea-keeping ability, 
and so forth, of the submarines from Burnett, and will send to you immediately. 

Who is Burnett, and what is the meaning of that paragraph ? 

Mr. Spear. Burnett was a member of the American Mission, an 
expert submarine officer with the American Naval Mission to Peru 
at that time, Avho had under his charge the submarines which we had 
built for Peru, and I wanted to find how those boats were behaving 
at sea, and whether they were satisfactory. 

The Chairman. I offer for the record a letter dated June 18, 1919, 
addressed to Sir Trevor Dawson, in care of Vickers Limited, London, 
which is not signed, and on which there is no indication of who the 
writer might have been. Mr. Spear, can you identify who was the 
writer of this letter? 

Mr. Spear. According to this copy I have, apparently Mr. Carse 
wrote it. 

The Chairman. Mr. Carse wrote it? 

Mr. Spear. So it indicates here. It says, " Signed, H. R. Carse." 

The Chairman. My copy has nothing to indicate the writer of the 
letter. What is the indication on that copy? 

Mr. Spear. It says, " Signed— H. R. Carse." 

Mr. Carse,. That is written in there. 

The Chairman. Is that the letter of June 18, 1919 ? 

Mr. Spear. That is Hie letter of June 18, 1919. 

Mr. Carse. Somebody wrote on there in pencil. I do not know 
whose handwriting it is. 

The Chairman. Perhaps it is not so necessary to identify who the 
writer of the letter was, as to determine the facts with which it is 
concerned. 

The third paragraph of the letter states : 

We take this opportunity of confirming our cablegram to you extending our 
most sincere congratulations upon the magnificent performance of the aero- 
plane constructed by your organization, and if it should be your wish to have 
this company work in conjunction with you in relation to aeroplane matters 
that it is a subject we would also be very happy indeed to discuss with you in 
detail. 

Evidently a new plane had been developed by Vickers that might 
find a market liere in our own country. 
Mr. Spear. Yes, sir ; there was. 
Mr. Carse. There was. 



MUNITIONS INDUSTRY 263 

Mr. SuTPHEN. An amphibian. That was the one which first 
crossed the Atlantic from Nova Scotia to Ireland. 

The Chairman. Had your firm ever been interested in aero- 
nautics or related subjects? 

Mr. Spear. We never got actively into it, Mr. Chairman. We con- 
sidered it at one time. 

The Chairman. Was this your first thought, that maybe it was a 
field which might be profitable to you? 

Mr, Carse. No; we had had the thought before, at the time that 
the Wright-Martin patents were bought by some people in New York, 
and everybody was talking about seaplanes then, boats, and they had 
had a great deal of trouble in building a wooden boat that would 
stay tight on striking the surface. Some of the boats up at Ham- 
mondsport, the Curtiss boats, had difficulty getting off the water, 
after being in a little while, and they got water-logged, and we 
thought we could build those boats at our motor boat plant and took 
it up with those people at that time, but they concluded to do all 
their construction themselves. So that we have never done anything. 

The Chairman. You have never gone into that field at all? 

Mr. Carse. No. sir. 

The Chairman. The negotiations never went much beyond this 
point with Vickers? 

Mr. Carse. The negotiations never went much beyond this point 
with Vickers. 

The Chairman. All right, the letter of June 18, 1919, will be re- 
ceived in the record as " Exhibit No. 168." 

(The letter referred to was marked " Exhibit No. 168 " and appears 
in the appendix on p. 435.) 

SUBMARINE BUILDING OPERATIONS DOMESTIC AND FOREIGN 

The Chairman. I now offer as " Exhibit No. 169 " a letter addressed 
to Sir Trevor Dawson. That letter is dated February 5, 1924. 

(The letter referred to was marked " Exhibit No. 169 '' and appears 
in the appendix on p. 435.) 

The Chairman. I take it that the letter of February 5, 1924, " Ex- 
hibit No. 169 ", was signed by Mr. Spear. It is not signed, but the 
initials "L. Y. S." appear. I would call your attention, Mr. Spear, 
to the reference which this letter has to your Finnish business. 

Mr. Spear. Yes, sir. 

The Chairman. It reads in part as follows: 

Referring to your cable of January 22nd reading as follows: 

" Many firms will compete Finland including Norman Thornycroft. Stop. 

Consider it advisable we should compete as well as you including Finland in 

mutual countries. Stop. Please cable." 

And you replied to Mr. Dawson at that time as follows : 

On account of contract with Sandviken impossible to include Finland in 
mutual countries now. Stop. Matter really is not urgent. Will write. 

Perhaps I am repeating, but what is Sandviken ? 

Mr. Spear. Sandviken is a Finnish shipbuilding company which 
then held our license. 

The Chairman. So that you were rather duty bound not to bid, 
not to offer any proposal in these countries in which you had 
extended licenses? 



264 MUNITIONS INDUSTRY 

Mr. Spear, We could not properly do so. They had the ri<i:ht, 
unless they chose to modify it. 

The Chairman. On the tliiid page of that letter, Mr. Spear, I 
find this language [reading] : 

Mr. Carse and I both think that we had bettor postpone discussion of tlie 
tinniuial arran.;;'cments between you and us until we know wliat terms can be 
made witli Sandviken and have a clearer idea as to price and profit possibilities. 
In this connection, I hope it may be possible to arrange the matter so that 
any contracts for you wliich may result will pass through us so that we can 
avoid the British income tax. Obviously, any saving which we can make in this 
way would benefit the whole situation. 

What was the difficulty being experienced at that time which occa- 
sioned any understanding? 

Mr. Spear. I do not know that there was any particular difficulty 
at the time, Mr. Chairman, but there was at that time a very high 
income tax in Great Britain, and these were technical matters as to 
how to handle your business. If it was handled one Avay, it was 
made subject to a tax, and, as we understood it, if it were handled 
another way it would not be subject to that tax. We were seeking, 
if anything did result from it in which they had any interest, that 
instead of having the matter go to them and pay a very heavy income 
tax, they should come to us and pay a smaller one. 

Mr. Carse. On our part. 

Mr. Spear. In other words, our part would be taxed in Great Brit- 
ain and here also, if it passed through a certain channel. 

Mr. Carse. If it passed through Vickers' accounts. If it passed 
through our accounts, our portion would be subject to the United 
States tax and Vickers' would be subject to the British tax; while if 
it passed through Vickers' accounts, both Vickers' and ours would be 
subject to the British tax and then the balance which we got would 
be subject to the American tax. 

The Chairman. On December 28, 1928, Mr. Carse, you addressed 
a letter to Capt. L. F. Orlandini, New York city, which I offer as 
" Exhibit No. 170." 

(The letter referred to was marked " Exhibit No. 170 ", and appears 
in the appendix on p. 436.) 

The Chairman. In the third paragraph of that letter of December 
28, 1928, " Exhibit No. 170 ", you state : 

In relation to our arrangement with shipbuilding companies in foreign 
countries, our agreement with Vickers Limited in Great Britain dates from 
1901 and has many years yet to run. This in general provides that we shall 
furnish all information, data, plans, etc. required in the construction of the 
subm.irine boats, giving sui)erintendence if so desired, and payment to us is 
arranged in different ways. We have or have had agreements somewhat 
similar in form to that of Vickers v>ith leading shipbuilding concerns in 
Holland, Belgium, Norway. Russia, France, Spain, Italy, and Japan, so that 
the Electric Boat Company is able with perfect confidence to enter into con- 
tracts for the building of submarine boats in any part of the world which 
the buyer may choose, the cost varying in accordant: with the basic price of 
labor in the different countries together with facilitie.s of transportation, manu- 
facture, etc. 

In just wliat respect did your contracts with these others resemble 
your contract with Vickers? 

Mr. Carse. They were based on Vickers' contract. I think they 
were practically the same. 

Mr. Spear. They were based on the original Vickers' contract. 



MUNITIONS INDUSTRY 265 

Mr. Carse. They were based on the original Vickers' contract, 
practically, providing that we were to get a certain share that niight 
be realized, a certain share of the profits derived from the business, 
and we, in exchange, would give them the right to use our patents 
and give them advice and supply plans and all that sort of thing. 

The Chairman. In this letter I note the fact is raised that you 
could build these boats cheaper in some lands than you could in 
others. Did that fact largely influence the place where your boats 
were built during these years? 

Mr. Carse. I am sorry to say that it did not help us any because 
we did not build any in any of these licensees' countries. We did 
not take any business from"^a place like Argentina to any of these 
licensees, because Argentina went direct to Italy. 

The Chairman. On December 27, 1926, Mr. Spear, you wrote 
a letter to Mr. Carse which I would like to offer as " Exhibit No. 171." 

In that letter you stated : 

In connection with the inquiry of the Argentine Naval Commission, I am 
enclosing you herewith duplicate and up-to-date memorandum sliowiug sub- 
marines constructed and under construction by ourselves and licensees. 
Very sincerely yours, 

(Signed) L. Y. Speab. 

Attached to that letter is a statement which I think you have 
before you now, and which will be included as a part of " Exhibit 
No. 171 ", being a statement of the submarines built by Electric Boat 
Co. and its licensees. 

(The document referred to was marked " Exhibit No. 171 ", and 
appears in the appendix on p. 437.) 

The Chairman. I am not going to bother reading all of that 
statement, which is a part of " Exhibit No. 171 ", but you contend that 
at that time you had built 391 submarines. Does that mean from the 
inception of your business ? 

Mr. Spear. Yes, sir; that is from the beginning. That included 
all we built ourselves and what were built by any concern which 
held a license from us. 

The Chairman. Of these 391, am I right in understanding that 
165 of them were built in the the United States in your own yards ? 

Mr. Spear. I observe that there is one thing which is not quite 
right there. Great Britain is wrong. That number should have 
been 10, and the rest should have been Canada. There "is an error 
there, Mr. Chairman. 

The Chairman. That should be corrected in the statement, and 
where it shows that the submarines constructed by the Electric Boat 
Company in the United States for Great Britain were 22, it should 
be 10? 

Mr. Spear. Yes, sir. 

The Chairman. And that would mean 153 instead of 165? 

Mr. Spear. That is correct, sir. 

The Chairman. This statement shows that in the United States 
you constructed boats to the number, then, of 153; for the United 
States 115, for Great Britain 10, for Russia 12, for Italy 8, for 
Japan 5, for Peru 2, and for Spain 1. 

Mr. Spear. By the way, there is another error, I am sorry to say, 
Mr. Chairman. Those Italian boats were built in Canada. 



266 MUNITIONS INDUSTRY 

The Chairman. Built in Canada? 

Mr. Spear. Yes, sir; eight Italian boats there were built in 
Canada. 

The Chairman. Who builds in Canada? 

Mr. Spear. We built them. 

The Chairman. You have yards there? 

Mr. Spear. No, sir ; but we obtained the use of the facilities of a 
shipyard, made an arrangement witli them, and we constructed them 
ourselves. 

The Chairman. The balance of the statement reveals the ships 
which were built under your licenses elsewhere ? 

Mr. Spear. Yes, sir. That corrects my guess of this morning. 
Senator, as to the number. 

The Chairman. Did you lease these Canadian yards? 

Mr. Spear. We temporarily leased them. We did not enter into a 
definite lease with them for any definite period of time, but made an 
arrangement with them to use their facilities for the construction of 
those particular vessels. 

The Chairman. Did you take American labor up there to do the 
work ? 

Mr. Spear. Very largely; yes, sir. Some local and some Ameri- 
can. 

The Chairman. Is there skilled labor in Canada? 

Mr. Spear. Yes, sir; there is some shipbuilding in Canada and 
some shipbuilding trade labor is available there; not very much, 
but some. 

Mr. Carse. The vital men we took from the United States. 

The Chairman. On April 20, 1927, Mr. Craven of the Vickers Co. 
wrote you a letter, which I will offer as " Exhibit No. 172." 

(The letter referred to was marked " Exhibit No. 172 " and appears 
in the appendix on p. 438.) 

The Chairman. In this letter, " Exhibit No. 172 ", it makes ref- 
erence to the trial of one Mayers on serious charges. Who was 
Mayers ? 

Mr. Spear. He was an ex-British naval officer who got himself 
in trouble. With the consent of the Admiralty he left the Admiralty 
and retired and entered into the employment of Vickers. He was 
charged by the Admiralty, and I think he was convicted of it, of 
taking away when he left the Admiralty information that he had 
no right to take. I know there was a public trial about the matter. 

Mr. Carse. He came to us and endeavored to persuade us to employ 
him, but we considered that we did not want him. 

The Chairman. And he pretended to have information that might 
be valuable to you? 

Mr. Spear. He did not say that he had information, but he pre- 
tended to me that he had made, as an operating submarine officer, 
studies of the actual United States submarines which demonstrated 
to his satisfaction that all submarines ever built weie all built wrong, 
and that they should all be radically changed, and if he entered into 
our employ he would tell us all about it. 

The Chairman. What is Mr. Craven's interest in advising, as he 
does, concerning this? 

Mr. Spear. He knew that that man had been here to see me, to try 
to get employment from me. 



MUNITIONS INDUSTRY 267 

The Chairman. Wliich accounts for him writing you 20 days 
later, on the 10th day of May 1927, keeping you advised ? 

Mr. Spear. Yes, sir. 

The Chairman. I will offer that second letter as " Exhibit No. 173." 

(The letter referred to was marked " Exhibit No. 173 " and appears 
in the appendix on p. 438.) 

The Chairman. And he advised you in this letter which has been 
offered as " Exhibit No. 173 " that he himself had been called as a wit- 
ness for the defense in this action against Mayers? 

Mr. Spear. Yes, sir. 

The Chairman. Was this embarrassing to him or to you? 

Mr. Spear. It was not at all embarrassing to me. I do not know 
whether it embarrassed him or not, Mr. Chairman. 

The Chairman. Was the Lieutenant Commander dimming who 
is referred to in that letter of May 10 an American? 

Mr. Spear. No ; he was a British naval officer. 

The Chairman. I will offer as " Exhibit No. 174 " a letter dated 
June 18, 1931, addressed to Mr. Carse by Mr. Spear. 

(The letter referred to was thereupon marked "Exhibit No. 174" 
and aj)epars in the appendix on p. 439.) 

The Chairman. In this letter, Mr. Spear, you say : 

* * * we have a free hand all over continental Europe, except in Spain, 
and can do what we like. 

What is the meaning of that ? 

Mr. Spear. Where do we find that, Mr. Chairman? 

The Chairman. The last sentence of the letter. 

Mr. Spear. If you will refer to the first paragraph, you will see 
that I there advised Mr. Carse that the various license agreements 
that had existed on the continent of Europe had all been canceled, 
except with Spain and those of Cockerill for Belgium and Burger- 
hout for Holland. So that outside of that we have no commitments 
on continental Europe. 

The Cpiairman. Well, speaking of a free hand, did not there 
enter into that consideration the thought that you did have the 
upper hand by reason of the patent holdings that were yours? 

Mr. Spear. No, sir ; all I meant to convey was exactly what I have 
said there, that in all those other countries we were not restricted 
in what we might want to do by any existing license agreements. 

The Chairman. Mr. Spear, something was said this morning about 
the possibility of a world monopoly. I think you showed that there 
were many concerns manufacturing submarines that would have to 
be included to form a monopoly. 

Mr. Spear. Yes, sir. 

The Chairman. What of the situation here in the United States? 
Do you not have what amounts to a monopoly ? 

Mr. Spear. At the present time we are the only private builder 
who specializes in that work. We are the only private builder who 
is now doing any of that business. 

The Chairman. How many plants in the world are operating 
without licenses from you, in the manufacture of submarines? 

Mr. Spear. You will have to give me a moment to try to count in 
my mind and you must not take this as an exactly accurate state- 
ment. 



268 MUNITIOXS INDUSTRY 

The Chairman. I hope that you will not include governments 
that are doing their own building. 

Mr. 8peak. No, sir; I will leave those out. You mean private 
concerns ? 

The Chairman. Yes. 

Mr. Spear. I should say approximately 20. 

The Chairman. Approximately 20? 

Mr. Spear. Yes. 

The Chairman. That are not using your patents? 

Mr. Spear. Oh ! — I did not quite understand the question. 

The Chairman. Let us get it straight. These 20 to whom you 
refer, how do you consider that they are not in any way related 
to you? 

Mr. Spear. Well, they are not; they have no relationship at all. 

The Chairman. No license running between you and them? 

Mr. Spear. In the 20 that I gave you as an approximate figure, 
that did include 2 or 3 concerns that still have a license — 2, I think. 
In other words, in the 20 there would be 2 or 3 which hold a license 
from us. 

Senator George. How many concerns in foreign countries hold 
licenses from you, if you are able to saj^? 

Mr. Spear. There are only two who now hold licenses. 

The Chairman. Only two? 

Mr. Spear. Yes, sir. 

The Chairman. Have not most of them held licenses at some time 
or other? 

Mr. Spear. No, sir. 

The Chairman. They have not? 

Mr. Spear. No. 

The Chairman. What of the situation here at home ? How many 
American companies have sought a license from you? 

Mr. Spear. I do not think there has ever been any American com- 
pany that sought a direct license from us. 

The Chairman. You never have had to deny any American re- 
quest then for the opportunity to build submarines ? 

Mr. Spear. No. 

The Chairman. So that if ,vou have what amounts to a monopoly 
here in America it is quite strictlj^ so because no one has ever sought 
to become competitors ? 

Mr. Spear. No. We had a competitor for a good many years. 
Then we have had people who sought to become competitors, but 
they did not seek to become competitors as licensees of ours; they 
did not come to us for licenses. 

Senator George. How many American concerns have in the past 
manufactured submarines ? 

Mr. Spear. Two. 

Senator George. Besides your company ? 

Mr. Spear. Besides ourselves. 

Senator George. When did they operate? 

Mr. Spear. One of them continued to operate. Senator, until after 
the war. The other one, which was the old Cramp Shipbuilding 
Co., a ver^ well-known company — their operations were quite limited 
and terminated I think about 1910 or 1912; I could not tell you the 
exact date. But it was before the war. 



MUNITIOXS INDUSTEY 269 

Senator George, When j^ou speak of a license, do you distinguish 
between a general license, that is of all your patents, or the right 
to apply them and use them, or a licensee that has the right to use 
only certain limited appliances? 

Mr. Spear. Most of these contracts that we have made where we 
have had a submarine license. Senator, have been inclusive of all the 
patents that we do own. I do not think we have ever had any case 
of an application of a granting of a license on any particular patent. 
T do not know of any such case. 

The Chairman. How long has Vickers held a license from you? 

Mr. Spear. I think the original contract was dated in 1901. 

The Chairman. And has continued right through up to date? 

Mr. Spear. The licenses • 

The Chairman. With the alterations that have been noted? 

Mr. Spear. Yes, sir. 

The Chairman. Is it not a fact that your control of the patents 
which Vickers was using gave you a pretty positive control, in a 
measure, over Vickers? 

Mr. Spear. So far as the submarine business was concerned, in 
the early days, that gave us quite a strong position, because we 
were — not I, I was not with the company then 

The Chairman. Wliat has happened in more recent years, then, 
to alter that element of power or control ? 

Mr. Spear. I will tell you, Mr. Chairman. Countries have dif- 
ferent terms for basic patents. Seventeen years in the United 
States and in European countries most of the patents run shorter 
terms. The original basic patents which place quite a good control 
in our company's hands begin to expire. That was our case. Then 
the patent situation became one of a combination of detailed pat- 
ents, which meant not so much of a control, because if a designer 
chose to adopt some other method of doing that particular thing it 
was possible to do it without infringing the patent. He might not 
get such a good result, but he w^ould build a boat which would work. 
There is quite a little difference between holding something that is 
basic and something concerning which it is possible to use engineer- 
ing ingenuitv to iret around it. 

The Chairman. This, then, was what we are to understand ac- 
counts for the more evident power exercised by Vickers in recent 
years, in occasioning reduction in your royalties and in your com- 
missions? 

Mr. Spear. Yes, sir. If we had in recent years controlled the 
patents which absolutely governed their action, unless we thought 
that the royalty was so high as to preclude their getting business, 
we certainly would have insisted on having more royalties. In 
other words, they were not getting so much out of our licenses from 
us in recent years as they had in the beginning. 

Mr. Carse. I think. Mr. Chairman, I can give you a little explana- 
tion there. Their original contract was 50 percent of their profit. 
That ran for a period of years. Well, as time passed on and before 
the expiration of that period, they thought those terms were onerous 
and wished them modified. In arranging a modification, we also ar- 
ranged an extension of the agreement. Then, when they wanted 

83876 — 34— PT 1 18 



270 MUNITIOXS INDUSTRY 

another modification, before the expiration of that, agreement, we 
assented with the extension of the agreement over to 1937. 

Senator George. Do you, in turn, use the patents of Vickers and 
of other manufacturers? 

Mr. SrEAR. We are entitled to use the Vickers patents. 

Senator George. You have the right? 

Mr. SrEAR. Yes. 

Senator George. In other words, vou have reciprocal arrange- 
ments by Avhich they use your patents I 

Mr. Spear. Yes, sir. 

Senator George. And you have the right to use theirs? 

Mr. Spear. Yes, sir. 

The Chairman. Hovvever, it has been testified that you pay no 
royalties to Vickers. 

Mr. Spear. That is correct. 

The Chairman. Vickers does pay a royalty to you ? 

Mr. Spear. Yes. 

Senator Barbour. During this period under discussion, who, in 
your judgment, sold submarines in this market besides yourselves? 

Mr. Spear. The only people that ever sold any submarines in the 
United States, who ever built any except ourselves, were the Lake 
Torpedo Boat Co. and William Cramp & Sons, the old shipyard 
which is now also out of business. 

Senator Barbour. I think this committee is particularly interested 
to know who was selling submarine boats at this time when you were 
making the effort which has been described here very vividly to sell 
them, and if you had not sold them, who else would ? 

Mr. Spear. It would have been our foreign competitors in the 
foreign business. No foreign competitor could sell here. That is, the 
United States Government would not ever place an order for sub- 
marine boats abroad. But outside of the United States, all of these 
other builders I have just mentioned — that is, I said I thought there 
were about 20 — they were our competitors for all business outside 
of the United States. 

Senator Barbour. Were they your competitors inside of the United 
States? 

Mr. Spear. No, sir. 

Senator Barbour. In other words, if you did not sell the boats one 
of the others would have sold them? 

Mr. Spear. Not one of them. 

Senator Barbour. Who would have sold them? 

Mr. Spear. I do not think anybody. I think the Government would 
have built them themselves, unless they had some concern in whom 
they had confidence, with whom the}'^ could place orders. 

The Chairman. Has the United States Government made pur- 
chases of submarines from any concern other than yours? 

Mr. Spear. Yes, sir. 

The Chairman. They have? 

Mr. Spear. Yes, sir. 

The Chairman. Extensively? 

Mr. Spe.vr. Quite a good many. 

The Chairman. In foreign countries? 

Mr. Spear. No ; not in foreign countries. 



MUNITIONS INDUSTRY 271 

The Chairman. That is what I was trying to get at. 

Mr. Spear. No, no. They have never bought foreign boats. 

Senator Clark. What became of the Lake Company? 

Mr. Spear. They went out of business after the war, Senator. 

Senator Clark. Did not they have a lot of patents? 

Mr. Spear. They had a lot of patents, yes; but they were on 
features that did not commend themselves to the military people. 

Senator Clark. What I was getting at was this. I have seen 
Lake referred to as the inventor of the submarine. Is that true ? 

Mr. Spear. I think that is a little exaggerated. It was pretty 
good advertising. 

The Chairman. It was testified this morning, I do not know by 
which one of you gentlemen, that there had been afforded in Boston 
Harbor a demonstration before some foreign emissary of an Ameri- 
can submarine; is that correct? 

Mr. Spear. No, sir ; not an American submarine. 

The Chairman. Did you give the testimony this morning? 

Mr. Spear. I gave that testimony. 

The Chairman. What was that, then? 

Mr. Spear. Those were the 10 boats that we started in the United 
States and completed during the war for Great Britain. Of course, 
they could not be delivered. It was known that they could not be 
delivered. So when they were completed they were interned in the 
Boston Navy Yard. They were the property of Great Britain. 
The United States never had anything to do with them. Then when 
the United States entered the war, they sent their officers over here ; 
took 5 or 6 of those boats to Great Britain. The other 5 were the 
ones that we referred to the other day in some deal between the 
Chilean Government and the British Government. The British 
Government turned over the other 5 — I think it was 5 or 6 — to Chile 
after we entered the war. 

The Chairman. How many instances do you recall where sub- 
marines of the American Navy or being built for the American Navy 
were demonstrated for agents for some foreign government? 

Mr. Spear. In the very early days, many years ago, thirty or forty 
years ago, the Navy Department was not particularly interested in 
whether there were secrets. They used to then quite frequently 
grant permission to countries to whom they wanted to be courteous, 
to see their boat. In recent years they haA^e been very strict about 
that. They guard their submarines as something confidential. As 
a matter of fact, we do not even permit a foreign visitor into our 
works, whether he is going to look at the submarines or not, without 
their permission and their consent. 

He has to arrange with the Government and be escorted around 
by one of the naval officers stationed at our works. It is one of the 
matters that they now look on as something they are not going to 
give to anybody unless they get something in return. 

Once in a while the Navy sends to us some foreign representative 
with permission of the Navy to look at certain things. That they 
tell me is because they obtain in return for that certain information 
from that country which they want. In other words, they occasion- 
ally make a trade in information. But that is in the Navy's hands 
entirely. 



272 MUNITIONS INDUSTRY 

The Chairmax. In other words, 3-011 permit of no demonstratiiij* 
to or sight-seeing by agents of foreign powers unless they are armed 
with credentials from our own Government. 

Mr. Spear. Unless they are armed with credentials and escorted by 
an American naval officer. 

The Chairman. How well attended are your annual stockholders' 
meetings ? 

Mr. Spear. Mr. Carse can answer that better than I can. 

Mr. Carse. There is not a very heavy attendance except by proxy. 
We have meetings in our Bayonne office in New Jersey. We may 
have a half a dozen people there. 

The Chairman. How has Mr. Zaharoff voted his stock? 

Mr. Carse. I do not know. 

The Chairman. Have you ever held his proxy ? 

Mr. Carse. No, sir. 

The Chairman. Do you know of anyone who has held his proxy ? 

Mr. Carse. No, sir. 

The Chairman. Has Zaharoff shown any interest that you know 
of in these annual stockholders' meetings? 

Mr. Carse. No, sir. 

The Chairiman. At anj'^ time? 

Mr. Carse. Never. 

The Chairman. How m-uch stock do you suppose he might hold in 
your company? 

Mr. Carse. I have not the faintest idea. I was never able to trace 
it. He told me he was interested in the stock and I went over the 
stock list to see whether I could analyze the names to find out whose 
might be his. I thought I was a little conversant with that business 
of analyzing stock lists but I could never check out anything that 
gave me an idea of how much belonged to him. 

The Chairman. Can you suggest to us any way by which we 
might find out how much stock he does hold ? 

Mr. Carse. I cannot. I have gone over that list and I cannot see 
it myself. So I cannot tell you where you could see it. 

The Chairman. Do you suppose Mr. Wiggin or some officer of 
the Chase National Bank might have knowledge of that? 

Mr. Carse. That I do not know. Whether he is doing business 
through the Chase Bank at the present time, I do not know. I really 
know nothing about it. 

The Chairman. On the stockholders' list, which you have submit- 
ted to the committee, there is no ownership openly shown, at least 
of your stock, in the hands of any foreign individual. 

Mr. Carse. No, sir; I do not think there is. I do not think there 
is a foreigner on it now. 

Senator Vandenberg. You say now. Was there at one time? 

Mr. Carse. Oh, there was back in the early days. There were a 
hundred shares here or a hundred shares there. We were talking 
the other day about Count Hoyas of Austria, He had a hundred 
shares. Koster had some stock. It was not in his name, though. 
But he arranged that we receive the proxy on it. 

The Chairman. We have had a great deal of testimony concerning 
the commissions which were paid by your company to Zaharoff. 



MUNITIONS INDUSTKY 273 

Would you have any knowledge whether or not Zaharoff drew com- 
missions from Vickers? 

Mr. Carse. I do not. 

The Chairman. Or from the Spanish company? 

Mr. Carse. I do not know anything about it. 

The Chairman. Mr. Spear? 

Mr. Carse. If I might interrupt you. I do not know about 
Zaharoff's business, except the payments by us to him of 5 percent 
when we received it from the Spanish concern. 

The Chairman. Mr. Spear, do you have any knowledge along that 
line? 

Mr. Spear. I can say something about which may be accurate. 
When Mr. Zaharoff was very active, he was primarily directing con- 
tinental European business of Vickers. I have been told — I do not 
know how accurate this is — that that was another form of an agency 
and the sales that he effected for Vickers he was paid a commission 
on. This is hearsay, Mr. Chairman, and I do not know that it is so. 
I think that it is so. However, I think he has not been active for 
some years and I imagine it is not going on now. 

The Chairman. Have you any knowledge of stock ownership in 
Vickers ? 

Mr. Spear. It was reported at one time — this is not definite knowl- 
edge, it is hearsay — that he was a very large stockholder and subse- 
quently it was reported that he had disposed of his holdings either 
entirely or had become a very small stockholder. Those are simply 
current reports that you hear about a man of that kind and I cannot 
guarantee that they are so. That is what I have heard. 

The Chairman. There was testimony yesterday or the day before 
by one of you concerning your conviction that the submarine was an 
instrument of national defense. How long did it remain an instru- 
ment of national defense. 

Mr. Spear. I think you could say safely, Mr. Chairman, it remained 
solely an instrument of defense up to the World War. Then there 
was the use of it made by the Germans. By that time they began 
to build somewhat bigger boats that were capable of going to sea 
and staying at sea for 2 weeks. You. of course, recall — I do not have 
to recall to your mind — the German campaign against commerce and 
that could hardly in my mind be regarded as a defensive measure. 

The Chairman. Can it not be said that that ability to wage that 
offensive that Germany did is traceable to the fact that the United 
States Government did not have absolute control over the American 
patents relating to the building of submarines? 

Mr. Spear. No, sir. 

The Chairman. Germany built their own submarines under j'^our 
patent, did they not? 

Mr. Spear. Germany built many submarines which were designed 
by them and it was eventually demonstrated to the satisfaction of 
the INIixed Claims Commission, in the case of one patent in a certain 
number of boats that they built — not all — there was an infringement 
of that patent. Outside of that, we were unable to prove any 
infringement of patents and spealdng from the technical standpoint 
I can advise you that the designs were entirely dissimilar. 



274 MUNITIONS INDUSTRY 

The Chairman. You say dissimilar? 

Mr. Spear. Absolutely dissimilar, a type of boat that had never 
been built or designed by us, a different notion of how to design and 
construct submarines, which was entirely done by German engineers. 

The Chairman. Mr. Spear, on July 2, 1919, Mr. Carse wrote you 
a letter which I offer as " Exhibit No. 1T5." 

(The letter referred to was thereupon marked " Exhibit No. 175 ", 
and appears in the api^endix on p. 439.) 

The Chairman. This letter, " Exhibit No. 175 ", says in part : 

Mr. Parker tells me that the performance bond has been fixed at a million 
dollars for the six boats and that the preniiinn agreed upon bj' the Department 
is 2 percent, or $20,000, for the full term including acceptance. This is higher 
than the last rate but as it being paid by the Government and has been 
agreed to by the proper officials I do not see that it is of any special concern 
to us, except of course in the matter of our proportion of the saving. 

What are we to understand the meaning of that? This follows 
the grant to you in 1919 of a contract with the Navy. 

Mr. Speak. No, sir. The contract was placed by Presidential 
order, mandatory order while the war was on, in 1918. The Presi- 
dent gave us a mandatory order to build 12 submarines of a certain 
design. Then along came the armistice and the order was reduced 
to SIX, but no formal contract was entered into until 1919. All those 
war-time contracts, as you may recall, were originally placed on 
a cost-plus basis. 

The Cpiairman. Did this cost-plus basis prevail as it was fixed in 
this contract? 

Mr, Spear. When this contract was entered into, sir, it was a cost- 
plus contract. Ultimately, before the ships were finished, it was 
transformed into a fixed-price contract but at the time the bond was 
arranged, it was a cost-plus contract. 

The Chairman. What United States business have you done since 
that contract was entered into? 

Mr. Spear. We have completed 1 submarine for the United 
States Government and have 2 under construction. 

The Chairman. You completed the one when? 

Mr. Spear. We completed one this year. 

The Chairman. This year? 

Mr. Spear. Yes. 

The Chairman. From 1919 up to this year there has been no 
contract between you and the United States Government ? 

Mr. Spear. We received no orders from the United States Gov- 
ernment between 1918 and 1931. 

The Chairman. You subcontracted this 1919 contract, did you 
not? 

Mr. Spear. Just the hulls, yes. 

The Chairman. Only the hulls? 

Mr. Spear. Yes. 

The Chairman. To whom? 

Mr. Spear. The Fore River Shipbuilding Yard which was a sub- 
sidiary of the Bethlehem Shipbuilding Corporation, 

The Chairman. Which in turn is a subsidiary of the Bethlehem 
Steel Co.? 

Mr. Spear. That is correct. 



MUNITIONS INDUSTEY 275 

The Chairman. Was that arranged entirely on a cost-plus basis? 

Mr. Spear. The arrangement between us and the Bethlehem Co. 
was entirely on a cost-plus basis. I think there was a little difference 
in the terms, Mr. Chairman, between the boats that we built on 
a fixed price and the boats that we built on a cost-plus basis. The 
arrangement on the cost-plus basis was this, that Bethlehem should 
receive whatever the Government paid for that part of the work. 
In other words, wdiat was given them to do, the Government would 
determine what the cost was, and they were obliged to take it. 

The Chairman. And then the Government paid them direct? 

Mr. Spear. No. The Government paid them through us. 

The Chairman. Did you get a cost mark-up on top of the Beth- 
lehem's cost? 

Mr. Spear. No, sir. 

The Chairman. Would not that be the ordinary course? 

Mr. Spear. It was a course that we would like to have followed, 
but they were not willing to do it and they did not do it. 

The Chairman. In a letter dated Ma}^ 19, 1919, wdiich I offer as 
" Exhibit No. 176 " for the record. 

(The letter referred to was thereupon marked " Exhibit No. 176 " 
and appears in the appendix on p. 439.) 

The Chairman. This letter is addressed to H. S. Snyder, vice 
president, Bethlehem Shipbuilding Corporation, by Mr. Carse and 
savs : 

And in view of the fact that this business has been done by the Bethlehem 
companies on cost-plus basis, without any risk or responsibility for uncon- 
trollable actions of the Department, and giving further consideration to the 
fact that in 1917, 1918, and 1919, we paid the Bethlehem companies about 
$3,000,000 on account of wage increases directed by the Navy Department, 
for which we have not as yet received compensation, and on which we have 
lost interest all these years, I must say that I am somewhat surprised to have 
received this memorandum from you, as it \\'ould seem to me that your company 
would only be too glad to share in some slight degree the burden of arbitrary 
rulings over which we have no control. 

What is the committee to gather from that ? 

Mr. Carse. Why, I think, they probably were dunning us for some 
accounts that they had against us in relation to this work. I felt 
that they were pressing the thing pretty hard because really in 
effect it was more or less of joint account and there should be some 
consideration given, so that when w^e did not collect promptly from 
the Navy Department the amount expected, there was no reason why 
he should insist on having his full paj^ment. 

You see, this was connected with that order of the Navy Depart- 
ment, the same as the other Departments of the Government, to pay 
increased wages to workmen under the Macy Board ruling, with the 
agreement that those increased wages would be repaid to us. When 
that expenditure on our part ran to about a million and a half, we 
suggested the Navy Department make some payment. They said 
they were too busy to audit our accounts but they would pay us 
50 percent of that if we would give a kind of bond or stecurity, 
so we took the $700,000 and deposited with them $700,000 of United 
States bonds. Then it dragged along until after the war and we 
took it up, and there seemed to be some consideration there as to 
whether the officials of the Navy Department had any authority 
to make that agreement. The Comptroller took that position. 



276 MUNITIONS INDUSTRY 

The Chairman. It was decided thev did have the right, was it 
not? 

Mr. Speak. Yes ; they decided that in the Court of Chiims. 

Mr. Carse. We took it to the Court of Claims, and they held they 
did have the power to do that. 

The Chairman. Mr. Carse, a postscript to this letter says : 

Mr. Taylor tells me that since I became connected with this company in 
October 1915 we have paid the Bethlehem companies .$42,564,073, all of which 
has shown a substantial protit to you. 

You did, then, a very large business with the Bethlehem Corpora- 
tion during the war? 

Mr. Carse. Yes, in the United States and up in Canada. But I 
never heard anything more from them, that is, I never received any 
more dunning letters after that. 

The Chairman. I offer as " Exhibit No. 177 " a letter dated March 
28, 1922, addressed to D. J. Murphy, 1024 Connecticut Avenue N.W., 
Washington, D.C., by Mr. Carse. 

(The letter referred to was marked " Exhibit No. 177 ", and 
ap])ears in the appendix on p. 440.) 

The Chairman. Mr. Carse, who is Mr. Murphy? 

Mr. Carse. I don't know. This is the time of the contest for the 
management of the company — this belongs to the Submarine Cor- 
poration, and is the time of the contest instigated by Mr. Frost, who 
joined with young Rice, and they got out a circular and sent it to 
all of the stockholders accusing the management of all sorts of 
things. This was some stockholder who wrote me asking about it. 
I don't know who he was. 

The Chairman. You knew he was a stockholder? 

Mr. Carse. Yes; he was on the list. So I prepared an answer for 
liim, and I thought that would be a good thing to send to the other 
stockholders, which I did. 

The Chairman. In this letter reference is made in paragraph 3, 
as follows [reading] : 

In regard to no. 2, the ])lant at Newark Bay : It would be a very long expla- 
nation hut the directors feel that is the asset of the future of the company. 

Then on page 6 of the letter you say [reading] : 

Our statement speaks for itself ; we owe no money to anyone except the 
Shipping Board for material purchased for the ships and for the purchase of 
the plant at Newark Bay. We have been endeavoring to arrive at a modifica- 
tion of the amount paid for this material, because of the great fall in the 
price at which the Shipping Board is offering its ships which come in competi- 
tion with our own, but taking all in all we owe them less than eight million 
dollars against which we will have a plant, upon which the Emergency Fleet 
Corporation spent $17,000,000, and 32 ships, or 170,000 deadweight tons, which 
would cost at least $100 a ton to replace, or a value of $17,000,000 which they 
undoubtedly will have in the course of a few years. 

Now, Mr. Carse, on the face of this it appears you made a deal 
there whereby you came into possession of property at a value fairly 
fixed at $34,000,000 at a cost to you of approximately $8,000,000. 
Is that true ? 

Mr. Carse. That was a dream that never came true. The Sub- 
marine Boat Corporation had had a contract with the Emergency 
Fleet Corporation to build 150 ships of 5,350 tons, and like all of 
the shij) contracts originally it was on a practically cost-plus, and 



MUNITIONS INDUSTRY 277 

was on an estimated basic cost, which was adjustable by the rise in 
labor and material, one of those very complicated methods. We 
were going along very well and some of the juniors or representa- 
tives commenced to interfere with our people, who were managing 
the transaction, in small things. 

For instance, they wanted to make it a rule I could not hire or 
discharge an office boy without the consent of this representative 
at the plant. 

So, we took that up with Mr. Hurley and Mr. Schwab, and we 
had a meeting over in our yard. It was proposed to us then that 
we had done so well, w^e were away ahead of the average on con- 
struction ; they had a chart down in the Emergency Fleet Office with 
a line showing their progress and our line was about so long [indi- 
cating] and the next fellow's about that long and they come down 
to about like that [indicating]. 

Then Mr. Schwab spoke about the progress we had made and 
admired it very much and asked us, " Why don't you take it over 
on a straight price contract, then you can do as you please?" Then 
Admiral Bowles made a proposition, and they urged it upon us. I 
told them I would take it under consideration, and we did that and 
studied it very carefull}^ At that time our general manager had 
been very sick and w^e went doAvn and consulted him, then decided 
we would accept their proposition. 

Mr. Schwab tried to get other shipbuilders to do the same thing 
and he was not successful in any case. 

We went along building these ships, delivering them all satis- 
factorily until the armistice came; then they sent word to cancel 
the construction of the last 32 ships and limited the contract to 118, 
although all of the material for those remaining ships was then in 
the yard or in nearby storehouses. We thought we ought to go 
through with it because there seemed to be a great demand through 
the world. 

In making this straight-price contract we had agreed to pay a cer- 
tain rent for the use of the plant, and then after the armistice they 
came around and wanted us to buy the plant and suggested we buy 
this material that was in the yard and put it in the form of vessels. 

Then, about that time we had word from Koster in Paris that the 
Italian Government was very anxious to get merchant vessels, that 
they could not get the steel to build them in their own yards, that the 
yards in Great Britain were signed ahead for four or five ships for 
each way they had, and there was a great demand for vessels. 

He stated the Italian Government wanted to buy about 18 with 
the probability of 10 more, and at the same time the representative 
of a Palermo yard came over to see what they could get in the way 
of shipbuilding material, they having a good yard but no material. 
We negotiated to sell them the material for 4 ships — they to load 
it on some of their own ships and take it over and pay us. The 
question was the terms. They sent over half a dozen or more men 
who worked on our ships to find out how we put them together. 
You see, this was fabricated material, fabricated all over the United 
States in different shops and from our plans and templates, and 
under our direction, and when brought together in our shipyards it 
fitted. So, we were able to construct the ships very rapidly. 



278 MUNITIONS INDUSTRY 

We negotiated with the Italian Government, and I thinlv some- 
whore in the office there is a copy of the contract drawn bv the 
Italian Govertiment covering the purchase of these 18 siiips. ^Vith 
that in hand the Shipping Board brought up with us the question 
of buying the yard and buying the material, and we started negotia- 
tions with them on it. 

Those negotiations with the Shipping Board were a little slow, 
and by the time we got this finished, and we did not yet sign the 
contract 

The Chairman. Were those the negotiations you were referring to 
in this letter in that paragraph we read on page 6? 

Mr. Carse. Yes; that was about the case. We agreed to buy the 
plant and buy this material, and then we started the ships, and the 
Italian Government faded out of the picture. Then the collapse 
came in shipping, and there we were. 

We tried to use the ships — first in the Cuban trade, then in the 
Gulf trade and the Pacific trade, and some ships were chartered 
to carry coal to Europe — but the shipping game, as you have seen, 
became very depressed, because commerce between nations stopped, 
and they turned out a loss. 

We separated the two companies in 1925 so as to keep the Electric 
Boat business by itself. On the Submarine Boat some outsiders ap- 
plied for a receivership in 1929, and these wonderful things we 
thought they were at that time, this $17,000,000 vard, the best price 
we got for it was $130,000, and the ships at $17,000,000 we sold them 
to the Dollar Line at $400,000, and taking notes payable over a 
period of 5 years carrying 2 percent interest. 

They told us down at the Shipping Board that in our adjustment 
with the Shipping Board we had paid them more money than any- 
body else, except the British Government. 

The Chairman. And with Sir Basil Zaharoff it was about the 
same thing? 

Mr. Carse. His transactions are very great, very vast. 

The Chairman. Mr. Carse, last year you received a contract for 
two submarines from the United States Government ? 

Mr. Carse. Yes, sir. 

The Chairman. At what figure ? 

Mr. Carse. The contract did not include certain of the machinery 
which the Government is providing, and it is about $2,750,000. 

Mr. Spear. It is a little more than that. 

The Chairman. The figure I have before me is $2,770,000. 

Mr. Spear, That is right. 

The Chairman. I offer for the record " Exhibit No. 178 ", being a 

letter by the Secretary of the Navy, Claude A. Swanson, to the 

Electric Boat Co., revealing that this contract had been authorized. 

(The letter referred to was marked " Exhibit No. 178 ", and 

appears in the appendix on p. 443.) 

The Chairman. Do you have new contracts this year, additional 
contracts ? 

Mr. Carse. They have awarded us a contract for three boats. 

The Chairman. At what price? 

Mr. Spear. It is $2,387,000. That contract has not yet been exe- 
cuted. It is in the state of an award, but the formal contract has 
not yet been executed. 



MUISTITIONS IlSrDUSTEY 279 

Senator Bone. Was that a bid price on the boats? 

Mr. Spear. That was a bid price; yes. 

Senator Bone. How does the Government attempt to determine 
whether that is a fair price, by offsetting it against a possible simi- 
lar cost on business of that kind and through engineering figures? 

Mr. Spear. They do two things, of course, they compare that with 
the other bids, if they receive any, and on top of that they check it 
with their cost in the navy yard. 

Senator Bone. Were there other private bids? 

Mr. Spear. Yes; there were. 

Senator Bone. Were they made by companies in this country? 

Mr. Spear. Yes. 

Senator Bone. What other companies bid? 

Mr. Spear. The Sun Shipbuilding Co. bid on the last two. 

Senator Bone. What outfit is that, wdio owns it? 

Mr. Spear. It is owned by the Sun Oil Co. They have a shipyard 
in Chester. Pa., but hitherto it has confined itself to building tankers 
for the oil company which owns it. Their bid was much higher 
than ours. 

Senator Bone. Did the Bethlehem or any of the other big ship- 
building companies bid on these? 

Mr. Spear. They did not bid this year. The New York Ship- 
building Co. did bid in 1931. 

Senator Bone. One of the rather peculiar parts of this picture is 
that all of the shipbuilding in this program appears to be going to 
four or five big yards on the Atlantic coast, and I wonder if it is 
the polic}" of the Government to confine its business to the North 
Atlantic coast? 

Mr. Spear. I could not speak as to what its policy is, but I think 
they are a good deal concerned in the Navy Department to make 
sure wherever they place a contract, there is a sufficient organization 
to produce the kind of workmanship they want. What their policy 
is I do not know. 

Senator Bone. They have not made that evident to you? 

Mr. Spear. No, sir. 

The Chairman. Mr. Sutphen, on day before yesterday as we were 
closing, reference was being made to a letter dated November 22, 
1930, to Sir Basil Zaharoff. We had not gotten very far into the 
letter, and I do not know definitely that it was offered as an exhibit. 
My copy is marked " Exhibit No. 50 ", and if it is not a part of the 
record we will let it be known as " Exhibit No. 179." 

(For the above exhibit see " Exhibit No. 50 ", heretofore appearing 
in the record on p. 83.) 

You state in this letter, Mr. Sutphen, the following : 

Knowing of your interest in the Chase National Bank, upon my returu 
I called upon Mr. Wiggin and told him of the very pleasant visit I had with 
you in Paris, and he was very sorry to learn of your illness. 

Perhaps I asked the other day, but do you know what Mr. Zahar- 
off^s interest in the Chase Bank is? 

Mr. Sutphen. He told me he was a stockholder. 

The Chairman. Do you know how extensive, or did he say? 

Mr. Sutphen. He intimated it was quite large. 



280 MUNITIONS INDUSTRY 

The Chairman. In this letter you have revealed the visit which 
you and Mr. Kettering, Mr. Codrington, and others had taken 
through Europe. 

Mr. SuTPiiEN. Yes. 

The Chairman. Mr. Kettering and Mr. Codrington, I think you 
testified were connected with the General Electric? 

Mr. SuTPHEN. No; with General Motors Corporation. 

The Chairman. What was the general nature of your visit in 
Europe, wdiat sort of industrial plants were you visiting? 

Mr. SuTTHEN. It was an accident that I met on board ship going 
over Messrs. Kettering and Codrington, whom I had known some 
years. They were maldng a trip through Europe to study Diesel 
engines and their progress up to that time, and I informed them 
I was on a visit to Germany to discuss matters with our foreign 
licensor, the M.A.N., the Maschinenfabrik Augsburg, Nurenburg. 

The Chairman. What did you call that M.A.N. ? 

Mr. SuTPHEN. The Maschinenfabrik Augsburg, Nurenburg. 

The Chairman. Now, you visited at the Sulzer plant? 

Mr. Sutphen. Yes. 

The Chairman. Where else did you visit? 

Mr. Sutphen. We were in Bern, Switzerland, and from there 
we went to Zurich, and from there to Munich, then to Augsburg 
where they spent a day with me, then they went on visiting other 
plants. 

The Chairman. Mr. Kettering, you state in this letter, had 
reported his visit to Essen, there being in operation a 15,000-ton 
press, the largest in the world. In comparing things with each 
other, you say we all received the same impression, that the firms 
we visited were all engaged in building new war equipment so as 
to be ready to supply it when called upon. 

Mr. Sutphen. That was the impression we received. 

The Chairman. Were you studying munitions plants? 

Mr. Sutphen. No ; my interest was only in engines. 

The Chairman. But you did observe they were busy getting ready 
for more war? 

Mr. Sutphen. The inference was in the report made by Messrs. 
Kettering and Codrington that they saw the Junkers Airplane 
and they saw the Krupp activities and they thought they were pre- 
paring themselves in case of hostilities. 

The Chairman. Did there not seem to be any secrecy about these 
plants that you were observing ? 

Mr. Sutphen. There was, of course, I think, secrecy shown by the 
engine builders to strangers if they did not know them; but to us, 
with my introduction of these two gentlemen with me, they showed 
us quite openly the new engines they were building for use in the 
German pocket battleships which were not then completed, and they 
were a very advanced type of Diesel engine. 

The Chairman. In writing Sir Basil, as you did of your trip in 
Europe, one cannot help but gather there had been some understand- 
ing 3'ou were to report to him concerning this visit. 

Mr. Sutphen. None whatever; it was simply a friendly gesture 
on ni}'^ part to keep him advised of what we saw in our travels 
that might be of interest to him. 



MUNITIONS INDUSTRY 281 

The Chairman. Were you by any chance designated, or felt, by 
Zaharoff to be his personal representative on the board of directors 
of Electric Boat? 

Mr. Sutphen. None whatever. 

united states government BUSINESS 

The Chairman. Now, we have had, such as it has been, a glimpse 
of the Electric Boat Co.'s relationships with foreign countries, in- 
volving in those glimpses the agreement for splitting the field of 
activity, and splitting the profits to be derived in the submarine 
jnanuf acture : we have had a glimpse of the Electric Boat Co.'s rela- 
tionship with Zaharoff involvmg the commissions paid him and his 
stock holding in the Electric Boat Co. Senator Clark has very ably 
brought out the business methods and the relationship of the Elec- 
tric Boat Co. in the South American field and the European field. 
And now the question naturally arises, and it is that we will be 
interested in, in concluding with the present witnesses, what has 
been the interest, the methods, or the activities of the Electric Boat 
Co. in obtaining business in the United States — business primarily 
with the United States Government. AVhat part of your business 
has been American and which one of you feels best prepared to 
answer that? 

Mr. Spear. I think I am best prepared. 

The Chairman, All right, Mr. Spear. 

Mr. Spear. The statement we went over this morning, Mr. Chair- 
man, and which I corrected two errors found therein, as you will 
recall, I think shows, so far as boats are concerned, a large percentage 
of our business has been American. That gives you accurately the 
number of ships we have built up to that time, that we have built 
for the United States Government. 

The Chairman. Knowing the manner of help the State Depart- 
ment, the Commerce Department, and the Navy Department have 
given you in your foreign fields, what help have you had from the 
same sources in winning American business? 

Mr. Spear. None whatsoever. 

The Chairman. It would seem to me the costs and difficulties you 
have been up against in obtaining this foreign business have been 
extraordinary, and would be really a thing you would like to get 
away from. 

Mr. Spear. I think there is a great deal of truth in that, I think 
we have taken a great deal of trouble with very little return, espe- 
cially in recent years. 

The Chairman. Why do you stay in that field ? 

Mr. Spear. The reason we have been so active in it in the last 10 
years was because we had that interregnum between 1918 and 1931, 
when we received no business whatsoever from the United States 
Government. We had our organization on hand and the expense 
of maintaining the organization and keeping it up, and with the 
amount of commercial business we could gain in these particular 
times, we could not continue to operate without going in the red 
all of the time. 

The Chairman. Is it not true, Mr. Spear, that your business 
abroad has a tendency to boost business at home. 



282 MUNITIONS INDUSTRY 

Mr. Spear. I don't think that the American Government pays 
any attention to that. They judge their proposals b}' the technical 
merit of the enterprise, and I do not think what we do abroad has 
any influence on tiie judgment of the Navy Department as to whether 
or not they should entrust us with a contract. Does that answer the 
question ^ 

The Chairman. Yes; generally. However, there is very good 
authority for the belief that the domestic consumption of munitions 
is largely dependent upon foreign consumption, and that it is good 
business for an American manufacturer to sell his wares abroad if 
he wants to sell tliem to the Army or to the Navy at home. It has 
less to do with the competition factor that quite naturally enters 
into it. 

You have testified that Mr. Koster, or it has been testified to, 
and there is evidence to support it, that Mr. Koster organized the 
Navy League in Holland. Tell us, Mr. Carse, how much has the 
Electric Boat Co. or its directors contributed to the support of the 
Navy League of America'!' 

Mr. Carse. Not one cent that I know of. 

The Chairman. Lieutenant Spear? 

Mr. Spear. I think not one cent, to my knowledge. 

The Chairman. Mr. Sutphen? 

Mr. SuTPHEN. Nothing. 

The Chairman. Now, we have had testimony revealing that these 
commissions you have paid to agents over the world might be com- 
missions which were to his own profit, or commissions which he was 
paying to others. Can you testify whether or not your Washington 
office ever contributed anything to the Navy League of America ? 

Mr. Carse. I am quite positive nothing has been paid. 

The Chairman. How can you be positive of it? 

Mr. Carse. The accounts pass through my office, and no such ac- 
count has passed. 

The Chairman. Yes ; but accounts to Mr. Aubry and others show 
that there have been paid thousands of dollars of commissions to 
him, and as you testified, you have no knowledge of what those 
commissions went to. 

Mr. Carse, That is true, but I think the Washington office is 
different. The Washington representative is an officer of the com- 
pany. 

Mr. Spear. No commissions are paid to anybody in the Washington 
office. Does that make it a little clearer to you ? 

Senator Clark. Was that true in Mr. Chapin's time, too ? 

Mr. Carse. I think so. It was merely a salary and expense ac- 
count. 

The Chairman. Expenses that are shown for the Washington 
office include salaries, rent, office expense, traveling expense, expense 
of motor boat used for demonstration, and residential expense. You 
feel then that you have never made any contributions to the Navy 
League as a corporation? 

Mr. Carse. I am quite positive, neither as a corporation nor as in- 
dividuals. I have received lots of their circulars and a number of 
letters, but I have not contributed in any form. 



MUNITIONS INDUSTRY 283 

The Chairman. Have you ever been personally solicited for con- 
tributions? 

Mr, Carse. I may have been, I do not recall, I have been solicited 
by a great many. 

The Chairman. Mr, Spear, have you ever been personally solicited 
for contributions to the Navy League ? 

Mr. Spear, My recollection of it, Senator, is that some years ago 
I was advised by the Navy League that it was their policy not to 
accept even voluntary subscriptions from anybody who was inter- 
ested in any way in building ships for the Navy. I think they have 
adopted that policy. 

The Chairman, Did they receive your advertising? 

Mr, Spear, I do not think they conducted any advertising, none 
that I know of, I do not think they have any publication. 

Senator Bone. Do any of your subsidiary organizations belong 
to the Navy League? 

Mr. Spear. No, sir. 

Senator Bone, Or contribute to it? 

Mr, Spear, So far as I know, no individual, or none of our com- 
panies, and it is practically all one now, and to our knowledge no 
individual in our employ is a member of the Navy League, 

The Chairman, Llave you been solicited to make contributions to 
the American Defense Society? 

Mr, Carse, I do not recall anything, I know we have not done it. 

The Chairman. You know you have not done it? 

Mr. Carse. No. 

The Chairman. How about the National Security League? 

Mr. Carse. Same answer. 

The Chairman, You never have been solicited and never have 
contributed to them ? 

Mr, Carse. I do not know, A lot of people come out in the ante- 
room and send in their cards, but I do not see them. 

The Chairman, Who does see them? 

Mr. Carse, The usher at the desk, and tells them that I am some- 
where else. I do not know what he tells them. 

The Chairman, Mr, Carse, did your company take any part in 
accomplishing the passage of the Vinson Naval Bill last fall and 
winter ? 

Mr. Carse, No, sir. 

The Chairman, This had been pending in some measure or other 
for a couple of years. Have you ever taken any part in accomplish- 
ing its passage? 

Mr, Carse. No, sir. 

The Chairman. You were, however, interested in its passage ? 

Mr. Carse. Certainly, we were interested in naval construction. 

The Chairman. Who is Mr. Davison? 

Mr. Carse. Mr, Davison many years ago was our engineering 
technical officer, up in New London. Lie resigned many years ago. 

The Chairman. What is the Davison Ordnance Co, ? 

Mr, Spear, That is a company that belongs to Mr. Davison. It 
is a company which he has formed, in the hope that he can do some- 
thing. This new invention of his, to which I testified I think this 
morning. 



284 MUNITIONS INDUSTRY 

Senator Pope. His anti-aircraft gun ? 

Mr. Spear. Anti-aircraft gun. 

Senator Clark. That is the one Koster was talking about? 

Mr. Spear. That is the one Koster was talking about. 

The Chairman. Who is Gregg? 

Mr. Spear. That is Mr. Davison. 

The Chairman. Under date of December 1, 1932, in a letter which 
I ask be identified as " Exhibit No. 1T9 ", Mr. Davison is telling you 
about a new gun that he has a large interest in. Had he perfected it 
himself ? 

Mr. Spear. Under the date of that letter, sir, no gun existed. 
This was the design of a gun. 

The Chairman. Just the design? 

Mr. Spear. That he had gotten out himself. 

(The letter referred to was marked '' Exhibit No. 179 " and 
appears in the appendix on p. 443.) 

The Chairman. In paragraph 3 of that letter, " Exhibit No. 179 ", 
the writer declares in the closing sentence : 

The only way they — 

And that means the Army Ordnance, I expect — 

will ever buy these guns is for them to be first manufactured and sold to some 
foreign power or to be developed abroad. 

In continuation of that he says: 

I have made up my mind to go ahead and develop this gun regardless of the 
financial situation or outside help. 

He was soliciting your help, was he not? 

Mr. Spear. He was endeavoring to interest me generally in this 
project and get my advice, and so forth. He was endeavoring to 
get me to be interested in this matter. 

The Chairman. He goes on to state : 

When I was in Washington a couple of weeks ago I saw Admiral Larimer, 
of Navy Ordnance. We discussed landing equipment for the marines and blue 
jackets. He tells me that their present equipment is not what it should be and 
showed great interest in the gun. In fact we arrived at an understanding, as 
follows : I am to prepare description, specifications, and drawings. These will 
be checked over by his experts and unless they discover something impracti- 
cable he will order a gun. 

Then on page 2 we find Mr. Davison declaring : 

From what I hear of Caulkins. his health does not seem to have improved, 
and I cannot count on using him to any great extent * * * 

"Who is Caulkins? 

Mr. Spear. He is a young engineer in Mr. Davison's employ. 

The Chairman (continuing) : 

He may, however, be able to do some drafting work from sketches and 
dimensions I will send him and also to skirmish around to pick up materials. 
If he does improve, I will later pick up some young fellow from Annapolis, 
West Point, or one of the technical colleges. 

Is it possible for business to pick up men from the colleges, from 
the Naval Academy and the Military Academy ? 

Mr. Spear. They sometimes have graduates, Mr. Chairman, who 
do not obtain commissions in the Navy or Army and sometimes 
some of these young fellows who do graduate an(i have graduated 



MUNITIONS INDUSTRY 285 

high enough to be commissioned, sometimes they prefer, at the close 
of their agreed term of service, to resign from the Navy and go into 
private enterprise. 

Senator Clark. The honor man at the last graduating class at 
the Naval Academy resigned without serving a day as an officer in 
the Navy, did he not, Mr, Spear ? 

Mr. Spear. I am not familiar with that. 

Senator Clark. That was announced in the public press at the 
time. 

Mr. Spear. I am not familiar with that. 

The Chairman, On the last page of that letter, " Exhibit No. 
179 ", the following sentence appears in the closing paragraph : 

You will see from the above that I expect to go ahead with this job regard- 
less of Mr. M. 

Who is Mr. "M " ? 

Mr. Spear. Mr. " M " is a private citizen, a banker, to whose atten- 
tion this matter had been called, and he said he would like to consider 
whether or not he thought it was worthy of advancing some money 
to Mr. Davison to endeavor to develop this gun. 

The Chairman. Mr. Davison seems to have been very greatly con- 
vinced that he had something which was really worth while here 
and something which was going to make obsolete Army ordnance 
generally. 

Mr, Spear. He is very enthusiastic about it. 

Senator Pope. All inventors have that same attitude. 

The Chairman, Mr. Spear, you were speaking a while ago about 
the influence that must at times be brought to bear to sell our goods 
abroad, before our own Army and Navy will buy. In this same letter 
Mr. Davison declares in the next to the last paragraph on page 2 as 
follows : 

It will be a very strenuous job to completely redesign the gun to meet General 
Summerall's recommendations. But I fear he is right. If I do what he recom- 
mends I will not only have an antiaircraft gun with a muzzle velocity equal 
to that of the Army's mobile antiaircraft gun, but I will also have a tield gun 
far superior in i*ange to their latest 75 M/M. 

That was not the exact reference I had in mind as to General Sura- 
Tiierall's advice regardino- this. 

That IS contamed in another exhibit which I am offering as " Ex- 
hibit No. 180 ", being a letter written by G. C. Davison to you, Mr. 
Spear, under date of December 23, 1932," 

(The letter referred to was marked "Exhibit No. 180" and 
ap])ears in the appendix on p. 444.) 

The Chairman. In " Exhibit No. 180 " Mi*. Davison says in part : 

Deiar L.iRRY: I have just received from General Summerall a letter signifying 
his willingness to come in on the gun business for foreign countries. He can- 
not have anything to do with U.S. business on account of the fool law pertaining 
to ofBcers of the Army and Navy. 

What is this " fool law " to which he makes reference ? 

Mr. Spear. What he is referring to there, Mr. Chairman, is the 

•existing law, which has existed for a good many years, under which 

it is illegal for a retired officer, certainly of the Navy and I think of 

the Army, to accept any kind of employment from any corporation, 

83876 — 34— PT 1 19 



286 MUNITIONS INDUSTRY 

firm or person who has business relations, contracts with the Govern- 
ment. That has been the law for a good many years. 

The Chairman. So that wlien Mr. Davison wanted General Sum- 
merall on his retirement to come in with him as a partner, providing 
for building and producing this gun, General Summerall could not 
do it because the Davison Co. would have relations with our Govern- 
ment. Is that the case? 

Mr. Spear. The Davison Co. hoped to have, and, of course, if they 
did, General Summerall could not be in it. 

The Chairman. General Summerall did go in it finally, did he 
not? 

Mr. Spear. I think not, from the latest information I have. I 
think at one time he said he was going in, but I do not think he has 
I am quite certain that no arrangements have been made. The last 
I heard from Mr. Davison, that was it. General Summerall is a 
cousin of Mr. Davison. 

The Chairman. In the second paragraph of the letter of Decem- 
ber 23, 1932, it states as follows : 

In view of this, please do nothing in regard to Vickers, for the present. 
Summerall now being my partner in regard to all foreign business I will now 
have to work with him. 

Mr. Spear. I understand that that has since been changed. 

The Chairman. And that he has no connection? 

Mr. Spear. I understand not. That is the latest information I 
have about it. 

The Chairman. In the letter December 1, 1932, "Exhibit No. 
179 ", Davison had stated in paragraph number 2 : 

Summerall is the only general beside Pershing who wears four stars and 
they are due primarily to his work with artillery. He is very hard boiled 
and practical. For that reason and the fact that he is not an enthusiast, 
statements such as he made to me can be safely accepted at 100 percent of 
their face value. 

He goes on to state : 

As regards my plan to organize a company with a couple of generals and 
a couple of admirals on the board, and with a view to starting some real 
competition with Army ordnance, he tells me I would get nowhei'e. He says 
that Army ordnance first of all will have absolutely nothing to. do with any- 
thing which they do not develop themselves. Also that they are so powerful 
with the military committees of Congress it would be useless to fight them 
there. The only way they will ever buy these guns is for them to be first 
manufactured and sold to some foreign power or to be developed abroad. 

That seems to be General Summerall's advice to Mr. Davison. 

Mr. Spear. I would judge that is substantially what he told him. 

The Chairman. Mr. Joyner, one of your vice presidents, whom 
we had hoped was going to be liere, but as to which the affidavits 
have been afforded showing him to be an ill man — how is he 
progressing? 

Mr. Spear. I went to see him last evening and he is a very sick 
man. 

The Chairman. Is there any thine: at all to indicate when he 
might hope to be up and around again ? 

Mr. Spear. Nothing at all yet. I think he is in a very serious 
situation. 



MUNITIONS INDUSTRY 287 

The Chairman. Has he made available to you any of the corre- 
spondence that the committee indicated they would like to have? 

Mr. Spear, He gave me all the information that he had, such as 
is mentioned in the subpena which I showed you yesterday. 

The Chairman. Which correspondence Mr. Raushenbush tells 
me is not of any consequence to us. It consisted of two letters? 

Mr. Raushenbush. It consisted of two letters. 

Mr. Spear. It consisted of two letters, yes, sir; about personal 
matters. 

The Chairman. "We shall want, of course, to hear Mr. Joyner, 
when he is able to be heard, but I think we need not refrain from 
offering certain letters that he received or that he has written, and 
which were taken from the files of the Electric Boat Co. 

Mr. Carse, on December 18, 1928, Mr. Joyner wrote you at your 
New York address a letter, which will be offered as '' Exhibit No. 
181." 

That letter reads in full as follows : 

Exhibit No. ISl 

Electric Boat Company, 
HiBBs Building, Washington, D.C. 

December IS, 1928. 
Mr. Henby R. Cabse, 

President, Electric Boat Company, 

11 Pine Street, New York City. 

Dear Mr. Caese: Succe.ssfully managed campaign for candidate Rules Com- 
mittee, which is most important to us, VNhen any legislation is up. 

Brought in some Western States, New England States, New York, Pennsyl- 
vania, and Michigan in Fort case, and New Jersey, Michigan, New York, 
Illinois, South Dakota, and Pennsylvania in Martin's case. 
Candidates successfully elected to Rules Committee : 
Honorable Jos. W. Martin, Jr., Mass. 
Honorable Frank Fort, New Jersey. 
The Rules Committee is the most important committee in Congress. It 
absolutely controls legislation. 

Thanking you, with kind regards. 
Sincerely yours, 

A. J. Joyner. 

How long has your company been interested in accomplishing the 
selection of Members of Congress to these important committee 
assignments? 

Mr. Carse. I have had not had anything to do with it, and I did 
not know anything about it. Whether Mr, Joyner had anything 
to do with it or not, I do not know. 

The Chairman. He says here he did. 

Mr. Carse. I know he says that. 

The Chairman. And he is a vice president of the company, is he 
not? 

Mr. Carse. Yes, sir. 

The Chairman. And addressed this letter to you as president of 
the company? 

Mr. Carse. A lot of people down in Washington think that they 
run everything. I do not know. 

The Chairman. I know that is true, and every member of this 
committee knows it is true, that there are men parading around 



288 MUNITIONS INDUSTRY 

Wasliington, .scraping acquaintance with Members of Congress and 
officials generally, and then going out in the business world and 
selling their services because of that acquaintance, and in selling 
themselves they always happily reveal how close they are to this 
one or to that one. But surely Mr. Joyner would not report to you, 
the head of the corporation, in such a way, he being a vice president. 
He had no purpose to serve by any such representation, no gain to 
be made. 

Mr. Carse. I do not like to make a criticism, but he might wish 
to show how important he was. It did not interest me at all. I do 
not know the members of any committee of Congress. I do not 
think it is any of my affair. 

The Chairman. What could be Mr. Joyner's interest in wanting 
to have friends on that committee? 

Mr. Carse. Perhaps he was personally acquainted with those gen- 
tlemen, and would see a good friend here and there when they were 
candidates. He did not consult me about what he was doing or 
anything of that kind. 

The Chairman. Having placed men in important positions 

Mr. Carse. Did he place them? 

The Chairman. He says he did. 

Mr. Carse. I know he does. 

The Chairman. He says: 

Successfully mannged campaian for candidate Rules Committee, which is most 
important to us, when any legislation is up. 

What does that mean ? 

Mr. Carse. You gentlemen know a good deal more about that 
thing. You know about these committees. You know how they are 
selected. Do you gentlemen on this committee believe that Mr. 
Joyner could pick up a candidate and have him elected a member of 
that committee? 

The Chairman. It would depend entirely upon what connections 
and how influential Mr. Joyner was with the leaders of the Congress. 

Mr. Carse. I do not know. I would not be able to answer that. 

Senator Pope. That was not your part of the work, was it? 

Mr. Carse. No, sir; I do not believe in those matters at all. I 
just believe in letting things take care of themselves. 

The Chairman. Did you ever observe that there was any return 
to the Electric Boat Co. that was traceable at all to any of these men 
in these influential places? 

Mr. Carse. No, sir ; not a particle. 

The Chairman. Mr. Joyner reported to you, did he not, from 
time to time, such success, or lack of success, as was being made with 
regard to legislation in which you would be interested? 

Mr. Carse. He may have; but nothing definite that I have in 
mind. I do not think that any legislation which was passed could 
in any possible way be traced or charged to any activities of this 
company. You take the naval bill, for the reconstruction of the 
Navy. Why is that? It is because the old boats are being worn 
out. For instance, the London Naval Treaty gave life to subma- 
rine boats of 13 years, and that would leave the United States with 
only about 5 or 6 submarine boats within that time. That would 
explain why there was an increase in the submarine program, be- 



MUNITIONS INDUSTRY 289 

cause they have to have them. Some people may ^o and talk to 
somebody and come around and say they accomplished wonders, 
but I never take any stock in it. 

The Chairman. JSIr. Carse, Mr. Joyner, in addition to being vice 
president of the Electric Boat Co., was also in charge of your 
Washington office, was he not? 

Mr. Carse. Yes, sir; he was. 

The Chairman. And on March 11, 1929, about three months after 
the writing of this letter marked " Exhibit No. 181 ", in which he 
advised how successful he had been in managing the campaign for 
election of a certain man for the very influential Kules Committee, 
he reported to you further in that regard, and I offer that letter 
as ^' Exhibit No. 183." ^ 

The Chairman. That letter of March 11, 1929, was addressed to 
Mr. Henry R. Carse, president, Electric Boat Co., 11 Pine Street, 
New York, N.Y., by Sterling J. Joyner. I will read the lecter in 
its entiretj' : 

Dear Mr. Carse: Now that the session of Congress is closed and our legisla- 
tive activities are tenuDorarily held in abeyance, it is a pleasure indeed to 
report to you and to the board of directors that all of our legislative efforts 
have borne fruit. 

The Cruiser bill is passed, the submarine appropriations have been passed, 
and as I sincerely promised you the day we lunched together in New York, 
we did manage after overcoming a number of handicaps and jumping some 
hurdles to get the second deficiency bill through, and in doing so we succeeded 
in getting our claim through, and we expect to receive payment at two o'clock 
this afternoon or early tomorrow morning. 

Mr. Carse, what was " our claim " ? 

Mr. Carse. A judgment of the Court of Claims. 

The Chairman. What did that amount to? 

Mr. Carse. That amounted to about 3 million dollars, and a sur- 
render of the $700,000 of bonds that were held by the Navy Depart- 
ment. We needed the money. 

The Chairman. 1929 was a good time to get money. 

Mr. Carse. Yes; but they should have paid it to us in 1918 and 
1919. 

Senator George. That claim had gone through the Court of 
Claims? 

Mr. Carse. That claim had gone through the Court of Claims. 

The Chairman. I continue to read from Mr. Joyner's letter: 

Slembers of the Navy Department have seen fit on several occasions lately 
to not only write, but to personally express their appreciations and congratula- 
tions on the success of such parts of the program as we were directly interested 
in and for the help we gave the Navy Department. I am not prepared to 
write you. however. I shall be glad to verbally tell you what really happened 
with reference to the deficiency bill, and the part this office played in getting 
the bill through. I absolutely and positively believe and feel safe in making 
the statement that if it had not been for actions taken in this office on the 
day before the bill was passed, and the day the bill was passed, that the second 
deficiency bill would have gone over until next session ; or, in other words, 
until the special or extraordinary session, which is called for the 15th of April. 

My reason for not putting this in writing is out of respect for those who 
helped, and who were so powerful and so friendly. The code of honor between 
men makes it unethical to name persons. However, my words and belief 
stand, and today we have succeeded again in having our claim and papers and 



^ No exhibit was marked no. 182. ^ ...^ 



290 MUNITIONS INDUSTRY 

certificates moved up ahead of over three thousand some hundred other claims, 
and inasmuch as our claim is the very larj^est, you can quite readily under- 
stand the Treasury Department would naturally hesitate at any advancement, 
particularly at this time when there is a threatened deficit. There is no 
question but what the situation could have been maneuvered for the next 
three months because of the right of the Treasury DeiJartnient to rechecli 
and check, audit and do a number of other things, which while they are not 
doing it in our case, they are actually engaged in doing so in a number of cases. 

Our designs are meeting with approval. Our advice and specifications are 
being received favorably, and generally speaking, little is left to be desired 
up to this time, except that all important part, the actual signing of an,'? 
contracts that we might receive. 

With good will and a friendly attitude existing in the Army and Navy, in 
Commerce and the Shipping Board, and the Treasury Department, and a good 
will does exist, which is true, as is the statement of pleasant friendly rela- 
tions, we may well feel that a brighter future has opened up for this Com- 
pany, with less sales resistance, and pleasant hours free from the past worries 
and cares. 

In the final, the writer wishes everyone in tlie organization without excep- 
tion to feel and to know that all have played a part in loyalty, kind considera- 
tions and cooperation, aud that they are entitled to share the pleasure and 
delight in a final victory, and in my humbleness desire to express my sincere 
thanks to all. 

Sincerely, 

(Signed) Sterling J. Joyner. 

Mr. Carse, that letter cannot be read without the reader knowing 
that there has been, and had been up to this time, March 1929, a 
great deal of interest on jour part in connection with the passage of 
legislation; that you had run into obstacles, and now the last ob- 
stacle had iDeen overcome and it was a day for rejoicing, and Joyner 
was rejoicing, and assuming that j'ou were rejoicing with him. 

Mr. Carse. I think that the manner in which you read that indi- 
cates just your opinion of the aspect of the man making that state- 
ment. 

The Chairman. Is not that his attitude ? 

Mr. Carse. That is just it. I do not know what he did. I did 
not give him any instruction to do anything. 

The Chairman. Do you think, Mr. Carse, that that letter could 
be read by anyone and that they could draw any dilferent conclusion 
than I seem to have drawn? 

Mr. Carse. But your tone of voice sort of indicated that you 
considered it somewhat bombastic. 

The Chairman. Not knowing Mr. Joyner, I could not under- 
take to in any way know precisely his own manner. 

Mr. Carse. You did very well. 

The Chairman. Surely I could not read this, as I have read it 
just now, without gathering something of the spirit that must have 
been Mr. Joyner's when he wrote that letter. 

Mr. Carse. That is just it. 

Senator Clark. Mr. Chairman, you could not read a general order 
congratulating all the troops on a great victory in any other way. 

Senator Bone. Just taking the whole text of the letter, what do 
you think he means in saying " our legislative efforts ", using the 
plural ? 

Mr. Carse. I made no effort. I gave no instructions to him. 

Senator Bone. He may be a host in himself and have used the 
term in tlie plural, as editors say •' we ", and I was wondering what 
he meant by that term. 



MUNITIONS INDUSTRY 291 

Mr. Carse. He knew that we needed to get that money, which had 
been awarded to us by the Court of Claims. We had been 10 years 
out of that, and had spent interest, and had had a mighty hard strug- 
gle to get along, and that was included in this second deficiency 
bill, as he stated. 

Senator Boxe. I am not interested in your Court of Claims case. 

Mr. Car.se. That was up to be passed, and I do not know any- 
thing about Washington, and I have never been down there trying 
to do anything in Congress or anything of that kind, but I do read 
the papers and find out that very often very important bills are lost 
or passed in the last hour of the session, and so I judge he was down 
there and was probably going around seeing different people he 
knew and urging that they try to expedite that deficiency bill and 
see that it went through. 

Senator Bone. He refers to political activities in Western States. 
Being a westerner, I am particularly curious about that. Who do 
you suppose he meant when he referred to work for candidates in 
Western States ? Can j-ou enlighten us on that ? 

Mr. Carse. His acquaintanceship in Congress is very broad. 

Senator Bone. Undoubtedly. I imagine that is why you keep 
him in Washington, because of his wide acquaintance. 

Mr. Carse. No. That is one of the reasons, of course. For in- 
stance. Senator Bone, if he knew you pretty well, I think he might 
stop and say that so and so is a candidate for the Rules Committee, 
how do you feel about him ? 

Senator Bone I understand. But he is referring to his activi- 
ties in Western States. I am not aware of Mr. Joyner's work out in 
my State, but if there is any connection out there with any political 
outfit, I would be interested in knowing about it. If they are politi- 
cally active in my State, I would be interested in knowing that. 

Mr. Carse. No; that is not what he meant. What he meant was 
that he had talked to Representatives from Western States. 

Senator Bone. He says in the letter something about — 

Successfully managed campaign for candidate Rules Committee which is most 
important to us. Brought in some Western States. 

He does not designate whom he is talking about. He says he 
brought in some Western States. 

Mr. Carse. Well, Representatives from Western States. 

Senator Bone. That is the same thing. When he brought in a Rep- 
resentative, he brought in a State. 

I believe there is an indication here that he has a yacht or a cruiser 
on the river; is that so? 

Mr. Carse. No. 

Senator Bone. What sort of a boat is that? 

Mr. Carse. Back, I think, 3 years, our sales department of the 
Elco works were very ambitious of extending their sales. I did not 
very much agree with them, but there was some idea around at that 
time that the motor-boat trade was going to develop like the auto- 
mobile trade. 

Senator Bone. Was that one of these Elco cruisers? 

Mr. Carse. Yes. 

Senator Bone. I have seen them. 



292 MUNITIONS INDUSTRY 

Mr. Caese. We sent it down here and it was down here for 3 years. 
We had an agent in Washington. 

Mr. SuTPHEN. It was only one year; was it not? 

Mr. Carse. Not according to that list. The expenses are down 
there for 3 years. We had that down there as a demonstration boat, 
on the Potomac. The total expense involved in that demonstration 
was $10,000. Just before I left I asked what the sales of boats had 
been in Washington at that time and I was told that the direct sales 
had been over $45,000, and there might have been some collateral 
sales caused by this demonstration on the Potomac River. 

Senator Bone. Of course, you can understand, Mr. Carse, that 
everybody out West — if these gentlemen of the press send out this 
story — must be interested in who that Congressman from the West- 
ern State was on the Rules Committee. Of course, all of these West- 
ern States were brought in, so to speak. 

Mr. Carse. That is not the way I read it. He got the votes of 
some Representatives of Western States for those two members of 
the Rules Committeee. I do not know how it was constituted. There 
was one from Massachusetts and one from Jersey. 

Senator Bone. Is there any possibility of this gentleman coming 
here so we can ask him how he brought in these States; what his 
technique was? 

Mr. Carse. I hope there will be. He is a very sick man just now. 
I think he will come back. He has snapped back two or three times. 
He has not been well for 3 or 4 years. 

The Chairman. Again I remind you, Mr. Carse, that Mr. Joyner 
is a vice president and he has been in charge of the Washington office 
and presumably is in charge of it today. Why do you have a Wash- 
ington office? 

Mr. Carse. Well, Mr. Spear can tell you that. 

The Chairman. Mr. Spear, why do you have a Washington 
office ? 

Mr. Spear. Because practically our onl}^ customer of any impor- 
tance is the United States Government, 

Mr. Carse. There has to be somebody here who will keep in 
touch with the Navy Department, find out what they want and get 
in touch with Mr. Spear, have him draw up the plans and specifica- 
tions and take those plans and specifications back and forth 
constantly. 

Mr. Spear. I used to do all of that personally, traveling down 
here all the time to discuss these matters, but I am getting a little 
aged for that now, so I do not do it any more. 

The Chairman. Since 1919 you have spent $7,000 a year and up- 
wards maintaining Washingon offices and up until 1927 you had a 
C. S. McNeir in charge. 

Mr. Spear. Yes. 

The Chairman. Where is he now ? 

Mr. Spear. I do not know. 

M. Sutphen. He is dead. 

Mr. Spear. Mr. Sutphen says that he is dead. 

The Chairman. From that time on, in 1927, Mr. Joyner had been 
here? 

Mr. Spear. Yes. 



MUNITIONS INDUSTRY 293 

The Chairman. He is here for some good reason; you have con- 
fidence in him, do you not? 

Mr. Spear. Yes. 

Mr. Carse. Well, Mr. Spear explained that yesterday. They keep 
in touch with the Navy Department and with the different legations 
in Washington. He has been in very close touch with the Turkish, 
with the Japanese and he has discussed things with the Argentine 
and Brazilian representatives, different work of that kind. 

The Chairman. How much salary does Mr. Joyner receive as vice 
president ? 

Mr. Carse. $15,000 now. 

The Chairman. Is that included in this statement that was sup- 
plied covering the salaries and expenses of Mr. Joyner? 

Mr. Carse. Yes. 

The Chairman. It was a salary of $18,000. 

Mr. Carse. That is what it was. It is $15,000 now. 

The Chairman. It was reduced in 1932 to $16,250 and in 1933 to 
$15,000? 

Mr. Carse. Yes. 

The Chairman. That is what he is drawing now? 

Mr. Carse. Yes. 

The Chairman. Is he a large stockholder in the Electric Boat 
€o.? 

Mr. Carse. I do not think he owns a share; not that I know of. 

The Chairman. Does he have such influence as would enable him 
to force you to employ him in Washington ? 

Mr. Carse. No, sir. 

The Chairman. Then why do you employ him here, if you do not 
have large confidence in him? 

Mr. Carse. Oh, I have confidence in him, but sometimes one gets 
a little exaggerated opinion of what he may have done or his 
^ability to do certain things. 

The Chairman. In addition to his salary, he is allowed clerical 
help which in 1931 amounted to $2,200. It has ranged from that 
down to $1,500; office rent of $1,092 a year, office expenses w^iich 
in one year, amounted $3,405, and it has ranged from that "down to 
$1,700; traveling expenses of various items, $400, $600, $400, and 
$1,000 in a year. 

Mr. Carse. Some of those were European trips. Those are a little 
larger amounts. 

The Chairman. Then you paid his residence expense here. 

Mr. Carse.. When he first came here, his residence was in Brooklyn. 
He maintained a home in Brooklyn, at the Hotel Bossert and it 
seems that an expense account of $500 a month was a proper sum 
to allow for his expenses, living in Washington. 

Senator Vandenberg. Who was he before you picked him up? 
Wliat was his job before you picked him up? 

Mr. Carse. I would not say, picked him up. 

Senator Vandenberg. I do not mean that invidiously. 

Mr. Carse. When I was over in Berlin in 1924, I met an officer 
of the Submarine Signal Co. In talking about matters, he said he 
thought that there was a very good opportunity for our company 
to do business in Japan, that he had done some very good business 



294 MUNITIONS INDUSTRY 

there. When I came back, I took up the subject with the other 
officers and discussed it back and forth as to whom we might send, 
because this man said, " Now, do not send any foreigner, because 
the Japs won't care to talk with anybody except an American." 

So we discussed it and Mr. Spear said he thought he knew a man 
who had been to Japan and was acquainted with the people and he 
brought in Mr. Joyner. He came with us at that time solely on a com- 
mission basis on business that he might secure from Japan. He would 
not take a salary or anything of that sort. We were to advance 
his expenses which would afterwards be deducted from the commis- 
sions we might pay him. He made two trips to Japan and showed 
that he had a wonderful acquaintance with the Japanese and I think 
that he has been very useful here in Washington in connection with 
unofficial communications between the two Governments. 

Senator Vandenberg. Had he had any previous Washington rela- 
tions ? That is what I was getting at. 

Mr. Carse. I never had heard that he had any here at all. 

Senator Clark. Do you know what his business was at the time 
you first employed him on a commission basis? 

Mr. Spear. I think at that time he was connected with Lockwood, 
Green & Co., which is a large construction company in Boston, and 
which was also largely engaged in the textile business. 

Prior to that connection — he seemed to have had a number of 
different connections — prior to that connection, he had been con- 
nected with the New York Shipbuilding Co. at the time that that 
was owned by the American International Co. It was a subsidiary 
at one time. 

In that connection, while he was stationed — his office was at the 
shipyard or in New York — he used to visit Washington in con- 
nection with the naval contracts that that company had, and it 
was my understanding from a mutual friend that it was Mr. Joyner 
who used to be in the steel business, cast-iron collier business and 
it was my understanding that on account of the connections that 
he had made with people in Japan while he was in that business 
he had proven useful to the New York Shipbuilding Co. in pro- 
curing a contract for a collier in Japan. In other words, he was 
the only American we knew at the time who knew the Japanese 
and also knew at least the bow of the ship from the stern. He had 
had some connection in the shipbuilding business. 

The Chairman. In any event, in his last complete jesiv of service 
for the Electric Boat (^o., he received a total of compensation, 
salaries and expenses, of $30,533.44. Now, did Mr. Jojmer's ability 
to show how influential he was have a tendency to increase his salary 
or extend his employment in the Washington office, at your hands? 

Mr. Carse. Do yon mean in relation to Congress? 

The Chairman. Yes. 

Mr. Carse. No ; I do not think so. 

The Chairman. So that then he would have no purpose in trying 
to make himself any bigger or any different than you knew him to 
be, would he? You w^ould have nothing to gain by it? 

Mr. Carse. He would have nothing to gain by it. 

The Chairman. It appears in the years, leading up to the dates 
of the correspondence that we have just read, Mr. Joyner was laying 



MUNITIONS INDUSTRY 295 

something of a foiinclation, for whatever purpose it might have 
been, 

I offer in evidence as " Exhibit No. 184 " a copy of a letter dated 
August 30, 1928, addressed by Mr. Joyner to Mr. Carse. 

(The letter referred to was marked " Exhibit No. 184.") 

The Chairman. The letter reads as follows: 

Very Dear Mr. Carse: For your information on Saturday and Sunday Ad- 
miral A. T. Long, U.S.N., and party used Sumcnt. 

By the way, is that name right, A. T. Lang? 

Mr. Spear. I think it was Admiral Long. 

Senator Clark. Just on that point, Mr. Spear, I was asking you 
this morning about the notes 1, 2, 3, 4, 5, and 6 at the end of Mr. 
Joyner's letters. They referred to Admiral H. A. Long. 

Mr. Spear. Yes ; I think it was Admiral A. Long. 

Senator Clark. It should have been A. T. Long. I understand 
the Navy sajs there never was an Admiral H. A. Long. Evidently 
the admiral mentioned was A. T. Long. 

The Chairman. What is the Su^meru? 

Mr. Carse. That was the name of the motor boat. 

The Chairman. What motor boat? 

Mr. Carse. That we had in Washington here for demonstrating 
purposes. 

The Chairman. Eeading this letter to Mr. Carse, it says : 

For your information Saturday and Sunday Admiral A. T. Long, U.S.N, and 
Z)arty used Sumeru. 

What is it, a sort of a launch? 
Mr. Carse. Yes ; a 50-foot launch. 
The Chairman (continuing reading) : 

Today the Turkisli Ambassador is to use it. Tomorrow the Acting Japanese 
Ambassador has arranged to use it. Probably on Sunday Admiral Hughes, 
Chief of Operations, will use it. Monday I am inclined to believe some of 
the Shipping Board are using it, Commissioners, I mean. Friday to Saturday 
will be given over to painting it up. On Saturday, some of the Hoover people 
will use it for two days — meaning Saturday and Sunday next week if clear. 
This party will cover several Members of Congress of importance. I am told 
today that Mr. Charles wUl buy another boat soon. He showed a check to 
Captain Coggswell as a part payment. I believe he has some complaint on the 
one he did just buy and wants to see me — something about the paint coming 
off. Captain Coggswell tells me his complaint is apparently justified. I will 
not say anything until I see him (Mr. Charles). 

You can see from the schedule that I am not sailing on the boat or joy- 
riding on it. These parties are entirely on their own. I am not with them, 
" purposely so." 

I do want you to know you can be proud of your guests and it shows con- 
fidence in us by using the boat. 
Cordially and obediently, 

Sterling. 

The copy from which I was reading was copied from a letter writ- 
ten in pen. 

Mr. Carse. I might say that they all supplied their own provisions. 

The Chairman. On May 23, 1929, Mr. Joyner wrote you a letter, 
or wrote Mr. Spear a letter, which I now offer as " Exhibit No. 185." 

(The letter referred to was thereupon marked " Exhibit No. 185 ", 
and appears in the ajopendix on p. 445.) 



296 MUNITIONS INDUSTRY 

The Chairman. In this letter Mr. Joj'ner refers to a Turkish 
matter and says he had — 

two talks with the Ambassador today, one just a few minutes ago. The net 
of the situation is that he is moving every power reasonable to believe possible 
to see that we get the other three boats, and these on a basis of no competition, 
no bonds, or guarantees, no more dilly-dallying, but a straight proposition from 
his Government 

He met the Cabinet officer in New York, and has been vi?;iting with him up 
to last night. The Cabinet officer will be in this city in a fortnight or so. If 
I understand the situati(m correctly, they are both in accord, and are making 
a united elfort in our favor. 

Who might that Cabinet officer be? 

Mr. Spear. He was an officer in the Turkish Cabinet. 

The Chairman. An officer in the Turkish Cabinet? 

Mr. Spear. Yes, sir; I do not know his name. 

The Chairman. You have, of course, used the services of your 
Members of Congress in what you considered was legitimate l3usi- 
ness in which Members could interest themselves? 

Mr. Spear. Whenever there has been any matter before Congress 
I considered it interested me personally or interested the company, 
I have never hesitated to call upon the gentlemen from my State 
where I reside and ask them if they considered it consistent with 
their duty to support it. 

The Chairman. And you got pretty thorough cooperation from 
the Members of Congress in Connecticut? 

Mr. Spear. I always got very polite answers and I think in most 
cases they thought my requests were reasonable. Where they did 
not agree with me, they did not do anything. 

The Chairman. Are you employing at the present time any former 
Members of Congress? 

Mr. Spear. No, sir. 

Mr. Carse. No, sir. 

The Chairman. Are you turning any law practice to former 
Members of Congress? 

Mr. Carse. No, sir. 

The Chairman. I offer as " Exhibit No. 186 " a letter by Mr. Spear 
to Mr. Carse, the letter being written from Groton, Conn. 

(The letter referred to was marked " Exhibit No. 186.") 

The Chairman. The letter, " Exhibit No. 186 ", reads : 

Exhibit No. 186 

Electric Boat Company, 
Ch-oton, Conn., October 22, 1929. 
Confidential. 
H. R. Carse, Esq., 

President, Electric Boat Company, 11 Pine Street, 

NciD York at]/. 

Dear Mr. Carse: Riglit after I talked with you this afternoon, I called 
Joyner and found that his friend ATL was then in the office, which gave me 
a chance to chat with him a little over the phone. He confirms just what I 
said to you today and repeats the advice previously given, this advice being 
based partly on what he thinks is good for our interests and partly on what 
he thinks the people in the Department are entitled to from us. 

We understand that the departmental people are all to be very busy with 
some special business tomorrow, and accordingly Joyner is figuring on Thurs 
day for his interview. 



MUNITIONS INDUSTEY 297 

I have marked the letter " Confidential " because I thuik it would rrnt be 
wise for us to reveal to anyone, including the board, the names of any of the 
peiiple who have been kind enough to assist us with information in an unofTicial 
way. 

Very truly yours, 

L. Y. Spear. 

Admiral Long was giving you information? 

Mr. Spear. He was giving advice, presumably. I do not know 
that he says information. This related to a question, Mr. Chair- 
man, of design, what would be more likely to meet the approval of 
the Department people among a number of alternatives. As I re- 
call, that question was up then, and I was preparing some designs 
for submission to the Department. 

The Chairman. What was Long's position at this time? 

Mr. Spear. I think he was on the general board. 

The Chairman. Chief, was he not? 

Mr. Spear. Yes; he was the senior member, I think. 

The Chairman. I offer in evidence " Exhibit No. 187 ", a letter 
dated September 23, 1930, by Mr. Joyner, to the Honorable John Q. 
Tilson, Hotel Roosevelt, New York City. 

The Chairman. This letter reads: 

Dear Congressman Tilsox : (Confidential) Replying to your communica- 
tion of September ISth. The subject of work in New London for the Electric 
Boat Company Shijjyard in New London has been under discussion in the De- 
partment many times during the last year or more, in the effort to see what 
could be done to award to that company some of the Government's work of 
building submarines. 

This is in the interest not only of the workers to whom you specifically re- 
fer, but also in the interest of the technical staff of the company. As this is 
the only private company at present in America specializing in the design and 
construction of submarines, the Department considers it necessary to do every- 
thing possible so far as it is permitted by the laws of Congress to give that 
yard its reasonable share of sul)marine construction. Therefore you may be 
assured that I will do everything in my power to further that result. 

In accordance with the terms of the London Naval Treaty, we are permitted 
to build a definite amount of submarine tonnage in the immediate future and 
we can by the terms of that treaty start construction of two submarines during 
the present fiscal year. So it will work out that these submarines be assigned 
to the private .ship building company at New London as understood. 

With best wishes. 
Sincerely j'ours, 

Signed by Ernest Lee Jahnckb, 
The Assistant Secretary of the Nav^j. 

Now, what understanding existed relative to where these ships 
were to be built, if and when they were authorized ? 

Mr. Spear. At that time it was the intention of the Department 
apparently as revealed in their conversation with me to place those 
tw^o ships in private yards. Subsequently they changed their mind 
about that policy. They did not carry out the policy they then 
were discussing and they decided to build one in the navy yard and 
open the other to competition by private firms. 

The Chairman. Appended to this letter which I have just read 
and which I understand is a copy of a letter taken from the files of 
the Electric Boat Co., was a sheet in longhand, carrying this infor- 
mation : 

Read the enclosed and don't let your right hand know what the left is 
thinking. 



298 MUNITIONS INDUSTRY 

This is a copy of a letter to John Q. Tilson. I saw the copy through Mr. 
Jahncke. 

Note blue slip that explains how. 

This should be really a fair confirmation of past chatter. 

S. J. 
Very confidential. 

To whom was this note sent? 

Mr. Spear. I do not know. 

The Chairman. Do you recall having seen it, Lieutenant Spear? 

Mr. Spear. I recall having seen some letter which I take to be 
this letter that is appended. I do not recall anything about this slip 
that is on here, and to whom that was sent I could not tell you. 

Senator Clark. You know Mr. Joyner's handwriting? 

Mr. Spear. I think this is in his handwriting. It looks like it to 
me. 

Mr. Carse. I think that was found in our office, was it not? 

Mr. Raushenbush. I think so. 

Senator Clark. Do you know to what that refers ? 

Mr. Carse. What? 

Senator Clark. That handwritten memorandum? 

Mr. Carse. It refers to that letter of Mr. Tilson's which the chair- 
man has just read. 

The Chairman. The reference here is that this is a copy of a 
letter to John Q. Tilson and " I saw the copy through Mr. Jahncke." 

Mr. Carse. Yes. Mr. Jahncke showed it to him. 

The Chairman. Who was Mr. Jahncke? 

Mr. Carse. Assistant Secretary of the Navy at that time. 

Mr. Raushenbush. Mr. Chairman, the first letter that you read 
was signed by Mr, Jahncke. 

The Chairman. The exhibit 187 has a note on it " Signed by 
Ernest Lee Jahncke, the Assistant Secretary of the Navy." 

Mr. Carse. This copy Mr. Jahncke allowed Mr. Joyner to take. 

The Chairman. What understanding existed that would enable 
Mr. Jahncke to advise you when the ships were authorized that 
would be built in private shipbuilding yards ? 

Mr. Spear. I do not Imow that I could say there was any under- 
standing. We were soliciting them to give us some work. We had 
not had any work from them in many years. 

Senator Bone. Mr. Tilson was one of the majority leaders in the 
House at that time. 

Mr. Spear. Yes; he was. 

Senator Bone. One of the most energetic majority leaders. 

Mr. Spear. He was a majority leader in the House from Con- 
necticut. 

Mr. Carse. Yes; from the Groton district. 

Mr. Spear. We had been dealing with the Department, submit- 
ting designs endeavoring to get in a position where they would be 
willing to place some contracts with us, because we had not had any 
in many years. At the time that communication was dated, there 
remained two authorized submarines in the old 1916 program and 
we were given to understand that — no formal agreement — but we 
were told by various people in the Department, that the Department 
would contemplate awarding those two vessels to private firms. 
Subsequently they changed their mind and did not award any con- 



MUNITIONS INDUSTRY 299 

tract until 1931. By the time they decided to award a contract, they 
changed their mind and decided their policy would be to build one 
of the vessels at the Portsmouth Navy Yard and award the other 
to a private concern on competitive bidding. We were the low 
bidder on that ship and obtained the contract, and the ship has now 
been delivered to the Government. 

The Chairman. Now, recalling the best you can at the time of the 
receipt of this, what did the blue slip, that was explaining how 
Joyner came to get a copy of this letter through Mr. Jahncke, say? 

Mr. Spear. I have no idea. I don't think it ever came to me. 

The Chairman. Mr. Carse, do you recall the blue slip? 

Mr. Carse. I do not. That pencil copy I think was found in the 
desk of the treasurer of the company, and I have no recollection of 
it. It was some years ago — when was that ? 

The Chairman. September 23, 1930. 

Mr. Carse. That is 4 years ago. 

The Chairman. The fact remains you got, in 1931, two submarine 
contracts, did you not? 

Mr. Spear. One, not two. 

The Chairman. I think the Chair should say for himself, if he 
is not speaking for the committee, that there is not any pleasure 
in the revealing of this correspondence, and I have not any doubt 
but what Mr. Tilson, Martin, and Mr. Fort will want to be heard 
on this, and that there is an explanation for it. But I cannot feel, 
and I do not think the members of the committee feel it within their 
province to refrain from offering into the record this information 
which we have gained by reasons of our studies, which the Senate 
by resolution instructed us to make. 

Mr. Carse, what are your relations with Mr. duPont? 

Mr. Carse. None at all. I don't know him. 

The Chairman. Does Joyner have any relation with Mr. duPont? 

Mr. Carse. Not that I know of. 

The Chairman. Has he ever reported to you any relation with 
Mr. duPont ? 

Mr. Carse. I think he has stated that years ago he superintended 
the construction of one of duPont's homes. 

The Chairman. I have here a letter dated October 21, 1930, ad- 
dressed to Mr. John R. Macomber, 24 Federal Street, Boston, Mass., 
and signed by Mr. Joyner, which I oifer as " Exhibit No. 188." 

(The letter referred to was marked " Exhibit No. 188 ", and ap- 
pears in the appendix on p. 447.) 

The Chairman. Do you know Mr. Macomber? 

Mr. Carse. Yes, I have met him. 

The Chairman. Who is he? 

Mr. Carse. He was the head of Harris, Forbes & Co. that was 
absorbed by the Chase Securities Co. and I think since the separa- 
tion of the Chase Securities Co. from the Chase Bank there has 
been organized another corporation which includes perhaps the 
Chase Securities Co. of Boston as I understand, although I do 
not know that Mr. Macomber is the head of that organization. 

The Chairman. In this particular letter Joyner advises Mr. 
Macomber that the Italian commercial attache, one signor Romolo 



300 MUNITIONS INDUSTRY 

Angelone, will call on him next Friday at your New York office, and 

he says further: 

The fjentlemun will visit me here today, Tuesday, at whirh (iuie I will advise 
him to make an eugagemeut, aieaiiiug to communicate with yuu in order to 
learn your convenience. 

Then he said further : 

In order that you may be .somewhat informed in advance I wish to state 
our experience with Italians has not always proven attractive. However, do 
not let that deter you. 

I have a tentative week-end engagement with Du Fonts at Wilmington, 
Del., which I will pass over to the week following if you could dine witli us 
Friday. In that ca.se I would run up to New York Friday afternoon. 1 hope 
you can accept. 

Did Mr, Joyner make any rejDort to you concerning this visit with 
duPont? 

Mr. Carse. No. 

The Chairman. "Exhibit No. 189 ", which I offer in evidence, is a 
copy of a letter written by Mr. Spear to Mr. Carse dated January 
21, 1931. 

The Chairman. This letter, " Exhibit No. 189 ", says : 

I received word this morning from our New Haven friend that he would 
see the Secretary this afternoon or tomorrow morning, probably the latter, in: 
which case we should know a little more about the true inwardness of the sit- 
uation tomorrow afternoon or Friday morning. 

What was that situation, Mr. Spear? 

Mr. Spear. That was the situation where these contracts we have 
hien recently discussing were pending in the Department, and it 
was a question of whether or not they were going to give private con- 
Cf3rns an opportunity to bid on them. I don't think that had been 
tiottled at that time but eventually, as I told you, they told me, or 
give me to understand they would probably give out 2, and they 
eventuall}' gave out 1. But it was always uncertain up to the last 
moment what they would do about it. 

The Chairman. Was the President going to have any hand in that 
matter ? 

Mr. Spear. I have always understood that in the Navy Depart- 
ment, when they wanted to know what they would do in the Navy 
Department, they would finally take it to the President for his 
approval before it was done. 

The Chairman. Under date of January 2, 1931, you were found 
'vsriting Mr. Carse again a letter v^-hich I offer as "Exhibit No. 190." 

The Chairman. In this letter, " Exhibit No. 190 ", you say: 

This morning, I have a note from our friend in New Haven suggesting that 
our meeting in Washingtcm be held on Tuesday instead of Monda.v, because 
ho has been asked to breakfast at the White House Monday morning. As a 
matter of fact. Tuesday would suit me better than Monday because it gives 
us a chance to present the new designs Monday and to get a last checkup on 
the departmental situation. 

I plan to go to Washington Sunday and, so far as I can see now, will have 
tf) stay there from three to five days. 

What was the aAvard after that conference at the White House;. 
did you get your contract at that time? 

Mr. Spear. No, sir; I am trying to recall if I can. It is very 
difficult to remember these things. I cannot say I have any exact 



MUNITIOXS INDUSTRY 301 

recollection of what happened then, but I do recall I felt that the 
matter was still open, that there had been no adverse decision with 
regard to placing anj^ of these contracts in private yards, but that is 
merely my impression. I did not tell you exactly what was said, 
because I caimot remember it. I know up to the time the contracts 
were actually let it was always my impression, from all of the in- 
formation I got, that at least one of them would be given out to 
private industry in open bidding. 

The Chairman. I offer as " Exhibit No. 191 ", a memorandum 
dated February 10, 1931, from C.E.M. for Mr. Joyner.^ 

(The memorandum referred to was marked "Exhibit No. 191", 
and appears in the appendix on p. 447.) 

The Chairman, In that memorandum the writer discusses the 
tariff on oil and the delegation of 70 men with $1,000,000 at their 
disposal coming to Washington on the oil tariff, and then the 
memorandum declares : 

The sole resistence of any effective character is coming from the Standard 
of Indiana. 

I note this memorandum is signed C. E. M. Who is C. E. M.? 

Mr. Raushenbush. That was from Mr. Joyner's files, Mr. Chair- 
man. 

Mr. Spear. I cannot place him at all. 

The Chairman. Then in its closing paragraph this memorandum 
declares : 

My guess is that the Navy Department would very much prefer to have 
this measure defeated since it wants to buy its oil purely on the basis of 
price and strategic location. I venture the suggestion that you ascertain 
whether it would not be regarded as a considerable service on your part to 
use your extensive influence with Mr. Tilson and others in effectively blocking 
the measure if that is what they would like to have done. 

Mr. Spear. I don't know anything about that. 

The Chairman. Has Mr. Joyner apparently been always in thor- 
ough accord with the company, or have joii had differences of opinion 
regarding administration and methods of getting business? 

Mr. Carse. I should not be surprised that we have. It is one 
of these families where we all have our opinions and voice them, 
and the majority decides what to be done. 

The Chairman. I offer " Exhibit No. 192 ", being a letter marked 
" Confidential ", from Jovner to Sir Basil Zaharoff, dated March 
7, 1931. 

(The letter referred to was marked " Exhibit No. 192 ", and ap- 
pears in the appendix on p. 447.) 

The Chairman. In this letter Joyner says : 

I am not in accord and never have been in accord with the methods which 
this company adopts and sees lit to carry through in their endeavor to handle 
or obtain new business. 

That is on page 2. the fourth line in the second paragraph. And 
you will notice later on in that paragraph he advises Sir Basil that — 

The Secretary and the Assistant Secretary of the Navy, Admiral .Tones, 

and other admirals in the Navy D?partnient, Colonel Tiison, leader of the 

Republican Party, the party in power, the White House, and other people 

brought me into conference and asked me to remain in the organization iu 

83876 — 34— PT 1 20 



302 MUNITIONS INDUSTRY 

order that they might have faith in an honest construction of any program 
they favored us with and also that their dealings might be without conflict or 
confusion, enmity or doubt. 

Did he ever threaten to resign ? 

Mr. Carse. That is the first 1 ever heard of it. Why he is writing 
to Sir Basil Zaharoff I do not know. 

The Chairman. You think he is selling himself to Sir Basil 
Zaharoff now? 

Mr, Carse. It kind of sounds that way. He never saw Sir Basil. 
I gave him a letter of introduction to Sir Basil, but Sir Basil was 
down at Monte Carlo when Joyner was over there, and he did not 
see him. I think that was in 1926. This is rather amusing to me. 
Now, don't you see what I said before, that sometimes there existed 
an exaggerated ego. 

The Chairman. I have known that type, but I don't know Mr. 
Joyner. 

On page 3, in the second paragraph, Mr. Carse, Mr. Joyner is 
declaring : 



'to 



I wrote you with reference to Sir Henri Deterding of the Shell organization, 
whom I am informed is a personal friend of yours. We ought to be doing 
some of his business in the United States. They have a large powerful and 
successful organization, and aside from tliis, they are now deeply interested 
in the present embargo controversy. 

Have you had any knowledge at all of any relation with oil mat- 
ters with Deterding? 

Mr. Carse. Absolutely nothing. 

The Chairman. I offer in evidence " Exhibit No, 193 ", being a 
letter dated April 23, 1931, and addressed to Sir Basil Zaharoff. 

(The letter referred to was marked " Exhibit No. 193 " and appears 
in the appendix on p. 449.) 

The Chairman. This letter, " Exhibit No. 193 ", is to serve as a let- 
ter of introduction of the Honorable Mrs. Ernest Lee Jahncke and 
Miss Adele Townsend Jahncke, of Washington, D.C., and New Or- 
leans, La., the wife and daughter of the Honorable Assistant Secre- 
tary of the United States Navy Ernest Lee Jahncke, and we find 
Mr. Joyner saying : 

I shall sincerely appreciate, and I can assure you that the Secretary and his 
family will dwell in a long life of gratitude for any favors you may find it your 
pleasure and convenience to extend. 

Mr. Carse, the approach to Sir Basil here is rather that of one who 
knows him intimately. 

Mr. Carse. That is what he might be saying to everybody. He 
probably knows you very well. 

The Chairman. I would not be surprised. 

I offer in evidence " Exhibit No. 194 ", a letter confidential and 
personal to Admiral Andrew T. Long, signed Mary and Sterling. 

(The letter referred to was marked "Exhibit No. 194", and ap- 
pears in the appendix on p. 449.) 

The Chairman. Mr. Joyner's name is Sterling, is it? 

Mr. Spear. Yes, and his wife is named Mary. They are very close 
friends of Admiral Long. 

The Chairman. Who is Mr. Johnstone, was he a foreign repre- 
sentative of yours ? 



MUNITIONS INDUSTRY 303 

Mr, Spear. He was one of our engineers who was abroad for a 
number of years. 

The Chairman. I am rather amused to find in this letter this 
language : 

Strictly and absolutely confidential to you, it is now definitely decided, and 
very definitely, that 1 am going to Japan via Europe in June. As a matter 
of fact I neglected sending out for the transportation today but I am going to 
do so this afternoon. 

Mr. Carse. What year was that? 

The Chairman. This is April 1931. Then the letter proceeds as 
follows : 

Nobody has been informed of this fact except you and a couple of members 
of our organization with whom it has been arranged. For business reasons 
we are keeping it very, very secret. I dislike taking the long route in the 
hot weather, but there are reasons why I should go to Europe first, and there 
are further reasons why I should not tell anybody of my intentions. 

Andrew T. Long was connected with the International Hydro- 
graphic Bureau at Monte Carlo, was he? 

Mr. Spear. Yes. 

The Chairman. Anything as secret as this mission seems to be 
here, why should Admiral Long know anything about it? 

Mr. Spear. He was an old friend of Joyner's. 

The Chairman. They were really very close friends? 

Mr. Carse. Very close. I don't know anything about the trip, 
and the trip was never taken. 

The Chairman. In this letter Mr. Joyner speaks very intimately 
of Admiral Hughes, Admiral Blakely, and Admiral Shag Taylor, 
and then he says : 

Now for a very, very important and absolutely secret communication. Mrs. 
Ernest Lee Jahncke and Miss Adele Townsend Jahncke will arrive in Paris on 
the Golden Arrow the afternoon of May 20, and I have instructed our Euro- 
pean manager, H. H. Johnstone, 48, Avenue de la Bourdonnais, Paris, France, 
cable address code word Retsok, to meet the steamer at Calais, and to ac- 
company these splendid ladies, your friends, to Paris, and arrange for their 
hotel accommodations, likewise to give them such of his time as they may 
require. 

Johnstone was a former United States naval officer? 

Mr. Spear. I do not think he was ever a commissioned officer. 
He was in Annapolis once, but I do not think he graduated. 

Mr. Carse. He was in JRussia doing some work for us, and got 
caught by the revolution. 

The Chairman. Mr. Joyner says in his letter that : 

Secretary Jahncke, as you know, is an old friend of mine, and a very loving 
friend of yours. He is one of the keenest and one of the finest companions 
a man can have on this earth, a prince of men among men. He is not aware 
of this letter being written. However, I am sure he would not disapprove of 
me writing you because of his great friendship and admiration for both you 
and Vi. 

Yet, I notice there was typed on this same copy of the letter a 
notation, " Copy for Hon. Ernest Lee Jahncke." 
Likewise in this letter Mr. Joyner says : 

I am having some trouble fighting against any wage reduction. On Tuesday 
last the board of directors voted to make a very serious reduction, and to put 
it into effect covering everybody excepting, strange to say, " Yours truly ", 
and I fought that out this morning and saved that. 



304 MUNITIONS INDUSTRY 

Mr. Cakse. The records sliow -when the reduction Avcnt into effei-t 
and he told me that he was perfectly satisfied with anything I might 
determine to be right. 

The Chairman. He goes on and savs the following : 

There is a general feeling all over this country to cut wages. My feeble 
effort will not avail much generally speaking, but it does amount to some- 
thing in the organization. In other words, about <JO,(KK» yhares in one block, 
and possibly another 100.000 in another block. These two blocks -and the 
stock that I can command outside by proxy makes it possible for me to speak 
up occasionally out of turn. In doing this, I am supporting the hand, in my 
limited way, of President Herbert Hoover. 

Does he hold that much stock ? 

Mr. Carse. No. 

The Chairman. Did he at that time hold that much stock? 

Mr. Carse. Oh, no ; not that much stock. 

The Chairman. Could that by any possible chance indicate that 
Joyner was holding and voting the Zaharoff stock? 

Mr. Carse. No. 

The Chairman. Not a chance? 

Mr. Carse. He never saw^ Zaharoff. 

The Chairman. I offer, merely for the record, " Exhibit No, 195 ", 
the same being a copy of a letter written by Joyner to Sir Robert 
McLean, care of the Vickers-Armstrong Co., Ltd.. London, England, 
dated April 28, 1931. 

(The letter referred to was inarked " Exhibit No, 195 " and appears 
in the appendix on p. 451.) 

The Chairman. In this letter, " Exhibit No. 195 ", Joyner says, 
after speaking of Mrs. Jahncke and her daughter, the following : 

After their arrival in London you will read much about them. I cannot 
write you why I make this statement, however, you will be charmed when 
you read it, just as you will be supercharmed when you meet them. Any help 
or assistance that you can give them will be sincerely appreciated by all parties 
concerned. 

"Was Mr. Joyner something of a press agent, do you know? 

Mr. Carse. He is a very affectionate writer. 

Mr. Spear. I think Mrs. Jahncke was to be presented to court, 
and I think that is the news he had in mind. 

The Chairman. I offer in evidence " Exhibit No. 196 ". being a 
letter headed " Personal and Confidential ", dated May 22, 1931, from 
Joyner to Sir Basil Zaharoff. 

(The letter referred to was marked " Exhibit No. 196 ", and ap- 
pears in the appendix on p. 451.) 

The Chairman. In that letter, " Exhibit No. 196 ", Joyner says : 

I nin in a position today to tell you that I kept my promise to you made some- 
time ago, but. nevertheless, not forgotten. I succeeded in restoring the company 
to tlie old respected position it enjoyed some twenty-five years ago. 

We were tlie low bidder and succeeded in securing the building of the SG5 
today. Bids went in May 19th, and I was assured by the Acting Secretary 
of the Navy today that we would be given the contract. Being low bidder did 
not me;:n what it seems, because the navy yard still had the privilege of com- 
ing in and offering a price much under ours, which I believe they did. How- 
ever, the honorable position which we have taken through all of this situation 
and the helpfulness which we have rendered to the Department in various 
manners and various ways has borne fruit, "Where we had nothing but dis- 
respect we today have great respect. 



MUNITIONS INDUSTEY 305 

Was there conveyed to you at all an}' knowledge concerning this 
transaction — did the Navj^ offer to do the job for less? 

Mr. Spear. Not to my knowledge. 

Mr. Cakse. Perhaps Mr. Spear can explain how the Navy esti- 
mates are made lower than the contractors bid. 

Mr. Speak. The only figures I saw really that came from the navy 
yard are not bids at all. They are estimates, and they do not in- 
clude all of the items which are included in a private contract, and 
cannot be comparable to the bid. They make them up in the navy 
yard and the tv,'o dockyards that are concerned they use them and 
finally decide on what is the final estimate, and they say they have 
got to be built inside of that figure. I was told at the time the final 
estimate from the yard was made that the estimated cost to them of 
building this duplicate boat in the Portsmouth Yard was some- 
what higher than our bid figure. 

Senator Vandenberg. You don't know anything about this state- 
ment he made that after you made your bid they let the navy yard 
come back and make another bid which was lower than yours, but 
still let the contract to you through the influence of the Assistant 
Secretary of the Navy. 

Mr. Spear. I don't know anything about that. 

The Chairman. In this letter Joyner further says : 

Chase National Bank stock sold at 70 or under today. I secured some, I 
think. At least I put in a bid through a brokerage house. I know that you 
are one of the largest holdei's of Chase National stock in the world, and I 
believe Chase is one of the finest institutions in the world. 

I now offer in evidence " Exhibit No. 197 ", being a letter by Joyner 
to Mr. Lyman S. King, of the King-Knight Co., Balboa Building, 
San Francisco, Calif. 

(The letter referred to was marked "Exhibit No. 197", and ap- 
pears in the appendix on p. 454.) 

The Chairman. In this letter, " Exhibit No. 197 ", Mr. Joyner 
says : 

If the Shipping Board is to take part in any financing we are in a better 
position than any other organization to help the owners. 

This was evidently in connection with the Electirc Boat Co. 

Mr. Spear. These gentlemen in San Francisco are agents for 
Diesel engines. The Harvard which is referred to there, as I recall 
was a ship that was on the Pacific coast and she wrecked or something 
happenecl to her sometime and the question arose of building a 
ship to replace her. We w^ere interested if it was going to be a 
Diesel engine ship to see if we could g^t the order. 

The Chairman. Mr. Spear, has j^our company shown any pro- 
nounced leaning in a political way? 

Mr. Spear. No. 

The Chairman. Are you as a private citizen interested in politics? 

Mr. Spear. I am not at all active in politics. I vote. 

The Chairman. Mr. Carse? 

Mr. Carse. I vote, that is all. 

Mr. Spear. I vote and have occasionally contributed to various 
candidates in my town and in the State when requested to. You 
know we all get these requests, but my contributions have not been 
very large, and not large enough to make much difference. 



306 MUNITIONS INDUSTRY 

The Chairman. Are your contributions dependent upon whether 
the candidate in whose behalf they are made is of one party or 
the other ? 

Mr. Spear. I have not contributed to anyone recentl}^, because I 
could not afford it, but I was brought up in what they used to call 
a " black Kepublican State " where we thought a Democrat ought 
to be put in jail. You know you inherit those feelings, so for many 
years my allegiance, such as it was, has been Republican. I have 
never contributed, as I can recall, to any Democratic candidate, 
although I came close to it once or twice because they happened 
to be personal friends of mine. 

The Chairman. In correspondence we touched upon here a little 
bit ago reference is repeatedly made to our friend in New Haven. 
Who was that ? 

Mr. Spear. Congressman Tilson. 

The Chairman. Mr. Carse, have you made contributions to politi- 
cal campaign funds? 

Mr. Carse. Not in a long while. I served my apprenticeship 
back in 1892 in the Twenty-third Assembly District of New York, 
when they made me chairman of the finance committee; but after 
I found we were defeated two or three years, I think I had enough 
of it. 

The Chairman. Without casting any reflection upon the propriety 
or impropriety of it — and I see nothing to show that it was not 
proper — I want to call your attention, Mr. Spear, to the fact that 
you did make contribution to the campaign fund that was raised in 
behalf of Senator Bingham. 

Mr. Spear. I did. 

The Chairman. And professed a very decided interest in his 
welfare. 

Mr. Spear. I did. 

The Chairman. In a letter dated November 5, 1932, which is 
offered as " Exhibit No. 198 ", you say in part as follows [reading] : 

You are correct in thiuking that I am very much interested in the election 
of Senator Bingham. * * * 

I am enclosing my check for $50 as a contribution to your fund, which is 
additional to other contributions. 

Mr. Spear. Yes, sir. 

The Chairman. What were these other contributions? 

Mr. Spear. I think there was a local. I think I made a contribu- 
tion to the local town committee, if I remember correctly. 

The Chairman. Senator Bone, I handed you some exhibits to 
look at, which I thought you would be interested in perusing and 
might want to pursue the matter further. 

Senator Bone. I do not think it is material. 

The Chairman. This letter of June 2 has already been introduced 
as an exhibit. 

Senator Bone. I do not think the other amounts to anything. It 
only dealt with some small stuff out there. 

The Chairman. Very well. 

Senator George. Mr. Carse, I would like to ask one question which 
I think is pertinent to a matter which has gone in the record. How 
long was your personal case, the case of the company, the claim 



MUNITIONS INDUSTRY 307 

against the Government, pending in the Court of Claims before you 
finally had favorable decision? 

Mr. Spear. I think, Senator, that the decision was handed down 
on the third or fourth year after the suit was filed. 

Senator George. And then how long after the decision before the 
appropriation was made to cover it? 

Mr. Spear. It was made at the next session of the Congress. 

Senator George. It was made at the next session of the Congress ? 

Mr. Spear. Yes, sir. 

Senator George. Did you have an attorney here representing 

you? 

Mr. Spear. Yes, sir; McKenna, Flannery, and somebody else, 
three names, in the Hibbs Building, Washington. They were our 
attorneys who prosecuted this case in the Court of Claims, 

Senator George. Did those attorneys represent you before the 
Appropriations Committee, or do you know ? 

Mr. Spear. I think they did. I think they took charge of it, and 
it was part of their duty to follow it through until we received the 
award which the court made to us. 

Senator Pope. I have one question I want to ask. In a recent mag- 
azine article, a magazine issued in September, I find this statement, 
it being taken from a national magazine [reading] : 

So during the third week in June another sort of conference was held in 
Switzerland. It was not a disarmament conference. It was an armament 
conference, and it was held in the utmost secrecy among representatives of 
the American munitions manufacturers, the Vickers-Armstrong group of Eng- 
land, and the Schneider-Creusot interest of France. Not a word was published 
in any newspaper about this conference despite the importance in financial and 
industrial affairs of the men who attended it. Probably no American news- 
paper was aware of it. Mo«t significant. 

Do you know anything about this conference held in June ? 

Mr. Carse. This is the first I have heard of it. 

Senator Pope. Was your company represented? 

Mr. Carse. It was not represented. 

Senator Pope. Do you know, Mr. Spear? 

Mr. Spear. I never heard of it before, and our company was not 
represented in any way. This is the first I have heard of it, of 
any such conference being held. 

Mr. Carse. We never consider ourselves a munitions company in 
any way. 

The Chairman. I will offer the letter I referred to from Mr. Spear 
to Mr. W. H. Putnam, Hartford, Conn., as " Exhibit No. 198." 

(The letter referred to was marked " Exhibit No. 198 ", and 
appears in the appendix on p. 454.) 

The Chairman. Gentlemen, I thinly we are through. For my 
own part, and from what I have overheard, I know I am speaking 
the mind of other members of the committee, and I will say that I 
think you have been mighty decent with us, I think you have been 
mighty clean in the way you have dealt with the committee, and I 
can only express the hope that others who are going to have to follow 
in your footsteps are going to be as frank with us as you have been. 
In anj^ event, we do very, very much appreciate the manner in which 
you have cooperated with us. 



308 MUNITIONS INDUSTRY 

With the expression of our thanks to you, the committee will stand 
in recess until 10 o'clock tomorrow morning, and you are excused 
to go about your work. 

Mr. Spear. Thank you, Mr. Chairman. 

Mr. Carse. We only regret that all this detail in relation to other 
people had to be made public. 

The Chairman. I can understand fully that you would, and I 
think the members of the committee feel a sense of regret that that 
needs be done too, but we have been instructed to do a given work. 

Mr. Carse. We appreciate that. 

The Chairman. There is not any other way for us to do it except 
in the manner in which we are proceeding with it. 

Thank you, Mr. Carse, Mr. Spear, and Mr. Sutphen. 

(Whereupon the committee took a recess until tomorrow, Friday, 
Sept. 7, 1934, at 10 a.m.) 



I 



APPENDIX 
EXHIBITS 



ELECTRIC BOAT CO. 

Exhibit No. 1 

Electric Boat Co. — Henry R. Carse, president 





Salary 


Extra 
compen- 
sation 


Commis- 
sion 


Expenses 


Dividends 


Total 


1919- 


$30, 000. 00 
30, 000. 00 
30, 000. 00 
30.000.00 
30, 000. 00 
30, 000. 00 
30, 000. 00 
30,000.00 
30, 000. 00 
30, 000. 00 
30. 000. 00 
30, 000. 00 
30, 000. 00 
26, 562. 50 
26, 250. 00 
16, 406. 25 






$98. 00 




$30, 098. 00 


1920 








30, 000. 00 


1921 






193. 00 




30, 193. 00 


1922 








30, 000. 00 


1923 






100. 80 
1, 354. 00 
324.07 
125. 55 
534. 15 




30, 100 80 


1924 






European trip 


31, 354. 00 


1925 






30.324 07 


1926..- 








30, 125. 55 


1927 








30, 534. 15 


1928. 








30, 000. 00 


1929 










30, 000. 00 


1930 










30, 000. 00 


1931 










30, 000. 00 


1932 










26, 562. 50 


1933. 










26, 250. 00 


1934 (to 8/15) 










16, 406. 25 










None ... 






459, 218. 75 


None 


None 


2, 729. 57 


461, 948. 32 









Exhibit No. 2 



Electric Boat Co. — L. Y. Spear, vice president 



» 


Salary 


Extra 
compen- 
sation 


Commis- 
sion 


Expenses 


Dividends 


Total 


1919 


$25, 000. 00 
25, 000. 00 
25, 000. 00 

25, 000. 00 
25, 000. 00 
25, 000. 00 
25, 000. 00 
25, 000. 00 
25, 000. 00 
30, 000. 00 
30, 000. 00 
30, 000. 00 
30, 000. 00 

26, 562. 50 
26, 250. 00 
16, 406. 25 










$25, 000. 00 


1920 










25, 000. 00 


1921 






7, 645. 69 
3, 513. 62 

999. 25 
1, 031. 83 
1, 579. 67 
2, 900. 25 
1, 269. 66 
1,831.41 
1, 446. 07 
1, 888. 50 
1,436.88 
1, 182. 31 
1, 125. 72 

645. 68 


European trip 


32, 645. 59 


1922 






28, 513. 62 


1923 








25, 999. 25 


1924 








26, 031. 83 


1925 








26, 579. 67 


1926. 








27, 900. 26 


1927 . 








26, 269. 66 


1928 








31,831.41 


1929. 








31, 446. 07 


1930 








31, 888. 60 


1931 









31,436.88 


1932 








27, 744. 81 


1933 








27, 375. 72 


1934 (to 8/15) 








16, 951. 93 














414, 218. 75 


None 


None 


28, 396. 44 


None 


442, 615. 19 







309 



310 



MUNITIONS INDUSTRY 

Exhibit No. 3 
Electric Boat Co. — II. R. Sutphen, vice president 





Salary 


Extra 
compen- 
sation 


Com- 
mission 


Expenses 


Dividends 


Total 


1919 


$12, 000 
20, 000 
20, 000 
20,000 
20,000 
20, 000 
20,000 
20, 000 
20,000 
20, 000 
20, 000 
20,000 
20,000 
20,000 
20,000 
12,500 






$2, 402. 18 

48.28 

3, 357. 81 

20.00 

59.53 

119.70 

146. 20 


European trip 


$14, 402. 18 
20, 048. 28 


1920- 






1921 . . . 






European trip 


23.357 81 


1922 






20, 020. 00 


1923... 








20, 059. 53 


1924 








20. 119 70 


1925 








20, 146. 20 


1926... 








20, 000. 00 


1927 . . 






230. 00 




20.230 00 


1928 








20, 000. 00 


1929 






76.00 

1, 552. 73 

4.45 

193, 75 

437. 00 




20, 076. 00 


1930 






European trip 


21,552 73 


1931 






20, 004. 45 


1932 








20, 193. 75 


1933 








20,437 00 


1934 (to 8/15) 








12, 500. 00 
















304, 500 


None 


None 


8, 647. 63 


None 


313, 147. 63 









Exhibit No. 4 
Electric Boat Co. — H. A. G. Taylor, secy.-treas. 





Salary 


Extra 
compen- 
sation 


Commis- 
sion 


Expenses 


Dividends 


Total 


1919 


$5,900.00 
4, 900. 00 
4,900.00 
5, 500. 00 
6, 500. 00 
7, 166. 64 
7,500.00 
7, 500. 00 
7, 500. 00 
7,500.00 
7, 500. 00 
7, 500. 00 
7, 500. 00 
7, 041. 66 
7,000.00 
4, 374. 90 










$5, 900. 00 


1920 






$3,035.46 


European trip 


7, 935. 46 


1921 






4, 900. 00 


1922 










5, 500. 00 


1923 - 










6, 500. 00 


1924 . 










7, 166. 64 


1925 










7, 500. 00 


1926 - 










7, 500. 00 


1927 -- 










7, 500. 00 


1928 . . - - 










7, 500. 00 


1929 










7, 500. 00 


1930 










7, 500. 00 


1931 










7, 500. 00 


1932 


*= 








7, 041. 66 


1933 










7, 000. 00 


1934 fto 8/15) 










4, 374. 90 










None . 






105, 783. 20 


None 


None 


3,035.46 


108. 818. 66 









Exhibit No. 5 
Electric Boat Co. — G. C. Davison, vice president 





Salary 


Extra 
compen- 
sation 


Commis- 
sion 


Expenses 


Divi- 
dends 


Total 


1919 . . . 


$20, 000. 00 

17, 500. 00 

10, 000. 00 

3, 333. 32 






$285. 24 

397. 23 

78.64 




$20, 285. 24 


1920 








17, 897. 23 


1921 








10, 078. 64 


1922 (resicned) 








3, 333. 32 


1923 












1924 














1925 














1926 














1927 














1928 














1929 .... 














1930 














1931 














1932 














1933 














1934 






























50, 833. 32 


None 


None 


761. 11 


None 


51, 594. 43 



MUNITIONS INDUSTEY 



311 



Exhibit No. 6 
Electric Boat Co. — Washington office expense 




Exhibit No. 7 

JElectric Boat Co. — Statement of contracts for naval vessels, ammunition, etc., 

Jan. 1, 1919, to Aug. 15, 1934- 

United States Navy Department : 
July 1, 1919: 

6 submarine boats, S-.i2 to S-47 $11, 430, 000. 00 

Changes 129, 250. 60 



$11, 559, 250. 60 



Government of Peru : 
April 11, 1924 : 

2 submarine boats, Rr-l, Rr-2, with 

extras 2, 473, 100. 00 

24 mark x by 5 M. by 21" 

24 mark x 5 M. x 21" torpedoes 264.000.00 

2 3" guns VPith mounts 42, 000. 00 

500 rounds of 3" ammunition 23, 400. 00 

Torpedo-testing apparatus 16, 337. 00 

Submarine base 458, 450. 00 

Furniture for base 8,700.00 

3, 285, 987. 00 

Argentine Government : 

January 21, 1925 : 

Y guns, arbors, and eases, and depth charges 18, 800. 00 

Government of Peru : 
October 13, 1926: 

2 submarine boats, R-3, R-4 2,500,000.00 

United States Navy Department : 
June 29, 1931 : 
August 3, 1933 : 

1 submarine boat. Cuttlefish 3, 297, 000. 00 

2 submarine boats, Shark and Tarpon @ $2,770,000— 5, 540, 000. 00 
Government of Peru : 

October 9, 1933 : 

October 25, 1933 : 

2 river boats with extras 462, 840. 00 

1,200 rounds, 8", 50 cal. ammunition. 50, 000.00 

512, 840. 00 

Government of Peru : 

January 10, 1934: 

1,300,000-gallon fuel tank with fittings 8,275.84 



26, 722, 153. 44 



312 



MUNITIONS INDUSTRY 



Electric Boat Co. 



ExHiniT No. 8 

-Statement of royalties received during calendar years 
as shoirn 





191C to 1921, foreign 
currency 


1916 to 1921, 
dollars 


1922 
for- 
eign 
cur- 
rency 


1922, 
dol- 
lars 


1923, foreign 
currency 


1923, 
dollars 


Vickers, British 


£516,800 18 08 


2, 194, 480. 67 


None 

None 
None 
None 
None 
None 


None 

None 
None 
None 
None 
None 






Vicker.s, Mitsubishi 


fl920-l-2-3) 
£31,3.50 


142, 053. 50 


Vickers, Dutch. . 








Vickers, Australian... 










Vickers, DeSchelde.. . 






£235 18 


940. 3a 


S.E.C. Naval 








DeSchelde 


Fl.91,433 77 (1917) 

Fl. 12,256 48 (1920) 

Fl. 2,108 57 (1921) 


37,281.86 

4, 085. 49 

673. 66 



























1924, foreign 
currency 


1924, 
dollars 


1925, foreign 
currency 


1925, 
dollars 


1926, foreign 
currency 


1926, 
dollars 


Vickers, British . 














Vickers, Mitsubishi 


£3,800 


17,361.25 


£3,800 
£9,600 


18,401.50 
46, 488. 00 


£3,800 
£1,560 
£4,219 8 2 


18, 430. 00 


Vickers, Dutch 


7, 572. 00 


Vickers, Australian.-. 






20, 464. 13 


Vickers, DeSchelde 












S.E.C. Naval... 










Pts. 6,257,936 
Fl. 231,502.43 


951,206.27 


DeSchelde 


Fl. 472, 871. 57 


184, 504. 28 






92, 809. 79 











(To October 31st) 



1927, foreign 
currency 



Vickers, British 

Vickers, Mitsubishi. 

Vickers, Dutch 

Vickers, Australian. 
S. E. C. Naval 



£5,727 6 12 



£840 

£6,475 19 8 

Pts. 421, 967. 25 



Total, 1916 thru 1927 $3,869,637.38. 



1927, dollars 



27, 777. 54 



4, 074. 00 
31,408.51 
69, 624. 60 



$3, 869, 637. 38 



Exhibit No. 9 
Electric Boat Co. — Capt. Paul Koster 





Salary 


Extra compensation 


Commis- 
sions 


Traveling 

expenses, 

rent, taxes, 

clerical, 
office main- 
tenance, 
etc. 


Dividends 


Total 


1919 


$4, 000. 00 

4, 000, 00 

4, 000. 00 

4, 000. 00 

4, 000. 00 

4, 000. 00 

5, 000. 00 

6, 000. 00 

10, 000. 00 

10,000.00 

10. 000. 00 

10,000.00 

5, 833. 32 






$9, 955. 21 
6,215.61 

6, 038. 23 

7, 392. 33 
4, 873. 80 
6,654.12 

8, 298. 18 
8, 906. 09 
4, 334. 94 
4, 395. 56 
5, 019. 69 
5, 308. 21 

878. 63 




$13,955.21 


1920 








10,215.61 


1921 








10, 038. 23 


1922 








11,392.33 


1923 




$3, 522. 00 
9, 471. 82 




12.395.80 


1924. 






20, 025. 94 


1925 






13, 298. 18 


1926 




4,639.31 


19, 545. 40 


1927.... 






14,334.94 


1928 








14, 395 56 


1929.. 








15,049.09 


1930 








15.308.21 


1931 








6,711.95 


1932 










1933 














1934 


















None . . 












80, 833. 32 


17, 633. 13 


78, 200. 60 


None 


176.667.05 









MUNITIONS INDUSTRY 313 

Exhibit No. 10 

April 20, 1925. 
Capt. Paul Koster. 

J/S. Av. de La Bourdonnais, Paris, France. 

Dear Captain : Your favor of the 9th instant at hand, and the United States 
Government had never entered into an agreement with us to pay a royalty on 
boats built in its arsenals, although we understand that they did pay the Lake 
people a royalty on one or more boats of the Lake type built in the navy yard. 

We have never assented to the United States Government building our type 
of boat in its navy yards and have never given them a permit to cover the 
use of our patents, but in the contract entered into on July 17, 1917, for sub- 
marine boats 8-18 to S-^l, inclusive, and contract entered into on the 1st of 
July 1919 for the construction of submarine boats /S-//2 to S-Jp, inclusive, by 
this company in its own plants or the plants of subcontractors, clause 5 of the 
twenty-second paragraph of said contracts reads as follows : 

" In addition to the payments hereinbefore stipulated, the Department will, 
at the time of the condition at acceptance of the vessel, pay the sum of forty 
thousand dollars ($40,000) covering the use in any and all patented devices 
which are or may be incorporated in each vessel, its machinery, appliances, 
and appurtenances as specified in the eighth clause of this contract : Provided, 
That the payment of such sum shall not be held to be an acknowledgment by 
the United States of the validity of any specific patent right or license owned 
or acquired or to be owned or acquired by the contractor, nor shall it be takeu 
to fix a maximum value of the use of any or all such patented devices in any 
other vessels theretofore or hereafter built for the Department by the con- 
tractor or by others." 

In relation to submarines built in England, our arrangement is direct with 
Vickers, we never having had any negotiations direct with the British Gov- 
ernment. The conditions of our agreement vidth Vickers is that on any type 
of submarine boat built by that firm for the account of the British Government 
we shall receive a certain percentage of the net profit accruing to them on such 
business, and during the entire period of such construction, running over 20 
years, our average profit has been £28,467 per boat, and the profit of Vickers 
accruing on this business has been larger than our proportion. 

April 20, 1925. 



Capt. Paul Koster, 

Paris, France: 

I trust this statement will fully answer the purpose you have in mind, but 
if it should be necessary to have a notarial afiidavit in relation to the facts, 
kindly let me know, giving full detail as to the form that may be required, and 
I will give it the best of attention. 

With kind regards and trusting that you are enjoying good health, I remain. 
Yours very truly, 

(Signed) Henby R. Carse, 

Pres. 

Exhibit No. 11 

An agreement made in London on the 21st day of October, one thousand nine 
hundred and thirteen, between the Electric Boat Company, a company consti- 
tuted according to the laws of New Jersey, in the United States of America 
(hereinafter called the American Company), of the one part, and Vickers, 
Limited, of Vickers House, Broadway, Westminster, in the County of London 
(hereinafter called the Vickers Company), of the other part, supplemental to 
an agreement (hereinafter called the main agreement) made between the same 
parties and dated the twelfth day of December, one tliousand nine hundred and 
two. Whereas the parties have agreed that the main agreement should be 
modified in manner hereinafter appearing, now it is hereby agreed by and 
between the parties hereto as follows : 

1. The main agreement shall, as regards clause 7. be modified, first, that the 
factory costs shall, instead of the fifteen percent (15%) therein mentioned, be 
as follows : 

(1) In respect of shipbuilding and the ordinary engineering part of the work, 
such as is carried on at present at the shipbuilding works of the Vickers 
Company at Barrow, twenty percent (20%) on material and labour. 



314 MUNITIONS INDUSTRY 

(ii) In respect to the ordinary engineering part of tlie work as is carried on 
at present at the engineering works of the Vickers Company at Barrow, 12^^ 
percent on material and labour. 

(iii) For gas-engine work carried out at the yards of the Vickers Company 
put into submarine boats, twenty-tive percent (25%) on material and labour, 

(iv) On rniished material purchased not made by the Vickers Company, five 
percent (5%). 

And secondly that in place of the present wording of the last sentence of such 
clause, beginning " the balance of the said moneys " to the end of the clause, the 
following words shall be substituted as indicated in the new arrangement come 
to between the parties, namely, " the balance of the said moneys shall be 
divided in the proportion of sixty percent (00%) to the Vickers Company and 
forty percent {40%) to the American Company." 

2. The provisions of the clause of the main agreement except as modified by 
the present agreement shall apply as if restated in this agreement. 

3. Should any dispute or difference arise between the parties hereto under 
or with regard to this agreement such difference or dispute shall be decided 
by arbitration in accordance with the Arbitration Act ISSO, or any then 
subsisting statutory modification thereof. 

In witness whereof the respective companies have caused their respective 
common seals to be affixed the day and year first above written. 
The common seal of Vickers Limited was hereunto aflixed in the presence of : 
[seal] a. T. Dawson, Director. 

John T. Coffin, Secretary. 



Exhibit No. 11-A 
[Copy] 

Messrs. Vickebs Limited, 

Vickers House, Broadway, Westminister, S.W. 



London, 21st October 1913. 



AGREEMENT OF 12TH DECEMBER 1002 

Deae Sirs : With reference to our recent negociations regarding modifica- 
tion of the above agreement, the terms arrived at will, so far as regards British 
business, be embodied in the supplemental agreement to be signed today. 

With respect to continental business, the Electric Boat Company holds that 
the proposed transfer of this business to Vickers Limited cannot become either 
practicable or legal until Vickers Limited have been given complete freedom 
of action in this respect by the British Admiralty. At the present time, there- 
fore, the Electric Boat Company cannot see its way to agree to any modification 
of the main agreement in this respect. It. however, agrees to bind itself to a 
modification in the future, having for its main purpose an arrangement under 
which Vickers Limited can for the whole period of the above agreement deal 
exclusively with the continental business except in the countries where the 
Electric Boat Company has already granted exclusive licenses covering such 
business. 

The Electric Boat Company will also agree to the following disposition of any 
profits which may be gained in the continental business conducted by the Vick- 
ers Company, viz : 

1st. In the event of any boats being constructed for continental countries 
in tlie Vickers yards in Great Britain, 60% to Vickers Limited and 40% to 
the Electric Boat Company. 

2d. In the event of such boats being constructed in any other yard In 
Great Britain or Ireland approved by the Electric Boat Company, 50% to 
Vickers Limited and 50% to (he Electric Boat Company, after deducting the 
profits allowed to the building firm. 

3rd. In case such boats are built in continental Europe, or patents or licenses 
thereunder are sold 50% to Vickers Limited and 50% to the Electric Boat 
CompaK.Y. 

While the Electric Boat Company considers it impracticable at the present 
time to enter into the new arrangement with regard to continental business, 
it nevertheless realizes that Vickers Limited can render important assistance 
to the Electric Boat Company in the conduct of the continental business of 
the latter. In consideration of such assistance the Electric Boat Company 



MUNITIONS INDUSTRY 315 

is willing to waive certain of its rights in respect to priority of payment 
under the existing arrangement, as agreed to by Vickers Limited in their let- 
ter of August 19th, 1911. This waiver, however, will not apply to Holland, 
Russia, or Sweden, but would specifically apply to Spain, Portugal, Austria- 
Hungary, Italy, and Turkey. 

The Electric Boat Company is also willing to waive this right in any other 
continental countrj^ for business in which no licenses have been granted by 
the Electric Boat Company, as soon as Vickers Limited can demonstrate, to 
the satisfaction of the Electric Boat Company, their ability to assist materially 
in securing orders for the Electric Boat Company. 

The Electric Boat Company will further agree to waive this right with 
respect to Russian business, wlien, and in the event of an arrangement being 
ma!de satisfactory to the Electric Boat Company, which, while respecting the 
rights of the Newsky Company in full, will enaljle Vickers Limited to partici- 
pate in the Russian business. 

It is, of course, understood that if and when the Electric Boat Company's 
continental business, or any part thereof, is transferred to Vickei's Limited, 
the details of the working arrangements shall, when circumstances permit, 
be generally approved by the Electric Boat Company. 
Yours faithfully. 

On belialf of The Electeic Boat Company, 
(Sgd) Electeic Boat Co., 

By Isaac L. Rice, President. 
We agree to the above, 

ViCKEES, Limited, 
(Sgd) A. T. Dawson, Director. 



Exhibit No. 11-B 
[Copy] 



NovEMBEaj 3, 1913. 



Messrs. Vickeks, Ltd., 

Vickers House, Broadway, Westminstet-, 

London, S.W. 

Gentlemen : Although our agreement of October 21st, modifying previous 
agreements has of itself, in my opinion, no retroactive effect, nevertheless, I 
beg to take occasion to call your attention to our memorandum of August 21st, 
1913, in which it is expressly stipulated as follows : 

"(1) Agreement to be modified as follows for future business, but not to affect 
in any manner boats now building." 

The agreement as drawn, however, contains a reference to factory charges 
which is outside of the memorandum and as to those it was my understanding 
with Sir Trevor Dawson that the new arrangement should go into effect as 
of January 1st, 1913. I would therefore request you to confirm the following: 

1. That the modification as to division of profits applies only to future 
orders ; 

2. That the modification as to factory charges goes into effect as of January 
1st of the present year. 



Very truly yours, 



(Sgd) Isaac L. Rice. 



Exhibit No. 11-C 

[Copy] 

ViCKEBS House, 
Broadway, Westminister, London, S.W. No. IJf, 1913. 
Isaac L. Rice, Esq., 

President, The Elcc. Boat Co., 

New York. 

Dear Sib: We have your letter dated the 3rd inst., with regard to the new 
agreement of the 21st ulto., and as requested we beg to confirm : 

1. That the modification as to division of profits applies only to future 
orders. 



316 MUNITIONS INDUSTRY 

2. That tbe modification as to factory charges is to take effect as from the 
1st January of the present year. 
Yours faithfully, 

For ViCKERs, Limited, 
(Sgd) A. T. Dawson, Director. 



Exhibit No. 12 
[Strictly confidential] 

EXECTRIC BOAT CO. WITH VICKEES, LTD., AGREEMENT 

Agreement made in the city of New York, on the 4th day of March, one thou- 
sand nine hundred and twenty-four, between Electric Boat Company, a corpo- 
ration organized and existing under tlie laws of the State of New Jersey, in 
the United States of America, and now having its principal office at no. 11 
Pine St., in the Borough of Manhattan, city of New York, in the State of New 
York, in the United States of America, hereinafter for convenience designated 
as " E. B. CO.", of the one part, and Messrs. Vickers, Ltd., a corporation duly 
organized and existing under the laws of the British Empire and now having 
its principal office at Vickers House, Broadway, Westminster, in the county of 
London, in England, hereinafter for convenience called " Vickers ", of the other 
part. 

Witnesseth : That for and in consideration of the mutual promises, covenants, 
and agreements herein contained, and of the sum of one dollar, and other valu- 
able considerations, each to the other in hand paid, the receipt whereof is hereby 
ackowledged. 

This agreement witnesseth : 

First. That from all of the covenants and agreements herein contained, as to 
the territory therein included, there is and shall be excluded and excepted there- 
from the following territory: Spain, Japan, France, Italy, Belgium, Holland. 
Norway, Finland, Brazil, Argentine, and Peru and all territory colonies, and 
dependencies of each of said countries and of all communities and places that 
are subject to the government and/or suzerainty of the respective governments 
of the respective countries above set forth. The business of manufacturing, 
building, and/or selling submarines to each of the above-mentioned countries 
shall be and is hereby declared to be governed, managed, or controlled by a 
series of agreements either heretofore made and entered into or to be hereafter 
made and/or entered into, and Vickers hereby agrees that it will not attempt 
to do nor seek business in or for the aforesaid countries just mentioned, except 
in accordance with such special agreement as have been or may hereafter be 
made with E. B. Co. 

Second. Under this agreement, from which the countries listed in paragraph 
" First " hereof are and shall be excluded, as between the parties hereto, there 
shall be the following division of territory, to wit : 

(a) Territory reserved exclusively for Vickers; that is, Great Britain and 
her colonies and dependencies, including self-governing territories such as 
Canada, Ireland, Australia, and India. 

(6) Territory reserved exclusively for E. B. Co., viz, the United States of 
America, the colonies and dependencies thereof, and the Repul)lic of Cuba, and 
all communities and countries governed by or under the suzerainty of the 
United States of America. 

(c) Common territory in which both parties shall be free to act; namely, all 
countries of the world, but eliminating therefrom all countries and territory 
included in any of the subdivisions set forth in paragraph "First" herenf. 
and tlie countries and territories set forth in subdivisions " a " and " & " of this 
paragraph " Second " of this agreement. 

Third. All agreements and understanding between the parties hereto with 
respect to the territory included in subdivisions "a", " ?; ", and "o" hereof 
be and the same hereby are terminated and they and each of them are 
superseded by the agreements herein contained. 

Fourth. In territory " a ', Vickers shall have and is hereby granted the exclu- 
sive right to manufacture submarines under E. B. Co.'s designs, and submarine 
patents, and also the exclusive right to sell to the Government of Great Britain. 
her colonies and dependencies. Vickers agrees to pay to E. B. Co. a sum that 



MUNITIONS INDUSTRY 317 

u; 

shall be equal to three per centum of the gross contract proceeds of all subma- 
rines or machinery, appurtenances or parts thereof sold to the Government of 
Great Britain, her colonies and dependencies, irrespective of whether or not 
such submarines, or any of them, are constructed either in vphole or in part to or 
from the designs or under the patents of E. B. Co., it being understood, how- 
ever, that guns and aniniunitiou for the submarines, and also torpedoes and 
mines sohl wit]i or for use on submarines, shall be excluded from such payment. 

In territory " b " on all sul)marines that E. B. Co. shall build to or under 
its own designs and/or patents, or any of them, Vickers shall have no interest 
or claim theretm or from such business, and E. B. Co. shall have the exclusive 
right to manufacture submarines to and under Vickers' designs and/or Vickers' 
patents, or any ol.' them, and also the exclusive right of sale of such .submarines 
ti) the respective governments of the territory included in territory " 6 ", and 
E. B. Co. agrees to pay to Vickers a sum that shall be equal to three per centum 
of the gross contract proceeds of all submarines built to or under Vickers' 
designs and/or patents, and also all machinery, appliances, and parts therefor, 
exclusive, however, of guns and ammunition there cor and torpedoes and mines 
sold with or for use on such submarines. 

In territory " c " Vickers shall be free to make tenders for construction 
witiiin Great Britain, to its own designs and submarine patents, and likewise, 
E. B. C«). shall be free to make tenders fur the construction to its own designs 
and/or submarine patents, either in the United States of America, or by any 
licensee of E. B. Co., not domiciled in territory " c." 

In territory " c " the two parties hereto shall be free to enter into competi- 
tion the one with the otlier. Vickers agrees that it will reserve for and pay 
to E. B. Co. the sum that shall be equal to four and three-quarters per centum 
of the gross proceeds of contracts and/or orders for submarines or machinery, 
appliances, or parts therefor, exclusive, however, of guns and ammunition 
tlierefor and torpedoes and mines sold with or for use on such submarines, in 
territory " c ", manufactured or built or supplied to the governments of any 
of the countries included in territory " c " ; when such work shall be executed 
In Great Britain, reciprocally E. B. Co. agrees that it will reserve for and pay 
to Vickers the sura that shall be equal to four and three-quarters per centum 
of the gross proceeds of contracts and/or orders for submarines, or macliinery, 
appliances or parts therefor, exclusive, however, of guns and ammunition 
therefor and torpedoes and mines sold with or for use on such submarines, in 
territory " c ", manufactured or built or supplied to the governments of any 
of the countries included in territory " c ", when sucli work shall be executed 
in the United States of America. Any work of the kind in this agreement 
provided for in territory "C" that shall be required to be done either than 
as in the two preceding subdivisions of this paragraph of this agreement shall 
be subject to special agreement between the parties to be entered into at that 
time. 

Fifth. So far as conditions will permit, E. B. Co. will reserve for and pay 
to Vickers up to the same percentage last above mentioned on all such work 
that siiall be executed for any of the countries or governments included in 
territory " c " by any foreign licensee of E. B. Co. not domiciled in territory 
'' c " ; E. B. Co. agrees that the minimum percentage that shall be reserved for 
Vickers in the circumstances last above stated shall in no case be less than 
three per centum of the gross proceeds on such work, without having first 
obtained the written approval of Vickers. 

Contracts entered into and orders taken by E. B. Co. in territory " c " may, 
at the option of E. B. Co., be required to be executed in whole or in part by 
Vickers in accordance with the terms, covenants, and conditions set forth in 
the construction agreement entered into by the parties hereto and bearing 
date the fourth of March 1924. 

If at any time Vickers shall desire to have contracts entered into by it 
or orders received by it in territory " c " executed by any foreign licensee 
of E. B. Co., not domiciled in territory "o", E. B. Co. will give its written 
assent thereto and will use its best efforts to secure advantageous terms 
from such foreign licensee for such construction for Vickers, it being under- 
stood and agreed that four and three-quarters per centum of the gross 
pro(.'eeds of such construction shall be, and hereby is, agreed to be paid by 
Vickers to E. B. Co. 

Sixth. The above-mentioned compen.sation shall be due and payable by each 
of the parties hereto to the other under the circumstances above recited, ir- 

83876— 34— PT 1 21 



318 MUNITIONS INDUSTRY 

respective of whether the submarines or the machinery, apparatus, or parts 
tlierefor are manufactured and/or sold directly by the parties hereto or by 
corporations or firms or persons controlled by either of the parties hereto. 

Seventh. Neither of the parties hereto shall on its own initiative negotiate 
for the sale of plans or licenses or designs in territory "c", and if such nego- 
tiations are inaugurated with either of the parties hereto on the initiative 
of any government within territory " c ", the other party hereto shall be 
promptly in writing advised tlieroof. No offer or tender shall be made for 
such plans or licenses or designs by either party without the written consent 
and approval of the other, which consent or approval shall extend to, include 
and cover the price or charge to be made, the distribution of the proceeds and 
other conditions of the offer. 

Vickers shall promptly in writing advise E. B. Co., of any negotiations 
which may be opened or negotiated for the sale of plans, desit;ns, and/or 
licenses In territory " a " and Vickers shall not, of its own initiative or free 
will, make any such sale without the written consent of E. B. Co., and the 
apiiroval by the latter of the price, terms, and conditions of such sale, it being 
understood and agreed that unless otherwise at the time specifically agreed 
to, the net proceeds of such sale shall be divided and distributed between 
the parties hereto in the proportion of two-thirds thereof to Vickers, and 
remaining one-third thereof to E. B. Co. 

Eighth. Vickers agrees that it will keep E. B. Co., fully informed and 
advised as to all negotiations, inquiries, orders, and arrangements with re- 
gard to manufactures and sales in territory " a ", except when such information 
will be violative of secrecy obligations imposed by the i)urchasiug government. 

Each of the parties hereto agrees that it will keep the other fully advised 
and informed of all negotiations, inquiries, orders, and arrangements for or 
with regard to sales in territory " o ", except when the disclosure of such 
information shall be violative of secrecy obligations imposed by the Govern- 
ment with whom such negotiations, inquiries, and arrangements have been 
made or are under way and/or from whom such orders shall be received. 

Ninth. Technical information with respect to submarines and parts thereof 
shall be freely and fullj' exchanged between the parties hereto, subject al- 
ways, however, to such secrecy obligations as may be imposed by any 
government. 

Tenth. All proceeds and collections from past and present construction in 
Continental Europe shall be and is hereby declared to be for the sole account 
and benefit of E. B. Co., and by the execution of this agreement the liei-etofore 
existing agreement between the parties hereto, which latter has been desig- 
nated as the so-''alled " European account ", he and the same horeby is can- 
celled and annulled. Collections and receipts from the British Government 
on account of infringonents of E. B. Co.'s patents either now or hereafter 
pending, unless otherwise specifically agreed to, shall be handled directly by 
E. B. Co. for the joint account of the parties hereto, and the parties hereto shall 
share equally in the expenses and proceeds, it being undei-stood and agreed, 
however, that any collections that shall be made by the New London Ship & 
Engine Cornjiany, or by E. B. Co., on account of the construction of engines 
in Great Britain, are to be for the sole account of E. B. Co., or the New 
London ghiji & Engine Company, as the case may he. 

Eleventh. The term "Submarine patents", as used in this contract, shall 
be deemed and shall include all patents relating to the hulls of .submarines 
and also to machinery, api)liances. and fittings used exclusively in and/or on 
submarines, but shall not be deemed to include, nor shall it include any pat- 
ents on types of engines, electric motors, and other machinery, apiiaratus, and 
appliances, th(; use of which is not confined exclusively to submarines. 

Each of the parlies hereto shall exercise its own discretion and judgment 
as to whether or not patents for submarines, or patents relating to submarines, 
shall be taken out and/or maintained b.v it in territory " c." 

In territory " « ", E. B. Co. shall take out and/or maintain, at its own ex- 
pense, such submarine piitents as it may deem proper, provided, however, that 
before abandoning any submarine ]iatent in territory " a " it shall first, in 
writing, notify Vickers of such intention and afford Vickers reasonable op- 
portunity to elect whether it, Vickers, will maintain, or seek to maintain the 
patent than in question at its, Vickcr.s', own expense, and provide<l, further, 
that whenever E. B. Co., shall apply for new or additional submarine patents 
lu the United States of America it shall either apply for an analogous patent 



MUNITIONS INDUSTRY 319 

in territory " a " or alternatively advice Vickers thereof and afford Vickers 
opportunity to have such patent taken out and maintained at the expense of 
Vickers. 

The above provisions wih regard to the submarine patents, present or future 
of E. B. Co., in territory " a " shall apply reciprocally with equal force and 
in the same manner and to the same extent in territory " b " with respect to 
submarine patents present and/or future of Vickers in territory " & ", and 
each of the parties hereto, with respect to the other, shall take such steps and 
have such rights with respect to Vickers submarine patents in territory " b " 
as are hereinabove set forth with respect to E. B. Co.'s submarine patents in 
territory " a." 

Each of the parties hereto agrees that it will, insofar as it can, inform and 
keep informed the other party hereto with respect to any submarine patents or 
patent rights owned or that shall be owned by third parties, which it has reason 
to believe can be acquired, and neither p;irty hereto shall acquire any such 
patents or patent rights for its sole account to the exclusion of the other party 
thereto, except in cases where the other party hereto in writing refused tO' 
join in the acquisition of patents or patent rights for joint account. Whenever 
any such patents or patent rights shall be acquired for joint account, as here- 
inabove provided the parties hereto shall share equally in the co.st of acquisi- 
tion thereof, and also in the cost of maintenance thereof, and each of the 
parties shall have the right to use, manufacture, and sell articles manufac- 
tured and used in accordance with such patents or patent rights so acquired 
for joint account. And neither party hereto shall use any such patents or 
patent riglits acquired from third parties for the sole account of the other party 
hereto, except upon terms and conditions that shall in each instance be agreed 
upon. During the life of this agreement and for a period of three yeai's here- 
after, neither party hereto shall question, nor call into question, nor cause to 
be questioned, the validity of any submarine patent or patent right that is or 
shall be owned and/or controlled by the other party hereto. 

Twelfth. Each party hereto will undertake to inform tlie other of any ad- 
verse action (including infringements) which may come to its notice resjiecting 
any submarine patent hereunder or referred to herein that shall be taken or 
threatened by any third party. The party hereto that shall own or control 
the patent then in question w-ill consult with the other party hereto with re- 
si)ect to measures and steps to be taken to protect the same, and each party 
hereto will undertake to render to the other all reasonable assistance in the 
protection of its submarine patents, it being, however, understood and agreed 
that neither party is to be obligated by this agreement to incur out-of-pocket 
expenses in connection therewith. 

Thirteenth. Nothing in this contract shall be construed as affecting and/or 
involving patents or patent rights of either of the parties hereto on guns and 
ammunition therefor, and torpedoes and mines, it being understood and agreed 
that the use by either of the parties hereto of any such patents or patent rights 
belonging to the otlier, whether in connection with submarines or not, shall be 
the subject of a special agreement at the time upon terms then to be agreed 
upon. 

Fourteenth. This contract and the provisions thereof shall commence on the 
day of the date hereof and shall continue in full force and effect to and includ- 
ing the 31st day of December 1937, and the terms and provisions thereof sball 
automatically continue and be renewed and extended from year to year there- 
after (each such annual continuation to run for a full calendar year), until 
either of the parties hereto shall give to the other party hereto not less than 
one year's notice in writing of its election that this contract shall terminaio 
at the end of such calendar year as shall follow the date of the giving of such 
notice. Such notice may lie given by serving the same either personally upon 
one of the executive officers of the party intended to be notified, or such notice 
may be sent by regi.stered mail addressed to the party intended to be notified, 
at the last known post-ofBce address of its principal office. 

Fifteenth. Settlements hereunder and payments by each of the respective 
parties hereto to the other shall be made quarter annually, and accounts ad- 
justed qunrter annually, the first adjustment to be made hereunder to be made 
on and of the first day of June 1924. 

Sixteenth. Each of the parties hereto shall keep complete records, details, 
and accounts of all transactions had hereunder connected with and/or growing 
out of any of the provisions hereof, and the records, books, and accounts ta 



o20 MUNITIONS IXDUSTKY 

ea<h of the parties hereto with re^ipect to the several and respective trans- 
actions herein set forth sliall bo oiien to the inspection of the respective 
parties hereto at the place where sm-h books and records are kept l)y the 
respective parties hereto and/or the thereunto duly designated and autliorized 
agents and representatives of the respective parlies, and extracts and excerpt- 
may l)o taken therefrom. The several amounts that shall respectively becom. 
due and payable to the respective parties hereto shall, with each quarter-annua 
settlement include all sums so received by the respective parties hereto upoi 
whi<h compensation shall up to that Lime have been received by the accountinj 
party, ;ind the compensation herein provided for shall be paid thereon with eacl 
such quarter annual settlement. 

Seventeenth. Each submarhie manufactured by Vickers in territory " cr '' 
under this agree;*>ent, shall be marked with a correct description and a running 
number and shall bear a description showing th;;t Vickers are the builders and 
shall also Iiear the name of E.B.Co., unless the goverament authority or other 
pa-fy to such contract shall object thereto. 

Eighteenth. Except insofar as is otherwise herein expressly provided by 
this aj;reement, the capital and properly of each of the parties hereto shall 
remain entirely separate, independent, and distinct and the respective results 
and profits of their respective accounts and for their respective benefits, it 
being agreed and declared that as regards submarines to be manufactured under 
this agreement there is and will be no partnership between the parties hereto, 
but simply a v/orkiiig agreement with regard to the manufacture and dis- 
posal of submarines and only to the extent expressly provided by this agree- 
ment, and neither party shall be responsible for the acts or defaults of the 
other, or liable for any looses incurred by such other party in relation to or 
in connection with or done by the other of them under this agreement, except 
insofar as is otherwise herein specifically provided. 

Nineteenth. In the event that any dispute or difference shall arise between 
the parties hereto, under or with regard to this agreement or any of the pro- 
visions thereof, or the interpretation thereof, or any act be done or omitted 
thereunder, or any payment to be made thereunder, insofar as such dispute or 
difference shall arise with respect to any matter or thing growing out of any 
act done or omitted to be done in territory " a ", such dispute or difference shall 
be decided by arbitration in London in accordance with the British Arbitration 
Act of 1889, or any then subsisting statutory amendment or modification 
thereof, and if any dispute or difference shall arise between the parties hereto 
or hereunder with respect to any of the matters or things in this paragraph 
set forth with respect to any matters or things arising in territories " ft " 
and "c", then such dispute or difference shall be decided by arbitration in 
accordance with the Arbitration Law of the State of New York, or any then 
subsisting New York State statutory modification thereof, and the same shall 
be decided and arbitrated in the City of New York ; and further, in such 
latter event each of the parties to such dispute or difference shall appoint 
an impartial arbitrator and the two so appointed shall appoint an umpire, 
and the decision of the two arbitrators and/or a majority of the arbitrators 
and umpire shall be decisive, final and conclusive between the parties, and 
if the parties hereto and/or the said arbitrators or umpire shall be unable to 
agree upon time, method, or procedure, then, such items shall be determined 
by then existing arbitration law of the State of New York, and if such law 
sliall not set forth such detail, then in accordance with the practice had in 
arbitrations when conducted under-, by or pursuant to the plan or scheme then 
in force by the Chamber of Commerce of the State of New York. 

Twentieth. The provisions and coveaants hereof shall be binding upon the 
respective parties hereto and the successors of each of them, but this agreement 
is i)ersonal to the respective parties hereto and shall not and may not be 
iissigned nor transferred, either in whole or in part, by either of the parties 
hereto, without the written consent of the other first had and obtained. 

In witness whereof tbe respective parties hereto have caused this instrunient 
to be executed by their respective executive officers and their respective cor- 
porate seals to be hereunto affixed the day and year first above written. 

In presence of: 

Electeic Boat Company, 

[corporate seal] By- , 

President. 

Vickers, Ltd., 
[corporate seal] By . 



MUNITIONS INDUSTEY 321 

State, City, and County of Nkw York, ss: 

On this 4th clay of March 1924 before uie personally came Henry R. Carse 
to me known who being by me duly sworn, did depose and say that he resides in 
S^ew Rochelle, Westchester County, State of New York ; that he is the presi- 
"dent of Electric Eont Company, the corporation desciibed in and wliich exe- 
. iuted the above instrument, and that he knows the seal of said corporation; 
fhat the seal affixed to said instrument is such corporate seal; that It was so 
jiffixed by order of the board of directors of said corporation and that he signed 
his name thereto by the like order. 

Kingdom of Great Britain, 

' at!/ of London, ss: 

On this — day of IMarch 1924 before me personally came to me known 

who being by me duly sworn, did depose and say that he resides in ; 

that he is the of Vickers, Ltd., the corporation described in and which 

executed the above instrument, and that he knows the seal of said corporation ; 
that the seal affixed to said instrument is such corporate seal ; that it was so 
-affixed by order of the board of directors of said corporation and that he signed 
his name thereto by the like order. 

[Strictly confidential] 
ELECTRIC boat COMPANY WITH VICKEHS, LTD., CONSTUTJCTION AGRJEEMENT 

Agreement made in the city of New York, on the 4th day of March, one 
thousand nine hundred and twenty-four, between Electric Boat Company, a 
corporation organized and existing under the laws of the State of New Jersey, 
in the United States of America, and now having its principal office at no. 11 
Pine Street, in the borough of Manhattan, city of New York, in the State of 
New York, in ihe United Slates of An:etica. hereinafter for convenience 
(losigtiated as " E.B.Co.", of the one part, and Messrs. Vickers, Ltd., a cor- 
poration duly organized and existing under the law.s of the British Empire 
and now having its principal office at Vickers House, Broadway, Westminster, 
in the county of London, in England, hereinafter for convenience designated 
as *' Vickers ", of the other part. 

Witnesseth : Whereas Vickers owns and operates a plaiit fully equipped for 
the economical construction of submarines, and also the machinery and parts 
and appliances therefor; and 

Whereas E. B. Co. may, under certain conditions, desire to place orders or 
contracts with Vickers for the construction, either in whole or in part, of 
submarines or the machinery or the parts or appliances therefor : 

Now, therefore, for and in consideration of the mutual promises, covenants, 
and agreements herein contained, and of the sum of one dollar, and other 
valuable considerations, each to tl'e other in hand paid, the receipt whereof 
is hereby acknowledged, it is hereby agreed, and this agreement witnesseth ; 

First : Vickers agrees to accept and execute in accordance with the terms 
hereof all orders for the construction, either in whole or in part, of sulnnarines, 
or the machinery therefor or the parts thereof or the appliances thereof, 
within the capacity of its plant, which E.B.Co. may elect to place with it 
hereunder. 

Second : In the event that E.B.Co. shall desire to place any order with Vickers 
hereunder it shall first supply Vickers with such plans, specifications, and 
other data and information as may be necessary to enable Vickers to estimate 
the cost of construction. Vickers shall within thirty days thereafter submit 
tenders to E.B.Co. for such construction at a fixed price, it being optidnal 
with E.B.Co. to place th.e order at a fixed price to be mutually agreed upon, 
or if E.B.Co. shall so elect the v/ork shall be done on the basis of cost as 
hereinafter defined plus either a fixed fee or a percentage of the defined cost. 

Third: The cost shall include the following, and only the following items, viz: 

(a) The net cost of material delivered at Vickers' plant, incltiding the sub- 
marine machinery, fittings, parts, and appliances purchased in completed form 
ready for installation. 

(b) Necessary direct expenses, such as insurance and items of like or kindred 
character incurred solely for the benefit or account of tiie work, and directly 
chargeable thereto. 

(c) The net cost of prodtictive labor expended directly and exclusively on 
the work. 



322 MUNITIONS INDUSTRY 

(d) A fixod iiercftntage of " c *' to cover all indirect, overhead, or establish- 
ment charges of every character. 

The cost of each order shall be duly credited with the fair value of all 
scrap or surplus material originally charged to cost, but not incorporated into 
the completed work. 

The percentage on direct labor to be included in cost in lieu of overhead 
charges is fixed at fifty per centum, Vickers, liowever, reserving the right to 
alter this percentage upon due notice to E.B.Co. E.B.Co., Ijefore sultmittiiig any 
tender for wcrk to be done by Vickers hereunder, shall secure confirmation of 
the prevailing rate from Vickers, and after being so confirmed surli rate shall 
hold good for all ordei's which E.I*. Co. may receive under such tender within 
six months from date of .such confirmation. 

Fourth: Should E.B.Co. elect for construction on the basis of cost, Vickers 
shall i)roceed with the work as soon as it receives the necessary information 
from E.B.Co., and the parties hereto shall endeavor to agree upon a fair esti- 
mate of the cost of the work to be done by Vickers. In the event of their 
agreement upon such estimate within four months after placing the order, the 
fee or compensation to be paid to Vickers, in addition to the cost as above 
defined, shall be twelve and one-half per centum of such agreed estimate, and 
if the returned and audited cost is less than the said estimate, the saving 
under the estimate shall be divided equally between the parties hereto, it being 
understood that in comparing the estimate with the audited cost, for the 
iturpose of determining savings, the former will be adjusted to take due and 
proper accouiit of the net cost of all chaiiges in the design or quantity of the 
vpork made subsequent to the estimate and not included therein. 

In the event of the parties being unable to agree within said four months on 
a fair estimate of the cost, Vickers shall receive as and for its fee or com- 
pensation ten per(!ent upon the audited cost as above defined, instead of the 
lee or compensation above referred to of twelve and one-half percent of the 
agreed estimated cost. 

Fifth : The cost of the work shall be distributed over job orders approved in 
advance by E.B.Co., and such information as may be required by E.B.Co. to 
enable its rep^resentatives to maintain a current check and audit of the cost 
account shall be supplied by Vickers. it being understood and agreed that 
E.B.Co. shall at all times during business hours, have access to all books, 
accounts, vouchers, records, etc., relating to the cost, together with the right 
to make copies thereof and extracts therefrom. 

Sixth. Vickers shall provide, without cost, suitable oflSce facilities for the 
representatives of E.B.Co., and separately for the customers' inspectors, such 
facilities to include space, fvirniture, light, heat, water, and telephone service. 

Seventh. Vickers agrees to execute the work in strict accordance with the 
plans, .specifications, instruc.icns, and directions of E.B.Co. and shall endeavor 
by the exercise of due diligence to secure economical construction and prompt 
deliveiy. 

Eighth. Vickers hereby guarantees that all material and work herein re- 
ferred to and undertaken hereunder shall be of suitable quality and kind and 
in strict accordance with the plans and specifications as interpreted by the 
authorized I'epresentatives of E.B.Co., and/or the chief inspector for the cus- 
tomer, and Vickers shall replace or lepair, as directed by E.B.Co., any depar- 
ture frtun the plans and/or specifications or other defective or improper ma- 
terial or vv'ork that shall be discovered prior to the final acceptance of the work 
by the customer. 

In all cases where defects are properly ascribable, to lack of due diligence 
on the part of Vickers, it .shall bear the whole cost thereof, it being under- 
stood, hov.-ever. that the ordinary risks of material and workmanship unavoid- 
able by (he exercise of due diligence on tlieir part, shall be borne by E.B.Co., 
and the cost thereof shall be absorbed into the cost of the work, provided, 
however, that the total of such extra costs so absorbed shall not in any case 
exc(H'd two percent of the total cost of the work hereunder. 

Ninth. No penalty shall be exacted by E.B.(Jo. frctm Vickers on account of 
late deliveiy, unless the same .shall be exacted by the customer from E.B.Co., 
and then oidy to the extent to which the delay is properly ascribable to the 
acts or omissions of Vickers, who hereby reserve the right to decline any order 
hereunder, unless the delivery term and the conditions of the same are satis- 
factory to Vickers. 

Tenth. Payments to Vickers hereunder sliall be made as may be mutually 
agreed upon in each case. It is, however, understood and agreed, in principle, 



MUNITIONS INDUSTRY 323 

that from each payment that shall he received from the customer hy E.B.Co., 
the E.B.Co. shall earmark for financing the work hereunder, a proportion equal 
to the proportion which the estimated cost of the work liereunder heai's to the 
contract price, and further, that E.B.Co. shall withhold from Vickers the same 
proportion of any reservations that shall he withheld from E.B.Co. by the 
customers. 

Eleventh. In the event that any dispute or difference shall arise between the 
parties hereto, under or with regrard to this agreement, or any of the pro- 
visions thereof, or the interpretation thereof, or any set to be done or omitted 
thereunder, or any work to be done thereunder, or any payment to be made 
thereunder, or by reason thereof, such dispute or difference shall he decided by 
arbitration in London in accordance with the British Arbitration Act of 1889, 
or any then sulisisting statutory amendment or modification thereof. 

Twelfth : This contract and the provisions thei-eof sliall commence on the 
day of the date hereof and shall continue in full force and effect to and in- 
cluding the 31st day of December, 1937, and the terms and provisions thereof 
shall automatically continue and be renewed and extended from year to year 
thereafter (each such annual continuation to run for a full calendar year), 
until either of the i)arties hereto shall f^ive to the other party hereto not less 
than one year's notice in writing of its election that this contract shall termi- 
nate, and thereupon the contract shall terminate at the end of such calendar 
year as shall follow the date of the giving of such notice. Such notice may be 
given by serving the same either personally upon one of the executive ofiicers 
of the party intended to be notified, or such notice may be sent by registered 
mail addressed to the party intended to be notified, at the last-known post-office 
address of its principal office. 

Thirteenth : Except insofar as is otherwise herein expressly provided by this 
agreement, the capital and property of each of the parties hereto shall remain 
entirely separate, independent and distinct, and the respective results and 
profits of their respective enterprises shall remain and he and belong entirely 
to their respective accoiints and for their respective benefits, it being airreed 
and declared that as regards submarines to be manufactured under this agree- 
ment there is and will be no partnership between the parties hereto, but simply 
a working agreement with regard to the manufacture and disposal of sub- 
marines and only to the extent expressly provided by tins agreement, and 
neither party shall he responsible for the acts or defaults of the other, or liable 
for any losses incurred by such other party in relation to or in connection with 
or done by the other of them under this agreement, except insofar as is other- 
wise herein specificall.v provided. 

Fourteenth : The provisions and covenants liPreof shall be binding upon the 
respective parties hereto and the successors of each of them, but this agreement 
is personal to the respective parties hereto and shall not and may not be 
assigned nor transferred, either in whole or in part, by either of the parties 
hereto, without the written consent of the oth'>r first had and obtained. 

Tn witness whereof the respective parties hereto have caiT^ed this instrument 
to be executed by their respective executive officers and their respective cor- 
porate seals to be hereunto affixed the day and year first above written. 

In presence of: 

Electric Boat Company, 

By 

President. 
[cobporatb seal] 

Vickers, Ltd., 
By 

fCORPORATE SEAL] 

State, City, and County of New York, ss: 

On this day of March 1924, before me personally came Henry R. Carsb, 

to me known, who being by me duly sworn, did depose and say: That he 
resides in New Rochelle, Westchester County, State of New York; that he is 
the president of Electric Boat Company, the corporation described in and 
which executed the above instrument and that he knows the seal of said 
corporation ; that the seal affixed to said instrument is such corporate seal ; 
(hat it was so affixe<l by order of the board of directors of said corporation 
and that he signed his name thereto by the like order. 



324 MUNITIONS INDUSTRY 

Kingdom of Great Britain, 

City of London, as: 
On this day of 1924, before me personally came to 

me known, who being by me duly sworn did depose and : Thai he resides 

in , that he is the of Vickers. Ltd., the corporation described in 

and which executed the above instrument and that he knows the seal of said 
corpuratiou ; that the seal affixed to said instrument is sinh corporate seal; 
that it was so affixed by order of the board of directors of said corporation, 
and that he signed his name thereto by the like order. 



Exhibit No. 13 

An agreement made in Loudon on the eleventh day of June One thousand 
nine hundred and twelve between the Electric Boat Company, a company con- 
stituted according to the laws of the State of New Jersey in the United States 
of Ameiica, hereinafter called the "American company ", of the one part, and 
Messrs. Whitehead and Company, Limited, of Flume, Hungary, called the 
" Whitehead Company ", of the other part. 

Whereas the American company is the owner of certain letters patent, 
secrets, and designs relating to the manufacture of submarine boats and has in 
contemplation the perfecting or carrying dut of inventions relating to sub- 
marine boats or nearly submerged boats, which latter under normal conditions 
of navigation are capable of having the upper part of their hulls awash but 
their turrets or conning towers above the water line, all of which boats are 
hereinafter included in the expression " Submerged boats ", 

Now it is hereby agreed by and l^etween the said parties hereto as follows: 

1. The American comitany hereby grants to the Whitehead Company for the 
term of twenty (20) years from the d;ite hereof the exclusive right during 
the continuance of this license to manufactui-e submerged boats in Austria- 
Hungary' in accordance with the said patents, secrets, and designs, or any 
other letters patent now or hereafter belonging to the American company or 
W'hieh may either directly or indirectly come under its control relating to or 
connected with submerged boats, ail of which are hereinafter referred to as 
"the Ameriiiau company's patents" and to sell the same exclusively in Austria- 
Hungary, Greece, Turkey, Roumania, and Bulgaria, for the use of the respec- 
tive Governments of those countries. 

2. If the Whitehead Company shall, during the continuance of this agree- 
ment, mtmufacture any submerged boats not comprised in and covered by 
the American Company's patents and whether manufactured in accordance 
with any other letters patent or not, then tlie manufacture and sale of such 
boats shall in all respects be subject to the terms and conditions contained 
in this agreement as if the boats so manufactured had been manufactured 
under the American Company's patents. 

3. Tlie Whitehead Company shall set up any necessary apparatus for the 
manufacture of submerged boats as and Avhen the same is required. 

4. The Aii:erican Company undertakes to pay the legal and otlier expenses 
in connection with any action which may lie brought against the Whitehead 
Compan.v for an.v infringement of any patents in c(msti'uction of submergeil 
boats and undertakes to idemni'fy them against any damages which may be 
recovered against them in any such action, and in the event of an in.iunction 
being obtained whicli would prevent the continuance of any construction the 
American Company agrees to pay one-half of the cost incurred and will be 
entitled to one-half of the net amount realized by the sale of the material 
which had entered into such construction. 

5. The American Company shall at its own expense supply the Whitehead 
Company with such copies of complete working drawings of submerged 
boats comprised in or covered by the patents, secrets, and designs held by 
the Anjerican Company as may be necessary for the construction of any 
boat and shall also give all information and assistance in their power with 
respect to the manufacture of any boats referred to in this agi-eement. If 
any drawings are required by the American Company to be undertaken by 
the Whitehead Company, the same shall be prepared by the Whitehead Com- 
pany at actual cost. If any material is required by the submarine depart- 
ment from the torpedo department of the Whitehead Company, the same 
shall be furnished at reasonable prices. 



MUNITIONS INDUSTRY 325 

The followins items shall be considered as business charges: 

(a) Legal charges arising under clause 18 hereinafter and in general all 
charges in connection with the registration of documents and stamp duties. 

(b) Insurance of boats at the most reasonable rates. 

(c) Travelling expenses of the personnel of the Whitehead Company neces- 
sitated by the construction of the boats. 

(d) Expenses of trials, including expenses of mother ship and other 
incidentals. 

(e) Expenses of governmental inspecting officers. 
if) Dry-docking expenses. 

iy) Transport of boats to destinatitm. 

(h) Salary of yard manager for submarine works. 

(i) Agents' commissions. 

All business charges shall be considered as separate from and in addition 
to manufacturing charges provided under clause 8 hereinafter. Such busi- 
ness charges shall be paid from time to time in equal parts by the American 
Company and the Whitehead Company as they arise. 

7. Any monies received by the Whitehead Company for the sale or use of 
patents, pliins, or like disposal of partial rights shall be divided equally between 
the parties, it being understood that the prices and conditions in connection 
with such disposals shall first be mutually agreed upon by the parties. 

8. All monies received during the continuation of this agreement by way of 
payment for the said boats referred to in this agreement shall be applied as 
follows, namely : 

The Whitehead Company shall, in the first pliice, pay thereout the cost of 
manufacture, which shall be reckoned and taken to be the actual cost of mate- 
rial and labour for building the hull and the cost of machinery and other appa- 
ratus to be installed in the boat and the cost of such installation and the usual 
factory charges. The factory cliarges shall not exceed in any one year 75% 
(seventy-five pei'cent) of the amount actually paid in wages for manual labour 
in tlie construction of the boats by the Whitehead Company, and in the event 
of it being ascertained from the accounts kept by the Whitehead Company that 
the percentage applicable to the construction of submerged boats for any year 
less than 75%, then the percentage to be charged upon (he wages shall be at 
the lower rate as ascertained for the year, it being understood that the factory 
charges shall be at actual cost. The balance of the said monies shall be divided 
equally between the parties hereto. 

9. The selling price of the boats and agents?' commissions shall be fixed by 
agreement between the parties hereto, either in writing or by cable. 

10. The Whitehead Company shall immediately advise the American Company 
of all enquiries and orders received for submerged boats, together with full 
details as to the type of the boats and prices. 

11. The Whitehead Company shall keep full and detailed accounts of all 
receipts and payments in respect of orders for submerged boats and shall deliver 
to the representatives of the American Company at the Whitehead Works a 
weekly statement of the total amount of material supplied and wages paid and 
shall also give full access to the books of the Whitehead Company so far as they 
relate to the construction of submerged boats to any authorized agent of tlie 
American Cimipany at ail reasonable hours. Payment to the American Com- 
pany shall be made immediately after acceptance of any boat under each order 
upon receipt by the Whitehead Company of the money due under such order. 
For the purpose of such payment 75% m<iy be added to the cost of actual manual 
labour for factory charges, but if at the end of the year the accounts of the 
Whitehead Company should show that the factory charges are less than 75% 
on the amnunt actually paid for the manual labour during the coixrse of the 
year, then one-half the excess of the said 75% over the actual cost sliall be paid 
to the American Company as soon as ascertained, 

12. The Whitehead Company shall manufacture all the submerged boats of 
the best workmanship and the best and most suitable material and v/ith all due 
diligence and despatch and careful regard to any special condition imposed in 
each order and to the periods of delivery and other arrangements agreed upon 
with the Government or other party for whom the order is being executed. 

I'.i. The American Company shall at their own expense for tlie purpose of 
superintending the manufacture of submerged boats provide a resident engineer 
who shall have full charge of construction and the American Company shall 
also appoint such assistant or assistants for said engineer as in their opinion 



326 MUNITIONS INDUSTRY 

may be required for the proper execution of the work. The Whitehead Com- 
pany shall appoint a yard manajjer wlio sliall carry out the instruction of the 
resident enjiineer and the Whiteiiead Company shall also furn.sh reasonable 
ofDce facilities for the resident engineer and his assistants. 

14. Every boat manufactured by the Whitehead Company under this agree- 
ment shall be mai'ked with some correct description or trade mark and a 
running number, and shall bear an inscription showing that the Whitehead 
Company are the builders, and shall also bear the name of the American 
Company. 

15. Each party hereto shall communicate to the other all patentable in- 
ventions and improvements to submerged boats which either of them shall 
during the continuance of this agreement invent or acquire, and shall, without 
any further special remuneration allow the other party to incorporate such 
inventions and improvements in the boats constructed by it. 

Provided always that neither company shall be bounil to divulge any in- 
ventions, improvements, or alterations made either entirely by or with the aid 
or at the suggestion of any government and communicated to either of the 
parties on condition that the same shall not be divulged. 

16. It is further agreed that all patents relating exclusively to submerged 
boats, whether on inventions or improvements made or acquired by the Ameri- 
can Company or by the Whitehead Company shall be taken out by the American 
Company, who shall bear the expenses of taking out and keeping up such 
patents; but nothing in this clause shall be construed to require the American 
Company to take out or keep up any patents which in their opinion are not of 
sufficient value to warrant the expense. In the event that any invention made 
by or acquired by the Whitehead Company be applicable to submerged boats but 
not exclusively, then in such event a patent or patents may be taken out and 
kept up by the Whitehead Company at their own expense and a license there- 
under shall be granted to tiie Electric Boat Company for submerged boat pur- 
poses from the Whitehead Company. Should the Whitehead Company desire 
at any time to abandon a patent of this kind then before doing so it shall give 
an opportunity to the Electric Boat Company to keep up such patents and 
thereupcn such patent shall be assigned to the Electric Boat Company and a 
license thereunder granted to the Whitehead Company. 

17. It being the intention of the parties hereto that the American Com- 
pany's patents shall be admitted to be valid without question so far as re- 
gards construction of submerged boats, the Whitehead Company will not at 
any time during the continuance of this agreement contest the validity of the 
patents so far as the same may be applicable to such construction as afore- 
said, but this clause shall not be construed to prevent the Whitehead Company 
from contesting any patent of the American Company which they may use not 
relating to the construction of submerged boats. The Whitehead Company 
aiso agrees during the life of this agreement to refrain from manufacturing 
submerged ))oats or selling the same or offering the same for sale either di- 
rectly or indirectly to or for use in all coiuitries not expressly conceded in this 
agi'eement, although such countries, or any of them, may fail to afford patent 
protection to the said submerged boats either by absence of patent laws or by 
reason of the failure of the American Company to have obtained patents 
therein or through lapse of same. 

18. Except insoi'ar as is otherwise expressly provided by this agreement, the 
capital and property of each of the said parties shall remain entirely separate, 
independent, and distinct, and the respective results and profits of their respec- 
tive enterprises shall remain and be and belong entirely to their respective 
accounts and for their respective benefits, it being expressly agreed and declared 
that as regards the submerged boats to be manufactured under this agreement 
there is and will be no partnership between th.e said parties hereto, but simply 
a working arrangement with regard to the manufacture and disposal of sub- 
merged boats, and only to the extent expressly provided by this agreement, and 
neither party shall be responsible for the acts or defaults of the other party. 

19. Each of the parties hereto shall grant or execute or apply for or do or 
procure to be granted, executed, or applied for and done all documents, instru- 
ments, acts, and tilings requisite for giving full legal validity to this agreement 
or any of the pT-ovisions tlieveof. 

20. The Whitehead Company will not assign this agreement without the 
previous consent in writing of the American Company. 

21. Should any dispute or difference arise between the parties hereto under or 
with regard to this agreement, such difference or dispute shall be decided in 



MUNITIONS INDUSTRY 327 

England according to the English Arbitration Acts, and the decision shall be 
final, and both parties agree not to contest the decision either in America or 
elsewhere. 

22. If at any time during the course of this contract the Whitehead Company 
shall desire to discontinue the manufacture of submerged boats, then, .upon six 
months' notice in writing to the American Company, this agreement shall termi- 
nate, and the license given hereunder shall become null and void, and ttie 
Whitehead Company shall return to the American Company all drav/ings, 
specifications, and models applicable to the manufacture of submerged boats 
then in their possession. The Whitehead Company shall also, as a consideration 
for such termination, enter into an undertaking with tlie American Company to 
cease manufacturing submerged boats of any kind until June 1U32. 

In witness whereof the respective parties have executed this agreement the 
day and year above written. 

Electeic Boat Co., 
By (Sgd.) Isaac L. Rice, President, 

For Whitehead & Company, Limited, 
Aktiengesellschaft (Fiume), 

Director. 
(Sgd.) Saxton W. a. Noble, Director. 



Exhibit No. 14 

Electbio Boat Company, 

Affaires Continentales, 

Paris, 2nd August 1919. 
To the Electric Boat Company, 

Nasy.nu d Pine Streets, New York Cifj>. 

Gentlemen : Now that we are on the pcint of gettii;g peace with Austria 
Hungary, or with what politically may be left of these countries, it undoubtedly 
will interest you to know that during the war two submarines have l)een 
built in Fiume. Before going further into this matter, I herewith call to 
your attention the agreement which we arrived at with Messrs. Whitehead & 
Co., on June 2Sth, 1913. This agreement is as follows : 

Fiume. 28th June 1913. 
Messrs. The Electric Boat Company, New York, 
Continental Affairs, 

6 rue Marcel Renault, Paris. 
Delae Sles : With reference to your favour of 24th June 1913, and to that 
of the Electric Boat Company, New York, dated Gth June 1913, we herewith 
declare that in consideration of the termination and cancellation of our agree- 
ment with the Electric Boat Company, New York, dated lA)ndon, 11th Juno 
1912, we undertake to cease manufacturing submerged boats of any kind xmtil 
June 1932. 

It is, however, understood and agreed upon, that this undertaking shall not 
apply to the boats now in construction, or fitting out for Danish and Dutch 
Governments, nor to the Forschtmgsboot. 

We furthermore agree not to take out any patents on submarine boats on 
their detailed construction from now until the end of June 1^(32. 

Should the occasion arise, we shall communicate tu you any patentable 
ideas concerning submarine boats during the afore-mentioned time. 
Yours faithfully, 

Whitehead & Co., Ltd. 
(Signed) S. Dankl. p.p. C. Hassentenfel. 

Now here is what happened : The entire torpedo factory of Whitehead's bad 
gradually been moved from Fiume to St. Polten, but when it was considered 
desirable to build a few submarines for the Austro-Hungarifin Navy, the pieces 
for two boats were prepared in Linz, and these boats were mounted in Fiume 
under supervision of a shipyard established in Triest, who, however, had never 
built anything but cargo boats, and who balled up the work in a horrible way. 

There had been constituted a special company to execute this program, which 
was called ttie Hungarian Submarine Company, known in daily life as the 
" Ubog ", of which company Mr. Meisner was the director. This gentleman 



328 MUXITIOXS INDUSTRY 

was a Whitehead employee, who used to be in charge of the Administratitm 
of Messrs. Whiichcad & Co., who looked after the accounts, personnel, etc., 
etc. This man is now dead. 

Messrs. Whitehead were very active though in assisting this — what I 
would call — "bogus company", to execute the work, and supplied skilled work- 
men. a)id most prohal)ly the plans, etc. 

Tlie two boats that wore Ituilt, were of the type of the Danish boats, and 
its cost over three million la-oner for each lioat to hnild. I suppose that 
you will consider this information as interesting as I do, because it seems to 
me that in time to come, when normal conditions have arrived, Messrs. White- 
head's role in this matter may be cleared up, and that it may be made to 
cost them a pretty per.ny. 

The boats were as rotten as possible, and one of them has never returned 
from a trip they made. They were both equipped with wireless. I am going 
to find out all possible details about this matter, and will report again. 

Please let mo know what position you wish to take in the matter, as far 
as you can judge from the afore-going. 
Yours faithfully, 

KOSTEB. 



Exhibit No. 15 

July 12, 1921. 
Capt. Paul Kostee, 

28, Ave. De LaBourdonnais, Paris, France. 

Dear C.\ptain : We have your letter of June 23. enclosing copy of letter which 
you have written to Count Hoyos under date of June 22 in regard to our claim 
against Whitehead. 

I might say in this connection that we were recently served with a demand 
from the Alien Property Custodian to issue to him a new certificate for 100 
shales of Electric Boat Co. in place of the 100 shares of stock now standing 
on our books in the name of Count Hoyos, but we declined to obey such demand 
on the ground that it would create an overissue of stock, and the laws of the 
State of New Jersey as well as the bylaws of the Electric Boat Co. prohibited 
the officers from issuing a greater number of shares than authorized, and re- 
quired them to cancel a certificate for a like number of shares before issuing a 
new one. 

A .voung relative of Count Hoyos was making inquiries here some time ago 
in relation to the dividends and I do not know how far he may have gone in 
stirring up the matter which we thought had been passed upon some time ago. 
Very truly yours, 

Carse. 

The Alien Property Custodian had advised us he will bring action against us 
to require us to cancel the stock in name of Count Hoyos and issue it to him. 
[Pen notation.] 

Exhibit No. 16 
[Copy! 

Nav.'^l CoN^STRUcrioN Works. 

Bakrow in Fxtrness, 
VicKEKS, Limited. 29th January 1026. 

Strictly private. 
Lieut. L. Y. Spear, U.S.N., 
Electiuc Boat Company, 

Groton, Connecticut. 
My Dear Spear: 

We have .iust tendered to Australia for two submarines, and we shall very 
shortly be asked to tender for a number of sister boats to our own admiralty. 
I think that there will be six or eight boats in this year's programmes, includ- 
ing the two Australians. 



MUNITIONS INDUSTRY 



329 



I have put forward a price to Australia wliich leaves me a bare 6% profit 
after keeping down the estimated cost of wages and material to the very limit, 
and I am writing to you to ask you if Mr. Carse would consider halving your 
royalty for this year's programme, including the two Australians. The con- 
tract price will be approximately £300,000 each, on which you would receive 
say £9,000, as per the new agi'eement; but I think you will agree with me that 
it is of such vital necessity for both the Electric Boat Co. and Vickers that 
we should get, if possible, all the boats of the programme, and I am prepared 
to recommend to Sir Trevor Dawson that for the admiralty boats we should 
put forward a still lower price than that quoted to Australia, if you would 
meet us with regard to the royalty. 

For your strictly private information, I believe we shall get the two Aus- 
tralian boats, as our tender is one of the lowest submitted. 

I feel that it is up to my company to make a bit of a sacrifice on submarine 
work for the next year or two, especially because of tlie tenible state of 
merchant shipbuilding and the scarcity of warship orders ; and, while I feel 
this, I also feel that you will sympathetically consider the matter and discuss 
it with Mv. Carse on the lines I have suggested. 

If we obtain the order for eight boats in all, you would thus get £36,000, and 
when I tell you that I have quoted on a 6%-profit basis to Vickers, I think 
you will consider this a reasonable return to the Electric Boat Co. in such a 
special case. 

I dislike very much having to ask your company to meet us in a matter of 
this kind so very soon after the new agreement has been made, but times are 
really terrible here, and I think that if for a year or two we can obtain all 
the submarine building that there is about, we may be able to freeze out a 
lot of the wartime builders, who are relatively much more favourably situated 
now to compete with us than they would be if times were good, as the ?>% 
to the E.B.Co. weighs heavily when one is putting on practically no profit for 
one's self, whereas in proper times we should not feel it to anything like the 
same extent. 

I should be extremely obliged if you could let me have your reply to this 
matter by calile, if possible, as it might be necessary to make a slight reduc- 
tion even for the Australian boats, and if it is po.-5sible to c.ible to me, I should 
be all the more grateful. 
Yours sincerely, 

[s] Craven- 



Exhibit No. 17 
Electric Boat Co. — Payments to B. Zaharoff 





Salary 


Extra com- 
pensation 


Comruis- 
sions 


E.xpenses 


Dividends 


Total 


1919 






$27, 995. 94 

None 

60.21.5.19 

52, 432. 30 

74,852.11 

106, 958. 63 

139, ?93. 99 

67, 309. 58 

33, .'^27. 44 

90, 086. 79 

35, 744. 65 

77,883.12 

None 

None 

None 

None 






$27, 905. 94 
None 


1920 .- 










1921 










60 215 19 


1922 










52, 432. 30 
74 852 11 


1923 -- 










1924 










106 958 63 


1925 - 










1?9 903 99 


1926 






67 309 58 


1927 










?■?, 327 44 


1928 










90 086 79 


1929 _ 










35,744.65 


1930 .. . 










77 8S3 12 


1931 












19.32 












19.33 










None 


1934 








_ 


















None 


None 


766. 099. 74 


None 


None 


766. 099. 74 



330 MUNITIONS INDUSTRY 

Exhibit No. 18 

[Copy] 

VicKiais Limited, 
Bareow-in-Fukness, 

7th October, 1927. 
Absolutely persoual & confidential 

L. Y. Spkae, Esq., 

MtssKS. Electbic Boat Company, 

Groton, Conn., U.S.A. 

]My Deae Speab: By the time this letter resicht s you it is possible that wc 
may have come to an arrangemeut with Armstrong's whereby a new company 
is formed to taice over tiie shipbuilding & armament sides of Viclvers and Arm- 
strongs. Tliis opens up an interesting question regarding our agreement with 
you, and it would be necessary to have a discussion when next we mL^et. In 
the meantime, however, we have just received an enquiry for one, two, or 
three boats for the Admiralty. Armstrong Whitworth's have also received a 
similar enquiry. My present feeling is that we should quote for one, two, or 
three from Armstrong's, who have agreed to put in whatever price I tell them, 
and that we should also quote for one, two, or three boats from Barrow. I 
would keep the Armstrong price very slightly above ours, the idea being that 
whatever boats were ordered froai either party would be built at Barrow, so 
effecting considerable economies. I also think that perhaps it would be worth 
while putting forward a tender for six boats, tlie total number to be built. 
I have had a wofd with the director of contracts at the Admiralty, who is a 
friend of mine, and who would like this. He, I know, tried to get us the order 
for all five submarines last year. 

Whatever happens, will you give me authority to make the same reduction 
in your royalty as we did last year. According to my pocketbook.we reserved 
for you £9,000 for one, £7,200 for each of two, £5,600 for each of three. £4,375 
for each of four, and £3,600 for each of five, and I suggest to you that we should 
put in £3,200 for each of six. 

I do not know if I have made the matter as clear to you as I should. At the 
moment the two firms are not combining in any way and, therefore, if nego- 
tiations break down, Armstrong Whitworth's will, of course, be free from us, 
but the tenders Imve not to be in until the middle of November, so we should 
certainly know one way or the other before then. Needless to say, we do not 
wJat anything to come out about the proposed fusion until it is all clear, and 
I am just sending you this letter so that you can think over the situation. 

I have not yet procured a definite list of the firms who have been asked to 
tender this tiiiie, but I am told the same lot are in, I am genuinely afraid this 
time of Cammell Laii-d's, as their managing director told me some months ago 
tliat he really must get into the submarine business. He very nearly did last 
time, and it was only by a margin of £2,000 that we managed to collar the 
three boats. 

By the way, Sim, the seci'etary of Vickers, and who was put on the board 
yesterday, is leaving in the " Mauretania " on Saturday to see Sheridan and 
Roberts. I do not suppose he will be getting in touch with you, but if you 
happen to meet him I know you will be kind to him. He is a very good chap 
and used to be in the Indian civil service but knows practically nothing about 
our submarine negotiations. 

All good wishes to Mrs. Spear and yourself. 
Yours sincerely, 

C. W. Craven. 



Exhibit No. 19 



30th November 1927, 



Strictly private. 
L. Y. Spear, Esq., 

Messrs. The Electhic Boat Co., 

Groton, Conn., U.S.A. 
My Dear Spear: Thank you very mucli for your lett(>r of the 18th No- 
vember, confirming the cables that pnssed between us the same day, regarding 
royalties. Of course, there were further cables between us which no doubt you 
will be confirming in the usual way. 



MUNITIONS INDUSTRY 331 

I have been able to obtain the enclosed information from an absolutely 
reliable but very secret source. The only three tenders receiving serious con- 
sideration are Vickers', Beardmore's, and Cammell Laird's, and we were the 
only firm who tendered lor more than three boats. 

The attached statement shows the state of affairs in the order of cheapness 
from the Government's point of view. The hitch in the enclosed is that 
Beardmore's are most unpopular, owing to their bad progress and financial 
condition, and I do not think for one moment that they will receive three boats. 
I do know that one of the important Admiralty departments is recommending 
that Vickers should have four and Cammell Laird's two, and it would there- 
fore appear that we stand a good chance of at any rate three or four boats, 
because if Beardmore's are to have three, then we should go in for three. If 
Beardmore's get two, we should go in for three. If Beardmore's are to have 
one, we again go in for three. If, however, it is decided that Beardmore's 
are to have none, the cheapest thing for the Admiralty would be to give 
Vickers four and Cammell Laird's two. 

When you are next over here I will show you my estimate, but you can take 
it from me now^ that I knew there was going to be keen competition; and I 
cut my price to under 5% profit, because I felt that with your support it was 
up to me to get the work and starve out competitors for another year or two. 
For your private information, I was in a position to look after Armstrong's and 
keep them out of the picture on this occasion. 

You will understand that the figures in the enclosed statement do not include 
what we call " Separately priced auxiliaries " nor any parts supplied to us by 
the Admiralty. They just cover for that part which is strictly competitive. 

I will wire you when I know how we stand, but it will not be before January 
at any rate. 

If you would not mind deferring the whole question of our relations under 
the new arrangement for a little wbile, I should be pleased, because I have such 
a lot to deal with at the moment, and I really do not know my own position in 
the new organization. However, the enclosed cutting regai'ding the meetings 
will give you the main points in the business, and you will appreciate from this 
that the new company is very much controlled by Vickers. I am trying to 
arrange things so that with the admiralty we count as two shipyards and can 
therefore put forward two tenders, but this, of course, will be rather diflScult. 

I think perhaps later on it will be very desirable for you to come over here so 
that we can square up all outstanding points which may arise in connection 
with the new company. 
Yours sincerely, 

(S.) C. W. Ceaven. 

P.S. You will notice in the enclosed report of the meeting that Armstrong's 
had to make a terrible fuss about the Merchant Shipyard, etc., which they are 
retaining, and which will continue to be operated by the old company quite 
apart from the new anjalg.imation. This, it will be obvious to you, is for the 
benefit of their debenture and shareholders. For your own private information, 
the only works they are retaining are the ones v?e refuse to have anything to do 
with. 

C. W. C. 



Exhibit No. 20 

[Copy] 

Naval Construction Works, 

Barrow-in-Furness, 
10th September, 1930. 
Private. 
L. Y. Spear, Esq., 

Messrs. Electric Boat Compimy, 

Groton, Conn., U.S.A. 
Mt Dear Spear : Just a line to let you know that we have received the 
order for the special vessel, after most diflicult negotiations. 

I still hope your company will meet me regarding the amount due to you, 
because there was certain action I had to take which involved expenditure, 
and which I am sure you would have agreed with. I cannot possibly say 



332 MUNITIONS INDUSTRY 

any more in writing, but wlien the long promised visit talies place we will 
have a talk. 

Many thanks for the good wishes from Mrs. Spear and yourself. We both 
send you all kind messages. 
Yours sincerely, 

(S) C. W. Ceaven. 



Exhibit No. 21 

vickers-aumstrongs, limited, 

Naval Construction Works. 
Barroiv-in-Furness, 30th July, 1932^ 

H. R. Carse, Esq., 

The Electric Boat Company, 

^0 Wall Street, New York. 

My Dear Mr. Carse: 

Very many thanks for your telegram which, being decoded, reads as follows : 

" Referring to your telegram of the 25th and to your letter of the 18th 
ultimo, the directors will accept £10,000 settlement of 'Thames', 'Porpoise' 
'S' engines, also agree to £7,500 'Thames', £3.000 'S' boat your tender (s). 
Stop. We cannot now decide about possible business next March." 

First may I suggest that even in code it is better not to mention any names 
of ships, as I am rather afraid that such telegrams might get into the hands of 
our clients, and it would be awkward if they asked me about our agreement 
with you. I am sure you will appreciate what I mean. 

I note that you cannot quite accept the offer I made. However, I am grate- 
ful to you for meeting me so far, and I enclose herewith a cheque for £10.000 
in final settlement of the " Thames ", the " Porpoise ", and the " S " class 
engines. In accordance with your telegram I will cover you for £7,500 for 
one " G " (repeat " Thames ") class of Violescent, and £3,000 for one " S " class. 

I note that you do not want to commit yourself for the tenders due in March. 
I can quite understand your point of view, but the reason I was anxious to 
arrange for both programmes now is that it might be possible at the very last 
minute I may think it prudent to make an offer to our clients for the second 
one of each class v^hicb I know they intend ordering in March, but for which 
they cannot issue enquiries at present. Obviously I could offer them a 
certain " bait " in price. I do not want you to think that I have made up 
my mind at this moment to do this, but things are extremely " tricky " just 
now, and it is just possible that I might think such an idea desirable. If, on 
thinking further over the matter, you feel justified in repeating the offer for 
the second programme, would you very kindly send me a telegram? If .vou do 
not feel so justified, 1 shall quite understand, but, as I say, it might help me 
if you were to agree to my proposal. I can assure you I shall be very dis- 
appointed if I am not in a position to send you a further cheque within the 
nest few weeks. 

With every good wish to you all, 
Yours sincerely, 

C. W. Craven. 



Exhibit No. 22 

[Strictly private] 

Naval Construction Wouks, 
Bnrroio-in-Furnes'<, SOth October, 1932. 

Henry R. Cakse, Esq., 

President, Electric Boat Company. 

JfO Wall Street, New York. 

Dear Mr. Carse: Very many thanks for your telegram reading as follows: 
"Referring to your letter of the 17th inst., we (I) accept your proposal." 

1 arrived back from Madrid yesterday aiid at once called at th(> admiralty. 
While I have been aw;;y, a good deal of terhnical information has been made 
available for my people, so I hope in a week or so to be able to requote. As a 
matter of fact, I should probably have quoted sooner but the director of con- 



MUNITIONS INDUSTRY 333 

tracts is away and I want to hand my figures In to him personally. I think, 
the position will turn out as follows : 

(1) We shall receive a firm contract for one submarine about the third! 
week in November. 

(2) At the same time we shall receive a letter telling us that the admiralty 
accept our price for the second submarine on the distinct understanding that 
if any circumstances arise between now and say March 1933 they can have 
the right to cancel the second one without any payment. 

All that you and I gain by the transaction will be that we shall know that if 
the ship is built Vickers will get the order. If, on the other hand, Geneva or 
some other fancy convention decide that large submarines have to be abolished, 
no definite contract will be placed and the admiralty can retire gracefully 
without having to pay us anything. I cannot, of course, commence spending 
any money until say March, but, at any rate, our competitors will not receive 
the enquiry. 

I much appreciate the prompt way you have met my request and all I can 
do now is to hope that we shall both have good fortune. 

I had a very interesting visit to Spain. It was chiefly in connection with a 
large sum of money owing to my company by the sociedad. The political 
situation in Spain seems very confused but there seems a considerable pros- 
pect of our friends receiving orders for small craft on the pretext that they 
are purely defensive. 

With all good wishes. 
Yours very sincerely, 

(S.) C. W. Craven. 



Exhibit No. 23 

[Confidential] 

Naval Construction Woeks, 
Barroiv-in-Furness, 6th January/, 1933. 
Henry R. Carse, Esq., 

Electric Boat Company, 

40 Wall Street, Neiv York. 

My Del\r Mr. Carse: You will be glad to know that I have now received a 
letter from the admiralty, saying that the contract for the H.M.S. Severn (the 
Thames rejieat) will l)e placed with us, and I expect to receive it within a few 
days time. Immediately I do, I will credit your account here with the sum of 
£7,500 and send you a cable. 

At the same time, the admiralty also promise us the order for H.M.S. Clyde 
(another repeat of the Thames), but in this latter case they will not give us a 
contract until after the end of March. In other words, they will have the 
right to withdraw their promised order for the second ship if Geneva or any 
other troublesome organization upsets the large submarine. In view of this, I 
am not saying anything publicly about the Clyde, and I would suggest that it 
Would be wise that Spear should not let the information get into the hands of 
your Navy Department until after I can tell you that we really have a proper 
contract. Cammell Lairds will get the two small S boats. On the whole, I am 
very pleased, because it is impossible in these days of starvation of ship- 
building to get all the submarine orders. 

With every good \^'ish for 1933. 
Yours very sincerely, 

(S.) Charles W. Craven. 



Exhibit No. 23-A 

[Copy] 

A meeting was held in London in June 1912 at which an agreement, dated 
ISth June 1912. was drawn up betvv'een the Electric Boat Company of New 
York and the Sociedad Espanola de Constrnccion Nnval of Madrid. At this 
meeting there were present Mr. Albert Vickers, chairman of Messrs. Vickers. 
Limited, and vice president of the Sociedad Espanola de Construccion Naval ; 
Mr. Isaac L. Rice, now deceased, but at the time of the meeting president of 

83876 — .34— PT 1 22 



334 MUNITIONS INDUSTRY 

the Electric Boat Company, New York; Mr. Basil Zaharoff, director of the 
Sociedad Espanola de Construccion Naval. 

Clause 9 of the above agreement reads as follows : 

" For the purpose of niaintuiniug the American Company's business in 
Europe it is agreed that 5% of the selling price of each boat shall lie paid by 
the Spanish Company to the American Company and that these payments will 
be made pro rata as and when the money is received by the Spanish Company 
under the order for such boat or boats." 

As to the applications that had to bo given to the amount representing the 
said 5% of the selling price of each boat and how it was to be dealt with, it 
was decided and agreed by the three above-named gentlemen that these commis- 
sions be paid to and distributed by Mr. Basil Zaharoff. 

We, the undersigned, hereby confirm the accuracy of the above statement. 

(Sgd.) Albert Vickkbs. 
(Sgd.) Basil Zaharoff. 



("Exhibit No. 24" appears in text on p. 37.) 



Exhibit No. 25 

nth September 1923. 
Dbak Mn.. Cahse: 

Your letter of the 30th ultimo gives uie great pleasure, because it brings 
me in direct communication with you, which has been my desire for some 
considerable time, but I did not care to impose myself upon your notice. 

What you say about Mr. Spear being the acknowledged authority on sub- 
marine boats is not new to me, for I had indeed the pleasure of knowing him 
personally, you made his acquaintance, and it has always been a pleasure to me 
to be associated with him, and, to use an American expression, " he knows his 
job ", besides which he is very pleasant to deal with, and, from a business 
point of view, he certainly grasps matters intelligently. 

I quite agree with you that the era of submarine boats is now opening all 
over the world, and I trust it will bring much business to your company, and 
you may count upon my little efforts always working in your direction. 

Reiterating my pleasure at making your acquaintance by correspondence, 
and trusting that we may meet at no distant date, I am, dear Mr. Carse, 
Sincerely yours, 

Basil Zahaeoff. 



("Exhibit No. 26" appears in text on p. 46.) 



Exhibit No. 27 

1st March 1925. 

Dear Mr. Carse: Mr. Daniell arrived yesterday, and handed me your pleasant 
letter of 11th ulto. and I have read with much pleasure your report on the state 
of your markets, which certainly have been excellent now for some time past. 

Yours is the only country which can live on, and off itself, without relying 
upon other states. 

I submitted my plan of operation to Mr. Daniell, which is the following, viz: 
On my arrival in Madrid on 12th April I convoke your representatives and those 
of the Constructora Naval to state their claims to me, when I will examine, 
cross-examine, and endeavour to fathom the exact position, and this will enable 
me, I hope, to give my decision during my stay in Madrid. 

May I ask you to kindly present my homeage to Mrs. Carse, and with a "good 
morning" to your boy. 

I am dear Mr. Carse, 
Sincerely yours, 

Basil Zaharoff. 



MUNITIONS INDUSTKY 335 

Exhibit No. 28 

Hotel De Paris, 
Monte Carlo, 27th March 1925. 

My Dear Mr. Carse: The, to me, important part of your letter of 14th inst. 
is the enclosure from your boy, and I really cannot find words to express ade- 
quately the pleasure and satisfaction it has given me. You and I have been 
boys, and we know what it used to cost to write six and a half lines, and this makes 
me especially appreciate the letter. 

As I surmise that his dear mother had something to do with its composition, 
may I ask you to convey to her my homage, and will you tell your little boy the 
great pleasure his letter gave me. 

Having attended to the principal part, I now come to the rest of your letter, 
and reassure you that on my arrival in Madrid, two weeks from nov/, I will 
immediately deal with the differences between your goodselves and the Construc- 
tora Naval, and your Mr. Daniell is already informed of my intentions, and will 
meet me in Madrid. 

It is good to know that Congress has passed a bill in your favour, which I hope 
will be very satisfactory to you, and I must congratulate Lieutenant Spear on the 
diplomatic way in which he has handled this matter and has obtained such a 
result. 

You are wise not to raise the question of the infringement of your patents 
until you have received full satisfaction on the previous paragraph, but then you 
should certainly claim, and I have no doubt your claim will meet with the same 
good result. 

I feel confident that Mr. Daniell will communicate to you the result of our 
meetings in Madrid and the decision, and 

I am, my dear Mr. Carse, 
Cordially yours, 

Basil Zaharoff. 



Exhibit No. 29 

May 8th, 1925. 
Sir Basil Zaharoff, 

53 Avenue Hoche, Paris, France. 

Dear Sir Basil: 1. Please accept my thanks for your notes of the 14th, 24th, 
and 28th ultimo, all relative to the Spanish business, and my congratulations 
upon the results which you have secured with respect to the new contract. It 
goes without saying that we are all pleased with the outcome and grateful to 
you for your successful intervention in the matter. I note that the new arrange- 
ment will not become effective until after the next Constructora Naval Board 
meeting, which I assume will be held before very long. In the meantime, I 
should like to prepare a draft of the necessary form of agreement between the 
Constructora Naval on the one hand and Messrs. Vickers and ourselves on the 
other, as well as of the necessary agreement between Messrs. Vickers and our- 
selves, and in order to do that I shall require to know whether or not under the 
new arrangement we shall continue to receive and pass to you a certain percent- 
age of the contract price. Perhaps you will be good enough to let me know about 
this at your convenience. 

2. Referring now to the other questions which are pending between the Con- 
structora Naval and ourselves, Mr. Daniell, in accordance with your suggestions 
and advise, is refraining from any pressure about these matters and will continue 
to do so until he is otherwise advised by us. While it is of course unfortunate that 
any feeling of irritation should have arisen in any quarter, it seems to me, after 
all, not very surprising in view of the radical psychological difference between 
the Spanish and American minds, which, so far as I have been able to observe, 
are very apt to draw diametrically opposite conclusions from a given set of facts. 
While we are on the subject, I cannot refrain from saying, for your personal 
information, that our polic}' has always been to try to make due allowance for 
this difference in outlook and that in consequence we have been much more 
conciliatory than we would have been had we been dealing with an American or 
British firm; consequently, we are the more concerned over the fact that any of 
the Constructora officials feel that they have any just grievance against us. As 
you are in a position to keep your finger on the pulse perhaps you will be good 
enough to let me know when you think the time has come for us to take any 
further action v/hich, in the absence of your personal intervention, might perhaps 
best first take the form of a purely personal discussion between Colonel Fuster 
and myself. 



336 MUNITIONS INDUSTRY 

3. Mrs. Spear joins me in kindest regards to the Duchess and yourself, to which 
I wish to add my renewed thanks for your very effective action about the new 
contract and your continued interest in the Spanish situation. 
Very sincerely yours, 

L. Y. Spear. 

(Exhibit No. 30 is a list of stockholders in the Electric Boat Co. and is ou 
file with the committee.) 



Exhibit No. 31 

[Copy] 

Carlton Hotel, 
Pall Mall, London, 19th May 1925. 

My Dear Spear: I am in London until the end of this month, and am naturally 
discussing the Spanish question with Messrs. Vickers, and I have just received 
your valuable lines of 8th instant, which I have read carefully and with interest. 

I deserve no thanks for v/hat I have done, because I am bound to attend to 
the interests of my firm of Vickers, and of my friends, the Electric Boat Company,. 
in both of which I am a shareholder. 

Regarding the questions still pending between the Electric Boat Company 
and the Constructora Naval, I believe there will be no harm whatever in Mr. 
Daniell opening the question shortly after the general meeting of the Constructora 
Naval, which will confirm the arrangement between you, and concerning this 
arrangement, you will of course continue to receive and pass to me a certain 
percentage of the contract price. 

I quite agree with all you say re the difference of what you call "diametrically 
opposite conclusions from a given set of facts", and this is natural when one 
considers the difference of mentalities of you across the ocean, and our Spanish 
friends in the south, but I have always believed that, with a little pa,tience and 
tact, even mountains of' difficulties can be amicably settled, and indeed my 
e.Kperience of our Spanish friends is that, if we talk to them nicely instead of 
writing to them strongly, we always attain our object. 

You are quite right in referring to the necessary agreements between your 
good selves, Messrs. Vickers, and the Constructora Naval, and you will do well 
to prepare your ideas re same, and submit them to Messrs. Vickers, and also 
to the Constructora Naval through your Mr. Daniell, of whom I cannot say 
too much in his praise. 

My long e.xperience has always made me pay great attention to any opposition^ 
however small or insignificant, and there can be no doubt that the Germans 
and Italians are boiling to get the wedge end in, especially as Spain is spending 
money on her Navy, and the proposals they make to the Spanish Government 
are carefully considered by the junior Spanish naval officers, who (I tell you in 
the strictest confidence) are working to persuade the superior officials that the 
Electric Boat Comi)any, Vickers, and the Constructora Naval, are all old- 
fashioned, and that the time has come for a new departure. 

Our Spanish associates and I have been watching events carefully for a con- 
siderable time, and have succeeded this time in overcoming competition, but we 
must keep our eyes and ears open, and never relax our activities in order to 
overcome a competition which is daily becoming stronger. 

Will you kindly present my homage to Mrs. Spear, and a little bonjour from 
me to Mr. and Mrs. Carse, and believe me, my dear Spear, 
Always yours cordially. 

(S.) Basil Zaharofp. 

("Exhibit No. 32" appears in text on p. 61.) 



Exhibit No. 33 

Hotel de Paris, 
Monte Carlo, 2nd February 1926. 
Dear Mr. Carse: 

The Duchess and I were pleased to have good news of you from Mr. Albert 
Roberts, who was here with us for a week and is now returning home to the 
United States. 



MUNITIONS INDUSTRY 337 

Mr. Roberts also spoke well of the Electric Boat Company's position, which he 
thinks will soon declare itself. 

Will you please tell Lieut. Spear that it is not advisable for your Paris office to 
know anything whatever of your Spanish business, and will Mr. Spear give the 
necessary instructions on this point to your Mr. Daniell who is in Spain. 

Please present my homage to Mrs. Carse, and trusting that she, you, and your 
nice little boy are all in the best of health, in which wish the Duchess joins me, 

I am, dear Mr. Carse, 
Sincerelj' yours, 

Basil Zaharofp. 



Exhibit No. 34 

14th August 1926. 

Dear Mr. Carse: I am pleased to know by your letter of 4th instant that 
Mrs. Carse, the heir, and your good self are in excellent health, and thank you 
for the complimentary remarks you made about my intervention with the 
Sociedad. 

As a rule, when matters are allowed to slide, it becomes difficult to pick up the 
threads, and join them together, and I am more than happy that all pending 
matters between yourselves and the Sociedad have been satisfactorily settled. 

I had a very important Spanish official here the week before last, and from our 
conversations there can be no doubt that good business will continue for you and 
all of us in Spain, and we need not fear Krupp nor anybody else for a long time 
to come. 

Referring to what you say about the Argentine Government, you know of 
course that they have been negotiating for some considerable time with the 
Constructora Naval for naval and war material, in w"hich the King of Spain 
himself takes a great interest, and is using all his endeavours for Argentine 
business to go to Spain. 

I believe that the Constructora Naval has a fair — though not a big — chance, 
because foreign officers prefer living in Paris or London to being isolated in Spain, 
and consequently they generally put spokes in the wheels of the Spanish, much 
to the detriment of their country's interests. 

Lieutenant Spear is embarking for Europe while I am dictating this letter, and 
you know that I will always be at his disposal, and support any valid ideas he 
may put forward. 

Will you please present my homage to Mrs. Carse, and with a little "good 
morning" to your heir, I am, dear Mr. Carse, 
Always cordially yours, 

Basil Zaharofp. 



("Exhibit No. 35" appears in text on p. 67.) 



Exhibit No. 36 

12th July 1927. 
Dear Mr. Carse: 

I have to acknowledge receipt of your letter of 1st instant, bringing me copy 
of one you had written to Lieutenant Spear, both of which refer to Mr. Koster. 

I am sending on these letters to Spain, with a view to alleviating the bad 
impression caused there through Mr. Koster's intervention, and as I have all 
along expressed my views regarding that person, I will not refer to him again. 

I repeat that the only reason I attend to the Constructora Naval is that it is 
a pet child of m.y own creation, but if spokes are put in ray wheels, I must not 
be expected to intervene between your company and my Spanish one. 

Should you utilize Captain Aubry in Europe, I will always be at j^our and his 
disposal. 

It pleases me to know that Mrs. Carse, you, and Master Carse are well, and 
I remain. 

Always yours cordially, 

Basil Zaharoff. 

It has just occurred to me that Monsieur Michel Clemenceau, son of the 
great Clemenceau, and who represents the Vickers Company on the European 
Continent, and also keeps in touch with all the South American naval and 
military commissions in Paris, might be useful to your company under my 
supervision. 



338 MUNITIONS INDUSTRY 

Exhibit No. 37 

August 27, 1928. 

Dear Sir Basil: I have received yovir esteemed favor of the 14th instant in 
regard to King Alfonso making the trip on one of the submarine "C" boats, 
an(i your judgment that important business is developing in Spain in connection 
with the building of submarine boats, which advice we very much appreciate 
and thank you for your kindness in sending us word. 

In regard to our other business, about wliich I have previously written to you, 
while there has been no definite closing of a contract, our representative states 
that he has received advices from very important people in Japan that the matter 
has not been dropped in any way but is progressing as well as existing conditions 
will permit and tliat expectation is had of closing the contract with us in a short 
time. The delay in this matter has been very trying, because we have to a 
certain extent been holding our facilities in abeyance, but when certain situations 
are cleared we believe the order will be ultimatelj' received. 

As you no doubt p^re aware, considerable friction developed between our staff 
and the officials of the Navy Department in Washington some six or seven years 
ago, and the officials endeavored in every way to make it as difficult for the com- 
pany as possible. I am glad to say that we have apparently eliminated that 
animosity, and I have reason to believe that the design of the Department at 
Washington of submarines has proven unsuccessful. At present our relations 
are sucn that we have been invited to present our idea of the proper type and 
design of submarine to be built by the United States Navy Department, and the 
plans and specifications we have submitted have been approved and accepted, 
and the expectation is that we will in the future divide witli the Navy Department 
the building of submarine boats for this Government. 

I am very frank to say that the business done with our Government officials 
has never been of a satisfactory nature, quite different indeed from the result of 
our work here and abroad for other nations, but is is necessary for our prestige 
that we build boats for this Government, and therefore we must manage to get 
along with the excessive supervision and interference. 

In connection with the work done for this Government during the war period, 
we received instructions from the Department to increase the wages of tlie work- 
men, with the written agreement and promise that we would be reimbursed for 
such expenditures. 

They did reimburse us in part on account, for which we deposited United States 
bonds as securit}^ pending an accounting, but later the Department endeavored 
to repudiate the obligation on the ground that the Secretary of the Navy had no 
authority to make such an agreement and promise with the contractors. We 
were obliged to take our case to the Court of Claims, and that court and the Su- 
preme Court of the United States held last year that the Secretary of the Navy 
had such authority