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Full text of "Scope of Soviet activity in the United States. Hearing before the Subcommittee to Investigate the Administration of the Internal Security Act and Other Internal Security Laws of the Committee on the Judiciary, United States Senate, Eighty-fourth Congress, second session[-Eighty-fifth Congress, first session] .."

SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



HEARING 

BEFORE THE 

SUBCOMMITTEE TO INVESTIGATE THE 

ADMINISTRATION OF THE INTERNAL SECURITY 

ACT AND OTHER INTERNAL SECURITY LAWS 



OF THE 



COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

EIGHTY-FOUKTH CONGKESS 

SECOND SESSION 

ON 

SCOPE OF SOVIET ACTIVITY IN THE 
UNITED STATES 



SEPTEMBER 6, 1956 



PART 32 



Printed for the use of the Committee on the Judiciary 




UNITED STATES 
GOVERNMENT PRINTING OFFICE 
72723 WASHINGTON : 1957 



Boston Public Library 
Superintendent of Documents 

APR 4 -1957 



COMMITTEE ON THE JUDICIARY 

JAMES O. EASTLAND, Mississippi, Chairman 

ESTES KEFAUVER, Tennessee ALEXANDER WILEY, Wisconsin 

OLIN D. JOHNSTON, South Carolina WILLIAM LANGER, North Dakota 

THOMAS C. HENNINGS, Jr., Missouri WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

PRICE DANIEL, Texas EVERETT McKINLEY DIRKSEN, Illinois 

JOSEPH C. O'MAHONEY, Wyoming HERMAN WELKER, Idaho 

MATTHEW M. NEELY, West Virginia JOHN MARSHALL BUTLER, Maryland 



Subcommittee To Investigate the Administration of the Internal Security 
Act and Other Internal Security Laws 

JAMES O. EASTLAND, Mississippi, Chairman 

OLIN D. JOHNSTON, South Carolina WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN. Arkansas ARTHUR V. WATKINS, Utah 

THOMAS C. HENNINGS, Jr., Missouri HERMAN WELKER, Idaho 

PRICE DANIEL, Texas JOHN MARSHALL BUTLER, Maryland 

Robert Morris, Chief Counsel 
William A. Rusher, Administrative Counsel 
Benjamin Mandel, Director of Research 
XX 



CONTENTS 



Testimony of — Page 

Hon. Walter H. Judd 1887 

m 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Soviet Redefection Campaign 



THURSDAY, MAY 31, 1956 

United States Senate, 
Subcommittee To Investigate the Administration 

of the Internal Security Act and Other 

Internal Security Laws, of the 
Committee on the Judiciary, 

Washington, D. C. 

The subcommittee met, pursant to adjournment, at 10 : 45 a. m., 
in the caucus room, Senate Office Building, Senator James O. East- 
land, chairman, presiding. 

Present : Senator Eastland. 

Also present: Robert Morris, chief counsel; William A. Rusher, 
administrative counsel; Benjamin Mandel, research director; Rob- 
ert McManus, research analyst ; Jonathan Mitchell, consultant to the 
committee ; and F. W. Schroeder, chief investigator. 

Chairman Eastlaxd. The hearing will be in order. 

Mr. Morris. Mr. Chairman, the evidence this morning will be testi- 
mony by Congressman Walter H. Judd on Communist activity in 
China, which will include activity on the part of American citizens 
assigned by the United States. 

Chairman Eastland. Mr. Judd, will you stand and be sworn, 
please ? 

Mr. Judd. Yes, sir. 

Chairman Eastlaxd. Do you solemnly swear the testimony you 
are about to give will be the truth, the whole truth, and nothing but 
the truth, so help you God ? 

Mr. Judd. I do. 

TESTIMONY OF HON. WALTER H. JUDD, A REPRESENTATIVE IN 
CONGRESS FROM THE FIFTH DISTRICT OF THE STATE OF 
MINNESOTA 

Mr. Morris. Mr. Congressman, will you give your name and ad- 
dress to the reporter I 

Mr. Judd. My name is Walter H. Judd. I am a Member of Con- 
gress from the Fifth District of Minnesota, which is in Minneapolis. 

Mr. Morris. I wonder if you would give us for the record, Con- 
gressman, you own experiences in China. 

Mr. Judd. I went to China, sir, in 1925 as a medical missionary. I 
spent 1 year in Nanking studying the language, and then spent 5 
years in Fukien. That is the province in south China right opposite 
the island of Formosa. 

1887 



1888 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

I had been there a few months when the Nationalist armies came 
into the area. Chiang Kai-shek was marching north to overcome 
the war lords and unify China. The second or third outfit of Chinese 
troops which came into our city was just plain propagandizing com- 
munism. This was in December. 1926. Much to our surprise, they 
were not advocating unity in China. They were advocating a Com- 
munist revolution. This was my first inkling of how deep was 
Communist infiltration in China. 

Then, in the following spring, 1927, when the Generalissimo cap- 
tured Nanking and Shanghai, the Communists rose in rebellion and 
tried to overthrow the Generalissimo. They had announced he was 
to be the Kerensky of the Chinese revolution. They would use him 
to get victory over the war lords, and then throw him out, much as 
the Russians threw out Kerensky in Russia, after he had overthrown 
the Czar. 

Well, Chiang defeated them, the only real defeat they have ever had 
to this date. So, naturally they set out to destroy him more than 
any other man in the world. He was the first international figure 
that got wise to the Communist conspiracy, and has been unfooled 
by it ever since. 
* The Communists, after their defeat in 1927, moved into Kiangsi 
Province, which is right next to Fukien, where I was. There was 
no other doctor in that area, and whenever important personages 
became ill or wounded, they would come over the mountains to my 
hospital. I would say, "How were you wounded?" 

They would say, "We were out fighting bandits." 

Of course, it was not my business to ask further questions, just to get 
them well. 

Within 2 or 3 days, I would find out, because these Communists 
are evangelists. As soon as they get a little better and forget their 
pain, they start propagandizing the orderlies, the nurses, the doctors, 
and everybody else. 

So I dealt with those Communists as individuals until finally they 
came over into our province in 1930, when the Generalissimo had to go 
north to fight the last major civil war. He pulled his troops out to 
go north, and they took our area over. 

At the end of 1930, he sent his troops back in and the Communists 
left. They never will fight unless they are sure of victory. So I saw 
them from 1926 to 1940 and was under their regime for 8 months in 
L930. I never could understand how anybody got the idea that was so 
popular in the United States that the Chinese Communists are just 
democrats and agrarian reformers, 

I was ill with malaria, and came home in 1931. The doctor told 
me I couldn't go back to China because of malaria, so I went to work 
in the Mayo Clinic in Rochester, Minn. 

In 1934, I had recovered and was as good as before. There was 
an urgent need for a doctor in one of our hospitals in northwest China. 
It is so dry up there that there are no mosquitoes and therefore no 
malaria. So I resigned at the Mayo Clinic and went back out to China. 
( )ddly enough, the Communists, that year and the next, took a long 
6,000-mile march and landed in the same part of northwest China 
where I had gone. Both of us went there for our health. So I saw 
them in action again. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1889 

In 1936, 1937, and 1938, they were all over that area. The general, 
Lin Piao, who was later head of the Fourth Field Army, the army 
that killed so many of our boys in Korea, was a patient of mine in 
January or February of 1938. His headquarters was only 6 miles 
outside my city. 

With that long background of personal observation, I had a good 
many conversations with Communist leaders, frank discussions of 
their deceptions. Whenever they are in trouble, they advocate a 
coalition, talk peace until they can build up their strength. As soon 
as they are strong enough, they start a rebellion and overthrow the 
local forces and resort to violence again. Therefore, my own con- 
victions would probably not be called theoretical but based primarily 
on personal experience. 

I am sorry for such a long answer. 

Mr. Morris. Congressman, in going through the Morgenthau 
diaries, which we have, we have come across one particular document 
dated October 28, 1944, which mentions a visit that you made to 
Chungking at that juncture in history. 

I wonder — Mr. Mitchell, would you identify this document, please ? 

Senator, Mr. Mitchell has been sworn to identify documents. 

Mr. Mitchell. This is from book 787, and it includes pages 273 to 
277 in the Morgenthau diaries. 

Mr. Morris. This makes reference, does it not, to an appearance Dr. 
Judd made in Chungking, wherein he had made a speech? 

Mr. Mitchell. Yes, sir ; it does. 

Mr. Morris. This is a letter from Irving Friedman, isn't it ? 

Mr. Mitchell. This is a letter from Irving Friedman to Harry Dex- 
ter White, a personal letter, accompanied by a memorandum from Mr. 
White, forwarding the letter to Secretary Morgenthau. 

Mr. Morris. The letter from Friedman in China was October 7, 
1944? 

Mr. Mitchell. Yes, sir. 

Mr. Morris. The forwarding letter was October 28, 1945, was origi- 
nally classified as secret, and was declassified by the War Department, 
January 20, 1956. 

Congressman, can you remember making a visit to China at that 
time? 

Mr. Judd. Yes, sir. 

Mr. Morris. I wonder if you would relate what happened at that 
time ? 

Mr. Judd. I have dug up a statement I made to the press, October 5, 
1944, in Chungking. There were all sorts of alarming stories coming 
out of China, that the Chinese Government was about to collapse, that 
it was full of rottenness and corruption, and that the Chinese Com- 
munists were the forces we should be supporting. Members of Con- 
gress naturally don't have the direct sources of information that the 
State Department and the Pentagon have through their intelligence 
agencies. A good many of my colleagues said they couldn't figure 
this China thing out. While some of us were visiting Europe — our 
forces had just landed in Normandy — I got a telegram from the 
United States authorizing me to go on to China, which I did, to see and 
studv the situation firsthand. 



1890 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

I landed in Chungking, unintentionally, just about the time that 
General Stilwell was replaced by President Roosevelt, and General 
Wedemeyer was brought in. 

I spent most of my time talking to the Chinese. There were a good 
many Chinese there whom I had known in north China. They had fled 
to west China in the great retreat before the Japanese. They were 
known to me, and reliable; they had been teachers or doctors with 
whom I had been associated ; most were not party people. They were 
not political figures. But they knew and would tell me what the situ- 
ation was with respect to the Nationalist Government and with re- 
spect to the Communists. I got a good deal of information. 

I talked, of course, to our officials there. I stayed with General 
Hurley in his home. Donald Nelson had left for America just the day 
before I came. I talked a long time to General Stilwell, whom I had 
known in north China when he was our military attache in Peking. 
I talked to Ambassador Gauss. 

The thing that disturbed me most was the conversations I had with 
some of the junior members of our Embassy Staff and some of the 
colonels — that general level in our military staff. A surprising num- 
ber of them were following just one line, that we must ditch the gen- 
eralissimo, his government was hopeless, and we must back the Com- 
munists, because they were (1) democratic, (2) they were interested 
in the well-being of the people, (3) they would be more cooperative 
with us than the generalissimo, because the generalissimo had been 
unwilling to accept General Stilwell's proposal to ship lend-lease 
material up to the Communists, and so on. These Americans were all 
for arming the Communists — all for making the Communists the 
main agency that we would back in China. I was sure that would be 
disastrous. I could not figure out why so many of our Americans 
would be just chanting what, to me, was the Communist Party line, 
and which later proved to be the Communist Party line 

I don't know for sure what you had in mind. Do you want me to 
comment on what Mr. Friedman says ? 

Mr. Morris. Yes, I wish you would. You have read the letter, have 
you not? 

Mr. Judd. Yes, yoji showed me the letter. 

The last night I was there, there was a meeting in Chungking, a so- 
called American-Chinese cultural society, or something like that. It 
was an organization of Americans and Chinese who had been edu- 
cated in the United States and spoke English. They met perhaps 
once a month for social and cultural purposes, and they asked me to 
come to their meeting and speak, which I did. It was my speech wdiich 
Mr. Friedman reports. I don't know T whether he reported it to Mor- 
genthau or White or somebody else. 

Chairman Eastland. Who is Friedman, Mr. Judd? 

Mr. Jupn. Mr. Friedman was, at one time, I think, part of the Far 
East Division of the State Department. I don't know Friedman per- 
sonally. I think you will have to ask Mr. Morris that question. 

Mr. Morris. He is now Director of the Exchange and Redistribution 
Department of the International Monetary Fund, but, at that time, 
he was working for the Treasury Department in China. 

I wonder if you could tell us who were some of the other American 
officials who, as you describe, were taking a position inconsistent with 
the stand of our Government at the time ? 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1891 

Mr. Judd. I didn't get to talk to all of these people personally that I 
shall name. I did get to talk to some of them. It was common con- 
versation that the leaders were the so-called four Johns, John Carter 
Vincent, John Stewart Service, John Paton Davies, and John 
Emmerson. 

Then there was a man named Raymond Ludden. Not only these 
men from the State Department, but also a man named Stelle 

Mr. Morris. Is that Charles Stelle ? 

Mr. Judd. Charles Stelle, and also John K. Fairbank and his wife, 
Wilma Fairbank. They were working for the FEA, the Foreign 
Economic Administration, as I recall, down in Kunming. 

Mr. Morris. Many of those are still in the United States Govern- 
ment today, are they not ? 

Mr. Judd. Some of them are, and some of them are not. 

Then there were, from our military, colonels and majors who took 
the same position, and most of the members of the American press. 
I couldn't identify them by name, but representatives of our various 
newspapers and news services. I don't remember which one belongs 
to which agency. This was 12 years ago. It was only brought up in 
the last day or two, and I haven't had a chance to refresh my memory 
completely. 

Mr. Morris. Generally, what were they doing? Were you able 
to observe anything other than what you have said ? 

Mr. Judd. No, I don't know anything more about their work. 
There was a universal line that America should ditch our ally, the 
Nationalist Government of China, and put our chips on the Commu- 
nists. That disturbed me tremendously, so when I was invited to 
speak at this cultural society, I remember that the major burden of 
my talk was that, despite rumors they might have heard to the con- 
trary from some of our representatives, the rank and file of the Amer- 
ican people and the Congress and the administration, from Mr. Roose- 
velt on down, were strongly supporting the Nationalist Government 
of China. 

There were many reasons for that which I related. It was our 
ally; it had stood by us in our darkest hours after Pearl Harbor. 
The Japanese had made 12 attractive peace offer, to Chiang Kai-shek, 
saying that, if he would agree to ease up and sign a peace which would 
release Japan's forces to fight against the United States, Japan 
would make such and such concessions. They were very generous 
concessions, and he rejected every one of those peace or truce offers 
from the Japanese, and stood by us when our fortunes didn't look 
too good. 

He took the brunt of the Japanese attacks, not only for 4*^ years 
while we were helping the Japanese by selling oil and scrap iron to 
them, but during the first 2 years after Pearl Harbor, while we were 
rebuilding our Navy, which had been destroyed at Pearl Harbor. 

I recall saying in that speech that American public opinion had 
been uninformed regarding China. In the beginning, in 1937, when 
Japan attacked China, a lot of people had said : Chiang Kai-shek 
can't last 30 days — or 90 days, or 6 months. They have been announc- 
ing his downfall every 6 months since 1927, pretty nearly 30 years, 
and he is still going. 



72723— 57— pt 34- 



1892 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

I said we had underestimated the strength of the Chinese and their 
will to resist, until Pearl Harbor where Japan gave us the worst 
defeat we have had in our history. We then said: My goodness, 
these Japanese are good. If they can lick us, how could the Chinese 
hold out so long against them? 

So, instead of underestimating the Chinese, we began to overesti- 
mate them. They were all heroes. Madame Chiang Kai-shek came 
over here, and there developed an idealization of China which was un- 
justified. China was not that good, and the Chinese forces not that 
strong. 

Then came the long period of exhaustion, after the longer period of 
resistance, and the inflation that goes with the loss of almost 90 per- 
cent of their tax base — the Japanese had taken over the railroads, 
the textile mills, the industries, the richest of land. There was not 
enough industry or trade left from which Chiang could raise taxes, 
so he had to resort to the printing press. That caused inflation, which 
always leads to corruption. 

These were the weaknesses that were developing in China: 
economic deterioration, political deterioration, moral deterioration, 
military deterioration. I thought it was our bounden duty to try to 
strengthen our ally and encourage and give moral and political, as 
well as economic and military, assistance to that ally when it was 
hard pressed. 

So that was the burden of my talk. I understand that, all unbe- 
knownst to me, it sort of threw a panic into the minds of some of those 
people, because they had about convinced a lot of our folks that we 
ought to ditch the generalissimo, and here was a Member of the 
Congress saying that the Congress and the American people were 
supporting the generalissimo. 

Mr. Morris. Now, Congressman, based on those experiences, were 
you able to observe how Communists act to undermine a government's 
policies ? 

Mr. Judd. Well, yes. 

Mr. Morris. In other words, how can we, on the Internal Security 
subcommittee, in assessing the situation of internal security — how can 
we look for signs that will indicate that somebody could be a sub- 
versive person ? 

Mr. Judd. Well, there are many things they do. They are very 
clever. Let me give one illustration, if you will let me give this 
background, because I think this is the overall picture of what has 
happened during these years. 

Hitler originally built up his movement primarily against commu- 
nism and Russia was afraid of Hitler. Japan embarked upon her 
aggressive moves primarily because of the threat of the Soviet Union. 

So, here was the Soviet Union, in the thirties, faced with Hitler 
coming up on her west and Japan coming up on her east. Obviously, 
she had to decide how to protect herself. So, in 1935, she hit upon 
this tactic of proposing a united front. Instead of denouncing the 
Socialist movement as deviationist, Communists said: "We'll work 
with all democratic forces, anywhere, against fascism? 

So a line went out to convince us that we should cooperate with all 
the Soviet fronts. We had organizations like the American League 
for Peace and Democracy, the League Against War and Fascism, and 
so forth. Scores and scores of fronts. It was a brilliant tactical 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1893 

move because they rallied to their side most of the democratic and 
idealistic forces around the world. 

They still had to divert Hitler and Japan. How could they do it? 
First, they made a deal with Hitler, whereby he was assured that Rus- 
sia wouldn't attack him on his east, and this turned him against 
Norway and the Low Countries and England and France in the sum- 
mer of 1910. By the time he got around to Russia in 1941, he had to 
fight a two-front war. If it hadn't been for that, he might have de- 
feated Russia. So Russia handled her diplomacy so skillfully as to 
weaken Hitler by fighting the West before he got around to her. 

How could she divert Japan? The strategy was to get Japan 
bogged down in China and involved with the United States. All the 
leftist movements in China advocated war with Japan. The stu- 
dents used to lie down on the railroad tracks in 1934, 1935, 1936, and 
1937 threatening to let themselves be run over unless they were trans- 
ported to Nanking, where they could demand that Chiang fight the 
Japanese. They seized the Foreign Minister, C. T. Wang, beat him 
up, nearly killed him. 

China wasn't trying to fight Japan. She was trying to avoid a 
war, just as we are today. We are taking all kinds of insults today 
to try to avoid a war. The Communists were calling Chiang Kai- 
shek every kind of traitor because he wouldn't start a war with Japan 
that he couldn't win. They kidnaped him, as you probably recall, 
trying to force him to start a war with Japan. 

Finally, in 1937, the Marco Polo Bridge incident started war with 
Japan. That bogged Japan down in China, relieving the Russians of 
pressure from Japan. 

Actually, the Japanese war also saved the Communists up in North- 
west China. When I was in Japan last fall I talked with a high 
Japanese official who said there isn't any question but that we saved 
the Communists. They were down to about 14,000 men in caves at 
Yenan. After Japan struck, the Communists said to Chiang Kai- 
shek, "We will give up our Communist program in order to fight to- 
gether against the common enemy," and Chiang took them at their 
word. This was his mistake. But he had to fight a war against his 
external enemy, Japan, and he accepted the Reds in a coalition, the 
same as we did against Hitler ; and as other people around the world 
did, when we were faced with an external enemy. 

Now, in order to keep Japan bogged down in China, so that she 
could not threaten China during those years, the Communists were the 
ones that praised and helped Chiang the most. I came back to this 
country in 1938 to try to get our supplies shut off from Japan. No- 
body helped me more than the Communists. I was a little naive about 
these things, and Communists arranged meetings for me. I spoke at 
some of them until I got smarter. Owen Lattimore built up Chiang 
Kai-shek and called him the George Washington of China. 

But, by 1943 Hitler was retreating ; he had failed to conquer Russia 
from the west. We had recovered from Pearl Harbor; we were be- 
ginning our march west across the Pacific; MacArthur was coming 
up from Australia. It was clear that Japan couldn't take on a third 
enemy, Russia, in addition to China and the United States. Mother 
Russia had been saved from Hitler and from Japan. 

Now, I am getting around to my point. At that time, the line 
changed overnight, both in and out of government. Chiang, the man 



1894 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

"who had been the great George Washington of China, became a Fas- 
cist, a reactionary, a warlord, a brute, a tyrant, a dictator — every cuss 
word they could find. The attack on him began simultaneously all 
over the world like, when somebody pulls a master switch, all the 
lights in this building go on or off. 

When a line changes simultaneously, all over the world, and begins 
to be mouthed by people in our own Government at the same time, it 
makes you suspicious. 

The next thing that the Communists pull, of course, is delay in car- 
rying out policies and instructions that they do not like. For ex- 
ample, after Dunkerque, Mr. Roosevelt ordered a survey to be taken 
of the surplus rifles and ammunition we had in the United States, to 
replace what the British had lost at Dunkerque. In 8 days, they were 
being loaded into boats at Perth Amboy to go to England. 

In contrast, the Congress in 1948, passed a law, which the President 
signed on April 3, authorizing economic and military aid to the Re- 
public of China. It was hard pressed. But it was 8 months before 
a rifle moved. You see, when they want it they can get quick results. 
When they don't want it, things don't happen. 

Another thing you can notice is in directives. A directive always 
starts out with a slashing statement against communism. It takes a 
strong position, in line with the Government's official policy. 

Mr. Morris. Whose directive, now, are you talking about? 

Mr. Judd. Our high officials'. I have seen this happen so many 
times. I will give you one. I think I have it here. It is the one that 
General Marshall had when he went out to China. I have asked him 
several times who wrote it, because you will see why we lost in China 
when you read this directive. It was issued by Harry S. Truman on 
December 15, 1945. Here is a sentence : 

The existence of autonomous armies, such as that of the Communist army, is 
inconsistent with, and actually makes impossible, political unity in China. 
With the institution of a broadly representative government, autonomous armies 
should be eliminated as such, and all armed forces in China integrated effectively 
into the Chinese Nationalist Army. 

The Generalissimo had said, let them first do what Lee did at Appo- 
mattox, let them lay down their arms, and then we will take them into 
the government. This directive said, take them in first, and then let 
them lay down their arms. 

Now, listen here : 

In line with its often-expressed views regarding self-determination, the United 
States Government considers that the detailed steps necessary to the achieve- 
ment of political unity in China must be worked out by the Chinese themselves, 
and that intervention by any foreign government in these matters would be 
inappropriate. 

You see, there is to be no intervention. 

The United States Government feels, however, that China has a clear respon- 
sibility to the other United Nations to eliminate armed conflict within its terri- 
tory as constituting a threat to world stability and peace — the responsibility which 
is shared by the National Government and all Chinese political and military 
groups. 

Here, now, is the hooker, in the last paragraph. Here is where 
we intervene to say how it must be done : 

As China moves toward peace and unity along the lines described above J — 
1 Emphasis supplied. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1895 

first, take the Communists in, then they give up their separate 
armies — 

the United States would be prepared to assist the National Government in every 
reasonable way to rehabilitate the country, improve the agrarian and industrial 
economy, and establish a military organization capable of discharging China's 
national and international responsibilities for the maintenance of peace and 
order. 

The reason I was immediately suspicious about that directive was 
the phrase "peace and unity" as the condition of our assistance. Some 
months before, that line, the "peace and unity" slogan, had started out. 
All over our country, in the usual leftist circles, the line had appeared : 
We must have "peace and unity" in China. Here is one from the 
Foreign Policy Bulletin of October 24, some months before this. It 
is in an article by Lawrence K. Rosinger, who, I understand, has taken 
the fifth amendment before this subcommittee. Henry Wallace had 
made 3 or 4 speeches, always demanding "peace and unity" in China. 
It suddenly became the watchword, "peace and unity." 

Now, it showed up in the President's directive. 

Now, look at that a moment. How do you get unity in a country 
where there is an armed rebellion? There are only two ways. One 
is to put it down. That is what we did in the United States when 
we had an armed rebellion in 1861. But that was unity and war. 
We said to the Chinese, you can't do that, you must have peace and 
unity. 

How do you get that. There was only one way, to yield to the Reds, 
which the Generalissimo wasn't willing to do. 

The Communists knew what that meant, even if we didn't. 

Read from the directive again : 



*te> 1 



As China moves toward peace and unity along the lines described above, the 
United States would be prepared to assist the National Government in every 
reasonable way. * * * 

The Communists said to themselves, if Chiang gets peace and unity, 
the United States is going to help him ; he wins, we lose. But this 
condition means that if he doesn't get peace and unity, the United 
States won't help him. He can't make it without American help, any 
more than France or England or many other countries could. So, all 
we Communists have to do to block American aid, destroy Chiang and 
take China over for communism is to see that he doesn't get peace and 
unity. And General Marshall wondered why he could not get peace 
and unity in China. His own directive made impossible the success 
of his mission. I asked him once privately, and once in our Foreign 
Affairs Committee in the House : "Who drafted that last paragraph?" 
I would like to know, and I never could get an answer. 

When you observe that sort of thing, you know it can't happen by 
accident. All of a sudden, the whole leftwing all over the United 
States, cries "peace and unity." Then this directive tells the Com- 
munists that all they have to do to capture China is to make sure there 
is no peace and unity. 

Mr. Morris. Did you read the Institute of Pacific Relations report 
by this subcommittee, which indicated that directive was largely writ- 
ten by John Carter Vincent ? 

Mr. Judd. Yes, I read that report. But I don't know. I wouldn't 
be surprised if that were the case. But, I have never gotten a firm — 



1896 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

what seemed to me a firm confirmation that that directive was all 
written by him. 

Well, that is the kind of thing that happened. They write a strong 
directive saving we are going to help China, and so on. But, in it, 
there is a specific condition that makes the help impossible. 

Another thing is the leaks to the press. All of you have seen in the 
press for 6 months repeated stories, especially from certain columnists, 
that the United States is going to recognize Communist China after 
the next election. And the United Nations Assembly will meet and 
admit ( Ymimunist China to the United Nations. I asked 2 or 3 times 
down at the State Department, if this is true. It has been denied com- 
pletely and emphatically by everybody at the top. 

Finally, one came out a few weeks ago in a Kiplinger Letter. It 
said that, at one of these recent conferences with foreign visitors, it 
was tentatively agreed that this would be done. It would be denied 
officially, the letter said, but the fact is that the United States is going 
to recognize Communist China and not veto its entrance into the 
United Nations. 

I called up keymen and said, "Has there been a change?" 

The}' said, "No ; we saw the storv, too. There is not a word of truth 
in it." 

Now, the newspaper reporters didn't think that up. Somebody in 
the Department told them that. This is a thing that goes on again 
and again. Leaks go out from underlings that this is what our policy 
is going to be: We are going to recognize Communist China. It is 
not the President's policy. It is not Mr. Dulles' policy. It is not the 
policy of the Far East Division. Yet, somewhere down in the State 
Department or in the Pentagon, or the National Security Council, or 
somewhere, there are people who pass this out. 

You go to the press people and they won't reveal their sources. I 
don't blame them. But this is handed to them as inside dope to pass 
on to their readers. This is a way in which they shift the thinking 
of the people toward further appeasement of the Communists. 

Mr. Morris. Are there other things the committee should look for 
in trying to determine whether or not there are Communists or Com- 
munist sympathizers working in our midst? 

Mr. Judd. Let me say this. I, myself, think, in our country, there 
has been a little too much emphasis on the cloak-and-dagger work 
of the Communists. We think we have to get somebody who stole 
documents or wrote something in code to the Soviet Union. I don't 
think those are the dangerous ones. Those are the little fellows. 
The really dangerous ones are the ones nobody ever suspected. I 
remember when John Peurifoy was chairman of Security or head of 
Security in the Department in 1947 and 1948, and I was on a sub- 
committee of the Committee on Government Operations in the House 
that investigated the Department. We got rid of 131 unsuitable 
people, about half of whom were Communists or Communist sus- 
pects, and we didn't have a headline. But he said to me one day : 

"Walter, what worries me is how many more there are like Hiss, 
whom I never even suspected. I used to lunch with Hiss, once in a 
while. It makes me wonder if the fellow I have my lunch with now 
is one." 

If you go down through their history and watch what they have 
recommended over the years, you find it turned out to be favorable 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1897 

to the Soviet Union. I am sure they will never be found to be carry- 
ing Communist cards. They would be fools to have meetings in 
the back end of an alley or a restaurant somewhere. They are clever, 
and their real danger is their ability, at the lower echelons, to write 
position papers, which come up to their superiors and become policy 
papers. Then those policy papers go to the action agencies, like 
the State Department, the Pentagon, and the National Security Coun- 
cil. If you allow me to write the papers on which my superiors make 
their decisions, I think I could have had a good deal to say about 
what my superiors will think. 

For example, if the top man comes in and he has the choice be- 
tween two memoranda on his desk, and both are written by a fellow 
who is pro-Communist, the man's freedom of decision is not too wide. 
He has to decide between two positions, both of which are in various 
degrees pro-Communist, which means, in my book, inimical to the 
interests of the United States. 

Mr. Morris. Do you think, then, that committees such as the In- 
ternal Security Subcommittee should look into who has been writing, 
for years, the directives that make the policies? 

Mr. Judd. I think that is where pay dirt is to be found, sir. 

Mr. Morris. I wonder if you encountered at all in your experiences 
in China or here on the Hill, the activities of some of the people who 
passed as Soviet officials in various countries ? 

For instance, we took, on the day before yesterday, executive ses- 
sion testimony of a man about Sergei Tichvinsky, who was a few 
days ago accorded semidiplomatic recognition in Japan. Now, a man 
known in our committee as Yuri Rastvorov, who had, himself, been 
in Japan and defected in 1954 — we learned from him that this man 
[Tichvinsky] is at least a colonel in the MVD, this man who has now 
been given semiofficial! diplomatic recognition. Looking into the 
thing, we discovered that Tichvinsky had been 10 years in China and 
in Peiping and Chungking, posing as a Soviet diplomat. 

In addition, we have had testimony that indicates that this man 
has been recruiting Japanese prisoners of war and Japanese internees 
who are in the hands of Soviet authorities. He was recruiting them 
for Soviet agents, who have now been sent back into Japan. As the 
prisoners of war and the internees have been returned, they have been 
recruited as Soviet agents by this man. 

Now we discover this, as he now arrives as possibly the first Am- 
bassador — it is predicted he may be the first Ambassador from the 
Soviet Union to Japan. At least now he is the head of a trade mission 
and he is the first person to be given quasi-judicial recognition. 

Would a man like that be able to cause much mischief ? 

Mr. Judd. I think, Judge, your question answers itself. The Com- 
munists captured, as I recall, about 400,000 Japanese in Manchuria 
and they apparently soon divided them into 2 groups there. Those 
they couldn't do anything with they let go home early. Those they 
thought they could do something with they held onto for 3 or 4 years, 
and then let them go back to Japan in small groups. There isn't any 
question but what the Communist movement is growing in Japan, 
largely through these returnees and through former Communists who 
had been thrown into jail by the Japanese during the war. One of 
the first things our State Department people did, when they went over 
there after the end of the war, was to insist that these people be let 



1898 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

out, in accordance with our democratic way of life. They immedi- 
ately began propagandizing again. 

With the Japanese prisoners who came back from the Russian pris- 
oner-of-war camps, there is a strong body of disciplined, organized 
Communist workers in Japan. If they have direct guidance and 
sponsorship, and to some extent protection, through the Soviet Em- 
bassy, obviously that is a great menace to our good ally, the Govern- 
ment of Japan. 

I would like to say another thing to show how these men work 
against our policy from within. This is what General Hurley said 
his directive was : 

When President Roosevelt sent me to China in 1944 as an Army officer and 
personal representative, he specifically directed me to prevent the collapse of 
the Nationalist Government, to keep the Chinese Nationalist Army in the war, 
to sustain the leadership of Chiang Kai-shek, and, as far as possible, to unify 
all of the anti-Japanese forces in China. 

He told me that when I was out there in 1944. When he first went 
out there, he hoped that the Communists would cooperate, because he 
went through Moscow and Molotov told him that Russia wasn't inter- 
ested in these Communists in China, so he naturally believed it. But 
General Hurley soon got wise to the situation, and the thing he couldn't 
understand was why his own subordinates in the Embassy were advo- 
cating the very opposite of the thing he had been sent out by Presi- 
dent Roosevelt to do. 

The sequel of the story is this: Sometime during the latter part 
of March 1945, Hurley came back to this country and had a showdown 
regarding these subordinates. One day he called me up and asked me 
if I wouldn't come down to see him the following morning. I said 
"yes," and he told me an office number in the old State Building. I 
went down, and it was the office of Mr. John Carter Vincent. He sat 
in Mr. Vincent's office and he told me what the President had in- 
structed him to do. He was quite elated and he said : 

We have had a showdown, and the President has reaffirmed this directive to me. 
My job is to help the Gimo and the Nationalist armies to stay in the ring. My 
job is not to undermine him and build up the Communists. As a result, all of 
these folks who have been working against my efforts as the President's personal 
representative and Ambassador are being sent back to the United States. 

He also made a statement to the press along those lines, and went 
back to China. Within 2 weeks or so, President Roosevelt died. 

Now, here is the rest of the story that you can confirm. On the 
morning of April 13, when President Truman, the new President, came 
to his office in the White House for the first time as President of the 
United States, naturally the press was there from a great many papers 
and so on. Pictures were taken of the new President, the first morn- 
ing in his office. What was the first piece of business, for President 
Truman, shown on a memorandum pad on the President's desk, writ- 
ten right on there and readable in the press photo? A man in Wash- 
ington has that picture now. He had been in naval intelligence and 
was sensitive to intelligence matters. The minute he saw the picture 
hanging in the White House, he said to his friend, President Truman, 
''You must not have a picture like that around, showing, for all to 
read, a memorandum on the President's desk, no matter whether it is 
innocuous or not." 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1899 

What does the memorandum pad say ? What was the first piece of 
business for the new President? "See John Carter Vincent about 
China." 

Who was high enough in the administration — within 2 weeks after 
Roosevelt had reconfirmed the policy to support the Government of 
China, to help the Generalissimo win, reestablish order in his country, 
build up and overcome the great difficulties which then existed — 
who was high enough to see that the first piece of business for the new 
President was: "See John Carter Vincent about China"? — John 
Carter Vincent, whose policy as he himself has avowed in my pres- 
ence was: "I worked at nothing for years, except to get a coalition 
between the Communists and the National Government." 

Well, Mr. Truman didn't have that whole China background. 
Obviously, Mr. Vincent and the others got to him — I am not accusing 
them of communism or anything of the sort. They, however, for what- 
ever reason, believed we should back the Communists and try to get a 
coalition government. I can't understand their ignorance, if that is 
what it was, because the documents were so replete with plain evidence 
as to the Communist purposes. Even Edgar Snow warned again and 
again that those who think the Chinese Communists are just agrarian 
reformers are due for a sad awakening. They are not, he said. They 
are Communists. 

I have half a dozen Communist documents here showing the secret 
memorandums that went out to their members in 1937 to explain why 
they were making a coalition with the Chinese Government. When- 
ever they are in trouble, they have to explain to their members why 
they are doing an apparent about-face. How could smart people down 
in our departments fail to understand the Communists and their 
maneuvers ? 

As a result of that situation, when it came to my attention, I went 
to see President Truman. This was July 6, 1945. I made some notes 
before I went to see him. He was just going to Potsdam. I didn't 
know for sure how much he knew about the situation in Asia. So I 
said, "I understand that you are going to Potsdam — to try to get a 
resolution of our difficulties with Russia so we won't have war." 

He said, "Nobody can be more interested in avoiding trouble with 
Russia than I. We got into a conflict with Russia in Eastern Europe 
over Poland and the satellites. How can we avoid a conflict with 
Russia in Asia?" 

I said, ""Why did we get into war with Japan? To prevent China's 
being made a puppet of Japan. If Japan could get the manpower, 
resources, bases, and so on, of China, it would be a great threat to our 
security. Now, having defeated Japan so she can't get control of 
China, we dare not let anybody else get control of them." 

Mr. Morris. Mr. Judd, what are you referring to, there? 

Mr. Judd. I am referring to a memorandum of my conversation 
and some representations I made to Harry Truman. 

Mr. Morris. Is that a contemporaneous memorandum you have 
there? 

Mr. Judd. These are notes I made that morning. 

Mr. Morris. You took notes at that time. 

Mr. Judd. Yes. These are my notes of things I said to him. 

72723— 57— pt. 34 3 



1900 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. Then your testimony here is not based on your own 
recollection ? 

Mr. Judd. It is based on these notes. I couldn't have recalled all 
this detail if I hadn't found the notes. 

I said to him the two things China needed most were the resources 
of Manchuria and no serious civil war. Manchuria is where the 
coal and iron are. That was already gone, because that had been 
decided at Yalta. Control of Manchuria, with its iron and coal and 
railroads, had been given to the Soviets at Yalta. 

So, we must save the other thing for China. We must prevent a 
serious civil war. One group said the way to avoid a civil war was 
to give in to the Communists. I took the opposite position. We 
must get victory in China, in order to get unity ; not unity in order 
to get victory. The latter was the commie line : Get a coalition gov- 
ernment and then go on to get victory over Japan. It was the other 
way around. Get victory for China first, in order to get unity. 

The reasons we should take a position at Potsdam, I said, of un- 
qualified support of the Nationalist Government of China is (1) 
because Russia herself has officially offered to back Chiang; (2) 
Chiang has stood by us and we are merely standing by him; 
(3) we are carrying out the policies of F. D. R., and "I know, Mr. 
President," I said, "you want to carry out the policies of F. D. R." 
I had some of these documents that I showed him. 

The fourth reason is, I said, our own interest. If we can avoid 
a civil war in China by backing our ally, and China is united, we 
will have security in the Pacific. If China is torn and there is Com- 
munist victory within, then we will have a mortal enemy across the 
Pacific. 

Our future prospects for peace, trade, and good will depend upon 
an independent, friendly China. 

So, I said our hopes militarily, economically, financially, lie in 
having a strong Chiang Kai-shek government in control of China. 

I said I know some of our people are opposed to this position, be- 
cause they see China's Government so weakened. I said that I hoped 
he would back General Hurley, General Wedemeyer, and General 
Chennault. And then I have a note in here : "Mr. President, now that 
the war in Europe is ended, in order to lift Asia out of this brawl of 
dissension, why don't you consider appointing Dwight D. Eisenhower 
as commander in chief for China? He has just won a magnificent 
victory in Europe. He commands confidence, and since our public 
opinion is so divided, send over Dwight D. Eisenhower." 

I had forgotten that I made that recommendation until I ran across 
these notes. 

Then. I also urged that President Truman at Potsdam arrange 
for some of the German ammunition to be sent to China, because the 
caliber of the rifle that the Chinese armies used was the same caliber 
as the German rifle. Endless quantities of German ammunition were 
left after Hitler's surrender. Why not send it to China to use against 
Japan? I understand that some of it was loaded on ships, but the 
order was countermanded by Lauchlin Currie, and none of it went to 
China. 

Mr. Morris. You say Lauchlin Currie countermanded the order? 

Mr. Judd. I couldn't prove that. That was the account given me 
at the time. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1901 

General Stihvell and General Wedemeyer had trained some 30 
divisions of the Generalissimo's troops. They had taken away some 
of the old semiwornont Chinese rifles, prepared for the German 7.92 
ammunition, and gave them our obsolete Enfield and Springfield .30 
caliber rifles, about 250,000 of them. 

Then, when the war was over and General Wedemeyer and the 
Generalissimo moved those troops up north to block the Communists 
from getting into Manchuria, the directive was issued : "Avoid fratri- 
cidal war in China." 

When the Generalissimo was trying to get control of his country, 
what surer way of preventing him from getting control than to refuse 
to allow him to establish order in his own domain ? When the Gen- 
eralissimo insisted on getting control by force if necessary, General 
Marshall put an embargo on .30 caliber ammunition to stop him. 
To me, this is one of the most incredible actions in history. We take 
the Generalissimo's 30 best divisions, train them for and equip them 
with our rifles, make them dependent on us for ammunition, and then 
put an embargo on that ammunition. 

We thus effectively disarmed his 30 best divisions. For about 10 
months, that embargo was on. 

Then we wonder how the Communists got into Manchuria first. 

If the whole story is told, the American people will just be unable 
to believe it. It is long, difficult, and complicated, as I believe these 
diaries are. It is going to be hard to get it simplified down to 1, 2, 3, 
which is the kind of thing that we like in our headlines. 

But I hope. Senator Eastland, you and your committee will go into 
this thing in great detail. I know a lot of it won't seem to be pro- 
ductive, But there is a head and tail to it all. There is a cause and 
consequence to every step through this long, sordid history, whereby 
the United States stood at the peak of its power, influence, prestige, 
even affection in Asia only 11 years ago, and today is at its all-time low. 

We came down, and the Communists went up. It couldn't have been 
done without a great deal of skillful planning. 

In a report to my own committee on November 14, 1947, after I 
had been on another trip to China and examined this thing, I discussed 
the threefold plan that the Communists had: One, to destroy the 
Generalissimo at home by tearing up the railroads, wrecking the econ- 
omy, making it impossible to restore economic processes, and so on; 

Two, to destroy him abroad by saying — they had six words for him 
and his government— inept, incompetent, inefficient, undemocratic, 
corrupt, reactionary. By repenting these six things often enough — 
inept, incompetent, inefficient, undemocratic, corrupt, and reaction- 
ary — you can close off all other mental processes. 

The third thing was to build up the Communists themselves, as 
democratic reformers. I said in this report : 

The propaganda, as you know, was largely led by about 20 or 30 writers and 
lecturers and commentators in America, and by some men who became Far East 
advisers to our State Department or experts on the staffs of organzations sup- 
posedly dedicated to enlightening the American public on Asiatic affairs or 
foreign policy- 
There were some of the group in what has become widely known as the Red 
cell in the State Department — the Far Eastern Office. It has been openly said 
that some of these experts, both in and out of the Government, are members of 
the Communist Party, although I have no personal knowledge of that. But 
certainly, they have consistently followed the party line with respect to the 
Chinese Communists. 



1902 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

One of them openly boasted that, while they had not succeeded in all they 
wanted, at least they had gotten rid of Grew, Hurley, and Hornbeck, who were 
the three in the State Department who knew the facts about the Communists' 
wiles, and who tried to carry out Roosevelt's policy of supporting the Central 
Government of China. 

On the next page I said : 

I do not know when, if ever before in history, some 30 or 40 persons in and 
out of the Government, have been able to lose a great victory so almost completely 
as this handful of Communists, fellow travelers, and misguided liberals in 
America has succeeded in doing with respect to the victory over Japan which 
4 million brave Americans won at such a cost in blood and sacrifice. I do not 
like to make so strong a statement, but I do not see how anyone can look at the 
facts and come to any other conclusion. 

It was plain as day in the fall of 1947 that we were going to lose 
the victory if we didn't change our politics. But we didn't succeed 
in changing them. 

Mr. Morris. You mention that report. When did you make that 
report I 

Mr. Judd. November 14, 1947. It was in our committee hearings 
hut there were so many questions asked me that, since it was just as 
true 6 months later — and is just as true 9 years later — I had it re- 
printed and sent out as a pamphlet the following June 1948. 

I am just an ordinary workingman Congressman. I could find out 
what the Communists were up to. I can't understand how the great 
experts can be so misguided and misled. I cannot believe it is wholly 
ignorance. 

Mr. Morris. You think we have the problem with us today? 

Mr. Judd. Well, you see it on every hand. Look, here is last night's 
David Lawrence article. He is quoting from a speech by Allen 
Dulles of the CIA, in which Mr. Dulles is warning about the dangers 
of some of our allies' going into coalitions with Communists: 

Today the danger of parliamentary compromises with the Communists, even 
in Europe, is not to be ignored. In Asia, this threat is even greater, because 
it is generally less well understood. 

Here is the head of our CIA warning against coalitions with the 
( Communists. Yet, the State Department, with the exception of a few 
at the top, was insisting on coalition with the Communists then. 
There are some, even now, advocating, not parliamentary coalition 
with the Communists, but executive branch — War Department — com- 
promises, if you will. 

Mr. Morris. With respect to your notes, that you took at the time 
of your conversation with President Truman — would you offer those 
for our record, and we will see that you get the original back? 

Mr. Judd. Well, they are awfully rough. 

Mr. Morris. If so, we will put it in tta record and return the 
original back to you. 

All-. Judd. All right. 

(The document referred to was marked "Exhibit No. 314'* and 
a copy may lie found in subcommittee files.) 

Mr. Morris. Now, Congressman, what did President Truman say 
after you made those recommendations! 1 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1903 

Mr. Judd. Well, I have always hesitated to quote what Presidents 
say. I think it is their business to make statements to the press. 1 
will say this, though, because there is no secret about this. He said : 

"Don't worry about the war with Japan; Russia is going to enter 
the war. She promised at Yalta that she would enter the war within 
3 months after the surrender of Hitler. So she is coming into the 
war." 

This is not in my notes, but I said, "Mr. President, I am sorry to 
hear that, because if she comes into the war in Asia, she will insist — 
perhaps contribute a little tiny bit at the end of the war- — and then 
insist on having a major say in the peace conditions. I wish, myself, 
she wouldn't come in, because the Japanese are practically licked 
already, and we don't need her help." 

But he was greatly elated, although it hadn't been announced yet 
that Russia was coming in. He made some remarks about the Poles 
and so on, which I don't think I am entitled to repeat. 

Chairman Eastlaxd. Mr. Morris, has Tichvinsky been in the United 
States? 

Mr. Morris. He was an expert at the United Nations General Assem- 
bly on a special mission, Soviet Union, on December 16, 1950 — that is 
the autumn session of the General Assembly. He was here again on 
October 13 and December 9, 1952. That is again in the autumn 1952 
meetings of the General Assembly. 

He was here again on February 23 to March 27, the year 1953. That 
was the spring meeting of the General Assembly. He was always here 
in the position of an expert w T ith the Soviet mission. 

Mr. Mitchell, I wonder if you will identify for me the 10 documents 
we have gone over — Congressman Judd, you have gone over some 
of the Morgenthau excerpts with the staff of the committee ; have you 
not? 

Mr. Judd. Yes, sir. 

Chairman Eastland. You say excerpts. 

Mr. Morris. Suppose I let Mr. Mitchell describe them ? 

Mr. Mitchell. These are 12 documents, one of which is the report 
by Mr. Friedman of the speech made by Congressman Judd in Chung- 
king. The other documents seem to explain why so much interest was 
taken in his speech by Mr. Friedman and by other people — Mr. White, 
and so on. 

Mr. Morris. Describe each document. 

Mr. Mitchell. The first document comes from book 796, page 242. 
It is dated November 18, 1944. It is a memorandum by a Mr. Service, 
which was forwarded by Solomon Adler, who is the Treasury repre- 
sentative in Chungking, to Harry Dexter White. It reports an inter- 
view by Service with Mao Tse-tung, the Communist leader, in which 
Mao said the hope of the Communists is that the influence of the United 
States will be exercised to prevent Chiang Kai-shek from attacking 
them. 

The next document is from book 793, page 142, dated November 10, 
1944, which is another memorandum by Service, of a conservation 
with Mao. 

Chairman Eastland. They are complete documents, and not 
excerpts ? 

Mr. Mitchell. These are complete documents. 

Chairman Eastland. All right, admit them into the record. 



1904 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. Do you want them described at this time ? They speak 
for themselves. 

Chairman Eastland. They speak for themselves. 

(The complete documents were marked "Exhibits 315 to 328" and 
appear at the conclusion of Mr. Judd's testimony.) 

Mr. Morris. Mr. Chairman, I would like also to formally put into 
the record the executive session testimony of Mr. Rastvorov. He has 
not completed his testimony, but for security reasons we don't bring 
him back for public session each time. Twice he has appeared pub- 
licly. We have agreed not to present him in public in such a way 
that his present identity might be known. For that reason, may 
that go into the record? 

Chairman Eastland. Yes. 

(The testimony referred to appears at pp. 795-800, p. 14, of the 
series of hearings on Scope of Soviet Activities in the United States.) 

Chairman Eastland. Proceed. 

Mr. Morris. Is there anything else, Congressman Judd, which you 
can tell this committee, based on your study of these documents which 
Mr. Mitchell has just described, and which have now been ordered 
into the record by the chairman here? 

Mr. Judd. No, I didn't study them. He just sort of went over 
them the way he did here. I am not in a position — I didn't get a 
chance to read them carefully. Perhaps I should have before I 
testified. 

Mr. Morris. The ones you have seen reflected, did they not, the situ- 
ation you found in China when you were there ? 

Mr. Judd. Yes. Obviously, they were disturbed at what I had, in 
all innocence, said in Chungking. I had gone out to find out (1) what 
the situation was there, and (2) what I could do as one citizen to 
strengthen our ally, which was in accordance with official American 
policy. I was surprised and disturbed that they were so disturbed 
at my taking this position. They had apparently thought they had 
it about fixed up to shift our aid to the Communists, and I, perhaps 
to some extent, hindered or put a crimp in that operation. 

Mr. Morris. Congressman, the Friedman letter reflected the alarm 
that some of these people we have been talking about experienced when 
they realized that you were there talking as an official of the United 
States Government, talking directly to Chiang Kai-shek and express- 
ing a view directly opposite to the one they were taking at that time. 

Mr. Judd. Yes, the views he is talking about were not spoken pri- 
marily to the Generalissimo. They were at this public meeting of the 
American Chinese Cultural Society where there were many high Chi- 
nese officials, as well as the newspaper people. 

Mr. Morris. All these documents which we have put into the record 
today on events which took place while Mr. Judd was in China? 

Mr. Mitchell. They are either the period Mr. Judd was in China 
or within 2 weeks after he left. 

Mr. Morris. I have no more questions. 

I would like to sum up, if I might, the things you think Ave should 
look for in connection with determination of people who may be 
carrying on activities which may not be in the interest of the United 
States. 

I think in executive session you went through four points we should 
look for. I think if we could have them again 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1905 

Mr. Judd. I said you ought to watch for cases, first, where Govern- 
ment officials consistently give false information to their superiors 
and, second, where they leak to the press information supposed to be 
the inside dope on American policy, but which is contrary to fhe 
announced official policies of the responsible heads of agencies in our 
Government. 

Third is their delay in carrying out directives or policies established 
by the Congress. If they don't approve, feet are dragged and the 
goods don't get out or the action isn't put into effect. 

Chairman Eastlaxd. Mr. Judd, where are those leaks coming from ? 

Mr. Judd. I don't know, sir. I have tried to find out from some of 
my newspaper friends. They come from State and from the Penta- 
gon. Those are the two common sources. 

Chairman Eastland. Then you think some of these people that 
are pro-Communist are still in the State Department, and still in the 
Pentagon i 

Mr. Judd. Why, yes. I don't mean pro- Communist in the sense 
that they are in the party, but they advocate policies that work out to 
the good of the party. On the law of averages, a mere moron, once in 
a while would make a decision that would be favorable to the United 
States. When policies are advocated by any group which consistently 
work out to the Communist advantage, that couldn't be happenstance. 

Chairman Eastland. Do I understand that you think that the rec- 
ommendations of these individuals have influence with the real policy- 
makers in the State Department and in the Pentagon ? 

Mr. Judd. Oh, there is no slightest doubt of it. For example, if I 
may use an illustration, I am told, because I have asked all kinds of 
questions about it down there, that here is the Assistant Secretary for 
a given area, Europe or the Middle East or the Far East. He is 
strongly anti-Communist, and in every instance he takes a position 
that will build up the interests of the United States. He is the man 
who carries out policies and so on. We are inclined to assume that, 
because he is the Assistant Secretaiw, he is the man who advises the 
Secretary on what the policies should be. But when you investigate, 
you find that isn't the way it happens. It is the planning council — 
whatever they call it, 

Mr. Morris. Policy Planning Board, isn't it ? 

Mr. Judd. Policy Planning Board. They have on their Policy 
Planning Board a man, for example, for the Far East, one for Latin 
America, one for the Middle East, and so on. They prepare the "posi- 
tion" papers. Those are the ones that go up to the higher levels, 
where the policy is determined. The men we look to, the men you 
confirm as Assistant Secretaries, carry out the policies. But I find 
they are not always the most influential ones in making the policies. 
It is these position papers that come up from the Policy Planning 
Board. 

Chairman Eastland. You think today that those officials are sub- 
ject to pro-Communist influence? 

Mr. Judd. You mean the higher officials ? 

Chairman Eastland. Yes. 

Mr. Judd. Yes, I do. I don't see how they can come to some of the 
conclusions they do if that weren't the case. 

Mr. Morris. You think, Congressman, that influencing our policy 
to our disadvantage would come from the bottom and not from the top ? 



1906 SCOPE OF SOVIET ACTIVITY E\ T THE UNITED STATES 

Mr. Judd. Oh, I am sure it is not from the top. You talk to some 
of those people at the top and they are distressed, themselves, at the 
miscarriage of orders that are supposed to be against the Communists 
and yet it doesn't work out. 

As John Peurifoy said, some of these people are not on our side. 
Who are the people"? 

Chairman Eastland. What is the trouble ? Can't they fire them ? 

Mr. Judd. Well, it seems to me they could. It seems they could, if 
there was the will to be really tough in policing an organization and 
tightening it up. They could go back to the papers and find out 
what a man's position consistently has been. Then, if he has been 
consistently advocating over the years policies which events have 
proven wrong, he ought to be fired, not as a Communist, but as a fellow 
who is consistently wrong. If I have a doctor who takes care of my 
father and he dies, who takes care of my mother and she dies, who 
takes care of my wife and she dies, and then I get sick, I am going to 
fire him, not as a Communist, but because he is just not a good enough 
doctor. 

I don't think we have to call them subversive. I think a lot of them 
are not subversive. They are intellectuals, and communism appeals 
to the theoretical mind — one leads to two, two leads to three, and 
three leads to one in a neat wrapped-up way. 

Chairman Eastland. But you do think they are pro-Communist? 

Mr. Judd. I think the things they advocate consistently work out 
to the interest of the Communists. 

Mr. Morris. Have you finished the four points ? 

Mr. Judd. The fourth one was in writing their position papers and 
directives. They start out with a big smashing, strong statement, 
that they know their Chief will agree with, and then in the third or 
fourth paragraph, it is hedged around with howevers and buts until it 
is all watered down. After the agency approves, it goes up, say, to 
the National Security Council or other top boards which have to take 
this policy paper and work out a directive. They don't go by the big, 
strong statement in the first paragraph or two. They go by the small 
print as it is spelled out in the later paragraphs. 

So, the policy that is ultimately carried out is not the one that is 
foreshadowed, apparently, in the strong, anti-Communist, firm state- 
ment in the first paragraph. It is the weaker one described down in 
the modified paragraphs. It is reflected, then, in the writing of the 
directive, based on the policy which has been watered down. 

I think it is in the preparing of these papers and directives that the 
damage is done, and the influencing of the minds of the people above. 

Chairman Eastland. Let me ask you this question. Do you believe 
that any government ever had a weaker department than our present 
State Department ? 

Mr. Judd. No, I think the State Department is a good deal better 
than it was. But I still think it has a long way to go. I will probably 
get in trouble, but I have said this to the Secretary personally, so 
there is no reason not to say it here. 

A man down in the Department told me, just about inauguration 
day in 1953, that the old cliques were saying: 

"Well, we were kind of worried when there was to be a change down 
here, but we have things under control now." 

I said, "What do you mean ?" 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1907 

"Well, they say they are going to give Mr. Dulles the Jimmy 
Byrnes treatment." 

"What is that," I asked. 

"Keep the Secretary of State out of the country." 

He said, "Look at Jimmy Byrnes. He came in as Secretary and 
they sent him to Potsdam and Moscow and then sent Byrnes and 
Connally and Vandenberg to Paris for 6 months." 

They were over there right while the postwar pattern of appease- 
ment was being established. They kept them out of the country. 
This man was not one of them. 

Chairman Eastland. We still have that policy of appeasement, 
don't we? 

Mr. Judd. I beg your pardon ? 

Chairman Eastland. As I understand your testimony, we still do 
have that pattern of appeasement. 

Mr. Judd. In the lower echelons. Not at the top. 

Chairman Eastland. But you say they influence the men at the 
top. They are being influenced by pro-Communists. 

Mr. Judd. I think so. 

Mr. Morris. I have no more questions of this witness, Mr. Chairman. 

Chairman Eastland. We certainly thank you, Mr. Judd. You 
have been a very fine witness. 

Mr. Judd. A person in his right mind certainly wouldn't want to 
get into this kind of disagreeable situation, but I came because I 
wanted to help if I could. I was a soldier once, and a soldier doesn't 
like to go into battle, but it is his duty. And I thought it was my duty 
to come today. 

The excepted documents from the Morgenthau Diaries appear 
below : 

Exhibit No. 315 

[P. 242, vol. 796] 

Treasury Department, 
Division of Monetary Research, 

November 18, 1944- 
To: Secretary Morgenthau. 

1. I feel that the attached memorandum recording an interview between 
Mr. Service of the State Department and the leader of the Chinese Communists 
is of sufficient importance to warrant being called to your attention. The Chi- 
nese Communists believe that civil war is inevitable unless we actively throw 
our weight against it. They now regard the American attitude toward them 
as the decisive factor in the general determination of their policy and appear 
to be anxious to cooperate with us. This fact gains added importance with the 
approaching end of the war in Europe and the possibility of a more active Rus- 
sian policy in the Far East. 

2. In the normal course of events, this memorandum would go to the Presi- 
dent through the State or War Department. Adler asked Service if it had been 
submitted to the President and Service indicated that it hadn't. 

H. D. W. 
Mr. White, Branch 2058, Room 214% 

[Pp. 243, 244] 

Treasury Department, 

November 18, 1944. 
interoffice communication 
To: Mr. White. 
From : Mr. Adler. 
Subject : Digest of Interview with Mao Tse-tung. 

1. Kuomintang -Communist relations are the key problem of China. Civil war 
has been prevented by the following factors : the Japanese attack on China, the 

72723— 57— pt 34 1 



1908 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

pressure of foreign opinion, Communist strength, the will of the Chinese people, 
and the internal weakness of the Kuomintang. With the approach of the end 
of the war a shift in these forces is taking place which increases the possibility 
of civil war which the Communists abhor. The Kuomintang is already visibly 
preparing pretexts for civil war and to use puppet troops against the Commu- 
nists. The hope for preventing civil war therefore rests to a very great extent 
on the influence of foreign countries. Antony these by far the nwst important 
is Ih, I nth ,1 States, whose growing power in China and in the Far East can be 
decisive. The Communists now regard the American attitude to them as the 
decisive factor in the general determination of their policy. 

li. Mao, therefore, raised three questions about American policy toward China. 
(«) The first question, namely whether there was a chance of an American 
reversion to isolationism with a resulting lack of interest in China, has 
already been answered by the reelection of the President. 

(&) The second question was whether the American Government is inter- 
ested in democracy in China. Mao pointed out that the present government 
in China has no legal status and is in no way representative of the people 
of China. He stated it was essential that the Government should broaden 
its base and that this should be done by the immediate convention of a 
provisional National Congress, one-half of the members of which would be 
Kuomintang, the others to consist of representatives of all the other parties. 
The government would be directly responsible to this Congress. Mao wished 
to know if the American Government was willing to make a proposal for 
and support the calling of such a Congress. 

(c) The third question was the attitude and policy of the American 
Government toward the Chinese Communist party, whether we recognized 
it as an active fighting force against Japan and as an influence for democracy 
in China and whether there was any chance of American support for the 
Chinese Communists and what the American attitude w T ould be if there was 
a civil war in China. He asked if American policy was to try to induce the 
Kuomintang to reform itself. The Communists unshed to risk no conflict 
with tin United States. But if the Kuomintang does not reform itself, will 
the United States continue to recognize and support it? 

3. The Generalissimo is in a position where he must listen to the United 
States. He is stubborn, but fundamentally he is a gangster and the only way 
to handle him is to be hardboiled. You can be friendly with him only on your 
own terms. There is no longer any need to placate Chiang. The presence of 
American soldiers in China is beneficial. It helps to prevent civil war and acts 
as a liberalizing influence, for instance, in Kunming. The Kuomintang, there- 
fore, fears an American landing in China only second to Russian participation 
in the Far Eastern war. 

4. The Communists feel that the Americans must land in China. If they do 
not, the Kuomintang will continue as the Government, without being able to be 
the Government. If there is a landing, the Americans will have to cooperate 
with both the Kuomintang and the Communists, as the Communists are the 
inner ring and the Kuomintang is further back. In this case it is important 
that the Communists and the Kuomintang be allowed to work in separate sec- 
tors, as the Kuomintang is too afraid to work with the Communists and will try 
to checkmate them. 

5. The Communists do not expect Russian help nor are they certain of Russian 
participation in the war in the Far East. Mao thus indicated that the Chinese 
Communists would prefer to have an American rather than a Russian orienta- 
tion. Cooperation between America and the Chinese Communists would be bene- 
ficial and satisfactory to all concerned. Mao said that the Communists have 
considered changing their name and that if people knew them they would not be 
frightened by the name, as their policies are merely liberal. Their rent reduc- 
tion is gradual, their limit on interest is ten percent a year, and they support 
the industrialization of China by free enterprise with the aid of foreign capital. 
The United Slates would find the Communists more cooperative than the Kuo- 
mintang, as the Communists are not afraid of American democratic influence, 
they would welcome it. They wish to raise the standards of living of the people 
rather than to build up armaments. 



SCOPE OF SOVIET ACTIVITY EN" THE UNITED STATES 1909 

[Pp. 245-253] 

Interview "With Mao Tse-tung 

August 23, 1944. 

(After a short general conversation Mao said that he would like to talk 

about Kuomintang-Communist relations. The following is the gist of his 

remarks.) 

The relationship between the Kuomintang and the Communist Party is the 

key to the problem of China. In the first stage, from 1922 to 1927, there was 

cooperation. This made possible the success of the Northern Expedition and 

the rise to power of the Kuomintang. But as soon as the Kuomintang got that 

power it sought to monopolize it ; it turned against and tried to exterminate us. 

The result was the second stage — the ten years of civil war from 1927 to 1937. 

The third stage, a return to cooperation, was impelled by the imminence of the 

Japanese invasion. It has continued precariously up to the present. 

This cooperation of the third stage was not entered into gladly or willingly 
by the Kuomintang. Its acceptance by the KMT has never been sincere or whole- 
hearted. It was forced on the KMT by five factors : 

1. The Japanese attack. 

2. The pressure of foreign opinion. 

3. The enduring strength of the Communists — exploited at Sian. 

4. The will of the people of China — to resist Japan. 

5. The internal weakness of the KMT — which made it unable to defeat us. 
The end of the war (and even its approaching end) will bring a shift in these 

forces. 

The defeat of Japan will eliminate the most powerful and positive of these 
factors. 

The Communists are stronger than before. In this way it can be said that 
their influence for unity and against civil war is greater. But as long as the 
KMT is under its present type of leadership this greater Communist strength 
makes the KMT more determined on Communist elimination. This can work 
only up to a certain point: if the Communists are too strong, the KMT will not 
dare to attack them. But the KMT leaders are so grasping for power that they 
may take long chances. 

The people of China are still inarticulate and politically repressed. They are 
kept so by the KMT. The liberals, students, intellectuals, publicists, news- 
paper interests, Minor Parties, provincial groups, and modern industrialists 
(who have been disillusioned and see no future for themselves in Kuomintang 
bureaucratic industrialization) are numerous. But they are disorganized, dis- 
united, and without power. Over them Chiang holds the bayonets and the secret 
police. 

The Kuomintang is an amorphous body of no definite character or program. 
The liberal groups within it have no strong leader, no rallying point, and no 
aggressive platform. If they did have these they would have no way, under 
present circumstances, of reaching the people. The controlling leaders of the 
Kuomintang, though divided into jealous cliques, are all anti-Communist and 
anti-democratic. They are united by their selfish determination to perpetuate 
their own power. 

Considering these factors alone it seems inevitable, if the country drifts along 
under the present leadership, that there will be Kuomintang provoked civil war. 

We Communists know civil war from bitter experience. We know that it will 
mean long years of ruin and chaos for China. China's unity, her stabilizing 
influence in the Far East, and her economic development will all be delayed. Not 
only the Chinese but also all nations having interests in the Far East will be 
affected. China will become a major international problem. This vitally 
concerns the United States. 

One thing certain is that we Communists dread civil war. We abhor it. We 
will not start it. We will do our best to avoid it — even though we know that as 
things now are (provided that the KMT does not receive foreign help) we would 
eventually win. But the Communists are of the people. The people's interests 
are our interests. The people will not submit for long to the despotic Fascism 
which is now apparent in Chungking and Sian, and which is foreshadowed even 
more menacingly in books like Chiang's "China's Destiny." If the people fight, 
the Communists must fight along with them. 

The hope for preventing civil war in China therefore rests to a very great 
extent — much more than ever before on the influence of foreign countries. 
Among these by far the most important is the United States. Its growing power 



1910 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

in China and in the Far East is already so great that it can be decisive. The 
Kouniintang in its situation today must heed the United States. 

American policy in China therefore becomes not merely a matter of concern to 
Americans alone : it is also a question of the most vital interest to the democratic 
people of China. The Chinese people, accordingly, are interested in three general 
questions. 

First, is there a chance of an American swing back toward isolationism and a 
resultant lack of interest in China? Are Americans closing their eyes to foreign 
problems and let China "stew in her own juice"? We Communists feel that this 
problem will not arise if Roosevelt is reelected. 

(This and other questions about the United States were addressed directly 
to me. I therefore made it clear, in the most explicit terms, that I had no 
official authority and that my replies were only my purely private and 
completely unofficial opinions. 

(On the above points, I mentioned America's long and special interest in 
China ; the fact that we would have no internal reconstruction problem as a 
result of war destruction ; that on the contrary our greatly expanded economy 
and our more international outlook would impel us to seek trade and invest- 
ment beyond our borders that it was therefore unlikely that we would 
become isolationist or unconcerned about China ; and that I doubted whether 
administration of the country by either Republicans or Democrats would 
fundamentally affect our China policy.) 
Second, is the American Government really interested in democracy — in its 
world future? Does it, for instance, consider democracy in China — one-fourth 
of the world's population — important? Does it want to have the government of 
China really representative of the people of China? Is it concerned that the 
present government of China, which it recognizes, has no legal status by any law 
and is in no way representative of the people of China? Chiang Kai-shek was 
elected President by only 90 members of a single political party, the Kuomintang, 
who themselves cannot validly claim to represent even the limited membership 
of that party. Even Hitler has a better claim to democratic power. He was 
selected by the people. And he has a Reichstag. Does the United States realize 
the obvious fact that the present Kuomintang has lost the confidence and support 
of the Chinese masses? The important question, however, is not whether the 
American Government realizes this fact, but whether it is willing to try to 
improve the situation by helping to bring about democracy in China. 

( I referred to the numerous official American statements regarding unity 
in China and our general hope for democratic development in all countries. 
I mentioned the apparent trend of at least an important part of American 
opinion as shown in recent critical articles in the American press.) 
It is obvious that the Kuomintang must reform itself and reorganize its govern- 
ment. On its present basis it cannot hope to fight an effective war. And even if 
the war is won for it by the United States, subsequent chaos is certain. 

The government must broaden its base to take in all important groups of the 
people. We do not call for full and immediate representative democracy: it 
would be impractical. And. under Kuomintang sponsorship and control, it 
would be an empty fraud. But what can and should be done — at once — is to 
convene a provisional (or transitional) National Congress. To this all groups 
should be invited to send delegates. These delegates must not be selected and 
appointed by the Koumintang. as in the past. They must be genuine represen- 
tatives — the best-qualified leaders. They should include the Communist Party, 
all Minor Parties, the intellectual groups, newspaper interests, students, profes- 
sional groups, central organizations of cooperative societies, labor, and other 
mass organizations. 

A workable compromise for the distribution of strength might be that the 
Kuomintang would have one-half of the members, all others together the other 
half. It would have to be agreed beforehand, for reasons of practical politics, 
that the Generalissimo would be confirmed as Temporary President. 

This Provisional Congress must have full power to reorganize the Govern- 
ment and make new laws — to remain in effect until the passage of the Constitu- 
tion. The Government should be directly responsible to the Congress. Its func- 
tions and powers might be somewhat like those of the British House of Commons. 
The Provisional Congress would also have full charge of the preparations for 
full democracy and Constitutionalism. It would supervise the elections and 
then convene the National Congress. It would then turn over its powers and 
pass out of existence. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1911 

Is the American Government willing to use its influence to force the Kuomin- 
tang to carry out such a proposal? Is the American Government willing to make 
the proposal and actively support it? 

(Chairman Mao made the suggestion that this matter was of such impor- 
tance that it would warrant my making a trip to Chungking to present it to 
the Ambassador. I said that the Ambassador would be fully informed. I 
also suggested that we had already heard this general proposal from other 
quarters in Chungking. 

( Subsequently on August 26 I learned in a conversation with CHOU En-lai 

that the Politbureau of the Communist Party was considering the making 

of this proposal to the Kuomintang. They would base it on the Kuomin- 

tang's refusal to discuss the Communist demands for democracy in their 

present negotiations on the ground that they are "too abstract.") 

Third, what is the attitude and policy of the American Government toward 

the Chinese Communist Party? Does it recognize the Communist Party as an 

active fighting force against Japan? Does it recognize the Communists as an 

influence for democracy in China? Is there any chance of American support of 

the Chinese Communist Party? What will be the American attitude — toward 

the Kuomintang and toward the Communists — if there is a civil war in China? 

What is being done to ensure that the Kuomintang will not use its new American 

arms to fight a civil war? 

(These questions, especially the points raised in the second and third, 
formed the framework of our further conversation. I returned to a number 
of points for further amplification and discussion. 

(Regarding the question of "support" of the Communist Party, I pointed 
out that the question was obscure and, in any case, premature, inasmuch 
as the Communists themselves publicly supported the Central Government 
and Chiang Kai-shek. ) 
We Communists accepted KMT terms in 1936-37 to form the United Front 
because the foreign menace of Japan threatened the country. We are, first of 
all, Chinese. The 10 years of inconclusive, mutually destructive civil war had 
to be stopped in order to fight Japan. Even though we had not started the civil 
war, we took the lead in stopping it. Also, the foreign countries recognized the 
KMT and Chiang : they did not support us. But the United Front was not all 
one-sided : The KMT also promised political reforms — which they have not car- 
ried out. 

Our support of Chiang does not mean support of despotism : we support him 
to fight Japan. 

We could not raise this question of recognition before. In a formal sense it 
is still premature. We only ask now that American policy try to induce the 
Kuomintang to reform itself. This would be a first stage. It may be the only 
one necessary : if it is successful there will be no threat of civil war. 

But suppose that the KMT does not reform. Then there must be a second 
stage of American policy. Then this question of American policy toward the 
Communists must be raised. We can risk no conflict with the United States. 

We can ignore the question of the supply of American arms now which can be 
used by the KMT in a future civil war. But must we expect a repetition of past 
history. In the early days of the Republic, the Powers recognized only Peking — 
long after it was apparent that the only government that could claim to repre- 
sent the people of China was that in Canton. Nanking was not recognized until 
after the success and completion of the Northern Expedition. Now the internal 
situation in China is changing. The lines are not yet clearly drawn. But a 
somewhat similar situation may develop. Will the United States continue to 
give recognition and support to a government that in effectiveness and lack of 
popular support can only be compared to the old Peking Government? 

(I suggested the diplomatic impossibility of withdrawing recognition from 
a government that had not committed a directly unfriendly act, the obvious 
undesirability of working behind a recognized government to support an 
opposition party, and finally the delicacy of the whole problem of interfer- 
ence in the domestic affairs of another country.) 
America has intervened in every country where her troops and supplies have 
gone. This intervention may not have been intended and may not have been 
direct. But it has been nonetheless real — merely by the presence of that Ameri- 
can influence. For America to insist that arms be given to all forces who fight 
Japan, which will include the Communists, is not interference. For America to 
give arms only to the Kuomintang will in its effect be interference because it 
will enable the Kuomintang to continue to oppose the will of the people of China. 



1912 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

"Interference" (Mao noted his objection to the term because of its having no 
meaning in this situation) to further the true interests of the people of China 
is not interference. It will be welcomed by the great mass of the people of China 
because they want democracy. Only the Kuomintang is against it. 

We do not ask the stopping of all aid to the KMT forces. The effect would 
not be good on the war. The KMT would collapse and the American landing in 
China will be more difficult. 

(CHOU En-lai in a subsequent conversation developed the following 
themes along related lines: (1) The giving of American arms only to the 
KMT is sure to mean civil war; (2) "We must not ignore the possibility that 
Japan may try to end the war by a "surrender" to Chiang Kai-shek. This 
will be a trick on the other Allies and will in effect be a compromise based on 
Japan's desire to keep a weak Kuomintang rather than a strong, unified and 
democratic government in China; (3) The only way to be sure of decisively 
winning the war in China and avoiding civil war is to give arms to both 
Kuomintang and Communists. 

(I raised the question of how American influence could be exerted effec- 
tively, expressing skepticism about "dictation" to Chiang. Mao vigorously 
rejected my suggestion.) 
Chiang is in a position where he must listen to the United States. Look at 
what happened in Honan, is happening now in Hunan, and shows every sign of 
happening in Kwangsi ! Perhaps it will be Yunnan next. Look at the economic 
situation ! Chiang is in a corner. 

Chiang is stubborn. But fundamentally he is a gangster. That fact must be 
understood in order to deal with him. We have had to learn it by experience. 
The only way to handle him is to be hardboiled. You must not give way to his 
threats and bullying. Do not let him think you are afraid : then he will press 
his advantage. The United States has handled Chiang very badly. They have 
let him get away with blackmail — for instance, talk of being unable to keep up 
resistance, of having to make peace, his tactics in getting the 500 million dollar 
loan, and now Kung's mission to the U. S. and the plea for cloth. Cloth! Are 
we or are we not fighting the Japanese! Is cloth more important than bullets? 
Wo had no cotton here in the Border region and the KMT blockade kept us from 
getting any from the parts of China that did have it. But we got busy and soon 
we are going to be self-sufficient. It would be 100 times easier for the KMT, and 
if they were a government that had an economic policy they would have done it 
themselves. 

With Chiang you can be friendly only on your own terms. He must give in to 
constant, strong, and unified pressure. Never relax on your objectives : keep 
hammering at him. 

The position of the United States now is entirely different from what it was 
just after Pearl Harbor. There is no longer any need or any reason to cultivate, 
baby, or placate Chiang. The United States can tell Chiang what he should do — 
in the interest of the war. American help to Chiang can be made conditional 
on his meeting American desires. Another way for American influence to be 
exerted is for Americans to talk American ideals. Every American official meet- 
ing any Chinese official, in China or in the United States, can talk democracy. 
Visits like Wallace's give good opportunities : there should be more of them. 
Kung's presence in the United States should not be wasted. 

Every American soldier in China should be a walking and talking advertise- 
ment for democracy. He ought to talk it to every Chinese he meets. American 
officers ought to talk it to Chinese officers. After all, we Chinese consider you 
Americans the ideal of democracy. 

(I suggested that the use of our Army as a political propaganda force was 
alien — and that we had nothing corresponding to the Communist Podtical 
Department to indoctrinate the troops and direct such work.) 

I '.mI even if your American soldiers do not actively propagandize, their mere 
presence and contact with Chinese lias a good effect. We welcome tbJin in 
China for this reason. The Kuomintang does not. It wants to segregate them 
and keep them from knowing what conditions really are. How many Ameri- 
can observers do you have now in the front lines? We are happy to take your 
men anywhere. The KMT is worried about the effect of a lot of Americans 
in China. They fear mi American landing only second to their fear of Russian 
participation. 

The presence of Americans is good in another negative way. If Americans 
are scattered widely they will have a restraining effect on the Kuomintang. It 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1913 

will be more difficult for the KMT to start trouble. An example is Kunming. 
It has become a center of liberal thought and student freedom because the KMT 
doesn't dare to arrest and throw the students into concentration camps under 
the eyes of so many Americans. Compare this with Sian, where Americans are 
very few and the Secret Police unrestrained. 

Criticism of the Kuomintang in American periodicals is good. Its effect may 
not be immediately apparent. Sometimes it may even seem temporarily to have 
a bad reaction. But if it is fair (the KMT will know if it is) it causes the KMT 
to hesitate and think — because they need American support. 

Finally any contact you Americans have with us Communists is good. Of 
course we are glad to have the Observer Section here because it will help to beat 
Japan. But there is no use in pretending that — up to now at least — the chief 
importance of your coming is its political effect on the Kuomintang. 

(I noted his emphasis on American landing in China and suggested that 
the war migbt be won in other ways and a landing not necessary.) 

We think the Americans must land in China. It depends, of course on Japa- 
nese strength and the developments of the war. But the main Japanese strength 
is in the Yangtze valley and North China — not to speak of Manchuria. 

If the Americans do not land in China, it will be most unfortunate for China. 
The Kuomintang will continue as the government — without being able to be the 
government. 

If there is a landing, there will have to be American cooperation with both 
Chinese forces — KMT and Communist. Our forces vow surround Hankow, 
Shanghai, Nanking and other large cities. We are the inner ring: The KMT 
is further back. 

If there is to be this cooperation with both Communist and KMT forces, it is 
important tbat we be allowed to work in separate sectors. The KMT is too 
afraid of us to work with us. Their only concern will be to checkmate us. 
When we are in separate sectors, the U. S. Army can see the difference : That we 
have popular support and can fight. 

(I questioned whether open civil war was, as he had suggested, inevitable 
if the KMT was not restrained or induced to reform.) 

We can say that civil war is "inevitable but not quite certain." Subjectively, 
the present KMT leaders are determined on the elimination of the Communists. 
They are afraid of us just as, and for the same rpasons as, they are afraid of 
the people. Objectively, there are factors — the five mentioned at the beginning 
of the talk — which restrain the KMT. The strongest of these — the Japanese 
will be out of the picture. Another — strong because outside and independent of 
the KMT — is foreign opinion. But it is now unpredictable. The KMT still 
hopes that foreign influence may be on its side. 

The KMT is already busy preparing pretexts for civil war. The more you 
know of us and conditions in our areas, the less value these pretexts will have. 

So the KMT may resort to indirect methods of attack. It will be hard to 
define or set a line to its aggression. 

But if the KMT undoes the progress that has been accomplished in our areas, 
if they take away the new democratic rights of the people, the people will resist 
and will demand our help. 

Another line of KMT action will be through the puppets. The puppets will 
turn back to the KMT — claiming to have been "patriotic" all the time. The 
KMT will then use the puppets to hold the cities and areas from which the 
Japanese withdraw. They will incite the puppets to attack us and to create 
friction. 

(CHOC En-lai carries this line further by suggesting that this may be a 
part of the possible fradulent Japanese surrender to Chiang : The Japanese 
will turn over their arms to the puppets (or the KMT) on the condition 
that the Communists will be liquidated. 

(This may see at first a little far-fetched. The only possible comment 
is that the forces involved in this situation are so complicated and their 
hatreds so intense, that almost anything is possible.) 

The fact is clear, even to the Kuomintang, that China's political tendency is 
toward us. We hold to the Manifesto of the First Kuomintang Congress. This 
is a truly great and democratic document. Sun lat-sen was no Communist. 
The Manifesto is still valid. It will not quickly pass out of date. We will hold 
to it even if the KMT should collapse because its general policies are good and 
suited to China. Everything we have done, every article of our program, is 
found in that document. 

Of course, we do not pretend that we are perfect. We still face problems of 
bureaucracy and corruption. But we do face them. And we are beating them. 



1914 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

We welcome observation and criticism — by Americans, by the KMT or by any- 
one else. We are constantly criticizing ourselves and revising our policies to- 
ward greater efficiency and effectiveness. 

Our experience proves that the Chinese people understand democracy and 
want it. It does not take long experience or education or "tutelage". The 
Chinese peasant is not stupid ; he is shrewd and like everyone else, concerned 
over his rights and interests. You can see the difference in our areas — the 
people are alive, interested, friendly. They have a human outlet. They are 
free from deadening repression. 

(I queried his emphasis on the importance of the United States and his 
neglect to consider Russia.) 

Soviet participation either in the Far Eastern War or in China's post-war 
reconstruction depends entirely on the circumstances of the Soviet Union. The 
Russians have suffered greatly in the war and will have their hands full with 
their own job of rebuilding. We do not expect Russian help. 

Furthermore, the KMT because of its anti-Communist phobia is anti-Russian. 
Therefore KMT-Soviet cooperation is impossible. And for us to seek it would 
only make the situation in China worse. China is dis-unified enough already ! 
In any case Soviet help is not likely even if the KMT wanted it. 

But Russia will not oppose American interests in China if they are construc- 
tive and democratic. There will be no possible point of conflict. Russia only 
wants a friendly and democratic China. Cooperation between America and 
the Chinese Communist Party will he beneficial and satisfactory to all concerned. 
(I jokingly remarked that the name "Communist" might not be reassur- 
ing to some American businessmen. Mao laughed and said that they had 
thought of changing their name but that if people knew them they would 
not be frightened.) 

The policies of the Chinese Communist Party are merely liberal. Our rent 
reduction is from the old 80-70-60% down to the legal (by unenforced Kuomin- 
tang law) 37%. Even this we only try to accomplish gradually because we 
don't want to drive away the landlords. Our limit on interest is 10% a year. 
This is not extreme — though it is much lower than it used to be. 

Even the most conservative American businessman can find nothing in our 
program to take exception to. 

China must industrialize. This can be done — in China — only by free enter- 
prise and with the aid of foreign capital. Chinese and American interests are 
correlated and similar. They fit together, economically and politically. We can 
and must work together. 

The United States would find us more cooperative than the Kuomintang. We 
will not be afraid of democratic American influence — we will welcome it. We 
have no silly ideas of taking only Western mechanical techniques. Also we will 
not be interested in monopolistic, bureaucratic capitalism that stifles the eco- 
nomic development of the country and only enriches the officials. We will be 
interested in the most rapid possible development of the country on constructive 
and productive lines. First will be the raising of the living standard of the 
people (see what we have done here with our limited resources). After that 
we can come to the "national defense industry" that Chiang talks of in his 
"China's Destiny". We t (, ill be interested in the welfare of the Chinese people. 

America does not need to fear that we will not be cooperative. We must 
cooperate and we must have American help. This is why it is so important 
to us Communists to know what you Americans are thinking and planning. We 
cannot risk crossing you —cannot risk any conflict with you. 



Exhibit No. 316 

[Pp. 142-144, vol. 793] 

Treasury Department, 
Division of Monetary Research, 

November 10, 1944- 
To : Secretary Morgenthau. 

I think you will be interested in reading this. 

H. D. W. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1915 

Mr. White, Branch 2058, Room 214% 

Treasury Department, 

November 10, 1944' 

INTEROFFICE COMMUNICATION 

To : Secretary Morgenthau. 

From : Mr. White. 

Subject : Mao Tse-tung on how to handle the Generalissimo. 

The following is an excerpt from a conversation of Mao Tse-tung with Mr. 
Service of the State Department in which Mao gives us advice on how to handle 
the Generalissimo. 

"Chiang is stubborn. But fundamentally he is a gangster. That fact must 
be understood in order to deal with him. We have had to learn it by experience. 
The only way to handle him is to be hardboiled. You must not give way to 
his threats and bullying. Do not let him think you are afraid: then he will 
press his advantage. The United States has handled Chiang very badly. They 
have let him get away with blackmail — for instance, talk of being unable to 
keep up resistance, of having to make peace, his tactics in getting the 500 million 
dollar loan, and now Kung's mission to the U. S. and the plea for cloth. Cloth ! 
Are we or are we not fighting the Japanese! Is cloth more important than 
bullets? We had no cotton here in the Border region and the KMT blockade 
kept us from getting any from the parts of China that did have it. But we got 
busy and soon we are going to be self-sufficient. It would be 100 times easier for 
the KMT, and if they were a government that had an economic policy they 
would have done it themselves. 

"With Chiang you can be friendly only on your own terms. He must give in 
to constant, strong and unified pressure. Never relax on your objectives : keep 
hammering at him. 

"The position of the United States now is entirely different from what it was 
just after Pearl Harbor. There is no longer any need or any reason to cultivate, 
baby or placate Chiang. The United States can tell Chiang what he should do — 
in the interest of the war. American help to Chiang can be made conditional on 
his meeting American desires. Another way for American influence to be exerted 
is for Americans to talk American ideals. Every American official meeting any 
Chinese official, in China or in the United States, can talk democracy. Visits 
like Wallace's give good opportunities; there should be more of them. Kung's 
presence in the United States should not be wasted." 

Mr. Service has made a number of reports on his visit to Yenan available to 
Mr. Adler. They are being photostated and the more interesting ones will be 
shortly submitted to you. 

Exhibit No. 317 

[P. 273, vol. 787] 

Treasury Department, 
Division of Mc ntetary Research, 

October 28, 1944. 
To: Secretary Morgenthau. 

I think you will be interested in reading the bottom of: page 3 and page 4 of Mr. 
Friedman's letter. 

H. D. W. 
Mr. White, Branch 2058, Room 214V 2 

[Pp. 274-277] 

[Declassified: Treas. ltr. 1/20/56] 

October 7, 1944. 

My Dear Mr. White: I must begin by apologizing in advance for my typing 
as this is my first effort. It has taken me quite some time to get up enough 
courage to try to learn how to type. I have always bragged about how quickly 
I could learn if I tried and therefore have been most unwilling to try. 

I presume that by the time this reaches you you will have had a chance to 
consider the Chinese suggestion that the Treasury might be requested to take 
steps to help enforce a Chinese decree ordering all Chinese to surrender their 

72723 — 57 — pt. 34 5 



1916 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

foreign exchange holdings. The ostensible reason for considering such a mov6 
is that the People's Political Council suggested it as a means of financing in- 
creased allotments to soldiers. Actually the criticism in the PPC of allowing 
private holdings of foreign exchange is more likely a reflection of resentment 
against the war profiteers who are given opportunities to convert their ill- 
gotten gains into U. S. dollars at very favorable rates, since even the rate on 
missionary drafts is very low as compared with increase in profits and prices 
in recent years. It was probable also a manoeuvre on the part of some to em- 
barrass those Government officials who are thought to have large holdings of 
foreign exchange. Moreover, it may be further complicated by the possibility 
that O. K. Yui, the acting Minister of Finance, wishes to demonstrate that he 
stands in well with the U. S. Treasury. It is being rumored here that Yui is 
being seriously considered by the Generalissimo as the successor to Kung and 
Yui does have very good political connections. He also has the advantage of 
having made a good impression on the PPC. In recent talks with me he has 
taken the line that he wishes to tell all to the Secretary of the Treasury as com- 
pared with his earlier attitude of being reluctant to say or tell anything of real 
significance. He may, of course, be acting under instructions from Kung, but 
I have no way of knowing. 

I presume that we would be reluctant at this critical stage in China's political 
history to give the present Government, without any quid pro quo, the addi- 
tional strength and prestige which might result from our active support to 
their commandeering the foreign exchange resources of private Chinese. 

The atmosphere in Chungking these days is full of rumors of coalition Govern- 
ment, of which the rumors about Yui are merely a part. One rumor has it that 
Hsu Kan, the present minister of Food who coolly informed the PPC that no 
good people entered his Ministry, is also being considered as a possible successor 
to Kung. It is also rumored that the Minister of Education, Chen Li-fu, and 
the Minister of War, General Ho, are slated to be replaced, the latter by General 
Chen Cheng, who is now in command of the war area centering in Sian. General 
Chen is one of the most highly regarded of the Central Government generals, if 
not the most highly regarded of them all. He is said to be a bitter enemy of 
General Ho. 

At the same time, there are stories to the effect that the Generalissimo in an 
address to party members last Monday denounced all talk of coalition government 
on the grounds that a coalition with the Communists was impossible. It is 
reported that Sun Fo has been urging the Generalissimo to accede to Com- 
munist inclusion in the government on the grounds that the Kuomintang now 
would have the superior position, but that this relative position was undergoing 
change as the Communists continued to gain prestige and the Kuomintang to 
lose it. 

In connection with this highly complicated political situation, the activities of 
Congressman Judd were particularly interesting. He has been going around 
being more of an apologist for the Government than the Government spokesmen 
themselves dare to be these days. Last Thursday a dinner was given for him 
by the Chinese-American Cultural Institute, to which I was invited. Anions the 
Chinese present were Chen Li-fu, General Ho, Sun Fo, P. H. Chang, official 
Government spokesman, and General P. S. Wang, Jap expert to the Generalissimo. 
It started dull, but by the time Judd had finished speaking, there was an air of 
astonishment and delight. There were only four foreigners, including myself, 
present. After the dinner, Mac Fisher and myself (Fisher is head of OWI out 
here) decided it would be a good idea to make notes on what Judd said. We only 
put down what we both agreed was said and therefore it represents a minimum. 
I am enclosing copy of the notes as we made them without any editing. In 
reading them, it is of interest that Judd had just returned from an interview 
with the Generalissimo and that he had previously told Fisher that he had seen 
a lengthy memo telling how the wave of criticism of the Chinese Government had 
originated with the U. S. Army in China. If the Generalissimo already has de- 
cided that all major political decisions here must await the outcome of the elec- 
tions in November, this sort of speech would have convinced him and his advisors 
of the wisdom of such move. No one was present from the Embassy (the Am- 
bassador was invited, but had a previous engagement) so I reported it to the 
Ambassador who seemed quite disturbed. I believe he passed it on to State. 

At this dinner I sat next to General P. S. Wang, one of the Generalissimo's 
principal advisors on Jap affairs who has a mixed reputation for accuracy and 
sagacity. 1 He told me th6 following interesting story, asking that it be kept 



1 He Is a member of a Fascist clique and favors a soft peace for Japan. S. A. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1917 

secret and saying that he had transmitted it to the U. S. Army headquarters the 
previous evening. The Japanese have decided to risk their fleet in defense of 
the Philippines. Admiral Nomura, a submarine expert, has gone to Formosa to 
get ready for the attack in which the Japanese hope their subs will play a large 
part. This attack may only be a matter of a few days off. If the Japanese lose 
this naval battle, they will realize that the war is lost and it will result in a new 
political crisis in Japan even if the war against Germany is going on. The 
Japanese army will not be able to continue resistance on the Pacific Islands or 
in China after this naval defeat and they fully realize this. The United States 
should do all possible to apply direct pressure on the Japanese Homeland ; all 
other areas are of comparatively minor importance in achieving quick victory. 
Japan may be defeated in this way before Germany. I don't know to what extent 
or degree this story can be believed in view of the uncertain reliability of the 
source, but it is interesting that this is not the regular government line on Japan. 
The Government's position seems to be that China is vital to the defeat of Japan 
and that more and more of the American effort should be directed to alleviating 
the situation here. On October 6, the Ta Kung Pao formally called for the open- 
ing of a "second front" in China by U. S. and Great Britain. I presume this is 
the opening gun in a full-scale campaign. 

I am enclosing a letter for Sol which contains some things you may find of 
interest. Please give my best regards to the Division. 
Yours sincerely, 

Irving (signed). 

P. S. — Do you think this typing would qualify me for the post of Mrs. Shana- 
han's third assistant. I'm afraid I know the answer. 



[Pp. 278-280, vol. 787] 

Notes on Speech by Walter H. Judd at Chinese-American Institute of 
Cultural Relations, October 5, 1944 

First, autobiographical note on his experiences and background in China and 
then in America where he tried to awaken the American people to what was hap- 
pening in the Pacific before Pearl Harbor. Then dwelt on over-optimistic view 
of everything Chinese which prevailed in the U. S. after Pearl Harbor and was 
further heightened by Madame Chiang's appearance (tear- jerking) in Congress. 
Mentioned George Fitch as another who tried to awaken American people. 

Then beginning about last March, all over the country, simultaneously, as if 
at the click of an electric switch, there began to appear criticism — attacks and 
criticisms of the Central Government. (Clear implication if not direct statement 
was that Communists in America clicked switch.) One Sunday morning Earl 
Browder purchased full-page paid advertisement in newspapers all over the 
country (mentioned N. Y. Times, a Washington paper, a San Francisco paper). 
The point in the ads was that the U. S. must compel the Central Government to 
come to terms with the Chinese Communists. 

Judd then elaborated briefly on the points of criticisms — aid to China goes to 
warlords to be retained for the civil war which is to be the real war for China, 
not the war against Japan ; lack of democracy in China, lack of unity. 

Speaker then proceeded to defend China against these criticisms. Said that 
England would have been lost by now if she hadn't had much more aid than 
China — also Russia. ( Hear ! Hear ! ) Told the story of what a tough time China 
had had, how much she'd suffered, how much progress she'd made nevertheless. 
Touching on democracy, said that while Britain was regarded as one of the 
oldest and most experienced democracies, she had not had an election in nine 
years. That America, which had had an election every four years for 168 years, 
was having difficulties now and that many Americans said they wished we did 
not have to hold one at this time. When we compare these two countries with 
China, what right has America, who has not had even a city bombed — not been 
touched by the war — and England, who has not been invaded — what right had 
they to insist that China hold an election now in the midst of all she is going 
through? "It is absurd to expect that China could or should institute democracy 
now, in this situation." (Here the only applause during the speech, led off by 
enthusiastic Minister Chen Li-f u. ) 

Touching on unity in China, he said that the degree of unity was all that could 
be expected. That it was more than England and Russia would have had if 
they had not received more aid than China. And if America had undergone 



1918 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

what China has, he would be surprised and grateful if she had maintained as 
much unity as China. 

Emphasized that the Executive Branch of the Government cannot make bind- 
ing commitments without the support of Congress, therefore he came out here 
to get information and help get American foreign policy off a partisan basis and 
onto a nonpartisan basis. Deplored alternating democratic and Republican 
foreign policies which contradict each other. 

(When he mentioned that the original source of the criticism in America had 
been with thee Communists, there was considerable note taking ; one man trans- 
lated this immediately and handed to Ho Ying-chin who nodded and smiled like 
a cat full of canaries. Considerable nodding of heads and rapt attention when 
drift of whole speech became clear. Following the breakup of the meeting Ho 
Ying-chin and Chen Li-fu invited him into a separate room, apparently to 
continue conversation.) (Both Kuomintang leaders favor civil war. S. A.) 

Repeatedly stated that the United States had helped Japan in her war against 
China. 

Clearly stated that Chinese self-criticism made a good impression in the United 
States but that he completely sympathized with Chinese objection to criticism 
by foreigners. 

Exhibit No. 318 

[Pp. 262-264, vol. 801] 

Treasury Department, 

December 8, 19kk- 

INTEROFFICE COMMUNICATION 

To: Secretary Morgenthau. 
From : Mr. White. 

I am appending memoranda prepared by Friedman who has just returned 
from China, submitting oral messages sent to you from — 

1. General Hurley. 

2. Dr. T. V. Soong, together with letter. 

3. Dr. Sun Fo, son of Dr. Sun Yat-sen and President of the Legislative 
Yuan. 

4. Chou En-lai, second man in the Chinese Communist Party. 

5. General Wedemeyer, who has replaced General Stilwell as Command- 
ing General of the Chinese Theater. 

6. Madame Sun Yat-sen. 

I think that you would be interested in talking to Friedman personally about 
the current Chinese situation. 

General Hurley's Message to Secretary Morgenthau 

The following message for the Secretary was obtained orally in interview with 
General Hurley on November 15, 1944. 

General Hurley said that he had been given a threefold mission in Chungking 
by the President: (a) to maintain the present government and work through 
the Generalissimo; (b) to keep China in the war; and (c) to unify the Chinese 
Army for a more effective war effort. 

He feels that the Chungking Government consists of people who are "tradition- 
alists" in that they take the position that the Japanese, even if they do win, will, 
like other conquerorsi in the past, lose in the end because they will be absorbed 
into the Chinese society. Moreover, they are interested only in preserving their 
own position. They claim, he said, to be prodemooratic and to favor the intro- 
duction of democratic processes. Actually, they are fascist and favor dictator- 
ship and refuse to make concessions to achieve unity. As for their attitude on 
the United States, they regard the U. S. taxpayer as a "sucker" and despite the 
difference in situation, speak of deserving aid in the magnitudes given to Great 
Britain and to Russia. 

As for the Communists, in his opinion, they are "the only real democrats in 
China" and favor multiparty government. He then cited his much repeated 
statement that in his discussions with Molotov in Russia, Molotov had made 
the point that the Chinese Communists were not real Communists and that, in 
reality, they were equivalent to the farmer-labor group in the mid-West. He 
said that the Americans did not understand the Chinese Communists and for 
what they really stood. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1919 

The Communists, General Hurley said, had done a better job of organizing 
for war than had been done by the Chungking Government. They favor the 
unification of China and the Chinese armies and had "offered a fine, liberal 
program to achieve unity." The Communists, he was sure, did not get Russian 
support. 

With regard to the current negotiations on Communist-Kuomintang relations, 
General Hurley said that the Communists were fully prepared to cooperate in 
achieving a settlement and he already had their adherence to his proposals. 
He now needed the agreement of the Kuomintang group which had been ap- 
pointed by the Generalissimo to handle the negotiations, in which T. V. Soong 
is the main figure. With regard to Soong, he felt that he was a "crook" but that 
didn't disturb him since he felt that in the environment of China wherein there 
was no such things as the Golden Rule, the Ten Commandments, Bill of Rights, 
Declaration of Independence, it was not surprising to find that their leading 
politicians were crooks. 

He said that he expected to achieve the desired unity in a month or so or else 
he was "greatly mistaken'' since he already had the Communists on our side 
and expected the others would come along. 

With regard to the removal of General Stilwell and Ambassador Gauss, he 
said that they had had a "static" approach to the China problem ; out of sheer 
disgust they favored "pulling the plug and allowing the show to go down the 
drain." This was not his mission. 

We also discussed the financial negotiations going on in Washington and he 
said that he fully approved of the position being taken by the Secretary. 

He concluded by sending his best regards to the Secretary and emphasizing 
that he felt the political situation in China would be considerably improved in 
the very near future. 

[P. 265, vol. 801] 
Message From Db. T. V. Soong to Secretary Morgenthau 

At a private lunch with Dr. Soong on November 8th, Dr. Soong asked that the 
following message be relayed orally to the Secretary, together with letter which 
is being attached hereto. 

He said that the situation in China was "mending" and that there would 
soon be many major changes and reforms in the military and economic situation 
and in the political relations with the Communists. He said that he was not 
worried about the situation but rather was "serene" because the "bottleneck" 
had finally been passed. He was also expecting an improvement in the relations 
with Russia. He said that future world peace depended on ability to get along 
with Russia. 

Until now the situation in China had been bad. Changes necessary for 
improvement had been held up by the nonremoval of General Stilwell. He had 
urged Stilwell's removal a year ago and said that it had been the reason for 
his returning to China in October 1943. President Roosevelt had displayed great 
courage in removing General Stilwell on the eve of the election. 

He said that the present relations between the Generalissimo and General 
Wedemeyer were very good and that they were having daily informal confer- 
ences unlike in the case of General Stilwell. Stilwell and the Generalissimo had 
seen each other infrequently and on a formal basis. 

He emphasized the fact that China and the United States had need for each 
other, particularly in the postwar period. He said that the United States had 
need for a strong united democratic China. He expressed cynicism about the 
talk of China being treated as one of the Big Four powers and said that in a 
way such talk was insulting since China's position would depend upon her 
internal strength and that external aid was necessarily of minor importance 
except in the short run. Thus, there is no necessity for any one to say that 
Russia was one of the Big Four because obviously she is, while in the case of 
China it is a matter of potentialities and China would be one of the Big Four 
if necessary internal developments took place. 

He concluded by sending his best regards to the Secretary and said that he 
was looking forward to seeing him. He hoped to be in the United States within 
two or three months. 



1920 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Pp. 267-269, vol. 801] 
Message From Dr. Sun Fo to Secretary Morgenthau 

The following conversation was held with Dr. Sun Fo on or about October 31st. 
Dr. Sun Fo is the son of Dr. Sun Yat-sen and the President of the Legislative 
Yuan. 

It reflects his reaction to the recall of General Stilwell and Ambassador Gauss. 
The Ambassador's recall had not yet been announced but was known to such well- 
informed Chineses as Dr. Sun Fo. Dr. Sun Fo said that he was glad to send the 
following message orally to the Secretary and that he was sure that it would be 
kept completely secret since the consequences of any publicity would be very 
drastic. 

Dr. Sun was very pessimistic about the situation in China. He said that Free 
China was undergoing a wave of reaction which was stifling even the small 
amount of political freedom which had come into being during the period of the 
Peoples' Political Council meeting in September. Thus, tthe meetings which 
had been called by the Democratic League to discuss constitutional reforms were 
no longer being held since it was now necessary to receive prior police permission 
to hold all meetings. This meant that all meetings were attended by spies of 
the government and, as a result, people were afraid to attend. Moreover, all 
talk of coalition government was forbidden and nothing could be said about it 
in the press. 

The Generalissimo was in a more recalcitrant mood than ever and was 
feeling in a very strong position because he had been able to force the removal 
of General Stilwell. The Generalissimo now felt that he had nothing to fear 
from American pressure and that he need not live up to prior commitments on 
political reform. 

The Generalissimo favored a military solution to the Communist-Kuomintang 
conflict rather than a political one. Thus, only the day before, Dr. Sun had been 
told by a General in command of the Kwangtung area that he had discussed 
with the Generalissimo the problem of what to do about the Communists in 
Kwangtung. The Generalissimo had replied that the General should use his 
troops to attack and wipe out the Communists and the Generalissimo had not 
been swerved in his attitude on this problem by having the point made to him 
that this would mean cessation of resistance against the Japanese in this area. 
In the opinion of Dr. Sun, such a policy was suicidal for the Kuomintang and 
the Chungking Government. 

The Chinese Communists were spreading into the area which were being lost 
by the Chungking Government and already were very influential in the South- 
eastern provinces. Within a short period of time — within six months — the 
Communists would be relatively so strong that they could completely ignore 
the wishes and desires of the Chungking Government. The Communists knew 
this but because of their eagerness to prosecute the anti-Japanese war they were 
willing to enter into a coalition government at the present time which would 
preserve the Generalissimo as the head of state and keep the Kuomintang* 
as a major political party in China. 

Unless a coalition government was formed China in the post-war period would 
be Communist-dominated. On the other hand, if a coalition government was 
formed it could be expected that post-war China would develop along democratic 
lines similar to the United States. It all depended upon the willingness of the 
Generalissimo to make the necessary change but since the small group closest to 
him such as Ho Ying-chin recognized that coalition government meant the end 
of their influence, they were bitterly opposed to it and were consistently advising 
the Generalissimo against it and the Generalissimo was now following their 
advice. 

In the opinion of Dr. Sun the removal of Stilwell and Ambassador Gauss were 
great blows to the cause of Chinese unity and considerably diminished the pos- 
sibilities of needed political reform. He expressed sympathy with the Commu- 
nists unwillingness to hand over their armies to the control of the Chungking 
Government until necessary democratic reforms had taken place since this would 
end the hope of democratic reform, as the Communists and their armies were the 
chief forces making for democratic reform in China. 

At present, the influence of such liberals as himself was practically non-existent, 
and their future was extremely uncertain. It was extremely important that the 
American Government continue its policy of pushing for democratic reforms, 
national unity, reorganization of the Chinese armies, and activization of the 
Chinese armies. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1921 

The formation of a truly coalition government, he said, was essential for 
Chinese morale. At present, nobody wanted to fight the Japanese if it meant 
fighting for the corrupt Government in Chungking. The students, for example, 
were refusing to volunteer on these grounds. A coalition government would 
change this drastically and immediately. It would mean the revitalization 
of the Chinese war effort. 



[Pp. 270-272, vol. 801] 

Interview With General Chou En-lai and His Message to Secretart 

morgenthau 

On the evening of November 13 I received an invitation to have a private 
discussion with General Chou En-lai the following morning at 9 : 00 o'clock. 
General Chou is one of the three principal leaders of the Chinese Communists. 
General Chou En-lai had come down to Chungking from Yenan about two or 
three days before at the request and under the protection of General Hurley. 
His presence in Chungking was still a top military secret and the invitation to 
myself to see him was the first extended to any civilian representative of the 
American Government in Chungking. ( I don't know if any others received invita- 
tions since I left Chungking soon after.) It undoubtedly reflected the fact that 
in the opinion of the Chinese Communists, as in the opinion of other Chinese, 
the Secretary is the No. 2 man in the American Government and the Chinese 
Communists, like the other Chinese, are eager to have his good will. 

In addition to Chou En-lai and myself there were present his interpreter and 
one of the Communist officials in Chungking (Wang Ping-nan) who left soon 
after the conversation began. Despite the presence of an interpreter, however, 
the conversation was carried on in English between General Chou and myself. It 
was made clear to General Chou that what he would say would be transmitted to 
the Secretary and General Chou said that he understood this perfectly and 
would be glad if it was. 

We first talked about the economic and financial situation in the Northwest; 
the economic policies of the Yenan Government and the possibility of economic 
and financial reorganization of the areas under the Chungking Government. 
Then we discussed the political situation. However, because of the greater 
immediate interest in the political statements made by General Chou, that part 
of the conversation is herewith given first. 

With regard to the political situation, General Chou said that the purpose of 
his trip to Chungking was to help bring about the unification of China on the 
terms laid down in his October 10th speech, copy of which, together with some 
other material he gave me at this point. He said that the Communists were in 
favor of the prosecution of the anti-Japanese war but that they would not 
swerve from the basis which was laid down in his October 10th speech. They 
had waited eight years since the Sian Incident for the necessary democratic 
reorganization of the Chinese Government and they now felt that the objective 
situation made possible major changes within the year. (He refused to be 
pinned down as to whether within the year meant in 1944 or within the next 
twelve months.) He felt that with the aid of "our American friends" unity 
would come sooner. If his mission was successful, he would return to Yenan 
but only temporarily ; if his mission was not successful he would return to 
Yenan permanently. 

However, he said, if the present Government remained "unreconstructed" 
the Government in Yenan, as the representatives of 90 million people or more 
would have to ask for separate representation with regard to such things as 
international conferences, etc. Of course, the Yenan Government favored inter- 
national cooperation in the financial field as well as in the political. He con- 
cluded by extending the invitation of his Government to the Treasury repre- 
sentative in Chungking to come to Yenan for personal investigation of the 
situation there. 

Throughout the conversation Chou En-lai spoke in the tenor of a responsible 
government official and never indicated any doubts that his party would be 
part of the ruling group of China in the years to come. 

With regard to the economic and financial situation, Chou stressed the need 
In the Northwest for foreign technical assistance capital and machinery. He 
emphasized the fact that the guerrilla areas receive no outside help except 
what tb^ey were able to capture from the Japanese. 



1922 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Production in Northwest China, he said, could be increased immediately with 
a comparatively small amount of foreign equipment. 

With regard to the possibility of permanent economic development of the 
Northwest areas, he said he thought there was a basis for development of 
certain industries such as salt, chemicals, and cotton. 

The possibility of the application of the small-unit type of production being 
used in the Northwest to the large cities in North and Eastern China was 
discussed. General Chou said that the economic reorganization of these cities 
after their liberation would necessitate a change in economic techniques. Small 
units would be used in the countryside but large-scale production used in the 
cities. 

The question was raised as to the possibilities of increasing production in 
Free China. He said that in his opinion, if his Government had the power 
and authority to make the necessary changes, production could be markedly 
increased in six months. What was basically needed was a democratic re- 
organization of the Government and of the existing bureaucracy. 

With the end of the blockade, the Northwest, he said, could actually provide 
the other parts of Free China with such things as woolen cloth, thereby allevi- 
ating the grave economic situation in these areas. The fundamental approach 
to China's economic problems was to increase production and improve trans- 
portation. 

With regard to China's postwar position, her greatest economic need would 
be for foreign capital. In this connection, he said that the Communists were 
prepared to permit foreign ownership of Chinese industries, etc., under Chinese 
laws and that their plans called for the existence of three types of ownership : 
(a) national, (b) private owned Chinese, and (c) foreign owned. He said 
that they recognized the need for peace and security to attract foreign capital 
and that this would be achieved by the democratic reform of China which would 
end the fear of civil war. He stressed the fact that China needs a long period 
of internal and external peace. Moreover, China had to participate in inter- 
national economic and financial organizations if she was to overcome her 
present backward state. 

He ended the discussion of the economic situation by stressing the point that 
the Chinese Communists did not feel that the socialization of industry was the 
proper form of economy for China and that China's industrialization would 
take place within the framework of capitalist economy. 



[P. 273, vol. 801] 
Interview With General Wedemeyer 

General Wedemeyer replaced General Stilwell as the Commanding General 
of the China Theater. 

I called on General Wedemeyer on November 14th to tell him that I was 
returning to the States and that Mr. Adler was returning to Chungking. 

We discussed the financial negotiations and he said that he favored a firm 
attitude in negotiations. He did not fear the effects of such a firm attitude 
even if it resulted in an attempt to blackmail us by refusal to advance funds. 
If this happened, he would refer the matter to the President. I informed him 
that the Treasury's attitude had always been to be as fair as possible to the 
Chinese, but always to refuse to be blackmailed. 

General Wedemeyer said that he was looking forward to Mr. Adler's coming 
and would consult with him on all financial matters and wonld be glad, as in 
the case of myself, to receive suggestions and advice on all matters relating to 
the financial aspect of the U. S. Army's activities in China. 

With regard to the military situation, he said that the situation was deterior- 
ating but it was not hopeless and that he had not given up hope of having 
China make an important contribution to the winning of the war. 



[P. 274, vol. 801] 

Interview With Madame Sun Yat-Sen 

Madame Sun was very pessimistic about the political situation in # China. 
She felt that it all hinged on the willingness of the Generalissimo to change his 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1923 

iposition and she did not see any great likelihood of that. She tended to de- 
precate the American role in bringing about a solution of the Communist- 
Kuomintang problem and indicated that she didn't think we were prepared to 
go beyond exchanging cables between Chungking and Washington. She clearly 
indicated that she felt that the Chungking Government was not interested in 
righting the war and because of that would not be interested in a coalition govern- 
ment with the Communists who were interested in fighting the war. (At the 
time she gave no indication of knowing about the impending cabinet changes.) 
She scoffed at the idea that China's military defeats were due to lack of 
American aid and said that the Chungking Governemnt was not interested in 
using the military equipment it received against the Japanese. 

Because of the presence of an outside party (social caller who did not have 
enough sense to excuse himself and leave), I did not ask any questions. I 
was later told that Madame Sun had expressed regret at our not having had a 
completely private talk. 

Exhibit No. 319 
[P. 103, vol. 782] 

Treasury Department, 
Division of Monetary Research, 

October 16, 19U- 
To : Secretary Morgenthau. 
From : Mr. White 
Subject : Reports of the American Military Mission to Yenan. 

The actual texts of reports of the American Military Mission to Yenan are not 
available to us. However, the War and State Departments allowed Mr. Adler to 
read these reports and make copious notes on them. The attached memoranda 
are based on these notes. 

[Pp. 104-108, vol. 782] 

Treasury Department, 

October 12, 19M. 
interoffice communication 
To : Mr. White. 
From : Mr. Adler 
Subject : Highlights of American Military Mission reports from Yenan. 

1. The general impression made on the Mission was extremely favorable, 
particularly by contrast with Chungking. The typical comment of American 
Army men was "a different country, a different people" and that Yenan was 
"the most modern place in China." There was no show and formality, no sub- 
servience to leaders, no bodyguard, no gendarmes and no claptrap. While living 
is simple, there are no beggers and no signs of desperate poverty. Morale is 
very high, and the Mission reacted most favorably to the fact that the Com- 
munists never explicity asked for any kind of assistance — a marked contrast 
with usual Chinese official behavior. 

2. The following are the conclusions of Chungking G-2 on the first reports 
from Yenan: 

The head of Army Intelligence in Chungking in transmitting the reports of 
Colonel Barrett's mission states that the following conclusions are justified: 

(a) For 7 years the Communists have engaged a large proportion of the 
Japanese forces in China. 

(b) For 7 years the Communists have succesfully defended large areas in 
North China against determined and well organized large scale Japanese attacks. 

(c) Since 1941 they have supplied themselves entirely by arms and munitions 
either captured from the Japanese or puppet troops or produced by their own 
unaided efforts. 

(d) They have effected improvements in the conditions of the people in large 
parts of the areas under their control. The population of the areas under their 
control is not less than 50 million. (The New Herald Tribune correspondent 
gave the figure of 86 million. ) 

3. The Communists have successfully resisted the Japanese for 7 years. 

(a) This resistance, conducted with no active support from Chungking for a 
period of from 4 to 6 years and of active hostility from Chungking in the form 
of a tight economic blockade and intermittent military attacks and sniping for at 
least 4 years, necessarily takes the form primarily of guerrilla activities although 



1924 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

there have also been many larger scale operations, particularly against puppet 
troops. Such resistance is based on an intimate alliance if not fusion on the 
political, economic, military and social level between the Communist troops and 
the people. 

(b) The Communists have at least 240,000 first line troops and 130,000 second 
line troops who are comparatively well-trained, plus almost 2 million militia 
who have undergone some form of guerrilla training, but they are very short 
on equipment and munitions. There is barely one rifle per two men even for 
the first and second line troops, and men with rifles rarely have more than 30 
cartridges. Most of the weapons in the possession of the Communists were 
captured from the Japanese or puppets. 

(c) The Communist armies' strong points are their intimate ties with the 
people, their high mobility and the centralization of their command. Their 
weak points are their lack of equipment, particularly munitions, communications 
equipment and medicines, lack of specialized troops, and lack of uniformity. 
The center of activity of the largest army is in North China. The New 4th 
Army operates in Central China and there are a few thousand Communist 
guerrillas as far South as Kwangtung and Hainan. 

(d) The extent of Communist military activity is best indicated by the fact 
that 21 Japanese divisions are engaged against them and by the following figures 
for the last year on which data are available. The 8th Group and New 4th 
Armies (i. e., the 470,000 first and second line troops) had 28,000 engagements 
in which 200,000 Japanese and puppets were killed [of which about a third were 
Japs — our Mission believes the number of Japs killed is somewhat exaggerated] 
and 73,000 taken prisoner, and in which 85,000 rifles and 1,000 machine guns were 
captured. Communist losses were 19,000 dead and 27,000 wounded. The tech- 
nical operations of the Communists consist of minor engagements, the main 
purpose of which is also to prevent small Japanese forces from looting food, 
larger engagements with puppet troops and attacks on isolated forts and garri- 
sons held by the Japanese, defensive operations on a still broader scale chiefly 
to protect key centers of food supply, and offensive operations for the purpose 
of expanding guerrilla areas into firmly held base areas. 

4. The Communists are anxious to cooperate ivith us militarily in whatever 
way they can. They are not only ready to supply us with intelligence on enemy- 
occupied areas and to extend facilities for air rescue work, for weather report- 
ing, and interrogation of Japanese prisoners, but also to coordinate their military 
effort with an Allied offensive by cutting the Japanese North-South Railroads 
and by undertaking to expel the Japanese from Manchuria if sufficiently strong. 
They would prefer to take orders from an Allied High Command in China rather 
than from the Kuomintang, which they say is bankrupt and not interested in 
fighting the Japanese. They were asked for a statement of their military needs 
but were informed that no commitments could be made by us ; at the same time 
they went out of their way to avoid asking us specifically for any assistance. 
The Communists appear to believe that large land operations in North China 
and Manchuria wil be necessary for the final defeat of Japan. 

While there is nothing specific on this point in the reports of our Mission or 
the comments of Headquarters in Chungking, it would appear that our Mission 
is well disposed to the idea of cooperating with the Communists even to the 
extent of flying in a minimum of essential supplies such as munitions, bazookas, 
and medicine. (I understand that our Army in China has asked the General- 
issimo for his agreement to our sending such supplies to Yenan but that his 
agreement was not forthcoming.) 

5. The Communist political program is moderate in the sphere both of domes- 
tic and foreign policy. According to the political expert of the American Military 
Mission the Chinese Communist party "has a healthy moderate maturity" and 
"it is strong and successful and has such drive behind it and has tied itself so 
closely to the people that it will not easily be killed." "Their interests do not run 
counter to those of the United States in the foreseeable future and merit a sym- 
pathtic and friendly attitude on our part." 

Their domestic goal is what they call New Democracy, which includes defeat- 
ing the Japanese, the institution and extension of internal democracy, and rais- 
ing the standard of living by solving the agrarian problem and encouraging the 
growth of progressive capitalism in China. Mao Tse-tung indicated the Com- 
munists supported proper treatment of capital both Chinese and foreign after 
the war and as much free trade as possible. Concessions have been made to 
landlords in Communist areas; one of the objectives of Communist policy in 
this sphere was to reduce profits from the investments of capital in land in such 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1925 

a way as to encourage landlords to invest surplus capital in industrial projects. 
With respect to racial minorities within China the Communists favor giving 
them a considerable degree of autonomy within a United States of China. They 
wish to apply such a policy to the Mongols of Outer and Inner Mongolia, the 
Tibetans and Chinese Mohamedans of the Northwest. 

In the sphere of foreign policy, the Communists favor China's adherence to the 
foreign policies already agreed upon by the United Nations in such documents 
as the Atlantic Charter and the Moscow and Teheran Declarations. They be- 
lieve it is unrealistic to talk of the ultimate fate of Hong Kong as long as the 
Japanese are in China. With respect to the peace, they say that Japanese in- 
ternal affairs must be solved by the Japanese people, although militarism and 
feudalism should be wiped out in the period immediately following on Japanese 
defeat. Democracy, they add, cannot be instituted in Japan as long as feudalism, 
survives. They feel that the colonial countries of the Far East should have self 
rule. They deny having received any material support from the Russians. There 
would appear to be some division of opinion among them as to whether the Rus- 
sians would come into the Far Eastern War or not. 

6. Kuomintang — Communist relations. The Communists are pesimistic about 
the seriousness of Kuomintang intentions to bring about a settlement of out- 
standing Kuomintang — Communist issues. They claim that the Kuomintang is 
stalling and is putting on a show of negotiating for the benefit of public opinion 
both at home and abroad. The Kuomintang objective is to liquidate the Com- 
munists in a summary fashion immediately after the end of the war. [In this 
connection it is interesting to note that Mao Tse-tung, the leader of the Chinese 
Communist Party, raised the possibility of the opening of an American consulate 
in Yenan, stating that the danger of the Kuomintang attack on the Communists 
would be greatest at the end of the war and implying that the presence of an 
American Government official in Yenan would prevent such a clash. Mr. Gauss, 
our Ambassador in Chungking, feels that the National Government would never 
agree to our opening a consulate in Yenan.] One Communist leader went so far 
as to say that if a turn for the better did not occur before the end of the year 
the situation might become hopeless. They recognize that American press 
criticism has played a constructive role in preventing the situation from becom- 
ing worse. Chou En lai asserted that American Government officials' conversa- 
tions with high Chinese officials had been and could be even more effective in 
this respect. He mentioned Wallace's visit and alluded to Kung's presence in 
America, with reference to which he specifically stated that Kung was more 
pliable and amenable than T. V. Soong. Communist leaders do not expect Chung- 
king to collapse before the end of the war The Communists attitude toward 
the Kuomintang appears on the whole to be fairly conciliatory Mao said that if 
attacked they would retreat, but when the point to which they could retreat no 
farther was reached they would fight, adding that if civil war broke out it would 
be protracted 

While the Communists attitude toward the Kuomintang is conciliatory, it is 
also firm. They realize that they are growing stronger and that the Kuomintang 
is growing weaker. At the same time they certainly do not want to provoke 
hostilities and would like to avert them if at all possible on terms which would 
not make them prisoners of the Generalissimo. 

It is interesting to note that the Communist military leaders were sharper 
and more bitter in their criticisms of the Kuomintang than were the Communists 
civilian leaders. However, it is the latter who have the last word. While the 
former were very cynical in their comments on the Generalissimo and his im- 
mediate entourage (Chou En-lai referred to Shang Chen, the head of the Chi- 
nese Military Mission to the United States, as "empty headed" : he also poured 
ridicule on the Kuomintang plans to de-mobilize, asking when it had ever mobil- 
ized.) The latter go out of their way to recognize the National Government and 
the Generalissimo as the head of the National Government. Mao stated that what 
they wanted was recognition of the Border Area governments as lower organs 
of the National Government. 

7. The economic situation in Communist China is much better than in Kuomin- 
tang China. An effective progi'am for increasing production is being enforced 
and economic self-sufficiency has been attained with a consequent raising of 
living standards. Labor, including soldiers, students, and members of the Govern- 
ment and Party bureaucracy, is efficiently mobilized for agricultural and indus- 
trial production. The cultivation of cotton and the production of certain 
essentials such as soap and matches have been instituted for the first time in 
many areas. 



1926 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

The number of cooperatives, including productive and distributive coopera- 
tives, has increased phenomenally. Private productive enterprise is encouraged 
by liberal Government credits. Owing to their measures for increasing produc- 
tion and their effective controls, inflation has not had serious effects on either 
the functioning of economy or on the living standards of the people. In fact, 
living standards have risen in areas which were previously among some of the 
poorest and most backward in China. Diet and health have improved, with 
wheat replaciug millet as the staple. 



[Pp. 108-118, vol. 782] 

Treasury Department, 

October 12, 19U- 

INTEROFFICE COMMUNICATION 

To: Mr. White. 

From : Mr. Adler. 

Subject: Summary of Reports of American Military Mission to Yenan. 

(Colonel Barrett is the author of the military reports and Mr. Service of the 
political reports. I know them both well. Colonel Barrett has spent many 
years in China and was Military Attache until 1942. He is a sound and 
level-headed man. Mr. Service, who was born in China, has the well-earned 
reputation of being the best-informed American on internal Chinese politics; 
he is a member of the Foreign Service and is now atached as a political adviser 
to General Stilwell's staff. Both speak and read Chinese with fluency and 
facility. ) 

A. MILITARY REPORTS 

I. Conclusions: The head of G-2 in Chungking in transmitting the reports of 
Colonel Barrett's Mission states that the following conclusions are justified: 

(a) For 7 years the Communists have engaged a large proportion of the 
Japanese forces in China. 

(b) For 7 years the Communists have successfully defended large areas in 
North China against determined and well-organized large-scale Japanese 
attacks. 

(c) Since 1941 they have supplied themselves entirely by arms and munitions 
either captured from the Japanese or puppet troops or produced by their own 
unaided efforts. 

( d ) They have effected improvements in the conditions of the people in large 
parts of the areas under their control. 

II. The first military report was enthusiastic over the cooperation and sin- 
cere friendliness extended to the American Military Mission by the Yenan mili- 
tary and civilian officials. The Communists had been informed by General 
Ho Ying-chin that the purpose of the American Military Mission was to obtain 
intelligence on enemy occupied areas and to make arrangements for air rescue 
work and were surprised to find that the objectives of the Mission were much 
broader and included making arrangements for weather reporting, obtaining 
reports on Communists military activities against the Japanese, the possibility 
of utilizing air bases in Communist areas, interrogation of Japanese prisoners 
etc. Colonel Barrett added that he also wished to obtain information on Com- 
munist military needs, but made it clearly understood that he was in no position 
to make any commitment as to the possibility of meeting those needs. The 
Military Mission was entertained by the Yenan Government at an official dinner 
after which there was music and dancing. Members of the Mission were asked 
to sing American songs which were greeted with tumultuous applause. 

Mao Tse-tung asked Mr. Service about the possibility of opening an American 
Consulate at Yenan, pointing out that the danger of a Kuomintang attack on 
the Communists would be greatest when the war ended, and implied that the 
presence of an American Consul in Yenan could prevent a clash. Ambassador 
Gauss feels that the National Government would never permit a Consulate to be 
opened at Yenan and would not even agree to the temporary detailing of an 
Embassy officer at Yenan. However, Mr. Service expects to stay there for sev- 
eral months and will be replaced by another Embassy officer. 

The Mission was impressed by the initiative and planning ability of the Com- 
munists, who are apparently doing everything to cooperate with it. They en- 
countered no suspicion or procrastination, such as is too often the case in 
Chungking. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1927 



III. Report of Yeh Chien-ying, Chief of Staff of the 18th Route Army. [This 
report contains information disclosed to the American Military Mission but not 
to the Kuomintang.] 

Most of the weapons in the possession of the Communists were captured from 
the Japanese or from puppets. Much of the captured material cannot be used. 
The Communists have no regular arsenals and are short on munitions. There 
are 4 Base Areas in North China, in addition to the Tenan Border Area, in 
which the 18th Route or 8th Group Army operates: the Shansi-Hopei-Chahar, 
the Shantung, the Shansi-Hopei-Honan and the Hopei-Shantung-Honan areas. 
In addition, the New 4th Army which was officially liquidated by the Central 
Government in 1941 but which has actually survived, operates from North 
Kiangsu right through central China as far South as Kiangsi. There are also 
small numbers of guerrillas in Kwangtung and Hainan Island. The 8th Group 
and New 4th Armies consist of field armies and local forces. 





8th Group 


New 4th 


Total 




Men 


Rifles 


Men 


Rifles 


Men 


Rifles 


Field Armies 


220. 000 
100, 000 


136. 000 


121.000 


77, 000 
16, 000 


341, 000 
131,000 


211,000 


Local Forces. 


50. 000 31, 000 


66, 000 


Total. 


320, 000 


184, 000 


152, 000 


93, 000 


472, 000 


277, 000 







It will be noted that there is barely one rifle per two men. Each man with 
a rifle is supposed to have 50 cartridges but often has only 30. Men are in- 
structed not to shoot at a range of more than 200 yards except if they are 
particularly good shots, when they are allowed a range of up to 400 yards. 

General Yeh pointed out that the main weaknesses of the Communists armies 
were that they had no special troops, that they were short even on light muni- 
tions and tht the training of the officers needed improvement, lack of machine- 
guns and light artillery, and lack of uniformity. On the other hand he claimed 
that its great strength was its high mobility and the high centralization of the 
command. Since 1938 when the National Government gave them 120 light ma- 
chineguns and 6 antitank guns they had received nothing from Chungking. 
Some small arms were made by hand. He went out of his way to emphasize 
that he was not asking the American Military Mission for anything. 

IV. Further Military reports from Yenan: (a) It is the opinion of the Ameri- 
can Military Mission that the greatest need of the Chinese Communist armies is 
munitions, portable weapons such as the bazooka, for example, communications 
equipment, and medicines. Such materials would have to be flown in by air, 
and would have to consist solely of essential supplies. The Communists claim 
that they could win the whole of Shansi with a little additional equipment and 
air support. While our Mission believes that this claim is overoptimistic, it 
agrees that the Communists could recapture substantial and significant areas 
under such circumstances. 

(b) In addition to the members of the 8th Group and New 4th Armies, the 
Communists have 1,850,000 militia — i. e., presumably guerrillas. Morale is high. 
The Japanese are deeply hated owing to their savage conduct, and discipline is 
well maintained. Desertion to the enemy is rare and puppet support extremely 
good. The health of the troops was not particularly good. 

(c) The tactical operations of the Communists can be classified as follows : 
(i) Minor engagements in which the purpose is often to prevent small 

Japanese forces from looting the food supplies of the peasantry. 

(ii) Larger engagements with puppet troops and attacks on isolated forts 
and garrisons held by the Japanese. 

(iii) Defensive operations on a still larger scale in which again the pro- 
tection of key centers of food supplies is an important objective. 

(iv) Offensive operations with the purpose of expanding guerrilla areas 
into base areas, chiefly against puppets. 

(d) The Communists are engaging 21 Japanese divisions. The 18th Group 
Army in one year had 23 thousand engagements in which 65 thousand Japanese 
and 80 thousand puppets were killed, 300 Japanese and 59 thousand puppet 
prisoners were taken, and weapons captured totaled 51 thousand rifles and 626 
machineguns. Their losses were 11 thousand killed and 18 thousand wounded. 
In the same year the New 4th Army had over 5 thousand engagements in which 



1928 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

53 thousand Japanese and puppets were killed and 14 thousand taken prisoner, 
and in which 34 thousand rifles and 376 machineguns were captured. Their 
losses were 8 thousand dead and 9 thousand wounded. The high proportion of 
Communist Army dead to wounded is due to the fact that it is very difficult to 
rescue men or to cure them if rescued. It is felt by our Military Mission that the 
above figures are somewhat exaggerated with respect to Japanese casualties. 
V. Random points from the military reports. 

(a) The Japanese have used gas against the Communists who suffered quite 
heavy casualties at one stage owing to the lack of antigas equipment. 

(b) Even machinegun companies often do not have more than 4 light and 2 
heavy machineguns. 

(c) Central government forces, i. e., guerrillas, behind the Japanese lines total 
20 to 30 thousand and play a very small part in fighting the Japanese. In fact, 
their main role appears to be to keep the Communists out and to wait until the 
end of the war and be in a position to occupy the big cities around which they 
are congregating before the Communists occupy them. 

(d) The Communists claim that they have documentary proof of the fact that 
Central Government agents often give the Japanese information with respect to 
location, etc., of the Communist troops. 

B. POLITICAL EEPOKTS 

I. First report after six days in Yenan. 

People going to Yenan have heard such favorable reports from foreigners who 
have passed through or foreign correspondents that they are very much on 
guard against being swept off their feet or being taken in. Nevertheless, dis- 
counting the above, the reaction of all members of the American Military Mission 
was extremely favorable. This reaction was confirmed by the foreign corres- 
pondents then visiting Yenan. 

The typical comment of American Army men was "a different country, a 
different people". There was no show and formality, no subservience to lead- 
ers, no bodyguards, no gendarmes, and no claptrap, all of which are all too 
prevalent in Chungking. There were no beggars and no signs of desperate 
poverty. Living is simple and foreigners are entertained unostentatiously. The 
women are self-assured and unselfconscious, presumably as a result of the im- 
provement in their social status. The general morale was extremely high. 
Almost everybody takes an interest in politics, even coolies reading the news- 
papers. 

The atmosphere in Yenan is that of a small town sectarian college or of a re- 
ligious summer conference. Another comment by Army men was that it was "the 
most modern place in China". Mr. Service's conclusion was that the Chinese 
Communist Party has a healthy moderate maturity" and that "it is strong and 
successful and has such drive behind it and has tied itself so closely with the 
people that it will not easily be killed". 

II. Mr. Service's conversation with Chou En-lai (Chou is the number two 
man in the Chinese Communist Party. He is well known in Chungking foreign 
circles, where he was the Communist representative until the summer of 1943. 
It is generally believed that he would be Minister of Foreign Affairs in any 
Government in which the Communists are strongly represented.) 

According to Chou the Kuomintang will not make reasonable concessions to 
the Communists. A compromise is most improbable, and the Kuomintang has 
entered the talks with the Communists for propaganda purposes and in order 
to create an impression on foreigners, particularly Americans. The General- 
issimo and Kuomintang no longer have concrete policies, are drifting and are 
awaiting favorable developments. The Kuomintang hopes at the end of the war 
to liquidate the Communists in summary fashion. The Communists neither 
welcome nor fear Kuomintang plans for attacking them. In the summer of 
1943, the Kuomintang was hesitating between two alternatives, the first being 
to attack and the second to delay the attack until a more favorable opportunity. 
They were all set for attack when the Communists found out the Kuomintang 
plans, and the Kuomintang accordingly switched to the second alternative. 

There is a steady decline in Kuomintang China, but there will be no sudden 
collapse. The Japanese do not plan to capture Chungking because Kuomintang 
China is dying a slow death, and if Chungking were attacked the Kuomintang 
would be driven toward unity with the Communists. 

The Generalissimo is surrounded by second-raters such as the "empty-headed" 
Shang Chen, the head of the Chinese military mission to the United States. 
These people dare not tell him the truth and are only interested in maintaining 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1929 

their own position. Chou poured scorn on the Kuomintang plans to demobilize, 
asking when, if ever, they had mobilized. He also ridiculed Kung's plea to 
have cotton cloth flown into China saying tbat cargo space should be used only 
for bombs, munitions, gasoline, etc. and that the production of cotton had fallen 
off in China purely as a result of Kuomintang inept food and price control 
policy. 

He admitted that American interest in Chinese affairs had been extremely 
helpful. Outspoken press criticism had been of some use, but frank talks by 
high American officials with high Chinese officials were even more important. 
He cited Wallace's and Nelson's and Hurley's trips to China and added that 
talks on the right lines with Kung now that he is in the United States would also 
be most helpful. In this respect he thought that Kung was more amenable and 
pliable than T. V. Soong. Chou thought there was a tendency to underestimate 
the importance of the Chinese land theater as a result of the remarkable ad- 
vances of the American Navy in the Central Pacific. He said it would still 
be necessary to rout Japanese troops in North China and Manchuria. He 
seemed to feel that the Soviet Union would come into the Far Eastern war but 
would not commit himself. 

III. Kuomintang-Communist Relations 

The Communist military leaders were much more outspoken and more bitter 
in their criticisms of the Kuomintang than were the political civilian leaders 
who, of course, have the last word. It is understood that some of the military 
leaders had been rebuked for the sharp way in which they had expressed their 
criticisms to Americans. The political civilian leaders are obviously adopting 
an attitude of self-limitation with respect to the Kuomintang. 

There are two possible explanations of the moderate program adopted by the 
Chinese Communists, not only in their relations with the Kuomintang but also 
in their political, social, and economic program. 

(a) Theoretically the Chinese Communists are Maxists and believe that 
China is not yet ready for socialism, that she has to go through a stage of capi- 
talist development before socialism will even be theoretically attainable. They 
also believe that socialism can be achieved in China by peaceful means as a 
result of a long and orderly democratic process. 

(b) This practical explanation runs in terms of expediency and might even 
be called Machiavellian. According to this explanation the Communists know 
that they are growing stronger while the Kuomintang is growing weaker, and 
that as this process continues they have everything to gain and nothing to lose 
by a policy of conciliation and moderation, as things are moving in their direc- 
tion anyhow. Moreover, the policy of moderation wins them foreign sympathy. 
It is thus the easiest and most convenient way of obtaining power. While 
according to the theoretical explanation they do not desire power for them- 
selves alone for a long time to come, according to the practical explanation they 
do and the policy of moderation is the best means of obtaining it. 

Mr. Service definitely favors the theoretical explanation but Mr. Drum- 
right of the American Embassy in Chungking favors the second explanation. 
It should be noted that Mr. Drumright was formerly strongly pro-Knomintang. 
While his predilection for the Kuomintang has weakened somewhat, his an- 
tipathy to the Communists has not. This would appear to be the reason for the 
difference of opinion within American diplomatic circles in China. Mr. Serv- 
ice's conclusion with respect to the Chinese Communists is ''their interests da 
not run counter to those of the United States in the foreseeable future and 
merit a sympathetic and friendly attitude on our part". 

IV. Economic Conditions in Communist China. (This report, while per- 
functory, does bring out the most striking features of the economic situation in 
Communist China.) 

There has been a definite economic improvement in the last two years due 
in the first place to the Communist production campaign and to a succession 
of excellent crops. In the Yenan Border Area there has been an improve- 
ment in diet, wheat having been substituted for millet and cotton is being 
grown for the first time. Banditry has been eliminated. 

There has been a systematic campaign to mobilize every available hand for 
production and to eliminate loafing. Members of the Army must work either 
on the fields or in producing cloth or both. Students have to work two hours 
a day in addition to their studies. Government and Communist party officials 
also work on the cultivation of crops and vegetables and manufacturing cloth. 
The system of labor heros has been introduced to .stimulate production. The 
blacksmiths in Yenan work day and night. Private productive enterprise is 



1930 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

encouraged with liberal credits from the government and premiums are given* 
to merchants engaged in the risky business of moving goods through the block- 
ade. The number of C. I. C. units has increased from 30 to 343 in three years. 
(The number of C. I. C. units has fallen steadily during the same period in 
Kuomintang China.) The total number of co-ops is 800 and include both pro- 
ducer and distributor co-ops. 

Health has improved and there has been a reduction in mortality particularly 
from typhus epidemics. Taxes in kind are down to 12% and lower than else- 
where in China. As a result of original research in the locality, matches and 
soap are being produced for the first time from indigenous materials and are 
quite satisfactory and adequate in quality, which is unfortunately not the case 
in Kuomintang China. Paper is also being produced from a local grass. 

The official exchange rate was recently reduced from Border Area $10 to 
Border Area $8 to CN$1. The black market rate for Border Area dollars is 
actually higher, being $6 to 1 but Mao Tse-tung explained to Mr. Service they 
did not want to lower the official rate too rapidly, as many peasants holding 
CN$ would suffer. The inflation does not seem to have had an important ef- 
fect on the lives of the ordinary people. Economic conditions in general are 
booming, the main difficulty being lack of technical personnel. 

V. Interviews — off the record — between foreign journalists and prominent 
Comrwunist leaders. 

(a) Mao Tse-tung. 

The Chinese Communist goal at present is not socialism but New Democracy 
in accordance with the Three Peoples' Principles. They wish to defeat Japan, 
to institute democracy and to solve the agrarian policy. Capitalism of a pro- 
gressive character can develop in China. While they are controlling rents 
they have made rent concessions to the landlorads ; their objective in this 
sphere was not only to protect the tenant but also to reduce the profits from 
investment of capital in land in such a way as to encourage landlords to invest 
surplus capital in industrial projects. They believe in the proper treatment 
of capital both Chinese and foreign after the war and as much free trade as 
possible. There will be three forms of industrialization in China — State, large 
scale private, and handicraft. They hope that their governments will become 
lower government organs of the National Government, but they claim equality 
of party status with the Kuomintang. Village governments should be elected 
by the people and higher governments by direct or indirect election. 

Their foreign policy was in line with the Atlantic Charter and the Moscow 
and Teheran Declarations. The Comintern had no place in the Far East. 
They had received no material support from Russia. If strong enough, they 
will undertake to expel the Japanese from Manchuria. After the war there 
should be a demobilization of the Kuomintang and Communist armies in the 
proportion of 6 Kuomintang soldiers to 1 Communist soldier. 

Outer Mongolia is a part of China but should be recognized as a national 
entity, and there should be a Mongolian Federation within a United States of 
China, and similarly with the Tibetans and the Chinese Mohammedans of the 
Northwest who constitute distinct national groups. 

Japanese internal affairs must be solved by the Japanese people through 
militarism and feudalism should be wiped out. It is unrealistic to talk of the 
institution of democracy in Japan as long as feudalism survives. Colonial coun- 
tries in the Far East should have self-rule. 

There is no likelihood of a breakdown of the National Government before 
the war ends. The Communists will retreat if attacked by the Kuomintang but 
when the point is reached when they can retreat no further they will fight. 
The Generalissimo does not want Allied Mediation between the Communist 
and Kuomintang or an Allied High Command for China. Civil war would be 
protracted. What China needs is internal peace. 

(b) Chu Teh (the leader of the 8th Group Army). 

The Chinese Communists are willing to cooperate with the United States and 
would coordinate their military effort with an Allied offensive by cutting the 
Japanese North-South railroads. They had already rescued eight American 
airmen who had made forced landings. If permitted, they could penetrate 
Kiangsi, Fukien, Hunan, Chekiang, and Kwangsi. They need ammunition as 
well as light arms, radio materials, medicines, and technical personnel. The 
Kuomintang is not much interested in fighting the Japanese. Two Kuomintang 
generals had gone over to the Japanese under orders from Chungking for the 
purpose of fighting the Communists and sent their families to Chungking as 
guarantee of good behavior. The Kuomintang had hundreds of thousands of 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1931 

spies who, in the occupied areas, often cooperated with the Japanese. The Com- 
munists would accept an Allied Command in China, as the Kuommtang is bank- 
rupt and is pursuing the inconsistent dual policy of fighting the Japanese and 
the Communists at the same time. While he was not specific, Chu did not believe 
the Russians would enter the war in the Far East, as they were exhausted from 
the war in Europe. 

(c) LinPiao. 

During the last two or three years the quality of the Japanese troops in 
North China has perceptibly deteriorated. 



Exhibit No. 320 

[Pp. 13, 14, vol. 792] 

Wtt.t, the Communists Take Over China? 

The Chinese Communists are so strong between the Great Wall and the 
Yangtze that they can now look forward to the postwar control of at least North 
China. They may also continue to hold not only those parts of the Yangtze 
vallev which they now dominate but also new areas in Central and South China. 
The bommunists have fallen heir to these new areas by a process, which has 
been operating for seven years, whereby Chiang Kai-shek loses his cities and 
principal lines of communication to the Japanese and the countryside to the 
Communists. 

The Communists have survived ten years of civil war and seven years of Japa- 
nese offensives. They have survived not only more sustained enemy pressure 
than the Chinese Central Government forces have been subjected to but also a 
severe blockade imposed by Chiang. 

They have survived and they have grown. Communist growth since 1937 has 
been almost geometric in progression. From control of some 100,000 square 
kilometers with a population of one million and a half they have expanded to 
about 850,000 square kilometers with a population of approximately 90 million, 
and they will continue to grow. 

The reason for this phenomenal vitality and strength is simple and funda- 
mental. It is mass support, mass participation. The Communist governments 
and armies are the first governments and armies in modern Chinese history to 
have positive and widespread popular support. They have this support because 
the governments and armies are genuinely of the people. 

Only if he is able to enlist foreign intervention on a scale equal to the Japanese 
invasion of China will Chiang probably be able to crush the Communists. But 
foreign intervention on such a scale would seem to be unlikely. Relying upon 
his dispirited shambling legions, his decadent corrupt bureaucracy, his sterile 
political moralisms, and such nervous foreign support as he can muster, the 
Generalissimo may nevertheless plunge China into civil war. He cannot succeed, 
however, where the Japanese in more than seven years of determined striving 
have failed. The Communists are already too strong for him. 

Civil war would probably end in a mutually exhausted stalemate. China would 
be divided into at least two camps with Chiang reduced to the position of a 
regional lord. The possibility should not be overlooked of the Communists — cer- 
tainly if they receive foreign aid — emerging from a civil war swiftly and 
decisively victorious, in control of all China. 

Since 1937 the Communists have been trying to persuade Chiang to form a 
democratic coalition government in which they would participate. Should the 
Generalissimo accept this compromise proposal and a coalition government be 
formed with Chiang at the head, the Communists may be expected to continue 
effective control over the areas which they now hold. They will also probably 
extend their political influence throughout the rest of the country, for they are 
the only group in China possessing a program with positive appeal to the people. 

If the Generalissimo neither precipitates a civil war nor reaches an under- 
standing with the Communists, he is still confronted with defeat. Chiang's 
feudal China cannot long coexist alongside a modern dynamic popular govern- 
ment in North China. 

The Communists are in China to stay. And China's destiny is not Chiang's 
but theirs. 

John Davtes. 

Yenan, November 7, 1944. 



I 

1932 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

[P. 15, vol. 792] 
How Red Are the Chinese Communists? 

The Chinese Communists are backsliders. They still acclaim the infallibility 
of Marxian dogma and call themselves Communists. But they have become in- 
dulgent of human frailty and confess that China's Communist salvation can be 
attained only through prolonged evolutionary rather than immediate revolution- 
ary conversion. Like that other eminent backslider, Ramsay MacDonald, they 
have come to accept the inevitability of gradualness. 

Yenan is no Marxist New Jerusalem. The saints and prophets of Chinese 
communism, living in the austere comfort of caves scooped out of loess cliffs, 
lust after the strange gods of class compromise and party coalition, rather shame- 
facedly worship the Golden Calf of foreign investments and yearn to be con- 
sidered respectable by worldly standards. 

All of this is more than scheming Communist opportunism. Whatever the 
orthdox communist theory may be about reversion from expedient compromise 
to pristine revolutionary ardor, the Chinese communist leaders are realistic 
enough to recognize that they have now deviated so far to the right that they 
will return to the revolution only if driven to it by overwhelming pressure from 
domestic and foreign forces of reaction. 

There are several reasons for the moderation of the Communists : 

(1) They are Chinese. Being Chinese, they are, for all of their early excesses, 
temperamentally inclined to compromise and harmony in human relationships. 

(2) They are realists. They recognize that the Chinese masses is 90% peas- 
antry ; that the peasantry is semi-feudal — culturally, economically and politically 
in the middle ages ; that not until China has developed through several genera- 
tions will it be ready for communism ; that the immediate program must therefore 
be elementary agrarian reform and the introduction of political democracy. 

(3) They are nationalists. In more than seven years of bitter fighting against 
a foreign enemy the primary emotional and intellectual emphasis has shifted 
from internal social revolution to nationalism. 

(4) They have begun to come into power. And has been the experience in 
virtually all successful revolutionary movements, accession to power is bringing 
a sobering realization of responsibility and a desire to move cautiously and 
moderately. 

Chinese Communist moderation and willingness to make concessions must not 
be confused with softness or dec;iy. The Communists are the toughest, best 
organized and disciplined group in China. They offer cooperation to Chiang out 
of strength, not out of weakness. 

John Davies. 

Yenan, November 7, 1944. 

[P. 16, vol. 792] 
The Chinese Communists and the Great Powers 

Confident in their own strength, the Communists no longer feel that their sur- 
vival or extinction depends upon foreign aid or attack. Therein they differ from 
Chiang Kai-shek and his Central Government. The Communists recognize, of 
course, that the powers can accelerate or impede their expansion. It is largely 
on this basis that they view the Great Powers. 

The Soviet Union has traditionally been friendly to the Chinese Communists. 
But the Communists have never received much more than advice and money from 
the Russians. And since 1937 the Soviet Union has scrupulously withheld all aid 
from the Chinese Communists. Russian materiel has gone to Chiang and been 
used exclusively by him — in part to blockade the Communists. 

Possible future Soviet assistance to the Communists is a subject on which 
Yenan leaders are uncommunicative. It seems obvious, however, that they 
would welcome such aid for what it would mean in extirpating the Japanese and 
giving impetus to Communist expansion into Central and South China. 

With all of their strong nationalist spirit, the Chinese Communists do not 
seem to fear Moscow's political dominance over them as a result of possible 
Russian entry into the Pacific war and invasion of Manchuria and North China. 
They maintain that the USSR lias no expansionist intentions toward China. 
To the contrary, they expect Outer Mongolia to be absorbed within a Chinese 
federation. They do not see this or any other issue causing conflict between 
Russian and Chinese Communist foreign policy. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1933 

Britain, the Chinese Communists believe, is determined to play its old imperi- 
alist game of dividing China into spheres of influence. They suspect an Anglo- 
American deal giving Britain a free hand west of the line Philippines-Formosa. 
And they fear a marriage of convenience between Chiang and the British whereby 
the Generalissimo would get British support in return for special concessions in 
South China. 

The United States is the greatest hope and the greatest fear of the Chinese 
Communists. They recognize that if they receive American aid, even if only on 
an equal basis with Chiang, they can quickly establish control over most if not all 
of China, perhaps without civil war. For most of Chiang's troops and bureau- 
crats are opportunists who will desert the Generalissimo if the Communists 
appear to be stronger than the Central Government. 

We are the greatest fear of the Communists because the more aid we give 
Chiang exclusively the greater tlie likelihood of his precipitaing civil war and 
the more protracted and costly will be the Communist unification of China. 

So the Chinese Communists watch us with mixed feeling. If we continue to 
reject them and support an unreconstructed Chiang, they see us becoming their 
enemy. But they would prefer to be friends. Not only because of the help 
we can give them but also because they recognize that our strategic aims of a 
strong, independent and democratic China can jibe with their nationalist 
objectives. 

John Davies. 

Yenan, November 7, 1944. 

Exhibit No. 321 

[P. 232, vol. 771] 

Treasury Department, 
Division of Monetary Research, 

September 27, 1941 
To : Secretary Morgenthau. 

I think you will be interested in reading this letter from Mr. Friedman, in 
China. 

H. D. W. 
[Penciled note : White — See page 3. HMJr. Done.] 

Mr. White, Branch 2058, Room 214% 

[Pp. 233-240, vol. 771] 

September 14, 1944. 

Dear Mr. White : Thank you for sending me on that trip to Kunming and 
Chengtu. It was a very interesting and stimulating experience. I am sorry that 
I was unable to write to you during the trip because of inadequate mail facilities, 
i. e., I could send mail but the censors insisted at these places that they would 
have to read it, which is not done here. 

The big news in Chungking these days is, of course, the seemingly inevitable 
fall of Kweilin and Luichow, a major airbase to the south of Kweilin. The 
Japanese have already advanced beyond Lingling, capturing or making unuseable 
many of our best bases in Eastern China. It was from these bases that the 14th 
Air Force carried out its successful sweeps against Japanese shipping off the 
China coast and effectively bombed Japanese strong points on Formosa. There 
are many theories prevalent as to why the Japanese are making the drive at this 
time and they range from purely military ones such as the desire of the Japanese 
to delay and make more difficult an American landing on the China coast to such 
highly political ones, such as that this campaign is part of an understanding 
between the Central Government in Chungking and the Japanese whereby the 
Japanese are destroying the most effective center of anti-Chungking feeling out- 
side of the Northwest. In this connection, you may find the following incident 
of some interest. When in Chengtu, I visited Dr. Mei, the President of Yengching 
University and, I understand, a loyal supporter of the Chungking Government 
who has at times been used for "confidential missions". Making conversation, 
he said to me, "Of course, you have heard the rumors going around town that 
the Generalissimo is conducting peace negotiations with the Japanese." I said 
nothing, not having heard the rumor, but tried to look wise and receptive. Dr. 
Mei went on "These rumors are not true, but even if they were true, the Gen. 
would only be doing it to amuse himself." 



1934 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

It seems, however, that the fall of Kweilin at this time will not have the 
dramatic effects that were anticipated in late June and early July. By now, the 
edge seems to have been taken off the defeat while everywhere I went, Japanese 
successes prior to the fall of Hengyang were openly descriped by the Chinese as a 
"national disgrace," the present Japanese successes are being shrugged off as in- 
evitable and as being more than counterbalanced by Allied successes in Europe 
and the Pacific. 

The People's Political Council meetings are of course getting considerable pub- 
licity. The Central Government has seemingly, under public pressure, allowed 
the Council greater freedom of discussion than in last year's meeting. There has 
been particular criticism of the conscription methods used by the Central Gov- 
ernment and just prior to the meetings the head of the conscription administra- 
tion was removed. There has also been discussion of widespread corruption in 
administration, with special attention to corruption and abuses in collection of 
land tax in kind. The discussion on financial situation was held in executive 
session. The Chungking Government seems to be following the policy of remov- 
ing the sting from the expected criticism by having Minister after Minister openly 
confess the sins of his administration prior to their discussion by the Council 
members. According to reliable sources, the Communists are going to raise the 
question of Communist-KMT relations at an open session, i. e. press present, and 
lay before the Council a dossier giving the complete history of the negotiations 
which are now stalemated. The Communists are displeased with the Generalis- 
simo's speech which was taken as an open attack on them in his emphasis on need 
for abolition of independent armies. 

The bargaining position of the Communists would seem to have been con- 
siderably strengthened by the U. S. military mission to the Northwest. Not only 
has the State Department been receiving most enthusiastic reports from its rep- 
resentative with the mission, Jack Service, but the military men who have gone 
up and come back speak nothing but the highest praise for the Yenan people. 
They seem to be literally astounded by the cooperation which they are getting, 
the eagerness of the people there to learn from the Americans, the relative physi- 
cal comfort in terms of good, clothing and shelter and the general atmosphere of 
good will. MacFisher, head of the OWI here has also gone up to study psycho- 
logical warfare possibilities. The U. S. military men here are vying for the 
opportunity to go up there and see the situation for themselves. 

In this general atmosphere of increasingly outspoken criticism of the Chung- 
king Government and growing popularity among Americans here of Yenan Gov- 
ernment, the Chungking Government is said to be on verge of making some con- 
cessions to the People's Political Council : give Council the right to examine the 
budget, expand membership from 240 to 290, and have next assembly consist of 
representatives elected by provincial assemblies. 

You will be interested to know that in that part of discussion on inflation re- 
ported in English-language press, the entire blame for sharp rise in prices in early 
part of 1944 was placed on Chengtu project — which of course, is a gross exaggera- 
tion and merely another example of how the Chinese try to make us the scape- 
goat for their mistakes and failings. Many of the U. S. military people here 
expect that if Kweilin falls, the fault, according to the Chinese, will be the 
Americans. 

The Nelson-Hurley visit is now in full swing. I had an interesting talk with 
Nelson and his assistants which was brought to an abrupt end by the entry of 
General Hurley. At the press conference here, Nelson was very cautious as long 
as Hurley was present, but as soon as Hurley left, Nelson opened up and spoke 
quite frankly about his difficulties in Washington and his conflict with the Army 
on reconversion. In Kunming, there was considerable bitterness and criticism of 
the Mission, on the grounds that it strengthened the position of the Central 
Government at a time when it was rapidly losing prestige and power. There was 
similar criticism of the attention given to Dr. Kung, particularly the invitation 
to address the Senate. 

The situation in Kunming is of considerable importance. There the governor, 
Lung Yung, is outspokenly critical of the Central Government and was quick to 
point out in talk with Consul General and myself that while his provincial troops 
were not "provincial" troops but actually "national" troops, they were not 
"Kuomintang Party" troops ! The Central Government is not able to exercise 
effective control in this area so that you find outspoken criticism of it in the press 
and in conversation. Thus, Lung Yung, a provincial ward-lord surrounded by 
opium-smuggling and opium-smoking henchmen, becomes the guardian of the 
liberals and democrats ! There is much hinting at open opposition to the Chung- 
king Government and secret contact has been established between the Com- 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1935 

rnunists and the Lung Yung-liberal combination, but, nevertheless, you get the 
impression that anything like open opposition will not come in the very near 
future, unless the lead is given by developments in other areas such as the setting 
up of a separatist government in the Southeast of China. 

In Chengtu, the situation is even more obscure. There the Governor is a 
strong Kuomintang supporter but real control rests in the hands of local war- 
lords nominally friendly to the Central Government. As in Yunnan, these war- 
lords, who also engage in such things as opium smuggling, seem to feel that 
their hope foT survival lies with their being "popular" and again you have them 
protecting outspoken critics of the Central Government. The most important of 
these groups is the Young China Party which, in the Chengtu area, is largely a 
party of landlords who have seemingly never forgiven the Communists for the 
treatment they accorded these landlords on their way to the Northwest back 
in 1935. There is no outward evidence of a Communist movement in the Chengtu 
area, but I understand that plans are being executed for establishing contact 
between the dissident groups in Yunnan and those in Chengtu region and that this 
will be effected during the next few weeks. This can all be accomplished within 
the framework of the Federation of Democratic Parties which is non-communist, 
pro-democratic reform and anti-Chungking. 

Kunming was also interesting because it is a center of U. S. military activity. 
Air traffic over the "hump" is now well over 20,000 tons per month and when I 
was in Kunming, it was at the rate of nearly 32,000 tons per month, or probably 
twice as much military supplies as ever came orer the Burma Road, but still 
just a few Liberty boatloads. 

I should, perhaps, point out here that the 14th Air Force is a very impressive 
organization. With a force of only about 15 thousand men, as of July 15, they 
had destroyed over one million tons of Japanese shipping, had inflicted well over 
16 thousand casualties on the Japanese (16.000 is figure for Hengyang campaign 
alone) and had shot down over 2 thousand Jap planes against about 200 U. S. 
planes lost. While the Chinese are doing ineffective dying in Southeast China 
and on the Salween, the Americans are doing effective fighting everywhere in 
Free China. 

I picked lip a few tidbits on my trip which were quite interesting and I would 
like to pass them on as I feel they are quite revealing as to the present situation, 
although they might be considerable exaggerations. 

The Chinese forces on the Salween are repeating the oft-told tale of corrup- 
tion : starvation and disease due to callousness and mismanagement by the top 
military people ; useless slaughter of heroic troops under the command of men 
totally ignorant of military warfare : defeatism in the high command to a point 
of a psychological inability to realize that Chinese troops properly fed, equipped 
and led can defeat Jap troops ; soldiers sent into battle against superior numbers 
of Japanese troops because no Chinese commander will risk the major portion 
of his troops in any one engagement; soldiers sent into battle with insufficient 
training and not instructed to crouch or dig fox holes because such protective 
measures would mean loss of face ; soldiers making futile and costly frontal 
assaults in daylight ; Chinese losing 3 to 1 against the Japs, while Merrill's 
Marauders killed 60 to 1 : Chinese commanders insisting on bringing in more 
troops than planned for. thus upsetting at the last moment carefully laid plans : 
American advisors being ignored except to he asked question — how soon could 
the necessary supplies be made available? These are not my thoughts but rather 
the opinions given to me by high ranking American officers who had just returned 
from the Salween front. 

These are some stories they tell : 

When the Chinese forces came to the Salween, the American engineers esti- 
mated that it would take them about 4 days to build a bridge across the river. 
It took the Chinese seven weeks, for a month was spent convincing the Chinese 
command that a bridge should be built. The Chinese command opposed the con- 
struction on the grounds that if a bridge was built the Japanese could use it in 
a counteroffensive aimed at capturing Kunming. 

The Chinese on the Salween were shelling one of the many highly publicized 
Jap points of resistance. One Sunday an American GI decided to go for a stroll 
through the town and did so. He saw some dead Japanese and picked up some 
souvenirs in true American fashion and calmly walked through the town as 
though on a Cook's tour. He didn't see any live Japanese or any evidence of 
such. After he returned and reported his rather extraordinary experience, the 
Chinese continued to shell the town, and a week after this incident still hadn't 
stormed the town. 



1936 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

As for the famous battle of Sungshan mountain in which the Chinese dislodged 
the Japanese from the top of this mountain, the Chinese kept asking for more 
and more dynamite until General Dorn finally asked why so much dynamite, since 
he had given them enough for a campaign. They showed him the plans of attack 
and, in the words of the teller of this story, their plans called for tunneling 
through this mountain practically at its base. When the day came for the big 
blowoff every coolie in the Salween knew about it. Finally the charge was 
exploded, while the Chinese withdrew to a safe distance. After the smoke had 
cleared the Japanese were found to have moved out of their pillboxes into the 
craters conveniently made for them by the explosion and the battle went on. 

According to one informant, the Japanese have only 4,000 troops preventing 
the reopening of the Burma Road, and the progress that is being made is more 
the result of Japanese deliberate withdrawals than Chinese pressure. It is said 
that the combat efficiency of these troops as compared with Americans is about 
three percent. (I hear in Chungking that the Japanese are now sending rein- 
forcements into Northern Burma.) 

The stories I heard about the North China (Honan) campaign were, if any- 
thing, even worse. I will give you one — when it was recommended to General 
Chow Cheh-jou that the Chinese Composite Air Wing bomb a concentration of 
Jap tanks in one of the rail centers before the Honan campaign really got under 
way, General Chow felt that this would be a misuse of his air power which 
should instead be saved for the battle. The net result, as told to me, was that 
the same airmen had to seek out these same tanks in groups, of 2 and 3 when 
they were scattered throughout the countryside and spearheading the Japanese 
drive, instead of getting them all in a bunch. 

I have more of such tales, but I'm afraid that I've already given you more than 
enough to make the point. The others can be had for the asking. 

( No signature. ) 

Exhibit No. 322 
[Pp. 54-63, vol. 703] 

[Penciled note: Harry White is there anything in this I ought to know? — 
H.M.Jr.] 

[Declassified: Treas. ltr. 11/3/55] 

February 22, 1944. 
To: H. D. White. 
From: S. Adler. 

Subject : Report of Press Conference on Chinese Internal Situation. 

There is appended a detailed report of the press conference held by the 
Minister of Information and Vice-Minister of Foreign Affairs on February 16. 
The conference, which sheds a great deal of light on the internal situation in 
China, lias already contributed to a slight relaxation of the tension which char- 
acterizes Kuomintang-Communist Party relations. One local wit has remarked 
that the foreign press conference fulfills the role of the Chinese Parliament as it 
is the only place where Cabinet Ministers can be interpolated and interrogated. 
Because of its highly dramatic character, the conference is reported in the form 
of a one-act play ; for background information Liang, the Minister of Informa- 
tion, who is a member of Dr. Sun-Fo's group, is an incorrigible and unscrupulous 
prevaricator, while Dr. K. C. Wu, the Vice-Minister of Foreign Affairs, is a 
smooth nonenity who largely owes his position to the fact that he has a beautiful 
wife who is a close friend of Madame Chiang. 

Drdmatis Personae. 

Liang, Minister of Information. 

Dr. K. C. Wu, Vice-Minister Of Foreign Affairs. 

Dr. P. H. Chang, Counsellor of the Executive Yuan. 

Brooks Atkinson, New York Times Correspondent, referred to as B. A. 

Theodore H. White, Time and Life Correspondent, referred to as T. W. 

Gelder, News-Chronicle Correspondent, referred to as G. 

Guenther Stein, Christian Science Monitor, Daily Telegraph and Manchester 
Guardian Correspondent, referred to as G. S. 

Israel Epstein, Sydney Morning Herald Correspondent, referred to as I. E. 

Various other foreign correspondents. 

Scene: Conference room of Ministry of Information, Chungking. 

Time : The afternoon of February 16, 1944. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1937 

The conference opens with Mr. Liang, Dr. Chang, and Dr. Wu seated at the 
head of a long table with the various foreign correspondents sitting around the 
table. 

T. W. : "The Central News (the official Chinese Government news agency) 
recently issued a statement on American politics saying that despite all talks of 
unity there was great disagreement between the two American parties. It is 
good that such a thing should be published in China, but American correspond- 
ents would like to publish similar articles about China. This is why I am now 
going to ask if the Minister can tell us if the blockade of the Communist area is 
still continuing." 

Liang: "What do you mean by blockade? And what is your source of infor- 
mation regarding the blockade, and where does it come from?" 

T. W. : "I have been in Sian four or five times since 1939. There I was told 
it was impossible to go from Sian to Yenan, impossible to send medical supplies, 
and that military supplies were not being sent. People do not go to Yenan. 
This is the blockade that I refer to and which I should like to know more about." 

Liang : "I know that men like Chou En-lai and his people go to Yenan without 
any restrictions being placed on their movements. Transportation of the 18th 
Route Army goes back and forth without hindrance. So the word "blockade" 
does not seem to bear out the situation." 

B. A. : "Does the spokesman deny that there is any blockade of the North- 
western area?" 

Liang : "I cannot understand the situation when you refer to 'blockade' because 
to my knowledge representatives of the National Military Council go back and 
forth, and there is constant communication in that respect." 

G. : "How many transports of medical supplies have been allowed to go 
through since 1940?" 

Liang : "I cannot give the information because the question must be referred 
to the National Military Council." 

G. S. : "Does the Minister know of medical supplies from abroad specifically 
sent for this area which were detained and confiscated?" 

Liang: "I have heard about this but have not got the full information with 
which to answer the question." 

A foreign correspondent: "Can we be given this information at a later date?" 

T. W. : "According to articles published in America, since 1939 the Communist 
Army has received no supplies from the Government. Can the Minister tell us 
whether military supplies have gone to the 18th Group Army?" 

Liang: "In order to get details I suggest that you might interview General 
Ho Ying-Chin (The Minister of War)." 

B. A. : "If the Minister objects to the use of the word "blockade," is there any 
other word we can use to describe the situation? For it is common knowledge 
that people cannot pass freely to Yenan as to other parts of China." 

Liang : "In connection with this problem of the relationship between the Kuo- 
mintang, the Government, and the Communist Party, I shall say a few words 
"off the record". In this connection I am looking forward to the opportunity 
to invite the foreign friends to a specially arranged meeting when the question 
will be discussed more thoroughly. In the eyes of the Chinese people the rela- 
tions between the Communists and the Government are regarded as something 
concerning our internal situation — our internal affairs. The present policy of 
the Government is to seek a solution by the political method. So in connection 
with the relations between the Communists and the Government it is not the 
intention of the Government to make an issue for publicity abroad. In the past 
there were two occasions . . ." 

T. W. : "May we have an 'on the record' statement?" 

Liang : "In order to avoid the situation being misunderstood, I have said a few 
words, and as a matter of fact shall not dwell on the subject unless you request 
it for discussion. The differences which might exist between the Kuomintang 
and the Communist Party could be ironed out. because such differences are 
regarded as matters of domestic concern and the Chinese people do not think that 
such differences which could be ironed out should be treated as material for 
propaganda abroad. The Chinese attitude towards the situation is like this : 
the whole thing may be likened to a family dispute in which some members of 
the family differ from the views of other members of the family. Such disputes 
will eventually be settled; so I think it is not necessary for these things to be 
publicized. Fundamentally there is a psychological difference between Western- 
ers and Easterners in looking at the situation. I say that in Chinese thought it is 
important to remember that the man in power says little and acts more." 



1938 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

G. : "Is the blockade in Chinese thought a sample of action?" 

Liang: "To have a good government it is necessary to do more and talk less. 
We do not emphasize propaganda. In the West you think you should publicize 
new regulations made by your government. This is an example of difference 
in psychology. 

T. W. : "We are constantly pressed by people in America who wish to know 
what is going on. We wish to know the answers to our questions for publication 
in America, just as Chinese correspondents send out dispatches about us." 

Liang: "The situation is a little bit different. I think our correspondents 
would be very glad to obey your Government's orders if they asked them not to 
ask such questions. The Chinese Government forbids answering such questions. 
If there is no blockade . . ." 

Wu: "There is no blockade in North China." [Laughter.] 

G. : "If both members of a family have guns in their hands and the guns go 
off, isn't that a serious situation?" 

Liang : "How do you know the guns will go off? It is the policy of the Govern- 
ment not to let the guns go off. There is no possibility of the guns going off." 

G. : "But the Chungking Government has guns to prevent me from going up 
to the Northwest." 

Liang : "We have soldiers here too. We do not fear that any of our soldiers 
here will let their guns go off. There are troops everywhere for police purposes." 

T. W. : "This is a family dispute. I have heard a Minister of the Government 
say that the Communists are a group of gangsters, warlords, etc. This does not 
sound like a family quarrel." 

Liang: "These words (above) were not said for publication. I do not think 
that the matter should be given emphasis and that the situation be aggravated 
by putting too much stress on the affair. In the eyes of the Chinese people and 
the Government the less emphasis we place on the affair the better for every- 
body." 

T. W. : "This is not a question of over-emphasis but of under-emphasis. Not a 
single correspondent has been allowed to send out a full dispatch on the situation 
for over a year." 

Liang : "In the first place we are fighting this war for a common purpose. It 
is for the final victory that China should be unified. It is our declared policy 
to be unified and to solve the difficulty by political means. There is therefore 
no reason to have foreign countries make out this matter as if it could not be 
solved in a political way. It is the sincere, earnest desire of the Chinese Govern- 
ment to solve it in a political way, and therefore we do not want to talk about it. 
It is no good to make a lot of noise about it. As a war correspondent of a friendly 
ally you should not do it." 

B. A. : "What is the status of the 18th Group Army? Is it an integral part of 
the nationalist army on the same basis as other armies?" 

Liang: "It was originally regarded as a part of the regular army but due to 
cases of insubordination a new situation has arisen and supplies have not been 
sent to them." 

B. A. : "For how long?" 

Liang: "But it is the wish of the Chinese Government that the ISth Group 
Army may become once more a part of the Chinese forces, the Chinese Army, as 
was the case when the war first broke out, and at a previous conference the 
Minister mentioned that the Communist Party indicated a desire to send a few 
members to Chungking and in compliance with their wish a message of welcome 
was sent to them intimating that the Government is prepared to seek a solution 
by political means." 

G. : "What basis is there at the present moment for negotiation, including the 
fact that the Minister says that a new situation has arisen and no supplies have 
been sent?" 

Liang: "When I assumed office I made the remark that the report that an 
armed conflict would occur was without foundation and that the matter could 
be borne out by fact and that in six months' time you would see that what I said 
was true. It is now nearly six months since that statement was made. An armed 
conflict has not occurred, bearing out what I said. The situation became aggra- 
vated when the report was circulated that the radio station of the 18th Group 
Army had been closed down, and I made a statement that there would be no 
possibility of conflict and that the measure was applied to all stations." 

G. : "I hope we shall not be accused of rumor. When I asked if the station was 
closed I was told that it was not closed. The station to which I was referring 
was closed and is closed — I know for a fact. I expect a direct answer to my 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1939 

questions. If what the spokesman has said is an implied criticism, I think the 
statement should be withdrawn." 

Liang : "So far as I know, the day you make the inquiry the radio station was 
not closed (This is an unmitigated lie, see Addenda), although the order had 
already been issued to close all the radio stations of the different military groups 
and was later carried into effect. There was no prevarication. Later it was 
closed." 

G. : "I was told that the Government did not wish unproved news to go out of 
China, I was invited to go and see the station in operation. I accepted the invi- 
tation, but I was never taken to see the station." 

Liang : "Later it was closed. What would have been the use of taking you to 
the station one day when it was working when the next day it was to be closed?" 

G. : (heatedly) "If we are to be accused of interpreting suggestions here as 
rumor, I do not propose to ask any more questions." 

Liang: "Did anybody say that you, that Mr. Gelder, was spreading rumors?" 

T. W. : "The Japanese radio continually says that they are fighting with the 
New Fourth Army, but in Chungking we are told that the New Fourth no longer 
exists. Which is true?" 

Wu : "If you want to read Japanese news, go ahead." 

Liang: "There are elements in China who are playing up the situation * * * 
in order to serve their own ends. Recently a message carried by Reynolds News 
quoted Madame Sun Yat-sen's statement in connection with her appeal to labor 
in England and America saying that the reactionary elements in Chungking are 
trying to tighten the blockade against the Communist area and that China was on 
the brink of conflict. Here is a report, apparently a twisted report. I called on 
Madame Sun and she denied it, producing the original telegram which reads : 

"On 32nd anniversary founding Chinese Republic we must remember that 
progress toward democracy is like learning to swim. One learns not by talking 
about it but by getting into the water. War against Japanese military fascism 
provides another measure ( ?). Those serve best who devote all their energies to 
fight against aggression. American friends can help Chinese democracy by ac- 
tively supporting all elements actually engaged in fighting Japan — Soong Ching- 
ling (Madame Sun)." 

"There is nothing like 'reactionary elements' in her telegram and nothing like 
a demand for lifting the blockade, etc., and yet such reports appeared and were 
carried by Reynolds News. As a matter of fact her wish is that there should be 
cooperation among parties in China in the best interests of fighting aggression. 
(For the correct details of this episode which Liang has distorted see Addenda.) 
I do believe that you want to report the truth — either reporting the truth or vis- 
ualizing the situation before it comes about like a prophet or a man of prudence 
and wisdom but refusing to be instrumental for something which does not exist. 
Once more, I reiterate that I would like to have the opportunity to put the matter 
before you in future, and if you will excuse the spokesman this matter will be 
regarded as concluded." 

Chang : "The Minister of Information proposes to conclude for the time being 
the discussion. This question of the Communists will be discussed later and he 
further proposes in the very near future to invite you to a special conference in 
which he will give you a long talk of two or three hours, and there you will have 
ample opportunity to thrash out everything. 

"In connection with the cables which you will be sending, the Minister would 
state clearly that in his opinion if whatever is sent does not work to the detri- 
ments of the interests of the Government, the Government is doing its best to set- 
tle the affair by political means, the Minister would not see the necessity for 
censorship : but if it works against that important purpose, the Minister is afraid 
that a measure of censorship will have to be enforced." 

I. E. : "With regard to the statement that the 18th Group Army was regarded as 
an army of the National Government until a situation arose which necessitated 
the stopping of supplies, how long have the supplies been stopped? Second, with 
regard to the cable sent by Madame Sun Yat-sen in which she says "American 
friends can help Chinese democracy by supporting all elements actually engaged 
in fighting Japan", can we not take this as an implied criticism that the two 
armies are not equally supported?" 

Liang: "I will answer later as to when payment of troops was suspended. 
The situation was this, the Communists were collecting taxes on their own 
responsibility. The moment that was known to the Government payment was 
suspended. 



1940 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

"In the original telegram the phrase 'American friends' is mentioned and has 
nothing to do with the Chinese Government. Within the last two weeks there 
has been no special reason to lay special emphasis on the Communist problem. 
Within the last two weeks one Army Corps has been withdrawn from the area. 
(Previously three armies had been added.) From the Chinese Government 
point of view we think the situation is not tense at all. In fact it is very quiet." 

T. W. : "There has been a very great lessening of tension in the last two 
weeks, and no correspondents here have have fear of civil war before the 
Japanese are defeated. But for months and years we have been blockaded. We 
have not been allowed to mention the situation. Now the pressure on us is 
intense, and we in turn are turning the pressure on you. We do not want to 
make any trouble in China. We would like to paint accurate pictures. We 
refuse to send out partial accounts." 

Liang : "It is to nobody's interest to dwell on this. Differences can be ironed 
out. Why should we make a mountain out of a molehill?" 

T. W. : "You are trying to make a molehill out of a mountain." 

Liang: "An Army Corps has been withdrawn. But why play up this fact? 
Why not wire back that the situation is less tense?" 

G. : "China has constantly demanded increased aid from America and Eng- 
land. That will cost many lives, and British people are entitled to know whether 
China is all-out to defeat Japan. If the Chinese Central Government has 
thousands of troops blockading other Chinese troops, how can they be all-out 
against Japan?" 

Liang : "In Szechuan we have a lot of troops. In every war you have both 
to fight at the front and to police in the rear. You are much better organized 
and do not need this. It is to the benefit of everyone that peace and order be 
maintained." 

G. : "It is not fair to assume that correspondents are critical of this situation 
just for the sake of being critical. We have asked and are entitled to ask again 
that we shall be allowed to go to the Communist area." 

T. W. : "I have never been in a country where correspondents have such an 
affection for the country they are in as here, but our affection for this country 
cannot prevent us from telling the truth to our people." 

G. : "I want to ask if we shall be allowed to go to the Communist area." 

T. W. : "If the Government is going to make a statement about the situation, 
I should like to ask the Communists to prepare a statement to cable also." 

Liang : "The Communists have been making all kinds of statements. I should 
like to find out if the Central Training Corps ( ? probably Course, given in Cen- 
tral Training Institute to Government officials, Kuomintang functionaries, and 
all Chinese who are going abroad) has been regarded as a concentration camp." 

T. W. : "No, I have not heard that." 

G. S. : "Can we ask Yenan for a statement on the situation?" 

Liang: "Not from a separate government in wartime." 

G. S. : "Will you allow me to send a cable to Yenan asking for a statement? 
If and when I get a reply, will you allow us to publish it?" 

Wu : "It is not our system to allow local governments to make separate state- 
ments. Sir Oswald Mosley was forbidden access in your country." 

G. : "Are you suggesting that the Communists in North Shensi stand in the 
same relation to the Central Government as Mosley to the British Government?" 

Wu : "Oh, no. Do not quote me. I am just talking." 

T. W. : "There should be free speech unless it endangers the war. Mosley 
said the German system was the best and was doing his best to undermine the 
Government." 

Liang : "I do not wish to say that the Communists are trying to undermine 
us. If we go that far, how can we solve this question?" 

G. S. : "Is it worth my while to spend money on such a cable?" 

Liang: "You must send it by the military telegraph station." 

G. S. : "So there is a blockade." 

A foreign correspondent : "Are correspondents permitted to go to Yenan and 
North Shensi?" 

Liang : "So far as my opinion is concerned I hope that all of you may go, but 
this has to be approved by the military authorities." 

B. A. : "Here is a letter signed by some of the correspondents to the General- 
issimo, asking for permission to go to Yenan." 

Wu: "So this was all prearranged." [Laughter.] Conference adjourns. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1941 

ADDENDA 

1. With respect to the Communist radio station in Chungking, it was closed on 
January 15. The news got out and journalists started asking questions. Gelder 
towards the end of January asked specifically if the Communist station was 
closed. He was told that it was not and that he could go see for himself. 
When he took up the offer he was turned down. On February 4 the Government 
issued an order, making it retroactive to January 15, closing down all non- 
Central Government radio stations in Chungking. The ground that was given 
was military secrecy, it being claimed that the Japanese had broken one of the 
codes. It was pointed out by the journalists that from the point of view of 
military secrecy it was much better to let the 8 radio stations of the various 
provincial governments and area armies continue to function than to have all 
messages sent on the National Military Council radio which the Government 
spokesmen admitted used only one code. 

2. With respect to Madame Sun, it appears that Liang did call on her to ask 
if she was responsible for the statement in Reynolds News, which she denied. 
But she has written both to the foreign press and to Liang that he distorted her 
formal denial to include a denial on her part of the existence of a blockade, a 
denial she had never made. On the contrary as the trustee of foreign relief or- 
ganizations which had been trying to send medical supplies to the Border areas 
she had been fighting the blockade for 4 years. (Incidentally General Ho Ying- 
Chin and Wu Tei-chen called on her to rebuke her for her message to England 
and America. Moreover she has received an invitation from some American 
relief organization to visit the United States, but she was told by the powers 
that be that she could not leave China.) 

3. After the press conference of February 16, the Counsellor of the British 
Embassy here sent for Gelder and rebuked him for asking questions which were 
embarrassing to the official Chinese spokesman. Gelder who is a pretty inde- 
pendent and ultra-professional journalist told his Counsellor to go to hell. This 
attitude on the part of the British Embassy is in marked contrast to the attitude 
of our Embassy, which views the interest the journalists are taking in Chinese in- 
ternal affairs with at least tacit sympathy. 

4. Our military attache here, who is not particularly well-informed on in- 
ternal problems, rather foolishly boasted that he had encouraged the journalists 
to raise the whole issue. As a matter of fact his boast is inaccurate, as the 
journalists were quite capable of doing it off their own bat without any outside 
encouragement. Be that as it may, the boast reached the Generalissimo's ears ; 
accordingly he sent for our leading military representative and pointed out that 
the military attache was not only the representative of the American Army but 
also a representative of the United States Government and that he had therefore 
no business to meddle in such matters. 

5. The foreign correspondents' petition to visit Yenan has been presented to the 
Generalissimo, but no action has yet been taken on it. (On possible visits to 
Yenan see body of my letter.) 

6. Hollington Tong, the Vice-Minister of Information in charge of supervising 
foreign correspondents frankly told one foreign correspondent that the reason 
why the Government has not let them visit Yenan is that all correspondents who 
have been up there have come back with favorable reports. Incidentally at a 
meeting of high Government officials last Monday General Ho Ying-chin com- 
plained that Hollington Tong had failed in inculcating the right approach among 
foreign correspondents and that the Government had lost out to the Communists 
in this respect. 

7. It is reported that partly as a result of last Wednesday's press conference 
two truck loads of medical supplies are to be allowed to go through the blockade, 
but this report has not yet been confirmed. 

POSTLUDE 

On Thursday the 17th, six foreign correspondents interviewed General Tung, 
who has represented the Communists here since Chou En-lai's departure. Tung 
stated that the Communist policy was to support the Central Government as 
long as it led the War of Resistance against Japan and insofar as it honestly 
aimed at the realization of the Three People's Principles; he claimed that in the 
Border Areas they had already realized the First Principle of Nationality and 
the second Principle of Democracy but that they were still far from attaining the 
third Principle of the People's Livelihood. The Communists certainly did not 
desire a civil war. As for the blockade he said the journalists could go up to the 



1942 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Northwest to see for themselves and advised them to note the number of block- 
houses if they did make the trip, adding that you could always move soldiers 
around but that you could not move blockhouses. He also indicated that the 
Communists would welcome the journalists going to Yenan. The journalists 
concerned prepared stories of this interview, all of which have gone to the 
Generalissimo for censorship. 

N. B. — All of the above is strictly confidential. The press conference was "off 
the record" and should therefore be treated as strictly confidential also. 



Exhibit No. 323 

[Pp. 37-51, vol. 703] 

February 22 (1944). 
Letter V 

Dear Dr. White : Chungking has been quite lively of late, in fact, more so than 
for a long time, and there are quite a number of developments to report. 

1. Interna I Political Situation 

There has been a slight relaxation of tension in Kuomintang-Communist Party 
relations, which improvement is due to a considerable extent to the lively interest 
shown in them by foreign public opinion in general and by foreign correspond- 
ents in Chungking in particular. So exciting was last week's press conference 
on the subject that I am enclosing a verbatim stenographic report which I am 
sure you will enjoy reading. Have also attached addenda on background and 
on points arising out of the conference. The same subject will be discussed at 
today's press conference, too, and if news of it reaches me before this letter 
catches the pouch, it will, of course, be appended. It will be noted that the 
Central Government, while deploring foreign interest in, is extremely sensitive 
to foreign opinion on, the subject. One must give credit to the foreign press 
corps in Chungking for playing a most constructive role in the present situation. 

With respect to possible trips by foreigners to Yenan : 

(a) The President has sent a message to the Generalissimo through the War 
Department asking for permission to send military observers to North China and 
the North China fronts in order to obtain military information on Manchuria, 
to which the Generalissimo has replied that he is willing to allow American 
military observers to go anywhere in North China where there are Central 
Government troops and where Central Government authority extends, adding 
that there is no need for such observers to go to Yenan as no information on 
Manchuria can be obtained there. Even this is a concession, as previously move- 
ments of our military people have been strictly limited. In any case, the Presi- 
dent's request is regarded by our military people as the first move towards a 
flat request for permission to send military people to the Border areas. 

(b) The War Department is about to ask outright for permission to send people 
to the Border areas, and the State Department is going to do likewise, so that 
it will probably take the form of a joint request. 

2. U. 8. Army Expenditures in China 

(a) According to latest USAAF confidential estimates, current and planned 
projects will cost CN$6 billion per month for the next four months for their exe- 
cution. While no specific information is available for plans after June, it is 
known that the maintenance of operations at the level it is planned to reach 
in June will cost CN$3 billion per month afterward, and it is assumed that the 
Army will not subsequently be content with merely maintaining operations at 
the level attained in June, but rather will be anxious to expand them. 
The objections to such heavy expenditures are obvious: 

(1) The Government note issue (monthly figures for which have been 
withheld from me since November) is now at least CN$5 billion per month 
and may well be 6 ; while estimated Chinese Government expenditures for 
1944 are CN$80 billion and estimated revenue CN$35-40 billion, it is more 
likely that expenditures will approximate CN$100 billion and revenues 
CN$25 billion, leaving a deficit of CN$75 billion, which will inevitably be 
met by recourse to the printing press. Clearly USAAF expenditures in 
China which have to be financed by expansion of note issue will, if they 
attain the scale contemplated, lead to a doubling of the currently monthly 
expansion of note issue. The dislocation of the Chinese economy resulting 
from such a huge increase in the note circulation, from the consequent rise 
in prices, and from the diversion of labor and resources necessary to carry 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1943 

out the projects will be of the gravest kind, to put it mildly. The U. S. 
Army, and therefore the United States Government, would be assuming a 
tremendous responsibility if they risked subjecting the Chinese economy to 
so severe a strain. It is certainly arguable whether the military advantages 
accruing from so large a volume of expenditures would more than counter- 
balance the damage to the Chinese economy, the possible collapse of the 
Chinese war effort resulting therefrom, and the general internal dislocation 
in China. 

(2) From a political point of view, from our experience of Sino-Ameri- 
can financial relations it is hardly likely that the Chinese would be content 
with merely ascribing the moral responsibility for such economic dislocation 
as would ensue to us. It is much more on the cards that they would say : 
"You got us into this mess. Now get us out of it." And we should have no 
pat answer to their claims. The political and financial responsibility for 
the economic reorganization of China is not one we can lightly assume. It 
must be remembered that firstly the present Chinese Government is a past 
master at seeking alibis and looking for someone other than itself to blame 
and to shoulder the burden which it should carry and that secondly the 
economic situation is already sufficiently critical without the imposition of 
so heavy an additional strain on it. In fact such large expenditures which in 
all probability would lead to an inevitable economic denoument would give 
the Central Government just the out it is looking for. Kung is already 
hollering to high heaven about the black market rate, and we don't have to 
have a vivid imagination to picture the squawks he could raise in the 
situation which would ensue. 

Another point worth making in this context is that such expenditures 
would have political repercussions within China of an undesirable character. 

(3) From a military point of view it is also arguable whether the results 
would be worth the cost. Many military experts in the China theater are 
skeptical as to whether the military outcome would be all that is expected. 
Naturally this is a matter of high military policy and the layman cannot 
see the problem in its grand global perspective. But many informed people 
believe that as the war draws closer to Japan, the Japanese will strengthen 
their inner bases and lines of communication and that as part of this policy 
they will make a determined effort to capture the whole of Eastern China 
in which if our Army projects go through we shall have built several most 
costly air bases. As most observers believe that the Japanese efforts in this 
direction would be successful, our expenditures on such bases would most 
probably have been in vain. To digress for a moment, there seems to be a 
considerable divergence of opinion in the highest quarters as to the appro- 
priate objectives in the China theater. Chennault and his school believes 
that we should concentrate on continuing and expanding the kind of work 
the 14th Air Force is performing now. Stilwell believes that while we should 
maintain some air activity we should concentrate on building up Chinese 
ground forces in India and Yunnan and Kwangsi for an eventual offensive 
against Burma which may never materialize, it being no secret that for politi- 
cal reasons the British would much rather prefer a flanking movement 
against Thailand, Malaya, or the Dutch East Indies, with the conquest of 
Burma to be made subsequently with predominantly Empire forces. The 
Generalissimo while also desiring the maintenance of some air activity would 
prefer to see our efforts concentrated on the strengthening of the Chinese 
Army — for reasons of his own. Finally the Combined Chiefs of Staff in 
Washington would, judging from the fact that they are asking for the con- 
struction of extra-large bases in China, appear to be contemplating using 
China for the bombing of Japan proper ; in fact I am confidentially in- 
formed that it is intended to bomb hydroelectric projects in Japan proper in 
order to hit Japanese war production. People of the Chennault school are 
inclined to believe that the results of the Combined Chiefs of Staff policy 
would be more showy than permanent. 

(4) From the point on view of the American taxpayer, expenditures on 
such a large scale would entail enormous US$ outlays which of course would 
be justifiable if they appreciably shortened the war and saved lives. While 
it is probable that we can attain a more reasonable adjustment for our fapi 
expenditures — it must be remembered that the President has made the com- 
mitment that we will pay for all US Army disbursements in China — than the 
Chinese have yet shown any willingness to accept, the Chinese are extremely 
hard bargainers, and the more we want to go through with such projects, 
the harder they will bargain. 



1944 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

The above is given as background material for problems in the discussion of 
which the Treasury will most certainly be involved. The position as it now 
stands in as follows : The Army in China has notified Washington of the scale 
of expenditures demanded by the operations now contemplated ; it is awaiting 
Washington's reaction before taking up the matter with Kung, who, however, in 
an informal conversation with Acheson indicated that China would not like to 
see us spending more than CN$3 billion per month. The Embassy has informed 
the State Department of the contemplated magnitude of expenditures and has 
advised it that the matter should be discussed by State, Treasury and War in 
consultation with the President before any final decision is reached. Therefore 
the matter may have already come to your attention before this letter reaches 
you. 

(b) Acheson informs me that Kung in informal conversations is already taking 
a more reasonable line. No definite progress has yet been made, however. State 
has cabled the Embassy to reject the ludicrous Chinese offer that our expenditures 
in China be financed at 30 to 1. Kung has already asked Acheson that part of 
our outlays in China be financed by the sale of gold and US Gov. bonds in China 
for the account of both China and the US, and it is not unlikely that he will 
agree to similar sales of US currency here. Acheson has consulted me on the 
matter, and while he agrees that part of our payments to the Chinese Govern- 
ment should take the form of US Government bonds and gold shipped into China, 
he is not sure that such sales as the Chinese Government makes should be on 
joint account. While it is an open question, for myself I incline towards the 
view that there is more to be gained by having the sales on joint account for the 
following reasons : 

1. If the sales in China of US bonds, gold, etc., are on joint account, we can 
reasonably ask that an American — presumably the Treasury Representative — 
should be on the Committee determining selling policy. His presence on the 
committee would ensure both greater efficiency and less "monkey business." 
That greater efficiency is an important consideration is attested to by the 
ultraconservative policy the Chinese Government is at present adopting with 
respect to gold sales. In the face of an extremely sharp rise in black market 
rates (see below) and a substantial general rise in prices since Chinese 
New Year, the Chinese Government is still putting only small amounts of 
gold on the market though the price of gold has approximately doubled since 
the beginning of the Year. 

2. We would get a much better rate for our US$ by participating in sales 
of gold, etc., on joint account than if we depended solely on an arrangement to 
get fapi we need from the Chinese Government at a rate which will neces- 
sarily undervalue the US$. 

(c) Last Tuesday the 15th Dr. Kung asked me to accompany him to Chengtu 
to inspect the construction of airports there. We left the same afternoon and 
found Acheson already there. Next morning we flew over two airfields where 
50,000 men were at work (each) and stopped off at an airfield where 90,000 men 
were at work. As you can imagine, it was quite a spectacle. The immediate 
problem facing Kung and Acheson is the provision of sufficient fapi to enable 
work on the projects to continue. Kung agreed to rush CN$% a billion there 
immediately — on U. S. Army planes — and to have another CN$% a billion sent 
there in the near future. Chengtu provides a laboratory speciment of the impact 
of heavy military expenditures on a regional economy in China. Chengtu as 
you know is the center of one of the richest agricultural and most densely popu- 
lated areas in China. Yet our Chengtu projects have already resulted in : 

1. The dispossession of farmers from land needed for the airfields. Owing 
to the nature of the existing set-up many of the farmers have received no 
compensation whatsoever for the loss of their source of livelihood. The 
Chinese Government has undertaken to bear the cost of the land and has 
paid the landlords 50% of the land value, but as the majority of displaced 
farmers are tenants — the percentage of tenants to cultivators being higher 
in Szechuan than anywhere else in China — it didn't help the majority of the 
farmers any. In one place there was a riot and the local magistrate respon- 
sible for enforcing the farmers' dispossession was killed. 

2. The conscription of 250,000 laborers withdrawn from agricultural labor 
and paid far below the prevailing rates of wages. Eventually it is expected 
that 300,000 laborers will be at work. The conscription of so large a labor 
force may interfere with the harvesting of winter crops — Chengtu has 3 
crops a year — and more serious will interfere with the spring sowing if the 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1945 

projects are not completed by May 1, a deadline which though desirable 
both from a military and an economic point of view may well be exceeded. 

3. One month's work on the projects has already resulted in a substantial 
increase in prices in the Chengtu area. While we only spent one day in 
Chengtu and did not therefore have time to make more than a most cursory 
of surveys and while the data immediately available are none too reliable, 
it would appear that the price of rice — in the richest rice-bowl in China, 
mind you — has gone up from 50 to 100%, and other prices are going up 
accordingly. The price of construction materials has trebled; the American 
military officer in charge of construction work complained that as a result 
of the delays in our getting the necessary fapi from the Chinese Government 
we would have to pay a CN$1 billion for construction material more than we 
would have otherwise had to, owing to the cornering of the market for such 
material. There is much hoarding of rice and other commodities, and we 
shall in any case have to pay through the nose. 

The magnitude of the evil repercussions of our heavy expenditures is of 
course partly due to the inefficiency of the Chinese Government and of the 
existing set-up. On the other hand, it must be remembered as an extenuat- 
ing circumstance that its political control has never been really effective 
in this particular area of Szechuan and that it must tread lightly in dealing 
with the Szechuan landlords and militarists, given its methods of operation 
and its political base. In fact Chang Chun, the Governor of Szechuan, is 
already unpopular in Chengtu because he symbolizes the Central Govern- 
ment. 1 should not be surprised if the Szechuan militarists are lukewarm 
at the prospect of the encroachments of the power of the Central Government 
on their preserves resulting from the construction of such large airports 
in their bailiwick and if they consequently manufacture "incidents" at the 
expense of American soldiers. Incidentally our military plans envisage the 
presence of 10,000 American soldiers in Chengtu by April 15, which of itself 
entails a sizeable economic burden on the area for grounds on which there 
is no need to expatiate. I hope to have the opportunity to visit Chengtu at 
greater leisure and to report more fully than my one day's trip allows me 
to. Dr. Kung may go to Kunming next week and I may have the chance to 
go along ; if possible I shall also try to stop off in Kweilin. Chengtu, Kun- 
ming, and Kweilin are the chief centers of United States Army activity, and 
it would be worthwhile getting a first-hand impression of problems in which 
the Treasury has an immediate interest. 

3. The Black Market 

The black market rate for US$ currency which was SS on February 3 in 
Chungking leapt to 130 on February 7, 170 on February 11, at which level it 
remained until the beginning of this week. Today it is over 200 ; in Kunming 
where prior to this month the rate was 10-20 points higher than in Chungking 
the rate began to lag behind the Chungking rate when the first flurry occurred, 
the rate is now again more than 20 points higher than in Chungking. Some of the 
bidding up has undoubtedly been speculative but the trend is unmistakeably 
upwards. The sharp turn can be attributed partly to the market's making an 
adjustment toward the real value of the US$ particularly after the rise in 
general prices after Chinese New Year, partly to the rumor that the Government 
was going to change the official exchange rate to 100 to 1 as a result of American 
pressure and was about to take action to close the black market, and partly as 
a result of the influx of balances on account of Shanghai. With respect to the 
latter, as a result of the Japanese taking over of all available supplies of cotton 
in Shanghai, there have been heavy shipments of dyestuffs from occupied to 
Free China, payment for which has taken place in Free China, with a consequent 
intensification of the demand for US$ currency in Free China. 

Kung is now extremely worried about the black market and wants at leasi 
to bring existing rates down (rupees have risen commensurately with US$). 
Accordingly he has approached Acheson about the possibility of importing 
US$20 million of US currency in the immediate future for the Chinese Govern- 
ment in order to hit the black market. As the matter will come before the 
Treasury in any case, I may as well give my reactions here. 

The black market rates undoubtedly have some effect on prices (and vice 
versa) though Kung tends to exaggerate them. Nevertheless, given the psychol- 
ogy of the moneyed classes here and the gravity of the economic situation, not 
to mention the Chinese tendency to blame as many things as possible on our 
Army expenditures and the incursions of our Government personnel into the 



1946 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

black market, it is only natural that the Chinese merchants will give some weight 
to the black market and that we should show our willingness to cooperate in 
Chinese Government attempts to control it. Therefore I recommend that we 
should accede to Kung's request to the extent of sending US$10 million in 
currency out and agreeing to send another US$10 million in currency out should 
the first US$10 million prove insufficient to bring the market under some degree 
of control. My first tentative opinion is that US$10 million will be sufficient, 
as the black market has probably not absorbed more than US$5 million in the 
last two years though it must be admitted that the rate of absorption is increas- 
ing. Of course Kung's request weakens his bargaining position with respect to 
the current negotiations for an arrangement for U. S. Army expenditures. 

You must be wondering why I have not sent a "weekly economic" cable for 
so long a time. The reason is simple. Whether by accident or design, the officials 
who usually give me the note circulation data have not come through ; I shall 
wait another couple of days and if they still hold out shall send my cable any- 
how. Similarly, have not yet answered your cable on the note reserve situation 
because to date have not received sufficiently comprehensive information for 
a reply ; I hope to get out a cable on the matter before the end of the week and 
to enclose detailed data in my next letter to you. 

As for the political implications of the loan, which I hope has become a dead 
issue though I fear the Generalissimo will raise it again at a convenient oppor- 
tunity, right now its sole effect would be to strengthen the Kuomintang. I do 
not know whether I have already told you that Kung informed me that it was 
unlikely that he would go to America in the near future, adding that while there 
would be a point in his going to negotiate a loan, there are no other outstanding 
Sino-American financial questions which would justify his leaving China at 
this juncture. 

With regard to the air bases, the Secretary's telegram undoubtedly helped a 
lot. Work on the Chengtu projects is going ahead at full steam (an inappro- 
priate metaphor) but nothing has yet been done on the East China projects 
which were approved by the Generalissimo some time ago and on which the 
Combined Chiefs of Staff are equally keen (for the differences of opinion in mili- 
tary circles on how best to utilize the China Theater see my letter to Dr. White). 
The scale of contemplated Army expenditures is much greater than any of us 
had realized ; again I refer you to my accompanying letter for a detailed 
discussion of the subject. 

Have been too busy in the last few weeks — what with the financial negotia- 
tions on Army expenditures — to get down to the promised report on the currency 
situation in Occupied China, but shall turn to it at the first free opportunity. 
I, of course realize that the newer Government agencies in particular are espe- 
cially petty when it comes to the release of information. But there is no reason 
why the State Department should not make available its reports on economic 
conditions in the occupied areas. (Incidentally if the Generalissimo allows us 
to send people into North China, as he has promised, we should be able to learn 
much more about financial conditions in North China and Manchuria.) By the 
way you ought to have no difficulty in obtaining the O. W. I. mimeographed pub- 
lication of its monitoring of Japanese commercial radios which often contain 
some information on financial and currency conditions in Occupied China, Indo- 
China, Burma, etc. I must say that the Embassy here has cooperated with 
me 100% even though it is partly due to my personal relations with the Ambas- 
sador and George Atcheson. They have called me into every discussion of our 
Army financial negotiations with the Chinese and have shown me all the relevant 
cables and material. Naturally this cooperation is two-way, but it makes much 
more sense than do the trivial jurisdictional disputes which the newer Govern- 
ment agencies apparently go in for. 

Am enclosing two articles from the Ta Kung Pao on the sale of gold. The 
first contains a most stupid proposal with respect to savings certificates which 
gave Kung the opportunity to send for the Chinese press on the same day and to 
make a strong blast against the Ta Kung Pao. (You know that the Ta Kung Pao 
is the organ of the Political Science Group and is particularly anti-Kung.) He 
denounced it not only for its proposal re savings certificates but also for its pro- 
posal to allow us to sell gold, saying that the latter is exactly what we want. 
Incidentally in an informal conversation with Acheson he to some extent reversed 
this position by suggesting that gold be sold on our joint account. The Ta 
Kung Pao did not want to give Kung face by making an editorial retraction, and 
it therefore asked an economist who has joined the Political Science Group to 
write a letter correcting its previous article. Last Saturday Kung had an inter- 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1947 

view with the foreign press corps in which he made the astonishing statement 
that fapi, would appreciate to 10 U. S. cents after the war. 

Information reaches me from a reliable source that the Generalissimo has given 
orders for an offensive against Ichang in March or April. If the offensive is suc- 
cessful it would give a great boost to Chinese morale and would also have bene- 
ficial economic repercussions as Ichang is a key transportation center through 
which all goods coming from Hunan used to pass. Its possession by the Japa- 
nese makes necessary lengthy and expensive detours. However, Ichang is easily 
defensible, being a natural strong point to which the easiest access is through 
the Yangtze Gorges. Now for the latest news and rumors. Wei-Tao-ming is it 
appears going back to America after all. China Defense Supplies which has 
previously been run by T. V. is, it is rumored going to be taken over by Central 
Trust with a resultant further concentration of power in the hands of the Kung 
group. K. P. Chen by the way is on much better terms with Kung that he was 
last year. This is merely a straw in the wind indicating the victory of the 
Kung group. The Generalissimo fired the Vice-Minister of Information for 
writing articles in the Ta Kung Pao instead of in the Kuomingtang daily. 



Exhibit No. 324 

[Pp. 203-209, vol. 684] 

December 15, 1943. 
Letter II (New Series). 

Dear Dk. White: I think I have already written that the Generalissimo was 
very pleased with the results of the Cairo Conference, the reasons for his satis- 
faction being firstly that his political requests were granted and secondly that 
the international prestige he received gave his regime a badly needed booster. 
His wife, who of course understands Western politics much better than he. was 
not so pleased, as China's military and financial demands were turned down. I 
don't know whether you have already been informed, but the Generalissimo asked 
the President for a loan of US$1 billion and the reply was that it would be im- 
possible to get Congressional approval for such a loan. 

******* 

The weakness of the Central Government is more profound than is generally 
realized at home. 

(a) There has been no improvement in the relations between the Kuomintang 
and the opposition. Perhaps the best way to sum up the position is that both 
sides are preserving armed neutrality and keeping their powder dry. Neither has 
made any concessions to the other, the Kuomintang is continuing its military 
and political preparations for civil war, and while the immediate tension 
slackened after the 11th plenary session of the Central Committee of the 
Kuomintang in September, they are still as far apart as ever. It appears that the 
Kuomintang mobilized for civil war this summer and that the Generalissimo 
was only dissuaded from going ahead by fear of international public opinion 
and by the unanimity of his generals in asserting that it would require a 
major campaign, as the Chinese Communists were much stronger than Chungking 
had believed and, though not wanting a civil war, were no longer afraid of its 
military and political outcome, while the Central Government troops were much 
weaker. There are a lot of reports here to the effect that the Communists have 
become very powerful throughout North China and even in Central China behind 
the Japanese lines, which makes the Central Government all the more nervous 
as to possible developments after the enemy is expelled but at the same time 
deters it from hasty action. Nevertheless, the danger of civil war remains grave, 
nor can any significant improvement be expected at the moment. By the way, 
no one here takes seriously the movement for a Constitutional Convention one 
year after the War ; the news was timed to coincide with the announcement of 
the departure of the Chinese Goodwill Mission for England in order to serve 
as a democratic gesture and selling point, but actually the same people who 
were "elected" in 1935 to serve on the Constitutional Convention then are to 
function again, and the Convention will not even have the power to submit 
amendments to the Draft Constitution which will be put before it for considera- 
tion. 

(b) The main danger confronting the Central Government is not economic 
collapse but political disintegration. You may remember that I stressed this 



1948 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

point over a year ago. The danger is becoming increasingly more serious. 
Right now the Szechuan militarists are extremely restive, and it is reported 
that the recent Hunan campaign was undertaken partly to stave off a Szechuan 
revolt which might have obtained some popular support as a result of dis- 
satisfaction with the land tax and conscription and that the Generalissimo and 
Madame Chiang have even become jittery about their own personal safety. 

(c) Contributing to and reflecting the process of political disintegration, the 
internal conflicts and dissensions within the Kuomintang have become sharper. 
Thus the rivah-ies between Chiang's two leading generals, Ho Ying-chin and 
Chen Cheng (the latter who is considered by informed foreigners to be China's 
best field commander has recently developed a diplomatic illness), between 
Kung and Soong, and between the C. C. group and other equally Fascist factions 
within the Kuomintang, have all become more acute. 

(d) The Government has lost any interest it ever had in doing anything effec- 
tive to fight the Japanese, whose defeat it is only too glad to leave in our lap ; it 
recognizes that the defeat of the Japs is inevitable and therefore there is no 
danger of capitulation, but at the same time it won't do anything to hasten that 
defeat. Consequently most American Government officials I come in contact with 
are becoming increasingly critical not only of the Central Government but also 
of our Chinese policy, which has served to strengthen the Central Government 
without obtaining anything in return. It is true that one of the Central Gov- 
ernment's few selling points is United States friendship and its ability to extract 
handouts from us at critical junctures, and it is all too true that we have very 
little to show for either our friendship or our handouts (witness our difficulty in 
getting a reasonable arrangement in connection with our expenditures in China). 
It is felt that it is necessary for us to get tough with Chiang if we are to get 
any results and that there is no point in eulogizing him to the skies and in being 
gratuitously generous to him. Foreign praise of him does more harm than 
good, while the more we give him the more he expects and the less he is willing 
to contribute to the war effort or to mend his ways. Americans in Chungking 
heaved a unanimous sigh of relief when they heard that the President had made 
no financial commitment to Chiang at Cairo. 

(e) There appears to be no sign or reasonable prospect of any real change for 
the better in the Central Government's internal policy. Its intention remains 
to hold on to power without making any attempt at improving administrative 
efficiency, widening the base of its support, or introducing any reforms. 

Summing up, what should be emphasized is that the Central Government is 
unstable, that its instability is increasing, that it is making no serious attempt 
to rectify its inherent instability — /'/ anything the contrary, that Chiang no 
longer fulfills the function of being the main unifying factor in China, and that 
American policy vis-a-vis China which appears to be postulated on the assumption 
that the Government is stable and strong should be based on the facts. 

I have been picking up some dope on Lend-Lease. My information with 
respect to India is that unnecessary wasteages are occurring as a result of the 
inefficiency and incompetence of the responsible civilian agencies of the Indian 
Government in placing orders and utilizing material received. Thus, the Tata 
Steel Company gave the responsible agencies specifications for a much needed 
blast furnace and roller, but the latter decided to go Tata one better and ordered 
a much bigger furnace and roller which Tata can't use. The furnace and roller 
have arrived in India but for all practical purposes are so much scrap. Yet 
another example is provided by our Lend-Lease man in Calcutta who was 
approached by the Indian railroads for certain badly needed railway supplies. 
Our man informed the Indian railroad representatives that the Indian Govern- 
ment had received on Lend-Lease a sufficient amount of the goods in question 
to last for ten years. Though the railroad representatives were incredulous, it 
transpired that our man was stating the facts and that the Indian Government 
had simply failed to inform the railroads of the receipt and availability of the 
supplies they were looking for. 

As for China, the Lend-Lease men here are in the process of investigating the 
uses to which Lend-Lease supplies have been put in China, and I hope to have 
something to report in the near future. Their main find so far concerns Lend- 
Lease and Universal Trading Corporation material and equipment destined for 
China but now in India. Apparently most of it is now in Assam, which has a 
notorious climate in which goods rot very easily. Nevertheless the material 
is inadequately stored and inventoried. Much of the material — some of which 
has been lying there for over a year — will have to be scrapped, and most of the 
rest will have to be salvaged and repacked. The following example of inefficient. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1949 

inventorying was cited to me ; the Colonel in charge of the construction of the 
Ledo road did not know that some equipment he desperately needed was stored 
only 20 miles away. The main trouble seems to be insufficient personnel, and 
the blame cannot be laid at the door of the Chinese. Where the Chinese are 
unrealistic is in persisting in having stuff shipped out from America when there 
is more in Assam than can be moved into China, given present transportation 
facilities. 

It is clear that the British are stalling about giving the necessary 30 days' 
notice for the termination of the 1941 Agreement. The reason is that they wish 
to have the status of the Chinese Government's debt to them under the 1939 
Sino-British agreement clarified before agreeing to winding everything up. The 
result is that as the Board decided that the Sino-American and Sino-British 
agreements of 1941 should be terminated as of the same date I have to wait 
until the British take action before being able to band in my resignation as of 
a given date. You will be interested to learn that Ambassador Gauss wants 
me to be Financial Attache ; while such an arrangement would have many ad- 
vantages and would in no way interfere with my taking trips to India for 
example, it is for you to decide whether it is desirable from the Treasury's point 
of view. 

I had lunch with T. V. Soong last week and he asked to be remembered to 
Mrs. White and yourself; he mentioned that he found a book your wife sent to 
his children so engrossing that he insisted on reading it first himself. He is 
still in the doghouse and living in comparative isolation, though he is expected 
to leave for America soon. 

AVith best wishes for a Merry Xmas and Happy New Year to your wife 
and family and yourself, 
Yours sincerely, 

(signed) Sol Adlek. 

Exhibit No. 325 

[P. 279, vol. 696] 

Treasury Department, 
Division of Monetary Research, 

February 12, 19U- 
To : Mrs. McHugh. 

The Secretary would be interested in reading the portions of this letter marked 
in red pencil * and also the appended copy of memorandum prepared for General 
Stilwell by his Political Adviser, a Mr. Davies, who, according to our informa- 
tion, is a very good man. 



Mr. White, Branch 2058, Room 214i/> 

[Pp. 280-287, vol. 696] 

[Declassified : Treas. ltr. 11/3/55] 



H. D. W. 



January 26, 1943. 



Letter IV. 

Dear Mr. White, There are a few interesting points to report this week. 

1. In the message from the President to the Generalissimo notifying him 
that Stilwell and Gauss have been authorized to negotiate a financial arrange- 
ment covering Army expenditures in China, the President adds that it might be 
a good idea for Kung to visit the United States. This, I am sure, will be con- 
strued as an invitation by the Chinese and will be acted on accordingly. The 
Generalissimo will undoubtedly expect Kung to get some kind of handout from 
his visit, which the Generalissimo would otherwise deem a failure. Both — and 
especially the Generalissimo — are behind the times on the American political 
scene and believe, I think sincerely, that the American people and Congress are 
anxious to give China assistance in whatever form, financial, economic, or mili- 
tary, China requests it. (Cf. the last paragraph of Kung's letter enclosed here- 
with.) Neither realizes the bad feeling that has been created by the refusal 
to come to a satisfactory arrangement for handling our expenditures in China, 
and neither is aware of the widespread feeling in American informed circles that 



*Here shown in italics. 



1950 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

China has not been pulling her weight militarily. The inevitable disillusion- 
ment may affect the degree of China's collaboration in the forthcoming monetary 
negotiations. But this in itself is not a prime consideration if the cooperation 
of the other major powers is forthcoming, and, moreover, there is much to be 
said for the view that the best way to get results is to get tough. By the way, it 
should be unnecessary for me to point out that my usefulness to the Treasury 
in China would be impaired should my views be quoted to the Chinese representa- 
tives or visitors in Washington. 

2. Kung told me yesterday that T. L. Soong had just returned and had Informed 
him that the Secretary was still very friendly to China and realized the need 
for maintaining the official rate. I am sure that T. L. either deliberately or 
unintentionally misrepresented the Secretary's views, but Kung believes him. 
T. L. added that your attitude differed from the Secretary's in being quite hard. 
T. L. differs in no way from other Chinese officials who tell the bigwigs not the 
truth but what the bigwigs would like to believe is the truth. 

3. There has been no let-up in the internal tension ; if anything, the reverse. 
The censorship has been tightened and military and political preparations are 
proceeding apace. 

4. Am enclosing a copy of Kung's message to the Secretary in full so that you 
may have the original text for reference undistorted by double paraphrasing. 
There is no need for me to rebut the argumentation here, though it may be worth- 
while to list a few errors of facts. 

a. The figure of CX$10 billion which Kung gives as the total cost of work 
done and now in process borne by the Chinese Government includes CN$4 
billion for the Chengtu airfields which our Army people assure me we have 
undertaken to pay, and also expenditures for the subsistence of our Army 
which the Army says it will pay for as soon as the bill is presented. This 
makes the assertion in the last sentence in the penultimate paragraph of 
the letter doubly ridiculous. 

b. The reference to the Stabilization Board is as you know a dubious 
technicality. 

c. The figure of 500,000 workers for the Chengtu project given in the fifth 
paragraph is incorrect. The Army tells me that at present 200,000 workers 
are engaged on the project and that an additional 100,000 workers will 
eventually be engaged. It is more than likely that the Ministry of Com- 
munications which is handling the projects gave Kung a padded list in 
order to get increased appropriations, presumably to be handled in a variety 
of ways. Nevertheless, it is true that the projects are having a serious 
impact on prices in the Chengtu area and that the recruitment of so large a 
labor force may impair agricultural production, a probability to which Kung 
does not call attention. I am told that the people in the Chengtu area are 
in no way enthusiastic about the projects, a reaction which must be ascribed 
as much to the Chinese Government's inefficiency as to anything else. In 
the first place land in one of the most fertile areas in China is being requi- 
sitioned for non-agricultural uses, in the second the magistrates are not 
paying the displaced farmers for their land and they find it hard to content 
themselves with vague promises of payment in the future. In the third the 
area is being burdened with the maintenance of a large outside labor force 
at the same time that other areas are being drained of the agricultural labor 
necessary for cultivation and harvesting. The fact that the Chentgu area 
is a focal point of political discontent on the part of the powerful Szechuan 
landlords and militarists must of necessity be taken into consideration in 
assessing the total situation. 

d. The reference to rupees in the seventh paragraph doesn't make any 
sense at all as it now stands, as China is the one country in the world where 
a sterling area currency is at a premium over the dollar in the black market. 
But one must charitably put this down to faulty exposition, as what Kung 
apparently had in mind was that Chinese hoarders find it more profitable to 
obtain rupees indirectly by first purchasing U. S. currency to be exchanged 
for rupees in India than to obtain rupees directly in the black market in 
China. Kung also ignores the fact that Chinese in Free China buy U. S. 
currency to hoard. It should be noted that the Chinese Government has at 
least tacitly connived at the "illegal" activities referred to in the last sen- 
tence of the same paragraph. It has never asked us to stop Americal 
soldiers' activities in the black market and Kung himself informed the 
American Ambassador — in an informal way of course — that he preferred to 
see our government organizations selling U. S. currency in the black market 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1951 

than to give them a rate which we consider reasonable. In the former con- 
nection you may recall that Kung refused to do anything effective when we 
asked him to stop the sale of savings certificates to American soldiers. 

For the rest I understand that the Generalissimo participated in the 
drafting of the letter which reffects the level of his thinking both on eco- 
nomics and politics. The most astonishing thing in the whole letter is the 
claim that China has already repaid the US$y 2 billion loan. No point would 
appear to be served in answering the letter unless the answer is a clear and 
unmistakable further step in the process of getting tough, or otherwise it 
would only result in an endless and useless back and forth. There can be 
little doubt but that the Secretary's message to Rung has already had a 
beneficial effect. 

5. / am also enclosing u confidential memo on. Chiang Kai-shek and China 
written by the Political Advisor to General Stilwell. It may be of some interest 
to the Secretary. 

6. For your information the Ambassador has asked me to participate infor- 
mally in the Army and State Department discussions of the arrangements they 
are to offer to the Chinese as the starting point for negotiations re a more satis- 
factory procedure for American expenditures in China. My participation is of 
course entirely unofficial, as it is only the Embassy and the Army which together 
will make official representations to the Chinese Government and the Treasury 
is in no way involved. Some progress has been made to the extent that the 
American Government agencies involved are now for the first time acting in 
unison and speaking in one voice, that the President has endorsed their attempt 
to procure a more reasonable arrangement and that he has shown lack of recep- 
tivity to what Americans here call the Gimme which characterizes the Chinese 
vieic of the American role. (The Army nickname for the United States is Uncle 
Sugar. ) But the negotiations are likely to prove protracted and laborious before 
any significant results are obtained. As indicated in my last letter, the bargain- 
ing position of the Army will inevitably be adversely affected if it has to stick 
to the letter of its instructions that nothing must be allowed to interfere with 
the progress of the high priority projects. 

7. Thomas informs me that London is still in touch with Washington about the 
termination of the 1941 agreements. There is nothing to be gained by continuing 
to maintain the Board in a state of suspended inanimation, and I strongly recom- 
mend that the Board be buried as speedily as possible. 

There is a profound division of opinion among American military experts here 
as to operations in this theater. One school believes we should concentrate en- 
tirely on air operations while the other school feels that some attention be paid to 
training and equipping Chinese divisions for what in its opinion will constitute 
the decisive struggle here, namely laud operations against the Japanese. 
Strangely enough neither school is particularly enthusiastic about the high pri- 
ority projects. 

With kindest regards to your wife and yourself, 
Yours sincerely, 

Sol Adler (Signed). 

The latest rumor about T. V. is that he will vacate the Foreign Ministry. 



[Declassified per Ralph Claugh (CA)] 
Chiang Kai-shek and China 

The Generalissimo is probably the only Chinese who shares the popular Amer- 
ican conception that Chiang Kai-shek is China. This congenial fiction is worth 
examining. 

Japan's attack caught China in midpassage between semifeudalism and modern 
statehood. External pressure in the form of Japanese aggression imposed a 
temporary unity on the various elements struggling to determine whether China 
was to develop along democratic or authoritarian lines. Public pressure com- 
pelled Chiang, who was the strongest of these elements, to become the symbol of 
a unified national will. The internal conflict was suspended. 

This situation continued so long as the Japanese attempted to bring China to 
its knees by military means. But after the fall of Hankow in 193S, the war 
entered a period of military stagnation which has continued until now. Japan 
adopted instead a shrewd policy of political and economic offensives designed to 
bring about Chinese disintegration and collapse. Confronted with this new 



1952 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Japanese tactic, which promised him some respite at the expense of other Chinese 
elements, Chiang chose to abandon Chinese unity and retrogressed to his prewar 
position as a Chinese militarist seeking to dominate rather than unify and lead. 

The Generalissimo seeks to dominate because he has no appreciation of what 
genuine democracy means. His philosophy is the unintegrated product of his 
limited intelligence, his Japanese military education, his former close contact 
with German military advisors, his alliance with the usurious banker-landlord 
class, and his reversion to the sterile maxims of the Chinese classics. The primi- 
tive power complex which was his original motivation has developed into a 
bigoted conviction that China can realize its destiny only under his preceptorship. 

Chiang's technique of domination is adroit political manipulation of the various 
elements of the Chinese political scene and, subsidiarily, employment of a gangster 
secret police headed by Tai Li. He is the leader of the Kuomintang, which he 
would wish to make his totalitarian party. But the Kuomintang, once an expres- 
sion of genuine nationalist feeling, is now an uncertain equilibrium of decadent, 
competing factions, with neither dynamic principles nor a popular base. Such 
cotrol as Chiang has over the Kuomintang is achieved through playing the fac- 
tions within the party one against the other. 

Likewise in the larger national scene Chiang, often utilizing the Kuomintang, 
manipulates a political balance among the residual warlords, dissident groups 
in his own army, provincial cliques, the so-called "Communists," minor parties 
and even the Japanese-created puppets. The unorganized liberals and intel- 
lectuals are a potential, not an immediate threat. 

Chiang's paramountcy is, therefore, insecure and unsound. His reluctance 
to expend military strength against Japan, his anxious preoccupation with 
securing domestic supremacy, his suspicion of everyone around him and his 
increasing emotional instability betray a subconscious realization of this. 

Because his Kuomintang Government has no popular base, because the 
centrifugal forces in China are growing under prolonged economic strain and 
because the Soviet Union may join the war against Japan and enter Manchuria 
and North China, the Generalissimo faces next year the gravest crisis of his 
career. 

What form and course the crisis will take is impossible to predict. Certain 
contributory factors, however, are clear. One is the increasingly independent 
attitude of the Chinese Communists, who now say that they no longer fear 
Chungking. "If Chiang wants to commit suicide on us, that suits us." Another 
is the accelerating economic disintegration. A third is the growing restiveness 
of certain provincial and military factions. Any one or a combination of these 
may be sufficient to accomplish Chiang's downfall. 

By reversing his policy of 16 years' standing, reforming the Kuomintang and 
taking the lead in a genuine united front, Chiang could surely survive the crisis. 
But he is not only personally incapable of this, he is a hostage of the corrupt 
forces he manipulates. 

In this uncertain situation we should avoid committing ourselves unalterably 
to Chiang. We should be ready during or after the War to adjust ourselves to 
possible realignments in China. We should wish, for example, to avoid finding 
ourselves at the close of the War backing a coalition of Chiang's Kuomintang 
and the degenerate puppets against a democratic coalition commanding Russian 
sympathy. 

The adoption of a more realistic policy toward Chiang does not mean abandon- 
ment of our objectives (1) to capitalize during the War on China's position on 
the Japanese flank, and (2) to build up after the War a strong and independent 
China. On the contrary, it will mean that we shall be more likely to achieve 
these objectives. A realistic policy toward Chiang would be based on (1) 
recognition by us that the Generalissimo is highly susceptible to firm coordi- 
nated American pressure, (2) stern bargaining (in consultation with American 
representatives in China), and (3) readiness to support a strong new coalition 
offering cooperation mutually more beneficial to China and the United States. 

December 31, 1943. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1953 

Exhibit No. 326 

[P. 155, vol. 819] 

Treasury Department, 
Division of Monetary Research, 

March 8, 19^5. 
To : Secretary Morgenthau. 

A letter from Mr. Adler — which may interest you. 

H. D. W. 
Mr. White, Branch 2058, Room 214y 2 

[Pp. 156-15S, vol. 819] 

American Embassy, 
Chungking, February IJf, 1945. 
Letter V 

Dear Mr. White : This letter and the enclosed memorandum are in the 
nature of a postscript to my letter No. IV. The memorandum which of course is 
strictly confidential is largely self-explanatory. 

The Generalissimo obviously believes that China's position has been strength- 
ened as a result of the Yalta Conference and the plans for the San Francisco 
Conference. While friends of China welcome the recognition of the Chinese 
given at Bretton Woods, Dumbarton Oaks, and the forthcoming San Francisco 
Conference, they cannot but regret that these conferences allow the Generalis- 
simo to use the face given China internationally for the purpose of trying to 
strengthen himself internally. It is clear of course that the Generalissimo is 
misreading the international situation and is ignoring what everyone else 
recognizes — Russia's strength. The key to his increased intransigeance in the 
current negotiations is his desire to stall until the war in Europe is over, coupled 
with his belief that China's international face can be exploited internally and 
that Russia is not going to enter the Far Eastern War. On this latter point he 
is in a small minority in Chinese official circles. If he turns out to be wrong on 
this point, his miscalculation may well prove calamitous for him. 

It is astonishing that the Generalissimo should feel stronger at a time when 
it is obvious to everybody else that he is becoming weaker. This tends to rein- 
force the impression that it is going to be an almost impossible job to save him. 
The application of the Freudian concept of the "death-wish" to his recent con- 
duct is not inept. Dr. Sun Fo explains the Generalissimo's misreading of the 
internal strength of the Communists and of the international situation on the 
grounds that the Generalissimo's closest advisors don't tell him the facts as 
they are but what they think he wants to hear. In any case, if the Generalis- 
simo sticks to his present course, and if we stick to our present policy of sup- 
porting him unconditionally a la Hurley, we will end up by finding that we are 
backing a losing horse. The Generalissimo's intransigeance is self-defeating. 
For he is growing weaker while the democratic elements and the Communists 
are growing stronger. Therefore the longer he defers making concessions to 
them, the greater the concessions he will have to make. But he doesn't seem to 
realize this elementary fact. 

The Generalissimo's intransigeance is also going to make it harder for Hurley 
to claim any success for the sorry outcome of the negotiations. But Hurley may 
nevertheless do so, even though the facts as recorded in the enclosed memo com- 
pletely belie such claims. 

Finally, it should not be necessary to add that the course of the negotiations 
confirms what we already knew, namely that the Generalissimo never had any 
serious intention of arriving at a settlement as long as he was sure of the 
continuance of American support. This latter is the crux of the whole matter. 
Unless we show the Generalissimo in unmistakable fashion that our support of 
him is not unconditional, he will not budge. It is in our power to exert the 
initiative which will bring about a change for the better in the Chinese internal 
situation. Pious statments are not enough. We must convince the Generalis- 
simo that we mean business. It is only because he believes — and apparently 
rightly — that we don't that he was able to get away with the recall of Stilwell 
and with his present line. 

With kindest regards, 
Yours sincerely, 

(signed) Sol Adler. 

P. S. — Hurley and Wedemeyer are leaving for home in the next few days. En 
route they are stopping off in the Pacific for consultation with Nimitz. As far as 



1954 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

can be gathered from the Yalta communique and from the statement in the press 
(which claimed to be officially inspired) to the effect that U. S. troops would 
only stay 1 year in Germany, the Morgenthau plan hasn't done at all badly. 



[Pp. 159-161] 

February 14, 1945. 
No. 1. 

Subject: Failure of Kuomintang-Communist Negotiations. 
To : Commanding General, USF-CT 
From : Political Advisor 

According to Chou En-lai, the Kuomintang-Communist negotiations have again 
resulted in an impasse. At a conference on February 13, with Ambassador Hur- 
ley, Wang Shih-chieh and Chou En-lai present, the Generalissimo said that he 
would not agree to anything except a "political consultative committee." This 
would be composed of members of the various parties but would have no powers 
or position in the government. 

This empty and disappointing proposal is unacceptable to all of the opposition 
groups. All it permits is further talk, without commitments or limitation of the 
power of the Kuomintang. It is irreconcilably far from the Communist proposal 
of an inter-Party Conference with power to reorganize the Government and pre- 
pare for constitutional government. It is even a step backward from the type 
of inter-Party organ which had been the basis for discussion by the Kuomintang 
representatives at a ludicrously misnamed "war cabinet." 

In view of this debacle. Chou is planing to return to Yenan as soon as pos- 
sible. He seems to think that the Communists will demonstrate their good in- 
tentions by agreeing to participate in this Kuomintang-proposed Committee, 
despite its futility. He would not commit himself regarding plans to proceed 
with setting up a Federative Council of all the Communist area governments. 
He gave the impression that the Communists were quite willing to wait for 
another period. 

Before leaving Chungking, Chou will issue a statement setting forth the Com- 
munist position. A joint statement by the Communists, League of Democratic 
Parties and democratic wing of the Kuomintang (headed by "Sun Fo) is also 
under consideration. These three groups have maintained close liaison and unity 
throughout, although the League and democratic wing were excluded from the 
actual negotiations. 

Chou believes that Chiang does not expect Russian participation in the Far 
Eastern war (there is also a local rumor that Soong wants to go to Russia to 
try to settle outstanding and potential problems), that Chiang is confident of 
continued American support as indicated by the statements and actions of the 
Ambassador, that he has been strongly encouraged by the announcement of the 
Five Power Conference in April, and that he will therefore continue to stall. 
If Chiang's international position remains strong, the Kuomintang will then, 
through its Party Congress in May, proceed to offer "democracy" to the country 
on its own terms. 

Chou seemed anything but depressed. He believes that the new breakdown 
of the negotiations has clarified the main issue, revealing Chiang's determination 
to give no concessions which can limit his power or substantially change the 
status quo. Chou feels that the onus for the breakdown lies clearly on the 
Kuomintang, even in the eyes of the Ambassador. And his optimism reflects 
the Communist confidence in the future. 

Chou refused to sign a joint statement (which he believes to have been prepared 
by the Ambassador with revisions by T. V.) which tried to strike an optimistic 
note regarding the negotiations. He said that it was entirely favorable to the 
Kuomintang and did not present the true facts. 

An interesting footnote is that on February 12, Hollington Tong urged a re- 
liable and very well known American correspondent to include in a despatch 
the statement that the negotiations were proceeding well and were likely to 
succeed. 

John S. Service. 

(Whereupon, at 12 noon, the subcommittee adjourned.) 



INDEX 



Note. — The Senate Internal Security Subcommittee attaches no significance to 
the mere fact of the appearance of the names of an individual or an organization 
in this index. 

A Page 

Acheson 1944 

Adler, Solomon 1902, 

1907, 1915, 1922, 1923, 1926, 1936, 1949, 1951, 1953 

American Chinese Cultural Society 1904 

American Embassy in Chungking 1929, 1953 

American League for Peace and Democracy 1892 

American military mission to Yenan 1923, 1926-1928 

Army expenditures in China (United States) 1942 

Asia , 1899, 1900 

Atcheson, George 1946 

Atkinson, Brooks 1936-1938 

Atlantic Charter 1925 

Australia , 1893 



Barrett, Colonel , 1923, 1926 

Big Four powers 1919 

Black market 1945 

Bretton Woods 1953 

British Embassy 1941 

Browder, Earl 1917 

Burma Road 1935, 1936 

Byrnes, Jimmy , 1907 



Cairo Conference 1947, 1948 

Canton, China 1911 

Central Committee of the Kuomintang 1947 

Central News, the (official Chinese Government news agency) 1937 

Central Training Corps 1940 

Central Trust 1947 

Chang, Chun (Governor of Szechuan) 1945 

Chang, Dr. P. H. (Counsellor of the Executive Yuan) 1916, 1936, 1937, 1939 

Chekiang, China 1930 

Chen, Gen. Cheng 1916, 1948 

Chen, K. P 1947 

Chen, Li-fu 1916-1918 

Chennault, General 1900, 1943 

Chiang, Generalissimo Kai-shek 1888, 

1891-1895, 1898-1904, 190S, 1910-1912, 1915, 1916, 1918-1920, 1922, 
1924, 1925, 1928, 1930-1934, 1940-1942, 1946-1949, 1951, 1952. 

Chiang, Madame Kai-shek 1892, 1917, 1936, 1948 

China 1888-1893, 1895-1899, 

1907, 1908, 1910, 1912, 1913, 1917-1919, 1922, 1928, 1929, 1931 

Republic of 1894 

China Defense Supplies 1947 

China's Destiny, book by Chiang Kai-shek 1909, 1914 

Chinese 1890, 1892, 1894 

Chinese-American Cultural Institute 1916 

Chinese Central Government ,. ____„__ 1932-1935, 1940-1943, 1946-1948 



n INDEX 

Page 

Chinese Composite Air Wing 1936 

Chou, En-lai 1911-1913, 1918, 1921, 1922, 1925, 1928, 1929, 1937, 1941, 1954 

Chow, Gen. Cheh-jou 1936 

Christian Science Monitor 1936 

Chu 1931 

Chu Teh 1930 

Chungking, China 1889, 

1890, 1897, 1904, 1909, 1911, 1916, 1918, 1921-1923, 1925, 1926, 1928 

Combined Chiefs of Staff 1943, 1946 

Comintern 1930 

Communist/s 1888-1893, 1895-1899, 1902-1904, 

1906, 1908, 1913, 1918-1920, 1924, 1925, 1927-1931 

Chinese 1888, 1889, 1899, 1901. 1907, 1908, 1917, 1920, 1921, 1927, 1931 

Communist Party 1890, 1901, 1909-1911, 1914, 1918, 1925, 1928 

Congress 1891, 1892, 1894, 1905, 1908, 1918 

Connally 1907 

Currie, Lauchlin 1900 

D 

Daily Telegraph 1936 

Davies, John Paton 1891, 1931-1933, 1949 

Dorn, General 1936 

Drumright, Mr 1929 

Dulles, Mr 1896, 1907 

Dulles, Allen, of CIA 1902 

Dumbarton Oaks 1953 

Dunkerque 1894 

E 

Eastland, Senator James O 1887 

18th Route Army 1937, 1938 

Eisenhower, Dwight D 1900 

Emerson, John 1891 

England 1893-1895,1917 

Epstein, Israel 1936, 1939 

Europe 1889,1905 

Exhibit No. 314 — Representative Judd's notes for speech 1902, 1917 

Exhibit No. 315 — Memo recording interview between Mr. Service of State 
Department and leader of Chinese Communist, Mao Tse-tung, August 23, 
1944, and transmittal memos of Mr. Adler to Mr. White and White to 

Morgenthau dated November 18, 1944 1904,1907-1914 

Exhibit No. 316 — Transmittal memo to Morgenthau from White dated 
November 10, 1944, re advice given to Service by Mao Tse-tung on how to 

handle Generalissimo 1914, 1915 

Exhibit No. 317— Letter to White from Friedman dated October 7, 1944, re^ 

Chinese foreign exchange holdings 1915, 1917 

Exhibit No. 318— Memo from White to Morgenthau December 8, 1944, trans- 
mitting memo of Friedman re oral messages of General Hurley, Dr. 
Soong, Dr. Sun Fo, Chou En-lai, General Wedemeyer, and Madam Sun 

Yat-sen 1918-1923 

Exhibit No. 319 — Memo to Morgenthau from White October 16, 1944, re 

notes of Adler on reports of American military mission to Yenan — 1923—1931 
Exhibit No. 320 — Articles by John Davies dated November 7, 1944, entitled, 
•Will the Communists Take Over China?", "How Red Are the Chinese 
Communists?", and "The Chinese Communists and the Great 

Powers" 1931-1933 

Exhibit No. 321 — Treasury Department memo September 27, 1944, and 

letter from Friedman to' White, September 14, 1944 1933-1936 

Exhibit No. ."'.22 — Report of press conference on Chinese internal situation, 

February 22, 1944 1936-1942 

Exhibit No. 323— Letter V to H. D. White, February 22, 1944 1942 

Exhibit No. 324 — Letter to H. D. White from Sol Adler, December 15, 1943_ 1947 
Exhibit No. 325 — Treasurv Department memo, February 12, 1944, and letter 

to H. D. White, January 26, 1943, from Sol Adler 1949-1951 

Exhibit No. 326 — Treasury Department memo, March 8, 1945, and letter, 

February 14, 1945, to White from Adler 1953-1954 



index m 

F 

Page 

Fairbank, John K 1891 

Fairbank, Wilma 1891 

Far East 1905, 1908-1910, 1925, 1930, 1931 

Fifth amendment 1895 

Fisher, Mac 1916, 1934 

Fitch, George 1917 

Foreign Economic Administration (FEA) 1891 

Formosa 1917 

14th Air Force 1943 

Fourth Field Army 1889 

France 1893. 1895 

Free China 1945, 1950 

Friedman, Irving 1889, 1890, 1903, 1904, 1917, 1918 

With Treasury Department in China 1890 

Director of Exchange and Redistribution Department of the Inter- 
national Monetary Fund 1890 

Fukien, China 1888, 1930 

G 

Gauss, Ambassador 1890, 1919. 1920, 1925, 1926, 1949 

Gelder, Mr 1936-1941 

Generalissimo, the. (See Chiang Kai-shek.) 
Government : 

Chinese 1889, 1899 

Nationalist 1890, 1891, 1898, 1900 

of Japan 1898 

United States 1891, 1894, 1904, 1908, 1910, 1911 

Government Operations, Committee on 1896 

Grew 1902 

H 

Hainan Island 1924, 1927 

Hankow, China 1913 

Hitler 1892, 1S93, 1900, 1903, 1910 

Ho Ying-chin (Minister of War) 1916, 1918, 1920, 1926, 1937, 1941, 1948 

Honan, China 1912 

Hong Kong, China 1925 

Hornbeck 1902 

House Foreign Affairs Committee 1895 

Hsu, Kan 1916 

Hunan, China 1912, 1930 

Hurley, General 1890, 

1898, 1900. 1902, 1918, 1919, 1921, 1929, 1934, 1953, 1954 

I 

India 1948 

Institute of Pacific Relations 1895 

Internal political situation 1942 



Japan 1892, 

1893, 1897-1899, 1902, 1903, 1911, 1917, 1918, 1924, 1925, 1930, 1952 

Japanese 1890-1892, 

1897, 1898, 1909, 1912, 1915, 1917, 1918, 1920, 1921, 1927, 1928, 1930, 1931 
Judd, Hon. Walter H. : 

Testimony of 1887-1954 

Representative in Congress from Fifth District of State of Minnesota— 1887 
Went to China in 1925 as medical missionary 1887 

K 

Kerensky 1888 

Kiangsi Province 1S88, 1927, 1930 

Kiplinger Letter 1896 

Korea 1889 



IV INDEX 

Page 

Rung, Dr 1912, 1915, 1916, 1925, 1929, 1934, 1943-1951 

Kunming, China 1891, 1908, 1913 

Kuoniintang (KMT) 1907-1914, 

1916, 1918-1920, 1923-1931, 1934, 1937, 1948, 1952, 1954 

Kwanksi, China 1912, 1930 

Kwangtung area 1920, 1924, 1927 



Lattimore, Owen 1893 

Lawrence, David 1902 

League Against War and Fascism 1892 

League of Democratic Parties 1954 

Ledo Road 1949 

Liang (Minister of Information) 1936-1940 

Life 1936 

Lin Piao, Gen 1889, 1931 

Ludden. Raymond 1891 

Lung, Yung (Governor of Kunming) 1934,1935 

M 

MacArthur 1893 

MacDonald, Ramsay 1932 

Manchester Guardian 1936 

Manchuria 1897, 1900, 1901, 1913, 1924, 1929, 1930, 1942, 1952 

Mandel, Benjamin 1887 

Mao Tse-tung 1907-1912, 1914, 1915, 1924-1926, 1930 

Marco Polo Bridge 1893 

Marshall, General 1894, 1895, 1901 

Mei, Dr. (president of Yenching University) 1933 

Middle East 1905 

Mitchell. Jonathan 1887 

McHugh, Mrs 1949 

McManus, Robert C 1887 

Molotov 1918 

Mongolia : 

Outer 1925 

Inner 1925, 1930 

Morgenthau diaries 1889, 1903, 1907 

Morgenthau, Secretary 1890, 1907, 1915, 1918-1921, 1923, 1953 

Morris, Robert 1887 

Moscow 1907 

Moscow Declaration 1925 

Mosley, Sir Oswald 1950 

N 

Nanking, China 1888, 1893, 1911, 1913 

National Military Council 1937, 1941 

National Securitv Council 1896, 1897 

Nelson, Donald 1890, 1929, 1934 

New Fourth Army 1939 

New York Times 1936 

News-Chronicle 1936 

Nimitz, Admiral 1953 

Nomura, Admiral 1917 

Normandy 1889 

Northern Expedition 1911 

Norway 1893 

O 
OWI 1946 



INDEX V 

P 

Page 

Pearl Harbor 1891, 1893, 1912, 1915, 1917 

Peiping, China 1897 

Peking, China 1890, 1911 

Pentagon 1889, 1896, 1897, 1905 

People's Political Council 1916, 1934 

Peurifoy, John 1896, 1906 

Poland 1899 

Potsdam 1899, 1900, 1907 

President, the (United States) 1943, 1947, 1948, 1957 

R 

Kastvorov, Yuri 1897, 1904 

Reynolds News 1941 

Roosevelt, President 1890, 1891, 1894, 1898-1900, 1902, 1910, 1910 

Rosinger, Lawrence K 1895 

Rusher, William A 1887 

Russia 1888, 1892, 1893, 1898-1900, 1903, 1914, 1917-1919, 1930, 1953, 1954 



Salween front, the 1935, 1936 

San Francisco Conference 1953 

Schroeder, F. W 1887 

CIp'pTri pp Til ("*lc 1 Q^4 

Service', John Stewart 1891, 1903, 1907, 1915, 1926, 1928-1930, 1954 

Shang Chen, (head of Chinese military mission to United States) 1925, 1928 

Shanghai, China 1888, 1913 

Shansi 1927 

Sian, China 1909, 1913, 1916 

Sian incident 1921 

Snow, Edgar 1899 

Soong 1954 

Soong, T. L 1950 

Soong, T. V 1918.1919,1925,1929.1948,1949,1951 

Soviet Embassy 1898 

Soviet Union 1892, 1896, 1897, 1903, 1914, 1929, 1932, 1952 

Stabilization Board 1950 

State Department 1889, 1891. 

1896, 1897, 1901, 1902, 1905-1907, 1915, 1923, 1934. 1942, 1944, 1946, 1951 

Far East Division of 1890, 1901 

Policy Planning Board 1905 

Stein, Guenther 1936, 1937, 1940 

Stelle, Charles 1891 

Stilwell, General 1890, 1901, 1918-1920, 1922, 1926. 1943, 1949. 1951 

Sun Fo, Dr 1916. 191S, 1920. 1036. 1053, 1054 

Sun Yat-sen 1013, 1018, 1020 

Sun Yat-sen, Madam (Soong Ching-ling) 1018,1022.1030,1041 

Sydney Morning Herald 1036 



Ta Kung Pao (organ of the political science group) 1917, 1946 

Tai, Li 1952 

Tata Steel Co 1948 

Teheran Declaration •__ 1925, 1930 

Thomas 1951 

Three people's principles : Nationality, democracy, livelihood 1941 

Tichvinsky, Sergei 1S97, 1903 

Time 1936 

Tong, Hollington (Vice Minister of Information) 1941, 1954 

Treasury Department (United States) 1944, 1945, 1949, 1950, 1953 

Truman, Harry S 1894, 1898-1900, 1902 

Tung, General 1941 

T. V 1947 



VI INDEX 

U 

Page 

United Nations 1896, 1925 

Assembly 1896, 1903 

United States 1888, 

1889, 1893-1896, 1.898, 1901, 1905, 1908, 1910-1912, 1914, 1915, 

1917, 1918, 1928, 1929. 
Universal Trading Corporation 1948 



Vandenberg 1907 

Vincent, John Carter 1891, 1895, 1898, 1899 

W 

Wallace, Henry 1895, 1912, 1925, 1929 

Wang, C. T. (Foreign Minister) 1893 

Wang, Ping-nan 1921 

Wang, Gen. P. S 1916 

Wang, Shih-ehieh 1954 

War Department 1889, 1907, 1923, 1942, 1944 

Wedemeyer, General 1890, 1900, 1901, 1918, 1919, 1922, 1953 

Wei-Tao-ming 1947 

White, Harry Dexter 1889 

1890, 1903, 1915, 1918, 1923, 1926, 1936, 1942, 1946, 1947, 1953 

White, Theodore H 1936-1940 

Wu, Dr. K. C. (Vice Minister of Foreign Affairs) 1936-1940 

Wu, Tei-chen 1941 

Y 

Yalta 1900 

Yalta Conference 1953, 1954 

Yangtze Valley 1913, 1931 

Yeh, Chien-ying 1927 

Yenan 1893, 1915, 1921, 1923-1929 

Young China Party 1935 

Yui, O. K 1916 

Yunnan, China 1912 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



HEARINGS 

BEFORE THE 

SUBCOMMITTEE TO INVESTIGATE THE 

ADMINISTRATION OF THE INTERNAL SECURITY 

ACT AND OTHER INTERNAL SECURITY LAWS 

OP THE 

COMMITTEE ON THE JUDICIARY 
UNITED STATES SENATE 

EIGHTY-FOURTH CONGRESS 

SECOND SESSION 
ON 

SCOPE OF SOVIET ACTIVITY IN THE 
UNITED STATES 



JULY 13, 1956 



PART 35 



Printed for the use of the Committee on the Judiciary 




UNITED STATES 
GOVERNMENT PRINTING OFFICE 
72723 WASHINGTON : 195T 






Bostofi Public Library 
S U pei of Documents 

APR 4 -1957 



COMMITTEE ON THE JUDICIARY 

JAMES O. EASTLAND, Mississippi, Chairman 

ESTES KEFAUVER, Tennessee ALEXANDER WILEY, Wisconsin 

OLIN D. JOHNSTON, South Carolina WILLIAM LANGER, North Dakota 

THOMAS C. HENNINGS, Jr., Missouri WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

PRICE DANIEL, Texas EVERETT McKINLEY DIRKSEN, Illinois 

JOSEPH C. O'MAHONEY, Wyoming HERMAN WELKER, Idaho 

MATTHEW M. NEELY, West Virginia JOHN MARSHALL BUTLER, Maryland 



Subcommittee To Investigate the Administration of the Internal Security 
Act and Other Internal Security Laws 

JAMES O. EASTLAND, Mississippi, Chairman 

OLIN D. JOHNSTON, South Carolina WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

THOMAS C. HENNINGS, JR., Missouri HERMAN WELKER, Idaho 

PRICE DANIEL, Texas JOHN MARSHALL BUTLER, Maryland 

Robert Morris, Chief Counsel 

William A. Rusher, Associate Counsel 

Benjamin Mandel, Director of Research 

II 



CONTENTS 

Testimony of— Pa se 

Dr. Arthur N. Young 1955 

ill 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



FRIDAY, JULY 13, 1956 

United States Senate, 
Subcommittee To Investigate the Administration 

of the Internal Security Act and Other 
Internal Security Laws, of the 
Committee on the Judiciary, 

Washington, D. G. 

The subcommittee met, pursuant to call, at 12 a. m., in room 457, 
Senate Office Building, Senator John Marshall Butler presiding. 

Present: Senator Butler. 

Also present: Robert Morris, chief counsel; William A. Rusher, 
administrative counsel; Benjamin Mandel, director of research; and 
Jonathan Mitchell, temporary consultant. 

Senator Butler. The subcommittee will come to order. 

Mr. Morris. Dr. Young, will you come forward, please? 

Senator Butler. Doctor, will you hold up your right hand. 

Do you solemnly promise and declare that the evidence you give the 
Internal Security Subcommittee, a Subcommittee of the Judiciary 
Committee of the United States Senate, will be the truth, the whole 
truth, and nothing but the truth, so help you God ? 

Mr. Young. I do. 

TESTIMONY OF DR. ARTHUR N. YOUNG, SAN MARINO, CALIF. 

Senator Butler. The witness is sworn. 

Mr. Morris. Senator, the hearing this morning is being held by 
the Senate Internal Security Subcommittee in connection with a 
study being made by that subcommittee into the Morgenthau Diaries, 
and hearing on the general subject of Soviet activity in the United 
States. 

Mr. Young is appearing today at the request of the subcommittee. 
He has been a financial adviser, and was head of the financial mission 
to Saudi Arabia in 1951 and 1952. He has been, in the 'twenties, an 
economic adviser to the State Department and also served as financial 
advisor to the Chinese Government from 1929 to 1946. 

He lived through this particular period that he is going to testify 
about in his capacity as a person who was actually on the spot. I 
think he will tell us that during the course of his testimony today. 

Senator Butler. Mr. Young, we are delighted to have you hern, 
sir, and you may proceed with your testimony. 

Mr. Young. Thank you very much, Senator. It might be helpful 
to the committee if I should give a little background in connection 
with this matter. 

1955 



1956 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Senator Butler. Do it the way you want to do it. Proceed in the 
manner you think is best suited to bring out the story. 

Mr. Young. When the Nationalist Government became the Govern- 
ment of China in 1928, they faced a chaotic situation. The currency 
was in a very confused state, with a variety of silver, copper, and 
paper money which bore no relation to each other. The revenues had 
been so inadequate that no previous Peiping government could sur- 
vive for very long. The debts were in default to a very large extent. 

When the Nationalist Government took over, they set out on a 
program of financial rehabilitation. During the period from 1928 to 
1937 they succeeded in unifying and stabilizing the currency. They 
developed quite promptly very large revenues, sources of revenue, from 
the customs and internal revenue with the result that the Government 
had a large degree of financial stability by 1937. Also the greater part 
of these defaulted debts had been settled. 

In fact, the situation was so promising in 1937 that China's economy 
was going ahead by leaps and bounds. Foreign capital was coming 
into the country. The outlook was really very good. 

I agree with the appraisal made by former Ambassador Dr. Hu 
Shih, Chinese Ambassador in Washington, who said that, during this 
period in the 1930's, China had the best government it has ever had. 
I think one of the reasons why the Japanese attacked in 1937 was that 
China was getting ahead so rapidly that they had reached the conclu- 
sion that it was now or never. 

The result of the Japanese attack was, of course, to disrupt, to tear 
down a great deal of good work which the Nationalist Government 
had done during this period. 

Senator Butler. Doctor, who was the head of the Nationalist Gov- 
ernment at that time ? 

Mr. Young. Generalissimo Chiang Kai-shek was the head of that. 

Senator Butler. During the whole period you are testifying to? 

Mr. Young. During the whole period, and the Ministers of Finance 
were Dr. T. V. Soong, Dr. H. K. Soong, and Dr. O. K. Yui. 

When the war came, the Japanese rapidly overran the principal 
cities and destroyed the sources of revenue. They also, of course, 
drove the Chinese out of the areas where the most modern develop- 
ments had taken place, and it was not possible at that time for the 
Chinese Government to derive adequate revenues from the sources at 
its command. 

The Chinese Government, therefore, was forced to rely on paper 
money, inflation, as the main financial resource available for the 
purpose of fighting the war. 

Mr. Morris. Dr. Young, can you tell us of the background situation 
that existed in China in 1941 ? What position did you have in 1941 ? 

Mr. Young. Well, to lead up to that, we had a lot of trouble due 
to the currency 

Mr. Morris. What position did you have in 1941 ? 

Mr. Young. I was still financial adviser. I was financial adviser 
during the whole period from 1929 to 1946. 

The currency had a great many difficulties at that period and we 
sold the reserves that we had, as far as they could be spared from what 
was needed for the purchase of munitions. But when that resource 
was unavailable, the exchange slumped and we adopted, after the 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1957 

rates had settled down, a policy of tending to stabilize the market to 
maintain an orderly market. 

For example, when the Japanese captured Canton and Hankow in 
October 1938, there would have been a very severe collapse in the 
currency if we had not gone in there and supported the currency by 
selling foreign exchange. We put out at that time $16 million in 
selling exchange. We maintained it stable and later the speculators 
decided the situation was not going to pot. They had to cover and 
we got nearly all that money back. We tried to maintain stability, 
and sold through open-market operations in order to preserve as much 
confidence as possible, because whenever the exchange shot up, right 
away that was damaging to confidence and prices tended to rise. 

We conducted that operation from the middle of 1938, that stabili- 
zation operation, trying to maintain orderly markets, right into the 
middle of 1941. 

Now, when I came to the United States in 1939 on personal matters, 
I received a telegram asking me to take up certain business here in 
Washington and in New York for the Chinese Government, and at 
that time I took occasion to call on both the State Department and 
the Treasury Department. I talked with Dr. Hornbeck and also with 
Secretary Hull in the State Department and pointed out that China, 
because of its difficult financial situation, was in fully as much danger 
from financial disintegration as it was from the Japanese, from the 
war. 

I also said the same thing to Secretary Morganthau and to Mr. 
Harry White. I explained to all of these people that it was very ur- 
gent that China should have additional financial resources for the pur- 
pose of maintaining stability of the currency, and that was the policy 
that was carried out, that was followed up by Dr. T. V. Soong when 
he came here in 1940, and I came back from China with him to help 
conduct certain negotiations. He was seeking financial help because 
of the great need in China to try to hold that situation together 
financially. And that led up to this stabilization matter of 1941. 

Mr. Morris. Now, was Dr. Ludwig Rajchman a party to these 
negotiations ? 

Mr. Young. Well, when Dr. Soong came over here, Dr. Rajchman 
was advising him and Dr. Rajchman participated later in certain 
negotiations with the Treasury. 

Mr. Morris. IsthatR-a-c-k-m-a-n? 

Mr. Young. R-a-j-c-h-m-a-n. And he was brought into that thing. 
Dr. Soong and I were preparing a very important memorandum to 
give to the American Government, the State Department, and the 
Treasury, describing the Chinese financial situation, telling what the 
assets and resources were, bank assets and currency, and what the 
budget was, and how the stabilization, we thought, should be conducted. 
And we had that document drafted and we were going over it, I re- 
member, one day in New York. 

Dr. Rajchman was there and Dr. Rajchman brought in Mr. Fred- 
erick V. Field at that point. Dr. Soong, of course, didn't know Mr. 
Field. Neither did I. But Dr. Rajchman 

Mr. Morris. May I break in at that point ? 

Senator Butler, the last part of the witness' testimony is particu- 
larly pertinent to the present inquiry. Dr. Ludwig Rajchman's name 






1958 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

frequently turned up in the course of our hearings on the Institute of 
Pacific Kelations. At that time he was an adviser to the Chinese 
Government ; was he not ? 

Mr. Young. He was. 

Mr. Morris. Since that time Mr. Eajchman has really made a stand 
apparent to everybody. I think that would be reflected by the fact 
that he is now a Polish Communist delegate to UNICEF. 

Frederick V. Field, who was called in, according to the testimony 
of this witness, as an adviser to Mr. Eajchman, has been shown by the 
Internal Security Subcommittee to have been a Commtmist during 
the year 1941, which covered the period that the witness is now talking 
about. In fact, that was one of the conclusions that was made by the 
Internal Security Subcommittee in connection with the latter. 

Mr. Young. May I say that this incident I am referring to took 
place in the month of July 1940, soon after Dr. Soong came to this 
country. And I came with him. 

Mr. Morris. See if I understand the parties here. Dr. Eajchman 
was officially an adviser to the Chinese Government. 

Mr. Young. Yes. 

Mr. Morris. And in that connection Eajchman was advising the 
Chinese Government and you occupied at the time what position ? 

Mr. Young. Financial adviser to the Chinese Government. And 
Dr. Eajchman was advising on general matters. He was not a finan- 
cial expert, but he was advising on general matters, and at this point, 
as I remember it, he volunteered the suggestion to Dr. Soong that Mr. 
Field could help to put this document in shape, would help to make it 
presentable and impressive to the American authorities. 

Mr. Morris. Did he make it presentable and impressive to the Amer- 
ican authorities ? 

Mr. Young. I don't remember that he made many changes. 

Mr. Morris. At this time, on the American side of the picture, who 
were the individuals who were advising our own Treasury Department 
and our own State Department on what the policy should be with 
respect to the stabilization ? 

Mr. Young. Well, on the State Department side the matter was 
handled by Dr. Stanley Hornbeck, and Mr. Horace Smith, and Mr. 
Joseph Jones were also working on it, I recall. They were State 
Department experts. In the Treasury, the matter was handled pri- 
marily in the office of Mr. White. 

Mr. Morris. Harry Dexter White. 

Mr. Young. I might say this, that the document I mentioned, that 
Dr. Soong submitted, proposed a continuation of the type of stabil- 
ization operations that we had conducted up to 1941. That is, the 
stabilization of the open market and the maintenance of confidence 
through support of the rate of exchange, and in my discussions with 
the State Department in 1939 and also in my discussions with Mr. 
Morgenthau, I had supported that same policy which we thought had 
worked reasonably well, considering the resources that we had, and so 
far as I could judge, the State Department was convinced of the 
merits of that policy. 

The State Department asked me, after I left Washington for Cali- 
fornia in 1939, for a statement on various points on that, and I sub- 
mitted a full memorandum giving them all details as to how the 
policy might successfully be carried out. Also, they wanted to know 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1959 

how much money it would take to carry it out, and I thought $50 
million in the first instance to carry it for a year, but with $25 million 
more on call. 

Then in 1940, when this matter got into the hands of the Treasury, 
they shifted the base. The Treasury supported the idea of introduc- 
ing an exchange control into China at this period. That was an idea 
that we had played with from the very beginning. We considered 
it at the very outbreak of the Japanese — the Sino-Japanese War. 

We rejected it on the grounds that the Japanese would have control 
of the ports and that the Chinese Government would have no means 
to administer an exchange control and also lacked the administrative 
experience at that time to do it. 

But the Treasury nevertheless took up the idea of exchange control 
and, when they introduced this stabilization plan in 1941, it was based 
on the idea of an exchange control. So they took the ball away from 
those of us who had been handling it before and, when the stabiliza- 
tion plan of 1941 was put into operation, it was done on the basis of 
an exchange control. 

Mr. Morris. Dr. Young, what position did a gentleman named 
Chao Ting-chi have at this period ? 

Senator, he is now an official of the Chinese Communist Govern- 
ment and he was a Chinese Communist in the United States at that 
time whom we encountered previously in our Institute of Pacific Rela- 
tions hearing. 

Mr. Young. My first contact with Dr. Chi was in the latter part 
of 1938. At that time, approximately that time, he came to China 
from the United States and I remember that he called on me soon 
after his arrival. I had heard at that time that he was or had been 
a Communist in the United States. He worked with the Chinese 
Government— I do not recall the capacities — until 1941. But when 
the Stabilization Board was set up in 1941, he became the general 
secretary of that organization. 

Mr. Morris. So you had a Chinese Communist as the general secre- 
tary of the Stabilization Board at that time. 

Mr. Young. Well, there was some talk around that maybe he was 
no longer a Communist ; but, in any case, he was appointed as secre- 
tary general of the Stabilization Board and he later became a secretary 
to the Finance Minister, Dr. Kung. 

Mr. Morris. Did Dr. Harry Dexter White try to get control of the 
Stabilization Board? 

Mr. Young. Well, he did — he was very anxious ; and the Treasury 
took over this matter from the State Department. Pie was very 
anxious, apparently, to get control of this and to devise his own plan, 
which he did. Also the Treasury was, of course, insistent on putting 
in their own man, Mr. Fox, to be their representative on the Stabili- 
zation Board. 

Senator Butler. What plan did he devise, the stabilization plan? 

Mr. Young. The stabilization plan. Secretary Morgenthau went 
before Congress in the latter part of 1940 and explained that plan, or 
rather, explained the general idea of providing a stabilization fund. 
He received the approval of the committees and of Congress, which 
he had been committed to seek. And then the Treasury went ahead 
to work out the details with the Chinese. 

72723— 57— pt. 35 2 



1960 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. Mr. Chairman, I would like to make reference at this 
point to a document already in the record of the hearings. 

By the way, Senator, we have introduced more than 1,000 of the 
entries from the Morgenthau diaries into the record as of this time. 

I would like to make reference to a memorandum from Mr. White 
dated June 10, 1944, in which it is apparent that White is recommend- 
ing Dr. Chi to 20 to the Bretton Woods Conference. 

In what capacity ? 

Mr. Mitchell. Adviser to the Chinese. 

Mr. Morris. As adviser to the Chinese delegation. 

Do you know where Dr. Chi is now ? 

Mr. Young. I understand he is a high official in Communist China. 
I was told by a Chinese friend yesterday that he is the No. 2 man 
in the Bank of China, which is one of their state banks — nationalized 
since the Nationalist regime. 

(The document referred to was marked "Exhibit No. 327" and 
reads as follows:) 

Exhibit No. 327 

June 10, 1944. 
To : Mr. Collado. 
From Mr. White. 

Will you please send the following cable to the American Embassy, Chungking, 
China : 
Fob Adler Feom the Secretary of the Treasury. 

You are requested to express personally to Dr. Kung my pleasure that he is 
coming to the United States. 

You are informed that Friedman, who is now in Cairo, has been instructed 
to depart immediately for Chungking to substitute for you as Treasury repre- 
sentative. You are instructed to present yourself to Vice President Wallace 
upon his arrival in China, if you have not already done so, and to make available 
to him whatever economic data you have on the Chinese economic situation which 
he may desire and otherwise to assist him in every possible way. 

It is requested that you return to the United States to report and to participate 
in the United Nations Monetary and Financial Conference, but you should not 
leave Chungking until it is no longer necessary for you to be available to the 
Vice President. In addition, you should not leave Chungking after Friedman's 
arrival until you have had the opportunity to get him started and to acquaint him 
with the necessary details. Please cable us as soon as possible the probable 
date of your departure from China. 

It is suggested by White that if appropriate you might suggest to the proper 
Chinese authorities that if Dr. Chi, whose book on foreign exchange White had 
the pleasure of reviewing, could come to the Monetary Conference as one of 
the technical assistants, that his excellent knowledge of the English language and 
his technical competence in foreign exchange problems would probably prove to be 
very helpful. 

Mr. Morris. In May, 195G, Dr. Chi was the chief delegate for the 
Chinese Communist government to the Paris Merchandise Exhibition, 
among other things. 

I would also like to introduce into the record, Senator, at this 
time a communication from Harry Dexter White to Mr. Collado 
which reads: 

Will you please send the following cable to the American Embassy, Chungking, 
China. 

This is "for Adler," meaning Solomon Adler, who has been identi- 
fied in our record as a member of the Communist ring, "from the 
Secretary of the Treasury." It reads : 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1961 

The Treasury appreciated the information from you that Wei Ting-sheng 
was to come to the Monetary Conference. 

Have you heard if Dr. Chi is also to come to the Conference? White had the 
pleasure of reviewing Dr. Chi's book on foreign exchange and informs me 
of Dr. Chi's excellent knowledge of the english language and of his technical 
competence in foreign exchange problems. I would therefore be very inter- 
ested to know if Dr. Chi has been designated by China to attend the Monetary 
Conference as one of China's technical assistants, since his presence would 
probably prove to be very helpful. Please reply as soon as possible. 

I think in view of the personality involved there that that might 
also be interesting in connection with Dr. Young's testimony here 
today. 

Mr. Young. May I say that this stabilization plan devised by the 
Treasury at this point proved to be very expensive to China. During 
the period of about 3 years, from the middle of 1938 to August 1941, 
when the Stabilization Board put it over, we had maintained a 
moderate degree of stability with the expenditure of a little over 
$10 million. If we had had more, we could have handled it even 
better, but the funds were just not there and we couldn't persuade 
the American Government to assist us to the necessary extent. 

The British Government, however, did put up, made a very helpful 
advance of 5 million pounds sterling, but as soon as that and the 
Chinese contribution were exhausted, we were out of funds. 

Then the Stabilization Board took over in August of 1911 — yes, 
1941 — operating an exchange control and that proved to be costly. 
In about 3% months from August 18, if I remember correctly, to 
Pearl Harbor in the early part of December of 1941, their expenditures 
were about $24 million. In other words, in less than 4 months they 
had spent a sum of about $24 million compared with the cost that 
we had been incurring over 3 years of not twice that amount. 

If it would be of interest to the committee, I would be very glad 
to put into the record a contemporary paper that I recently came 
across which was a letter I wrote just on the eve of Pearl Harbor to 
Mrs. Young, more or less to record the situation. I did set out my 
views as to what had taken place there. I think I would stand by 
most of it. There may be 1 or 2 points in which I expressed myself 
a little more strongly than I would now. 

Senator Butler. The letter will be received and made a part of 
the record, Doctor, at this point. 

Mr. Morris. That is the letter you showed us yesterday ? 

Mr. Young. That is right. 

Mr. Morris. May that go into the record at this point ? 

Senator Butler. Yes. 

(The document referred to was marked "Exhibit No. 328" and is 

as follows :) 

Exhibit No. 328 

Letter of December 7, 1941, From Arthur N. Young, Former Financial 
Adviser to China, to Mrs. Young on the Financial Situation, With Special 
Reference to Currency Stabilization Measures 

Chungking, China, December 7, 19^1. 

I am taking this occasion to write some confidential comments which are not 
to be circulated but only to give some idea of how things are going. 

I was quite right to come back promptly when I did (last June), and to come 
via Burma. I still receive indications of the success I have had in Rangoon, 
Lashio, and along the road. Among the matters I started were: abolition of the 



1962 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Burma tax on Chinese war supplies ; decentralization of storage of war supplies 
in the chief cities of Burma and along the road; the sending of the U. S. anti- 
malaria mission, which will much improve the health of the workers and facilitate 
the paving of the road and the building of the railway; the seconding of an 
American railway expert to work with the Chinese and Burma authorities — he 
is a good man (Major Ausland) and is very much on the job and will probably 
succeed in jamming the road through by about the end of 1942 if the Burma 
people do their part well ; the prompt shipment of U. S. machinery for paving 
the road ; and a number of lesser matters. 

In Chungking, I have not been as successful in major matters, but still have 
done some worthwhile things. First, there has been a change in monetary 
policy during the last few months which is not for the better. The responsibility 
rests on China and the U. S., while I have to say that, on the whole, the British 
have held up their end best, though some British elements have had a share in 
upsetting the former policy (Keynes). They have tried and are trying to intro- 
duce here forms of control which are not adapted to existing conditions — that is, 
to apply European exchange and trade control. While the Japs have the 
authority in the main ports and in Free China there is no administrative organ- 
ization to work the controls properly. Early this year China asked for freezing 
of Chinese assets so as to try these controls. In March I strongly recommended 
against these measures, which I felt would do great harm to China. But this 
advice was unheeded by both China and the U. S. There was a wish to have 
a new deal in monetary policy. It was charged that, because Shanghai is a 
hotbed of speculators and Japs, the support of the Chinese currency in its greatest 
market should be stopped. They overlooked the way in which support of 
Shanghai exechange maintained confidence in the currency, and indirectly in 
the Government ; held back prices — at each break in exchange merchants through- 
out leading centers of China mark up their prices for everything — and checked 
the Japanese efforts to exploit the occupied areas by sustaining the position of 
the Chinese currency there and preventing the Japs from getting the financial 
system into their hands. 

After freezing, even, the old policy need not have been changed, at least before 
plans had been made to carry out a new one. But, instead, the new Stabilization 
Board at once announced about August 15 that they would control exchange at 
rates that were about 10 percent over the market— even though the market was 
then probably iy 2 to 2 times as high as it should have been — instead of grad- 
ually letting down rates and doing what coidd be done to hold confidence. The 
result was that people soon realized that they could not get from the Board the 
exchange that they thought they needed ; and, since the Board had not been able 
to "dry up the black market," as Fox had publicly stated was to be done, the 
free market rates went to pieces and confidence was lost. The Board was 
swamped with applications and had almost no staff and no procedure for handling 
the papers. Of course there were long delays which further hurt confidence. 
Besides the Japanese Cabinet change in mid-October was a bad break for the 
Board and led to panic conditions in Shanghai, coming on top of the great 
nervousness about the provision of exchange. Under our old policy, we always 
were able to intervene in the market at such times and prevent chaotic conditions. 
But the Board would not hear of the idea of trying to support the wicked "black 
market," which went from bad to worse while they were handling their papers 
and trying to decide what to do. The Hong Kong office of the Board, with a 
makeshift staff of 50-60 hurriedly thrown together and crowded into a few 
rooms in the Hongkong Bank building, was a madhouse. The key members of 
the staff had to work 10-12 or more hours daily without rest and almost wreck 
their health in an effort to keep things going. Shanghai business interests flocked 
to Hong Kong to try to get action. There was no office in Shanghai to represent 
the Board. Meanwhile, Chungking blamed the Board for being in Hong Kong 
most of the time, and the members had to come here when they were overworked 
in Hong Kong. Chungking also blamed them for paying so much attention to 
Shanghai and giving Shanghai so much exchange. With Shanghai cursing for 
for not getting enough exchange, with the public panicking there and prices con- 
stantly marked up all over China, and Chungking attacking them from the 
other side, they have had a bad time. 

The net result has been to aggravate greatly the inflation, which is China's 
greatest danger in the war. Perhaps the price rise has been accelerated by 
several months as a result of these experiments. The price rise was inevitable 
in any event ; but we have been fighting a rear guard action to hold it in check 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1963 

as much as possible. Back in the summer of 1939, the failure of China to put up 
more exchange to help to hold the market after the Sino-British Fund was 
exhausted had similarly started a dangerous price rise. This also had acceler- 
ated the inflation by perhaps six months. These efforts have amounted to 
rocking the boat. 

When I came back in July, I at once called on the Stabilization Board, which 
had taken refuge on the second range, far removed from any contamination of 
any sort. I told the members individually that I wanted to cooperate in any 
possible way and to put at their disposal my experience with the currency manage- 
ment for whatever it was worth. At that time they resisted all attempts to talk 
business and obviously did not want to discuss pending problems at all. I had 
the impression that I was considered poisonous, though of course everyone was 

perfectly polite. 

When freezing came, on July 26, I still urged a moderate policy — not to hurry 
about trying to stop the free market or starting exchange control or fixing 
official rates of exchange. But the policy of controls was decided upon ; I was 
not at the conferences; and the old policy was scrapped. Incidentally, the 
old policy had maintained quite a high degree of stability, despite the reluctance 
of high authorities to carry it out wholeheartedly, and at relatively small cost. 
In fact, for many months, the net cost of maintaining fairly stable rates had 
been almost nil. Now the Board is paying out many millions of U. S. dollars 
monthly and without any effect on prices comparable to the effect of our simple 
policy of maintaining an orderly market at Shanghai. If the new policy, com- 
pared to the old one, benefits China and injures Japan, I would like to be shown 
how. Of course this does not apply to freezing of Japan which I favored. 

Thus the Stabilization Board has had anything but a stabilizing effect. Fox 
has dominated the Board. Whatever he opposes is not done, as the Chinese 
members and Hall Patch either agree or do not want to make a fight. It is a 
pity that Rogers was not accepted as a member, as he has a much better grasp 
of what is good for China in this field than all the rest combined. But some of 
his acts had caused too much antagonism. 

Now, after six months, the Board is getting better organized. They are 
learning their job, but it is a pity to have to do so at China's expense. Despite 
what I have written, I have, of course, not said much here. Since there is a job 
to be done, I have tried to help out as much as permitted. Now that the new 
policy is adopted and cannot well be changed, we must do all we can to make 
it work. Something like what is now being done would have to be done any- 
how in case of war; but it would have been wiser to make the plans but not 
to use them till we are forced to do so. If a Pacific war comes, the harm that 
has been done will be lost sight of; but if there is no war for a few months 
the effects of the policy are likely to become more clear. The Board have a 
bear by the tail. They will have to keep on putting out millions of U. S. 
dollars month after month unless they abandon Shanghai to the Japs — which 
would be the effect of stopping. We were blamed for the cost of our former 
policy; but it will be nothing compared with the cost of the new one if there 
is no war or if Shanghai is not abandoned. And we could recoup much of our 
cost, but they can do very little because they canont buy back exchange or get 
people to sell them much at the uneconomic rates they have set and which they 
cannot well change without great further shock to the currency. 

So much for that. I have been busy with budget matters and have been able 
to have certain useful influence. On this I have worked closely with Sir Otto 
Niemeyer, the British expert, who is a good man. I have given various memos 
to Dr. Kung, the Generalissimo, and the chief officials concerned. I think we 
have been able to get a much better budget than would otherwise have been 
adopted, though it is considerably higher than it should be. The Government 
should make real cuts of unessential things and properly support what is neces- 
sary, instead of trying to run so many things with such inadequate support. 

The trouble I strike is that so many of the officials want to solve their 
financial problems by magic rather than by applying the old and well-tried 
financial virtues of economy and sound administration and taxation. They 
want to get their problems solved by help from abroad rather than by doing 
what they can and should do themselves? The freezing, for which they asked, 
paradoxically for them, has removed the possibility of selling foreign cur- 
rency here to suck up inflation and give the Government money which it could 
reissue rather than to print fresh issues. So what foreign countries can do 
to help, in addition to Lease-Lend and providing funds for the Stabilization 



1964 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Board, is very limited. The problem is now mostly up to China ; yet many do 
not admit that inflation is the chief cause of ever-rising prices and blame it on 
illation, transport troubles, shortage of goods, hoarding, etc., which are 
relatively mine:-. . ay remedy must treat the main disease and not try to 
Suppress th? symptoms. 

Despite all these things I have mentioned, I find my advice sought more and 
more, and a number of the younger men come to me about their problems. 
There is a lot of good stuff here. The troubles are due in no small part to 
the effects of strain of war on the leading personnel. They have often been 
ill and have had little or no rest and change and vacation. Many have not 
had proper food or medical attention. This is one of the indirect but sad results 
of war. I do not now find the vigor and .judgment and ability to carry out 
plans that I knew before the war when we were able to do so much. And the 
success of China in standing off the Japs for four and a half years and bringing 
them to a state where their position as a "great" power is likely soon to be 
ended has not unnaturally gone to their heads. They have done so much by 
their own efforts in spite of our criminally stupid neutrality law and unwilling- 
ness to give help when it counted most, that it is not surprising that they now 
want to have their head. They must learn by their own experience, like most 
individuals — but what an unnecessary cost. 

Meanwhile the inflation goes merrily on. Prices now are probably 20 to 25 
times the prewar level in leading interior cities, and perhaps 15 times as high 
as prewar in the country as a whole. The increase in the past six months has 
been about 50 percent. The dangerous part is that these increases get faster and 
faster. I am urging reforms while there is yet time. The war out here is likely 
to last another two years, and we must do what we can to get China through that 
period. The ravages of inflation are so serious, however, that China will have a 
tremendous problem after the war to put its house in order. The financial ques- 
tions alone will be grave enough, but there is also the still unsettled internal 
political problem of Kuomintang-Commuuists and other parties, the tendency in 
many circles toward gestapo methods and dictatorship, the question of regional 
differences, political differences, political personalities, the exploiting tendencies 
of some officials, face and political favoritism, the serious land problem, and 
others. China is too nationalistic, after its heroic resistance, to tolerate much 
foreign help in actually doing things to aid in putting the house in order. How 
it will all work out, no one can say. Still, as Royal Leonard once said, China 
refuses to do the obvious but often does the impossible. 

Senator Butler. Doctor, you said in less than 4 months they spent 
more than half of what you had spent in over 3 years to do the same 
job, not as well. 

Mr. Young. We were doing it in a different way. We were trying 
to maintain stability, relatively, of the currency in order to maintain 
an orderly market. Of course, there were times when the currency 
had to be allowed to slip because of the inflation, and the exchange 
value of the currency fell, but we tried to control those whenever we 
had resources, so it would be done in as orderly a way as possible. _ 

They sold exchange at a fixed rate which I think w 7 as fixed too high, 
and they were unable to buy anything back. It was a one-way prop- 
osition, all going out and nothing coming in, whereas on the free mar- 
ket operation we could sometimes buy back, as I mentioned in the case 
of his Hankow 7 affair, when we bought back most of the $16 million 
we had sold, after the market settled down. 

So they had this exchange control. They were giving it all out. In 
the meantime, the free market rate, which had been steady a number 
of months, went to pot. It immediately dropped down when there 
was no support of the free market, and "that was a shock and aggra- 
vated the prices and made the financial problems more difficult for 
the Chinese Government, in my opinion. 

Mr. Morris. During this period China needed to raise money by any 
practicable means, did it not, in order to keep the inflationary forces 
from gaining the ascendancy ? 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1965 

Mr. Young. All the way through, that was my advice to China. 
They should raise everything possible by noninflationary means. 

Mr. Morris. In connection with that last question, and your last 
answer, have you made a study of the Morgenthau diaries, Mr. Young? 

Mr. Young. I have made a study of the documents that I under- 
stand are in the records of the committee. 

Mr. Morris. More than 1,000 documents that we have referred to 
earlier today. They are now in the record of the committee. 

Mr. Young. I have made a study of those with special reference to 
the transactions for sales of gold in China, which was one of the more 
important of the noninflationary means of raising revenue. 

Mr. Morris. And, Dr. Young, on the basis of that study, together 
with the experience that you personally had in China during this 
period as a financial adviser to the Chinese Government on this very 
problem, you have prepared, have you not, a 19-page outline which 
is annotated for the express purpose of the record, of having it inserted 
into the record of the Internal Security Subcommittee? 

Mr. Young. Yes, sir. 

Mr. Morris. I would like to offer this, Senator, this memo so de- 
scribed, captioned "China and Gold, 1942-45, by Arthur N. Young," 
dated July 11, 1956, which Dr. Young has prepared, having studied 
the Morgenthau Diaries, having incorporated into that study his own 
experience and, as I say, he prepared this expressly for the purpose 
of the record of the Internal Security Subcommittee. 

I would like to now offer that for the record. 

Senator Butler. It will be received and made a part of the record. 

(The document referred to was marked "Exhibit No. 329" and reads 
as follows:) 

Exhibit No. 329 

July 11, 1956. 
China and Gold, 1942-45 

(By Arthur N. Young) 

(This statement is based upon the writer's own experience and upon study of 
the Morgenthau Diaries, made available by the Subcommittee To Investigate 
the Administration of the Internal Security Act and other Internal Security Laws 
of the Senate Committee on the Judiciary in June-July 1956. The writer was 
financial adviser to the Nationalist Government of China and to the Central 
Bank of China while the events herein discussed took place.) 

Shortly after Pearl Harbor, China asked the United States for a large loan. 
China had fought Japan for four and a half years with meager foreign aid. 
American and British defeats by Japan in the early part of the Pacific war 
showed that the war would last a good while. The American Government 
readily responded to China's request. On March 21, 1942, an agreement was 
signed at Washington for a credit to China of $500 million. The funds were 
to be transferred "in such amounts and at such times as the Government of the 
Republic of China shall request." * 

Secretary Morgenthau was most helpful to China in supporting in the admin- 
istration and before Congress China's request for this loan. Previously he had 
taken a helpful interest in China's problems, by buying China's silver at good 
prices at the time of Japan's attack in 19.37 and thereafter. Also he had helped 
China to obtain credits from the Export-Import Bank, beginning at the end of 
1938, for purchases of needed supplies in the United States. 

Shortly after the $500 million credit was concluded, the writer and officers of 
the Central Bank of China urged that China use part of this credit to get gold 
to be sold in China. This would reduce dependence on paper money financing, 



1 The text Is given in U. S. Relations With China, Department of State, 1949, pp. 511-512.. 



1966 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

which had become unavoidable under war conditions. It was realized that gold 
sales would have to be experimental. 

In February 1943, the Chinese Government asked for $20 million of this credit 
of $500 million to buy gold for shipment to China, and the Treasury promptly 
agreed. No shipments were made, however, until September 28, 1943. The delay 
seems to have been due in part to problems of transport and insurance. 

Meanwhile, on July 8, 1943, a message from Finance Minister Kung was re- 
ceived at Washington stating that inflation was growing in China, and that 
American needs for airfields and other facilities added greatly to China's ex- 
penditures. Dr. Kung thought it desirable to sell gold actively in order to raise 
funds other than by printing notes, and asked that $200 million of the credit be 
used for shipment of gold to China. He stated that Mme. Chiang, at the time of 
her visit in June 1943 had obtained the approval of President Roosevelt and 
Secretary Morgenthau for the use of $200 million of the credit for buying gold. 

Secretary Morgenthau sent a message to Dr. Kung on July 14, 1943, stating 
that the Treasury agreed in principle but had made it clear to China that it ac- 
quiesced because the sale of gold to the public would help China to fight inflation 
and hoarding ; and that such use of gold involved great costs and difficulties and 
the decision was primarily China's responsibility. Also, Mr. Morgenthau stated, 
China would be sacrificing assets which could be used postwar for reconstruction. 

In response to a formal request by the Chinese Ambassador, Secretary Morgen- 
thau on July 27, 1943, made the following reply to Minister Kung : 

"The Treasury agrees to the request of the Government of China transmitted 
to me by Ambassador Wei Tao-ming that $200 million be made available imme- 
diately from the credit on the books of the Treasury in the name of the Govern- 
ment of the Republic of China for the purchase of gold. 

"In order to avoid unnecessary raising of funds by the United States Treasury, 
it is suggested that transfers from the credit of the Chinese Government for the 
purchase of gold be made at such time and in such amounts as are allowed by ex- 
isting facilities for the transportation to China of the equivalent amount of gold. 
Since it is intended that this gold will be sent to China for sale to the public, this 
procedure should not interfere with the program outlined in your message of July 
23, 1943. 

"On receipt of requests from the Government of China that a specific amount 
should be transferred from the credit of the Government of China on the books 
of the Treasury and be used for the purchase of gold, the necessary action will be 
taken to consummate these requests. The details of the arrangements will be 
discussed with Dr. P. W. Kuo and Mr. Hsi Te-mou." " In reply Dr. Kung ex- 
pressed appreciation and said he would request the gold in specific amounts as 
needed. 

The Treasury clearly recognized the desirability in principle of using gold to 
raise funds for war purposes as a noninflationary expedient. A memorandum of 
September 22, 1943, by Mr. Harry D. White, of the Treasury, to Secretary Mor- 
genthau stated that the Treasury expected to sell about $20 million of gold in the 
next three months in the Middle East and India to cover local war costs of the 
United States, and that the amount of such sales was likely to grow. 8 

In the same memorandum, Mr. White informed the Secretary that : 

"China has asked for $50 million worth of gold in accordance with your prom- 
ise to make the gold available." A memorandum prepared by Mr. White recorded 
his conversation with Secretary Morgenthau on September 29, 1943, as follows: 

"I said that I thought that we ought to be tough with the Chinese on the 
question of earmarking $200 million of gold for gold sales which they could not 
make before the gold could be shipped to them. The Secretary agreed. He said 
he thinks that we should be tough in this matter and he told me to go ahead and 
let them have the gold only as rapidly as it could be shipped and sold in China." 4 

In this period there was discussion of possible sale of gold in China by the 
U. S. to meet American expenditures and thus overcome the disadvantages of the 
artificial official rate of exchange of C$20-l. Minister Kung had no objection in 
principle but thought the plan inadvisable because other governments would be 
likely to claim the same privilege. 

These gold transactions had a helpful effect in checking inflation. A telegram 
of November 30, 1943, to the Treasury from Mr. Adler, Treasury representative 
at Chungking, stated that the rate of price rise had slackened due to various 



2 Text from U. S. Relations With China, pp. 487-488. 

3 Morgenthau Diaries (hereinafter called Diaries). V. 666, p. 179 (exhibit No. 332). 
* Diaries, V. 668, p. 68 (exhibit No. 333). 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1967 

causes including an adequate harvest, better war news, and the psychological 
effect of announcing the purchase of gold by China. 6 On December 14, 1943, Min- 
ister Kung telegraphed to Secretary Morgenthau that the arrival in November of 
American gold had helped to strengthen the Chinese currency. 

The Chinese Government began the sale of gold prior to arrival of the first 
American shipment on November 19, 1943, using gold already held in China 
amounting to about 50,000 ounces. These sales, handled by the Farmers Bank 
of China, were managed so as to avoid disrupting gold prices. Sometimes the 
Bank bought to steady these prices. Total sales by the Farmers Bank up to 
March 1944 were about 33,000 ounces worth over $1 million. 

The Central Bank of China took over the selling of gold in March 1944. Until 
the summer of 1944 China had enough gold because of the $10 million of Ameri- 
can gold that arrived at the end of 1943, plus two lots of $1 million each that 
came in April and July 1944. But by July it was clear that more was needed. 

On July 12 the Central Bank urgently asked for air shipments. The Treasury 
sent two lots August 3 and 21. The first of $3 million went by sea and reached 
China September 21. The second of $1.5 million went by air and arrived Septem- 
ber 12. 

Meanwhile sales of gold in China speeded up. The figures of sales of gold and 
arrivals of American gold in the second half of 1944 were : 



1944 


Sales 


Arrivals 


1944 


Sales 


Arrivals 


July 


$4, 393, 000 
1, 800, 000 
5, 260, 000 


$1, 092, 814 


October 

November 

December... 


$7, 175, 000 
7, 600, 000 
3, 185, 000 


$2, 849, 323 


August 


September 


4, 493, 421 


2, 949, 136 





Details of the dates and amounts of gold shipments from the United States 
to China, and also official and free market gold prices, sales and receipts in China, 
are shown in Tables I and II at the end of this statement. 

Up to October 1944, the supply of gold sufficed to meet the demand. Total 
sales had been about $18 million, which were covered by arrivals of American 
gold worth about $17 million plus the 50,000 ounces worth about $1.75 million 
already in China. But the Treasury's holding back was having its effect in 
China. The inadequate response to the Central Bank's request of July 12, 1944, 
created doubt in the market, as no fresh shipment left the United States until 
August 3. That naturally stimulated the urge to buy gold. By October 6 the 
Bank had on hand only a few days' supply — 28,000 ounces worth about $1 million. 

Until midsummer of 1944 official gold prices had been fairly close to free market 
prices. The average monthly' free market price did not exceed the official price 
by more than 10 percent until August 1944. On July 16, 1944, the Central Bank 
in a surprise move lowered the official price from C$18,500 to C$17,500 in order 
to trap speculators and strengthen confidence. The Bank always was under- 
standably reluctant to raise the official gold price because of fear that its action 
would hurt general confidence and be reflected in a rise of general prices. In 
September 1944, however, the Bank raised the effective official gold price to 
C$19,250 and in October to C$21,000 by including a supplement first of 10 percent 
and then 20 percent for compulsory purchase of Chinese Government Treasury 
notes. In November the official price was raised to C$24,000. 

In a telegram of October 6 the Central Bank told its representative in the 
United States that the difference between official and black market prices was 
"entirely due to stock having been exhausted * * *. Public got scared because 
we had no more gold. All rushed for what they could grab." As a result gold 
prices rose, though large arrivals of gold in September and October checked the 
rise. A further condition promoting a rise in the black market was the aggra- 
vated inflation, whose pace was speeded up by the heavy spending of printing 
press money for the huge airfields built at Chengtu in the first half of 1944 for 
the American B-29's, and costing about C$6 billion. 

The reluctance of the Treasury about gold for China was shown by a statement 
by Secretary Morgenthau in a conference with his staff on December 17, 1943, at 
which he said : "* * * it was our fault or blame or responsibility that the gold 



B Diaries, V. 682, p. 83 (exhibit No. 334). 



72723— 57— pt. 35- 



1968 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

left here so slowly. We thought that was the only way to make it last, and that 
we could let it go faster." 8 

A Treasury memorandum of December 18, 1943, to President Roosevelt said : 
"This practice has not been tried sufficiently to warrant any definite conclusion 
as to its possible effect". 7 Mr. Adler in a report of February 22, 1944, said that 
China was "ultra conservative" and was not selling much gold. 8 

The Treasury in this period was giving effect to Secretary Morgenthau's 
decision of September 29, 1943, reported in the above-quoted memorandum to 
"let them have the gold only as rapidly as it could be shipped and sold in China." 
Until July 1943, when the pace of gold selling sharply picked up, the shipments 
could be regarded as reasonably adequate, though without much margin for 
reserve. But in response to the Central Bank's urging beginning July 12, only 
about $13 million of gold was shipped between August 3 and December 1, to 
arrive in China between September 12, 1944, and January 26, 1945. This com- 
pared with sales of over $33 million in the period from September through 
January. 

After January 26 no more gold reached China until June 14, 1945. In order 
to meet the demand the Central Bank begun sales for future delivery, as dis- 
cussed below. Had moderately larger amounts of gold been on hand in due 
time in the fall of 1944, much of the later trouble might have been avoided. 

The fall of 1944 was a most difficult period for China. The Japanese, irked by 
the effective bombing of their shipping along the Chinese coast and of their 
installations and operations in eastern China by General Chennault's Fourteenth 
Air Force, made a heavy drive with mechanized equipment which resulted in 
capturing the east China airbases. Their forces advanced toward Chungking 
and Kunming and the Chinese forces were unable to stop them. The drive was 
checked partly by the flying in of better trained and equipped Chinese troops 
from the Burma-India sector, and probably more importantly by the rapid 
American advances in the Philippines. 

The fear that the Japanese would force evacuation of Chungking and Kun- 
ming led to greatly increased demands for gold in the fall of 1944. In times of 
stress, gold, being of high value in small compass, is a wonderful asset to people 
who fear they may be forced to flee for their lives. Coupled with this was the 
rapid growth of inflation, spurring flight from the cuiTency into whatever pur- 
chases would be likely to hold their value, notably gold. After October 1944, 
the demand for gold was unprecedented. 

That gold was not available in China to meet this exceptional demand in the 
latter part of 1944, clearly was due to the fact that the Treasury had been 
dragging its feet. It was not due to lack of pressure from the Chinese side. 
At a meeting with Messrs. White, Bernstein, and Adler, on October 2, 1944, the 
Chinese representatives presented a copy of a telegram from the Central Bank 
of China, Chungking, as follows : 

"As Federal Reserve Bank of New York advised having shipped balance by 
plane thus exhausting our $20 million and as sales still extremely heavy and 
recent arrivals far from being adequate to meet outstanding contracts, please 
request U. S. Treasury immediately transfer US$20 million or if possible more 
out of $200 million and ship by plane." 9 

Mr. White questioned the merits of selling gold, pointed out that it would be 
a valuable asset postwar, and expressed the view that if sold in China, it would 
"not substantially retard rising prices or the basic economic situation which 
was due to acute scarcity of goods", and also much of the gold would disappear 
into hoards. This argument was not sound. Gold was well calculated to check 
inflation because its official price of C$21,000 per ounce was equivalent to C$600 
per dollar, whereas the black market rate for American currency was about 
C$250 per dollar. In other words, gold in China was worth 2.4 times as much 
as American currency, i. e., equivalent to $84 per ounce compared with the legal 
American price of $35, and at this time the free market price was about C$24,000 
or about 14 percent above the official price. As to scarcity of goods, of course 
many individual items were very scarce because of the war. But most of the 
goods consumed in China were produced there and despite the war, production 
of foodstuffs and many local items was pretty well sustained. The price of rice, 
for example, rose along with other items. Clearly the main cause of the price 



8 Diaries, V. 685. p. 26 (exhibit No. 335). 

7 Diaries, V. 685, p. 141 (exhibit No. 336). 

8 Diaries, V. 703, p. 43. (See p. 1942 of pt. 34, Scope of Soviet Activity in the United 
States.) 

9 For a report of this conference, see U. S. Relations With China, 1949, pp. 502-504. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1969 

rise was the printing and issue of paper money. As to hoarding, it was far 
better to hoard gold paid for by turning in money that could be reisssued, than 
for that money to remain in circulation and be used in part to buy and hoard 
scarce goods. 

At this conference, Mr. Adler pointed out that the spread between official and 
market prices of gold had temporarily gone to as much as 60 percent early in 
September, but had dropped to C$1500 (about S percent) with the arrival of 
gold. This appears to refer to a shipment of about $1.5 million which arrived 
September 12, 1944, being the first arrival since July 12, 1944. The Chinese 
representatives went on to point out that if there were sufficient supplies of 
gold, the discrepancy could be obliterated. They "emphasized that the market's 
lack of confidence in the Central Bank's ability to procure adequate supplies 
was apparently the main reason" for the discrepancy. They stressed that "the 
cessation of the sale of gold would have very serious effects at this time." 
Despite the representations by China, there was no shipment of gold for a 
month, and that shipment was sent by sea whereas the earlier shipments from 
September 1943 through March 1944 had gone by air — the next shipment after 
March 27 having gone by rail to California on August 3, 1944, and thence by 
steamer. 

A memorandum by Mr. White to Secretary Morgenthau dated December 9, 
1944, says that the Chinese have been pressing to ship gold by commercial vessels, 
whereas the Treasury had insisted on military transport. "We have stalled 
as much as we have dared," said Mr. White, "and have succeeded in limiting 
gold shipments to $26 million during the past year. We think it would be a 
serious mistake to permit further large shipments at this time." Mr. White 
went on to say, however, that the Treasury was going ahead with its program to 
obtain in India "all our rupee needs through the sale of gold." 10 

In furtherance of the Treasury's policy, no gold was shipped to China be- 
tween December 1, 1944 and April 14, 1945. 

Meanwhile, the Chinese continued to press for shipments. Finance Minister 
O. K. Yui, in a telegram of December 30, 1944, to Dr. Kuug (who was then in 
the United States) said that the gold was urgently needed and asked him to 
request Secretary Morgenthau to expedite shipments. On January 3, 1945, 
Dr. Kung wrote to the Secretary appealing to his friendship and asking his 
cooperation. The Secretary replied January 6 that he hoped to give a decision 
in the near future and was giving "fullest consideration to the best interests of 
China." u 

In a memorandum which Mr. White submitted to the Secretary for presentation 
to President Roosevelt dated December 23, 1944, it was stated that the gold 
was being sold "in such a way as to be of benefit principally to hoarders and 
speculators" and much of it was finding its way to the occupied areas ; that it 
was having "practically no helpful effect on the inflationary situation" ; and 
that while it gave the Chungking government an additional source of revenue, 
this was "by the sacrifice of valuable national assets at inexcusably low prices." 
The memorandum went on to say that the Treasury had held back shipments 
despite pressure from China. The gold exports, it was explained, clearly showed 
American support of Chungking. The memorandum suggested use of the ship- 
ments as a "bargaining weapon," to get Chungking to accept "your China pro- 
gram." The record indicates that the Secretary did not present this memo- 
randum to the President. 12 

Commenting on the objections raised, it should have been clear that the sale 
of gold was designed to attract purchase by persons who otherwise would en- 
gage in hoarding rice or other important goods and speculate in them — in 
other words, so that they would be diverted from this harmful activity, thus 
adding to the supply of goods available in the market. It was true that some 
of the gold found its way to occupied areas, but the buyers there were largely 
Chinese and in any event, the Government got value in local currency with- 
drawn from circulation for the gold that it sold. As to effect on the inflation, 
receipts from gold reduced substantially the deficit covered by the printing 
press. A telegram from Mr. Adler at Chungking, March 11, 1945, reported 
that receipts from gold had become the chief source of revenue in January and 
February and was thus covering about one-fourth of the deficit. 1 * As to the 



10 Diaries, V. 802, pp. 1-3 (exhibit No. 337). 

11 Diaries, V. 807, pp. 257-259 (exhibit No. 338). 

12 From Harry D. White papers, lodged at the Princeton University Library, received by 
the Senate Internal Security Subcommittee of the Judiciary Committee, September 30, 
1955. See Diaries, V. 846. p. 35. May 10, 1945 (exhibit No. 339). 

13 Diaries, V. 827, pt. I, pp. 53-55 (exhibit No. 340). 



1970 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

sacrifice of assets needed for postwar at "inexcusably low prices," in wartime 
all kinds of valuable assets, including lives, have to be sacrificed. As to the 
prices, the absence of stocks of gold made it impossible to control the market, 
or to realize the much greater value that would have been possible from selling 
spot rather than forward. Furthermore, measured by the black market prices 
for American currency, which is admittedly a not wholly satisfactory measure, 
because of the narrowness of the market, gold produced for China in this period 
sums equivalent to well over $35 per ounce. 

"With stocks of gold in China exhausted while demand ran high, the Central 
Bank was forced to adopt the expedient of selling gold for future delivery. The 
table that follows compares sales of gold, mostly commitments to deliver gold 
in the future, with arrivals in China for the first half of 1945 : 



Date 



Sales 
(Chinese 
ounces) ' 



Value 



Arrivals 



1945 — January. 
February 
March... 

April 

May 

June 



295, 000 
354, 000 
509, 000 
264, 000 
306, 500 
467.000 



$10,325,000 
12, 390, 000 
17.815.000 
9, 240, 000 
12, 775, 000 
16, 345, 000 



$2, 926, 982 



3, 978, 866 



1 The Chinese ounce or tael equals 1.00471 troy ounces. 

Gold sales based on commitments for future delivery were made in two ways : 
by selling gold forward and by accepting deposits to be repaid later in gold. 
The amount of these transactions in futures is shown below (in Chinese ounces) : " 



Date 


Forward 
sales 


Gold de- 
posits 


Total 


1944 — August 




370 
9,340 

19,013 
105, 156 

64, 272 
233, 562 
259, 176 
477, 100 
257.268 
305, 970 
467, 051 


370 


September _ ... 




9,340 


October . ... 




19,013 


November 


116, 930 
21.760 
61, 730 
94, 510 
15, 870 
730 
500 


222, 086 


December 

1945— January 

February.. ... . 


86, 032 
295,292 
353, 686 


March... . _ 


492, 970 


April ._ ._ 


257. 998 


May 


306, 470 


June . . 


467, 051 








Total 


312,030 


2. 198, 278 


2, 510, 308 







These sales of futures had to be made at unfavorable rates. Because of the 
rapid rate of inflation, interest rates in China were 8 percent or more per 
month. Hence what buyers would pay for the right to receive gold in six months 
was related to what they could make by putting out their money at interest for 
that period, in which the original sum would about double. 

Meanwhile, demand for gold far outpaced arrivals. The shipment that was 
started on its way December 1, 1944, by sea reached Chungking January 26, 1954. 
There were no further shipments until $1.2 million shipped April 14, and this, 
too, went by sea, arriving June 14, 1945. During this gap of four and a half 
months with no shipments the free market became more and more panicky. 

Again on January 18, 1945, Dr. Kung wrote to Secretary Morgenthau express- 
ing the "urgency of facilitating the shipment of gold to China and the minting 
of gold tokens for shipment to China." 1S The production of such tokens in one, 
one-half, and one quarter ounce sizes had been discussed for many months but 
nothing definite had been done. The Treasury took no action on this urging. 

Once more, in a letter of February 26, 1945, Minister Kung reviewed the situa- 
tion comprehensively. He said that available data showed that sales of gold 
had covered about one-sixth of the deficit from the commencement of these 
sales in the latter part of 1943. and the sales had helped to check hoarding and 



14 See previous note. 

15 Diaries, V. 814, p. 301 (exhibit No, 34*). 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1971 

speculation in goods. But American deliveries were so short that the Central 
Bank was forced to substitute forward sales for spot deliveries of gold. "A 
black market for spot gold developed, which the Government could not control 
owing to lack of ready supplies." The deficit had become worse because of the 
cost of the program of reorganizing the Chinese armies with American aid, the 
growth of American army operations in China, and the outlay for the newly 
organized War Production Board proposed by Mr. Donald Nelson. Meanwhile 
revenues had suffered from Japanese occupation of larger areas. So long as 
gold was not shipped to China the black market price could only go higher. He 
pleaded for the shipment at once by air of the undelivered part of the first $20 
million ; and a further $17.5 million by air as soon as practicable plus a further 
similar lot to be started at once by sea. Finally, he said that the Chinese Gov- 
ernment fully realized that gold sales were justified only by the emergency, and 
that it was anxious to import and sell consumers goods instead. He again urged 
the early delivery of gold tokens. 

In a memorandum of March 2, 1945, to Secretary Morgenthau, Mr. V. F. Coe 
said that the situation in China was unchanged. "Ambassador Hurley agreed 
with you on the desirability of holding down gold shipments to approximately 
the same magnitude as in the past" ; i. e., to ship about $7 million over the next 
three months. Half of this should be earmarked for promoting the production of 
tin in West China under an arrangement made with the National Resources 
Commission of China." 

On March 3, 1945, Secretary Morgenthau replied to Dr. Kung's letter of 
February 26 in part as follows : 

"I am sure that you appreciate the many difficulties involved in making 
arrangements for the export of gold to China. As in every other phase of our 
activities these days, military necessity takes precedence over everything else. 

"I have, however, instructed my men to raise again with the military authori- 
ties the possibilities of shipping gold to China during the next few months. 
They will inform your representatives of their findings on this matter." 1T 

As indicating a Chinese reaction, a Chinese official concerned with these 
negotiations in Washington wrote to a colleague in Chungking on March 2, 1945, 
that "* * * there is reason to believe that some elements in the Government 
here would like to 'wait and see' until such questions as the Kuomintang and 
the Communist Party are settled." 

On April 23, 1945, Finance Minister O. K. Tui telegraphed that the delay in 
shipments reflects on China's credit, saying, "I feel much concerned and dis- 
tressed." The Central Bank telegraphed April 28. "We cannot overemphasize 
the serious effect in consequence Doctor White's default in meeting its [sic] 
obligations." 

Meanwhile the gold market in China was getting out of hand. The Chinese 
government was in a dilemma. On the one hand, maintenance of the official 
price for gold in the face of mounting inflation led to too little return from 
sales. On the other hand, to raise the price was always a shock to confidence 
and was likely to be followed by a sharp jump in the free market so long as the 
Government did not have a stock of gold to sell in order to control the price. 
And such jumps in the free market price invariably tended to be reflected in 
the increase of commodity prices in general. But despite this difficulty the 
Chinese government delayed too long, until March 30, 1945, in raising to C$35,000 
the official price of C$24,000 per ounce set on November 13, 1944. When, on 
the latter date the official price was raised to C$35,000, which was just under the 
level of the free market at the time, the Bank still lacked a supply of gold 
to control the free market. As a result the free price jumped upward to C$60,000. 
It was charged in some of the press in Chungking that insiders had advance 
knowledge of the rise and profited accordingly, but the Central Bank stead- 
fastly denied this. They stated that the only large buyer immediately before 
the rise was a commercial company which had just received a down payment 
on a substantial order to be produced for the government, and was buying gold 
to hedge against the expected increase in its costs. 

The whole question of gold sales came to a head in May 1945, after Foreign 
Minister T. V. Soong came to Washington, he having been attending the San 
Francisco Conference on organization of the United Nations. Dr. Soong pre- 
sented the matter to President Truman, who referred the request for gold and 
also for consumers goods to check the inflation to the Treasury, asking them to 
consult the Department of State and the War Department. In a conference 



10 Diaries, V. 824, p. 230 (exhibit No. 342). 
» Diaries, V. 825, p. 171 (exhibit No. 343). 



1972 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

on the gold situation with these departments on May 1, 1945, Secretary Mor- 
genthan said: "We've made it just as difficult for the Chinese to get it as pos- 
sible, that being a sort of joint policy." 

Representatives of these departments tended to agree with the Treasury view 
of the matter, but undertook to give serious consideration to shipping ocnsumers 
goods, especially textiles. 

At this point the Treasury interjected a new idea. In a communication to 
Secretary Morgenthau of Apil 27, 1945, Mr. V. F. Coe proposed trying to get the 
Chinese government to use the funds they had left from the $500 million loan 
and also balances acquired from sales of currency to the American army to build 
up a special fund of $500 million for postwar reconstruction of China's finances 
and economy. 19 

On May 8, 1945, a Treasury conference considered a draft memorandum for 
Dr. Soong. This stated that shipment of textiles and trucks was being con- 
sidered ; and that China should adopt an anti-inflation program comprising 
monetary, banking, fiscal, and administrative reforms and stabilization of foreign 
exchange. The memorandum recommended that China set up a "Currency Sta- 
bilization Fund" of $500 million to be used for purposes to be jointly agreed with 
the Treasury. It further suggested that China consider stopping the forward 
sales of gold, a program about which the Treasury had not been consulted, but 
said that the Treasury would try to make available limited quantities of gold. 
This gold, however, ought to be financed from assets other than the proposed 
$500 million stabilization fund. This fund should be constituted from what 
remained of the $500 million loan, i. e., $240 million. The memorandum went on 
to say that "China should investigate and cancel sales to speculators and illicit 
purchasers," saying that "It is most unfortunate that the impression has arisen 
in the United States that the $200 million of U. S. dollar certificates and bonds 
and the gold sold in China have gone into relatively few hands with resultant 
large individual profits and have failed to be of real assistance to the Chinese 
economy." 20 

Beginning on May 8, 1945, Dr. Soong conferred with Treasury, State, and War 
Department officials. When on May 8 the memorandum was read to Dr. Soong, 
he asked how he could combat the inflation with the $500 million fund. He then 
said that he had come from the San Francisco Conference to settle matters in 
Washington. He read the communication of July 23, 1943 (quoted above), in 
which the Treasury informed Dr. Kung that the Treasury "agrees to the re- 
quest * * * that $200 million be made available * * * for the purchase of gold," 
and agreed that "the necessary action will be taken to consummate" China's 
requests for transfers of funds to buy gold. Secretary Morgenthau expressed 
surprise, thinking that this arrangement referred to only $20 million, but was 
informed that it was $200 million. He said that the Treasury had not envisaged 
future sales, but Dr. Soong pointed out that China made no commitment to con- 
sult when they sold gold. Dr. Soong said that he would raise the gold price and 
tax those who had bought gold for future delivery — a commitment which later 
was strictly carried out and a 40-percent tax imposed in the Fall of 1945. In 
response to the Secretary's statement that he (Morgenthau) had tried to keep 
quiet the abuses in China, Dr. Soong said that he had nothing to hide — if there 
had been anything wrong it should be investigated, and he had so told Chiang 
Kai-shek. 19 

Dr. Soong discussed the proposed delivery of textiles and goods to China, re- 
marking that, "The country that first got beaten up by the aggressor will be the 
last to be rescued." * 

On May 9 Secretary Morgenthau thrashed out the subject at a conference with 
his staff. He said : "* * * you put me in an absolutely dishonorable position, 
and I think it's inexcusable." He said he does so many things that he could 
not be expected to remember his letter of July 23, 1943, and that it was their 
responsibility to know of it. All present agreed that lack of transport, which 
had been repeatedly mentioned to the Chinese, was a "thin excuse." !2 In the 
course of these discussions among the staff, Mr. White admitted that the Treasury 
had "absolutely no legal grounds" for delaying shipments. He said : "We have 



18 Diaries, V. 843, p. 106 (exhibit No. 344). 
" Diaries, V. 841, pp. 263-264 (exhibit No. 345). 

20 Diaries, V. 845, p. 170-179. The text of the memorandum Is printed in D. S. Relations 
With China, pp. 504-505 (exhibit No. 346). 
a Diaries, V. 845, p. 232 et seq. 
^Diaries, V. 845, p. 314-317 (exhibit No. 347). 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1973. 

been successful over two years in keeping them down to twenty-seven million." 
Mr. Morgenthau further said : 

"I think that the Army and State Department have advised me very badly on 
this thing last week and suddenly Will Clayton woke up to that fact himself, 
entirely on his own. * * * " 

Despite the Secretary's attitude, Mr. White and some of his associates pre- 
pared a draft memorandum for Mr. Morgenthau addressed to the President of 
which they had sent a copy to the State Department for clearance, suggesting 
that an effort be made to get China to "withdraw for the time being her request 
for immediate heavy shipments of gold." The report of the discussion reads : 

"H. M., Jr. The first thing I want, please call up whoever has a copy at the 

State Department. I want them immediately withdrawn, immediately. I'm not 

going to follow this position. It's ridiculous. Will you please, wherever they are, 

get them right back? 
 * * # 

"H. M., Jr. I mean, you just keep going over the same ground, the same ground, 
the whole time. This doesn't make it plain to the President of the United States 
that these people own this gold, that I, over my signature, told them they could 
have two hundred million dollars' worth of gold. 

"Mr. White. That's where I disagree. 

"H. M., Jr. I know you do." M 

Mr. Morgenthau decided that in sending to China large amounts of gold, he 
should have the backing of the State Department and the approval of the Presi- 
dent. He obtained a memorandum of May 16, 1945, from Mr. Clayton, which 
was confirmed in a letter of the same date from Acting Secretary Grew. That 
letter, while expressing doubt as to the effectiveness of the sale of gold, stated : 

"The Chinese Government believes, however, that the immediate political 
and psychological as well as real economic effects of a continued and accelerated 
gold sale policy will have a vital importance in the critical situation confronting 
it, and strongly requests the delivery of the gold in question in accordance with 
the terms of the understanding between the two governments of July 1943. Since 
there appears to be no doubt that the Chinese Government attaches a greater 
importance to the immediate delivery of the gold then to the longer run benefits 
which might result from the establishment of the fund which you have pro- 
posed and since the continued stability of China and her increasing military 
efforts in the war against the common enemy are of great concern to the United 
States, the Department recommends that the Treasury, if transportation is 
available, deliver the gold to China in accordance with the time schedules put 
forward by Dr. Soong." 25 

After obtaining the approval of President Truman, Mr. Morgenthau on 
May 16, 1945, wrote to Dr. Soong that the Treasury would authorize shipment 
of the remaining gold in accordance with the schedule requested by Dr. Soong. 
The letter, however, went on to question the effectiveness of gold sales: 

"As you know, it is my opinion that the sale of gold by China has not proved 
effective in combating inflation, and I am doubtful that it will prove effective. 
Also as I have told you, the manner in which the gold sales have been conducted 
and the consequent public criticism of them in China are not conducive to 
achieving the purposes for which our financial aid was granted." 2B 

The Secretary further urged constituting the $500 million fund, stating that : 

" * * * the Chinese Government's response to our proposal to institute a 
$500 million fund and her conduct of the gold sales program will be important 
considerations in our financial relations with China." 27 

In these discussions with Dr. Soong, no agreement was reached about the 
suggested new fund of $500 million. But on February 26, 1946, the Chinese 
Supreme Defense Council ordered the setting aside of a fund of that size for 
eventual monetary stabilization, this being done as a part of the measures taken 
when China reopened the foreign exchange market at Shanghai. 

Despite the promise to accelerate shipments the Treasury continued to send 
them by sea. Five shipments were made in May and ten shipments in June 
by sea, the first of which arrived July 17, 1945. Beginning June 16, however, 
shipments were made by plane, some of which arrived during June and early 



23 Diaries, V. 840, pp. 34-35 (exhibit No. 348). 
» Diaries, V. 847. pp. 36-37 (exhibit No. 349). 

25 Diaries, V. 847, pp. 144-145; see also U. S. Relations With China, p. 507 (exhibit No. 
350). 

26 Diaries, V. 847, pp. 149-150. The text of the letter is given in U. S. Relations With 
China, pp. 507-508 (exhibit No. 351). 

* Diaries, V. 847, pp. 149-150 (exhibit No. 351). 



1974 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

July. During the rest of the year further cargo lots arrived — over $100 million 
in July — October 1945. 

But these massive deliveries were too late to have the effect sought. In June 
and July 1945, the free market for gold got out of hand. Sales were suspended 
from June 25 to July 31 because of uncertainty how to deal with the extreme 
gyrations that took place. In June the free market shot upward from the May 
high of C$82,500 to as much as C$185,000 per ounce. In July the price range 
was from C$167,000 to C$225,000, and the Government announced a 40 percent 
tax on settlement of forward commitments. On July 31 the official price was 
raised to C$170,000. But in August, with Japan finally defeated, the market 
slumped to C$75,000 and in September to C$50,000. This deflation put an end 
temporarily to the inflation and ushered in a new phase. In September the 
Central Bank began the liquidation of forward commitments, and for the rest 
of the year the price settled down around C$82,500 to C$100,000. 

Review of the record leads to several conclusions and comments : 

1. The Treasury clearly was not justified in holding back gold shipment to 
China as it did. By the summer of 1944 their foot dragging created doubt 
whether the Central Bank could meet the demand for gold sales. Until then 
official prices were close to prices in the free market. It was the Treasury's 
delay that made it impossible for the Bank to sell freely and thus do away with 
the price divergence, when it began to grow first in August, 1944. Treasury 
complaint about the divergence was unjustified, when Treasury action was a 
main cause. 

The trouble was compounded in the following months when the Treasury's 
delay became steadily clearer. This manifestation of lack of American support 
hurt confidence and aggravated the inflation, thus making it harder for China 
to hold out during the war and also making postwar reconstruction more 
difficult. 

Certainly the gold sales checked the inflation. In 1943, gold sales did not 
cover a very large part of the budget, but in 1944, despite the slowing down of 
American shipments, gold receipts were about C$16 billion as compared with 
total expenditures of about C$152 billion and American Army expenditures in 
China of about C$23 billion. 28 In the first quarter of 1945 receipts of about C$29 
billion from gold were said to cover about a quarter of the deficit, despite the 
fact that these sales were for future delivery and thus realized much less than 
could have been realized from sale of spot gold. A Chinese Government spokes- 
man stated on June 27, 1945, when gold sales had been temporarily suspended, 
that they had realized C$80 billion to date. 

China showed a much more flexible policy in setting the official prices for 
gold than it did in sticking to the exchange rate of 20-1 throughout the war. 
Clearly, the American Treasury should have furnished the gold as rapidly as 
China could sell it, in addition to providing a reasonable stock on hand in case 
of increase of demand. Gold shipments from the United States, arrivals in 
India, and then in China, tended, when they occurred, sporadically, to check the 
rise in the free market price. Had an adequate amount always been on hand, 
there would have been a helpful psychological gain, both because of presence 
of the gold and the evidence of American support of China. Also had the Treas- 
ury cooperated in shipping gold it would have been in a good position, had it 
been necessary, to press informally for a policy to raise the maximum amount 
from gold sales. 

2. Why this unfavorable attitude toward China? The Treasury had the 
general acquiescence of the State and War Departments in its attitude. There 
were several contributing factors which played their part, though they by no 
means justified the American Government's policy on gold shipments to China. 

(a) China's hard bargaining and reluctance to make realistic arrangements 
lo meet American army costs in China, as to which no settlement was reached 
until December 1944. All through 1943 the Army bought Chinese currency at 
20-1, the official rate. This rate was only six times the prewar rate of about 
3.3-1, though average prices in China in 1943 were 70-200 times the prewar level. 
The American officials concerned felt that expenditure of about $140 million 
in 1943 to buy Chinese currency at 20-1 imposed an unfair cost on the United 
States. On the other hand, the Chinese Government feared that to change the 
official exchange rates would badly hurt confidence. 

After the Cairo conference of President Roosevelt and Generalissimo Chiang 
Kai-shek the Chinese felt that the President had promised financial support, 



28 The figure for Chinese Government expenditures is taken from a book in Chinese by 
Chang Wei-ya, Money and Finance of China, 1952, p. 137. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1975 

and this affected their taking a strong line in the negotiations. Also some of 
the tentative understandings reached were ambiguous. But regardless of the 
merits of the controversy, the resulting American attitude was certainly adverse 
to China. 

(&) China had sold the dollar-backed savings certificates and bonds of $200 
million, secured by $200 million of the $500 million loan, far too cheaply. The 
price had not been raised during over a year from the Spring of 1942, when 
the purchasing power of Chinese currency fell by two-thirds or more, as meas- 
ured by average price rises. Also there were charges as to which the writer 
has no knowledge, that insiders had benefited from these sales. The American 
officials concerned took the view that China's action about these certificates and 
bonds did not encourage confidence that the gold would be wisely used. In 
practice, however, China made a far better record in adjusting the gold price, 
until subjected to the handicap of slow deliveries from the U. S., that it did with 
the savings certificates and bonds. 

(o) The American officials both in China and Washington felt that China had 
not fought as effectively as it should after the Spring of 1942. Many of them 
expected far too much from China. They did not sufficiently realize the ex- 
haustion and disorganization caused by fighting the Japanese alone for four 
and a half years, the subtle damage from inflation, the inability to do much 
against a modern mechanized Army without adequate equipment and training, 
possible subconscious reaction in China that American oil and scrapiron had 
helped Japan to fight China, and the fact that opinion in China tended toward 
welcoming a respite and temporary stalemate because of the terrible outrages 
inflicted by Japanese armies during the military campaign. 

3. Allowing for the above factors, American policy nevertheless should have 
clearly recognized the need to sustain the Nationalist Government as the recog- 
nized government that had almost miraculously held off the Japanese alone at the 
cost of enormous sufferings ; as the best hope for participation in the war when 
China's rescue became militarily possible ; and as the only organization to which 
the U. S. could look for development after the war of a moderate democratic 
regime in China. 

As early as 1941, Chiang Kai-shek had correctly stated that the difficulties of 
China were as much or more economic and financial than military, and General 
Wedemeyer after he supplanted General Stilwell had reached a similar con- 
clusion. Hence, from 1941 onward and even before, American aid in the check- 
ing of inflation should have been made a major American policy concerning 
China. There was need to sell actively and effectively in China everything that 
could be sold to reduce dependence on printing press money. These sales should 
have comprised, besides gold and dollar-backed securities, import and sale of 
consumers goods as soon as a modest beginning could have been made in their im- 
port. At a fairly early stage of the development of air transport over the Hump, 
priorities should have been given for moderate imports of consumers goods of 
small bulk and high value. The writer worked out lists of 100 or 200 tons of 
such goods that could have been gradually imported and advocated them re- 
peatedly. These lists and the purpose intended met with the approval of Army 
supply officers in China and were forwarded with their recommendation to 
Washington, but apparently received no consideration. 

4. It is hard to understand how the Treasury could have stressed its favorite 
arguments of lack of transportation facilities and the need to conserve the dollar 
resources for postwar. As to transport, when the Army wished to expedite the 
construction of the Chengtu airfields, it agreed without hesitation to help to fly 
in Chinese bank notes needed to pay for the work. Data as to the weight of these 
notes are not at hand but it may be estimated that it was of the order of several 
hundred tons. During 1944 nearly 2,000 tons of banknotes and banknote paper 
were flown to China over the Hump by the China National Aviation Corpora- 
tion using planes and pilots provided from the U. S. It is absurd to think that 
means could not have been found to fly in gold as needed. A million dollars in 
gold weighs about a ton. The sale of a million dollars worth of gold, at say 
C$20,000 per ounce, would have provided about C$500 million. But a ton of C$20 
banknotes would only amount to about C$20 million. 

As to conservation and postwar, there was no more reason to hold back gold 
on that account than to have held back troops in wartime because the men 
would be needed after the war. Certainly gold should have been deemed to be 
expendable to minimize the ever-present risk that China's acute inflation would 
gradually pass to the stage of hyperinflation and financial collapse. 



72723— 57— pt. 35- 



1976 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

5. The record available to the writer does not show specific evidence of the 
motives of those concerned. But the energetic efforts made by Mr. White, while 
blocking gold shipments to China, to promote a $10 billion postwar loan to 
Russia, 29 make clear a strong anti-Cbinese and pro-Russian bias. In any case, 
the policy of the Treasury (and the Treasury was able to convince the State and 
War Departments to go along) showed a failure to appreciate the value that was 
being obtained from the sales of gold, and tbat could have been obtained had it 
been possible to pursue cooperatively the sale of maximum amounts at the best 
prices which could reasonably be gotten in the circumstances. The parallel sales 
of gold in the Middle East and India suggested that the Treasury must have 
realized the benefits that thus could have been possible. 

Annexed tables: Gold shipments from the United States to China, 1943-47; 
gold prices, sales and receipts in China, 1943-45. 

Table I. — Gold shipments from the United States to China, under Public Law 
J t J,2 ($500 million loan to China), 19^3-47 1 

[United States dollar value at $35 per flue ounce] 

Date of arrival in China : 
1943: 

November $8, 417, 082. 59 

December 2, 070, 379. 18 

Total 1943 10, 487, 481. 77 

1944: 

April 1, 076, 979. 02 

July 1, 092, 813. 50 

September 4, 493, 420. 62 

October 2, 849, 324. 77 

December 2, 949, 136. 11 

Total 1944 12, 461, 674. 02 

1945 * 

January 2, 926, 982. 00 

June 3, 978, 866. 05 

July 40, 241, 305. 76 

August 37, 235, 985. 48 

October 30, 488, 770. 53 

Total 1945 114, 871, 909. 82 

1946: 

February 12, 183, 800. 63 

May 27, 567, 115. 60 

June 13, 647, 084. 54 

July 13, 582, 261. 91 

Total 1946—- 66, 980, 262. 68 

1947 : April 12, 863, 274. 23 

Grand total 217, 664, 582. 52 

' In addition, on Jan. 18, 1945, there was a transfer to China of $1,399,947.99 which was 
delivered to the British authorities in exchange for gold in India for shipment thence to 
China. Also on Nov. 10, 1948, there was a transfer of $935,419.03 from the account of 
China under the 1942 loan to another account of the Central Bank of China with the 
Federal Reserve Bank of New York. Including these transactions, the total of gold acquired 
by China was $219,999,949.54. 

Data are from the Federal Reserve Bank of New York. 



» Diaries, V. 808, pp. 196-197, January 9, 1945 (exhibit No. 352). 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1977 

Table II. — Gold prices, sales, and receipts in China as per available data, 

1943-45 

SALES BY FARMERS BANK OF CHINA 





Official 

price per 

ounce 1 


Free market price in 
Chungking 


Sales 


American gold 


Date 


High 


Low 


Average 


Ounces 


Value in 
United States 

dollars, 
approximate 


shipments 

received in 

China 


1943— September 


C$11,200 
11, 300 
12, 100 
13, 000 






C$12, 300 
11, 680 
13, OCO 
14, 250 


180 

415 

5,909 

2,896 


US$6, 300 

14, 500 

207, 000 

101, 500 




October 








Noveuiber 






US$8, 417, 084 
2, 070, 378 


December 












Total.. 












329, 300 


10, 487, 462 
















1944— January. 


14, 000 
18, 200 


C$15, 500 
21, 200 


C$13, 500 
15, 200 


14, 000 
19, 444 


6, 225 
17, 258 


218, 000 
605, 000 




February 









SALES BY THE CENTRAL BANK OF CHINA 



1944— March. 


C$18, 500 
18, 500 
18, 500 

18, 500 
f 18, 500 
\ 17, 500 

17, 500 

19, 250 
21, 000 

f 21,000 

I 24,000 

24, 000 


C$21, 000 
19, 500 
19, 300 
19, 000 

} 18.500 

23, 000 
28, 000 

24, 500 

} 36,600 
36, 600 


C$20, 000 
18. 500 
18. 800 
18, 800 

17, 500 

17, 500 
17, 500 
19, 000 

24, 800 

31, 500 


C$20, 242 
18, 650 
18, 880 

18, 880 

18, 048 

19, 587 
22, 577 
22, 587 

29, 590 

34,619 


31, 000 
17, 500 
58,900 
60, 500 

125, 500 

51, 400 
150, 300 
205, 000 

217, 000 

91, 000 


US$1, 087, 500 

613, 000 

2, 062, 000 

2, 118, 000 

4, 393, 000 

1, 800, 000 
5, 260, 000 
7, 175, 000 

7, 600, 000 

3, 185, 000 




April 


US$1. 076, 979 


May 




June 




July' 


1, 092, 814 


August... 


September 2 

October' 

November 2 


4, 493, 421 
2, 849, 323 


December 


2, 949, 136 


Total 












36, 116, 500 


22 949 136 
















1945 — January 

February 


24, 000 

24, 000 

/ 24,000 

\ 35,000 

35, 000 

35, 000 

/ 35,000 

\ 50, 000 

170, 000 

170, 000 

f 170,000 

I 89,000 

89, 000 

89, 000 


35, 600 
39, 000 

} 60,000 

83,000 
82, 500 

} 185,000 

225, 000 
172, 000 

} 89,000 

90,000 

100, 000 

89, 400 


33, 800 
33, 700 

38, 000 

60, 000 
78, 000 

88,800 

167, 000 

75, 000 

50, 000 

82, 500 
86,000 
83, 500 


34, 517 
36, 000 

44, 188 

75,140 
80, 920 

121, 370 

198, 840 
115, 960 

70, 000 

83, 828 
91, 792 

84, 54S 


295, 000 
354, 000 

509, 000 

264, 000 
306, 500 

467, 000 

( 3 ) 
( 3 ) 

( 3 ) 

( 3 ) 


10, 325, 000 
12, 390, 000 

17, 815, 000 

9, 240, 000 
12, 775, 000 

16, 345, 000 

( s ) 
( 3 ) 

( 3 ) 

( 3 ) 


2, 926, 982 


March 8 




April 




May 




June'.. 


3, 978, 866 


July'.. 


40, 241, 306 


August 


37, 235, 985 


September * 


October 

November 


30, 488, 771 


December 


















Total - 














114, 871, 910 

















1 Prices in the 1st column through February 1944, are average prices per ounce realized by the Farmers 
Bank of China. Thereafter they are official prices of the Central Bank of China. Prices and amounts 
sold are in Chinese ounces or taels equal to 1.00471 standard Troy ounces. 

2 Official prices were changed on the following dates: July 16, 1944; Nov. 13, 1944; Mar. 30, 1945; June 8, 
1945; July 31, 1945; and Sept. 28, 1945. In September-November 1944, buyers were obliged to buy Chinese 
Treasury notes for 10 percent and later 20 percent of the value of gold bought, until Mar. 30, 1945. During 
July 1945, until July 30 sales were suspended. 

3 Not available. 



Mr. Morris. I think, Senator, it will not be necessary for Dr. Young 
to read it into the record. What with the Senate being in session today, 
Dr. Young realizes that we have to move as quickly as possible and, 
therefore, lam asking you to let it go into the record as it was prepared 
by Dr. Young. 

Now, I also have here, Senator, some statistics which are supporting 
data for the memorandum. I would like those described by Mr. Jona- 
than Mitchell, who has been working on this project for the Internal 
Security Subcommittee and who has been previously sworn, Senator. 



1978 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Mitchell. The subcommittee has received from the Federal 
Reserve Bank of New York the record of shipments of gold made to 
China from September 28, 1943, through to February 2, 1947. This 
record of shipments gives their dollar value, the number of fine ounces, 
and the date on which these shipments were received in Chungking by 
the Central Bank of China. 

Mr. Morris. Mr. Mitchell, those are the statistics that support the 
various statements that Dr. Young made ? 

Mr. Mitchell. Yes, sir, they do. 

Mr. Morris. Senator, they may go into the record, may they not? 

Senator Butler. Yes. They will be made part of the record. 

(The documents referred to were marked "Exhibits Nos. 330 and 
330-A and are as follows :) 

Exhibit No. 330 

Gold shipments from the United States to China under Public Law 442 ($500 
million loan to China), by months, 1943-47 1 

[United States dollar value at $35 per fine ounce] 

Date of arrival in China : 
1943: 

November $8, 417, 082. 59 

December 2, 070, 379. 18 

Total, 1943 10, 487, 461. 77 

1944: 

April 1, 076, 979. 02 

July 1, 092, 813. 50 

September 4, 493, 420. 62 

October 2, 849, 324. 77 

December 2, 949, 136. 11 

Total, 1944 12, 461, 674. 02 

1945: 

January 2, 926, 982. 00 

June 3, 978, 866. 05 

July 40, 241, 305. 76 

August 37, 235, 985. 48 

October 30, 488, 770. 53 

Total, 1945 114, 871, 909. 82 

1946: 

February 12, 183, 800. 63 

May 27, 567, 115. 60 

June 13, 647, 084. 54 

July 13, 582, 261. 91 

Total, 1946 66, 980, 262. 68 

1947 : April 12, 863, 274. 23 

Total, 1947 12, 863, 274. 23 

Grand total 217, 664, 582. 52 

1 In addition, on Jan. 18, 1945, there was a transfer to China of $1,399,947.99 which was 
delivered to the British authorities in exchange for gold in India for shipment thence to 
China. Also on Nov. 10, 1948, there was a transfer of $935,419.03 from the account of 
China under the 1942 loan to another account of the Central Bank of China with the 
Federal Reserve Bank of New York. Including these transactions, the total of gold 
acquired by China was $219,999,949.54. 

Data are from the Federal Reserve Bank of New York. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1979 



Exhibit No. 330-A 
Gold prices, sales, and receipts in China as per available data, 1943-45 

SALES BY FARMERS BANK OF CHINA 





Official 

price per 

ounce ' 


Free market price in 
Chungking 


Sales 


American gold 


Date 


High 


Low 


Average 


Ounces 


Value in 
United States 

dollars, 
approximate 


shipments 

received in 

China 


1943— September 


C$11,200 
11,300 
12,100 
13,000 






C$12, 300 
11,680 
13,000 
14,250 


180 

415 

5,909 

2,896 


US$6, 300 

14,500 

207. 000 

101, 500 










November 






US$8, 417, 084 


December 






2, 070, 378 










Total 












329, 300 


10, 487, 462 
















1944— January 

February 


14, 000 
18,200 


C$15, 500 
21, 200 


C$13, 500 
15,200 


14,000 
19,444 


6.225 
17,258 


218, 000 
605, 000 









SALES BY THE CENTRAL BANK OF CHINA 



1944— March 


C$18, 500 

18,500 

18,500 

18, 500 

/ 18, 500 

I 17,500 

17,500 

19,250 

21,000 

f 21,000 

I 24,000 

24,000 


C$21, 000 
19,500 
19,300 
19,000 

} 18, 500 

23,000 
28,000 
24,500 

} 36,600 

36,600 


C$20. 000 
18,500 
18,800 
18,800 

17,500 

17,500 
17,500 
19,000 

24,800 

31,500 


C$20. 242 
18, 650 

18, 880 
18,880 

18,048 

19, 587 
22, 577 
22, 587 

29,590 

34, 619 


31,000 
17,500 
58,900 
60,500 

125, 500 

51,400 
150, 300 
205, 000 

217,000 

91,000 


US$1,087,500 

613, 000 

2, 062, 000 

2, 118, 000 

4, 393, 000 

1, 800, 000 
5, 260, 000 
7, 175, 000 

7, 600, 000 

3, 185, 000 




April 


US$1, 076, 979 


May 




June 




July' 


1. 092, 814 


A u crust 




September 2 

October 2 


4,493,421 
2, 849, 323 


December 


2, 949, 136 


Total 












36, 116, 500 


22, 949, 136 
















1945— January 

February. 

March 2 


24,000 

24,000 

J 24,000 

\ 35,000 

35,000 

35,000 

f 35,000 

\ 50,000 

170, 000 

170, 000 

f 170,000 

l 89,000 

89,000 

89,000 


35,600 
39,000 

} 60,000 

83, 000 
82,500 

j 185,000 

225.000 
172, 000 

} 89,000 

90,000 

100,000 

89,400 


33,800 
33,700 

38,000 

60,000 
78,000 

88,800 

167,000 
75, 000 

50,000 

82,500 
86,000 
83,500 


34, 517 
36,000 

44, 188 

75, 140 
80, 920 

121, 370 

198, 840 
115, 960 

70,000 

83, 828 
91, 792 
84,548 


295,000 
354,000 

509,000 

264,000 
306,500 

467,000 

( 3 ) 
( 3 ) 

( 3 ) 

( 3 ) 


10, 325, 000 
12, 390, 000 

17, 815, 000 

9, 240, 000 
12, 775, 000 

16, 345, 000 

( 3 ) 
( 3 ) 

( 3 ) 

( 3 ) 


2, 926, 982 




April 




May 




June 2 _ 


3, 978, 866 


July 2 


40, 241, 306 


August 


37, 235, 985 


September 2 

October 




30,488,771 




















Total 














114,871,910 



















i Prices in the 1st column through February 1944, are average prices per ounce realized by the Farmers 
Bank of China. Thereafter they are official prices of the Central Bank of China. Prices and amounts 
sold are in Chinese ounces or taels equal to 1.00471 standard Troy ounces. 

2 Official prices were changed on the following dates: July 16, 1944; Nov. 13, 1944; Mar. 30, 1945; June 8, 
1945; July 31, 1945; and Sept. 28, 1945. In September-November 1944, buyers were obliged to buy Chinese 
Treasury notes for 10 percent and later 20 percent of the value of gold bought, until Mar. 30, 1945. During 
July 1945, until July 30 sales were suspended. 

3 Not available. 

Mr. Morris. Generally, Dr. Young, the fact of the matter is that 
China did not, as a matter of fact, receive the gold that it expected to 
receive during this period and that failure to receive the gold was a 
cause of inflation. 

Mr. Young. Well, there was a definite foot-dragging on the part 
of the Treasury in the shipment of the gold to China, and the delays 
in shipment proved very embarrassing because the gold began running 
out and the Chinese Government had no option but to sell for forward 
delivery which was not nearly as satisfactory as selling spot gold. 



1980 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

As a result of that, it was unable to control the black market or 
the free market, I should say, for gold, because it had no gold to sell 
in the free market for spot gold. It could only sell forward. 

Mr. Morris. Dr. Young, at that time were you concerned with the 
so-called White plan for an International Monetary Fund? 

Mr. Young. I was. That was first received in China along with 
the British plan prepared by Lord Keynes in the early part of 1943. 
That plan was referred to me by the Chinese Government and, along 
with others, we had many conferences on the subject. We prepared 
some counterproposals. We thought that both the White plan and 
the Keynes plan were lacking in meeting the situation of China and of 
other countries whose finances had been disrupted by invasion and war. 

So, the general line that the Chinese Government took in these 
negotiations, which was based on my recommendation and the recom- 
mendations of others concerned, was that those plans ought to be 
amended so as to be better adapted to the finances of the countries that 
had suffered so severely from invasion. And we pressed that through- 
out. 

The Chinese Government, through the Chinese Ambassador, sub- 
mitted a full statement on this subject suggesting that the plan should 
be amended to give more elasticity, and as far as we could see, that 
received no consideration whatsoever by the Treasury. 

We did, however, follow up the matter at the Conferences at Bretton 
Woods, and at the Bretton Woods Conferences we did succeed in get- 
ting some modifications into the agreement before it was finally con- 
cluded, which were much more flexible, so-called transitional meas- 
ures, and that made it more flexible so that countries like China that 
had suffered severely from the war would have a period of time to 
rehabilitate their finances, if they could, and then go into the fund 
with stable rates of exchange. 

But, in short, we felt that a country that suffered from extreme in- 
flation could not move right away into stable rates of exchange with- 
out going through a period of financial rehabilitation, and we felt that 
financial rehabilitation was a necessary prerequisite to the proper 
operation of these funds. 

Senator Butler. Doctor, are you qualified to testify in connection 
with the dragging of the feet generally by the United States Govern- 
ment at that period in the shipment of materiel and other supplies? 
Do you know anything about that ? 

Mr. Young. I have a general knowledge of that. 

Senator Butler. How did you gain that knowledge? 

Mr. Young. Because I was adviser to the Chinese Government at 
that time. 

Senator Butler. Were you on the grounds ? 

Mr. Young. I was, at the same time, also a director of the China 
National Aviation Corp., which was flying in supplies. 

Senator Butler. What was your experience in connection with the 
supplying of the Chinese Army and the needs of the Chinese Nation- 
alist Government at that time by the United States Government? 

Mr. Young. We were the last on the list, in China, unfortunately. 
The general war strategy which was devised by the top people on the 
allied side was that preference should be given to Europe. And after 
that, of course, came Asia a long way back, the Pacific war and so 
China unfortunately did not get as many supplies in this early period. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1981 

I wouldn't feel qualified to quarrel with that basic strategy, but I did 
feel at the time, I recall, that it was unfortunate that China was not 
better supplied than it was, and also I can recall very well that when 
I was in Washington at different times during the war, I made it my 
business, almost to the extent of sticking my neck out, to urge on the 
War Department and the State Department that it was highly impor- 
tant to have a landing in China at the earliest possible date for morale 
purposes, and to try to check the disintegration that was taking place 
there. 

Also, as early as 1941, 1 had taken some informal steps, as far as I 
had any right to do so, to urge the defense of Burma in order to main- 
tain a lifeline to China. 

So, to that extent, I did have knowledge and relation to the situation. 

Mr. Morris. Did you write any confidential memorandum about 
this international monetary proposition? 

Mr. Young. Well, I made a memorandum in the summer of 1943, 
in connection with the Chinese Government's consideration of this 
matter, which stated the views that we had arrived at, in our confer- 
ences there, on the general lines that I described, stressing monetary 
rehabilitation as a prerequisite to financial stabilization. And I have 
that document here. It is at the disposal of the committee if the com- 
mittee wishes it. 

Mr. Morris. I would like to have it. 

Senator Butler. I would like to have that, Doctor. We will make 
it a part of the record. 

Mr. Young. I am very happy to put this in the record, Senator. 

(The document referred to was marked "Exhibit No. 331" and reads 

as follows:) 

Exhibit No. 331 

(Memorandum of July 20, 1943, by Arthur N. Young, former financial adviser 
to China, on the international monetary plans (White and Keynes plans) : ) 

The International Monetary Plans 

July 20, 1943. 

I have very carefully studied the American and British international mone- 
tary plans, not only from China's standpoint, but also in their broader aspects. 
In the light of such information as is available, my views are as follows : 

1. Neither plan adequately recognizes the need for monetary rehabilitation as 
preliminary to longer-term stabilization. Many of the world's monetary systems 
have suffered grievous injury as a result of the war — some (such as China's) 
more so than others. I am, of course, sympathetic with the desire for the earliest 
possible exchange stabilization. But, for many countries, the establishment of 
more or less definitive exchange rates is not the beginning of the proceedings. 
It is, rather, a chief aim of the first stage ; namely, internal financial rehabilita- 
tion. It is not realistic to seek exchange stability by making an agreement fixing 
rates of exchange that purport to be definitive, without giving due regard to 
whether conditions will permit the rates to be maintained. The basic thing 
is the fundamental financial condition of the individual nations. 

2. Repair of the serious intangible damage to injured monetary systems is a 
need quite analogous to relief and repair of war devastation — though infinitely 
more difficult. It will require an all-out effort by the respective countries in a 
period of exhaustion and psychological reaction. Most of these countries will 
have to draw upon external resources to bolster their public finances during a 
transitional period of monetary rehabilitation. Insofar as they themselves do 
not have adequate external resources, the further provision they need is, in 
theory, essentially of the same kind as provision of relief. It is to be hoped that 
such further needed resources can be provided on lease-lend terms, as part of a 
comprehensive program of internal and external measures for each country that 
finds itself in this position. 



1982 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

3. Sound theory requires that the resources of any permanent international 
monetary organization be used as a regulator fund, to aid in maintaining longer- 
term stability. If the resources intended for this purpose have to be expended 
to aid in achieving stability, the fund is bound to be depleted and there will be 
disappointment and frustration. Countries will be wrongly blamed for dissipat- 
ing resources which, if no other provision exists, they are bound to use for the 
inescapable needs of monetary rehabilitation. 

4. Clearly the solution in the case of many war-smitten countries is frankly 
to recognize a transitional period of monetary rehabilitation. But purely mone- 
tary measures are not enough. The program for this period must include relief, 
repair of devastation and restoration of productivity — as well as such financial 
measures as curtailment of military and civil expenditure, rebuilding of the 
revenue system, debt readjustment, price stabilization, reform of monetary and 
banking conditions, and improvement of the international balance of payments. 
For many countries, until these problems are more or less in hand, the fixing of 
definite exchange rates is putting the cart before the horse. Rates are likely 
to be crystallized at which international balances of payments cannot attain 
equilibrium ; and either external resources will be drained away or countries will 
be driven to protect these resources by measures of exchange control which will 
hamper economic recovery and retard the return of confidence. 1 After countries 
have restored a considerable degree of internal financial stability there will be 
a chance to work a longer-run system on the lines of these two plans. The world 
badly needs such a system, but the difficulties are great, and it would be a pity 
if the longer-time system were jeopardized by expecting it to start operating as 
a whole from scratch. 

5. At an early date, perhaps very soon after end of the war, the United States 
and Great Britain, and possibly some other countries, may be ready to agree 
upon stable rates of exchange among themselves and thus to commence the opera- 
tion of a longer-term system. It is very desirable that they do so, in order to pro- 
vide a nucleus of stability. Thereafter other countries could move from the 
transitional arrangements into the longer-term system. This would be far better 
than to expect either the American or British plans as they stand to meet the 
demands of the transitional period. Of course, in the long run, it may be that a 
large part of the world would become indebted through the proposed organiza- 
tion to the United States and perhaps to some other countries. But this is less 
likely to develop suddenly, and might be avoided or corrected: (a) if a sound 
scheme is devised and carried out for the transitional period; (&) if proper 
arrangements can be made to promote greater freedom of trade, control of basic 
commodities, and international capital investment; and (c) if proper interna- 
tional measures are adopted to maintain peace. 

6. The procedure herein proposed would give opportunity and encouragement 
for stability. But,in the long run, the possibility of a properly working inter- 
national monetary system depends largely upon the internal monetary policies 
of the various countries. Every country in the world now has a managed cur- 
rency, and, despite any nominal link with gold, this condition is likely to continue. 
The stability of rates of foreign exchange will depend upon whether the various 
countries deliberately try to keep their policies of currency management moving 
substantially parallel. In other words, if one or more countries are following 
inflationary policies, or if most of the countries should have an inflationary 
tendency but some were inflating at a greater rate, balances of payment would 
soon get out of equilibrium. A great virtue in having an organization such as 
these plans contemplate is that it would help to bring about a common policy, 
There would be time and opportunity for individual countries to change policies 
that were putting them out of line with the rest of the world, that would 
adversely affect other countries, and that, in the long run, would not bring real 
benefit to the countries themselves. 

7. As is clearly recognized by the authors of the two plans, the success of 
any scheme will be much affected by the degree of success in devising effective 
international arrangements for relief and economic rehabilitation, expansion of 



a The idea in the British plan (par. 83) of controlling capital movements but giving "a 
general permission * * * to all remittances in respect of current trade," which also seems 
implicit in the American plan, is, I believe, Impracticable for general application. China's 
experience shows that a half-way measure, short of general exchange control, will not 
work. The permission of current trade would give a loophole for flight of capital, e. g.. 
through exporting goods and leaving the proceeds abroad. Also there could be a flight 
from the currency by over-importing staple goods for hoarding. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1983 

international trade, regulation of basic international commodities, and inter- 
national investment. 

8. The existence of difficulties, of course, does not mean that creation of a 
comprehensive monetary scheme should not be tried. On the contrary, the need 
for it is very great, as the authors of the two plans have clearly proven. But 
it should be realistic, and should not expect too much in the early stages from a 
world that, financially speaking, will be very sick. The line of progress, I 
believe, is both to consolidate at the outset such exchange stability as can be 
soundly established, and gradually to enlarge the area of stability by measures 
that will promote the recovery of other countries to the point where they can 
take their places in a general system of stable exchanges. 

Mr. Morris. Did not this failure to deliver the gold, or this feet- 
dragging delivery of gold, have a disastrous effect on the fiscal, and 
therefore, the national survival capacity of the Chinese Government? 

Mr. Young. Well, I felt at the time, and I still feel, Judge Morris, 
that the foot-dragging at that point did have a serious effect in aggra- 
vating the inflation. The inflation became very acute just at that 
period. The lack of gold was not the only factor but, at the same 
time, if the gold had been there, we could have made a much more 
serious effort to try to control the situation. 

Whenever gold arrived, when it was shipped from the United States, 
when it arrived in India, when it arrived in China, each of those 
stages was reported in the press and had an effect of bolstering con- 
fidence, but obviously, when the Chinese Government had no gold 
deliveries in spite of its commitments, in spite of the feeling that 
it had a promise from the American Government to send it, there 
was a feeling of lack of American support and consequently it was 
one of those intangible things but undoubtedly had an effect in hurt- 
ing the confidence and in stimulating the financial deterioration that . 
was taking place. 

We did our best to convince the American authorities to send this 
gold, but we had no success in spite of their commitments until Dr. 
Soong came over here in about the latter part of April 1945, I think 
it was. He came from the San Francisco Conference to Washington 
especially to plead this matter with Secretary Morgenthau. He did 
so and succeeded in convincing Secretary Morgenthau that the gold 
should be sent, but that was very late. 

Mr. Morris. One more question. 

Did not the subsequent monetary chaos have a part in the later 
Communist victory? 

Mr. Young. Well, it undoubtedly did. The financial deterioration 
of a government is a very serious thing from the point of view of the 
effect on the morale of the nation as a whole. Of course, there are 
many factors that entered into that, but certainly, the deterioration 
before the end of the war could have been checked somewhat — how 
much, it would be only speculation to say — had the gold been received 
promptly as desired and requested by the Chinese Government. 

Mr. Morris. Senator, I have no more questions, but I would like the 
record to show the very extensive study that Dr. Young has made in 
connection with the Morgenthau Diaries as they have been made 
available to him from the records of the subcommittee. 

You have been working for 3 or 4 weeks on them, have you not? 

Mr. Young. Yes, sir, I have. 



72723— 57— pt 35- 



1984 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Senator Butler. It is my understanding that the memorandum 
that Dr. Young has filed and the supporting data are a result of that 
study. 

Mr. Morris. Right, Senator. 

Mr. Young. That is correct, Senator. 

Senator Butler. Dr. Young, I am very grateful to you for the 
work that you have done and I certainly want to thank you very 
much for coming here and giving us the time and giving us this 
testimony. 

I also want to say that I am tremendously shocked, after hearing 
your detailed testimony, supported as it is by the Morgenthau Diaries, 
about the role that Harry Dexter White and Dr. Chi and Dr. Ludwig 
Rajchman, all of whom are now Communists, played in this very, very 
sad story that you have told us this morning. It is really very shock- 
ing and I would think it would be shocking to any American. 

Mr. Young.. Well, Senator, I have tried to tell the facts as I know 
them and as I found them in these papers. I, of course, have no in- 
formation, beyond what I have stated, about the motives of any of 
the individuals who were concerned with this. 

Mr. Morris. We understand that, Doctor. Thank you very much, 
sir. 

Senator Butler. The subcommittee will stand in recess subject to 
order of the Chair. 

(Whereupon, at 12:40 p. m., the subcommittee recessed, subject 
to order of the Chair.) 

(The following excerpts from the Morgenthau Diaries are referred 
to in footnotes of Dr. Arthur Young's paper on China and Gold, 
1942-45, which is published elsewhere in this publication. They are 
among the Morgenthau documents ordered into public record at this 
hearing, and are marked "Exhibits 332 through 352.") 

Exhibit No. 332 

[Vol. 666, pp. 177-180] 

Treasury Department, 

September 22, 1943. 

INTEROFFICE COMMUNICATION 

To : Secretary Morgenthau. 

From : Mr. White. 

Subject : Some matters before us that I should like to call to your attention. 

1. Determination of the French franc rate. — The British and the Army are 
pressing us for our recommendation as to the franc rate and the type of cur- 
rency to be used by the Allied forces upon invading France. We have been dis- 
cussing the matter at some length within the Treasury and we are now ready to 
submit our recommendations for your consideration. McCloy has called a meet- 
ing for Friday morning with State and the British participating. I should very 
much like to discuss the matter with you before that meeting. 

2. The Army is also pressing us for recommendations with respect to similar 
matters in Belgium, Holland, Norway, and Greece. We are ready with our 
recommendations on those too but if you do not have time to discuss them we 
can, I believe, get McCloy to postpone discussion of those particular points. 

3. Renewal of the $50 million Chinese stabilization loan. — We have had a 
number of conferences with the Chinese delegation on this matter. The provi- 
sions in the earlier stabilization loan which the Chinese now want changed are 
not as drastic as they had led us to believe and we should find no difficulty in 
coming to an agreement with them. However, we have serious doubts whether 
we ought to renew the agreement with the present official dollar-yuan rate 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1985 

being so much out of line with its real value. We should like to discuss our 
recommendation with you soon inasmuch as the Chinese are pressing us for a 
decision. This matter, however, can wait until next week. We may even be 
able to postpone it until you return. We w r ould like to stall as long as possible 
but don't wish to do so until we have discussed the matter with you inasmuch as 
the Chinese are pressing us for action. 

4. The Dutch request for lend-lease of silver coins for the Netherlands remains 
unsettled out both the Army and the Dutch Government are pushing us. — I think 
that we are rather in a weak position to refuse the Dutch request and I should 
like to raise this question with you again. We have, upon investigation, found 
that they are asking for more silver than they have ever had in circulation. In 
our last discussion with them they agreed that 17 million ounces would be ade- 
quate instead of the 45 million they originally requested. The Army is leaving 
this decision wholly to us but the time has arrived when we have got to say 
either no or yes. 

5. International Bank Proposal. — We have had a number of extended confer- 
ences on the international bank plan proposal and are making more progress 
than I expected and are finding the task of agreement among the various tech- 
nicians easier than I had expected. I believe now that it is desirable to have a 
meeting with the Congressional committees certainly before you go and to pre- 
sent to them the Bank Plan though the discussion at the meeting can encompass 
both the revised Fund Plan and the Bank. 

There are two hurdles which must be crossed if possible within the next few 
days: (1) Calling of your Cabinet Committee — Eccles, Crowley, Jones, and 
Berle to approve the plan as a committee, (2) get the President's approval to 
inform the Congressional committees of the tentative proposal and to send it to 
the respective Ministers of Finance as an unofficial technical proposal for their 
consideration just as we did with the International Stabilization Fund proposal. 

We are having our final meeting of the technical committee this afternoon 
and I am hoping you can arrange for a meeting with your Cabinet group Friday 
afternoon if possible, if not, Monday or Tuesday morning of next week. 

If you obtain the green light from the President on the Bank Plan we propose 
to print copies of the plan with a foreword from you which we are preparing 
similar in character to the pamphlet on the International Stabilization Fund. 

6. Conferences on the International Stabilization Fund proposal.— We have 
had several conferences with Keynes and two formal largely attended meetings 
with the British delegates. I think that we can meet their counterproposals on 
some of the points they raise and partly meet their suggestions on other points 
but I feel that there are two important points upon which we cannot go along with 
them. We are still discussing the matter and I should like to discuss the matter 
with you as soon as the first phase of our discussions is over. 

We have completed a draft of a sizable booklet of Questions and Answers 
relative to the Stabilization Fund. We are designing the booklet for technical 
experts and we should like to print them using a short foreword from you which 
we are preparing. 

We are preparing a draft of a statement you may wish to make before the ap- 
propriate Senate and House Committees on both the Stabilization Fund and the 
International Bank. 

7. British reciprocal lend-lease of raw materials. — You have received a reply 
from the British Chancellor to your communications with respect to the proposal 
for reciprocal lend-lease of raw materials. On the whole they accept our counter- 
proposals to their original suggestion. However, it is doubtful whether in prac- 
tice the mechanism which the British wish to use will work smoothly. Repre- 
sentatives of OEW are now engaged in discussions with the British to see whether 
the mechanism suggested by the British will work satisfactorily. If the OEW 
is satisfied with the results they think they can obtain, there still remains the 
task of successful negotiations with the Indian, Australian, and South African 
Governments. These are being initiated but a successful outcome does not look 
very promising. 

8. British International Dollar Position. — The British Government has sub- 
mitted a memorandum of their international dollar position with a view to con- 
vincing us that we ought to let their gold and dollar balances continue to increase. 
They regard this memorandum as very important. We are having another 
meeting soon of the committee on this British position and unless I hear to 
the contrary from you I am taking the position you outlined a month ago, namely, 
that we must cut down their dollars unless the President orders otherwise and 



1986 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

that you will not raise the question with the President unless the State Depart- 
ment or Lend-Lease specifically requests us to do so. 

9. Saudi Arabia. — The State Department has requested us to take up with 
the British the problem of the joint handling of the Saudi Arabia monetary ar- 
rangements which up to now was being dealt with Saudi Arabia and the British 
Government. We have conferred with the British on this matter and they are 
agreeable to the proposal and are going to give us information as to what they 
have done so far. I should like t discuss the matter with you when we have 
any definite recommendations to make. 

10. Gold Sales. — We are now engaged in rather extensive operations of selling 
gold in Iran, Iraq, Egypt, Syria, Palestine, and India. Hitherto we have paid 
in local currency in line with our regular policy. From now on we shall be buy- 
ing currency at rates lower. In each case we have made the arrangements with 
the appoval of the particular Government involved. It involves about $20 million 
sale of gold to those areas in the next three months and the amount is likely 
to grow if our activities in the Middle East and India increase. Mr. Bell has 
approved these gold transactions. Though the totals are not large compared 
with our gold holdings they do represent increased holdings of gold in those 
areas by individuals rather than central banks, gold which you felt was desir- 
able at this time. 

11. Shipments of gold to China. — China has asked us for $50 million worth of 
gold in accordance with your promise to make the gold available. I have taken 
the position that the gold is available as rapidly as they can ship it. We have 
arranged to ship from one to two tons a month by Army Air transport. 

The Chinese have asked us to arrange with the British if we could for China 
to get gold either in India or South Africa in exchange for gold or dollars that 
we would give the Indian or South African Governments in New York. The 
British Treasury reported that they have made the request and that that could 
not be arranged either for India or South Africa. The Chinese asked me to make 
a similar request of the Russian Government which I have via Gromyko. 
Gromyko has not yet given me an answer. 

The Mint has made a request to the Chinese that the design for a large gold 
coin use the United States Mint on one side and the Chinese engraving on the 
other. These designs have been forwarded to Chungking for possible approval. 

12. Looted Gold. — I have not heard from you with respect to your reaction 
to our proposal for a public Treasury statement on the purchase of possibly 
looted gold. If favorable action is to be taken on this matter it should be done 
within the next few months. 

13. Canadian Dollar Position. — The Army pressed us for approval of the can- 
cellation of $86 million worth of Canadian contracts designed to reduce Canadian 
balances to replace the Army calling for resale to Canada of $50 million worth 
of armaments. We have already approved the latter arrangement but the Cana- 
dians reversed themselves and our Army agreed with the Canadian's reversal. 
The Army claimed that the delay in our approval would cost us a million to $2 
million. I took the matter up with D. Bell and he approved so we gave the Army 
our approval last Saturday. 

14. Release of Mc Daniels blocked sterling. — The British informed us that 
McDaniel is not the legal owner to the blocked sterling he wanted us to get re- 
leased for him. McDaniel claims that he filed evidence of his legal title with 
the State Department. We are checking with the State Department and will 
discuss the matter with you before taking any further action with the British. 



Exhibit No. 333 

[Vol. 668, pp. 68-69] 

Memorandum for the files. 

Meeting in the Secretary's Office, September 29, 1943, 11 : 45 a. m. 

I informed the Secretary that there were four points raised in a memorandum 
to him dated September 22, 1943, which were pressing and required a decision 
from him, as follows : 

1. The renewal of the $50,000,000 stabilization loan to China. I explained 
the predicament we were in with respect to the renewal at the present 
5-percent rate and stated that we in the Treasury were agreed that we 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1987 

should not renew a stabilization agreement until the prevailing official rate 
of exchange more closely approximated its real value. I pointed out that 
we would be getting into increasing difficulties if we took a step which 
purportedly helped to maintain so artificial a rate. 

The Secretary agreed. I said that after consulting with the State Depart- 
ment I should like to inform the Chinese of our views on that matter. I 
said that I thought that they would act unfavorably to it but I did not see 
any alternative that we have. The Secretary agreed and said go ahead. 

2. I then raised the question of satisfying Kung's cabled request that we 
earmark $200 million of gold out of the amount remaining from the $500 
million (paragraph 11 on page 4 of the memorandum) . I said that I thought 
that we ought to be tough with the Chinese on the question of earmarking 
$200 million of gold for gold sales which they could not make before the 
gold could be shipped to them. The Secretary agreed. He said that he 
thinks that we should be tough in this matter and he told me to go ahead 
and let them have the gold only as rapidly as it could be shipped and sold 
in China. 

3. I again raised the question of lend-leasing silver coins to the Dutch 
Government (paragraph 4 in the memorandum). The Secretary gave his 
appoval to our recommending that the 17 million ounces of silver be lend- 
leased. 

4. I stated that the British dollar position would not be significantly 
altered by the reciprocal lend-lease arrangements now being negotiated, 
that by the end of the year they would have over a billion and a half 
dollars, though the British claimed some offsetting liabilities of several 
hundred million. I thought that the time had come to take a strong posi- 
tion to reduce the lend-leasing of nonmilitary goods, if we were to follow 
out tbe recommendations we had made to the President, and the President 
approved last year. I suggested the Secretary call Mr. Crowley and arrange 
a meeting to discuss the matter. Secretary said that it will have to wait. 
I said that if we do not take it up this week it will probably have to wait 
a month. He said that was all right, it could wait. 

H. D. White. 



Exhibit No. 334 

[Vol. 682, pp. 83-88] 

Chungking, 

Dated December 1, 1943. 

Rec'd 9 : 42 a. m., 2nd. 

GM : This telegram must be paraphrased before being communicated to anyone 
other than a Governmental agency. (BR) 

Secretary of State, 

Washington. 

2297, December 1, 9 a. m. 

To Secretary of the Treasury from Adler. 

Weekly economic. 

Section One. 
One. Chungking prices : September wholesale general 17,140, food 10,660, retail 
general 13,330, food 9908 ; October 1S,030, 11,350, 14,320, and 10,710. Increases 
from August to October 9, 7, 14, and 18 percent, respectively. Average of retail 
price indices of loading cities August general 15,450, food 13,020; September 
16,190 and 14.2S0. Apparent decline in rate of increase in prices due to ade- 
quate harvest, good military news from other theatres, tighter money policy of 
banks partly associated with selling out of United States dollar backed certifi- 
cates and bonds, and favorable psychological effects of announcement of govern- 
ment purchase of gold from the United States. Since imposition of Chiuese 
National currency three dollars per catty war time surtax on salt on October I 
price has risen from $6.30 to $9.60 per catty. 

Two. October payments of board to Central Bank under November 1 agree- 
ment : United States dollars 1,817,000, sterling 170,000. Central Bank's receipts 
of foreign exchange granted "special' rates from May to August United States 
dollars 6,483,000, sterling 681,000. 



1988 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Three. Kunming black market rates November 20 United States dollars 84, 
Indian rupees 31. United States dollar backed savings certificates now selling 
at 53 per United States dollar if due and 37 if maturing on August 4, 1944. 

Four. Selling price of gold per Chinese ounce highest in Kunming and Chengtu 
where it is over Chinese National currency 12,000. It is $11,500 in Chungking 
and lowest in Heng where it is over 8,000. 

Five. Receipts from land tax in kind of 34.8,000,000 piculs and from compulsory 
purchases 31.2,000,000 up to October 15 or a total of 66,000,000, which is slightly 
above estimates. Szechwan accounted for about *4, Huanan for y 6 , and Kiangsi 
for i*<y of total. 

Gauss. 



Chungking, 
Dated December 1, 1943. 
Rec'd 12 : 21 a. m., 2nd. 
EAK : This telegram must be paraphrased before being communicated to anyone 

other than a Governmental agency. (SG-00) 
Secretary of State, 

Washington. 

2298, December 1, 10 a. m. 

One : Kung wrote to their man November 23 instructing board to stop purchase 
and sale of foreign exchange from November 30 and informing him that business 
previously transacted by board will in future be handled by Central Bank and 
Exchange Control Commission. Understand latter body is being organized with 
Kung as chairman, K. P. Chen (if he will accept) and Okyui as vice chairman, 
Jianchen, Pei, Kwok, and Tai of Ministry of Finance as members, and Dr. C. J. 
Chi as General Secretary. 

Two. Board at meeting of November 29 decided to wind up its affairs subse- 
quent to receipt of instructions from Kung. From Adler to Secretary of the 
Treasury. Re your 1690, November 24, some doubt existed at meeting as to 
whether affairs could be wound up by year end and I'm accordingly suspending 
judgment as to date of resignation until matters clearer. 

Gauss. 

[Declassified: Treas. ltr. ll/S/55] 

Chungking, 

Dated December 1, 1943. 

Rec'd 12 a. m., 2d. 

KEM : This telegram must be paraphrased before being communicated to anyone 

other than a Governmental agency. (SC-00) 

Secretary of State, 

Washington. 

2299, December 1, 2 p. m. 

One. Notes in circulation September CN 60,450,000,000, October CN 64,377,- 
000,000. Increase from August to October (*) 14 percent. 

From Adler to Secretary of Treasury, (section Two of Embassy's 2297) . 

Two. Details with regard to sell out of United States dollar backed bonds pub- 
licly announced end of October obscure. On October 12 Y. C. Koo informed me 
that subscriptions for bonds totaled United States 1S,000,000 and amount 
actually bought United States 11,000,000. On October 13 rumor got out that 
Government was about close sales and there was a rush to buy. On October 15 
sales ceased. According K. K. Kwork entire issue was sold out. According to 
Kung entire issue of bonds was sold out but an amount in neighborhood of United 
States 30.000,000 was being held presumably by Central Government — for purpose 
rehabilitating finances of certain provincial governments but he did not want 
this news to get out lest he be deluged with appeals from other provincial gov- 
ernments. 

Three. Budgetary revenues April to September CN 2,040,000,000 of which reve- 
nues from taxation accounted for 572,000.000 (pecuniary valuation for receipts 
from land tax in kind is inexplicably small) monopolies 373,000,000, miscel- 
laneous revenues 53,000,000 and unclassified 1,042,000,000. Expenditures in same 

(*) apparent omission. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1989 

period totaled 15,485,000,000 of which military expenditures accounted for be- 
tween 60 and 66 percent. Okyui informed me on November 26 that expenditures 
for 1943 would total 50,000,000,000 while revenues would be less than 20,000,- 
000,000; preliminary estimates for 11)44 are expenditures over 70,000,000,000 and 
revenues over 30,000,000,000. 

Four. Mr. Kwok informs me that government is selling small amounts of gold 
through agents in Chengtu, Kunming, Chungking, Kweilin, Kweiyangsian and 
Hongyang. Sales heaviest in first 3 towns and least in last ; gold being sold in 10 
and 20 Chinese ounce bars to jewelers and hoarders. Net sales in last 2 months 
include among originally held in China before recent imports, i. e., under 50,000 
ounce and small part of gold newly flown in. But government is chary of push- 
ing down price and is both buying and selling to control market. 

Five. Learn from reliable source that China and United Kingdom have agreed 
that part of sterling 50,000,000 coin be allocated to a hydro-electric project near 
Kunming. 

Gauss. 

Exhibit No. 335 
[Vol. 685, pp. 24-31] 

December 17, 1943, 4 : 30 p. m. 

Loans to China 
Present : Mr. Glasser 

Mr. Bernstein 
Mr. Lipsman 
Mrs. Klotz 

Mr. Bernstein. Mr. Secretary, this is Mr. Lipsman. 

H. M. Jr. How do you do. This is Mrs. Klotz and Mrs. Dickinson. 

Do you speak Chinese? 

Mr. Lipsman. No, sir. 

H. M. Jr. Somebody around here has to speak Chinese. 

Well, the President thought this was important enough to give me one of his 
few appointments today, and evidently the Generalissimo and Madame Chiang 
put up a great story to the President about inflation — how they wanted the 
balance of the money they had on hand. The President said around two hundred 
million. I said it was something like that. 

Mr. Bernstein. A little over two hundred million. 

H. M. Jr. And they would like to have another billion-dollar loan. I said I 
didn't know he could get that. 

The President said, "Well, I had this idea. I think the trouble is that the 
Chinese have put out too much paper currency and there is too much of it. That 
is what caused this depression." 

So I said, "No, that may have added to it, but," I said, "the trouble is, there 
isn't enough food to go around ; therefore there is a lot of paper money and very 
little food, and the value of the paper money goes down as the price of food goes 
up." 

"Well, anyway," he said, "let's say that the Chinese money is worth two 
cents" — I couldn't tell him what it was — 

Mr. Bernstein. Less than a cent. The official rate is five eents. 

H. M. Jr. What did it used to be worth? 

Mr. Bernstein. It used to be worth thirty cents. 

H. M., Jr. He said. "Supposing we could buy up in the black market, American 
money, or Chinese money" — he had some idea, say, of buying it at eighty — he 
used that figure — I think he used the figure eighty. But I think what he had 
in mind, buy it at the present black market rate, and then say to the Chinese, 
when the war is over, "We will let you redeem it at the price which we paid for 
it," even though the value of it goes up. 

Do you see? Do you follow me? It is kind of sleight-of-hand. 

Mr. Bernstein. Yes, sir. 

H. M. Jr. I said I would have to think about this thing, but I am having lunch 
with him Sunday and I promised him a memorandum after lunch Sunday. 

Now, the thing to do when you work with the President like this, is to take his 
plan and explore it and give the pros and cons. I don't know whether it is good 
or bad. I said, "Well, it is something like what we did in Teheran where we 



1990 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

bought, joint account with the British, local currency for our gold, and used it 
to pay the troops." 

I said, "Do you want to go joint account with the British?" 

He said, "Positively not. Whatever we do we want to do alone." 

So I told him we had this letter very recently from Kung telling us the thing 
was better. That seemed to surprise him. 

Now I said it was our fault or blame or responsibility that the gold left here so 
slowly. We thought that was the only way to make it last, and that we could 
let it go faster. 

So what I would like you people to do — that is the story. Explore the Presi- 
dent's proposal and give me the pros and cons on it. I don't know whether it is 
good or bad. It is something like buying the thing up and holding it, and then 
letting them redeem it. If you don't think we will have it, then give me a sug- 
gestion as to how the inflation in China can be combatted, see? 

Now, you have got to do it within that framework — within the money and 
the credit they have left here. After all, when you say they have two hundred 
million 

Mr. Bernstein. They have these bills, Mr. Secretary. 

H. M., Jk. Roughly five hundred million ; they only used about twenty million 
of that. 

Mr. Bernstein. Some of that is pledged against the securities they have issued. 

H. M., Jr. How much? 

Mr. Bernstein. Two hundred is pledged, but it isn't all sold. 

H. M., Jr. But actually, out of the Chinese exchequer, I think there is only 
twenty million that is gone, roughly. Am I right? 

Mr. Bernstein. That is right, Mr. Secretary. You are right. They have only 
spent twenty million in the sense of buying gold. 

H. M., Jr. Four hundred and eighty million dollars that they can lay their 
hands on. 

Mr. Bernstein. In bills or in dollars ; that is right. 

H. M., Jr. It doesn't make any difference. I am right, approximately, am I not? 

Mr. Bernstein. That is right. 

H. M., Jr. What can we do with four hundred and eighty million dollars — if 
that isn't enough, how much more do we need to do a job? There are three 
proposals — take the President's ideas, pros and cons. All right, let them use 
up that four hundred and eighty million dollars. Can you do anything by 
shipping gold? Do you remember my idea to use silver dollars? 

Mr. Bernstein. Yes. 

H. M., Jr. Or different things. Now, what you better do is you had better have 
something. I wasn't going to work tomorrow afternoon, but I will see you 
sometime late tomorrow afternoon — four or five at the house, see? Let me take 
a look at it and you can reboil it over again so I can have it by Sunday noon. 

Well, somebody spark. 

Mr. Bernstein. Well, I think we can give you something on that, Mr. Secretary, 
especially since we have been exploring the possibility of selling gold there. 
We have gold quotations, we have some notion of the dollar quotation. 

H. M.; Jr. I suggested to Harry — you know that we start selling gold 

Mr. Bernstein. Out of that four hundred and eighty million, the only question 
in my mind, Mr. Secretary, is how much of that they have pledged, and I don't 
think they have pledged more than a hundred million, they would want to use. 
They may not want to use up everything. 

H. M., Jr. Just to take a minute — explain to me — what is this racket that our 
people do — there is a dollar bond out and you can buy it very low. 

Mr. Bernstein. That is the one. 

H. M., Jr. What is that? How does it work? 

Mr. Bernstein. American soldiers in China, or Chinese nationals, can pay the 
Chinese in Chinese yuan at the official rate, five cents ; they can secure a U. S. 
dollar bond or certificate, which becomes payable in dollars after two years or 
five years. There are different ones. The funds are kept at the Federal Reserve 
Bank of New York to assure payment of those. Americans have been buying 
them and sending them back to their families to hold for them. 

Now, that is what some of the money is pledged for, Mr. Secretary. 

H. M., Jr. Well, now, they have to buy yuan to do that; isn't that right? 

Mr. Bernstein. Right. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1991 

H. M., Jr. Really, what the President has in mind is our buying yuan, and 
issuing the bond against that, which would be good, at the present rate rather 
than at the old rate of par. 

Mr. Bernstein. Selling it at the black-market rate, which the Ameri- 
cans do, really. They sell the currency at the black-market rate getting yuan at 
less than a cent apiece. 

H. M., Jr. It may be perfectly cockeyed. 

Instead of buying a bond, let's say you buy a bond that will ultimately be 
worth a hundred U. S. dollars. You can buy that for what — two thousand? 

Mr. Bernstein. That is right, two thousand yuan. 

H. M., Jr. I am good ! I have to figure it — at two thousand, when you ulti- 
mately get it back, you get it back at a rate of two thousand yuan which are 
normally worth thirty cents. Is that right? 

Mr. Bernstein. What they will actually get back is dollars. 

H. M., Jr. A hundred dollars— translating that thirty into that, would be 
how many? 

Mr. Bernstein. Thirty into that would be three, three, three. 

H. M., Jr. But it is a hundred dollars. 

Mr. Bernstein. To get back to a hundred dollars is the significant thing to 
them. 

H. M., Jr. Costs them how many dollars now? 

Mr. Bernstein. Actually it would only cost them twenty dollars, because 
they buy the yuan not at five, but less than a cent. 

H. M., Jr. Well, supposing we buy two thousand yuan at twenty dollars. 
What the President suggested is that we give these people an option to buy 
back these at the present rate. Is that right? 

Mr. Bernstein. That is what I gather from what you say. 

H. M., Jr. We won't lose anything, and we would clean up the market, 
wouldn't we? 

Mr. Bernstein. We could clean up some part of it. The Chinese will have 
to keep feeding the market with yuan because they can't balance their budget 
or borrow, and they can't tax. 

H. M., Jr. How much help is it if we pay the U. S. troops in black market 
yuan if we went in and bought the way we did — 

Mr. Bernstein. It wouldn't help the Chinese. 

H. M., Jr. What the President wants to do is help the Chinese. 

Put the old bean on it sometime between four and five tomorrow. Come 
through with some kind of a plan. 

Mr. Bernstein. Yes, sir. 

H. M., Jr. How to help the Chinese within what they have got now. I don't 
want to go up to the Congress and ask for any more. 

Mr. Bernstein. Yes. sir. 

H. M., Jr. If you say four hundred and eighty million dollars — on the other 
hand, say how much ; give me a price, how much it will do to fix them up. 
If, on the other hand, it is going to take food — goods is what I think it will 
take — put that in. 

Mr. Bernstein. Yes. sir. 

H. M., Jr. I don't see how you will control inflation, if you don't have goods. 

Mr. Bernstein. I don't think you can stop inflation in China. 

H. M., Jr. I think all he wants is a billion dollars for postwar. Right? 

Mr. Bernstein. I think that is what he wants. 

H. M. Jr. But you give me the unvarnished truth, and let me have a look at it 
tomorrow. Will you go to work on it? 

Mr. Bernstein. Yes, sir. 

H. M. Jr. You had better call up Harry on the phone. 

Put everybody on there who has any time or brains, or vice versa. 



Exhibit No. 336 

[Vol. 685, pp. 140-142] 

December 18, 1943. 

Memorandum for the President. 

You have spoken of the request of Generalissimo Chiang-Kai-Shek for an addi- 
tional $1 billion of financial aid to China to be used to help control inflation and 
for postwar reconstruction. 

72723— 57— pt. 35 6 



1992 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



The facts regarding inflation in China and the possibility of its control through 
the use of dollar resources are as follows : 

Inflation in China, as you well know, arises from the grave inadequacy of 
production for war needs and essential civilian consumption. Supplies have been 
drastically reduced by enemy occupation and the cutting off of imports except the 
small amounts tbat come by air or are smuggled from occupied territory. 

The Chinese Government cannot collect sufficient taxes or borrow from the 
people in adequate amounts. As a consequence, the Government has been issuing 
3.5 billion yuan a month, twice the rate of a year ago. 

The official exchange rate for yuan is now 5 cents ; before China entered the 
war it was 30 cents. The open market rate for yuan in United States paper 
currency is one cent and in terms of gold one-third of a cent. 

You have suggested the possibility of our selling dollar currency for yuan to he 
resold to China after the war at no profit to us. No doubt something could be 
done to alleviate inflation through the sale of gold or dollar currency in China. 
I have received the following message from Dr. Kung dated December 14 : 

"You will be pleased to hear that the recent gold shipment is one of the out- 
standing factors contributing to the strengthening of fapi, because people believe 
that the arrival of gold has increased the much needed reserve of our currency, 
thereby influencing the stability of prices. The action of the United States 
Government reaffirms to the Chinese people that, despite difficulties arising from 
the blockade and the cumulative effects of over six years of war against the 
invasion, China has a powerful friend desirous of strengthening China's economy 
as conditions permit." 

However, while something could be done to retard the rise in prices, the only 
real hope of controlling inflation is by getting more goods into China. This, you 
know better than I, depends on future military operations. 

ii 

China has tried two similar monetary remedies for alleviating inflation without 
marked success. 

1. The Chinese Government issued and sold dollar securities for yuan, setting 
aside $200 million of the aid granted by this country for the redemption of the 
securities. (These securities were sold at exorbitant profit to the buyers. For 
instance, a person holding $100 in United States currency could have quadrupled 
his money in less than two years by selling the currency for yuan on the open 
market and buying the dollar securities issued by the Chinese Government.) I 
believe that the program made no significant contribution to the control of 
inflation. 

2. The Chinese Government has recently been selling gold at a price in yuan 
equivalent to $550 an ounce, about fifteen times the official rate. We have ship- 
ped to China more than $10 million of gold and they have sold about $2 million 
of gold for yuan. This program has not been tried sufficiently to warrant any 
definite conclusion as to its possible effect. 

China now has $460 million of unpledged funds in the United States and is 
getting about $20 million a month as a result of our expenditures. China could 
use these funds in selling gold or dollar assets for yuan, although in my opinion 
such schemes in the past have had little effect except to give additional profits 
to insiders, speculators and hoarders and dissipate foreign exchange resources 
that could be better used by China for reconstruction. 

Under the circumstances, a loan to China for these purposes could not be 
justified by the results that have been obtained. It is my opinion that a loan 
is unnecessary at this time and would be undesirable from the point of view 
of China and the United States. Large expenditures on ineffective measures 
for controlling inflation in China would be an unwise use of her borrowing 
capacity which should be reserved for productive uses in other ways. On 
reconstruction, it is too soon for us to know the best use or the best form of 
the aid we might give to China. 

Recom mendations 

For the past five years I have had a deep admiration for the valiant fight that 
the Chinese people, under the leadership of Chiang Kai-shek, have waged against 
Japanese aggression. Therefore. I am in complete sympathy with your position 
that no stone be left unturned to retard the rises in prices. Using the tools 
we have at hand, I recommend the following : 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 1993 

1. All United States expenditures in Cbina, currently $400 million yuan a 
month and rising rapidly, be met through the purchase of yuan with gold or 
dollar currency at whatever price we can get them for in the open market. 
This is equal to more than 10 percent of the present rate of issue. 

2. Accelerate the shipment of gold purchased by China to twice the amount 
we have previously planned to send. It should be possible to raise gold shipments 
from $6 million a month to about $12 million. At the present price for gold in 
the open market this would be equal to the present 3.5 billion of yuan currency 
that is being issued. 

The impact of this twofold program should contribute to retarding inflation, 
always bearing in mind that the basic reason for inflation in China is the 
shortage of goods. 

Exhibit No. 337 

(Vol. 802, Pages 1-3) 

Treasury Department, 

December 9, 1944. 

INTEROFFICE COMMUNICATION 

To : Secretary Morgenthau. 

From : Mr. White. 

Subject : Some Matters Requiring Your Attention. 

1. There are a number of unfinished items of business remaining from the 
Lend-Lease discussions of the Joint Committee, some of which require decisions 
and some of which require action by you. The material is ready for your 
consideration. 

2. A preliminary draft of a bill on Bretton Woods agreements to be introduced 
in Congress in January has been prepared in the Treasury and is now being 
discussed by the Technical Committee composed of various agencies. (Copy of 
this preliminary draft is appended.) 

There are several decisions of some importance which you will have to make 
with respect to the provisions of this bill, and it would be helpful if you could 
set an hour aside to discuss those points with us before we get very far in our 
discussions with other agencies. 

Congressman Spence telephoned and urged that you take prompt action to see 
that the legislation is assigned to his committee in the House and Senator 
Wagner's committee in the Senate. He said he was very much disturbed by the 
move on foot to assign these bills to the Foreign Affairs Committee. 

3. Kung has said that he would like to settle payments due China for Army 
expenditures in yuan for October, November and December of this year. This 
is not an urgent matter and could easily be postponed if you wish. In view of 
the acutely unstable political situation in China, and in view of Kung's altered 
status, it might be better if discussions on those payments were not taken up 
at this time. 

The Chinese are now pressing to ship gold via commercial vessel. Hitherto we 
have insisted on military transportation. They are pressing very hard to get as 
much gold exported to China as quickly as possible. We have stalled as much 
as we have dared and have succeeded in limiting gold shipments to $26 million 
during the past year. We think it would be a serious mistake to permit further 
large shipments at this time. We would like to discuss the matter with you. 

Mr. Friedman, who has just returned from China, has brought back a number 
of personal messages to you from various persons in China which you will want 
to read. Mrs. McHugh has them. 

4. The Stabilization Fund expires in June of this year and an amendment to 
renew it would normally be introduced in April or so. In view, however, of 
the proposed legislation on Bretton Woods, it is necessary to make some 
decisions with respect to the form of the renewal in the next few weeks. 

5. The German "book" is being revised and still awaits being turned over to 
some competent writer or publisher that you are to select. Incidentally, I have 
started a couple of men on a similar book on Japan. How far you will want us 
to go on it can be a matter for later decision. In the meantime, I thought 
we might get started in the event that you are called upon to submit a plan 



1994 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

for Japan or if the opportune moment for the submission of such a plan 
develops. 

6. We had instructed Friedman to discuss with the Indian authorities in 
Delhi the question of obtaining all our rupee needs through the sale of gold. 
He did this and successfully made arrangements for us to obtain all rupee 
needs that way. We have finally cleared the matter with the British and are 
going ahead with arrangements for increased sales of gold in India. We esti- 
mate that we can thus save from $20 million to $30 million during the next six 
months. What we save will reduce U. K.'s dollar receipts by an approximately 
equivalent amount. 

7. The discussions which the boys have been having with the Italian Mission 
are about over. You might want to set aside a half hour to go into the matter 
and decide where we go from here. 

8. Mr. Olsen, our Treasury man, has just returned from Sweden. You may 
be interested in spending a few minutes hearing his report on the situation in 
Sweden. 

9. Mr. Taylor and Mr. Patterson have gone to Greece from London. Taylor 
will stay only for a couple of weeks and then will go back to London via Wash- 
ington to make his report. We are sending Mr. Tomlinson, of this Division, 
to London to take Mr. Patterson's place. 



Exhibit No. 338 

[Vol. 807, pp. 257-259] 

January 5, 1945. 
Dr. H. H. Kung, 

Room 706D, Shoreham Hotel, 

2500 Calvert Street NW., Washington, D. C. 

My Dear Dr. Kung : I have received your letter of January 3, 1945, enclosing 
copy of cable from Mr. O. K. Yui, Minister of Finance, regarding shipments of 
gold to China. 

I am giving this matter my close attention and hope to be able to give you 
my decision in the near future. You may be assured that in making my decision 
I will give fullest consideration to the best interests of China. 
With kindest personal regards, I am, 
Yours sincerely, 

( Signed) H. Morgenthau, Jr., 

Secretary of the Treasury. 

[Handwritten note: White — Prepare an answer.] 

Executive Yuan, 
National Government of China, 

January 3, 19^5. 
Honorable Henry Morgenthau, Jr., 
Secretary of the Treasury, 

Washington, D. O. 
My Dear Mr. Secretary : On December 15, 1944 Mr. Hsi Te-mou wrote a letter 
to Mr. Friedman enclosing a copy of telegram from Mr. O. K. Yui, Minister of 
Finance, in which Mr. Yui requested your Department's assistance to hasten the 
shipments of gold to China to meet the Chinese Government's commitments. 

As the situation in China requires the immediate arrival of more gold ship- 
ments, Mr. Yui has sent another urgent wire requesting me to approach you to 
facilitate such shipments. During the past decade I have enjoyed your valuable 
friendship and untiring co-operation and assistance in matters which were of 
mutual interest to our two countries. Therefore, I am sending you a copy of 
Mr. Yui's latest telegram and hoping you will give this matter your prompt and 
favorable attention. 
With kindest personal regards, 
Yours sincerely, 

H. H. Kung. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1995 

[Incoming telegram] 

From : O. K. Yui. 
For : H. E. Dr. H. H. Kung. 
Rec'd : January 2, 1945. 
Sent : December 30, 1944. 

[Translation of Chinese telegram — in substance] 

With regard to our requests for drawing from United States credit for imme- 
diate shipments of gold and to the amount of gold sold and outstanding to be 
paid, I telegraphed on December 11th to Hsi Te-mou to report and refer to your 
excellency for instructions. 

Outstanding amounts remaining to be paid after deducting about 80,000 ounces 
recently arrived is still over 200,000 tael weight. Also over 100,000 tael weight 
to be paid on three months' gold deposits maturing March. All these should 
be paid in order to maintain national confidence. Moreover on account of this 
year's (1945) deficit in our national budget the sale of gold to meet this deficit is 
keenly anticipated in all quarters concerned. Therefore may I respectfully 
request your excellency to take up with United States Treasury question of 
expediting shipments of US$80,000,000 worth of gold and also completion of mint- 
ing and shipments of US$100,000,000 of gold tokens by United States mint at the 
earliest possible moment so as to stabilize our wartime economy and to further 
our war effort. Kindly instruct by cable. 



Exhibit No. 339 
[Vol. 846, p. 32 et seq.] 

Gold to China 



May 10, 1945, 2 : 00 p. m. 



Present : Mr. D. W. Bell, Mr. Coe, Mr. Friedman, Mr. Adler, Mr. White, Mrs. 
Klotz (and Secretary Morgenthau). 

Mr. White. Do you want to discuss this or not? 

H. M., Jr. Since you left we don't discuss things, we just work. 

(Secretary reading letter to Dr. Soong, dated May 10, 1945:) 

"I am replying to your letter of May 9, 1945, regarding our discussions on 
gold and the establishment of a $500 million fund. I shall be glad to have 
your reply on the fund suggestion as soon as you have heard from the General- 
issimo. 

"As I informed you yesterday, the Treasury will consider steps to accelerate 
gold shipments to China. 

"I am looking forward to seeing you again at which time we will be able 
to refer the gold question and the establishment of a $500 million fund." 

Now, the one seems to contradict the other. You say the Treasury will 
consider steps to accelerate the gold shipments 

Mr. Coe. There's a question of money still left open there and we thought we 
would give it to them out of their money if we could. They have twenty million 
dollars of earmarked gold. 

H. M., Jb. Oh. 

Mr. Bell. That's going to worry him. 

H. M., Jb. I don't like that "accelerate gold." I don't like that. Is that 
White? [Laughter.] 

Mr. White. No, that can be taken out because basically it 

H. M., Jr. I'll tell you the question now of good faith here, Harry. I don't 
know if they have had a chance to explain this to you. I am in a kind of em- 
barrassing position. I think 

Mr. Bell. The whole financial question is what you are discussing. 

Mr. White. You can leave that phrase out if it troubles you. It doesn't 
add much. 

H. M., Jb. I don't see why it can't be rewritten, leaving out the third para- 
graph. As I informed you yesterday, the Treasury will consider extensions 
to accelerate gold shipments to China. He doesn't say anything about hoping 
to see me. 



1996 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Mr. White. It doesn't matter because the position we are in is the same 
position we have been in for a long time. 

H. M., Jr. That still leaves it open to argument. Just take a look at that. 

Mr. Bell. I think it's all right. 

H. M., Jr. Let it go. 

Mr. Coe. Harry cut out one paragraph. You cut out another 

Mr. White. It's all right. 

H. M., Jr. I could send a letter, "Dear Mr. Soong, Yours truly." 

Mr. Coe. I'm glad it's not going up to the President. 

(Mrs. Klotz leaves conference.) 

H. M., Jr. I'll sign it before I go. 

Mr. Bell. He formerly thought he wanted fifteen minutes with you. 

H. M., Jr. The trouble was Senator George's meeting at one-thirty was 
called off but he told him he would be there at two-thirty. 

Mr. White. I understand you were troubled about the letter of the two 
hundred million. Mr. Secretary, we have always taken the position we had 
absolutely no legal grounds for withholding the gold ; that what we were doing 
was skating on thin ice and offering excuses and we were getting away with it as 
long as we could, and remember because I said we are getting away with it that 
you better get the President's backing when they begin putting on the heat. It's 
because I said we have no basis for it. We have been successful over two years 
in keeping them down to twenty-seven million and we never understood why 
the Chinese didn't take it in there and do what they are now doing. The whole 
history is we had no basis for it. 

H. M., Jr. I can't remember things that happened, and when he flashed that 
letter on me it caught me sort of off guard and I didn't remember it. 

Mr. White. That letter grew out of what you thought the President promised 
Madame Chiang Kai-shek. 

H. M., Jr. They refreshed my memory, but the trouble is that, Harry, I think 
that the Army and State Department have advised me very badly on this thing 
last week and suddenly Will Clayton woke up to the fact himself, entirely on 
his own, and all the indications are that the Chinese are really going to fight. 
This man comes here now and he gets a cold shoulder, gets bounced around, he 
gets nothing. He may get four thousand trucks and this is the money which 
we have committed ourselves to, and I have sort of come to the decision that I 
don't know how far I'll go, but I certainly want to loosen up. and I think this 
is a psychological time for the Treasury to demonstrate we can be a friend to 
China, when they really need it, with their own money. 

Mr. White. That isn't the same way I'd do it. I'll drop that. I do think you 
need to have now for your own record— and this is wholly for your own record — 
you need now an exchange of letters from you to the President indicating that 
this money is being badly used. It will not help inflation and cannot be justi- 
fied on economic grounds, and that the only basis, for it must be that they feel 
it is militarily necessnry to satisfy his demands. Because, Mr. Secretary, this 
record — we have advised them against the use of this. It has been badly 
used and all the rest. 

H. M., Jr. I'd just do this, because I am pressed so, but over the week end 
prepare such a letter, and when I come back — there was a letter originally 
written on that to Mr. Roosevelt which I never took over. 

Mr. White. It was a memo, but the history of your negotiations with China are 
clear enough on that point. 

H. M., Jr. This will give you a chance to get back into working habits again, 
to do this over the weekend. It will be a nice way to break your way in, Harry. 
Glad to see you back. 

Mr. White. When are you coming back, because I want to tell you what was 
in the letters that apparently you didn't get. [Laughter.] They are not on 
your desk. 

Mrs. Klotz. It could be I haven't cleared all my mail today. 

H.M..JR. Well 

Mr. White. What do you mean, today? 

(The Secretary signs letter to T. V. Soong, dated May 10, 1945). 

H. M., Jr. I go up either Sunday night or Monday to Buffalo, and I'll be back 
Tuesday. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 1997 

Mr. White. Will you have ten or fifteen minutes between now and tonight? 

H. M., Jr. I will try. It depends on how long I am on the Hill. We have quite 
a fight on our hands. I'll try to. I won't make any guarantee. 

Mr. White. I'll be here in case you have, or if you want, I'll ride down to 
the airport. 

Exhibit No. 340 

[Vol. 827, pp. 53-55] 

Department of State 

division of central services telegraph section 

[Incoming telegram] 

Chungking, 

Dated March 11, 1945. 

Rec'd 2:00 p. m., 12th. 

CC-606 : This telegram must be paraphrased before being communicated to any- 
one other than a Government Agency. 

Secretary of State, 

Washington. 

401, March 11, 9 a. m. 

To the Secretary of Treasury from Adler (for Treasury only ) . 

Present gold situation. 

One. Government is now relying on sales of gold and six month gold deposits 
as main source of revenue. Receipts from such sales in January and February 
were CN 14 billion (plus 20 percent of that sum from compulsory purchases of 
three year treasury certificates by gold purchasers), which is substantially in 
excess of receipts from taxation in same period. It will be noted that less than 
25 percent of receipts from gold sales were from spot sales and that by far the 
larger part were from six month gold deposits. Central Bank's short position 
on gold is now approximately one million ounces. 

Two. While Government is now selling gold it largely does not have on hand 
at rate of 350,000 ounces per month or United States $105,000,000 per annum, 
receipts from gold sales, including compulsory purchases of treasury certificates, 
total barely 25 percent of current monthly deficit. And this deficit is not going 
to diminish during course of year. Therefore, if Government wishes to main- 
tain in current ratio of receipts from gold sales to monthly deficit it will either 
have to increase price of gold or increase gold sales or both. 

Three. The reckless Government conduct of its gold sales policy can only be 
described as "frenzied finance". 

(A) It has been and is selling gold at an absurdly uneconomic price. The 
official pretext that price cannot be raised without an adequate supply on hand 
does not hold water. While official price of gold has been maintained, black- 
market price has risen to CN dollars 39,500 per ounce; also witness the heavy 
purchase of six month gold deposits at end of February due to rumor that 
official price was to be raised at beginning of March. Official claim that raising 
price of gold would push up general prices still further cannot be taken seriously 
at a time when prices are skyrocketing in any case. 

(B) It is dissipating China's foreign exchange assets, which she will badly 
need at war's end, at current rate of United States $150,000,000 per annum 
without significantly affecting economic situation. In fact, since inflation has 
now entered snowball phase, future sales of gold at current rate will have even 
smaller effects as brake on inflation. 

(C) Part of the gold is finding its way into occupied China. 

Atcheson. 



2000 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

earmark in the Federal Reserve Bank of New York, one-half of which would 
be gold acquired in payment of tin exports from China to the United States. 
Foreign Economic Administration has informed us that the export of gold 
acquired as payment for tin exports is essential to maintain tin production in 
China. 

4. The suggested reply to Dr. Kung does not make any definite commitments 
but, as soon as possible, we would inform his representatives orally that we have 
succeeded in making arrangements with the Army for the export of about $7 
million of gold during the next three months. 



Executive Yuan, 
National Government of China, 
New York, N. T., February 26, 1945. 
The Honorable Henry Morgenthau, Jr., 

Secretary of the Treasury, Washington, D. C. 

Dear Mr. Secretary : You will recall that on several occasions we have dis- 
cussed the provision of gold for China, and that you kindly undertook to expedite 
this matter. Since shipments to China have been considerably slower than we 
feel necessary, I wish now to present the situation for urgent attention. 

The chief present financial problem of the Chinese Government, as you know, 
is to finance its large and growing deficit. The Government must handle this 
deficit in such a way that the inflation does not get out of hand — since if this took 
place, it would cause most serious consequences to the war effort of China and 
would be very hurtful to the conduct of American operations against Japan in 
and from China. Moreover, if inflation should seriously accelerate, this condi- 
tion would undermine China's economic structure, impair internal stability, make 
it much harder for China to reoccupy and restore the areas now in enemy hands, 
gravely hamper China's reconstruction and progress in the next few years, and 
make it much harder for China to play the part in stabilization and peace 
maintenance in the Far East which its Government and people wish to play and 
which is desired by the American Government and people. 

It is of vital importance, therefore, to reduce in every possible way the deficit 
financed through increase of note issue. For a little over a year, the Government 
has been selling gold to realize Chinese currency. In that way, we have sold 
from the latter part of 1943 to date over 000,000 ounces* (something over US$30 
million) — which have realized around CH$16 billion). While exact figures are 
not at hand, available data indicate that this sum is equivalent to something like 
a sixth of the deficit in the period. The sale of gold has been most helpful, and 
has definitely prevented the inflation from attaining a higher level which other- 
wise would have been reached. It helps to check increase of the general price 
level by diverting to purchase of gold certain funds which otherwise would be 
used to buy commodities to be held for higher prices. 

The American Government, in order to help China, made available US$200 mil- 
lion of gold out of the US$500 million credit. Of this gold, the first installment 
was US$20 million. Unfortunately, deliveries of gold to China out of this US$20 
million have totaled only US$7,276,066.00, including 40,000 ounces (out-turn be- 
ing US$1,399,947.99) delivered in New York to the Bank of England against a 
similar amount in India. Actual shipments to China out of this US$20 million 
were only US$5,876,118.12. Thus, shipments have fallen far short of what is 
needed. As a result, the Central Bank was obliged to substitute forward sales 
for spot sales. A black market for spot gold developed, which the Government 
could not control owing to lack of ready supplies. The black market price for 
gold has risen to around CH$35,000 per ounce, whereas the spot price — though no 
recent sales have been made — remains CH$20,000 per ounce. Because of lack of 
gold, the Government has had to print and import more notes than otherwise 
would have been neeeded, which adds to the inflation. 

Also the Central Bank will not be able to meet its commitments for forward 
sales unless shipments are materially expedited. In this connection, I quote the 
substance of a telegram from the Bank received February 5 : 

"Forward delivery sales of gold for January were 61,730 taels, total unde- 
livered up to end of January 239,230. Six months deposits (that is due July) 
were 233,501 taels. Our experience shows that shipments by boat take two 
months to arrive at Chungking. Therefore, we hope that arrangements may be 



♦The Chinese ounce in common use, called the tael or size Hang, is equal to 1.00471 
Troy ounces. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2001 

made for at least four shipments right away. This will enable us to have the 
American bars minted into 5 and 10 tael small bars, in order to pay the deposits 
due in April, May, and June. Both forward delivery sales and deposits require 
supplies." 

Under present conditions it is specially urgent to sell gold actively in China. 
In the past half-year the basic budgetary situation has become definitely more 
critical. Note issue has increased because of the program of reorganizing the 
Chinese Army, the operations of the American Army, and the outlay of the new 
War Production Board. At the same time, revenues have been cut by wide-spread 
military operations, and because the Government abolished certain taxes. My 
advices from China state that the Government expects to rely to a large extent 
upon sales of gold and of goods to hold the economic line. Since the first of this 
year prices have been rising more rapidly and the rising tendency is continuing. 
Our experience lately has been that prices rise more rapidly in the first half of 
the calendar year. It is particularly important, when prices are actively rising, 
to be in position to sell gold to withdraw money from the market, thereby lessen- 
ing the need for increase of circulating notes. The American Government has 
been concerned about China's inflation and for the present gold sales are the 
most effective means to combat it. 

Furthermore, there is now an active demand for gold in China. If sufficient 
gold is available in China, the Central Bank of China will be in position to raise 
its selling price for gold, thus getting back large amounts of Chinese currency. 
Otherwise, however, the Bank cannot control the price of gold. If the price 
were to be raised without an adequate supply on hand, the black market would 
only be driven to a higher level — with a bad effect on confidence and upon the 
general price level. As to price policy, we feel it is important to raise the price 
in the near future to substantially the present level of the black market 
(CH$35,000 per ounce). Thereafter, our selling price will be governed by the 
demand for gold and the course of general prices. 

In view of the urgent need for gold in China, we are most anxious to send for- 
ward at once by air the balance of US$12,723,933.28 (say 364,000 ounces) of the 
US$20 million, which is required at the earliest possible moment to meet near 
deliveries and to make spot sales. We would, therefore, appreciate your good 
offices in arranging with the American Army Air Transport Command for such 
shipment. Also we would like to have a further amount of say 500,000 ounces 
(US$17,500,000) go forward as soon as practicable by air to enable the Central 
Bank of China to meet further near deliveries and to make spot sales. In addi- 
tion, we would like to ship at once 500,000 ounces (US$17,500,000) by sea to meet 
later deliveries. Thereafter, shipments should be adapted to needs in order to 
avoid again running short of gold in China. 

I fully realize of course that this sale of gold is a financial expedient which 
should not ordinarily be used, and it is only the present emergency that justifies 
this policy. We wish to taper off and discontinue the sale of gold after con- 
sumers goods, especially cotton textiles, begin to reach China in good volume. 
It is the policy of the Chinese Government to obtain abroad and ship to China 
essential goods as rapidly as conditions of procurement and transport permit. 
In this way, the inflation will be checked most effectively — first, by adding to 
the supply of necessary goods, and second, by realizing from their sale on the 
basis of current market prices large amounts of Chinese currency which can be 
applied to meet the deficit and thus obviate the need for relying to that extent on 
increased note issue. The opening of the "Stilwell Road," together with the 
growing volume of air transport over the Hump and the progress of the oil 
pipeline, greatly adds to the available capacity for sending supplies to China. 
Further, it is our intention to obtain and transport larger quantities of necessary 
goods as soon as sea communication with China is reopened. Notwithstanding 
the urgency of military requirements, I feel that it is in the interest of the war 
effort of China and the United States to ship large quantities of such goods, 
because of the beneficial effect of this operation in retarding inflation and remov- 
ing the threat of disorganized and extreme price rises which, if they occurred, 
would disrupt the Chinese war effort and also make it very difficult for the 
Chinese Government to afford to the American armed forces the cooperation 
which they require and which China is anxious to give. 

At present, a request from the Chinese Government to procure and ship to 
China about 20,000 tons of cotton textiles is pending before the authorities 
concerned. I very much hope that you will give your valuable support to this 
and other proposals for shipment of goods, in order that we may obtain the 
goods and the transport required. 



2002 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

I wish finally to refer to the gold tokens of 1 ounce, % ounce, and *4 ounce 
denominations to be made in the American mints, which you will recall we 
have discussed and issuance of which is in accordance with your ideas. The 
designs approved for these tokens were made with a view to commemorating 
cooperation between China and the United States. We are very anxious that 
these tokens be completed and shipped as soon as possible, in order to obtain 
the maximum benefit through broadening the market. Obviously, gold in the 
form of ordinary bars is not adaptable to ready distribution ; whereas tokens 
such as these would be widely distributed among the public in China. It was 
stated last fall that it was expected that production of the tokens could be 
begun about the end of last December. I shall much appreciate early advice 
as to how the preparation of these tokens is progressing and how soon we may 
expect deliveries. 

I shall much appreciate favorable action on these matters as soon as possible. 
I regret that I am temporarily unable to meet with you in person to discuss 
these matters, because of receiving medical treatment in hospital. I shall, 
however, delegate representatives to arrange details with the officers of the 
Treasury. 

With personal regards and good wishes, I am 
Yours faithfully, 

H. H. Kung. 



Exhibit No. 343 

[Vol. 825, p. 171] 

Mabch 3, 1945. 
Dr. H. H. Kung, 

Waldorf-Astoria Hotel, 

New York, N. Y. 
Dear Dk. Kung : I am glad to receive your letter of February 26, 1945, regard- 
ing exports of gold to China. I am very sorry to learn that you are in the 
hospital receiving medical treatment and do hope that you will recover quickly. 
I am sure that you appreciate the many difficulties involved in making arrange- 
ments for the export of gold to China. As in every other phase of our activities 
these days, military necessity takes precedence over everything else. 

I have, however, instructed my men to raise again with the military authori- 
ties the possibilities of shipping gold to China during the next few months. 
They will inform your representatives of their findings on this matter. 
With best wishes for your speedy recovery, 
Sincerely yours, 

(Signed) H. Mobgenthau, Jr. 

Exhibit No. 344 
[Vol. 843, pp. 102-123] 

May 1, 1945, 3 : 45 p. m. 
Gold to China 
Present : Mr. D. W. Bell 
Mr. Coe 
Mr. Friedman 
Mr. Adler 
Gen. Somervell 
Gen. Carter 
Mr. Clayton 
Mr. Collado 
Mr. Stanton 
Mrs. Klotz 

H. M., Jb. Has he seen this? 

Mr. Coe. I saw the earlier version. I talked it over with Mr. Bell. Did he 
get a copy of that memorandum? 

Mr. Adleb. No. 

Mr. Fbiedman. We took it right off the typewriter. He will be coming in, 
though. 

H. M., Jb. Wait a minute. (Reading from memorandum to the Secretary from 
Mr. Coe dated May 1, 1945.) "China may offer to place dollar credits (at about 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2003 

$35 per oz.) from her existing assets to the accounts of purchasers of gold 
to whom she cannot make delivery for the time being." 

How does one do that? 

Mr. Coe. Well, anyway, they are going to say if they can't pay this gold over, 
that wrecks confidence. The people who expect to get gold spread rumors and 
financial chaos follows. As an immediate palliative, they can pay these people 
money to their credit in New York and say they can get the gold later. It didn't 
come this month — military exigencies. 

H. M., Jb. I have carefully read the memorandum you sent me in interview- 
ing Patterson. I've got most of this in my head so it isn't anything new so far. 

Mr. Coe. Are the figures there? 

Mr. Friedman. There's a table on gold. 

H. M., Jr. Of course, we have no thought to exempt them from using part of 
that five million dollars. 

Mr. Coe. To exempt them from using part of the loan? 

H. M., Jr. Yes. 

Mr. Coe. You have this responsibility. We have a book prepared by Mr. 
Friedman on the history of the loan. We looked at it pretty carefully. You 
told Congress you and the President were going to watch everything they did 
with that loan. You used the expression which was that you were going to 
"hold out a carrot in front of the donkey." You said we are going to use it to 
fight. 

H. M., Jr. Sure. The two Friedmans. You're the economist and the other 
is the lawyer. You're the economist. 

Mr. Coe. That's right. 

H. M., Jr. You were in China, weren't you? 

Mr. Friedman. That's right. 

H. M., Jr. This shows they sell the gold. The price is going up just the same, 
huh? 

Mr. Coe. Even faster. 

H. M., Jr. Did you have this ready or did you have to make this? 

Mr. Coe. They made that the other day, Mr. Secretary. 

H. M., Jr. This is inflation. That's a good memorandum, boys. 

Mr. Coe. Thank you for all of us. 

(Secretary leaves conference temporarily.) 

Mr. Coe. Mr. Secretary, I don't know how you'd envisaged the meeting. We 
thought it might be good to tell these people it's exploratory pertaining to power 
of 

H. M., Jr. I'm not going to make a decision, I'm going to tell them I just want 
to find out It's a question — I read somewhere that Chiang Kai-Shek never 
raised the question of this gold. I read it somewhere in your memorandum. Did 
somebody say he has never raised this question? 

Mr. Coe. I don't recall that. One thing which we thought was that since 
Soong had skirted around it that if your position was going to be drastically 
negative you might want to give them a chance to get out from under. 

H.M., Jr. Who? 

Mr. Coe. Soong. 

H. M., Jr. Oh, no ; what I've got to find out is whether Soong 

Mr. Coe. His man Pei was in this morning. He said that Soong had planned 
to come back this week. He thought he was being a little delayed. I said if he 
got any news to give it to us. 

H. M., Jr. I think after this meeting we can say I want to talk to Soong but 
on account of Mrs. Morgenthau my plans are a little uncertain, and make a 
note I have given Pleven either Friday morning or Tuesday morning, depending 
on which he wants, and I haven't heard yet. 

Mr. Friedman. I believe, Mr. Secretary, that your reference to the Gen- 
eralissimo was at the time Ambassador Hurley was here, because he made the 
point that the Generalissimo had never said that the cooperation of the Chinese 
Army would depend upon the gold, and so forth. 

H. M., Jr. Maybe that's it. I read it somewhere. 

(Discussion off the record.) 

H. M., Jr. Well I think the first thing to do is to ask the State Department 
first how they feel about this thing and then ask the War Department. 

Mr. Coe. Yes. By the way, for your information FEA has told us informally 
that they are being forced to turn down a greater part of the requests for textiles. 
They think that's the reason why we should be better on gold, but you know, 
T. V. Soong came over wih a three-point program, trucks — — 



2004 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

H. M., Jr. Yes ; but who in FEA said they wanted to crash this meeting? 

Mr. Coe. Jim Angell spoke to me and said Crowley had mentioned the subject 
to him that you were going to have a gold discussion. 

H. M., Jr. You can tell them I spoke to Crowley and I understood Crowley to 
say it was of no interest, that he wanted me to handle that gold, see? What? 
But if their position changes and they want to sit in, if Jim Angell wans to sit 
in, why, he's welcome. I don't want to just do it this afternoon, see? Tell 
them. That was an amazing statement Crowley made this morning. 

Mr. Adler. About reverse lend-lease? 

H. M., Jr. No ; about slave labor. 

Mr. Coe. Frank Walker has the same attitude. 

Mr. Adler. He keeps making statements about reverse lend-lease. Crowley 
did it in the report for the last quarter of 1944, and they put it out in a summary 
for that quarter, too. 

Mr. Coe. For the inflation out there there is little doubt that these textiles are 
darn important. Varvaressos of Greece is coming in tomorrow about some troop 
pay arrangements. He hold me a week or two ago when he was through that 
they had had in their effort to command inflation in Greece the existence of 
gold, and gold speculation is a habit among the population, and it was one of 
their most difficult problems. 

H. M., Jr. I hear they want five thousand horses. 

Mr. Coe. The Greeks? 

H. M., Jr. Yes. To plant this spring. 

( Secretary leaves conference temporarily. ) 

(General Somervell and General Carter enter conference.) 

H. M., Jr. How do you feel about China? 

General Somervell. About the same. 

H. M., Jr. I guess there is a big drive on for more gold. We've been letting 
it go very slowly. I just don't know how much you want us to do. 

(Mr. Clayton enters and Mr. Collado, Mr. Stanton, and Mr. D. W. Bell.) 

H. M., Jr. Well, General, as you know, the President gave me this task of 
dealing with T. V. Soong on his request for more gold shipments, and as you 
know, we have been in consultation with State and War as to how fast we should 
feed this thing out, and we've made it just as difficult for the Chinese to get it as 
possible, that being a sort of joint policy. Now, I'd like to have some advice 
from the State Department and War Department whether they want to change 
this policy or whether they want us to continue as we are on shipping three and 
one-half million a month. 

Mr. Friedman. Two million. 

H. M., Jr. About two million dollars. Now, maybe the State Department 
would like to speak first. 

Mr. Clayton. Well, Mr. Secretary, I presume in your discussions with Mr. 
Soong, the Minister, that you've been given perhaps information as to their 
short position on gold in their country. I understand there's enough gold on the 
way to take care of the nearby contracts which they have, May and perhaps 
June deliveries, and that there's no serious problem in respect to those short 
sales. 

H. M„ Jr. That's correct ; isn't it? 

Mr. Adler. That's correct ; yes. 

Mr. Clayton. That's one of the principal points he made in talking with me 
about it. 

H. M., Jr. When he came here it was just one of these so-called courtesy calls, 
but since then this man has been talking with our people, and I have had no 
direct conversations. I've just posted myself through our own people, but I 
don't know whether the State Department or War Department were responsible 
that the situation was such that we should change the policy. 

Mr. Clayton. Well, from what I know of it it seems to me that you've been 
handling it very well, and I have no reason to believe that your idea that the 
sale of this gold and the way in which they've been handling it is really not a 
very effective anti-inflationary weapon. It seems to me your arguments on that 
are pretty good, and I would think that from what I know of the way in which 
you've been handling it, that it's very intelligent and all right. I'm not too well 
posted, but from what I know of it it seems all right to me. 

H. M., Jr. Well, thank you, sir, for the kind words. Now, as you know, we 
still haven't paid them anything after the first of October, and I have been told 
either correctly or incorrectly that the Army wasn't in any particular hurry to 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2005 

have us clean up October, November, December, and then that's one thing I 
want to ask, and then the other thing is, is there anything in this situation that 
you are facing for the balance of this year as far as any of us can look, that you 
want us to change. 

General Somervell. Well, I don't think it's up to the War Department to 
say whether you should change or not. That's your responsibility. Now what 
we do want to say is this: The problem divides itself up into three parts, (1) 
the question of the debt which you have just raised; (2) the question of the 
effect of the shipments of increased amounts of gold on the inflationary tendency ; 
and (3) whether we should consent to help inflation by selling scrap over there 
for Chinese money. 

H. M., Jr. Selling scrap? 

General Somervell. Yes ; we have about two hundred and fifty million dollars 
on our books, haven't we? 

General Carter. Something like that. 

General Somervell. That we've got from the sale of tin cans and things of 
that kind which are very much in demand over there, and we've sold them at 
the highest price, and consequently all of those sales have had an inflationary 
tendency. 

H. M., Jr. Two hundred and fifty million dollars. 

General Carter. Converted at the regular rate. 

General Somervell. We sell this at the highest price we want and convert them 
in twenty to one and that makes two hundred and fifty million which is course 
very artificial. 

H. M., Jr. What is it in our money ? 

General Somervell. It is two hundred and fifty million your money. 

Mr. Coe. Just, Mr. Secretary, if I may interpose there, we have also regarded 
that, General, as a good anti-inflationary program because (a), you are releasing 
some goods into the Chinese economy and (b), you are helping to sop up some of 
this scrap. 

General Carter. The trouble is 

General Somervell. We're selling at the highest price we can get and hence 
we are raising the prices of tin cans, aren't we? 

Mr. Adler. They haven't any tin cans in China. If you sold them lower some 
speculator would get the profit. 

General Somervell. I'm not sure of that. If we turn this over to the Chi- 
nese Government instead of selling them in the open market, and let them dis- 
pose of it, and then credit what the sales were on our books, I think it would 
have more of an antiinflationary tendency than the present method. 

Mr. Bell. What you'd like to do is sell them to the Chinese Government for 
dollars. 

General Somervell. Or any old thing — fifty cents. 

Mr. Bell. For dollars, and they can sell them for Chinese yuan in the market. 

General Somervell. In other words, let them handle the thing. 

H. M., Jr., I don't know, was something withheld from me? Where do these 
tin cans originate? 

General Sommervell. All over the United States, as corned beef, or whatever 
happens to go out in them. 

General Carter. They scrap tires — use tires to make shoes. 

Mr. Adler. They are things flown over the hump from the Army. 

General Somervell. They're in China and they become scrap to us. 

H. M. Jr. Do we ship them from here to China? 

Mr. Coe. We ship goods in them. 

Mr. Friedman. They first have pineapple in them, but in China the cans 
themselves become valuable. 

H. M., Jr. We're not picking up old tin cans here. It's something that has 
goods in them when they go over. 

General Somervell. That's one problem. Now, we agree that whatever gold 
has been sent over there has not checked — we'll say it hasn't prevented inflation. 
I think right now the black market is around seven hundred against two hundred 
when we made the agreement with them last September, so the inflation has 
continued. To what extent that has retarded inflation I'm not in a position to 
say. 

H. M., Jr. This shows the amount of gold, and the more gold we ship it so 
happens that the more the price goes up. In other words, I don't know whether 
it's just an accident, but as increased shipments go up, the price index has gone 
up. 



2006 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

General Somervell. That certainly is no proof that the shipments of gold 
have cheeked inflation, certainly, whatever else it may prove. 

Mr. Bell. It's a question as to whether that line might have been up further. 

Mr. Clayton. That's the question and nobody can say definitely whether it 
would or wouldn't. 

General Somervell. It is no proof of anything. 

H. M., Jr. That's what you've got charts for, to interpret them. 

Mr. Coe. To the extent they have financed gold purchased by the creation of 
credit there, their banking system hasn't had any effect at all and so there's at 
least some evidence there's been some type of that gold purchasing on. 

General Somervell. It's up to you to decide whether this thing is a help or 
hindrance, that is, the shipment of the gold. As far as we're concerned we 
regard anything which would have a substantial effect on the stability of the 
present government, as a matter of first importance. In other words, we have 
to conduct a campaign over there, and we have to use Chinese troops to conduct 
the campaign, and unless that government is in a position to command the 
obedience of those troops and to supply them and carry on the battle, we are not 
going to get the benefits from the coming campaign we expect to get. In that 
sense the department is very much interested in whatever happens. Now, the 
third point about paying our bills, as I remember our agreement last September, 
was that within 3 to 6 months you were going to have another set-to with 
these people and come to an agreement for 3 months or 6 months. I think 
contrary to what you said that we believe you should make a settlement with 
them now. In other words, whether it be for the 6 months that have passed or 
for 9 months up to and including the fiscal year, I wouldn't know, but with 
the Chinese dollar skyrocketing the way it is now I think you'd probably want 
to make some kind of a settlement now for the past 6 months and then take 
up the next quarter or whatever it is at a later date. We don't care about 
that, so we think perhaps you better make a settlement pretty soon. 

H. M., Jr. Well, I don't know whether we've got the figures yet. Mr. Bell, 
have we? 

Mr. Bell. I haven't seen them. 

General Carter. We have figures for the quarter ended December 31. 

H. M., Jr. Have you given us those? How long have we had them? 

Mr. Friedman. We've had them for a few weeks, Mr. Secretary, at the present 
time. What we're doing is discussing with the Chinese the difference in the 
Chinese figures and our Army figures so that before you considered making the 
decision we'd have agreement on figures. 

H. M., Jr. It hasn't been waiting on me. 

Mr. Friedman. I don't believe so. 

Mr. Coe. No, after the last experience we thought we better get all figure 
questions out of the way first before trying to negotiate. 

H. M., Jr. I usually get a couple pounds of tea out of this. I don't know. I 
haven't had any tea in a long time. 

General Somervell. It's about time you did get some. 

General Carter. Of course we're anxious to get this in our appropriations. 

General Somervell. We want to get the settlement on any basis and then 
we'd like to get the thing cleaned up as of the end of the fiscal year. 

H. M., Jr. I question whether you'd give us any figures except for the last 
quarter of 1944. 

General Carter. That's correct, sir. We've given you the figures for the 
quarter ended December. We'll have the figures for March pretty soon and we'll 
pass those on. If this thing moves like it did, it won't be settled overnight. 

H. M., Jr. The price in yuan doesn't bother me much because I have always 
insisted in dealing in United States dollars. The fact that the figures we have 
been talking about have been slow in getting to us — we haven't had them 2 
weeks — won't cost the Army anything more. 

General Somervell. We rely entirely on you to protect the interests of the 
Army. 

H. M., Jr. I've done pretty well, haven't I? 

General Somervell. You have done very well. That last deal was a pretty 
good deal. 

H. M., Jr. If I tried to do it in Chinese dollars, it would have cost you 50 
percent more at least. I think I got a little white hair over it. Any time 
anybody wants to deal with the Chinese on those payments — now that I got rid 
of Surplus property! I haven't seen you (to Mr. Clayton). I thought you'd 
write me a little letter about that (Laughter.) 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2007 

Mr. Clayton. I congratulate you right now. 

H. M., Jr. You didn't think I could do it? 

Mr. Clayton. I didn't think you could do it. 

H. M. Jr. That was the fastest sale I ever made. 

General Somervell. Was Wallace asleep? He must have been. 

H. M. Jr. No. I told Henry 

General Somervell. I said Wallace must have been asleep. 

H. M. Jr. He's hungry. He wasn't asleep. He was just hungry. I explained 
to him this was a dirty piece of business, and he thought it over and turned the 
town upside down to get it. 

General Somervell. I'm glad to know that. I thought maybe I better go 
around there. 

H. M. Jr. There's nothing — what I'd do is this : We'll tell T. V. Soong we are 
ready to begin to talk, and then we'll keep you people advised. I'd like some- 
body from State to be present when I see him. If the Army would care to 
send somebody here, we'd be delighted to have somebody present so they wouldn't 
play us one against the other. If General Carter is not too busy, maybe he 
could attend. 

General Somervell. Fine. 

H. M. Jr. One of the things we are talking about doing is trying to get them 
to use their own money from now instead of part of the United States loan for 
these gold shipments, and we've been trying to get them to rebuild that back to 
the five hundred million dollars if we can, of the original loan made by the 
United States Government, and possibly, if they do that, we might be willing to 
accelerate the gold a little bit. 

General Somevell. As I understand it, the gold to cover these gold notes that 
the banks have out is on the way over there. 

Mr. Clayton. The gold sales at the bank as I understand it — there's enough 
on the way to take care of the prompt deliveries that have to be made, that is 
May and June, and there are no more deliveries that are made for September 
after that? 

Mr. Adler. They fall due every month I'm afraid. 

Mr. Clayton. Oh. 

Mr. Collado. There is a heavy one in September. 

Mr. Adler. May is O. K. 

General Somervell. I'd like to bring up two other points, Mr. Secretary. 

H. M., Jr. Please. 

General Somervell. There are other methods of combatting inflation. It has 
been suggested that we send over certain textiles, and certain trucks, wrist 
watches, and what have you. Now, the other points I want to make on those 
are as follows : The difficult one is the textiles. At the present time the textile 
production in this country is very tight. Take cottons first. We are taking, 
that is the Army, Navy, Maritime Commission, about a third of the total output 
on it. Now, we are not having our requirements satisfied. This quarter we 
asked for one hundred and thirty million yards and we are only going to get 
ninety-nine and one-half million yards if we get all that's promised us, and we 
doubt very much that we will. That's on combed goods alone. That's the 
kind of stuff that is going into shirts and trousers and some of the better grade 
of cotton goods. The other cotton that we're interested in is duck. Duck is 
needed for tents, and so-called numbered ducks, that is heavy ducks are needed 
for automobile tops and cartridge belts and things of that kind. That is also in 
tight supply. We are particularly short on these numbered ducks. With regard 
to sheetings, we use sheetings to make raincoats and things of that kind. It's 
basic material for that. We're in short supply. The civilians tell me they're 
in short supply. There's something like two hundred million yards got up for 
export to one place or another. Now what the Chinese would like, as I understand 
it, is a thousand tons which translated is ten million yards per month. It can't 
come out of military supply. It will have to come out of civilian, which is 
short supply, or this export which Mr. Clayton has all earmarked somewhere else. 
Now, that is going to have to receive consideration. We'd like very much for 
the Chinese to get the cloth. It will serve the purpose that they think it will, 
namely of bringing down the prices. We don't want it for general distribution, 
but we do want it for distribution along our line of communications and where 
our people have to be. There's no reason why the trucks that they want and 
the gadgets that they want shouldn't be supplied. There's no reason why we 
can't supply them with the trucks, not army trucks but FEA trucks, and there's 
a shortage of watches, but there again it seems to me that can be arranged, so 



2008 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

the Army position on those things is we like very much to have them all supplied. 
We doubt very much that the textiles can be supplied without an impact on 
either our domestic economy or export program which would be felt. We have 
no means of supplying it from Army stocks or from allocations to them. And 
that's our position on it. 

H. M. Jr. Well, now. as we go along, General Carter could keep us posted as 
to what you do or don't do, so we can kind of play this together. I think we 
should. Don't you think so? 

Mr. Clayton. Yes I do. 

H. M. Jr. I mean so that we can keep the piano in tune. 

Mr. Clayton. Yes. I'd just like to say on General Somervell's statement, Mr. 
Secretary, that I agree with everything he said a little earlier about the im- 
portance of arresting this inflationary trend if it can be done, because if it gets 
completely out of hand, it might just bring the whole thing down, which I take it 
would be a very serious matter from your point of view. 

General Somervell. That's right. 

Mr. Clayton. I don't know enough about the subject to express any opinion on 
whether the sale of gold and the quantities that they have in mind is very much 
of an effective weapon to arrest that inflationary trend or not. You're much 
better able to speak with authority on that subject than we are, and I'd be in- 
clined to take your judgment on it entirely. 

H. R. Jr. We don't think it would really have any effect at all. It's in their 
mind. 

Mr. Clayton. Yes. 

H. M. Jr. But actually as to keeping prices down, I don't think that the way 
they handle it — if it could be handled differently, it might have some effect, but 
not the way they handle it, where it gose into the hands of a very few people. 

Mr. Clayton. It would take an awful lot of gold even if handled very intelli- 
gently. What they need there more than anything else is goods. 

H. M. Jr. That's right. 

Mr. Clayton. And that's the most difficult thing to get there on account of 
transportation problems. If we can take some Chinese port and get goods in 
there we could make very definite headway against this inflation trend on what 
the General had to say about the textiles. I went over that matter in detail 
with Mr. Soong and some of his associates and we would like very much to see 
those textiles shipped in there. They are only asking us for the rest of the year 
for nine thousand tons of textiles. Well, that's — when you compare that with 
the total production in the United States — when you look at all kinds of textiles, 
it's bagatelle. It's less than one-half of one per cent of our year's production of 
all kinds of textiles. 

General Somervell. One-tenth of one per cent of cotton textiles on your pro- 
duction is about at the rate of nine billion, two hundred million yards and that's 
about ninety — 

Mr. Clayton. I figured it in terms of bales of cotton. We are consuming about 
ten billion tons a year in the United States, and this is about forty thousand 
bales which would be a little less than one-half of one per cent in terms of total 
production. [Laughter.] It is very small and they desperately need it. The 
thing they need worst perhaps than anything else in China is some clothes, be- 
cause practically all the mills are in the Jap's hands and they've only got a few 
little mills scattered around in the interior that are operating, and some that are 
desperate for some cotton textiles, and we'd like very much to see some addi- 
tional supplies going in there. They can let the Air Transport Command handle 
it all right, over the hump as they tell us — and indirect. Now, I was not aware 
you'd completed your investigation on that and had come to the conclusion that 
the Army couldn't give us any of this small amount that they require. Now I 
don't know, gentlemen ; I haven't looked info it. I don't know what the chances 
are of getting it out of the civilian supply. I haven't looked into that at all. 
I'd hoped you would be able to spare it out of the Army requirements. 

General Somervell. I'd like to say our requii'ements are only twenty per cent 
of the total. 

Mr. Clayton. Yes, I know. Well, if that's the case, then we may have to go 
pretty high up. We may have to go to the President to help us on this thing, but 
the State Department can do it very well and argue the case from the point of 
view of the importance of the matter to the War Department or to the Army, 
and that's where its primary importance lies in our opinion if it lies anywhere, 
so we would like to ask you if you can't give it out of the Army supply to help 
us, or to join us in a memorandum to the President asking him to lend his in- 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2009 

fluence so that it's given out of some of their supply. Of course, the State De- 
partment hasn't got this export stuff at all. It's beeu claimed by the FEA. 
They are claimants for foreign countries, as you know, before the War Produc- 
tion Board for supplies of that kind, so that it's been in their Department, and 
they have control of that. 

General Somervell. Why wouldn't this be the proper thing to put in Crowley's 
books? 

Mr. Clayton. Oh, I think it would. I don't see why it shouldn't be taken right 
there. 

General Somervell. We'll be glad to join in this memorandum to the President, 
but before it goes to him I should think under the — what do you call it? — 
terms of reference of the committee it might be proper to go before the Crowley 
committee first. 

Mr. Clayton. I think that's a very happy suggestion ; and if you'd join me, 
why, I'd take it up with him at once. 

General Somervell. I'd be glad to. 

Mr. Clayton. On the trucks, if I understand you correctly 

H. M., Jr. Excuse me — for whatever it's worth, we'd like to join you in plead- 
ing for some stocks. 

Mr. Clayton. Fine. Thank you very much. 

Mr. Bell. Are there still restrictions on commodity-credit cotton? There are 
still a couple million bales. 

Mr. Clayton. It's not a question of the cotton. We've got cotton. It's a 
question of processing, faciilties, manpower, and that sort of thing. 

General Somervell. Excuse the interruption. It's not even that; but, as has 
been explained to me, they're getting cotton and own cotton in India now, and 
they're about to commence to get ready to buy cotton here to supplement what 
they have over in India. The spindles are idle and the looms are idle, and they 
want this textile cloth. They want the cloth in addition to the cotton which 
they intend to put into the looms they already have. 

Mr. Clayton. General, what they have in India is cotton cloth, not raw cotton. 

Mr. Adler. They're trying to buy raw cotton from the Indian Government. 

Mr. Clayton. But they have a supply of cotton textiles there already, which 
they are gradually moving into China. 

General Somervell. I was told they had bought the cotton. Now they are 
apparently merely negotiating for the cotton. 

Mr. Clayton. I don't know about their trying to buy the raw cotton, but they 
do have, they told me, four thousand tons of cotton textiles lying in India which 
they are gradually moving over to China, and they bought cotton textiles from 
Mexico and Brazil, and then they have priority now on four thousand tons from 
the United States, but it's such a low priority they don't expect to get it anyway 
until too late in the year. Put that all together, and that leaves about five thou- 
sand tons they expect to get from us additionally, making a total of nine thou- 
sand tons from the United States for the remainder of the year, and it's that 
five thousand tons — and they need to raise the priority on four thousand tons — 
that we have to deal with. 

General Somervell. On the assumption that they're not going to buy any raw 
cotton? 

Mr. Clayton. They didn't talk to me at all about buying any raw cotton. 

General Somervell. I think you should get into that, because the way the thing 
is explained to me they do intend to get five thousand tons of it. 

Mr. Clayton. I thought they had more cotton in China than they had mills 
to process it. 

General Carter. The Japs got it last year. 

Mr. Adler. They got fifteen thousand tons in the last six months of 1944. 

Mr. Clayton. Yes. 

Mr. Stanton. They have more spindles than they have cotton. 

Mr. Clayton. I didn't know that. I thought they had more cotton than 
spindles. 

General Somervell. There are two things — one is the raw cotton program to 
get the spindles busy, and the other is the cloth end of it which is to supplement 
what they can get out of their own facilities. 

Mr. Clayton. There is no direct way, and they're getting raw cotton. If they 
can't get it in India — and there is plenty of raw cotton in India — they can get it 
in Brazil. There's plenty of raw cotton all over the world. The shortage is in 
the textiles, finished goods. 



2010 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Mr. Adler. I understood there were two advantages in buying raw cotton here 
from their point of view. One is transportation, transporting raw cotton rather 
than finished goods. Second, as our cotton is too high grade for their purposes, 
they would prefer India's. 

Mr. Clayton. That's closer at hand of course, and they won't have any trouble 
buying Indian cotton. 

General Somervell. What I heard was they wanted to mix our cotton and 
Indian cotton. 

Mr. Clayton. General, on the trucks do I understand you correctly to say the 
War Department will see that they get trucks? 

General Somervell. We will not see that they get the trucks, but we will help 
FEA on their priority so they can get them. 

Mr. Clayton. Good. 

General Somervell. There are fourteen thousand in the present program. 

Mr. Clayton. Still to go. 

General Somervell. No. I think we have sent about four thousand of those 
over already. 

Mr. Clayton. And that's about one thousand a month for the rest of the year 
and they want — 

General Somervell. Five thousand more, or maybe it was fifteen thousand and 
four thousand. It totals nineteen thousand. 

Mr. Clayton. Fifteen and four I thought. 

General Somervell. And we're for that with FEA, and with the reductions in 
our program it seems it's purely within their realms of possibility. 

Mr. Clayton. Will you and FEA handle it? Is there anything we can do? 

General Somervell. Support it with FEA. 

H. M., Jr. The point is what we should do in view of this. I think we could 
sort of get down on a piece of paper a complete program what we could do and 
present it in that way as a complete program. 

General Somervell. I quite agree. I found out by accident about wrist watches 
and what have you. 

Mr. Clayton. They can't tell us a thing about that. 

H. M. Jr. I think what the President had in view with T. V. Soong, was that 
we prepare a sort of complete pi-ogram, what we can do and what we cannot 
do, and sort of have a united front and give it to them, say, as a complete 
program. 

Mr. Clayton. Yes. 

H. M., Jr. And I think before I see him we'd like to have that. 

Mr. Clayton. We have a memorandum from Mr. Soong on all these points 
that he sent to the Secretary of State. 

Mr. Collado. Do you have that? 

Mr. Coe. Yes. We have that. 

H. M., Jr. We have a sort of informal working committee. 

Mr. Clayton. Suppose we have a working committee work on a reply to that 
memorandum that would take up each one of these items, gold, textiles, and 
trucks, and say what we propose to do. 

General Somervell. And gadgets. 

Mr. Clayton. Gadgets. 

General Somervell. The only place I know where you can buy Parker Pens 
is in Kweilin. 

H. M., Jr. They cost you one hundred dollars. 

General Somervell. They don't cost too much. 

H. M., Jr. I understand there will be a program committee to prepare a pro- 
gram to be presented to T. V. Soong as a complete program so he won't be trading 
one of us off against the other. 

Mr. Clayton. All right. If you don't mind, we'll get Mr. Willauer who has 
been handling it with FEA to work with other members of the working com- 
mittee. 

H. M., Jr. And you people — somebody call a meeting. 

Mr. Clayton. Mr. Collado will handle it for us. 

H. M., Jr. Mr. Coe will handle it for us. 

General Somervell. General Carter will handle it for us. 

Mr. Clayton. Fine. 

H. M., Jr. I could send word to T. V. Soong. We'd be ready sometime next 
week? 

Mr. Coe. I think so ; yes. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2011 

Mr. Clayton. Early next week. And, General, I'll take up this textile mat- 
ter Mr. Crowley wants and tell hiin you joined me in it, and we'd like to get it 
put before that committee just as soon as possible. 

General Somekveix. All right, sir. 

H. M., Jk. I just want to tell you I talked with the President about this and he 
talked at Cabinet. I think he had in view that we would have it rounded out. I 
would sort of be the responsible man for the administration on this thing, and 
that would be a complete program if that's all right. 

Mr. Clayton. What? 

H. M., Jr. I said I talked to President Truman about it, and he brought it up 
at Cabinet, and I'm sort of being the responosible man for a complete program 
on this — if that's all right. 

Mr. Clayton. Yes, certainly. 

H. M., Jr. I'm a sort of glutton for punishment. All right? 

General Somervell. Yes. 

Exhibit No. 345 

[Vol. 841, pp. 263-264] 

DWH V WTD 27 April, 5 : 40 PM GR 516. 

Serial Nbr. E/27th. 

To : Secretary Morgenthau. 

From : Mr. Coe. 

For information. 

Subject : Chinese Gold. 

For your information these are our tentative views on the subject of gold for 
China. In addition to the discussion with Patterson, we have met with Mr. 
Collado of State and the acting head of the China Division there. I think we 
can get their agreement on all the points below, except the one indicated. 

1. The Treasury should continue to oppose all except minimum shipments 
of gold, where these endanger American lives or use scarce transport. This 
policy should continue to apply to China. 

2. We cannot now agree to promise the $50 million of gold shipments which 
the Chinese want in the next few months in order to meet the gold certificates 
which fall due, the Chinese did not consult us about these forward sales of 
gold, which are obviously imprudent in the circumstances and were designed to 
act as a pistol at our heads. 

State has not indicated that they are afraid of the political consequences of 
this refusal. I suppose, however, that if in later months a great fuss is made 
and if State tells us that they are afraid of grave political consequences, we 
would agree to step up gold shipments in order to clear up these arrears. 

3. Without condoning the past program, we should tell the Chinese that we 
expect them to stop all forms of forward sales of gold immediately. 

4. In any case, all further gold sent to China should be out of their own 
funds, and not out of the $500 million loan. Your own responsibility for the 
uses to which this loan is put is the basis for this recommendation. The pro- 
gram of forward sales of gold, like the predecessor programs of $200 million 
United States savings certificates and bonds, has been used as a device for 
enriching a few insiders and has had negligible effects upon the Chinese inflation. 

5. After consideration of the whole history of the $500 million loan, and the 
uses to which it has been put, we think that you should tell the Chinese that 
you wish them to put aside the remaining $240 million of the loan, and an addi- 
tional sum of their own United States dollar exchange, of perhaps $260 million, as 
a fund to be used for stabilization and reconstruction purposes, in accordance 
with an agreed program, to go into effect at an agreed date, the program should 
include the fiscal, economic, and administrative measures necessary to stabilize 
the currency, and the date should be the earliest time when we and the Chinese 
agree that they can go forward on such a program. 

If the Chinese are not willing to accept this proposal, we think it wise policy 
to allow no further depletion of the loan. (In addition to this $240 million the 
Chinese now have some $700 million of United States dollar exchange.) 

We have prepared charts and analyses to show that the acquisition by China 
of additional foreign exchange and the sale of gold or any other form of foreign 
exchange by China have had no discernible effect in halting the inflation. 

TOD : WU April 8 :05 PM WTD ( RAJ ) . 
TOR : 27 April 8 : 05 PM DWH ( WAG ) . 



2012 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



Exhibit No. 346 
[Vol. 845, pp. 170-196] 



May 8, 1945, 10 : 15 a. m. 



Gold to China 




Meeting with Gutt. 


Meeting with Pleven. 


German gold. 




Finances. 




Present: Mr. 


D. W. Bell 


Mr. 


Coe 


Mr. 


Adler 


Mr. 


Friedman 


Mrs 


. Klotz 



H. M., Jr. What comes first? 

Mr. Coe. China, sir. 

H. M., Jr. All right. 

Mr. Coe. There are first a couple of procedural questions. I think if Will 
Clayton doesn't want to, at least his people will urge him to, and he will expect 
to sit in beyond the two-fifteen and three o'clock meeting. Do you want that? 

H. M., Jr. Pardon? 

Mr. Coe. Do you want that? 

H. M., Jr. I think it would be nice. I haven't got much time. The quicker 
we move on these things the better. 

Mr. Coe. All right, then, the second point, is the matter to be handled orally 
or should he be handed something? If he is handed something, we thought that 
this was 

H. M., Jr. Read it out loud, will you please? 

Mr. Coe. Yes. I think that State feels since he handed them a memorandum, 
he ought to get something in writing. On the other hand, these things often 
come back to plague you. I think you can settle that at your two-fifteen meeting. 
This one — and by the way, I think we are in agreement with State on every- 
thing here. 

Mr. Bell. That's good. 

Mr. Coe. This one is drafted as a memorandum for Dr. T. V. Soong from you. 

"1. This memorandum does not deal with the questions of textiles and trucks 
which were included in the program which was presented to this Government. 
The urgency of China's need for these items and their bearing upon inflation are 
recognized. They are omitted because our supply authorities are in the process 
of making an overall determination of requirements and supplies and are not 
yet in a position to make a decision respecting China's requests. 

"2. We — " the United States Treasury and the other agencies which are con- 
cerned with inflationary conditions in China — "are agreed that any program to 
stabilize the currency and to check inflation should comprise a broad series of 
measures in the following categories : 

"(a) Monetary and banking rehabilitation. 

"(b) Foreign exchange stabilization. 

"(c) Fiscal and administrative reforms. 

"(d) Increase of supplies and improvement in their distribution. 

"3. We — " the United States Treasury and the other government agencies 
concerned — "are anxious to give full support to an effective anti-inflationary pro- 
gram for China. It is therefore recommended that a Currency Stabilization 
Fund of $500 million be constituted for this purpose from the remaining $240 
million of the United States loan to China and from China's existing dollar 
balances. Such an allocation of this remainder of the United States loan would 
be in strict accordance with the spirit and the letter of the 1942 financial agree- 
ment. The Fund would be set aside with firm mutual commitment on the part 
of China and the United States as to its purposes and availability. 

"It is envisaged that the uses to which this Currency Stabilization Fund would 
be put would be part of a broad concerted program for combatting inflation and 
for currency stabilization and these uses would be subject to joint agreement. 
The time at which the Fund's operations would start would be discussed at a 
later date. 

"The Treasury stands ready to advise and consult with the Chinese Govern- 
ment on the content and timing of such anti-inflationary and stabilization 
program." 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2013 

H. M., Jr. Let's just talk. I think that's good, and I don't. I think we should 
give them something in writing because he'll tell me six months from now 
he didn't understand what I said and I think the only way you can deal with the 
Chinese is to give them something in writing and then there's no argument 
about it. 

Mr. Coe. We drafted this with the thought, too, that if it was put in writing 
and later shown at the White House or anywhere there couldn't be any question 
in turning them down on gold we were being indifferent to the inflationary thing, 
and Collado and the State Department people have grown quite excited about 
this proposal. 

H. M., Jr. The final proposal? 

Mr. Coe. Yes. They think if Dr. Soong was to think he was getting dis- 
appointed on such a mission when such a nice proposal was made to him it 
would be a mistake on our part. 

H. M., Jr. It's his own money. 

Mr. Coe. It's his own money but I think they have also had uncertainty as to 
whether they'd have a decent series of anti-inflationary measures to use it. 

H. M., Jr. Why should he get excited? 

Mr. Adler. Chinese have more confidence in the United States Treasury than 
in the Chinese Ministry of Finance. 

H. M., Jr. That doesn't surprise me. You're telling a fellow to take a little 
bit from this pocket and a little from that pocket and put it in here. 

Mr. Bell. And reserve it for a special purpose. It has a little of the preach- 
ing tone. 

Mr. Coe. That's time. 

Mr. Bell. It seems to me 

Mr. Coe. We wanted to build this thing up. That's why. Well, shall I go on? 

H. M., Jr. I wouldn't use a preaching tone with him. America's whole interest 
is through the missionaries. 

Mr. Coe. I think that they expect it, Mr. Secretary. For instance, the new head 
of the 

H. M., Jr. The missionaries we send them go out and buy 

Mr. Adler. Alsop says I'm the only pure-minded guy in China, because I didn't 
buy any of their savings — that's the reason he said that. 

H. M., Jr. Does that mean that Joe did? 

Mr. Friedman. Just a few. 

Mr. Coe. Well, I don't think just on this preaching level they'd appoint a 
Central Bank manager who wouldn't start worrying almost immediately as to 
whether he had United States Treasury support. That doesn't bother me. 

Mr. Bell. I just made a remark in passing. 

H. M., Jr. I think you're right, but it won't bother me. 

Mr. Bell. It doesn't bother me. 

Mr. Coe. "We are strongly of the opinion that the initiation of a Currency 
Stabilization Fund would strengthen the financial position of the Chinese Govern- 
ment and would inspire confidence both at home and abroad in its future eco- 
nomic and financial stability. The existence of such a Fund would give the 
Chinese people a real sense of security with respect to their ability to cope with 
their grave problems of reconstruction. 

"It should be noted that this proposal relates to only one portion of the 
foreign exchange assets presently available to China and that it would leave a 
relatively large amount of dollar exchange for helpful intermediate measures and 
for meeting China's current foreign exchange requirements." 

The Treasury believes that at least a portion of China's existing assets should 
be used for these purposes and that the remainder of the Chinese-United States 
loan can best be utilized in this manner. 

H. M.. Jr. In what manner? 

Mr. Coe. I think that sentence goes out. It's not clear to me they mean for 
the 

Mr. Bell. For the fund. 

Mr. Coe. For the fund, but we've already said that. Let's cut out that sentence. 

"4. We suggest that the Chinese Government consider the desirability of ter- 
minating the program of forward sales of gold. As you know, the United States 
Treasury was not consulted " 

Ff. M., Jr. That isn't strong enough. 

Mr. Coe. We believe that should be — "As you know, the United States Treasury 
was not consulted when this program was initiated. In view of the difficulties 
of shipping gold, the limited effects of sales upon price rises in China, the public 



2014 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

criticism of such sales and the desirability of using foreign exchange resources 
to achieve maximum effects, this program is ill-advised. 

"5. The Treasury will endeavor, as in the past, to make available limited 
quantities of gold for shipment to China during the next few months, having due 
regard to the need for restricting gold shipments where these endanger lives or 
use scarce transport facilities. However, in consideration of points 2 and 3 
above, it is believed that further shipments should be financed out of foreign 
exchange assets other than those proposed to be earmarked for currency 
stabilization." 

H. M., Je. What would those be? 

Mr. Coe. Their own dollars which they have, seven hundred million. They 
have two hundred fifty million. 

H. M., Jr. Is that clear? 

Mr. Coe. I think so, yes. I think the only thing here 

H. M., Jr. It's their — I'd read that again, I don't get it. 

Mr. Coe. "However, in consideration of points 2 and 3 above, it is believed that 
further shipments should be financed out of foreign exchange assets other than 
those proposed to be earmarked for currency stabilization." 

H. M., Jr. I'd say out of your own. Just put in your own. 

Mr. Coe. All right. 

H. M., Jr. It can't do any harm. Out of your own. 

Mr. Coe. It invites a little argument. Isn't the loan their own, too? It's theirs 
only we have 

H. M., Jr. All right. I accept that. 

Mr. Coe. "6. China should investigate and cancel sales to speculators and illicit 
purchasers and insure that only bona fide purchasers will receive such gold as is 
available. If gold arrivals are still not sufficient to meet past commitments, it 
is suggested that China may offer to place dollar credits (at about $35 per 
ounce) for the time being from her existing assets to the accounts of purchasers 
of gold to whom she cannot temporarily make delivery." 

H. M., Jr. What I would put in here — it's a suggestion. Just write this out. 
Just put this down. We can argue about it. It is most unfortunate that the im- 
pression has arisen in the United States, and don't correct me, that the sale of 
certificates and the forward sale of gold have to a large extent gone into a few 
hands, largely for personal aggrandizement, and in this way has failed to be of 
assistance to the general Chinese economy. 

Now, just think that over for a minute. Just read that back, huh? 

Mr. Friedman. "It is most unfortunate that the impression has arisen in the 
United States that the sale of certificates and the forward sale of gold have to 
a large extent gone into a few hands, largely for personal aggrandizement, and in 
this way has failed to be of assistance to the general Chinese economy." 

H. M., Jr. And to this extent has failed. 

Mr. Coe. That's 

H. M., Jr. And to this extent has failed. And don't tell me next week you're 
going to give me the list of the people that have these certificates. You're about 
two months past due — have you got it? 

Mr. Coe. We handed it to you, Mr. Secretary, in that period when we pulled 
things back. 

H. M., Jr. That's all right. 

Mr. Coe. Do you want it now? 

H. M., Jr. That's perfectly proper. Now I want it. 

Mr. Coe. Now he wants it. 

Mr. Adler. I would add bonds because the sale of those was even more con- 
centrated. 

H. M., Jr. I meant 

Mr. Friedman. We'll add certificates and bonds and 

H. M., Jr. I thought the certificates were the bonds. 

Mr. Friedman. They have two types of issue. 

H. M., Jr. Not to be technical — whatever the correct thing is — what I want 
to do at the end there, just at the end, is this, say "Listen, T. V., old boy, I'm not 
saying this is so, but that's the impression." And if he argues about it, well, take 
a look at this. 

Mr. Coe. By the way, sir, the Peoples Political Council passed a resolution 
on this subject on April 8, much stronger than anything said here. They just 
said that the forward sale of gold had been a public scandal and cited the large 
amount of it which was sold in the one day right after — following the increase 
of the price and asked for an investigation, and I think for cancellation. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2015 

Mr. Friedman. Cancellation of the purchases on that day. 

H. M., Jr. I just want to let him know. I'm very courteous. 

Mr. Friedman. But, Mr. Secretary, there's one aspect to that. If you show 
him any names, his organizations are going to be very prominent on the list 
and he might lose a lot of face in front of you. 

H. M., Jr. What? 

Mr. Friedman. He might feel a very great loss of face in front of you. 

H. M., Jr. In front of me? 

Mr. Friedman. To have this presented to you. 

H. M., Jr. Its just too darn bad. It just depends upon how ugly he gets. He 
may have to get a new face. Listen, it isnt only the Chinese who lose face. We 
have the same thing, but we don't talk about it all the time. I might say when 
Jimmy Byrnes announced the tax program without consulting the Secretary of 
the Treasury, I lost face, and so what? The Senior Senator and Senior Congress- 
man on taxes sent me down a statement and said they were looking to the 
Treasury right after that, and I had my face back again. 

Mr. Bell. Tou had to work hard to get it back. 

H. M., Jr. Look, this fellow, I know this boy. It just depends on how rough 
he gets, and if he begins to pound my desk or anything else, they won't have any 
troops, either. Leave it to me, but I just want to throw a little fear into him, 
see. When he says this impression is wholly false, I'll say, I wouldn't go that far. 
If you don't mind the sentence, you leave it to me to let him know that I know 
without saying it. I'll be very oriental. 

Mr. Coe. Yes, I think there's no question about that. It's about showing him 
the list, although they gave us the list in the first place, didn't they? But we 
identified the companies. 

H. M., Jr. My own impression is we should do that in writing. 

Bell? 

Mr. Bell. You mean do what in writing? 

Mr. Coe. This sentence. 

Mr. Bell. That's all right. That's good. 

H. M., Jr. That's a good document. 

Mr. Coe. That's all on China. 

H. M., Jr. Aren't you going to loosen up a little if they do the five hundred 
million, and put that thing together — the exchange fund? You won't loosen up 
a little bit on the gold? 

Mr. Coe. Yes. 

H. M., Jr. I think so. 

Mr. Coe. The problem there is this — especially if they would investigate and 
cancel some of it — in May and June it doesn't amount to much. You get along 
into September and October, covering these recent sales, and it's 

H. M., Jr. Well, I can't say, but if — how much are we letting them have each 
month ? 

Mr. Friedman. About two million per month. 

Mr. Bell. How far forward have they sold — September? 

Mr. Friedman. October now. 

H. M., Jr. Just leave it to me. If he puts the five hundred million stabilization 
fund together, we might make it three million. It's his own money. O. K., doc? 

Mr. Coe. Sure. 

Mr. Bell. Has he the assets above five 

H. M., Jr. He's got nine hundred million. 

Mr. Bell. Including the two-forty. 

H. M., Jr. Nine hundred million. 

Mr. Friedman. That's right. 

Mr. Bell. More, when he gets the settlement. 

H. M., Jr. Next thing, how about this other? Do I do business with Kuug 
or with Soong. 

Mr. Coe. I think you do business with Kung on this. 

H. M., Jr. Let's bring that up. 

Mr. Coe. Bring that up here. 

H. M., Jr. And if Mr. Bell has the physique and heart to do it, I wish he'd 
take that over for me if he won't mind. I mean, now that you're free of some 
of that stuff, supposedly. 

Mr. Bell. Yes, I can do it. 

H. M., Jr. Would you do that, Dan? I would be a big help, because it means 
about five meetings of three hours each. 



2016 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Bell. That's with Kung? 

H. M.. Jr. Would you do that? 

Mr. Bell. Sure. 

Mr. Coe. The Army hasn't given us next quarter's figures yet, so isn't it a 
waste of time to do it for one quarter? 

H. M., Jr. No. I would clean up the fourth quarter of last year. 

Mr. Bell. Well, they have the figures. I'd like to give them as much as pos- 
sible before this fiscal year, before we get June 30. 

Mr. Friedman. You can have the first quarter in about three weeks. 

H. M., Jr. May I say this? If it weren't for the Army, I would start negoti- 
ations for the fourth quarter, and keep saying if it weren't for the Army you 
would have these figures. I don't want the Army to come back and say, "We 
asked you to do this thing." I think we ought to make a record that we tried 
to clean it up. 

Mr. Bell. Fourth quarter of the calendar year. I'm talking about the fiscal 
year. 

H. M., Jr. I agree with you, but if you state it here and waited another three 
months, the Army would say these figures were in about ten days or two weeks 
ago. 

Mr. Bell. We can go from one end to the other. 

H. M., Jr. And Mr. Bell will get some lovely tea and some flowers. 

Mr. Bell. I've got some that has never been opened. [Laughter.] It's terrible 
to spoil a cup of tea. 

H. M., Jr. We're doing all right this morning. 

Mr. Coe. That finishes up China. We can get to work on that. 

H. M., Jr. Is your wife trying to fatten you up? Does she work around here 
[toMr.Adler]? 

Mr. Coe. For us. 

H. M., Jr. Bring her here and let me say how do you do to her. Have you 
enough authority to do that? 

Mr. Adi.er. I think so. 

Mr. Friedman. He can clear with Mr. Coe right now. 

H. M., Jr. Clear. Let me know and I'll step outside so as not to embarrass 
her. Tell them outside. 

Mr. Coe. I'm not sure she's in. I've told them to be generous and let her 
take a little time off. 

H. M., Jr. Now we're going to 

Mr. Coe. France. 

H. M., Jr. Let's do Gutt. All right, your way. 

Mr. Coe. No, let's clear up Gutt because I think the Gutt thing is pretty simple 
in essence, Mr. Secretary. 

H. M., Jr. Which are we doing? 

Mr. Coe. Gutt. The only thing left in dealing with Gutt is for you to say the 
final "no" on what he wants, to say the final "no". We have spent hours on this. 
Dan has been 

II. M . Jr. May I say this because I know something about this, and I don't 
want Dan to lose face so I'm not going to change what Dan has done, but as I 
understand it — yon can check me on my figures — I'm not bad this morning 
considering. 

Mrs. Klotz. Considering a headache like that. 

H. M., Jr. I couldn't sleep. When I give Bell something to do, and if I want 
to decide to change it, I want Bell to do it and not me, because he can't negotiate 
and have me do it. I think — and Bell — my figures aren't quite right. But from 
you I gather that we asked in advance for the Belgian Government to give us 
several billion dollars in francs, four or five billion. 

Mr. Bell. About six million francs I think they took originally. 

H. M., Jr. And these fellows went down in their pocket and they didn't bother 
to say, do you nerd them or don't you, and from their standpoint that was good 
money. Is that right? 

Mr. Bell. It's on their bank statement. 

H. M., Jr. Yes. Then we come along with an estimate from the Army that 
we're going to spend this, and we don't, which was stupidity on the Army's part; 
but before we get through we'll spend how much? 

Mr. Bell. It's hard to say. 

H. M., Jr. Make a guess. 

Mr. Bell. The only figures they have in that are definite are the seven million 
dollars worth of francs that they have actually spent. Gutt says that he got in- 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2017 

formation from Belgium that the soldiers have received thiry-six millions of dol- 
lars. Now what we have tried to do is get the Army to reconsider their figures 
si nd come some place between the seven and thirty-eight. They've got it up to 
thirteen. 

Mr. Coe. Thirteen and one-half, and when Gntt started negotiating he had 
only one million dollars in his pocket. So they've raised the offer, it's admittedly 
over six weeks. They've raised to thirteen and one-half. Also they are in the 

process of 

( Secretary leaves conference temporarily. ) 

(Discussion off the record.) 

Mr. Coe. I wrote off a little summary of this Gutt thing. Do you want to 
hear it? 

H. M., Jr. How long is it? 

Mr. Coe. A page. (Reads memorandum for the Secretary from Mr. Coe 
dated May 7, 1945, on Information for your meeting with Gutt.) 

"Recently the Treasury and War Departments have held many meetings 
with Gutt on the subject of settlement for advances of Belgian francs to the 
U. S. Army for troop pay. In calculating the amount to be paid, the War Depart- 
ment deducts the amount of currency which experience has shown will be 
returned by our troops through military channels. Gutt does not think that 
we should make this deduction. 

"The War Department told Gutt on May 4 that it was certifying to the 
Treasury a payment of $13.5 million. This is $12.5 million in excess of what 
had been certified when Gutt began his discussions and is SS 1 ^ million more 
than the War Department had agreed to pay several weeks ago. Gutt was also 
told that strong cables were dispatched to the Army in Belgium to reduce its 
outstanding advances. 

"Gutt is still not satisfied. The War Department has indicated to him that 
no further steps can be taken before its regular certification to the Treasury 
about June 15. 

"On May 4 you sent a letter to Gutt dealing in detail with the principles 
involved. 

''Gutt will probably open this question with you again. I suggest that you 
state to Gutt that, since Belgium will receive all the dollars that are due regard- 
less of the arrangements made and since the Treasury and War Departments' 
staffs are in agreement, he should not press the matter further. You could 
state also that you do not have the time available to consider this matter in 
detail." 

H. M., Jk. I would say Mr. Bell is handling it for me, period. 

Mr. Bell. You could tell him it looks to you as though a great deal of prog- 
ress has been made. He started with one million dollars and got thirteen and 
one-half and got strong cables sent to the Army to return those excess francs. 
Of course, you've got these finance officers scattered all over Europe and it 
takes a little time to gather them up and move them. How rapidly will they 
pay thirteen and one-half? 

Mr. Coe. Within the next few days, as soon as they get a letter to us. 

H. M., Jr. The last I heard somebody said five, six, or seven million, but it's 
up now to thirteen and one-half. 

Mr. Bell. The thing that hurts is that the British have paid some eighty mil- 
lion dollars and the Canadians have paid 

Mr. Coe. I'll give you this. 

H. M., Jr. That's all right with me. I thought five or six or seven is too little, 
but thirteen and one-half is all right. 

Mr. Bell. That even is little compared to one hundred forty million. Maybe 
we can get that total they have down. 

Mr. Coe. The next is a promise to be discussed with Pleven. 

H. M.. Jr. May I compliment you on the orderly manner with which you 
handle these. 

Mr. Coe. The next is a promise to be discussed with Pleven. 

Mrs. Klotz. He was so serious last night. 

H. M., Jr. You had this on your mind ? 

Mr. Coe. Not after the second martini. I began to feel better. Now this 
Pleven business is complicated. Among other things I thought that after your 
conversation with him you and he might issue a joint press release. But I 
think we'll see how it goes. Did you know Pleven was once Monnet's secretary? 

H. M., Jr. No. 



2018 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Coe. He was once Monnet's secretary. Pleven is a leading figure on the 
Right, in current, dealings in France. He succeeded in ousting Mendez France. 
He's close to General DeGaulle, and he will be interested in these negotiations 
we think, in trying to build himself up. 

H. M., Jb. When was he secretary to Monnet? 

Mr. Coe. I don't know the date, but he was. 

Mrs. Klotz. I heard that too. 

H. M., Jr. The reason I question that its 

Mr. Coe. He's an IT and T man. 

H. M., Jr. He was IT and T for France. He was here when I was doing 

Mrs. Klotz. This was previous. 

H. M., Jr. It must have been an awfiilly long time ago. 

Mr. Coe. I don't know of any previous government posts of his, but now I 
think that the one thing strongly on the negative side that we have in mind — 
and it's rather difficult to get over in these discussions — is that he has not 
cleaned house, in his bailiwick there, and that relates to one of the chief items 
of business with 

H. M., Jr. You mean he hasn't gotten rid of collaborationists? 

Mr. Coe. He has of a few spectacular ones and a few small fry, but if you 
take the Schneider-Crusot Group and the De Wendel Group 

H. M., Jr. What? 

Mr. Coe. The De Wendels. One brother is on one side of the line and one 
on the other. The whole group — we've got a memorandum here on some of 
these figures if you care to read it. If you take that whole group, they are still 
in power. In some cases, where a top man who is much in the public eye has been 
suspended, men of the same group, the equivalent of secretaries, have been put in. 
That's back of a lot of the politics in France. He is trying to bring these collabo- 
rators back in, start all over again without too much recriminations, and rock- 
ing the boat as little as possible. 

H. M., Jr. That's not so good. 

Mr. Coe. Now, the first subject that we think needs to be up is the troop pay — 
usual complaints of the troops about that. And essentially what is expected from 
Pleven when he comes to see you is that he will say that France is ready to 
enter on this long delayed program where we've talked with them in Paris. We've 
talked with them here at a subordinate level, and we've told them that when 
Pleven came in we certainly thought they ought to vonluteer such a program. 

H. M., Jr. Did you tell — I wanted a memorandum of what he wanted to bring 
up — Did you tell that to Monnet? 

Mr. Coe. I don't recall. 

H. M., Jr. Did you tell him I'm only going to be here that one day? 

Mr. Coe. No. You asked me who was getting in touch with him and I thought 
the way this thing was arranged — I thought it was agreed that it was arranged 
between you and Monnet — that you had arranged it. 

H. M., Jr. I thought I had told you, but maybe, I didn't. Tell Pleven to get 
up an agenda. You tell him I'm going to leave here Thursday afternoon because 
I'm going to see Mrs. Morgenthau, so they better move fast. 

Mr. Coe. Yes. 

Mr. Bell. He's just going to be there this coming week. 

Mr. Coe. He's just going to be here a few days I think. Well, we think that 
after discussing this and seeing what kind of program he brings in and empha- 
sizing the importance of it to us, essentially the thing to do is to tell him to go 
see McCloy and Hilldring and work it out. I believe they're going to say that 
the negotiations have to be in Paris and that the man has to be nominated from 
there, and we think it should be an army man. 

Mr. Bell. That's on the troop pay? 

Mr. Coe. Yes. 

H. M., Jr. We don't want to do troop pay for the Army. 

Mr. Bell. This is inflation. 

Mr. Coe. r .i'his involves setting up U. S. O. camps and that sort of thing and 
you can't settle the matter over here. They've got to work out the details. 

Mr. Bell. Do you think they will agree to do it? 

Mr. Coe. 1 think they'll agree. 

H. M., Jr. When Gutt comes here tomorrow at three I want both of you. 

What else? 

Mr. Coe. The second one is this issue of defrosting the French assets. 

H. M., Jr. That's the darndest. It's all right — ice box language. 



scope of soviet activity in the united states 2019 

Mr. Coe. We're prepared. We don't think we can hold these assets without 
progressive relaxation and at a technical level Foreign Funds and the French 
have worked out a program for unfreezing. Under this program everything 
would he under French license. 

Mr. Coe. The French would have the responsibility of seeing that certain assets 
here were non-enemy, but partly because of the way Pleven is running his show 
and not dealing with anything except obvious cases, we want to get in writing 
from them a number of assurances that — 

H. M., Jr. Why should they do any of this for us? 

Mr. Coe. In this case it's we who are doing it for them. 

Mr. Bell. We give France general license, no? 

Mr. Coe. No. There are still considerable areas which are not generally li- 
censed. We want them to agree, for instance, that American creditors are going 
to be taken care of on a reasonable basis. We want them to agree that some 
of our custodial rights in these assets which are German or later turn out to be 
German are still recognized. Nothing exceptassertion from them would ulti- 
mately excuse us. 

H. M., Jr. Did you boys have a good talk with Ambassador Braden about 
going down t«> Argentina? 

Mr. Coe. Re's still sold on it and he says as soon as he gets down there he's 
going to get in touch with us. 

H. M., Jr. All right. 

Mr. Coe. Well, again, I think if these assurances are mentioned and you have 
the stuff in front of you at the time, the working out of such assurances can be 
turned over. 

H. M., Jr It would be useful if I could have a document. You see, in this 
case if they give me one, maybe I would be prepared to give them something. 

Mr. Coe. Tne third issue is the rate of exchange. The Army wants it changed. 
They've told us they are goiug to change it. I believe at the time they set it the 
United States — 

Mr. Bell. French gold. 

Mr. Coe. I believe at the time they set it the United States Treasury told them 
they were setting it too high and wouldn't be able to maintain it. They recog- 
nize that now. 

H. M., Jr. They didn't set it too high. Wasn't it one and one-half. 

Mr. Bell. That was African rate. The French Committee set the French rate. 

H. M., Jr. I don't remember. 

Mr. Bell. We told them at the time it was too high and they would not be able 
to maintain it, but we did accept the French committee rate. 

H. M., Jr. That's good, I'd forgotten that. 

Mr. Bell. The President had only set the one in there. 

Mr. Coe. They'll probably raise the question of financial assistance, and I sup- 
pose you know the two answers there, (1) that we can't give any guarantees 
here on Lend-Lease on that 3-C program, because I think that's the State Depart- 
ment calling a meeting on that and I think it's going to be decided to cut that ; 
(2) when Bretton Woods gets through, the Export-Import Bank is expanding. 
We just haven't any money. 

Mr. Bell. They're pretty well fixed, aren't they, for foreign exchange? 

Mr. Coe. For a short time, but their problems are terrific. They'd like to get 
help. The next one they'll press is to get a promise that we will give them all 
the French assets in this country. We don't want to do that. 

(Discussion off the record.) 

Mr. Coe. Well, we're a little inconsistent in not giving them this information, 
but until Bretton Woods gets through we'd just as soon rock along on what we're 
doing. 

H. M.,Jr. What information? 

Mr. Coe. The information about who owns French assets over here. If they 
come to us — the present arrangement is if they come to us and say that someone 
is violating their laws or they're going after him for previous collaboration, we'll 
furnish the information to them. 

H. M., Jr. Why don't you want to give it to them? 

Mr. Coe. Because the bankers are likely to rise up and say that what we are 
doing in giving them this — the F. R. three hundred — for is just symptomatic of 
the way the Fund and the Bank will be operated to invade the private field. 

H. M., Jr. I see. 

Mr. Coe. And we are certainly giving them everything they need right now 
and they are not pushing vigorously on this fvont. You may want to talk about 



2020 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

internal French financial policy. You may want to talk about Germany. I don't 
know. If we ask them for an agenda, we can leave it up to them. 
H. M., Jr. I think so. 

Mr. Coe. That's all on France, and we'll try to have it 

H. M., Jr. That's a very good meeting. 

Mr. Coe. One more subject. 

H. M., Jr. My God, what is it? 

Mr. Coe. German gold. 

H. M., Jr. Oh, that's easy. 

Mr. Coe. No ; it isn't going to be easy ultimately. 

H. M., Jr. Now, Dan, anytime you don't want what we're doing 

Mr. Bell. This French thing is something new to me, and I'd like to get that 
memorandum. 

Mr. Coe. I'll get copies of all this. The only immediate issues on the gold 
are, shall we send some men over there to weigh it, and the answer is unques- 
tionably "yes." 
Mr. Bell. They're all ready to go. 

Mr. Coe. They're all ready to go. Second, shall we let the British go in and 
look at it? 

H. M., Jr. I've answered that. 
Mr. Coe. You answered that? 

H. M., Jr. I answered it twice, and now I answer it the third time, "yes". 
Mr. Coe. But we do want to take an opportunity, and this is it, to say that there 
are about four courses of action ultimately for this gold; (1) it can go into the 
reparations kitty (2) it can be handled as United States war booty (3) if there's 
a program of restitution, and the Treasury itself has made some statements 
that would sound as if there were to be one — for instance the gold declaration — 
then certain countries will have claims against the gold for restitution. If you 
start the restitution way, it balls up your reparations. If you go war booty 
way, you're going to have trouble on the reparations front. Now, we can't tell 
how the reparations program is going to turn out. We don't know whether 
we're willing to let it go for reparations. 
H. M., Jr. I'm not going to decide that. 

Mr. Coe. Some of these courses of action tend to get decided. 
H. M., Jr. The only decision I'm going to make now is to let the British take 
a look at it. 

Mr. Coe. Doesn't that prejudice your case in handling war booty — it's what 
some of the lawyers say. 

H. M., Jr. You tell the lawyers for me to go read a dime novel. 
Mr. Bell. It probably does raise the question, or subsequent questions will 
come to the front more quickly by this decision, but nevertheless you're going 
to have requests probably from the Yugoslavs and others, to go in there, also 
to the French. However, I think this thing has been put in the combined chan- 
nels and I don't see how you can make any other decisions, do you really, Frank? 
They've put it in combined channels in SHAEF. Now, the British know all about 
it. They know there is a request to send people over there to — 
H. M., Jr. I'd be furious if they told me "No". 
Mr. Bell. I think the British would be furious. 

H. M., Jr. Do you know what you sound like today? You sound like Harold 
Glasser, on this. I bet this is Glasser's worry. 

Mr. Coe. No. I think DuBois is the one in favor of the booty. Harold is in 
favor of reparations. 

H. M., Jr. I'm not deciding anything. I can't say to the British they can't 
go look at it. It doesn't decide anything. 

Mr. CoB. We agree with you there, but there are going to be subsequent steps. 
Other countries are going to want to look at it, and we're recommending they go 
in and look at it. 

H. M., Jr. In charge of a mission. 

Mr. Bell. I really think that the decision has already been made. We shall 
have to put it into combined channels. 
H. M., Jr. I didn't know they did that. 

Mr. Bell. The cable came from SHAEF. and that's a combined organization. 
H. M., Jr. This is the third time I have answered that. 

Mr. Coe. There's agreement in State and War that a lot of other decisions 
will be coming along and we want to flag them for your attention. There are 
three or four ways of handling it so that we consider each would be 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2021 

H. M., Jk. You put me on notice. 

Mr. Coe. That's right. 

H. M., Jr. All right, anything else? 

Mr. Coe. That's the lot. 

H. M., Jr. It's a good session. All right? 

Mr. Coe. That's the last. Thank you. 

H. M., Jr. Thank you, Frank. 

Mr. Coe. One more thing, Mr. Secretary, may I? I think if there is any 
question as to who is going to be at this afternoon's session with Soong, I favor 
it being yourself and Clayton, because I think Clayton is getting hurt feelings 
about the number of things in his bailiwick which he comes over here and 
handles. This is one in our bailiwick. 

H. M., Jr. A couple of things that come over here? 

Mr. Coe. He made a comment in the hall the other day, he might as well 
open up an office here. 

H. M., Jr. He's right. Is that all he said? 

Mr. Coe. He made a joke to one of his men on the thing, but 

H. M., Jr. Well, he asked to come over here at two fifteen. I didn't suggest 
it. He said I better call them together. Did you know that? 

Mr. Coe. Yes, I knew that, and that's certainly one of his men agitating with 
him. But enough on this thing. Soong came first to the State Department and 
left a general memorandum there. 

H. M., Jr. Well, you mean I should ask him to stay until three o'clock. 

Mr. Coe. Certainly, ask him if he wants to. 

H. M., Jr. Then he'll say he needs two offices over here. Don't let that worry 
you. Mi\ Will Clayton needs me very much more than I need him, but that's 
all right, but — well, don't get me started on that. 

(Mr. Coe leaves conference.) 

Mr. Bell. Fitzgerald asked me to take up with you the question of the Roose- 
velt dime ; that O'Connor is leaving tomorrow and he wanted a decision. There's 
a recommendation that Mrs. Ross put up to me. 

H. M., J. I'm against it. 

Mr. Bell. You don't need legislation on it. The twenty-five year period has 
lapsed. 

H. M., Jr. What is this? What is it they want? 

Mr. Bell. They want to make the dime memorial to Roosevelt and put it out 
next January in connection with the "Mile of Dimes." 

H. M., Jr. Are you for it? 

Mr. Bell. I think it's a nice thing. 

H. M., Jr. Do we need any authority? 

Mr. Bell. It's at your discretion, because the twenty-five year period has 
lapsed. 

H. M., Jr. I'm not going to do the thing without speaking to Mrs. Roosevelt. 

Mr. Bell. It's really a part of the committee work in it. She wants you to 
announce it and let the Treasury get the credit, because we're getting a lot of 
letters. A bill has been introduced to Congress. 

H. M., Jr. You call Basil O'Connor, and call Mrs. Roosevelt for me and ask 
her what she thinks. 

I think it's all right, but I want to consult Mrs. Roosevelt. 

Mr. Bell. There's also the question of whether we should have a two hundred 
and fifty dollar denomination bond with Mr. Roosevelt's picture on it — one 
hundred and eighty-seven dollars. That should be in the Eighth War Loan. We 
ought to start engraving it if we want to do it. Ted and I are in favor of it. 

H. M. Jr. Two hundred and fifty dollars? 

Mr. Bell. Yes. 

H. M. Jr. That I don't have to ask Mrs. Roosevelt about ; that's all right. 

Mr. Bell. You don't have to announce it either, unless you want to tell the 
committee when we meet. We can start Hall engraving that. On June first 
there's four billion, seven hundred seventy million dollars of certificates matur- 
ing. And we've got a certificate in the drive which will mature on Juue 1, 1946. 
So we want to make this four billion, seven hundred seventy refunding into a 
ninety percent note — thirteen month note which will put the maturity on July 1, 
1946. The drive certificate would mature June 1, 1946, and this one will come 
in July. 

H. M. Jr. All right. 

Mr. Bell. There's also maturing June first, seven hundred fifty-five million of 
the one and one-half percent Home Owners' Loan Bonds which we call for 



2022 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

payment that date, about eighty some percent. George's memorandum to you 
says that these bonds are owned by banks, so we recommend that the holders 
of those securities be offered the opportunity of going into the ninety percent 
note, the Gay Nineties Note, and that has the unanimous recommendation of the 
Federal Reserve Board and Executive Committee. 

H. M. Jr. Okay. 

Mr. Beix. On May fifteenth, not later than May fifteenth, we ought to call the 
two and three-quarters percent bonds of 1945-1947. They're outstanding in the 
amount of one billion two hundred fourteen million, and I have the papers here 
for you to sign and I thought you might suggest in the last paragraph that you 
give that out informally to your press conference Thursday. 

H. M. Jk. Will you remind me? 

Mr. Bell. And we'll announce it officially on the right dates. 

(The Secretary signs attachment A and attachment B.) 

Mr. Bell. This press release will be given to the press Saturday the twelfth, 
for release Monday. 

H. M. Jk. I hope that's all. 

Mr. Bell. That's all. 

H. M. Jk. Good. I'm tired. Thank you very much. 



Exhibit No. 347 

[Vol. 845, pp. 314-822] 

May 9, 1945, 9 :30 a. in. 

Gold to China 

Present : Mr. D. W. Bell 
Mr. Coe 
Mr. Adler 
Mr. Friedman 
Mrs. Klotz 

H. M., Jk. Look, you people, I think should be severely criticized for letting 
me go into court and try my case before T. V. Soong, and the letter of July 27, 
1943 where I gave the Chinese Government a firm commitment on two hundred 
million dollars worth of gold — I think it's inexcusable. After all, you were so 
worried about saving face, what about my face? I have given, in writing, the 
Chinese Government a firm commitment that they can have two hundred million 
dollars worth of gold and you — I don't remember it, I can't remember it. I do 
ten things a day. Bell comes in here and in three minutes we settle ten billion 
dollars worth of financing, and it's impossible for me to remember, and you put 
me in an absolutely dishonorable position, and I think it's inexcusable. I 
think it's absolutely inexcusable to have me bargaining and chattering around 
when right here in writing is this thing. 

Mr. Coe. Mr. Secretary, in this proposal to the Chinese we did not say that 
we would not give them the gold. 

H. M. Jk. That has nothing to do with it. I am facing the Acting President of 
China, and here I am put in the position that I am bargaining with him about 
something that I gave my commitment he could have. Now, in this world, and 
certainly Government to Government, a person's word, and particularly his 
written word, means something. One of you three should have said, "Now 
remember, Mr. Secretary, on July 27th, 1943, you told them they could have it. 
Now, do you want to bargain with them about it?" You are so worried about 
his face. What about my face? What about the honor of this Government? I 
think it's inexcusable. 

Mr. Bell. Can't they still get the two hundred million dollars over and above 
the five hundred million dollars? 

H. M. Jr. That isn't the point. 

Mr. Bell. They could still get it under the memo, couldn't they? 

Mr. Coe. Yes. 

H. M. Jr. Oh, yes ! That isn't the point. Now I was worried last night wholly 
independent of this, and anything else, and I figured these people were being 
kicked around from pillar to post and I was worried. Will Clayton called me 
twenty minutes to nine and asked if he could see me. I told him yes and he 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2023 

dashed over to the Navy Department to sit there waiting to see me and he brought 
this stuff here to show me, and I promised to give it back to him. He was 
very nice about it as a friend, but in talking this morning with Forrestal and 
King I wanted figures so I could talk about the Seventh War Loan. I got 
nothing, so I got them on China, and Admiral King tells me that the Chinese 
are doing much better. He couldn't talk about it, but General Wedemeyer has 
to do just what they wouldn't let General Stilwell do, and they are really 
getting somewhere, and they are really fighting and moving. This is all con- 
fidential, this stuff out of Burma, and they are going to have eleven or twelve 
Chinese Divisions fighting against the total number of British Divisions of six, 
and they are good Divisions. The Chinese are really doing it, and here I am 
atcing like a huckster over something which has been settled on the 27th, what- 
ever the month is, 1943. I don't like it. 

Mr. Coe. I think there are two parts to this. 

H. M. Jr. Why, in God's name, didn't you bring this letter to my attention, 
Sol ? You knew this existed ! 

Mr. Adler. I wasn't aware of it explicitly. I had seen it in the file but 

H. M., Jr. You didn't know about it? 

Mr. Adler. I knew 

H. M., Jr. You should have — what about you? 

Mr. Friedman. Well, Mr. Secretary, if I may say, on this specific thing, you 
will recall that at the time of the 1943 letter, when you signed the letter, you 
and Mr. White discussed it with P. W. Quo and Mr. Hsi Temou and the Chinese 
at the time the question of two hundred million dollars of gold came up. You 
expressed to them that you were considerably doubtful as to this whole idea, 
and they said to you that the President said to Madame Chiang that they 
could buy the gold, and you told them and Mr. White told them that you could 
make the commitment to buy the gold for anti-inflation and for anti-hoarding 
purposes. Then we very deliberately at the time put into that document all this 
reference to anti-inflation and anti-hoarding purposes, because you were afraid 
at the time that they might use the gold for other purposes, and you didn't feel 
that that would be a justifiable use of the two hundred million dollars,. And we 
have all along in conversations after that with Mr. Quo and Mr. Chi, who were 
designated by Dr. Kung, stressed it that the gold was being sent for anti- 
inflationary and anti-hoarding purposes. 

H. M., Jr. That's all very nice, but in cold print there it's "You can have the 
two hundred million dollars of this money for gold." 

Mr. Coe. And, Mr. Secretary, your proposal as given to Mr. Soong yesterday 
does not at any rate in cold print dishonor your letter in 1943. What you said 
to him in that proposal was (1) we would like the Chinese Government to 
segregate one sum of money and another sum of money. Obviously, if they de- 
cide to segregate for a stabilization fund the remainder of this sum, you cannot 
give them the same sum over again for gold. 

H. M., Jr. Did you know about the letter of July 27th? 

Mr. Coe. Yes, sir. 

H. M., Jr. Well, I certainly think somebody would have said before I went 
in to this conference, "Here's this letter. Here's what you said, Mr. Morgen- 
thau." 

Mr. Coe. The whole basis, as I understood it, of the Treasury giving them 
limited sums of gold over a longer period had been the original statement 
that we would, and month by month they were told there is so much transport 
available. 

H. M., Jr. But White told me we were running out of excuses. 

Mr. Coe. The only excuse I ever heard — I have picked this stuff up — 
the only excuse I have ever heard of has been transportation, and we all 
think that transportation is a thin excuse. 

H. M., Jr. Well, I made my statement. I think, before I went into that 
meeting yesterday morning, I should have been shown this document so that I 
knew that there was a written commitment that they could have two hundred 
million dollars worth of gold. I've told you how I feel. Let's get on and see 
what we can do about it. What Clayton wants is this : We suggested that we — 
you fellows immediately get in touch with his people and work out some kind 
of condition, see? 

Mr. Bell. Clayton's people? 

H. M., Jr. Yes, work out some kind of conditions, and I personally think — 
I mean as to how the gold will be used— I personally think that if we say to 



2024 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

these people — you set up this file in the first place — I am going to say, "Now, 
look, I can recognize a letter. The gold is yours, but for future relationship 
can we work out something?" See? "And I think it would be good for China 
if you would set up this five hundred million dollar stabilization fund, and I 
think it would also be good for future relationship if you would tell us how 
you propose to use this gold and stop forward sales." How much did they sell, 
fifty million? 

Mr. Coe. Sixty million. 

H. M., Jr. And is I remember it, roughly they have used twenty-seven mil- 
lion dollars worth of gold. Is that right? 

Mr. Abler. That's right. 

Mr. Friedman. Out of two hundred million they bought twenty and shipped 
about eight or nine. 

H. M., Jr. They borrowed? 

Mr. Friedman. Out of that two hundred million credit, they purchased about 
twenty and they would, under that commitment, be able to buy an additional 
one hundred and eighty million dollars worth of gold. You see, they had gold 
on earmark which they exported before on the two hundred million dollar 
credit. 

H. M., Jr. Of the two hundred million dollar commitment I have given, they 
have used how much? 

Mr. Adler. Twenty. 

H. M., Jr. And of that twenty how much has left the country? 

Mr. Friedman. About eight. 

H. M., Jr. About eight? Well, I think we should promptly begin to move 
this gold. I think I heard you say something about one hundred million dol- 
lars. How much is that? 

Mr. Adler. Two hundred million dollars. It runs about five million ounces. 

H. M., Jr. How much of that has left the country? Eight? 

Mr. Friedman. Eight. 

Mr. Bell. The balance is about one hundred and eighty. 

H. M., Jr. How much are they asking for? 

Mr. Friedman. They ask for one hundred and eighty million dollars worth 
of gold of which they want 50 or 60 million shipped immediately to cover 
past commitments and sufficient additional amounts to have a spot sale pro- 
gram. 

Mr. Bell. They want to get on a cash basis. 

H. M., Jr. All right. I think we should meet that. Now, provided, if we 
can get it out of there — their setup is five hundred million stabilization fund. 

Mr. Coe. If they could do that, sir, if they set up the stabilization fund, then 
they haven't the money. I mean, they haven't any loan money for the gold. 
They will have to use their own money. That's the purpose of the stabilization 
fund vis-a-vis the gold. 

H. M., Jr. I understand. 

Mr. Coe. So that it would seem to me the first thing is for T. V. Soong to 
tell you definitely that they don't intend out of the loan to segregate it as you 
suggest. 

(Mrs. Klotz leaves the conference.) 

Mr. Coe. They don't like that proposal. They would rather have the gold — 
take it in gold. Then you are up against the proposition of your original 
commitment. 

H. M., Jr. I don't follow you. 

Mr. Coe. TVell, they have left two hundred and forty million dollars out 
of the loan of which, getting back to your letter, you can say one hundred 
and eighty million dollars you told them in 1943 is available for gold ship- 
ment. 

H. M., Jr. That comes out of the two hundred and forty. 

Mr. Coe. Yes. The rest of the loan has gone on other purposes. Now, then, 
it's up to them following what you gave them yesterday for T. V. Soong to 
say, "We don't want to segregate the two hundred and forty that way. We 
want to hold you to your original commitment on the gold." 

H. M., Jr. I have asked them to have lunch with me. Get me up a little one- 
page memo on what has happened to the five hundred million. 

Mr. Coe. We have that here. 

II. M., Jr. And what happened to the rest? Did you know about the letter of 
July 27th? 

Mr. Bell. No. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2025 

H. M., Jr. Don't you think it puts me in an impossible position? 

Mr. Bell. Well, I thought that after the letter was read yesterday that you 
could still comply with the letter under the memo. That's what I thought. 

Mr. Coe. That's what we thought. 

Mr. Bell. You probably intended to change the situation around a little but I 
thought you could still comply with the letter and still go through with the memo. 
Is that right? 

Mr. Coe. No, we thought that the Chinese, if they agreed to segregate the fund 
would thereby not want gold. They would decide they would draw gold out of 
their own fund rather than out of the loan, and they would take the two hundred 
and forty that is left and put it aside. 

Mr. Bell. If they have nine hundred million dollars to their credit, they could 
still take the gold and still set up the five hundred million dollar stabilization 
fund. That did not preclude them from taking the gold, as I remember the 
memo. 

H. M., Jr. But they did not have the letter in mind when they wrote the memo. 

Mr. Coe. I may say I don't — even if I didn't have the specific letter in mind, I 
was operating entirely on the fact that we are as a general rule and through 
that letter committed to give them gold. We had been saving transportation 
facilities, and so what we wanted since the gold is now smelly is to have the 
stuff put aside in a stabilization fund. 

H. M., Jr. Smelly? 

Mr. Coe. I mean, since the gold transactions are under attack, we want to put 
it aside in a stabilization fund. 

H. M., Jr. It's under attack on their side. I'll tell you what you fellows do. 
Now, suppose you get together with the State Department and be in here at one 
o'clock to give me something which comes within the spirit of this letter. Sup- 
pose he said, "No, I don't want to set this aside. We'll use our own money for 
gold." That's what he will say, isn't it? 

Mr. Bell. Probably, and I would say, "All right, you can have the gold, but 
will you set up a five hundred million dollar stabilization fund out of your other 
resources?" 

Mr. Coe. And also, "Will you please — " and I think he is willing to do that, 
"Will you please, if not, terminate the forward sales of gold?" 

H. M., Jr. All right. I have given you fellows hell ! He has got a proposal 
to tell me. I am going to listen to his proposal. I am not going to change my 
attitude from yesterday. I am just going to listen and then say, "Well, Dr. 
Soong, I will listen and give you an answer at four o'clock." See? 

Mr. Coe. Mr. Secretary, I want to make one thing clear. You say the memo 
is different from the letter. There is nothing in the proposal you handed him 
yesterday which contradicts the letter, maybe the spirit of it, but there is no — 
Collado rang me this morning and Clayton had talked to him, and I said the 
same thing to him. 

Mr. Adler. Collado said that to me at the meeting. He said it after Dr. Soong 
read the letter. 

Mr. Coe. Here is some of the stuff from China. 

H. M., Jr. I am going to have to stop now because I have to get ready for the 
President. I'll have to stop on this thing. You fellows come back in here at 
one o'clock. 

Mr. Coe. You don't want this for the President, the ribbon copy of the memo? 

H. M., Jr. On China? No, not in view of what has happened. But you people 
be back here at one o'clock, just before I see Soong. 









Exhibit No 


.348 








[Vol. 846, pp. 


32-36] 








Gold to China 


•esei 


at: Mr. 


D. W. Bell 








Mr. 


Coe 








Mr. 


Friedman 








Mr. 


Adler 








Mr. 


White 








Mrs 


. Klotz 






Mr. 


White 


Do you want to discuss this 


or not? 



May 10, 1945, 2 : 00 P. m. 



H. M., Jr. Since you left we don't discuss things, we just work. 



2026 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

(Secretary reading letter to Dr. Soong, dated May 10, 1945.) 

"I am replying to your letter of May 9, 1945, regarding our discussions on 
gold and the establishment of a $500 million fund. I shall be glad to have 
your reply on the fund suggestion as soon as you have heard from the Generalis- 
simo. 

"As I informed you yesterday, the Treasury will consider steps to accelerate 
gold shipments to China. 

"I am looking forward to seeing you again at which time we will be able to 
refer the gold question and the establishment of a $500 million fund." 

Now, the one seems to contradict the other. You say the Treasury will con- 
sider steps to accelerate the gold shipments 

Mr. Coe. There's a question of money still left open there and we thought we 
would give it to them out of their money if we could. They have twenty million 
dollars of earmarked gold. 

H. M., Jr. Oh. 

Mr. Bell. That's going to worry him. 

H. M., Jr. I don't like that "accelerate gold." I don't like that. Is that 
White? [Laughter.] 

Mr. White. No ; that can be taken out because basically it 

H. M., Jr. I'll tell you the question now of good faith here, Harry. I don't 
know if they have had a chance to explain this to you. I am in a kind of em- 
barrassing position. I think 

Mr. Bell. The whole financial question is what you are discussing. 

Mr. White. You can leave that phrase out if it troubles you. It doesn't add 
much. 

H. M., Jr. I don't see why it can't be rewritten, leaving out the third para- 
graph. As I informed you yesterday, the Treasury will consider extensions to 
accelerate gold shipments to China. He doesn't say anything about hoping to 
see me. 

Mr. White. It doesn't matter because the position we are in is the same posi- 
tion we have been in for a long time. 

H. M., Jr. That still leaves it open to argument. Just take a look at that. 

Mr. Bell. I think it's all right. 

H. M., Jr. Let it go. 

Mr. Coe. Harry cut out one paragraph. You cut out another 

Mr. White. It's all right. 

H. M., Jr. I could send a letter, "Dear Mr. Soong, Yours truly." 

Mr. Cok. I'm glad it's not going up to the President. 

(Mrs. Klotz leaves conference.) 

H. M., Jr. I'll sign it before I go. 

Mr. Bell. He formerly thought he wanted fifteen minutes with you. 

H. M., Jr. The trouble was Senator George's meeting at one-thirty was called 
off but he told him he would be there at two-thirty. 

Mr. White. I understand you were troubled about the letter of the two hundred 
million. Mr. Secretary, we have always taken the position we had absolutely 
no legal grounds for withholding the gold ; that what we were doing was skating 
on thin ice and offering excuses and we were getting away with it as long as 
we could, and remember because I said we are getting away with it that you 
better get the President's backing when they begin putting on the heat. It's 
because I said we have no basis for it. We have been successful over two years 
in keeping them down to twenty-seven million and we never understood why 
the Chinese didn't take it in there and do what they are now doing. The whole 
history is we had no basis for it. 

H. M., Jr. I can't remember things that happened, and when he flashed that 
letter on me it caught me sort of off guard and I didn't remember it. 

Mr. White. That letter grew out of what you thought the President promised 
Madame Chiang-kai-shek. 

H. M., Jr. They refreshed my memory, but the trouble is that, Harry, I think 
that the Army and State Department have advised me very badly on this thing 
last week and suddenly Will Clayton woke up to that fact himself, entirely on 
his own, and all the indications are that the Chinese are really going to fight. 
This man comes here now and he gets a cold shoulder, gets bounced around, he 
gets nothing. He may get four thousand trucks and this is the money which 
we have committed ourselves to, and I have sort of come to the decision that I 
don't know how far I'll go, but I certainly want to loosen up, and I think this 
is a psychological time for the Treasury to demonstrate we can be a friend to 
China, when they really need it, with their own money. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2027 

Mr. White. That isn't the same way I'd do it. I'll drop that. I do think 
you need to have now for your own record — and this is wholly for your own 
record — you need now an exchange of letters from you to the President indi- 
cating that this money is being badly used. It will not help inflation and cannot 
be justified on economic grounds, and that the only basis, for it must be that 
they feel it is militarily necessary to satisfy his demands. Because, Mr. Secre- 
tary, this record — we have advised them against the use of this. It has been 
badly used and all the rest. 

H. M., Jr. I'd just do this, because I am pressed so, but over the week end 
prepare such a letter and when I come back — there was a letter originally written 
on that to Mr. Roosevelt which I never took over. 

Mr. WniTE. It was a memo but the history of your negotiations with Chiua 
are clear enough on that point. 

H.M., Jr. This will give you a chance to get back into working habits again, 
to do this over the week end. It will be a nice way to break your way in Harry. 
Glad to see you back. 

Mr. White. When are you coming back, because I want to tell you what was 
in the letters that apparently you didn't get. [Laughter.] They are not on your 
desk. 

Mrs. Klotz. It could be I haven't cleared all my mail today. 

H. M., Jr. Well 

Mr. White. What do you mean, today? 

(The Secretary signs letter to T. V." Soong, dated May 10, 1945.) 

H. M., Jr. I go up either Sunday night or Monday to Buffalo, and I'll be back 
Tuesday. 

Mr. White. Will you have ten or fifteen minutes between now and tonight? 

H. M., Jr. I will try. It depends on how long I am on the Hill. We have 
quite a fight on our hands. I'll try to. I won't make any guarantee. 

Mr. White. I'll be here in case you have, or if you want, I'll ride down to the 
airport. 



Exhibit No. 349 

[Vol. 847, pp. 33-47] 

May 15, 1945, 5 : 00 p. m. 
Gold to China 
Present : Mr. D. W. Bell 
Mr. Friedman 
Mr. Adler 
Mr. Coe 
Mr. White 
Mrs. Klotz 
Mr. Pehle 

H. M., Jr.. T. V. Soong wrote me a letter and said he was leaving town. What 
day was that? Thursday. 

Mr. Coe. They know your movements better than we do because one day I 
said you wouldn't be in until over this last week end, and T. V. was mad and 
said, "I understand he is going to be in Sunday." (Laughter.) I don't see how 
he could have known because I only knew it Saturday noon. 

Mr. White. He didn't ask to see you, did he? 

H. M., Jr. What? So I though we'd have a little preliminary meeting, but 
maybe we won't have to have it at a quarter of nine if we have it now. 

Mr. White. I think it's better to have it now because we have a memorandum 
prepared, and we thought that it would be preferable to get State Department 
concurrence in it, but we didn't have a chance to clear it with you, so what we 
did is send over a carbon copy saying you hadn't finally approved it yet, so if 
you want to change it, we can without commiiment. On the other hand, they'll 
have a chance to see it this afternoon. 

(Mr. Coe reads "Memorandum for the President; Subject: China.") 

"In accordance with your instructions, I have been discussing the Chinese re- 
quest for about $200 million of gold with the other government agencies con- 
cerned and with Dr. T. V. Soong. 

"It was agreed by all the agencies concerned that — 

"(a) we are anxious to give full support to an effective antiinflationary 
program for China ; 



2028 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

"(b) the gold sales policy, which was initiated against Treasury advice, 
is not an effective antiinflationary device ; 

"(c) the history of the Chinese uses of the $240 million which they have 
so far received from the 1942 $500 million loan threatens to become a scandal 
in the United States as well as in China ; 

"(d) the exhaustion of the $500 million loan would invite requests for 
additional financial aid probably on a larger scale. 
"Therefore, I gave Dr. Soong a memorandum endorsed by the State and War 
Departments and the Foreign Economic Administration in which we proposed 
to Dr. Soong — 

"(a) the establishment of a $500 million Fund for combating inflation 
and stabilizing Chinese currency, to be constituted from the outstanding $240 
million of the 1942 $500 million loan and from China's very substantial 
dollar balances, and 

"(b) the termination of the present gold sales program and the continua- 
tion of only limited shipments of gold to China to be financed out of her 
dollar balances. 
"Dr. Soong, in reply, insisted that China must have the nearly $200 million of 
gold out of the remaining $240 million of the 1942 loan. He cited commitments 
made in July 1943 by Mr. Roosevelt and myself under the $500 million financial 
aid agreement. By so doing, he was, in effect, turning down our proposal for a 
$500 million Fund for combating inflation and stabilizing China's currency." 
(Mr. Friedman enters the conference.) 

H. M., Jr. You have the timing of this wrong. He flashed that letter on us 
first. 

Mr. Coe. What? 

H. M., Jr. He flashed this letter on us first and then we made the suggestion 
afterwards, I think, if my memory serves me right. 

Mr. Coe. I don't think we say anything in here about the timing. 
II. M., Jr. Wait a minute. This gives the wrong impression. Dr. Soong in 
reply cited commitments made by us. By so doing, he was, in effect, turning 
down our proposal. I don't think we made the proposal until after he flashed that 
letter on us. 

Mr. Coe. No, sir. We handed him a memo in a meeting in your office. In the 
middle of that discussion he referred to the letter, and then he went to see 
Clayton and showed him that. 
H. M., Jr. Are you sure of that? 

Mr. Bell. That's the way I remember. He read the memo first. 
Mr. Coe. And asked to speak to his colleagues in Chinese first. 
H. M., Jr. If you say it's all right — go on and read. 

Mr. Coe. "He stated that he was referring the question of the Fund to the 
Generalissimo, but if we accede to his request for the gold immediately, such a 
reference would be purely formal. 

"The present Chinese gold sales policy has culminated in a public scandal in 
China. To make large shipments of gold to China at this time, particularly 
without making every effort within our commitment to induce the Chinese 
to withhold their request, would make the Administration vulnerable to criticism 
at home. 

"It was implicit in all our arrangements with the Chinese that effective use 
be made of the funds made available to them from the $500 million financial aid. 
Dr. Soong advanced no new argument for us to revise our judgment that the sale 
of gold is not an effective anti-inflationary weapon and that it represents a 
dissipation of China's foreign exchange assets which she will desperately need 
to restore economic stability. 

"The State Department has concurred in the suggestion that I therefore inform 
Dr. Soong that : 

"(a) You feel that the Chinese should give most serious consideration to 
our recommendation for the establishment of a $500 million Fund, and" 
Mr. Bell. Meaning the President? 

Mr. Coe. Meaning the President. Maybe we should say that. Say you 

H. M., Jr. Just a minute. All right. 

Mr. Coe. "(b) You agree that it is in the best interests of Chinese-American 
relations that China withdraw for the time being her request for immediate 
heavy shipments of gold. 

"With respect to the Chinese requests for trucks and textiles, after discussion 
among the various agencies concerned, we were able to assure Dr. Soong that 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2029 

there was every likelihood that his request for 4,000 trucks would he met. Dr. 
Soong was informed that the textile situation was very tight and that it would 
probably be another week or two before any definitive decision could be reached 
since the over-all situation was now being reviewed. The agencies concerned 
are also going forward with discussions for enlarged lend-lease aid to China." 

H. M., Jr. The first thing I want, please call up whoever has a copy at the 
State Department. I want them immediately withdrawn, immediately. I'm not 
going to follow this position. It's ridiculous. Will you please, wherever they 
are, get them right back. 

( Mr. Friedman leaves conference temporarily. ) 

H. M., Jr. I mean, you just keep going over the same ground, the same ground, 
the whole time. This doesn't make it plain to the President of the United States 
that these people own this gold, that I, over my signature, told them they could 
have two hundred million dollars worth of gold. 

Mr. White. That's where I disagree. 

H. M., Jr. I know you do. 

Mr. Bell. You did that the other day, too, didn't you? What did we say the 
other day in a letter? 

Mr Coe. We said to them in a letter that we were prepared to give every con- 
sideration to methods of accelerating gold. 

Mr. Bell. After he flashed that letter ; I think that's right. 

H. M., Jr. We're just going back again over most recent letters. That's the 
point you made. 

Mr. White. The Act which turned that over to you is pretty specific on the 
question. 

H. M., Jr. I'm very sorry, Harry. I wrote him a letter again the other day. 

Mr. White. There was behind all this oral discussions, and it implies the fact 
that any money you gave would be effectively used. There were several discus- 
sions which brought out that fact that they were supposed to be using it wisely. 

H. M., Jr. Is there anything in writing? 

Mr. White. And they're not using it wisely. 

H. M., Jr. Anything in writing? 

Mr. White. No. I think that the time to stop that is now. 

H. M., Jr. But this memo is going back again on the letter I sent him Thursday. 
If I handed this to the President, it goes back again to the letter I did Thursday. 

Mr. Coe. The letter you gave them Thursday, Mr. Secretary, said that you were 
considering it. Have you got it ? 

(Mr. Friedman reenters the conference.) 

Mr. Bell. I thought we said we'd take every step to accelerate shipment of 
gold. 

Mr. White. Yes ; but there's one phrase that's missing in that, and that is you 
continue our present 

H. M., Jr. Look, Harry, using your own language, you have told me repeatedly 
we're skating on very thin ice. You told me that the other day. 

Mr. White. That's right because we don't have anything down in writing and 
there are reasons why we don't. We don't have to go into the history of it. It 
wasn't any oversight. When those things developed 

H. M., Jr. We did it because we don't believe it would be helpful to them. 

Mr. White. It was going down the drain. We'll assume that that was the 
political situation at that time. Now at this time, you're bringing it to the atten- 
tion of a new President that they are using this money badly from an economic 
point of view. Your decision can be overriden but it seems to me important that 
you make that record and that decision now, because the last few statements are 
simply to the effect that it's being badly used from an economic point of view. 
If he can say it, it may be very well, but politically they have to have it — you 
say okay. 

H. M., Jr. I say, as I informed you yesterday, the Treasury will consider state- 
ments to accelerate gold shipments to China. 

Mr. White. That's all right, but that doesn't mean giving two hundred million 
dollars. We've given them twenty-four million in three years — we'll give them 
three million a month. 

H. M., Jr. And here you people — in this memo you say that he was — here you 
practically say I won't give them any gold. 

Mr. White. There was one phrase that was left off on this. 

Mr. Bell, "(b)." 



2030 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. White, "(b)" should have said "and we will continue — " or "we will 
accelerate our present rate of shipments." But he wants two hundred million. 

H. M., Jk. China withdraws for the time being her request for immediate 
heavy shipment. 

Mr. White. That's two hundred million, the heavy shipment. 

Mr. Coe. Since they've started talking with us here, they have upped their 
demands rather than reverse. 

Mr. White. Could I be the devil's advocate? 

H. M., Jr. Hold on. Don't be the devil for a minute. Let me just get a 
report where this thing stands. What have you got and what are they 
asking for? 

Mr. Coe. They now ask for one hundred ninety million dollars worth of gold, 
in other words, the total remainder of the two hundred million. They want us 
to make commitments that we will deliver it to them in New York within the 
next eight months. They came in originally asking for sixty million to make 
up the arrears on what they owe. Dr. Soong, in your conference, made a 
proposal which I thought was limited to the next three months, but frankly 
I didn't understand it. 

H. M., Jb. He did say so. 

Mr. Coe. That's what I thought, but I didn't understand it. 

H. M., Jr. Well the next three months 

Mr. Coe. I haven't seen it. 

H. M., Jr. I said for the balance of the year, and he said, "I'd rather make 
it for the next three months, say." I had said, "Starting when," and he said, 
"Since the last shipment." I think it was May 5, if my memory is right. 

Mr. Bell. His records went up to May 5. 

H. M., Jr. He said from May 5 it would be three months. 

Mr. Coe. That's right, but the manager of the bank came in and delivered 
a memo signed by Soong in which they asked for a definite schedule for the 
entire balance of the gold. 

H. M., Jr. Let me just make a little speech before Mr. Harry White becomes 
the devil or the devil's advocate. Here is the situation, the way I see it. I 
think that the Treasury, up to this time, has been correct. And I certainly 
am part and parcel of this policy of slowing down the shipment of gold just 
as much as we could, because it wasn't good for them, and looking forward to 
the day they really need the money. And it's there. If they get it now, we'll 
have to give them more later on, so we're giving it twice. Now we ask advice 
all over this town. Other departments are involved, and they all tell us to sit 
tight and thumb our noses at the Chinese. I find out they will most likely get 
four thousand trucks, but they're not going to get anything that they really 
need to help them in the way of fighting, that is, cotton goods, or whatever 
they have to have. So far the Administration has taken any position. Now, 
wholly on my own and irrespective of Clayton, I'm trying to see what the 
target is. As I said last night in my impromptu speech, we have two targets. 
One is we have to first defeat Japan, and the other target is to liberate China. 
That's the target as I see it. Now, I feel that from information I've got, and 
so forth and so on, that the Chinese are beginning to fight now. That seems 
to be fairly well substantiated, and there's a determination to fight, and If we 
can get these people to fight and put in several million men, that means saving 
lives, many lives, and it's a very inexpensive investment ; and just because the 
other parts of the Administration fall down — I don't think Clayton was advised. 
I think he and I had a bad night, and he decided that we ought to do something 
too. It's unfortunate John Carter Vincent wasn't here during that period, or 
White, because they both have the background, and Coe did the very best 
he could which was very good, with the assistance of Friedman and Adler. 
Now, I was going along with these fellows up to a point, and I suddenly made 
up my mind this was all wrong, and I'm just going to turn a somersault on 
this thing, and I want to do it; and, particularly when I see that my written 
word and the promise of Franklin Roosevelt is at stake. Now, I haven't got 
a leg to stand on. Never mind what I told the Congress. Never mind what 
I say they told me. They get very vague about it, but unfortunately we have 
nothing in writing. But there is my written word you can have two hundred 
million dollars worth of gold. Then, for some reason or other, Kung was very 
dumb on this thing. He didn't force it. We always thought he would. You 
couldn't understand why he didn't. 
Mr. White. That's right. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2031 

H. M., Jr. And this fellow is smart. He comes along and first thing he says 
is : "Mr. Morgenthau, what are you going to do about it? Is your written word 
good or not?" And the only answer is "it is." Now, even though I didn't 
have my written word — that influences me greatly, having given that, and he 
has gone over and told that to President Truman — as between governments, I 
don't think we have a leg to stand on. Even if the Chinese weren't fighting 
with a letter over my signature that they could have this, I think I'd be in- 
clined to say it's yours. Now, I'm through. 

Mr. Coe. Would you let us 

H. M., Jr. Now White can have a chance. 

Mr. Coe. Harry, I wonder if you'd let us read to the Secretary what I'm 
not sure you have read, though we've referred to it several times — the kind of 
publicity there is out there on this. 

Mr. White. He assumes it's bad. 

H. M., Jr. You told me they had in their House or Parliment there, they've 
had criticism, etc. 

Mr. Coe. Yes, but 

H. M., Jr. Let's say it's scandalous. 

Mr. Coe. It is. 

H. M., Jr. All right. It's scandalous. 

Mr. White. Mr. Secretary, the way I feel about it is this. The Congress 
turned over five hundred million dollars for the Secretary or the President to 
use under such terms as they saw fit, for the purpose of combating inflation and 
stabilizing the economy. In other words, you had a responsibility. 

H. M., Jr. That isn't written in the bill. 

Mr. White. Oh, it's a 

Mr. D. W. Bell. It's a loan. 

Mr. White. Have you a copy of it? 

Mr. Coe. The bill says on such terms and conditions as the Secretary of the 
Treasury, with the approval of the President, finds it to be in the national 
interest of the United States. 

Mr. White. And further discussion amplifies that. 

Mr. Bell. That's quite different from fighting inflation and economy. 

Mr. Coe. The legislative 

H. M., Jr. And, may I just interrupt you. I made the statement, and this 
time I'm positive of it. When I appeared before the Commitee, I said, "Gentle- 
men, in recommending this loan, I want to tell you you should assume we'll 
never get it back." 

Mr. White. That's right. That's a separate matter. That's quite true. 

H. M. Jr. What does it say? What's the purpose of the loan? Let's get this 
thing straight. 

Mr. White. You want to get it. Do you have the file with the subsequent 
contract with the Chinese? 

Mr. Friedman. I'll look for it, Mr. White. 

Mr. White. Have you got it there ? 

Mr. Friedman. It should be here. 

Mr. Coe. We've got this part in which you assured the House Committee 

Mr. White. No, he wants to read the bill. The assurance you can give him 
later. Why don't you get the regular bill ? 

Mr. Friedman. Excuse me. 

(Mr. Friedman leaves conference temporarily.) 

Mr. White. Dropping that for a moment until he comes back, Mr. Secretary, 
it's entirely true. You wrote that letter, and I think there's a way of wriggling 
out. The wriggling out is justified on the grounds that they are not using this 
money wisely, and what you're saying, in your responsibility to assume that they 
are going to use this money well, is that they are not using these funds effectively, 
and that was the supposed purpose of the grant. Now then, if there are, as you 
indicate, political reasons or military reasons why you want to give Chiang 
Kai-shek two hundred million dollars in gold, even if he throws it in the ocean 
or wants to give it to his friends, I say that should not be your decision in the 
record. That should be something for the President to say, or the Secretary of 
State, or the military people, to say that you have an obligation to hold a check 
on that expenditure so long as it isn't wisely spent, and you ought to tell the 
President this isn't being wisely spent, isn't doing any economic good. I don't 
think it's getting them to fight either, but that's a separate problem. 



2032 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

H. M., Jr. Let me say this. I don't like this memo. I won't have any part of 
it. I'm prepared to say to him, when I see the President of the United States, 
that we have given this money, we are lending this money to the Chinese, and I 
think it's going down a rat hole, but I want a copy of my letter to take with me, 
this letter where I say they could have it. Have you got that '( 

Mr. Coe. Yes. 

H. M., Jr. Be sure to let me have that tomorrow. I would tell him that on 
such and such a date, I said that ; and if you could give it to me based on what 
President Roosevelt said somewhere else — if we know what he said, Frank. 

Mr. Coe. Yes, I'm getting it. 

H. M., Jr. "Here's the situation, Mr. President, based on my commitment." 

Mr. White. Which was also made for political reasons at that time. 

H. M., Jr. All right. "Now, I think it's money down the rat hole, but here's 
the situation, and from what I gather around, I'm willing to let them have it 
provided you know what the circumstances are." And I'll go further. I'm going 
to recommend to him that we do let him have it. 

Mr. White. I think where we part company is on two things, one, that it 
would seem to me that the mere fact of having written a two hundred million 
dollar letter should not commit you to a policy of the rate of speed, because you're 
going to give it to the Chinese Government. It's not like you were trying to with- 
hold it from the Government. The question is to use it most effectively, and 
I think you should very definitely state in writing that this money is not being 
used wisely but badly, but that if you think for political reasons they should 
have it 

(Mr. Friedman and Mr. Adler enter conference) 

H. M., Jr. I'm going to ask Dan. I'm willing to take the sole responsibility to 
do this thing with the President verbally. 

Mr. White. It isn't a question of your responsibility versus ours. 

H. M., Jr. No, no, you misunderstood me. My responsibility versus him. 
I'm not worried, and I'm not going to bother other than to get Will Clayton to 
say in front of the teletype that 

Mr. White. If somebody was to see what there is in writing, the agreements, 
and we have your letter, I think he could make an excellent case that you did 
not do a good job with five hundred million dollars. Now, what I'm saying is 
I don't know why you should take the responsibility for making a decision that 
China needs, Chiang Kai-shek needs the two hundred million dollars, or he won't 
fight. We don't know if that's true. 

H. M., Jr. I don't know, but Will Clayton begged me to do this. 

Mr. White. Let him beg you in writing. Our business is tremendous, and 
we've got a very clear case. The money is being badly used. It was badly 
used against our advice and the money is being squandered. He's buying up 
political support which has very little to do with the fighting, on the contrary. 
I say probably that is not any of our affair. 

H. M., Jr. The thing I'm objecting to is this memo to the President. Maybe 
I can get out of Will Clayton a letter from him and the Secretary of War saying 
"for political or military necessity, let this gold go." 

Mr. White. If you say at the same time that on economic grounds, it's not 
justified. 

H. M., Jr. I'll say that verbally. I don't have to say it in writing. If they 
write me a letter saying, "For political and military reasons we advise this gold 
go out," that's good enough for me. We're fighting a war. 

Mr. White. Well, of course, you made an assumption which has put us on 
very weak ground. You assume the two hundred million dollars they're getting 
is going to make Chiang Kai-shek fight, and they are fighting, both of which 
I question. 

H. M., Jr. I think you're wrong. I don't know. How long since you've been 
there, Adler? 

Mr. Adler. I left Chungking on April 7, sir, a little over four weeks ago. 

H. M., Jr. Do you feel they're fighting now? 

Mr. Adler. "Very little. You take these stories about Foochow. Everybody 
in Chungking knew the Japanese occupied it with two hundred men last year. 

H. M., Jr. I can't. You'll have to get together with General Wedemeyer of 
the Army, and 

Mr. Bell. You got pretty good reports the other day when you went over there. 

Mr. Adler. There may have been a change in the situation in the last month, 
but as of the time of my departure 

H. M., Jr. . . . from Admiral King and ForrestaL 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2033 

Mr. White. I don't think you can go behind that. That's their decision. I 
agree with you there, but let them say so in writing, and your responsibility must 
be that they are not using the money wisely from an economic point of view. 
That makes a perfect set-up. 

H. M., Jr. Now look, Frank, so we get this thing all together for the President. 
You keep all of these things for me, will you, Frank? 



Exhibit No. 350 
[Vol. 847, pp. 144-145] 

Department of State, 
Washington, May 16, 1945. 
The Honorable Henry Morgenthau, Jr., 

Secretary of the Treasury. 

My Dear Mr. Secretary: The Department has given careful attention to the 
request of the Chinese Foreign Minister, Dr. T. V. Soong, for the delivery during 
the remainder of 1945 of about $190,000,<J00 of gold from the unused balance of 
the $">00,000,000 credit approved by the Congress in January 1942. 

It is the Department's view, which it understands is shared by the Treasury, 
that the sale of gold by China has not proved and is not likely to prove a very 
elVective anti-inflationary device. Moreover, it believes that the establishment of 
a $500,000,000 fund for combating inflation and stabilizing the Chinese currency 
which you proposed last week to Dr. Soong would, if adopted by the Chinese 
Government, be of considerable short and long run benefit to China. 

The Chinese Government believes, however, that the immediate political and 
psychological as well as real economic effects of a continued and accelerated gold 
sale policy will have a vital importance in the critical situation confronting it, 
and strongly requests the delivery of the gold in question in accordance with 
the terms of the understanding between the two governments of July 1943. Since 
there appears to be no doubt that the Chinese Government attaches a greater 
importance to the immediate delivery of the gold than to the longer run benefits 
which might result from the establishment of the fund which you have proposed 
and since the continued stability of China and her increasing military efforts 
in the war against the common enemy are of great concern to the United States, 
the Department recommends that the Treasury, if transportation is available, 
deliver the gold to China in accordance with the time schedules put forward by 
Dr. Soong. 

Sincerely yours, 

Joseph C. Grew, 
Acting Secretary. 



Exhibit No. 351 

[Vol. 847, pp. 146-153] 

May 16, 1945. 
The President, 

The White House. 
My Dear Mr. President : In view of our conversation this morning in regard 
to China, I would like to submit to you three letters for your records : (1) A letter 
from Mr. Grew to me: (2) A copy of a letter from me to Mr. Soong; and (3) A 
copy of a letter from me to General Carter. 
Sincerely yours, 

(Signed) H. Morgenthau, Jr. 



May 16, 1945. 
Major General A. H. Carter, 

Army Service Forces, Fiscal Director, 

War Department, Arlington, Virginia. 
Dear General Carter : As you know, the Treasury through the services pro- 
vided by the War Department has from time to time shipped gold to Assam, 
India, for the account of the Government of China. 

The Secretary of the Treasury, after consultation with President Truman, 
has agreed to transfer $1S0 million of gold to China's earmarked gold account 



2034 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

in New York for shipment to China during the next eight months. Moreover, 
we have agreed with the Chinese to ship during the same period an additional 
$9 million of gold already held by them on earmark with the Federal Reserve 
Bank of New York. 

It will be necessary therefore for me to make requests from time to time for 
the shipment by air or by sea of the total amount of about $189 million of gold 
during the next eight months according to the attached schedule. It will be noted 
that 300,000 ounces are to be shipped by air during the month of May in addition 
to 700,000 ounces by boat during the same month. 
Sincerely yours, 

(Signed) H. Morgenthau, Jr. 

Schedule for shipment of gold 



Date 



1945— May 

June 

July 

August 

September 
October.. . 
November 
December. 

1946— January ... 



Monthly 

allocations 

for shipment 



Ounces 
1, 000. 000 
1,000,000 
800. 000 
600. 000 
500, 000 
500, 000 
500, 000 
300, 000 
206,400 



5, 406, 400 



Per thousand 
means of shipment 



By air 



Ounces 
300 
500 
300 
200 
200 
300 
300 
100 
106.4 



2, 306. 4 



By boat 



Ounces 



700 
500 
500 
400 
300 
200 
200 
200 
100 



3,100 



Equivalent 
in United 

States 
currency 



$35. 000. 000 
35, 000, 000 
28, 000, 000 
21.000,000 
17.500,000 
17,500,000 
17, 500, 000 
10. 500, 000 
7, 224, 000 



189, 224. 000 



May 16, 1945. 
Dr. T. V. Soong, 

Foreign Minister of the Republic of China. 

Washington, D. C. 

Dear Dr. Soong: This is to confirm what I told you today. In accordance 
with your memorandum of May 11, the Treasury is prepared to authorize the 
shipment of the balance of the $20 million of gold which is on earmark with the 
Federal Reserve Bank of New York for the Central Bank of China and to trans- 
fer the balance of $180 million to the account of the Central Bank of China with 
the Federal Reserve Bank of New York, in three equal monthly installments of 
$60 million from May to July 1945. The Treasury accepts the schedule of gold 
shipments contained in your memorandum of May 11, 1945, and is making arrange- 
ments with the Army to carry out the shipments of the gold according to that 
schedule. The preliminary arrangements to ship the requested amount for the 
month of May have already been made. These steps are being taken in accord- 
ance with our Financial Aid Agreement of March 1942 and my letter to Dr. 
Kung of July 27, 1943. 

At this time it seems to me necessary and desirable to point out that the purpose 
of the $500 million of financial aid to China, and particularly my agreement in 
July 1943 to ship gold to China, was to assist in an anti-inflationary program 
which would strengthen confidence in the Chinese Government and its finances 
and thereby help maintain the Chinese economy. As you know, it is my opinion 
that the sale of gold by China has not proved effective in combating inflation, and 
I am doubtful that it will prove effective. Also as I have told you, the manner 
in which the gold sales have been conducted and the consequent public criticism 
of them in China are not conducive to achieving the purposes for which our 
financial aid was granted. 

Therefore, I would respectfully ask the Chinese Government to consider care- 
fully the matters proposed to you in my memorandum of May 8, 1945. In par- 
ticular I would reiterate my suggestion that China constitute a $500 million fund 
for combating inflation and stabilizing the currency from its foreign exchange 
assets. I think that this step would be of considerable short- and long-run benefit 
to China and would inspire confidence in the Chinese Government's handling of its 
difficult economic situation. 

The Treasury has noted with great interest the intention of the Chinese Gov- 
ernment, as stated in your memorandum to the Secretary of State, to effectuate 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2035 

reforms relating to financial and economic matters. We think that the carrying 
out of these reforms will do more to insure confidence among the people and 
give a measure of stability to the present economic and financial situation than 
the gold program. 

I know that you and your Government will take these friendly suggestions in 
the spirit in which they are offered. As I told you, we intend to carry out faith- 
fully our financial agreement of 1942. However, the Chinese Government's 
response to our proposal to institute a $500 million fund and her conduct of the 
gold sales program will be important considerations in our financial relations 
with China. 

This Government has as prime objectives the defeat of Japan and the liberation 
of China. As an old friend of China, I believe that our faith and confidence in 
China will be justified. 
Very truly yours, 

(Signed) Henby Moegenthau, Jr. 



May 16, 1945. 
Honorable Leo T. Crowley, 

Administrator, Foreign Economic Administration, Washington, D. C. 

My Deab Mr. Crowley : For your information, I am sending you herewith copy 
of a letter from Mr. Grew to me, and copies of letters which I have written to Mr. 
T. V. Soong and General Carter. 
Sincerely yours, 

(Signed) H. Moegenthau, Jr. 

May 16, 1945. 
Honorable Robert P. Patterson, 

Under Secretary of War, War Department, Washington, D. 0. 

My Dear Mr. Patterson : For your information, I am sending you herewith 
copy of a letter from Mr. Grew to me, and copies of letters which I have written 
to Mr. T. V. Soong and General Carter. 
Sincerely yours, 

(Signed) H. Moegenthau, Jr. 

May 16, 1945. 
Honorable Joseph C. Grew, 

Acting Secretary of State, State Department, Washington, D. C. 
My Dear Mr. Grew : For your records, I am sending you herewith copies of 
letters which I have written to Mr. T. V. Soong and General Carter. 
Sincerely yours, 

(Signed) H. Moegenthau, Jr. 

Exhibit No. 352 
[Vol. 808, pp. 196-201] 

January 9, 1945, 2 : 50 p. m. 

Rate for Formosa. 
Loan to Russia. 
Present : Mr. D. W. Bell 
Mr. Luxford 
Mr. DuBois 
Mr. Glasser 
Mrs. Gold 
Mrs. Klotz 
H. M. Jr. I tell you what I am going to do. I haven't time to assimilate this, 
I have been putting it off. Have you done the basic work on this? 
Mrs. Gold. Some of it. 
H. M. Je. And you? Who else? 

Mr. Glassek. I was only involved once, but Luxford and DuBois played a 
part in it last spring, almost a year ago. 

H. M. Jb. Are they in on this? Maybe I ought to say what are they not in on. 
Maybe we ought to ask them to come in. 
H. M., Je. I don't get this business. 
Mrs. Klotz. Did you say something to me? 



2036 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

H. M., Jr. I said that I have to argue about this a little bit. I can't do this 
thing in split seconds. 

(Mr. Luxford enters the conference.) 

H. M., Jr. From now on when I hold conferences I am going to say, "Let's 
include Luxford and DuBois unless they don't want in on it." Were you in on 
this summary of suggestions for the provision of ten billion dollars to be loaned 
to USSR? 

Mr. Luxford. That is right. 

H. M., Jr. How much? 

Mr. Luxford. I have worked along with it. 

H. M., Jr. Recently? 

Mr. Luxford. Recently. I revised it before Harry had it. 

M. H., Jr. Is this a memo for Harry? 

Mr. Glasser. That is one we just did. I don't know whether you, were in on 
this. 

(Hands Mr. Luxford Memo on "Can't the USSR Service A Ten Billion Dollar 
Loan?") 

That is the longer one Harry did. 

Mr. Luxford. No, this is a memo to the President. 

H. M., Jr. No. 

Mr. Glasser. This is the memo. (Hands Luxford memo to the President on 
"Ten Billion Dollar Credit to the USSR.") 

Mr. Luxford. But I revised that, and he has it on his desk now, a revision 
of it. 

H. M., Jr. The point is, chances are it may come up tomorrow morning. 

( Mr. DuBois enters the conference. ) 

H. M., Jr. Are you (DuBois) working on the long-term loan to Russia? 

Mr. DuBois. Yes. 

H. M., Jr. How much 

Mr. Luxford. All of us worked together for a long while. 

Mr. DuBois. Previously I worked for some time on it. 

Mr. Luxford. This has been revised. 

H. M., Jr. You may change your mind so you are not in on this. I will hit 
this tonight at eight-thirty. 

Are you all right? 

Mr. Glasser. All right. 

H. M., Jr. Supposing we do it. If I can concentrate on this thing for an hour, 
I can really get it into my blood stream. 

Mr. Luxford. Right. 

H. M., Jr. I am pretty busy tomorrow morning. I am afraid 

Mr. Luxfoud. The only thing I put in the last memo to the President on this 
which you might want to consider was that while we should carry on negotia- 
tions now with the USSR, probably the matter should not be raised before 
Congress until after we get Bretton Woods through, but the only significant point 
added 

H. M., Jr. He should have something he can take with him on his trip just the 
way he did on the London thing. The English — did you work on that? 

Mrs. Gold. Yes. 

H. M., Jr. You did? 

Mr. Glasser. Yes, I did some. 

H. M., Jr. Anybody else? 

Mr. Glasser. No. 

Mr. Luxford. Casaday came in. 

H. M., Jr. He is not here now. 

Mr. Glasser. Yes. 

H. M., Jr. What is he on, Russia, now ? He was on English. 

Is eight- thirty a good or bad time? If the four of you wouldn't mind, I 
would only keep you an hour. But I have just got to get this thing in. 

Mr. Luxford. Here, or at your home? 

H. M., Jr. Yes: at home. Who else is in on the rate for Japan? 

Mr. Glasser. Luxford has done a little on that, but Mr. Bell, Harry and I 

H. M., Jr. All right. Are you in on that? 

Mrs. Gold. No, Mr. Secretary. 

H. M., Jr. Are you in on it? 

Mr. DuBois. No. 

Mr. Luxford. If you want me in on it — Glasser knows we are in agreement 
on any views on it. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2037 

H. M., Jr. I will see the four of you. Please do your best to have it con- 
densed and simple, not something for now, but something the President can 
have. For instance, when Churchill started to talk about Lend-Lease, Professor 
Lindeman handed him a memo which I saw, giving him all the arguments. He 
had that in his lap, you see, to read. Write something that the President could 
have if he wants to bring it up, or if Stalin brings it up, in that kind of 
form. 

Mr. Luxford. We had added to the end of Harry's suggestion just to work 
out with Stettinius a statement. If you wish, Stettinius and you can work 
this out further, the thought being the memo will ultimately get to him, anyway, 
and it is better to have the window dressing in there. 

H. M. f Jr. That is unimportant. I talked to Stettinius this afternoon, and 
he said, "I will see the President, and I am going to bring it up, especially — " 
I can't say now — he had a good reason, a favorable reason. 

Mr. Luxford. I am sure. 

H. M., Jr. I will see you then. 

(Mr. D. W. Bell enters the conference.) 

H. M., Jr. You had better tell her how to get to the house ; will you? 

Mr. Glasser. Yes, sir. 

(Mr. Luxford, Mr. DuBois, Mrs. Gold leave conference.) 

H. M., Jr. This is on your letter. 

Mr. Bell. On me? 

H. M., Jr. Your letter of January 6 to Mr. Grew on the ten-cent rate for 
Formosa, which means nothing in my young life. I will flip a coin with you. 

Mr. Bell. Well, that is about the way most of us feel about it, I think, except 
that the technical boys felt on economic grounds that the ten-cent rate was 
not justified over at the conference Saturday morning. Over at the conference 
in Mr. Grew's oflSce on Saturday Harry took the position that you had taken 
previously, that if the State Department wanted to set a ten-cent rate on 
political grounds and assume the responsibility, that would be all right with 
the Treasury. Harold feels that this is a military rate, whatever you call it ; 
whether it is economic or political, it is still a military rate, and that letter 
is all right. It does put the responsibility right back on the State Department, 
and I think that is in line with the policy you set with Germany. Wasn't it 
Germany? Yes. 

Mr. Glasser. It is along the line we took in Italy, too. 

Mr. Bell. They accepted our rate in Italy. 

Mr. Glasser. That is true. 

Mr. Bell. We fixed the rate in Italy, and in France we had a little — when 
we insisted on seventy-five, State wanted fifty, but we set it at seventy-five, and 
then the President came along and said he would like to separate it. 



INDEX 



Note. — The Senate Internal Security Subcommittee attaches no significance 
to the mere fact of the appearance of the names of an individual or an organiza- 
tion in this index. 

A 

Page 

Adler I960, 

1966, 1968, 1969, 1987, 1988, 1995, 2002, 2005, 2007, 2009, 2010. 2012- 
2014, 2022-2024, 2027, 2030, 2032. 

American Army Air Transport Command 2001, 2008 

American Embassy, Chungking, China 1960 

Angell, Jim 2004 

Army: 

American 1973-1975, 2001, 2007, 2008, 2016-2018, 2034 

Chinese 2001 

Asia 1980 

Atcheson 1997 

Ausland, Major 1962 

B 
Bell, Mr 1986, 

1995, 1996, 2002, 2004-2006, 2012, 2013, 2015-2022, 2024, 2025, 2027, 

2029-2032, 2035, 2037. 

Berle 1985 

Bernstein, Mr 1968, 1989, 1990 

Braden, Ambassador 2019 

Bretton Woods Conferences 1960, 1980, 1993, 2019, 2036 

British plan (for International Monetary Fund) prepared bv Lord Keynes_ 1980 

Burma 1981 

Burma-India sector 1968 

Butler, Senator John Marshall 1955 

Byrnes, Jimmy 2015 

C 

Cairo conference 1974 

Canton 1957 

Carter, General 2002. 2004-2007, 2010, 2033, 2035 

Central Bank of China 1960, 

1965, 1967, 1968, 1970, 1971, 1974, 1978, 1979, 2000, 2001, 2034 

Chao, Ting-chi 1959 

Chen, K. P 1988 

Chengtu airfields 1967, 1975 

Chennault, General 1968 

Chi, Dr. C. J 1960, 1961, 1984, 1988, 2023 

Chiang, Kai-shek, Generalissimo 1956, 

1963, 1972, 1974, 1975, 1989, 1991, 1992, 1995, 2003, 2028, 2031, 2032 

Chiang, Madam 1966, 1987, 1996, 2023 

China 1956, 

1957, 1959, 1960, 1961, 1964-1966, 1974, 1975, 1978-1981, 1983, 1984, 
19S6. 1990-1993, 1996, 1997, 1999, 2000, 2002, 2012, 2014, 2027, 2028, 
2030, 2034, 2035. 

China National Aviation Corp 1975, 19S0 

Chinese Ambassador 1966, 1980 

Chunking 1961, 1968, 1978, 1987-19S9, 1997, 2032 

Clayton, Will__ 1973, 1996, 2002, 2004, 2006-2012, 2021-2023, 2025, 2028, 2030, 2032 

Coe, V. F 1971, 1972, 1995, 1996, 1999, 2002-2006, 2010-2032 

Collado, Mr 2002, 2004, 2010, 2011, 2013, 2025 



n INDEX 

Page 

Communist (s) 1958,1959,1984 

Communist Party 1971 

Crowley 1985, 1987, 2004, 2009, 2011, 2035 

Currency stabilization fund 1972 

D 

De Gaulle, General 2018 

Du Bois 2035, 2036 

E 

Eccles 1985 

Europe 1980 

Exhibit No. 327— Memo to Collado from White dated June 10, 1944, request- 
ing cable be sent to American Embassy, Chungking 1960 

Exhibit Xo. 328 — Letter of December 7, 1941 from Arthur N. Young, former 
financial adviser to China, to Mrs. Young on the financial situation, with 
special reference to currency stabilization measures 1961-1965 

Exhibit No. 329— "China and Gold, 1942-45" bv Arthur N. Young dated 

July 11, 1956 1965-1978 

Exhibit No. 330 — Data from Federal Reserve Bank of New York on gold 
shipments from United States to China, 1943-47 197S 

Exhibit No. 330-A — Data from Federal Reserve Bank of New York on gold 

prices, sales and receipts in China by Farmers Bank of China 1979 

Exhibit No. 331— Memo of July 20, 1943 of Arthur N. Young on White and 

Keynes plans 1981-19S3 

Exhibit No. 332 — Memo to Morgenthau from White dated September 22, 

1943, re French franc rate ; Chinese stabilization loan ; Dutch request 
for lend-lease of silver coins; International Bank proposal; conferences 
on International Stabilization Fund proposal ; British reciprocal 
lend-lease of raw materials ; British international dollar position ; Saudi 
Arabia ; gold sales ; shipments of gold to China ; looted gold ; Canadian 
dollar position ; release of McDaniels blocked sterling 1984-19S6 

Exhibit No. 333 — White memo to files dated September 29, 1943, re meeting 

in Secretary's office 1986-1987 

Exhibit No. 334 — Telegrams to Secretary of Treasury from Adler dated 
December 1, 1943, re Chungking prices ; to Secretary of State from Gauss 
in Chungking dated December 1, 1943 19S7-1989 

Exhibit No. 335 — Meeting on December 17, 1943 re loans to China. Pres- 
ent: Glasser, Bernstein. Lipsman, Klotz, and Morgenthau 1989-1991 

Exhibit No. 336 — Memo for President dated December 18, 1943, re inflation 

in China 1991-1993 

Exhibit No. 337 — Memo to Morgenthau from White dated December 9, 

1944, re lend-lease discussions of the joint committee 1993-1994 

Exhibit No. 338 — Letter to Kung from Morgenthau dated January 5, 1945, 

re shipment of gold to China ; letter from King to Morgenthau dated 
Januarv 3, 1945; telegram from Yui to King dated December 30, 
1944 1994-1995 

Exhibit No. 339 — Conference on gold to China on May 10. 1945. Present : 

Boll, Coe, Friedman, Adler. White, Klotz. and Morgenthau 1995-1997 

Exhibit No. 340 — Telegram to Secretary of Treasury from Adler on gold 

situation dated March 11, 1945 1997 

Exhibit No. 341 — Letter to Kung from Morgenthau dated January 31, 
1945; lotter to Morgenthau from Kung dated January 18, 1945: letter 
to Kung from Morgenthau dated January 31, 1945; letter to Morgenthau 
from Kims dated January 24, 1945 199R-1999 

Exhibit No. 342 — Memo to Morgenthau from Coe re export of gold to China 
dated March 2, 1945; letter to Morgentbau from Kuncr dated February 
26. 1945 1999-2002 

Exhibit No. 343 — Letter to Kung from Morgenthau dated March 3. 1945___ 2002 

Exhibit No. 341 — Conference on gold to China on May 1, 1945. Present: 
Bell, Coe, Friedman, Adler, Somervell, Carter. Clayton, Collado, Stan- 
ton, Klotz, and Morgenthau 2002-2011 

Exhibit No. 345 — Memo to Morgenthau from Coe re Chinese gold 2011 

Exhibit No. 346 — Conference re gold to China on May 8, 1945. Present : 

Bell, Coe, Adler, Friedman, Klotz, and Morgenthau 2012-2022 



INDEX III 

Paee 

Exhibit No. 347 — Conference on sold to China on May 9, 1945. Present : 

Bell, Coe, Adler, Friedman, Klotz, and Morgenthau 2022-2025 

Exhibit No. 349 — Conference re sold to China on May 15, 1945. Present : 

Bell, Friedman, Adler, Coe, White, Klotz, Pehle, and Morgenthau__ 2027-2033 

Exhibit No. 350 — Letter to Morgenthau from Grew dated May 16, 1945, re 

delivery of remainder of gold 2033 

Exhibit No. 351 — Letter to President from Morgenthau dated May 16, 
1945 ; letter to General Carter from Morgenthau with schedule for ship- 
ment of gold dated May 16, 1945 ; with letters to Soong, Crowley, Patter- 
son, and Grew from Morgenthau dated May 16, 1945 2033-2035 

Exhibit No. 352 — Conference on Rate for Formosa and Loan to Russia 
on January 9, 3945. Present: Bell, Luxford, DuBois, Glasser, Gold, 
Klotz and Morgenthau 2035-2037 

Export-Import Bank 1905 

F 

Farmers Bank of China 1967, 1979 

FEA 2003, 2007, 2009, 2010 

Federal Reserve Bank of New York 1968, 197S, 1990, 2000, 2034 

Field, Frederick V 1957 

Financial Aid Agreement of March 1942 2034 

Foreign Affairs Committee 1993 

Foreign Economic Administration 2000, 2028 

Formosa 2035, 2037 

Forrestal 2023. 2032 

Fourteenth Air Force, General Chennault's 1968 

Fox 1959, 1962, 1963 

France, Mendez 2018 

Friedman, Mr__ 1960, 1933-1995, 2002, 2003, 2006, 2012-2016, 2022-2024, 2027-2031 

G 

Gauss 1988, 1989 

Generalissimo. (See Chiang Kai-shek.) 

George, Senator 1996 

Glasser, Mr. Harold 1989, 2020, 2035-2037 

Gold, Mrs 2035, 2036, 2037 

Gold: 

Sales in China, schedule of 1967, 1970 

Shipments from United States to China, 1943-47, table I 1976 

Prices, sales and receipts in China 1943^15, table II 1977 

Government : 

British 1961 

Chinese 1955-1959, 1964-1966, 1973, 1974, 

1979, 1981, 1983, 1992, 1994, 2000, 2005, 2022, 2023, 2034, 2035 

Dutch 1987 

Indian 2009 

Nationalist 1956, 1965, 1975, 1980 

Peiping 1956 

United States 1957, 1980, 2000 

Great Britain 1982 

Grew, Acting Secretary 1973, 2033, 2035 

Gromyko 1986 

Gutt 2012, 2016, 2018 

H 

Hankow 1957 

Hilldring 2018 

Hornbeck, Dr. Stanley 1957, 1958 

Hsi, Te-mon 1966, 1994, 1995 

Hu, Shih, Chinese Ambassador in Washington 1950 

Hull, Secretary 1957 

Hump, the 1975 

Hurley, Ambassador 1999, 2003 



IV INDEX 

I Page 

India 1966, 1976, 1983 

Institute of Pacific Relations 1958, 1959 

International Monetary Fund 1980 

J 

Japan 1965, 1994, 2030, 2035, 2036 

Japanese 1957, 1959 

Japanese attack (on China) in 1937 1956 

Jianchen 1988 

Jones, Joseph 1958 1985 

K 

Keynes, Lord 1980, 1985 

Keynes plan 1962, 1980, 1981 

King, Admiral 2023, 2032 

Klotz, Mrs 1989, 1995, 1996, 2002, 2012, 2016-2018, 2022. 2024, 2027, 2035 

Koo, Y. C 1988 

Kung, Dr. H. H. (Finance Minister) 1959, 

1960, 1963, 1966, 1967, 1969-1972, 1987, 1988, 1990, 1993-1995, 1998, 

1999, 2002, 2015, 2016, 2023, 2030, 2034. 

Kunming, China 1968 

Kuo, Dr. P. W 1966 

Kuomintang-Communists 1964, 1971 

Kwok, K. K 1988, 1989 

L 

Lease-Lend 1963 

Lipsman, Mr 1989 

Luxford, Mr 2035, 2036, 2037 

M 

Mandel, Benjamin 1955 

McCloy 2018 

Middle East 1966, 1976 

Mitchell, Jonathan 1955, 1977 

Monetary Conference 1961 

Monnet 2018 

Morgenthau Diaries 1955, 1960, 1965, 1983, 1984 

Morgenthau, Secretary of Treasury 1957- 

1959, 1965-1973, 1983, 1984, 1989, 1990. 1993-2000, 2003-2011, 2013, 

2015-2025, 2028-2037. 
Morris, Robert 1955 

N 

National Resources Commission of China 1971 

Navy Department 2023 

Nelson, Donald 1971 

New York 1957 

Niemeyer, Sir Otto 1963 

O 

OEW 1985 

Okvui 19S8, 1989 

Olsen, Mr 1994 

P 

Paris Merchandise Exhibition, 1936 1960 

Patch, Hall 1963 

Patterson, Mr 1994, 2003. 2011, 2035 

Pearl Harbor 1961, 1965 

Pehle, Mr 2027 

Pei 1988, 2003 

Peoples Political Council 2014 

Philippines 1968 



INDEX V 

Page 

Pleven 2003, 2012, 2017, 2018 

President the 1973 

1974, 1987, 1989, 1990, 1991, 1996. 2008-2010, 2019, 2023, 2025, 

2027-2029, 2032, 2033, 2036, 2037. 

Q 

Quo, P. W 2023 

R 

Rajehnian, Dr. Ludwig, Polish Communist delegate to UNICEF_ 1957, 1958, 1984 

Rangoon 1961 

Rogers 1963 

Roosevelt, President Franklin 1966, 1968, 1974, 1996, 2030 

Rusher, Win. A 1955 

S 

San Francisco Conference 1971, 1972, 1983 

SHAEF 2020 

Sino-British Fund 1963 

Sino-Japanese War 1959 

Smith, Horace 1958 

Somervell, General 2002, 2004-2011 

Soong, Dr. H. K 1956 

Soong, Dr. T. V 1956-1958, 

1971-1973, 1983, 1995, 1996. 2003, 2007, 2008, 2010, 2012, 2013, 

2015, 2021-2023, 2025, 2027-2029, 2033-2035. 

Spence, Congressman 1993 

Stabilization Board 1959, 1961, 1963 

Stabilization Fund 1993 

Stanton, Mr 2002, 2004, 2009 

State Department 1955, 

1957-1959, 1971-1974, 1976, 1981, 1986, 1987, 1996, 1997, 2003, 2004, 

2007-2009, 2011, 2013, 2019-2021, 2027-2029, 2037. 

Stettinius 2037 

Stilwell, General 1975, 2023 

T 
Tai 1988 

Taylor, Mr 1994 

Teheran 1989 

Temou, Hsi 2023 

Tomlinson, Mr 1994 

Treasury, Chinese Government 1967 

Treasury, United States 1957-1961, 

1966, 1970-1972, 1974-1976, 1979, 19S0, 1984, 1995, 1996, 2011, 2012, 

2014, 2020, 2028, 2029, 2033, 2034, 2037. 
Truman, President 1071, 2011, 2031, 2033 

U 

UNICEF 1958 

United Nations 1971 

United Nations Monetary and Financial Conference 1960 

United States 1974, 1982, 1983, 

1995, 2000, 2002, 2009, 2012, 2014, 2020, 2028, 2032 

V 

Varvaressos of Greece 2004 

Vincent, John Carter 2030 

W 

Wagner, Senator 1993 

Walker, Frank 2004 

Wallace I960, 2007 



VI INDEX 

Pag« 

War Department 1971, 1972, 1974, 

1976, 1981, 2003-2005, 2008, 2010, 2020, 2028, 2033 

War Production Board 1971, 2001, 2009 

Washington 1957, 1971, 1975, 1981, 1983 

Wedeineyer, Gen 1975, 2023, 2032 

Wei, Ambassador Tao-ming 1966 

Wei, Ting-sheng 1961 

White, Harry Dexter 1957-1961, 1966, 

196S, 1969, 1972, 1973, 1976, 1984, 1987, 1991, 1993, 1994-1997, 2023, 
2027, 2029-2032, 2036, 2037. 

White plan for an International Monetary Fund 1980, 19S1 

Willauer, Mr 2010 

Young, Dr. Arthur N. (testimony of) 1955-2037 

Head of financial mission to Saudi Arabia in 1951 and 1952 1955 

Economic adviser to State Department in 1920's 1955 

Financial adviser to Chinese Government from 1929 to 1946 1955 

Young, Mrs 1961 

Yui, O. K., Minister of Finance 1956, 1969, 1971, 1994, 1995 

o 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



HEARINGS 

BEFORE THE 

SUBCOMMITTEE TO INVESTIGATE THE 

ADMINISTRATION OF THE INTERNAL SECURITY 

ACT AND OTHER INTERNAL SECURITY LAWS 

OF THE 

COMMITTEE ON THE JUDICIARY 

UNITF^ STATES SENATE 

EIGK -FOURTH CONGRESS 

SEJOND SESSION 
ON 

SCOPE OF oOVIET ACTIVITY IN THE 
UNITED STATES 



AUGUS 29 AND OCTOBER 7, 1956 



PART 36 



Printed for the use of the Committee on the Judiciary 




UNITED STATES 
GOVERNMENT PRINTING OFFICE 
72723 WASHINGTON : 1957 



Boston Pi jbrary 

Su P e: ^ments 

APR 4 - 1957 



COMMITTEE ON THE JUDICIARY 

JAMBS O. EASTLAND, Mississippi, Chairman 

ESTES KEFAUVER, Tennessee ALEXANDER WILEY, Wisconsin 

OLIN D. JOHNSTON, South Carolina WILLIAM LANGER, North Dakota 

THOMAS C. HENNINGS, Jr., Missouri WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. W ATKINS, Utah 

PRICE DANIEL, Texas EVERETT MCKINLEY DIRKSEN, Illinois 

JOSEPH C. O'MAHONEY, Wyoming HERMAN WELKER, Idaho 

MATTHEW M. NEELY, West Virginia JOHN MARSHALL BUTLER, Maryland 



Subcommittee To Investigate the Administration of the Internal Security 
Act and Other Internal Security Laws 

JAMES O. EASTLAND, Mississippi, Chairman 

OLIN D. JOHNSTON, South Carolina WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

THOMAS C. HENNINGS, Jr., Missouri HERMAN WELKER, Idaho 

PRICE DANIEL, Texas JOHN MARSHALL BUTLER, Maryland 

Robert Morris, Chief Counsel 

J. G. Soorwine, Associate Counsel 

William A. Rusher, Associate Counsel 

Benjamin Maxdel, Director of tvesearch 

II 



CONTENTS 



Statement of — Page 

Angus Ward, former Ambassador to Afghanistan 2039 

Adm. Charles M. Cooke, United States Navy, retired 2061 

m 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



WEDNESDAY, AUGUST 29, 1956 

United States Senate, 
Subcommittee To Investigate the Administration 
of the Internal Security Act and Other 

Internal Security Laws, of the 
Committee on the Judiciary, 

New York, N. Y. 
The staff met, pursuant to notice, at 2 o'clock p. m., in the United 
States Court House, Foley Square, New York, N. Y., Robert Morris 
(chief counsel) presiding. 
Present: Mr. Morris, Dr. Edna E. Fluegel, and Nelson Frank. 
Mr. Morris. Ambassador Ward, will you give your name and 
address to the reporter? 

STATEMENT OF ANGUS WARD, FORMER AMBASSADOR TO 

AFGHANISTAN 

Mr. Ward. Angus Ward, domiciled in Michigan, residing in Spain. 

Mr. Morris. And are you a Foreign Service officer? 

Mr. Ward. I was until recently, when I completed a bit more than 
31 years of service, and resigned. 

Mr. Morris. Ambassador, I would like to show you an official biog- 
raphy of Angus Ward, and I would like to ask you to look at that 
and tell us generally if that is an accurate statement of your career. 

Mr. Ward. Yes, it is. 

Mr. Morris. All right. I am offering that for the record at this 
time. 

(The document referred to was marked "Exhibit No. 353" and reads 
as follows:) 

[Source: Register of the Department of State, 1955] 

Ward, Angus. — b. Canada, July 19, 1893; naturalized; Valparaiso U. 1913-14; 
lumber engineer and salesman 1909-17 ; U. S. Army 1917-19, 1st Lt. ; with Am. 
Relief Admin, in Finland and Russia 1919-20; shipping and export business 
1920-23; timber valuation engineer, Bu. of Internal Revenue, 1923-25; app. FSO 
unclass. Mar. 20, 1925; v. c. of career and v. c. at Mukden Sept. 2, 1925; at 
Tientsin Oct. 14, 1926; FSO-8, eons., and cons, at Tientsin Dec. 19, 1929; at 
Moscow Feb. 10, 1934 ; sec. in Diplo. Ser. Mar. 9, 1934 ; FSO-7 July 1, 1934 ; 2d 
sec. at Moscow in addition to duties as cons. Feb. 6, 1935; FSO-6 Apr. 1, 1936; 
FSO-5 Jan. 3, 1938 ; FSO-4 Mar. 1, 1940 ; 1st sec. at Moscow in addition to duties 
as cons. Apr. 26, 1940 ; cons, at Vladivostok Nov. 28, 1940 ; cons. gen. Oct. 29, 1941 ; 
cons. gen. at Vladivostok Oct 31, 1941 ; FSO-3 June 1, 1942 ; to Dept. Apr. 21, 
1944 ; couns. of emb. at Tehran Jan. 5, 1945 ; FSO-2 May 16, 1945 ; cons. gen. at 
Mukden July 9, 1946; FSO-2 Nov. 13, 1946; FSO-1 May 23, 1950; cons. gen. 
at Nairobi Sept. 1, 1950; superior ser. award Oct. 18, 50; A. E. and P. to 
Afghanistan June 27, 52 ; m. 

2039 



2040 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. Now, what was your last assignment? 

Mr. Ward. My last assignment was Ambassador to Afghanistan. 

Mr. Morris. How long did you serve in that capacity? 

Mr. Ward. Almost 4 years. 

Mr. Morris. And I wonder if you would tell us your assignment 
prior to that. 

Mr. Ward. My assignment prior to that was at Nairobi, British 
East Africa ; before that, going back to Teheran — in short, out of my 
about 31 years of service, 28 were spent in the Soviet Union or around 
the periphery of the Soviet Union. 

Mi-. Morris. Now, if I may, Ambassador Ward, I would like to ask 
you for the details of your specific assignments from 1939 to date, 
because that covers the area that the Internal Security Subcommittee 
is now interested in. 

Prior to Nairobi, what was your assignment? 

Mr. Ward. My assignment was Mukden. 

Mr. Morris. Mukden? 

Mr. Ward. Mukden, Manchuria. 

Mr. Morris. And prior to that? 

Mr. Ward. Prior to that, Teheran, Iran. 

Mr. Morris. And prior to that? 

Mr. Ward. In Vladivostok. 

Mr. Morris. When did your service in Vladivostok commence? 

Mr. Ward. In early January of 1941. 

Mr. Morris. And it lasted for how long ? 

Mr. Ward. Until October 1944. 

Mr. Morris. So you were there during the Japanese attack at Pearl 
Harbor, were you not? 

Mr. Ward. Yes. 

Mr. Morris. And what was your official title ? 

Mr. Ward. Consul general. 

Mr. Morris. I wonder if you would tell us, Ambassador, of your 
observations during that period of Soviet activities affecting the 
United States, or possible Soviet activities which may have been inim- 
ical to the United States during that period, roughly. 

Mr. Ward. Of course, during that period we had great movement 
of American goods into the Soviet Union across the Pacific. You may 
recall at the time of the attack on Finland, shipments were stopped. 

Mr. Morris. To the Soviet Union? 

Mr. Ward. To the Soviet Union, and then they were renewed and 
they went on and, of course, along then in June of 1941 came the 
German attack on the Soviet Union, when American shipments were 
further increased, and that went on until Pearl Harbor, when all 
American ships and bottoms, which we had leased from neutral ship- 
ping, ceased coming to Vladivostok and then the transpacific trade was 
m Soviet bottoms, after Pearl Harbor. 

Mr. Morris. And you were able to observe, were you not, American 
aid in great quantities being shipped in the Soviet Union ? 

Mr. Ward. Staggering quantities. 

Mr. Morris. Now, what was the method of transporting that ma- 
terial ? 

Mr. Ward. After delivery ? 

Mr. Morris. You said it came in either American bottoms or, later 
on, in Soviet bottoms after Pearl Harbor. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2041 

After it was shipped into Vladivostock, how was it transported to 
the heart of the Soviet Union ? 

Mr. Ward. A small bit was again loaded into Soviet bottoms, to 
Petropavlovsk, up near Alaska. 

The overwhelming bulk went by rail westward to western Siberia 
and European areas of the Soviet Union. 

Mr. Morris. What railroad was employed for that ? 

Mr. Ward. The Trans-Siberian Railway, at that time the only rail- 
way connecting western Siberia with the Soviet Far East. Since then, 
it has been paralleled by another. 

Mr. Morris. What was the terminus of that railroad? 

Mr. Ward. Vladivostock. 

Mr. Morris. Off the record. 

(Discussion off the record.) 

Mr. Morris. Now, you were there, were you not, Ambassador, at 
Vladivostock during the Nazi attack on the Soviet Union 

Mr. Ward. Correct. 

Mr. Morris (continuing). And the Japanese attack at Pearl 
Harbor. 

You were there also at the time of the Yalta Declaration ? 

Mr. Ward. Yes. 

Mr. Morris. Which I believe was February 2, 1945. 

Mr. Ward. Yes. 

Mr. Morris. When did you first learn of the 

Mr. Ward. No ; I left there in October 1944. The Yalta Declara- 
tion came during that winter of 1944-45, 1 think. 

Mr. Morris. Off the record. 

(Discussion off the record.) 

Mr. Morris. Then you 

Mr. Ward. I left Vladivostock in October 1944. 

Mr. Morris. When did you first learn of the Yalta agreements? 

Mr. Ward. I was in the United States, on my way to Teheran, at 
that time. 

Mr. Morris. Now, were you able to form any conclusions based on 
your long experience in the Far East, particularly your experience 
which you have just related about Vladivostock, with respect to the 
Soviet agreement made at Yalta, with respect to the Far East? 

Mr. Ward. As I recall, the one thing that was of outstanding inter- 
est to me was the cession of the railway, Manchurian Railway, to the 
Russians ; also the cession of the Kurile Islands to the Soviet Union. 

Those were two very far-reaching agreements insofar as the Far 
East was concerned. 

Mr. Morris. Now, were you able at any time, either prior to this 
date of the Yalta Declaration or any time subsequent, to observe first- 
hand the operations of the Manchurian Railroad? 

Mr. Ward. Yes. All the time I was in Manchuria, the Manchurian 
Railway, the old north and south Manchurian railways were being 
operated by the Russians. Also, the Russians — one other thing was 
the occupation and use of the port of Dairen, the Russians had taken 
over the port of Dairen, Port Arthur, to almost complete exclusion 
of the Chinese Government. 

Mr. Morris. What did the terms of the Yalta agreement provide 
with respect to that railway ? 



2042 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Ward. Roughly, that it would be operated by the Soviet Union. 

Mr. Morris. Wasn't the Chinese Government to have some kind 
of rights with respect to the railway ? 

Mr. Ward. Yes; they were, but those rights were certainly not 
observed in great evidence. The Chinese were quite crowded aside. 

Mr. Morris. In other words, the Soviet Union did not even observe 
the terms of the agreement, except as they were favorable to the 
Soviet Union ? 

Mr. Ward. So the Chinese constantly maintained. 

Mr. Morris. During that period of time, did you have an oppor- 
tunity to know anything about the Japanese Kwantung army? 

Mr. Ward. The Kwantung army was no longer in existence when 
I arrived in Manchuria. 

Mr. Morris. During the period you were in Vladivostok? 

Mr. Ward. No ; there was no communication back and forth across 
the frontier. When in Manchuria, earlier in 1925, 1926, then, of 
course, the army was a very important Japanese factor. 

Mr. Morris. Was there any intelligence emanating from American 
sources with respect to the strength of the Kwantung army that you 
might have been conversant with ? 

Mr. Ward. Nothing that came across to me at Vladivostok. That 
frontier was closed very tightly. 

Mr. Morris. After you finished your tour of duty in Vladivostok 
you returned to the United States, did you not? 

Mr. Ward. Correct. 

Mr. Morris. During that period, did you spend any time with the 
State Department in Washington? 

Mr. Ward. Yes. I was in the State Department for consulta- 
tion, I don't recall exactly, but it was a number of weeks, several 
weeks. 

Mr. Morris. Were you able to observe at that time the thinking of 
any officials of the State Department? In asking you about officials, 
I ask you about people who were division heads or heads of desks, 
or anything like that, with respect to our China policy at that time. 

Mr. Ward. Yes. In fact, I had one of the shocks of my life at 
that time. I was in the State Department, discussing basically Chi- 
nese affairs, and we got off onto general Soviet-American affairs, inas- 
much as I had just come out of the Soviet Union, and I was asked 
what, in my mind, were the Soviet war aims. 

Mr. Morris. This time is now the end of 1944, possibly early 1945 ? 

Mr. Ward. More likely January of 1945. 

And at that time, of course, like everybody else, I had my ideas. 
My opinion of that at that time, from indications within the Soviet 
Union and from the tendency of Moscow to follow expansionist 
ideals that went back long before the revolution, was that the Soviet 
Union in Europe would not be content with anything short of a 
line approximately running from the Baltic to the Adriatic. And 
whereupon 

Mr. Morris. You expressed that view to a State Department 
official ? 

Mr. Ward. Yes. 

Mr. Morris. Who shall be nameless for the purposes of this tes- 
timony. 

Mr. Ward. So I prefer. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2043 

Mr. Morris. Now, what did he say to you upon your expressing 
that view ? 

Mr. Ward. Well, he expressed his amazement, in fact he said he 
was astounded that I could so speak of one of our allies and that, 
in so speaking, I was a disloyal American. 

Mr. Morris. What did you do when he made that statement? 

Mr. Ward. I picked up my hat and left his room. 

Mr. Morris. Were there any other high-level State Department 
officials whom you saw during this period ? 

Mr. Ward. I saw some, but I have no recollection of any statements 
in my January 1945 visits around the Department of State. 

Mr. Morris. All right. Now, what was your next assignment ? 

Mr. Ward. The next assignment was Tehran. 

Mr. Morris. When did you leave for Tehran ? 

Mr. Ward. Early in March, as I recall, or maybe late February. 

Mr. Morris. How long did you stay there ? 

Mr. Ward. I stayed there until December 10 of 1946. 

Mr. Morris. Now, what position did you have there ? 

Mr. Ward. I was Counselor of Embassy. 

Mr. Morris. Now, were any of the experiences you acquired there 
related to the general area of the Soviet conquest of Asia, that is, the 
subject of this present testimony? 

Mr. Ward. Well, we probably all recall that the world was a bit 
nervous at that time whether the Soviet troops would evacuate Tehran. 
You may recall we had a Soviet puppet regime at Azerbaijan. We 
had this puppet regime there, no indication that it was going to be 
terminated at all. We had the Soviet troops in North Persia, north- 
ern Iran. The Americans and the British troops immediately took 
steps upon the end of the war in Europe to evacuate, but the Soviet 
troops made no gesture toward moving. 

And it was quite a delayed operation. They eventually did 
evacuate and eventually the Shah of Iran seized the power in Azer- 
baijan and evicted the Soviet puppet regime, and it was again part 
of the overall expansionist imperialistic picture that we had become 
acquainted with in old Russia and the present-day Soviet Union. 

Mr. Morris. Now, in connection with the general area did anything 
occur in that period that you think would be relevant to this in- 
quiry ? 

Mr. Ward. Certainly their failure to evacuate their troops was 
further evidence of constant Soviet absence of bona fide intent to 
observe agreements. 

Mr. Morris. Now, did you return to the United States after that 
assignment ? 

Mr. Ward. No, I went directly to Mukden, Manchuria. 

Mr. Morris. What was your assignment ? 

Mr. Ward. I was there as a consul general. 

Mr. Morris. When did you arrive in Mukden ? 

Mr. Ward. Mid-March, as I recall, mid-March of 1947. 

Mr. Morris. I wonder if } r ou would tell us what the state of the 
Soviet conquest of Manchuria and China was at that time? What 
was the alinement of forces between the Chinese Nationalists and the 
Chinese Communists at that particular time ? 

72723—57 — pt. 36 2 



2044 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Ward. Well, the Chinese Communists were just beginning to 
gather strength, because, throughout many years, there had been the 
Communist movement in China, but it was hampered a great deal 
because of lack of equipment and lack of munitions. When the Rus- 
sians came in and overwhelmed the wandering Kwantung Army, the 
Red Chinese Army, as it was known in those days, fell heir to the 
tremendous quantities of military supplies — munitions and so forth. 

Mr. Morris. When you say, Ambassador Ward, "They fell heir to", 
could you tell us whether there was any positive or affirmative action 
on the part of the Red Army to turn these weapons over to the Chi- 
nese Communists or was it a passive thing, as your use of these words 
might indicate? 

Mr. Ward. That was the point I was next going to bring up. When 
the Red Army troops withdrew, instead of withdrawing in an orderly 
planned withdrawal, the withdrawal was made so that, in every in- 
stance, the first Chinese military body to gain access to the point being 
evacuated was the Chinese Communist Army. The Chinese Com- 
munists naturally seized all this equipment, ordnance, munitions and 
so forth. It was rather cleverly done. 

The Chinese Nationalist Army got nothing or next to nothing in 
consequence of this Soviet withdrawal. 

And that put new life blood into the Chinese Communist Army 
because for the first time in several decades of its existence, it had the 
beginning of modern striking power. 

Mr. Morris. Now, the Chinese Communist forces had been driven 
north by the Nationalist forces? 

Mr. Ward. That is right. 

Mr. Morris. And during the time you experienced these activities 
which you have described, the Chinese Communist armies w^ere re- 
grouping, were they not, and arming themselves ? 

Mr. Ward. That's right. They were in occupation of northern 
Manchuria, whereas the Nationalists were in more or less occupation 
of southern Manchuria, but not much there, other than the railway 
corridor to Peking in the southwest and Changchun in the north. 

Mr. Morris. Will you give us as much evidentiary detail as you 
possibly can about that general activity on the part of the Soviets to 
turn over equipment to the Chinese Communists? 

Mr. Ward. Of course, I was not there when it transpired. I came 
afterward when the Communists already had this equipment and 
they had moved out from the mulecart stage into the motorcar stage 
of operations. 

Mr. Morris. How did you learn about these activities which you 
told us about? 

Mr. Ward. Well, we had an American consulate general in Mukden 
since late in 1945, as I recall. I also had a consulate in Changchun. 
We had another military intelligence group, the external survey de- 
tachment, and we had been very well acquainted with what had gone 
on in Manchuria. 

Mr. Morris. In other words, all these representatives of the United 
States military and the State Department were making constant 
reports which went through you in your capacity at that time? 

Mr. Ward. That's correct. 

Mr. Morris. Now, did you see these Chinese Communist forces, 
mechanized forces, which you have described ? 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2045 

Mr. Ward. Well, naturally we saw none around Mukden. I saw 
none until the Chinese Communists took over. You will probably 
recall that Mudken fell under siege in October of 1947, was sur- 
rounded then, railway communications with Peking were cut and north 
to Changchun were cut. Railway communications had been cut before 
to Dairen because the Communists were there, and also the Soviet 
authorities; but Mukden then became completely isolated and it 
stayed that way until the collapse of the Nationalist troops in Man- 
churia late September, early October, of 1948. 

When Mukden fell on October 1, 1948, 1 saw my first Chinese Com- 
munists' mechanized units. 

Mr. Morris. That's when they came into the city which they had 
just captured? 

Mr. Ward. That's right. 

Mr. Morris. Now, what happened after the Chinese Communist 
military forces took possession of the city ? 

Mr. Ward. Well, it was a very orderly takeover. There was little 
or no fighting, just some pockets of resistance in the town which went 
on for a week or so. The Chinese Nationalists did some retaliatory 
aerial bombing of the city, but in general it could be classified, I 
believe, as a quite orderly takeover. 

The Chinese Communists were very lenient in their administration 
of public order, tolerating many things which — after all, a military 
turnover always brings out certain lawless elements. They were 
dealt with very lightly, not at all as some of the ways other lawless 
elements were dealt with some months later. 

They organized the railway, of course, immediately, for their drives 
down into north China. The next big drive was down through the 
Great Wall on to Tientsin, Peking, eventually Shanghai, and right 
through the south of the country. 

Mr. Morris. Now, how were you and the members of the Embassy 
treated at that time? 

Mr. Ward. We in the consulate general were more or less ignored 
for the first few days. We did establish contact with the Chinese 
Communist officials for the purpose of letting them know that we did 
have an American community, which was small — just the American 
official community. And it went on that way until about the middle 
of the month, when I was informed that I would have to surrender 
the United States Government radio station that we were operating 
at Mukden. 

Mr. Morris. Was that operated from the consulate? 

Mr. Ward. Yes, it was in the compound of the consulate general. 
I was called down to the senior military official, told this. I informed 
him it was United States property ; it was not mine. They could, if 
they wished, take it ; but I would not surrender it for the reason I had 
no authority to surrender United States Government property. 

Several days later, a large group came to the consulate general in 
the morning, seized the radio station. I had stopped operation of the 
radio station when I received the first notice, because we were subject 
to local law to a certain extent. 

They came, took over the radio station and other equipment, radio 
equipment, that we had, and thereupon put me and all of my staff and 
all of the dependents of myself and my staff under arrest, and we were 



2046 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

kept under office or house arrest for — until December of 1949, 14 
months, a bit more, just about 14 months. 

Mr. Morris. Now, in addition to house arrest, was there any further 
effort on the part of the Chinese Communists to imprison you? 

Mr. Ward. Yes. In June of 1949, one Sunday when I was under 
arrest at the office, I casually turned on Radio Australia, and I heard 
that the Chinese Communists had unearthed a spy ring in Mukden. 
My stomach went way down at the time, because then I knew some- 
thing was going to happen. 

I asked immediately for permission to get out my staff, sent down to 
Tientsin or Peking those present who were not essential. It was re- 
fused. The State Department was aware at that time — I had received 
a communication ; I don't recall how the communication came through, 
but I had received a communication from the State Department, and 
we were required to remain on there. 

Later on again, October, as I recall, four members of my staff and 
myself were arrested and put into prison. 

Mr. Morris. Now, to get back, Ambassador Ward, to the period, the 
14-month period, when you were under house detention. 

What was the justification for that action on the part of the Chinese 
Communists? 

Mr. Ward. The Chinese Communists weren't prone to give us expla- 
nations of anything. At the time they seized the radio station, they 
stated that, until further instructions were received, we would be under 
arrest. 

Mr. Morris. And the house detention was really a form of arrest 
at that time ? 

Mr. Ward. Yes, sir. 

Mr. Morris. Could you, Ambassador Ward, have left the area at 
the time ? Left Mukden, at the time ? 

Mr. Ward. That is a hypothetical matter. I don't know, because I 
did not try. 

Mr. Morris. You had no instructions to leave ? 

Mr. Ward. I had no instructions. I did not know what Washington 
might have been doing, once it learned of our arrest there. And I pre- 
ferred to let things go on as they were rather than start to do some- 
thing which would upset anything that Washington might have 
been doing. 

Mr. Morris. At the end of the 14-month period, you described a more 
drastic action. 

Mr. Ward. That was at the end of the year, when came the imprison- 
ment, being held in prison, and the trial, or sentence, which was com- 
muted to expulsion from China. 

Mr. Morris. I wonder if you could tell us, in as full detail as pos- 
sible, all the circumstances from the time of your arrest and incarcera- 
tion to the time of your expulsion. It is important for the purposes of 
this inquiry, and if you would give us as many details as you can, it 
would be very much appreciated at this time. 

Mr. Ward. One thing, after I heard on the Australia radio in 
June of 1949 that a spy ring had been unearthed, I knew something 
was going to happen. It was following the pattern of so many things 
that are manipulated by the Soviet Union or which follow the in- 
spiration of the Soviet pattern. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2047 

They follow a definite pattern, so I knew we were headed for trouble. 
And I did — since we had no espionage activities, only the usual re- 
porting activities which all of our consulates perform wherever they 
may be in the world — and I assume all foreign consulates in our 
country do; that's one of the functions of having foreign officials. 

Mr. Morris. They were known to be at that time your formally 
performed duties. You made no effort to conceal that; did you? 

Mr. Ward. Made no effort at all, because it would have been 
hypocrisy to have done that, because consulates throughout the world 
do have functions to perform. 

Mr. Morris. And they are presumed to be performing them at all 
times? 

Mr. Ward. Definitely, but I did my utmost to impress upon my 
staff that since we were not engaged in espionage, the one thing 
for us to do if anything untoward happened was to tell the truth 
and only the truth. And that paid off, if I may use that expression, 
very generously later on, because after we were arrested, those of us 
who were put in prison 

Mr. Morris. Would you tell us who were put in prison? 

Mr. Ward. There was an American, Kalph Kef berg ; an American 
of Japanese extraction, Albert Statsumi ; an Italian, now residing in 
the United States, Franco Cicogna; and a German, Alfred Cristan, 
now on duty with the American Government in Singapore. 

Mr. Morris. You say "a German." Is he now an American ? 

Mr. Ward. So far as I know, he is an alien employee of the United 
States Government. 

Mr. Morris. I see. 

Mr. Ward. We were taken, lodged in a prison near the railway 
station, held there for perhaps a week to 10 days and then moved 
to another prison quite close to the consulate general, and there we 
were held until the trial took place and our sentences were com- 
muted to expulsion, and we were permitted to return to house arrest. 

Mr. Morris. How long were you incarcerated, for how long? 

Mr. Ward. As I recall, it was 2 months, maybe a bit less than 2 
months. 

Mr. Morris. Would you tell us the conditions that prevailed in the 
prison while you were so incarcerated ? 

Mr. Ward. At first, we were held quite incommunicado, we were 
not able to communicate among ourselves at all. So I don't know, 
only by hearsay, of the experiences of the others. 

For myself, I was not — we were not abused, at least I was not abused, 
although we, all of us, did have a very extensive questioning, sometimes 
going on for hours and hours and hours, very trying. 

Also, the quarters were unheated. We were already in winter, and 
our quarters were unheated, and none of us had anticipated this 
happenstance, so we were much too lightly dressed. I myself walked 
about 14 hours a day, if I had that much time and wasn't called up 
for interrogation, to keep myself warm. 

We were given 6 slices of bread and 6 cups of hot water each a day. 

Mr. Morris. That was your entire fare ? 

Mr. Ward. Yes. I lost 70 pounds. 

Mr. Morris. You say you lost 70 pounds ? 

Mr. Ward. Yes. 

Mr. Morris. In the period of less than 2 months ? 



2048 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Ward. Yes. But the others were treated very much the same. 
In fact, I was treated a little bit better, because I found that if I whis- 
tled, nobody bothered me if I whistled; whereas my boys were not 
permitted to whistle, sing, or do anything — if I may mention off the 
record  

Mr. Morris. Off the record. 

(Discussion off the record.) 

Mr. Morris. May I ask you to repeat that for the record ? 

Mr. Ward. With the one exception being Befberg, who has a phe- 
nomenal memory and a very extensive knowledge of poetry, and who 
confounded the Chinese by reciting poetry for hours on end. 

But, if I may mention, we were all questioned, we were all ques- 
tioned relentlessly. One of my lads, Cicogna, fell ill, and I saw him 
being carried along a corridor to interrogation when he was no longer 
able to stand, but nevertheless they did question him. And he came 
the closest, perhaps, to all of us, of breaking. 

One of the chaps, Cristan, froze a foot. 

Mr. Morris. What was the nature of the questioning ? 

Mr. Ward. The nature ? What we were doing, what we were there 
for, and that they knew — that they knew of our activities. And, of 
course, the charge that I was — under which I was held, I never did 
see any formal charges. I was never presented a warrant or any 
statement of formal charges, but I was told in prison, because of 
having beaten up one of the Chinese employees. 

Mr. Morris. Was there any truth whatever to that ? 

Mr. Ward. No. 

And then it went back to this question, we would go off one way, 
and then get off to something or other, and come back to different 
points, and kept coming back to the same question in multitudinous 
forms, in an effort to break down what we had said previously. 

As a matter of fact, I may mention that that is a point of very great 
pride with me, that we have had these Communist trials of foreign- 
ers in every Communist country from 1917, and that my group of lads 
were the only ones who thus far, to the utmost of my knowledge, never 
confessed or issued a statement, as they were pressured to do. 

Mr. Morris. Well, Ambassador, I wonder if you would tell us about 
the subsequent trial that terminated this period. 

Mr. Ward. I had asked, of course, it was inevitable, because the 
pattern of the things was inevitable. Once arrested, the only way 
the Communists could, with any grace, save their face, would be to 
have a trial and find us guilty. 

So, immediately upon my arrest, I requested access to counsel. 
That was refused. 

Finally, one day, without — they were preliminary; these prelimi- 
nary interrogations, and so forth, went on and on and on — and finally, 
one morning, without any previous knowledge, insofar as I now recall, 
we were told to prepare to go over to court for our trial. 

Mr. Morris. Were you apprised at any time of the charges, of 
the reason for your trial ? 

Mr. Ward. A lengthy document was read to us in Chinese. I don't 
recall, I believe, however, that a summary translation of it was given 
to us. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2049 

Anyhow, I asked to have a copy of this document and/or to have 
a full translation, that is what I wanted, a full translation. And I 
was told later on that would be given to me. 

As far as I was concerned, or my lads with me, it was just a lot of 
mumble-jumble that we couldn't make sense of. We didn't know 
what we were being tried for, or anything else. 

My entire Chinese office staff were presented by the prosecution as 
state witnesses. I was unable to summon any witness in our behalf. 

As I mentioned before, I was unable to have access to legal counsel, 
and this trial went on throughout a whole day ; it lasted a whole day. 

I was not permitted to interrogate any of the state witnesses when 
they made false statements, which I wanted to have cleared up as far 
as the record was concerned. I was very curtly told in every instance 
that the court would determine what evidence would be questioned, if 
any evidence was to be questioned. This went on throughout the 
whole day. 

Mr. Morris. This is all in the Chinese language ? 

Mr. Ward. All in the Chinese language, yes. 

Mr. Morris. Were all the so-called defendants conversant with the 
Chinese language? 

Mr. Ward. No. 

Mr. Morris. And the so-called defendants didn't even know what 
was going on ? 

Mr. Ward. That is right. 

Mr. Morris. Were you given interpreters ? 

Mr. Ward. We had a very, very poor interpreter furnished by the 
court. At times the court — we would ask — a statement would be made 
which would not be understood clearly, we would ask for an interpre- 
tation of it by the interpreter, and the court would refuse. 

Mr. Morris. Refuse even to interpret ? 

Mr. Ward. Yes. 

So along about 6 o'clock that evening, the court adjourned, and 
some 50 minutes or about an hour later, the court reconvened, and I 
may mention that for almost all of that time there was no light in 
the whole court area, the electric lights had gone off. But when the 
court reconvened, there was a great big 14-page document, as I now 
recall, very nicely typed up, of the findings of the court. 

It always puzzled me, in the first place, how the court managed 
such a document in an hour, and, in the second place, how they did 
it in the dark, and how the judge had it in his pocket in the morning. 

We were all found guilty, sentenced to various terms of imprison- 
ment. Thereafter the court, however, commuted the imprisonment 
to expulsion. 

Mr. Morris. All of you? 

Mr. Ward. All of us. 

Mr. Morris. How much later after the sentencing did the commu- 
tation take place? 

Mr. Ward. The same day. The same evening, because along about 

II o'clock we were told that a vehicle would come from the consulate 
general and that we were to return to our homes, where we were again 
under house arrest. 

Mr, Morris. Now, Ambassador, were the circumstances of all these 
indignities which you have testified to, were they known generally 
throughout Mukden, to your knowledge ? 



2050 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Ward. Yes, yes. We found out, not at that time, but afterward, 
it was quite well known. And in fact, some persons going by the 
consulate general would see us at the windows, or maybe exercising on 
the roof — it was the only place we had to exercise — they would wave a 
hand, do something like that, and if they were seen by the police, they 
were arrested and marched off. 

Mr. Morris. Have you been able to draw any conclusion about the 
purpose of the Chinese Communists in subjecting you and your 
subordinates to the atrocities and indignities you have described? 

Mr. Ward. Well, of course, I can answer the question later on, but 
I think to state the purpose, I believe a great deal issued from their 
failure to have an appreciation of international conduct. You just 
doirt use foreign representatives for demonstration purposes, as we 
were used, the demonstration being that our arrest and imprisonment 
afforded the Chinese Communist Government an opportunity to show 
that for the first time in many, many years they had a government 
which dared flaunt the United States or any foreign power. For the 
first time, we may say, there had been acts of violence, intentional acts 
of violence, against foreign officials since the days of the Boxer Rebel- 
lion at the turn of the century. 
Mr. Morris. You think that was calculated ? 

Mr. Ward. I believe so; I believe so because someone must have 
known international practices; they were not completely ignorant of 
international practices. But nevertheless, doing what they did, they 
gained a tremendous internal propaganda. 

Mr. Morris. The abuses that were visited upon you and your staff 
were widely circulated, were they not ? 

Mr. Ward. Yes. By word of mouth. We have in China what is 
known as the bamboo telegraph. It is as effective as any wire tele- 
graph anywhere in the world. 

Mr. Morris. You say the circulation of news of these circumstances 
was extensive. Do you imply that in connection with the last stated 
purpose of your testimony ? 

Mr. Ward. Just gossiping, just the operation of the bamboo tele- 
graph, word passing from one person to another. It was not, I have 
no recollection — yes, only after we were put in prison did it appear 
in the press. The first year nothing appeared in the press so far as I 
am aware at this moment. 

Mr. Morris. You seem to imply in your testimony now that the 
Chinese Communists did that to impress upon the people the fact 
that they were able to stand up to a white-man government. 
Mr. Ward. Yes. 

Mr. Morris. I wonder if you could develop that for us, 
Ambassador ? 

Mr. Ward. Well, I don't see how it can be developed much, except 
that I must first state, it is an assumption, no Chinese has ever told 
me that that is what it was, but it was just using good political 
sense, looking at this through Chinese Communist glasses. 

Mr. Morris. Now, while you were in Mukden during house arrest 
and during this period of incarceration, did you come to learn that 
there were any Soviet officials or Soviet officers, and by that I mean, 
Russians, in Mukden ? 

Mr. Ward. Yes, sir. Prior to the occupation of Mukden by the 
Chinese People's Army, there had been a trade delegation accredited 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2051 

to the Nationalist authorities, and those, plus a few railway em- 
ployees, were the only Soviet citizens that we ever saw or heard of. 

After the fall of Mukden and its occupation by the Chinese People's 
Army, several hundred Soviet nationals appeared to our knowledge, 
as we could see from the office of our own consulate general. They 
were working out at the airfield, at different factories that were initi- 
ally operated by the Japanese, but were now operating after the col- 
lapse of the Japanese Army. Railway shops, iron mines, steel works. 

The Soviet technicians and advisers came in in large numbers. 
What others may have come in, that I can't answer, because you can't 
tell what a person is by looking at his overcoat when he walks by. 

Mr. Morris. Do you know whether or not any Korean troops were 
used by the Communists in laying siege to Mukden ? 

Mr. Ward. Korean troops were used. However, we must — when 
we say that Korean troops were used, we must bear in mind that there 
are a good many Koreans or there were a good many Koreans resid- 
ing in Manchuria. We had intelligence satisfactory to us to the 
effect that there were Korean Koreans in the military units with the 
Chinese People's Army in addition to the Manchurian Koreans in 
the military units. 

Mr. Morris. Now, Ambassador, when did the Soviet Army, the 
Red army, occupy North Korea? 

Mr. Ward. That was right after, at the time of V-J Day. 

Mr. Morris. And they occupied it right down 

Mr. Ward. To the 38th 

Mr. Morris. Thirty-eighth degree latitude ? 

Mr. Ward. Yes. 

Mr. Morris. And during that period, the Red army trained the 
Korean divisions, did they not? 

Mr. Ward. That is right. 

Mr. Morris. Now, did your intelligence report, or did you come to 
know that these troops, these Soviet-trained troops took part in the 
conquest of Mukden ? 

Mr. Ward. I don't know the origin of the troops other than we 
learned that there were Korean Korean troops. Now, whether they 
had been trained by the Japanese or by the Russians, I assume they 
were trained by the Russians. 

Mr. Morris. You use the words "Korean Koreans," and you mean 
the Korean 

Mr. Ward. Residents of Korea, as distinct from those residents in 
Manchuria. 

Mr. Morris. Now, what efforts were made by the State Department ? 
I think you told us that, during the 14 months of your house arrest, 
you had no instructions whatever from the State Department. 

Mr. Ward. I had something along just about the time of this thing 
that I heard on the Australian radio. Whether it was a telegram that 
came up or a letter that came up from our consulate general at Tient- 
sin or Peking, my memory is not too clear at the moment. But there 
was something stating to make an effort to get out nonessential 
personnel. 

Morris. Now, what did the State Department do on your behalf, 
on behalf of your subordinates, to relieve you of this difficulty that 
was being pressed upon you? 

72723— 57— pt. 36 3 



2052 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Ward. That question I can't answer, other than on the basis 
of hearsay, because we didn't know. 

I learned to my own satisfaction, however, that our arrest in Muk- 
den, because of the bamboo telegraph, was known in Washington, a 
quite reasonably short period after it had happened. 

Mr. Morris. Did the State Department make any effort, to your 
knowledge, to bring about your release ? 

Mr. Ward. Nothing that I saw or felt, but I don't know, because 
that would have happened outside. 

Mr. Morris. To what do you attribute, Ambassador Ward, your re- 
lease from Chinese Communist activities ? 

Mr. Ward. Well, I have always felt, and still feel, that were it not 
for the Honorable William C. Bullitt, and Mr. Roy Howard, that 
I would not be here today. 

Mr. Morris. Roy Howard is the publisher of the Scripps-Howard 
publications ? 

Mr. Ward. Yes, sir. 

Mr. Morris. I wonder if you would tell us what effort they made 
on your behalf? 

Mr. Ward. When Mr. Bullitt learned of this mischance that had 
fallen our lot — and that was late in 1949 — he became very active and 
mobilized the press to the utmost of his ability and approached Roy 
Howard in the matter, and others, and immediately made this known 
to the American public. 

That was probably October or November of 1949, but I was not 
here at that time, of course. 

Mr. Morris. To your knowledge, was there any congressional sup- 
port for your travail ? 

Mr. Ward. Yes. Once this knowledge became public property in 
the country, as I recall, one congressman volunteered to stand in my 
stead, if I would be released — Mr. Fulton, from Pittsburgh. And 
I have been told there was great interest in both the Senate and the 
House of Representatives. 

Mr. Morris. Well, Ambassador, was there a British consulate gen- 
eral in Mukden at the time ? 

Mr. Ward. Yes. 

Mr. Morris. What happened to that ? 

Mr. Ward. Nothing. They took over our property when we were 
finally expelled. That was our 

Mr. Morris. The British? 

Mr. Ward. The British did. 

My one and only contact after our October 1948 arrest to our De- 
cember 1949 expulsion was just on the night we were leaving Mukden, 
the British proconsul came over and I was able to show him the phys- 
ical United States Government property that we had to leave behind. 

Mr. Morris. Now, did the Chinese Communists seize any United 
States State Department files or property, in general ? 

Mr. Ward. No. No; they did not. There was nothing to seize; 
we had destroyed our files when Mukden fell. 

Mr. Morris. Well, Ambassador, did the British recognize Red 
China in December 1949? 

Mr. Ward. Yes. 

Mr. Morris. Do you know the exact date ? 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2053 

Mr. Ward. I can't even say it was in December of 1949. I know 
it was prior to our departure from Manchuria, but when 

Mr. Morris. Your departure was 

Mr. Ward. December of 1949. 

Mr. Morris. The Internal Security Subcommittee has received evi- 
dence, some of it in the form of sworn testimony, that it was the policy 
of the United States Government in December of 1949 to make ready 
for recognition by the United States of the Red Chinese regime. 

Could you discuss that in any way, Ambassador? 

Mr. Ward. Again, all I knew of it was the hearsay that came to 
my ears after we were released, at which time I was told that had it 
not been for our arrest, there was every likelihood of recognition 
having gone through. 

Mr. Morris. Off the record, just a minute. 

(Discussion off the record.) 

Mr. Morris. The Internal Security Subcommittee has received tes- 
timony from Brig. Gen. Louis Fortier, who was the intelligence offi- 
cer for the United States Far Eastern Command, that he became con- 
cerned by the looming prospect of the Chinese Communists being able 
to consolidate militarily and posing a threat to the United States 
Command in the Far East, and he was afraid that recognition of the 
new People's Republic would give the Communists the moral and 
political support necessary for the consolidation of this position. 

He has testified under oath that on January 6, 1950, Philip Jessup, 
who was our roving Ambassador at the time, told him in Japan that 
the United States would recognize Red China in a period of about 
2 or 3 weeks. 

Now, do you know, could you add anything from your own experi- 
ence as to that testimony which, incidentally, Mr. Jessup has denied? 

Mr. Ward. The information I received — and then again it was just 
chit-chat, not an official statement at all — which I had received in 
Japan was to the effect that our arrest and later imprisonment and 
all of that had destroyed the chances. 

I was in Japan just before Christmas. So it preceded this state- 
ment. 

But when I came back home, I heard a great deal more, because 
we all recall how controversial the China problem was in late 1949, 
early 1950, and I was informed repeatedly in the United States, again 
by unofficial statement, that what had happened to us had destroyed 
and had been the one thins which had destroyed the likelihood or 
possibility of recognition of Red China; that had it not been for that, 
there would have been every likelihood that it would have gone 
through. 

Mr. Morris. And eventually, admission to the United Nations? 

Mr. Ward. Probably. And for that one thing, if what I had been 
told was true, that our experiences, did stop the Communist Chinese, 
stop our recognition of Red China, I have always felt that we were 
very, very well reimbursed for what we went through. 

Mr. Morris. Well, Ambassador, you then returned to the United 
States? 

Mr. Ward. Correct. 

Mr. Morris. And you had a period of convalescence from your 
ordeal ? 

Mr. Ward. Yes. 



2054 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. And during that period, were you able to discuss your 
experiences in China, in Manchuria, and policy in general, with any 
high ranking State Department officials in Washington? 

Mr. Ward. Yes, I was. 

Let me see. Butterworth — W. W. Butterworth, I saw him. I saw 
the Secretary of State, Mr. Acheson, and the Under Secretary and a 
number of others whom I don't recall right at this moment. 

Mr. Morris. Off the record a minute. 

(Discussion off the record.) 

Mr. Morris. Were there any others? 

Mr. Ward. There were others, but I do not recall them. 

Mr. Morris. Off the record. 

(Discussion off the record.) 

Mr. Morris. Now, Ambassador, was this your first discussion with 
the State Department in Washington after the termination of your 
tour of duty in Vladivostok ? 

Mr. Ward. No. I had conversations with State Department offi- 
cials in the winter of 1944—45, on my way from Vladivostok to 
Tehran. 

Mr. Morris. Those you referred to previously ? 

Mr. Ward. Yes. 

Mr. Morris. But subsequent, prior to the time you just told us? 

Mr. Ward. Yes. 

In January 1948, 1 was ordered back to the Department from Muk- 
den on consultation. At that time I saw Secretary of State Marshall, 
Under Secretary Lovett, and a number of others. 

May we go off the record ? 

Mr. Morris. Off the record. 

(Discussion off the record.) 

Mr. Morris. Now, to the extent you are prepared at this time to tell 
us, Ambassador, will you tell us the content of those conversations, as 
much as possible? 

Mr. Ward. I was displeased with one outstanding factor, and that 
was that there seemed to be a reluctance on the part of those officials 
with whom I sr>oke, under the level of Under Secretary of State, to 
have affairs of China discussed frankly. 

In illustration of this, I may mention that T met the late Secretary 
of Defense Forrestal at a luncheon, and the following day he requested 
of the State Department that I call on him for the purpose of discussing 
affairs of China. 

An appointment was set up for one afternoon at 2 o'clock. At about 
noonday, I was called into the office of one of our State Department 
officials 

Mr. Morris. A superior of yours ? 

Mr. Ward. Yes, yes. And T was informed that what Mr. Forrestal 
was interested in learning was the extent of the demoralization among 
the Chinese Nationalists, the extent of corruption, and matters of that 
kind. 

I had had several talks with this official previously, and while we 
had mentioned these matters, my principal remarks to him were the 
exposition of my thoughts on the ways in which we could help the 
Nationalist Government of China to better its chances in the war 
against the Communists and thereby better its chances of survival. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2055 

Naturally, I was completely perplexed when I was informed that 
Secretary of Defense Forrestal was not at all interested in this phase 
of my previous remarks. 

Mr. Morris. Well, Ambassador, were you in effect either actually or 
impliedly being directed by your superior in the State Department 
to talk to Secretary Forrestal only about that aspect of your experi- 
ence in China ? 

Mr. Ward. That was my interpretation ; that was the only interpre- 
tation I think could be given to it, that I was called to the office and 
given this message. At any event, I kept this appointment and be- 
cause I could not send a message to him, Secretary Forrestal, saying I 
could not keep it just a few hours before the appointment, I saw the 
Secretary. 

General, now President, Eisenhower was present, and I had to give a 
most unsatisfactory talk. 

Mr. Morris. Now, did you learn subsequently, Ambassador, that as 
a matter of fact Secretary Forrestal did not want to hear only about 
that particular aspect of your experiences in China ? 

Mr. Ward. Correct. 

A mutual friend told me afterward that he had wanted a continua- 
tion, or discussion of our luncheon discussion, which, in the light of the 
directive I received in the Department of State, I did not feel free to 
give. 

Mr. Morris. Off the record a minute. 

(Discussion off the record.) 

Mr. Morris. Who was the mutual friend ? 

Mr. Ward. The Honorable William C. Bullitt. 

Mr. Morris. Now, had you told Mr. Bullitt of your conversation, 
of your implied instructions from your superior in the State Depart- 
ment, and your subsequent conversation with Secretary Forrestal? 

Mr. Ward. I did not tell it to him in full, because I couldn't. But I 
recall that I was feeling so dispirited that evening, that when I saw 
Mr. Bullitt I told him that for the first time in my life I had prosti- 
tuted myself. 

Mr. Morris. Because you didn't go above your instructions, the 
instructions of your senior, and come out with the whole story 2 

Mr. Ward. If I wished to go against my instructions, it was my 
duty at that time to hand in my resignation and be a free agent. 

Mr. Morris. And what did Mr. Bullitt do when you told him that? 

Mr. Ward. He afterward saw Mr. Forrestal and learned of Mr. 
Forrestal that the interview was unsatisfactory as far as he was con- 
cerned, that what he had expected, as I mentioned previously, was a 
continuation of our luncheon conversation. 

Mr. Morris. And did he learn, as a matter of fact, that Secretary 
Forrestal did not want you to be limited in your conversation to those 
two aspects ? 

Mr. Ward. I was given that impression, without the exact words, 
as I say, that he had considered it unsatisfactory and had wanted a 
frank discussion between us. 

Mr. Morris. Now, during this period, Ambassador, Congress — I 
think it was the 80th Congress — appropriated $125 million to aid 
Nationalist China in its war with the Communist forces. 

Mr. Ward. Yes, that is true. I remember that came up in a con- 
versation I had with the then Secretary of State, George Marshall. 



2056 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

In fact, the day of our conversation was the day or the date preced- 
ing that on which this line of credit went through. I remember at 
that time it was my argument that we should not just extend an open 
line of credit to China, that we should have controlled aid. 

Mr. Morris. That is Free China ? 

Mr. Ward. Free China, Nationalist China, of course. 

But we should exercise more control over our aid and its use within 
China than we had theretofore. 

Mr. Morris. Now, are you — were you in favor of the $125 million 
appropriation? 

Mr. Ward. I was, provided we would just not write the equivalent 
of a blank check but use this in making certain that it would be used 
for its intended purpose, as far as the United States was concerned, 
and made effective, so that China could go on resisting the Communist 
armies. 

I think, and I still think that had we adopted that line, or a line 
similar to it with the same effectiveness, that we could have had our 
Chinese friends on our side for a good many years after 1949, 1950, 
that they would not have fallen when they did. 

Mr. Morris. Well, Ambassador, by the way, what was General 
Marshall's position in respect to this conversation? 

Mr. Ward. General Marshall was largely silent throughout our 
conversation. 

Mr. Morris. Now, Ambassador, did 

Mr. Ward. I may mention that this conversation did not grow out 
of the initiative of General Marshall, but I had had a conversation 
with Under Secretary of State Lovett, and he recommended to the 
general that I be given an opportunity to present my views on this to 
him, as Secretary of State. 

Mr. Morris. Now, Ambassador, at the time and prior to the time of 
this appropriation on the part of Congress, there was an effective 
embargo imposed on the Chinese Nationalists by the United States, 
was there not? 

Mr. Ward. Yes. I don't know whether it was an embargo, but aid 
was very, very slow in coming. 

Mr. Morris. General Chenault has testified that the first military 
supplies appropriated by the 80th Congress did not arrive in northern 
China until most of the key battles were over. Do you know anything 
about that? 

Mr. Ward. That's the information that I have received, or that I 
received at that time. 

Mr. Morris. And do you have any knowledge that the blockade, or 
the embargo — the cutting off of the supplies of the Chinese — was a 
factor in their downfall ? 

Mr. Ward. I have every reason to believe that was a factor, a very 
potent factor. 

Mr. Morris. Now, just — were there any other conversations in that 
1948 period ? 

Mr. Ward. I recall one other conversation in which we were dis- 
cussing the possibility of continued Chinese resistance. 

Mr. Morris. This is now at what date, Ambassador ? 

Mr. Ward. That was during the period of my consultation, in 
January of 1948. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2057 

Mr. Morris. And with whom was this discussion that you now 
mention ? 

Mr. Ward. I prefer not to identify 

Mr. Morris. They were superiors of yours in the State Department, 
were they not ? 

Mr. Ward. Yes. 

Mr. Morris. Will you tell us what happened ? 

Mr. Ward. There was one person, no longer in the Foreign Service, 
and therefore I feel free to mention his name — Mr. John Davies. 

Mr. Morris. John Paton Davies % 

Mr. Ward. John Paton Davies. 

During- the course of this conversation, I was arguing for immediate 
and effective aid to Nationalist China, but was put off by the state- 
ment of the senior member present to the effect that, even though 
China may be lost today, that is, today as of that time, it could be 
taken back at any time, within a very short period. 

And he turned to John Paton Davies and said, "That's right, John, 
isn't it ?" And Davies said, "Yes," which was very confusing to me as 
representing advanced thought in the State Department. 

Mr. Morris. Now, were you consulted on the formulation of the so- 
called China "White Paper at all ? 

Mr. Ward. No, never. 

Mr. Morris. Even though you had the experience you have told us 
here today? 

Mr. Ward. I was not consulted. 

Mr. Morris. Now, Ambassador, may I get back to the period while 
you were in Washington, after your expulsion by the Reds from 
Mukden. 

Now, have you told us all the conversations that you had with State 
Department officials during that period ? 

Mr. Ward. Insofar as I recall at this moment, yes, vis-a-vis China. 

Mr. Morris. Now, Ambassador, there is, as you know, a forthcoming 
Assembly meeting of the United Nations, and one of the questions 
that is expected to come up there is the admission of Red China into 
the United Nations. 

Almost as a corollary to that is a question that comes up from time 
to time in political discussions here, and which is a subject of interest 
to the Internal Security Subcommittee, and that is recognition of Red 
China by the United States. 

Do you feel, on the basis of all your experiences which you have set 
forth in great detail here today, that the People's Government of 
China, as they call themselves, should be admitted to the United 
Nations? 
Mr. Ward. I feel they should not. 

Mr. Morris. Now, would you give us the basis of that conclusion 
which you have just expressed ? 

Mr. Ward. Well, basically, they have not conducted themselves, and 
are not conducting themselves today as an adult member of the inter- 
national community. 

Furthermore, it opens our country to the presence of their agents 
and others, which I do not like to see happen. We have enough 
inimical elements, perhaps, within our country today, without adding 
theirs. 



2058 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Also, when I view the matter of recognition of Red China, I can 
only assume that, as things are today, pressure would immediately be 
brought to bear for the abandonment of Taiwan by the Chinese Na- 
tionalists, which I cannot admit is in our interest or in the interest of 
peace in the Far East, because from all I can learn, from all I know, 
it is one of our anchors in the defense of the western Pacific. 

On the other hand, that element of my thinking perhaps pertains 
more to our own recognition of Red China, not so much to its admission 
to the United Nations. 

Mr. Morris. Do you think that admission to the United Nations 
would give the Red Chinese regime prestige that would aid it in con- 
solidating its conquest of the mainland of Asia ? 

Mr. Ward. Without a doubt. 

Mr. Morris. Do you think it would have any effect in causing resist- 
ance to further Chinese Communist expansion to deteriorate ? 

Mr. Ward. I am firmly convinced that it would, that the Asiatic 
peoples would interpret that as international approval of the present 
Communist government in China as the legitimate successor of the 
Nationalist Government of China ; and that it would simply be good 
and practical politics for all Asiatic states to do as they are prone to 
do anyway, to think of tomorrow much more than of today. 

Mr. Morris. Now, would it have any effect, in your opinion, again 
based on your extensive experiences in the Far East, on the so-called 
overseas Chinese ? 

Mr. Ward. Without any doubt, in my mind, it would, because it 
would immediately persuade them that the Communist go\ 7 ernment 
of China had, as I mentioned a moment ago, arrived as a stable, 
legitimate member of the international community. 

Mr. Morris. And what would be the reaction of the overseas Chinese 
to that accomplished fact? 

Mr. Ward. Orientation toward Peiping. 

Mr. Morris. Now, are overseas Chinese an effective political and 
economic force all over the Far East, outside of China ? 

Mr. Ward. Yes. 

Mr. Morris. Would you tell us something about that, Ambassador ? 

Mr. Ward. Well, we only have to refer to the press of yesterday 
morning. As I recall, it mentioned that, in the Singapore area, over 
50 percent of the people are overseas Chinese, oriented toward Peiping, 
that their very presence would immediately diminish the value of 
Singapore as a defense factor and the overseas Chinese are — I don't 
recall offhand the statistics — but in Thailand they are tremendous in 
numbers, vis-a-vis the Siamese, and throughout the whole of south- 
eastern Asia. 

Mr. Morris. Is that — does that condition prevail also in Indonesia? 

Mr. Ward. That I don't know. I have never been in Indonesia. 

Mr. Morris. Does that problem, to your knowledge, exist in the 
Philippine Islands? 

Mr. Ward. I don't feel myself competent to discuss that. 

Mr. Morris. In all your experience, were you able to observe any- 
thing about the economy of Manchuria and whether or not that 
factor is a strengthening or a debilitating force on Soviet power in 
the Far East? 

Mr. Ward. Yes. The economy of Manchuria, rather the healthful 
economy of Manchuria and access to that economy is a very vital factor 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2059 

in the Soviet Far East, because the Soviet Far East, for food and many 
other raw materials, is a deficit area, which can be overcome in a very 
large measure by access to Manchurian resources — metals, grains, and, 
with Mongolia, meat. 

Its — if the the Soviet Far East is to be strong, militarily, it must 
have access to Manchurian supplies, because otherwise— the railroad 
distance is tremendous; it is some 6,000 miles from Vladivostok to 
Moscow. 

Mr. Morris. Well, Ambassador, as you know, your answers to the 
questions put to you today provide the last opportunity of the Internal 
Security Subcommittee to learn from you as a source the wealth of 
evidence that you possess on the general subject that is related to our 
present inquiry, inasmuch as you were about to leave the United States, 
for an unforeseeable time, in the immediate future — a few days hence. 
Is that correct ( 

Mr. Ward. Correct. 

Mr. Morris. When are 3 T ou sailing? 

Mr. Ward. September 1. 

Mr. Morris. I wonder if there is anything else you could tell us now 
for the record that the chairman of the Internal Security Subcommittee 
or other members thereof may put into the permanent record of the 
Internal Security Subcommittee that will aid Congress in either 
passing legislation or engaging in necessary legislative deliberations 
before terminating this session today ? 

Mr. Ward. No; I think we have covered a very broad field, much 
of which could have been discussed in more detail, but I believe we 
have touched on the high points. 

Mr. Morris. Within the limitations we agreed upon. 

Mr. Ward. Yes. 

Mr. Morris. There is one point I think the record should be straight 
on. You mentioned at the time of the incarceration, the word "con- 
fessing." 

I wonder if you will explain fully what you meant by that, You 
stated — I notice that you did say you did enter a denial that there was 
any truth in the charges against you. You used the word "confessing" 
in what context ? 

Mr. Ward. Well, it is usual to work on arrested persons in the Com- 
munist prison system to a point where their opposition to fact dis- 
appears, and then they are ready to attest to anything which the 
interrogating authority may wish to have them attest — condemnation 
of their own activities, condemnation of their own government or 
condemnation of anything which may be wanted; it's part of it, it's 
the ultimate aim of the so-called brainwashing system. 

Mr. Morris. And when you use the word "confess," you use it in the 
Communist context and not in the sense that it is used here in the 
United States, as an admission of wrong actually performed ? 

Mr. Ward. Well, it is; how many persons have been arrested and 
brainwashed and have admitted acts that they never performed? I 
remember we had that way back in 1935 or 1936, where a German vice 
consul, or consul, out in Siberia confessed to acts which he had never 
performed, but with the brainwashing process, there came a time when 
he could not see or could not distinguish between reality and fantasy, 
fact and falsity. 



2060 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. Off the record. 

(Discussion off the record.) 

Mr. Morris. One other question I would like to ask : 

Did the treatment accorded you by the Chinese Nationalist Gov- 
ernment while you were consul general at Mukden, compare with the 
treatment accorded you by the Chinese Communists ? 

Mr. Ward. No. The treatment which I received throughout my 
two assignments in China under the Nationalist Government, and 
under its predecessor in 1925 and 1926 was perfectly correct. This 
treatment, however, which we received at the hands of the Chinese 
Communists was not in accordance with international comity and 
practice. 

Mr. Morris. So this was not the manifestation of any Chinese atti- 
tude toward you, it was rather a Communist attitude toward you ? 

Mr. Ward. Definitely, it was not the attitude even of the people of 
Mukden, because when we would be marched back and forth between 
my house and the office, always under armed guard, it was not unusual 
for me to receive a little flutter of a hand, or something, from the 
Chinese standing along the road, showing that they were not part of 
it, and since I have been out of China, and from escapees and every- 
thing, I have learned there was no reflection of the attitude of the 
Chinese people ; it was the attitude of the Communist government. 

I am very fond — in fact, I can say that I love the Chinese people. 

Mr. Morris. Well, Ambassador, on behalf of Senator Eastland, the 
chairman of the subcommittee, and the eight other Senators on the 
subcommittee, I want to express our appreciation of your going to 
great inconvenience in letting us have so many hours of your time in 
telling as much of your own story as you have, so that it might be put 
in the permanent record of the Internal Security Subcommittee. 

I want to add my own personal thanks to that. 

Mr. Ward. Thank you very much. 

It has been a pleasure to be heard, and what I have done is no more 
than my duty as an American, looking toward the safeguarding of 
the best interests of our country. 

Mr. Morris. Thank you, Ambassador. 

Mr. Ward. Thank you. 

(Whereupon, at 4 o'clock p. m., the staff meeting was adjourned.) 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



OCTOBER 7, 1956 

United States Senate, 
Subcommittee To Investigate the Administration 

or the Internal Security Act and Other 

Internal Security Laws, of the 
Committee on the Judiciary, 

Sonoma, Calif. 

Staff conference. 

Present : Eobert Morris, chief counsel ; and Adm. Charles Maynard 
Cooke, United States Navy, retired. 

Mr. Morris. What is your name, sir? 

Admiral Cooke. Charles Maynard Cooke, admiral, United States 
Navy, retired. 

Mr. Morris. When did vou retire, Admiral ? 

Admiral Cooke. I retired in May 1948. 

Mr. Morris. Admiral Cooke, the United States Senate Internal 
Security Subcommittee has been, among other things, assessing the 
events of the last 10 years in order to determine to what extent sub- 
versive forces may have set in motion those happenings. As a 
corollary of this inquiry, the subcommittee observed that faulty in- 
telligence as well as a disinclination on the part of certain Government 
officials have been contributing factors to the decline of the United 
States position in international affairs. 

Admiral Cooke, you appeared before the subcommittee on October 
19, 1951, and you related at that time your personal experiences and 
observations as they bore on the inquiry that the subcommittee was 
carrying on into the extent to which Communist forces were able to 
influence our foreign policy. 

At this time, Admiral, we would like you to relate those experiences 
of yours which indicated that persons charged with the responsibility 
of shaping policy did not receive when it was available, or did not 
actively go forward to acquire intelligence that might have caused 
the outcome to have eventuated differently. 

For instance, recently the Senate Internal Security Subcommittee 
was told by Ambassador Angus Ward that, after he returned from 
some of his firsthand encounters with the aggressions of the Chinese 
Communists, not only was he discouraged from telling his story to 
the policymakers by his superiors, but that, in at least one instance, 
deception was used to prevent him from imparting the necessary in- 
formation to the Secretary of Defense. 

Admiral, you are a graduate of the United States Military Academy, 
are you not, sir ? 

Admiral Cooke. Naval Academy. 

2061 



2062 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. Naval Academy? 

Admiral Cooke. Yes, 1910. 

Mr. Morris. And you were Chief of Staff to Adm. Ernest King, 
commander in chief of the United States Fleet during the war; were 
you not, sir? 

Admiral Cooke. Yes. I was Chief of Staff during the latter part 
of the war, but chief strategical adviser practically during the entire 
war. 

Mr. Morris. And in that capacity did you attend any of the in- 
ternational conferences? 

Admiral Cooke. Yes. I attended all the international conferences 
held by the heads of the leading governments, beginning with Casa- 
blanca and ending with Potsdam. 

Mr. Morris. Why don't you enumerate them? There are only 4 
or 5, aren't there? 

Admiral Cooke. Oh, no. 

Mr. Morris. Well, go ahead and name them. 

Admiral Cooke. There are about 8 of them, beginning with Casa- 
blanca, followed by Washington, 2 in Quebec, 1 in Cairo, 1 in Yalta 
and 1 at Potsdam. I think that's all. 

Mr. Morris. And you attended those conferences as a strategic ad- 
viser to Admiral King ; is that right, Admiral ? 

Admiral Cooke. That is correct. 

Mr. Morris. Now, Admiral, during this period of time that you 
acted in that capacity, did you begin to be aware in your official mili- 
tary capacity of the looming threat of Soviet aggression ? 

Admiral Cooke. I became aware of the attitude and method of op- 
erations of Communists during the war and, with the approaching 
defeat of Japan and the buildup of the Russian Communist strength in 
Manchuria toward the end of the war, I recognized that a very serious 
situation would confront the United States due to the fact that Japan, 
completely defeated, would provide a vacuum for Russian aggression 
after the war was over, and about April 1945, a few months before the 
war was over, I gave Admiral King a memorandum setting forth this 
prospective situation in the Far East. 

Mr. Morris. To your knowledge, Admiral, did the Army also make 
a report on this threat ? 

Admiral Cooke. Yes. I learned later that the Intelligence Division 
of the Army had submitted a similar report in June of 1945. 

Mr. Morris. What was your first assignment after the war, 
Admiral ? 

Admiral Cooke. After the w y ar I was assigned as commander of the 
United States 7th Fleet, then stationed in Chinese waters, and which 
came to include all of the United States combat forces in China during 
the period of 1946 to the fall of China to the Communists. 

Mr. Morris. How long did you remain in command of the Seventh 
Fleet? 

Admiral Cooke. I was in command from the 8th of January 1946 
to the end of February 1948. 

Mr. Morris. Now, Admiral, I wonder if you would briefly state for 
us at this time the forces that, from your experience, contributed to the 
Soviet conquest of China. 

Admiral Cooke. First I would say the buildup of Russian Commu- 
nist power in Manchuria and North Korea, as a result of the Yalta 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2063 

agreements and of the entry of Kussia into the war against Japan 
about 1 week before Japan's surrender. 

Second, I would say that the failure of the Russians to carry out the 
treaty agreements made by Communist Kussia and Nationalist China 
about the 6th of August 1945, which was in consummation of the agree- 
ment of the United States Government to undertake to cause the Chi- 
nese Nationalist Government to comply with the agreements made at 
Yalta. In these agreements of the treaty, the Russian Communists 
agreed to give all of their support to the Nationalist Government of 
China. But when the war was over, on August 14, and later, the Rus- 
sians refused to permit the Chinese Nationalist forces to enter Man- 
churia through Manchurian ports to recover their sovereign territory. 

This action provided a great help to the success of the Communist 
armies who were coming into Manchuria to be armed with Japanese 
and Russian equipment. 

Third, even with this Russian Communist help, on 2 or 3 occasions 
the Chinese Communist movement was thwarted by the Nationalists, 
upon which occasions our representatives in China forced the Na- 
tionalists to agree to a truce. 

Fourth, in August of 1946, because the Nationalists had not com- 
plied with all of the demands of the United States representatives in 
China who sought agreement between the Nationalist Government and 
the Chinese Communist armies in rebellion against the Chinese Gov- 
ernment, the United States imposed a complete embargo against sup- 
plying ammunition and armed equipment to the Nationalist Army, 
even denying ammunition for the American guns that certain Chinese 
divisions had been equipped with to fight the Japanese. 

Mr. Morris. How long did that embargo last, Admiral ? 

Admiral Cooke. Technically, the embargo lasted for about 10 
months. Factually 

Mr. Morris. That was until when ? 

Admiral Cooke. Let's see. August, September — until about May 
1947. 

Factually it lasted much longer, because of the great delays that 
took place after the technical termination of the embargo. The effect 
of this embargo was set forth in an observation personally made to me 
by General Marshall in August or September of 1946: "That with 
the embargo we had in effect first armed the Chinese Nationalists and 
then disarmed them." 

Fifth, the Russian Communists provided the Chinese Communists 
with operational advisers, organizers, thereby improving their fight- 
ing efficiency at the same time that the Nationalists were not receiv- 
ing any such operational advisory assistance from the United States. 

Sixth, the Nationalist armies had been fighting against Japan for 
8 years and had suffered heavy casualties during the period that the 
Communist armies had not been engaged. 

Seventh, I should add that due to the lack of operational advice, 
badly needed by all Chinese armies, there was inept leadership on the 
part of the Nationalist commands. 

Mr. Morris. After your tour of duty as commander of the Seventh 
Fleet, did you retire from the Navy ? 

Admiral Cooke. Yes. I returned to the United States and passed 
to the retired list on the 1st of May 1948. 

Mr. Morris. What did you do then ? 



2064 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Admiral Cooke. Then I returned to my home in Sonoma, Calif. 

Mr. Morris. What did you do when you first entered upon your 
retirement 1 

Admiral Cooke. I accepted speaking engagements in various parts 
of the United States, both in 1948 and 1949, and kept up my interest 
in the Far East situation, appearing in Washington on a number of 
occasions to talk to Members of Congress, both of the House of Repre- 
sentatives and the Senate, giving them such information as I had on 
the Far East. This kind of activity on my part was stepped up to a 
much higher degree after the Communist people's government was 
set up in Peking on October 1, 1949. 

Mr. Morris. What did you do after October 1, 1949, Admiral ? 

Admiral Cooke. When the Communist government was set up in 
Peking, I knew that it was being done largely by the Soviet Com- 
munists. This was confirmed by the recognition of the Chinese Com- 
munist government by the U. S. S. R. 2 days later, on October 3, 1949. 

I felt that this might likely lead to the recognition of Communist 
China by the United States Government, which in turn would lead to 
the loss of Formosa to the Communists. I considered that if we recog- 
nized Red China we would soon lose Formosa, and if we lost Formosa 
we would certainly recognize Red China, and that both or either 
were very serious disasters to United States security and world 
freedom. 

I therefore went to Washington and spent about 2 months in the 
Washington area, working in large degree with Mr. William Pawley, 
ex- Ambassador to Brazil, in an effort to set up a group of ex-United 
States naval and military officers and retired officers to go to Formosa 
to assist the Nationalist Government in preventing the fall of Formosa 
to communism. 

I made formal recommendations to the State Department and in- 
formal recommendations to the President himself, through his aide, 
that this be carried out, but I never received any action one way or 
the other on these recommendations ; no red light, no green light. 

Finally, about the 1st of December of 1949, I discontinued my 
efforts and returned to Sonoma, Calif. 

Mr. Morris. How long did you remain in Sonoma, Calif. ? 

Admiral Cooke. On the 5th of January of 1950, when the President 
of the United States and the Secretary of State issued statements 
that the United States was not concerned with the fate of Formosa and 
that South Korea was also be} T ond the perimeter of United States 
strategic concern, I called up Mr. Pawley in Washington from Cali- 
fornia to express my view that this could be very disastrous to the 
United States, and every effort should be made to modify the Govern- 
ment's decision, and I proceeded that night to Washington and talked 
with a number of Senators, all of whom agreed, but none of them 
could do anything about it. 

So I returned to my home in Sonoma, Calif. 

Mr. Morris. Admiral Cooke, in either of these two visits to Wash- 
ington that you just related, were there reports circulating that the 
Island of Formosa, containing as it did the Chinese Government, was 
about to fall ? 

Admiral Cooke. While I was in Washington, during the period of 
October and November of 1949, I saw reports, or copies of reports, 
which had been sent by the United States consul general in Taipei, 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2065 

Formosa, stating in effect that Formosa would fall to the Communists 
within a period of 1 or 2 weeks from the date of the dispatch report. 
I knew that we did not at that time have any naval intelligence repre- 
sentatives in Formosa, and I felt that these reports were not well- 
founded. In fact, I was sure that they were not correct. 

I did not at that time take any action to inquire into the reports, 
as I felt that they were probably of a confidential nature. But I felt 
the urge myself to get to Formosa somehow or another, in order to find 
out how correct or incorrect they really were. 

Mr. Morris. Well, Admiral, were these reports, in your opinion, 
causing damage ? 

Admiral Cooke. Yes. I considered that they were causing a very 
serious adverse effect on the United States policy and action. I found 
that many of the people in the Government to whom I presented the 
idea that we should help the Formosa Nationalist Government hold 
onto Formosa against Communist attack were undoubtedly influenced 
by these reports of a debacle in Formosa that would be forthcoming 
in the very early future. 

I did not immediately, at that time, know that our State Depart- 
ment was getting ready to warn all diplomatic personnel throughout 
the world to be ready to explain the fall of Formosa, a warning that 
was actually issued, as I remember it, just about the time of my depar- 
ture from Washington on the 3d of December of 1949. 

Mr. Morris. Did the warning itself have an adverse effect ? 

Admiral Cooke. Yes. I considered that it did in a very high degree, 
because the Nationalist Government, just having been driven off the 
mainland, was in somewhat of a precarious position in Formosa, with 
particular regard to its relationship with all the countries in the 
world, some of which would be ready to recognize Communist China 
without delay. 

In other words, if this warning of the State Department was sup- 
ported by certain things going badly in Formosa, there was a great 
chance that the recognition of Red China at this time might become 
fairly worldwide. 

Mr. Morris. Did you go to Formosa and, if so, in what capacity ? 

Admiral Cooke. After going to Washington the 6th of January 
1950, and not accomplishing very much to save the situation as I 
thought it needed to be saved, I felt the need to go to Formosa to see 
for myself the actual situation and, further, to see what I, at least, 
could do about helping hold this island. 

I therefore arranged with the International News Service for an 
accreditation representing them in Formosa and obtained a passport 
for that purpose and proceeded to Formosa, leaving the United States 
on the 1st of February 1950, passing through Tokyo and Hong Kong, 
and arriving in Formosa on the 11th of February 1950. 

Mr. Morris. When you arrived in Formosa, Admiral, did you find 
that we had adequate intelligence representation on the island ? 

Admiral Cooke. No, I did not. When I was passing through Tokyo, 
I talked to the commander of our Seventh Fleet, then in Yokosuka, 
who had the same intelligence about the situation in Formosa as I 
had seen in Washington, and from whom I learned that no naval intel- 
ligence representatives were in Formosa. 

When I arrived in Formosa, I found that there were no intelligence 
representative's from MacArthur's staff, from the War Department, 



2066 SCOPE OF SOVIET ACTIVITY IN THE "UNITED STATES 

from the Navy Department, or from the Central Intelligence Agency, 
then in Formosa. The only official intelligence representatives were 
the attaches, Army, Navy, x\ir Force, all of them, 01 course, under the 
State Department representative, Mr. Robert Strong, consul general, 
with the position of charge d'affaires. 

Mr. Morris. Admiral, if Navy Intelligence or General MacAr- 
thur's headquarters had wanted to send intelligence personnal to 
Formosa, could they have done so ? 

Admiral Cooke. So far as I know, they could not. About March 
of 1950, possibly in April, General Fortier, who was No. 2 in the G-2 
organization of General MacArthur, desired to come to Formosa to 
learn at first hand what the real situation was. His request was turned 
down and later he made a trip to southeast Asia, and in particular 
to Indochina, and returned, taking passage on a plane that stopped 
a Taipei, Formosa, and he stopped over for a few days. 

This action on his part was objected to, I was informed, by the 
United States counsul general, Mr. Strong. I do not know, of course, 
all the details of what transpired between General Fortier and Mr. 
Strong, but I believe that General Fortier has appeared before your 
committee. 

Mr. Morris. Admiral, after you arrived on Formosa, did you, in 
fact, find the situation to coincide with the situation reported by the 
consul general, the reports you had read in Washington and in Tokyo ? 

Admiral Cooke. No, they did not. Also I found in Formosa that 
a number of people were familiar with the reports that had been made. 
This put mc in a position to refer to them because I found that they 
were no longer confidential. I did not find anything in Formosa which 
supported the reports made in October and November of 1949, setting 
forth, as they did, the imminence of the fall of Formosa to communism 
within a period of 2 or 3 weeks. 

I also learned that, in December of 1949, the State Department rep- 
resentation in Formosa had warned all Americans to leave Formosa 
because of this imminent fall ; that some had done so, but others had 
stayed on. 

I also was informed that one of the assistant military attaches, Capt. 
J. R. Manning, had wished to report facts which did not fit in with the 
character of reports apparently desired by the State Department 
representation, and who therefore made a direct report to the War 
Department. 

Further, I was informed that Captain Manning had been summarily 
detached from his duty as assistant military attache and sent to the 
United States command in Tokyo. 

Some weeks later, while in Tokyo, I looked up Captain Manning, 
and he confirmed the report about this incident that I had received 
while in Formosa. 

Mr. Morris. That would appear, would it not, Admiral, to be an 
example of policy shaping intelligence reports, rather than policy fol- 
lowing facts revealed by intelligence? 

Admiral Cooke. I would rather put it this way : As it appeared to 
me, there was a policy that had been set up in Washington by the 
United States Government and which was being followed by the State 
Department representatives in Formosa, which required that intelli- 
gence facts should conform to the policy rather than have a change 
of policy that would be guided by the facts. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2067 

Mr. Morris. Admiral, were there more episodes and instances of 
which you learned while you were on Formosa that were being inade- 
quately reported through our representatives there? 

Admiral Cooke. Yes, there were. But, in order to give an adequate 
answer to your question, it is necessary that I relate what happened, 
first, with regard to the fall of Hainan to the Communists in April 
of 1950, and, second, of the Nationalist evacuation of the Chusan 
Archipelago in May of 1950. 

"When I returned from Tokyo in the middle of April 1950, I found 
that the Communists had landed in strength in Hainan. This landing 
in strength followed a number of guerrilla landings from the main- 
land on Hainan during the months of February and March. I was 
informed by President Chiang Kai-shek that it had been intended to 
evacuate Hainan in February, because it was 700 miles from Formosa, 
because the troops there were not too well trained and equipped and 
because no more troops, naval ships and aircraft could be spared to 
Hainan from the defense of the Chusan Archipelago and Formosa 
itself. 

However, he went on to add that this evacuation had been delayed 
because the Nationalist forces were still fighting Communists in 
Sikang, a province to the west of Yunan, and the communications by 
air between Sikang and Formosa had to be routed through Hainan. 
I suggested to the president that it would be desirable to repel this 
Communist invasion if possible and afterward to evacuate it while 
not under pressure. 

With this view, he agreed. I volunteered to go down to Hainan 
with his chiefs of staff and give them any advice that I could, and 
I did go down, accompanied by the commander in chief of the navy. 

A few days after my arrival in Hainan, the Communist armies 
overthrew the Nationalist armies, and I flew back to Formosa. Ad- 
miral Kwei, commander in chief of the Chinese Navy, stayed in the 
Hainan area and succeeded in removing practically all of the Na- 
tionalist troops, preventing their capture by the Communists. 

The representative of the Associated Press, also in Hainan at the 
time of its fall, and probably misled by certain of the generals w T ho 
had failed in Hainan, reported in an AP release that President 
Chiang Kai-shek had himself engineered the debacle. This press 
release was of a character that would cause serious damage to the 
cause of the Nationalist Government and was, as I know, completely 
unfounded. 

When I returned to Taipei, I asked all of the naval and military 
attaches to come to my place, in order that I could relate to them 
what had happened. I told them that whereas the performance of 
the Nationalist forces in Hainan was not creditable, it did not carry 
with it the venal aspects reported in the AP dispatch. The attaches 
accepted this report. 

I also wrote a letter to the chief of naval operations, reporting what 
had taken place. 

In addition to the above, I reported that I had questioned the 
Chinese, both on the ships and on the planes, about the ammunition 
that had been directed toward the ships and Nationalist aircraft from 
the mainland across the Ten-Mile Strait from Hainan and had reached 
the conviction that the Communists, probably including Russians a? 
well as Chinese, were using proximity fuses in their ammunition- 



2068 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. What were proximity fuses. Admiral ? 

Admiral Cooke. A proximity fuse was developed very secretly by 
the United States in World War II and is sometimes called an "in- 
fluence fuse,'' which causes the ammunition to be detonated without 
striking a material object, but merely passing near to it. 

Mr. Morris. Of what significance was it to you, Admiral, that the 
Communists were using proximity fuses ? 

Admiral Cooke. This fuse, developed by the United States Navy in 
World War II, was at that time of such a secret character that our 
forces on land did not use it against the Germans because it was feared 
that the secret might be discovered by the recovery of unexploded 
ammunition. 

Therefore, I reached the conviction that this was no longer a secret ; 
that the Russians had probably had it for some time ; that the Russians 
were supplying it to the Chinese Communist armies and that probably 
Russian personnel themselves were participating in the Liuchow 
Peninsula, just across the strait from Hainan, against the Nationalist 
ships and planes. 

The information of the rather discreditable performance of the 
Nationalist forces in Hainan seemed to be received by the attaches 
with an acquiescing reception. Howover, a different reception was 
accorded to the reports that I furnished them after the evacution of the 
Chusan Archipelago, which is about 350 miles north of Formosa, just 
off the Chinese Coast and near the port of Bankchow. The Nationalist 
Government regarded, properly in my opinion, the holding of Chusan 
as very important to their strategical security, because Chusan would 
flank any amphibious movement in strength mounted in the Yangtze 
River. 

Therefore, they had a strong defensive force stationed in Chusan, of 
about 125,000 men. They had had an important battle in October of 
1949, in which they had repelled further advance at that time of the 
Communist Armies against the rest of the archipelago. 

But in April of 1950, photographs taken by Chinese Nationalist 
planes established the fact that Russian jet planes were flying from 
air fields around Shanghai. By this time the Communists had 
established 14 air fields in the Shanghai-Hankchow area, from which 
air strikes could be delivered against Nationalist forces in the Chusan 
area. The Nationalists had only one air field in Chusan. 

Further, the Communists had between two and four hundred 
thousand troops in the same area, available for attack against Chusan. 
It was evident to me that, if the Chinese Communists and their Rus- 
sian components decided to attack Chusan, they should be able to take it 
within a few days. Some of the Communist positions were only two 
miles away from the Nationalist positions. I felt that a strong possi- 
bility existed of such an attack taking place during the summer, June, 
July, or August. I felt that if such an attack took place, not only 
would Chusan be lost, but the Nationalist strength would be so de- 
pleted that Formosa itself probably could not be held. Remember 
that at this time, early May 1950, the United States Government dis- 
claimed any interest in the fate of Formosa. 

I therefore recommended that Chusan be evacuated before such an 
attack. The decision was made by President Chiang Kai-shek and his 
advisers on the 9th of May to evacuate, and the evacuation was com- 
pleted by the 16th of May. All the forces and equipment of Chusan 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2069 

were successfully removed and returned to Formosa without any cas- 
ualties and without any Communist interference by air or otherwise. 
The evacuating forces had difficulties because of swift currents amongst 
the Chusan islands, and fog. 

I, therefore, flew up to give assistance during the last 2 days, accom- 
panying the Chinese naval commander, Admiral Kwei. I, therefore, 
was fully informed as to the plans of the operation and of the final 
steps in the completion of the evacuation. The secret of this move 
was so well kept that it did not become known to the Communists, nor 
to those in Formosa not concerned with carrying it out. It was 
therefore very much to my surprise when, about the 17th of May, I was 
informed that our attaches had the information that many Nationalist 
troops had been killed by Communist gunfire, many troops had been 
left behind, much equipment had been lost, and that a serious debacle 
had taken place. 

It was also stated that the Island of Quemoy, or Kinmen as called 
by the Chinese, had been evacuated and that the Pescadores Islands 
had been ordered evacuated. The garrison of Kinmen Island at that 
time was from 60,000 to 70,000 men. 

The attaches and others associated with them in United States 
Government circles had also stated that Formosa would fall in June 
and not later than July, that is, within less than 2 months. These 
assertions of fact and of views first transpired in a secret meeting and 
were transmitted to me by someone who had learned of them. I imme- 
diately asked the attaches to join me at my headquarters. I informed 
them that I had been in the Chusan area on the last 2 days of the 
evacuation ; that no debacle had taken place ; that the Communists were 
not aware that the evacuation was taking place ; that no troops and no 
equipment had been left behind and that all troops were being returned 
to Formosa. 

I further informed them that Kinmen had not been evacuated and 
was not being evacuated, and, further, that there was no intention to 
evacuate the Pescadores. To this the attaches replied that their infor- 
mation and their informants were of a character that they were sure 
that they were right and that I was wrong. 

In spite of all of my assurances that I had personally witnessed 
what had taken place in Chusan and that they would find that Kinmen 
had not been evacuated, they insisted on retaining their own view and 
so reported, I gather, to Washington. 

Mr. Morris. Admiral, were all of the attaches under the direction 
of Mr. Eobert Strong? 

Admiral Cooke. Yes. 

Mr. Morris. Is he still in the State Department ? 

Admiral Cooke. After his being relieved in August of 1950, he pro- 
ceeded to the State Department and I heard that he was in the State 
Department in 1952. Since then I do not know. 

Mr. Morris. Admiral, had you finished that last episode when I 
interrupted ? 

Admiral Cooke. No, I had not finished. 

To go cm with the report to Washington of what had taken place 
in the middle of May in Chusan and Kinmen and the Pescadores, I 
wrote a letter to the chief of naval operations, relating in detail what 
had happened, stating that I considered the whole Chusan operation to 
be very creditable to the Nationalist Government, but that the attaches 



2070 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

had not accepted my reports and I was therefore sending them direct to 
the chief of naval operations. 

However, I knew that my report, being made by myself, who was 
in an unofficial status, would not be accepted in the face of the strong 
official report coming in from the attaches and the consul general. I 
therefore wrote separate letters to Senator Knowland and Congress- 
man Walter Judd, relating what had taken place. In my view it was 
necessary to counteract the very serious deterioration in the position 
of the Nationalist Government caused by the spreading of such false 
reports. 

I was convinced then, as the United States Government has since 
become convinced, that security of Formosa to the free world was 
of vital importance to the United States. It is to be borne in mind 
that the Communist attack on South Korea had not yet taken place. 

Mr. Morris. Admiral, were there any other episodes ? 

Admiral Cooke. Yes. A day or two after my conference, let me say 
abortive conference, with the attaches, all Americans were warned 
to leave Formosa, and all the women in United States Government 
employ in Formosa were ordered to leave, and were given the choice 
of going either to Seoul in Korea or to Saigon in Indochina. Seoul 
was to be attacked and taken by the North Korean Communists about 
1 month later, and Saigon was the scene of frequent bombings by 
Communist underground elements in that city. I had hoped to fore- 
stall this blow to the Nationalist Government of ordering Americans 
to leave, or warning them to leave for the second time in 5 months. 

The facts as related by me to the attaches and to the United States 
Navy Department were, of course, all borne out. The troops and 
equipment from Chusan did arrive. Kinmen or Quemoy is still 
occupied by Nationalist troops. 

Now it seemed evident to me after these two incidents, that of 
Hainan and that of Chusan, had taken place and the facts had been 
related by me, an Admiral of the United States Navy, retired, in 
detail as of one who was present in each case, that the attaches accepted 
the report on Hainan which reflected discredit on the Nationalist Gov- 
ernment and rejected completely the report on Chusan which reflected 
great credit on the Nationalist Government. There seemed to be a 
confused distortion and appraisal of certain strategic aspects of the 
general situation. 

For instance, the Naval attache attached to Consul-General Strong's 
staff, informed me that Chusan should not have been evacuated ; that 
it should have been held by the Nationalists. He had further stated 
that Chusan did not have more than 60,000 troops in that area, but he 
strongly asserted his view that the Communists, with many squadrons 
including jet aircraft, and with several hundred thousand troops, could 
not take Chusan, some places only 2 miles distant from Communist- 
held adjacent islands. 

At the same time, in defense of the order for Americans to leave 
Formosa, he stated that the Communists crossing a 100-mile strait 
could take Formosa with one LST. 

Mr. Morris. Admiral Cooke, to your knowledge, has anything been 
done to correct the defective intelligence situation which you have de- 
scribed here today ? 

Admiral Cooke. I have read about the task force formed under the 
Hoover Commission, the task force headed by General Clark, which 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2071 

I believe went into the intelligence situation exhaustively, but I be- 
lieve that very little, if any, of the report was ever published. I, my- 
self, in October of 1951, was asked to talk to the heads of the Central 
Intelligence Agency by Gen. Bedell Smith, who was then head, to 
convey to him the Formosan situation, while I was in Washington 
after testifying before your committee and before my return to For- 
mosa. I gave General Smith and his assistants most of the facts that 
I have related to you herein. 

More recently, about last January, I learned that the President had 
appointed a permanent or continuing Commission to watch over the 
intelligence activities, consisting of 6 or 8 people, and headed by the 
president of the Massachusetts Institute of Technology, Mr. Killian. 
I wrote to the Navy member of this Commission immediately, to tell 
him that I could bear witness to some very serious failures in intel- 
ligence that had caused great harm to the United States, and would like 
to appear before this committee. When this offer, originally made in 
January, was not accepted, I repeated it several months later, but I 
have now come to the conclusion that the Commission is not interested 
in hearing what I have to say. 

Mr. Morris. Admiral, you have pointed out here for the record some 
serious failures on the part of intelligence in the past. What do you 
think should be done about them, in order to insure the internal secu- 
rity of the United States ? 

Admiral Cooke. It seems to me that there is a possibility, a serious 
possibility, that the future may bring others who will, in pursuance 
of a policy, be ready to twist facts, head off facts, deny information 
to other members of the Government, and to the people which can 
endanger the security of the United States. The need to provide 
against such possibilities apparently was felt about atomic energy. 

So, not only was a Commission formed, but also a committee of 
Congress, which could scarcely be liable to go off on such tangents. 
I think, therefore, that the Security Council of the United States 
should include a full-time committee composed of able military officers 
of each service, perhaps those nearing the retirement age or just past 
the retirement age, and of representatives of the State Department 
who would be furnished a command ship which would permit them to 
visit critical areas, such as the Far East or the Mediterranean, ac- 
quaint themselves with the local situation, the local intelligence, and 
report them back to the Security Council, including the President, of 
course, and to the Defense Department. 

Further, to insure that such a committee should not at any time be 
composed of those who would conform to an adopted theory of policy, 
that a committee of Congress similar to the Atomic Energy Commis- 
sion should be established. 

Mr. Morris. On behalf of the chairman of the Internal Security 
Subcommittee I wish to thank you for the very important information 
and the very well-informed views you have presented here today. 



INDEX 



Note. — The Senate Internal Security Subcommittee attaches no significance to 
the mere fact of the appearance of the names of an individual or an organization 
in this index. 

A 

Page 

Acheson, Secretary of State 2054 

Afghanistan 2039,2040 

Alaska 2041 

American bottoms 2040 

American shipments 2040 

Army : 

Chinese Communist 2044 

Chinese Nationalist 2044 

Chinese People's 2050, 2051 

Japanese Kwantung 2042, 2044, 2051 

Red Chinese 2044 

Soviet 2051 

Asia 2043, 2058, 2066 

Associated Press 2067 

Atomic Energy Commission 2071 

Azerbaijan 2043 

B 

Bankchow 2068 

Boxer Rebellion 2050 

British consulate general in Mukden 2052 

Bullitt, Hon. William C 2052 

Butterworth, W. W 2054 

C 

Cairo 2062 

Casablanca 2062 

Central Intelligence Agency 2066, 2071 

Changchun 2044, 2045 

Chenault, General , 2056 

Chiang Kai-shek, President 2067 

China 2043, 2044, 2050, 2054, 2060 

Nationalist 2055, 2056, 2057, 2063 

Red 2052, 2053, 2057, 2058, 2064, 2065 

People's Government of 2057 

China White Paper 2057 

Chinese language 2049 

Chinese Nationalists 2043, 2044, 2051, 2054, 205S 

Chusan Archipelago 2067, 2068, 2070 

Chusan islands 2069 

Cicogna, Franco (arrested with Amb. Ward) 2047, 2048 

Clark, General 2070 

Communist (s) , 2048, 2051, 2056, 2058, 2059. 

2062, 2065, 2067, 2069 

Chinese 2043-2046, 2052, 2053 

2060, 2061, 2064, 2068 

Russian 2062, 2064 

North Korean 2070 

Congress (80th) 2055, 2056 

I 



II INDEX 

Page 

Cooke, Adm. Charles Maynard (testimony of) 2061-2071 

Retired from Navy May 1948 2061 

Graduate of U. S. Naval Academv in 1910 2062 

Chief of Staff to Adm. Ernest King 2062 

Cristan, Alfred (arrested with Amb. Ward) 2047, 204S 

D 

Dairen 2041, 2045 

Davies, John Paton 2057 

Defense Department 2071 

E 

Eisenhower, General 2055 

Exhibit No. 353, official biography of Angus Ward 2039 

F 

Far East 2041, 2053, 2058, 2062, 2064, 2071 

Soviet 2041, 2059 

Finland 2040 

Fluegel, Dr. Edna R — 2039 

Foreign Service 2057 

Formosa 2064, 2065, 2067-2071 

Forrestal, Secretary of Defense -- 2054, 2055 

Fortier, Brig. Gen. Louis 2053, 2066 

Frank, Nelson 2039 

Fulton, Congressman 2052 

G 

German 2040 

Government — 

Chinese 2041, 2042, 2064 

Chinese Communist — 2050 

Formosa Nationalist 2065 

Nationalist 2054, 2058, 2060, 2067, 2068-2070 

United States 2045, 2047, 2052, 2063, 2064, 2068-2070 

Great Wall 2045 

H 

Hainan 2067, 200S, 2070 

Hong Kong 2065 

Hoover Commission 2070 

House of Representatives 2052, 2064 

Howard, Roy, publisher of Scripps-Howard 2052 

I 

Indochina 2066 

Indonesia 2058 

Intelligence Division of the Army 2062 

International News Service 2065 

Iran 2043 

J 

Japan 2053, 2062, 2063 

Japanese 2040, 2041, 2051, 2063 

Jessup, Philip 2053 

Judd, Congressman Walter 2070 

K 

Killian, Mr., president of Mass. Institute of Technology 2071 

Knowland, Senator 2070 

Korean Koreans 2051 

Korean troops 2051 

Kurile Islands 2041 

Kwantung army 2042, 2044, 2051 

Kwei, Admiral 2067, 2069 



index ni 

L 

Page 

Liuchow Peninsula 2068 

Lovett, Under Secretary of State 2056 

M 

MacArthur, General 2065, 2066 

Manchuria 2042, 2044, 2045, 2051, 2053, 2054, 2058, 2062, 2063 

Manchurian Koreans 2051 

Manchurian Railway 2041 

Manning, Capt. J. R 2066 

Marshall, General 2063 

Marshall, Secretary of State 2054, 2055, 2056 

Mongolia 2059 

Morris, Robert 2039, 2061 

Moscow 2042, 2059 

Mukden, Manchuria 2040, 2043-2046, 2049-2052, 2054, 2057, 2060 

Fell to Chinese Communists on Oct. 1, 1948 2045 

N 

Nairobi, British East Africa 2040 

Nationalist (s). (See Chinese Nationalists.) 

Navy, U. S 2068 

Navy Department 2066, 2070 

Navy Intelligence 2066 

Nazi 2041 

North Korea 2051, 2062, 2070 



Pawley, William, ex-Ambassador to Brazil 2064 

Pearl Harbor 2040, 2041 

Peiping 2058 

Peking 2044, 2045, 2046, 2051, 2064 

People's Republic 2053 

Persia, North 2043 

Pescadores Islands 2009 

Petropavlosk 2041 

Philippine Islands 2058 

Potsdam 2062 

President, the 2064, 2071 

Q 
Quebec 2062 

Quemoy (Kinmen) 2069, 2070 

R 

Radio Australia 2046 

Radio station (U. S. Govt, in Mukden, Manchuria) 2045,2046 

Red Chinese regime 2053 

Refberg, Ralph (arrested with Amb. Ward) 2047,2048 

Russian(s) 2050, 2051, 2063, 2068 

S 

Saigon, Indochina 2070 

Secretary of Defense 2061 

Security Council of United States 2071 

Senate 2052, 2064 

Seoul, Korea 2070 

Seventh Fleet, United States 2062, 2063, 2065 

Shah of Iran 2043 

Shanghai 2045, 2068 

Siamese 2058 

Siberia 2041 

Sikang 2067 

Singapore 2047, 2058 

Smith, Gen. Bedell 2071 

South Korea 2064, 2070 

Soviet bottoms 2040, 2041 



IV INDEX 

Page 

Soviet Union 2040-2043, 2046 

State Department 2042-2044, 

2046, 2051, 2052, 2054, 2055, 2057, 2064-2066, 2069 

Statsumi, Albert (arrested witb Amb. Ward) 2047 

Strong, Robert 2066, 2069 

T 

T'ai-pei 2064, 2066, 2067 

Taiwan 2058 

Teheran, Iran 2040, 2041, 2043, 2054 

Thailand 2058 

Thirty-eighth degree latitude 2051 

Tientsin 2045, 2046, 2051 

Tokyo 2065-2067 

Trans-Siberian Railway 2041 

U 

United Nations 2053, 2058 

United States 2040, 

2042-2044, 2050, 2053, 2056, 2059, 2061, 2063-2066, 2068, 2070, 2071 

V 
V-J Day 2051 

Vladivostok 2040-2042, 2054, 2059 

W 

War Department 2065, 2066 

Ward, Ambassador Angus (testimony of) 2039-2060 

Former Ambassador to Afghanistan 2039, 2040 

Domiciled in Michigan, residing in Spain 2039 

Resigned from Foreign Service 2039 

Assigned in Nairobi, British East Africa 2040 

Assigned in Teheran, Iran in 1945 as Counselor of Embassy 2040, 2043 

Approximately 28 years in Soviet Union 2040 

Assigned in Mukden, Manchuria 2040 

Assigned in Vladivostok as Consul General 1941^14 2040 

Under house arrest by Chinese Communists in Mukden 14 months 

until December 1949 2046 

Imprisoned 2 months with 4 other members of staff 2046, 2047 

Washington 2042, 2046, 2052, 2054, 2062, 2064-2066, 2069, 2071 

World War II 2068 

Y 

Yalta Declaration, February 2, 1945 2041, 2062 

Yangtze River 206S 

Yokosuka 2065 

Yunan 2067 

o 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



HEARING 



j 

before the 

SUBCOMMITTEE TO INVESTIGATE THE 

ADMINISTRATION OFiTHEiINTERNAL SECURITY 

ACT AND OTHER INTERNAL SECURITY LAWS 

OF THE 

COMMITTEE ON THE JUDICIARY 
UNITED STATES SENATE 

EIGHTY-FOURTH CONGRESS 

SECOND SESSION 
ON 

SCOPE OF SOVIET ACTIVITY IN THE 
UNITED STATES 



DECEMBER 17, 1956 



PART 37 



Printed for the use of the Committee on the Judiciary 




UNITED STATES 
GOVERNMENT FRINTING OFFICE 
72723 WASHINGTON : 1957 






Boston Public Library 
Superintendent of Documents 

MAY 3 - 1957 



COMMITTEE ON THE JUDICIARY 

JAMES O. EASTLAND, Mississippi, Chairman 

ESTES KEPAUVER, Tennessee ALEXANDER WILEY, Wisconsin 

OLIN D. JOHNSTON, South Carolina WILLIAM LANGER, North Dakota 

THOMAS C. HENNINGS, JR., Missouri WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

PRICE DANIEL, Texas EVERETT McKINLEY DIRKSEN, Illinois 

JOSEPH C. O'MAHONEY, Wyoming HERMAN WELKER, Idaho 

MATTHEW M. NEELY, West Virginia JOHN MARSHALL BUTLER, Maryland 



Subcommittee To Investigate the Administration of the Internal Security 
Act and Other Internal Security Laws 

JAMES O. EASTLAND, Mississippi. Chairman 
OLIN D. JOHNSTON, South Carolina WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

THOMAS C. HENNINGS, Jr., Missouri HERMAN WELKER, Idaho 

PRICE DANIEL, Texas JOHN MARSHALL BUTLER, Maryland 

Robert Morris. Chief Counsel 

J. G. SourwinEj Associate Counsel 

William A. Rusher, Administrative Counsel 

Benjamin Mandel, Director of Research 

H 



CONTENTS 



Witness : Pa ^« 

Toussaint, Paul A 2073 

Wilcox, Francis O 2073 



in 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



MONDAY, DECEMBER 17, 1956 

United States Senate, 
Subcommittee To Investigate the Administration 

of the Internal Security Act and Other 

Internal Security Laws of the 
Committee on the Judiciary, 

Washington, D. G. 

The subcommittee met, pursuant to call, at 10 : 30 a. m., in the Old 
Supreme Court Chamber, United States Capitol, Senator Olin D. 
Johnston presiding. 

Present : Senator Johnston and Jenner. 

Also present: J. G. Sourwine, associate counsel; William Rusher, 
administrative counsel ; and Benjamin Mandel, research director. 

Senator Johnston. The committee will come to order. 

You may call the first witness. 

Mr. Sourwine. The Honorable Francis Wilcox, Assistant Secretary 
of State. 

Senator Johnston. Will you please come around, Mr. Wilcox, and 
hold up your right hand to be sworn. 

Do you swear the evidence you give before the subcommittee to be 
the truth, the whole truth, and nothing but the truth, so help you God ? 

Mr. Wilcox. I do. 

TESTIMONY OF FRANCIS 0. WILCOX, ASSISTANT SECRETARY OF 
STATE FOR INTERNATIONAL ORGANIZATION AFFAIRS, ACCOM- 
PANIED BY PAUL A. TO USSAINT, SPECIAL ASSISTANT TO THE DI- 
RECTOR, OFFICE OF INTERNATIONAL ADMINISTRATION 

Mr. Sourwine. Mr. Chairman, the purpose of this hearing is to 
bring the committee's record up to date with respect to the necessity 
for legislation at this time dealing with the problem of disloyalty to 
the United States among American nationals employed by the United 
Nations. 

As the Chair knows, we have held a number of hearings on this sub- 
ject, and bills purporting to deal with this problem have been before 
the Judiciary Committee on several occasions. 

It may be well at this time to offer for the record the first bill on 
this subject, which was S. 3 of the 83d Congress, and the bill now 
pending before the Judiciary Committee, which is S. 782 — it is not 
pending before the Judiciary, it was reported out of the Judiciary, 
and was placed on the Senate Calendar. I ask that those be inserted 
in the record at this time. 

2073 



2074 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Senator Johnston. There will be inserted into the record S. 3, the 
83d Congress, and S. 782 of the 84th Congress. They will become a 
part of the record at this time. 

(The bills referred to were marked "Exhibits No. 354 and No. 
854-A" and are as follows:) 

Exhibit No. 354 

[S. 3, 83d Cong., 1st sess.] 

AN ACT To prevent citizens of the United States of questionable loyalty to the United 
States Government from accepting any office or employment in or under the United 
Nations, and for other purposes 

Be it enacted by the Senate and House of Representatives of the United States 
of America in Congress assembled, That (a) no citizen of the United States 
hereafter shall accept any office or employment in or nnder the United Nations 
or any organ or agency thereof unless he has applied in writing to the Attorney 
General of the United States for, and has received from such officer, the security 
clearance required by this section. 

(b) Under such regulations as the Attorney General shall prescribe, each 
application for security clearance filed pursuant to subsection (a) shall bear the 
fingerprints of the applicant, and shall contain a true and complete statement, 
executed by the applicant under oath, of the following information concerning 
such applicant : 

(1) Each arrest, indictment, or conviction of the applicant for the violation 
or alleged violation of any law of the United States or of any State or Territory 
of the United States other than a violation or alleged violation of any law or 
ordinance for the regulation of motor vehicle traffic punishable as a misdemeanor. 

(2) Each membership held by the applicant at any time in any organization or 
any service rendered to or operated under the discipline of any organization (A) 
teaching or advocating the overthrow of the Government of the United States 
by force or violence, (B) registered as a Communist-action or Communist-front 
organization pursuant to section 7 of the Subversive Activities Control Act of 
1950, or (C) required by final order of the Subversive Activities Control Board 
to register pursuant to such section. 

(3) Each name, other than the name subscribed upon such application, by 
which such applicant has been known and shall forward such information to 
to the United Nations or special agency thereof wherein the applicant is seeking 
employment. 

(4) Each occasion on which the applicant has applied to the Government of the 
United States for a passport and has been denied such passport. 

(5) The circumstances under which the applicant has been discharged or has 
resigned from any office or employment in or under the Government of the 
United States or any agency or instrumentality thereof. 

(6) Such other information as the Attorney General shall determine to be 
necessary for the purpose of ascertaining whether the occupancy by the appli- 
cant of any office or employment in or under the United Nations or any organ 
or agency thereof would involved reasonable probability of danger to the security 
of the United States. 

(c) Upon the filing of any application pursuant to this section, the Attorney 
General shall conduct as expeditiously as may be practicable such investigation 
as he shall deeem necessary to ascertain whether in his opinion the occupancy 
by the applicant of any office or employment in or under the United Nations 
or any organ or agency thereof would involve reasonable possibility of danger 
to the security of the United States. If no such possibility is determined to 
exist, the Attorney General shall furnish to the applicant a written statement 
of securiy clearance. If such possibility is determined to exist, the Attorney 
General shall furnish to the applicant a written denial of his application together 
with a statement of his reason for such denial. 

Sec. 2. Each citizen of the United States who on the date of enactment of 
this Act occupies any office or is engaged in any employment in or under the 
United Nations or any organ or agency thereof shall, within sixty days after 
such date, file with the Attorney General of the United States a registration 
statement in such form as the Attorney General shall prescribe. Each registra- 
tion statement shall bear the fingerprints of the person filing such statement, 
and shall contain a true and complete statement, executed by such person under 
oath, of the following information concerning such person : 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2075 

(a) The nature of the office or employment held by such person in or under 
the United Nations or any organ or agency thereof. 

(b) The period during which such office or employment has been held by such 
person. 

(c) Each element of information specified in paragraphs (1) to (6), inclusive, 
of subsection 1(b) with respect to applicants for security clearance under section 
1 of this Act. 

Sec. 3 (a) Whoever, being a citizen of the United States, shall accept any 
office or employment in or under the United Nations or any organ or agency 
thereof in violation of subsection 1 (a) of this Act shall be fined not more than 
$10,000 or imprisoned for not more than five years, or both. 

(b) Whoever, being a citizen of the United States and an officer or employee 
of the United Nations or any organ or agency thereof, shall willfully fail to 
comply with the requirements of section 2 of this Act, or who shall aid, abet, or 
counsel any other such person to refrain from compliance with such requirements, 
shall be fined not more than .$10,000, or imprisoned for not more than five years, 
or both. 

(c) Whoever shall willfully make any false statement in any application or 
registration statement filed under this Act, or willfully omit "to state in any 
such application or registration statement any fact required by law or regula- 
tion to be stated therein or necessary to make the statements made or information 
given therein not misleading, shall be fined not more than $10,000, or imprisoned 
for not more than five years, or both. 

Passed the Senate June 8, 1953. 

Attest : J. Mark Trice, Secretary. 

Exhibit No. 354-A 

[S. 782, 84th Cong., 2d sess.] 
[Omit the part in brackets and insert the part printed in italics] 

A BILL To prevent citizens of the United States of questionable loyalty to the United 
States Government from accepting any office or employment in or under the United 
Nations, and for other purposes 

Be it enacted by the Senate and House of Representatives of the United States 
of America in Congress assembled, That (a) no citizen of the United States here- 
after shall accept any office or employment in or under the United Nations or any 
organ or agency thereof or any other international agency or organization unless 
he has applied in writing to the Attorney General of the United States for, and 
has received from such officer, the security clearance required by this section. 

(b) Under such regulations as the Attorney General shall prescribe, each 
application for security clearance filed pursuant to subsection (a) shall bear the 
fingerprints of the applicant, and shall contain a true and complete statement, 
executed by the applicant under oath, of the following information concerning 
such applicant : 

(1) Each arrest, indictment, or conviction of the applicant for the violation 
or alleged violation of any law of the United States or of any State or Territory 
of the United States other than a violation or alleged violation of any law or 
ordinance for the regulation of motor-vehicle traffic punishable as a misdemeanor. 

(2) Each membership held by the applicant at any time in any organization 
or any service rendered to or operated under the discipline of any organization 
(A) teaching or advocating the overthrow of the Government of the United States 
by force and violence, (B) registered as a Communist-action or Communist-front 
organization pursuant to section 7 of the Subversive Activities Control Act of 
1950, or (C) required by final order of the Subversive Activities Control Board 
to register pursuant to such section. 

(3) Each name, other than the name subscribed upon such application, by 
which such applicant has been known Cand shall forward such information to the 
United Nations or special agency thereof wherein the applicant is seeking 
employment]. 

(4) Each occasion on which the applicant has applied to the Government of 
the United States for a passport and has been denied such passport. 

(5) The circumstances under which the applicant has been discharged or has 
resigned from any office or employment in or under the Government of the 
United States or any agency or instrumentality thereof. 



2076 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

(6) Such other information as the Attorney General shall determine to be 
necessary for the purpose of ascertaining whether the occupancy by the appli- 
cant of any office or employment in or under the United Nations or any organ or 
agency thereof or any other international agency or organization would involve 
reasonable [probability! possibility of danger to the security of the United 
States. 

(c) Upon the filing of any application pursuant to this section, the Attorney 
General shall conduct as expeditiously as may be practicable such investigation 
as he shall deem necessary to ascertain whether in his opinion the occupancy 
by the applicant of any office or employment in or under the United Nations or 
any organ or agency thereof or any other international agency or organization 
would involve reasonable possibility of danger to the security of the United 
States. If no such possibility is determined to exist, the Attorney General shall 
furnish to the applicant a written statement of security clearance. If such 
possibility is determined to exist, tbe Attorney General shall furnish to the 
applicant a written denial of his application together with a statement of his 
reason for such denial and shall forward such information to the United Nations 
or special agency thereof or other international agency or organization wherein 
the applicant is seeking employment. 

Sec. 2. Each citizen of the United States who on the date of enactment of this 
Act occupies any office or is engaged in any employment in or under the United 
Nations or any organ or agency thereof or any other international agency or 
organization shall, within sixty clays after such date, file with the Attorney Gen- 
eral of the United States a registration statement in such form as the Attorney 
General shall prescribe. Each registration statement shall bear the finger- 
prints of the person filing such statement, and shall contain a true and complete 
statement, executed by such person under oath, of the following information con- 
cerning such person : 

(a) The nature of the office or employment held by such person in or under 
the United Nations or any organ or agency thereof or any other international 
agency or organization. 

(b) The period during which such office or employment has been held by such 
person. 

(c) Each element of information speeifi?d in paragraphs (1) to (6), inclusive, 
of subsection 1 (b) with respect to applicants for security clearance under sec- 
tion 1 of this Act. 

Sec. 3. fa) Whoever, being a citizen of the United States, shall accept any 
office or employment in or under the United Nations or any organ or agency 
thereof or any other international agency or organization in violation of sub- 
section 1 (a) of this Act shall be fined not more than $10,000 or imprisoned for 
not more than five years, or both. 

(b) Whoever, being a citizen of the United States and an officer or employee 
of the United Nations or any organ or agency thereof or any other international 
agency or organization, shall willfully fail to comply with the requirements of 
section 2 of this Act, or who shall aid, abet, or counsel any other such person to 
refrain from compliance with such requirements, shall be fined not more than 
.$10,000, or imprisoned for not more than five years, or both. 

(c) Whoever shall willfully make any false statement in any application or 
registration statement filed under this Act, or willfuly omit to state in any 
such application or registration statement any fact required by law or regula- 
tion to be stated therein or necessary to make the statements made or given 
therein not misleading, shall be fined not more than $10,000, or imprisoned for 
not more than five years, or both. 

Mr. Sotjrwine. Mr. Wilcox, would you give the reporter your 
name and your title. 

Mr. Wilcox. Francis O. Wilcox, Assistant Secretary of State for 
International Organization Affairs. 

Mr. Sotjrwine. You were formerly with us down on the Hill with 
the Foreign Relations Committee, Mr. Wilcox ? 

Mr. Wilcox. Yes ; for many years. 

Mr. Sotjrwine. Are you familiar, sir, with the State Department's 
position respecting the desirability of legislation dealing in any w T ay 
with the problem of disloyalty to the United States by American 
nationals employed by international organizations ? 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2077 

Mr. Wilcox. Yes. And, I have a very brief statement, Mr. Chair- 
man, which, with your permission, I should like to read into the 
record. I think it will take me about 10 minutes. 

Senator Johnston. You may read that into the record. I think 
that would probably be the best way to get it in. 

Mr. Wilcox. I think that would set the problem in its proper focus, 
Mr. Chairman. 

Senator Johnston. You may proceed. 

Mr. Wilcox. Mr. Chairman, I wish to preface my remarks by say- 
ing- I appreciate the consideration shown by the subcommittee in per- 
mitting me to choose the time most convenient for my appearance. I 
also appreciate the opportunity extended me to comment on the ques- 
tion of the desirability of legislation dealing with the loyalty meas- 
ures to be applicable to American nationals employed by, or seeking 
employment with, public international organizations. 

This is not the first opportunity the Department of State has had to 
comment on legislation of the type now under consideration. 

In 1953 the Department, when commenting on S. 3, observed that 
it seemed in the best interest of the United States to give the execu- 
tive procedure a thoroughgoing try and that the question of any 
legislative approach to the problem be held in abeyance pending 
an assessment of the results produced under that procedure. 

In 1955 the Department, then commenting on S. 782 and having 
had the benefit of seeing the results of the Executive order procedure, 
recommended that legislation was unnecessary. The Department 
observed that the objectives of S. 782 had already been achieved under 
the Executive order procedure. 

As I see it, the objectives of the Congress and of the executive branch 
in these matters are identical. There are two principal objectives: 

First, we should seek to have additional topflight Americans em- 
ployed by international organizations. 

Second, and equally important, these Americans must be people 
of the highest loyalty and integrity. 

In order to achieve these twin objectives we must be certain that 
the loyalty clearance procedure satisfies loyalty and security needs 
without creating any unnecessary obstacles to the recruitment of 
really qualified Americans. An unwieldy process, or major pro- 
cedure involving changes at this time, could discourage Americans 
from seeking employment with international organizations. Also, 
international organizations might tend to exclude Americans from 
their employment programs simply to avoid becoming involved in 
protracted or new and untried procedures. 

In order to continue to receive the maximum cooperation from the 
organizations concerned, it seems best that we adhere to a procedure 
which they have already accepted. It seems to me that any departure 
from the procedure now in effect would needlessly reopen to public 
international debate the question of this Government's obligation to 
respect the independent character of the various international secre- 
tariats in which we participate. 

Since January 9, 1953, the loyalty clearance of Americans employed 
by, or seeking employment with, public international organizations 
has been accomplished under the provisions of Executive Order 10422, 
as amended by Executive Order 10459 on June 2, 1953. The Execu- 

72723— 57— pt. 37 2 



2078 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

tive order, as amended, assigns specific areas of responsibility to the 
International Organizations Employees Loyalty Board and to the 
Department of State. 

Since Judge Henry S. Waldman, Chairman of the International 
Organizations Employees Loyalty Board, is scheduled to appear be- 
fore the subcommittee — and is here in the room this morning — I shall 
confine my statement to the Department of State's functions pursuant 
to the terms of the Executive order. 

The Executive order designates the Secretary of State as the channel 
through which personnel forms are to be routed to the Loyalty Board 
by individual employees or applicants. In practice, with the con- 
currence of the Loyalty Board, some international organizations for- 
ward the personnel forms directly to the Loyalty Board. 

The Secretary of State is also the channel through which the 
Loyalty Board forwards its advisory recommendations or determina- 
tions to the executive heads of the international organizations. These 
determinations are made by the Loyalty Board upon the basis of 
reports of investigation which the Board retains. Thus, in this con- 
nection, the Department of State acts primarily as a courier. It does 
not evaluate either the reports of investigation or the advisory deter- 
minations. 

As we are all aware, the Executive order has no binding force and 
effect upon international organizations. An advisory determination, 
whether favorable or adverse, submitted to the executive head of an 
organization is for, and I quote the Executive order, "his use in exer- 
cising his rights and duties with respect to the personnel." The 
decision as to whether a given employee, or applicant for employment, 
meets the required standard of integrity is made by the executive head 
of the agency. 

The most important function exercised by the Department of State, 
in order to give force and effect to the provisions of the Executive 
order, relates to the arrangements negotiated with the executive heads 
of organizations employing, or contemplating the employment of, 
American nationals. Following the issuance of the Executive order 
in January 1953, the Department of State did in fact negotiate ar- 
rangements with the organizations concerned. 

The arrangements, in substance, provide that employees of Ameri- 
can nationality, or American nationals seeking employment, execute 
appropriate personnel forms for submission to the Loyalty Board. 
Furthermore, under the arrangements, the executive heads of the 
organizations take into consideration the Loyalty Board's advisory 
determination in deciding whether to employ or retain the American 
concerned. 

The Department of State and the International Organizations Em- 
ployees Loyalty Board have worked together closely to give full effect 
to the intent of the Executive order. In the light of the experience 
gained since January 1953, it is the Department's considered opinion 
that the Executive order's mandate has been carried out. 

The Department of State and the Loyalty Board working together 
have, wherever necessary, and without sacrificing the intent of the 
Executive order, overcome the administrative problems which have 
arisen. We have also been successful in establishing machinery which 
permits the expeditious completion of the investigative procedure 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2079 

without unduly hampering the recruitment and employment of quali- 
fied Americans. 

It has been the expressed desire of both the executive branch and the 
legislative branch that more Americans obtain employment with in- 
ternational organizations. Indeed, Mr. Chairman, most of the ap- 
pearances that I have made before Congress have resulted in Members 
of Congress raising the question as to whether we are making real 
progress in getting more qualified Americans in these various inter- 
national agencies. We do not have as many as we should have in any 
of the specialized agencies in proportion to the contribution we make 
to the budget of these organizations. It has been our desire to 
strengthen the staffs of these agencies by encouraging the employment 
of more qualified and loyal Americans. 

The Department of State is convinced that the goal is being met 
within the spirit and intent of the Executive order. It is the Depart- 
ment of State's considered opinion also that legislation of the type pro- 
posed in 1953 and 1955 — and I refer, Mr. Chairman, to S. 3 and S. 782— 
would add nothing to the safeguards contained in the Executive order. 
Indeed, it would have an adverse effect on the recruitment and employ- 
ment of Americans by international organizations. 

I feel very strongly that legislation which would serve to supplant 
the Executive order procedure would set the United States back 2 or 
3 years in its efforts to see qualified, competent Americans of high in- 
tegrity on the payroll of international organizations in which the 
United States participates. And when I say that, Mr. Chairman, I 
want to say, at the same time, that I recognize the desirability from the 
point of view of individuals submitting these bills, of submitting them 
for consideration of the committee, that when a committee of the Con- 
gress embarks upon an inquiry of this type they are doing what they 
think is in the international interest, and it is only by exploring these 
things together that we can come out wih the best solution for the 
national interest. 

The basic reason for my conclusion is that we have spent 3 years in 
setting up and improving a working system. The organizations have 
gradually come to understand it and to work with us under it. If we 
change this system, as the draft bills would have done, we would create 
new problems and have to start the difficult process all over again. 

Moreover, there are a number of countries in these various organ- 
izations — a good many of them very friendly countries — which have 
been critical of us all along. We have now largely succeeded in over- 
coming these criticsms. It would not now be in the national interest 
to pursue a course which would again stir up this criticism and ill will 
among those various countries. 

Senator Jenner. What countries do you refer to ? 

Mr. Wilcox. Senator, there are a number of countries in the 
U.N. 

Senator Jenner. Would you mind naming some of them ? 

Mr. Wilcox. I would be glad to do that to you personally, but I 
would rather not put on the record the names of the countries that 
have criticism; it would look as though I were criticizing them for 
their criticism. I would be glad to give you a list. 

Senator Jenner. I would like to have it. 



2080 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Senator Johnston. Are there countries scrutinizing the people 
that we employ a little more than we are at the present time; is that 
what they are doing? 

Mr. Wilcox. I think, Mr. Chairman, there is some feeling that 
the head of the international agencies, under the charters of the or- 
ganizations, have the final determination as to the employees that 
he should employ, and that we were perhaps imposing conditions that 
the charters did not envisage at the time that they were drafted and 
signed. 

Senator Johnston. Do you mean to say that the United States 
doesn't have a right to say whether or not a citizen of the United 
States shall be employed or not employed ? 

Mr. Wilcox. That, sir, is a moot question. We have taken the view 
that all American nationals ought to go through a loyalty process and 
procedure. On the other hand, the Charter of the United Nations and 
the charters of the specialized agencies do bestow upon the directors 
general of those agencies the right to hire a staff which they think 
is competent and qualified to do the job that the organization has to 
do. 

Now, gradually, I think, our attitude toward this problem has been 
understood and has been accepted. The directors general are working 
with us in the clearance process. And I made the point that, since 
this was now pretty largely settled and working fairly well, I think 
it might be unwise to stir it up again. 

Senator Johnston. I notice you used the words "fairly well." What 
do you mean by that ? 

Mr. Wilcox. Well, sir, I would be glad to delete the word "fairly" 
from the record. It is working well, I think. 

I have just two final paragraphs, Mr. Chairman, and then I will 
have completed my statement. 

For these reasons the Department of State is opposed to proposals 
such as those under discussion. I am certain that Mr. Waldman's pres- 
entation and analysis of the Executive order procedure will make it 
abundantly clear that the procedure has served to overcome the con- 
ditions which existed prior to 1953, whereby employment with inter- 
national organizations could be obtained without proper and adequate 
review of information. 

In closing, Mr. Chairman, I wish to emphasize that the United 
States remains determined that there should be no question regard- 
ing the loyalty or integrity of our citizens who hold positions with 
international organizations and that they should be sound and re- 
sponsible Americans. 

And I may say that my experience on Capitol Hill has led me to 
realize that this*is a feeling that the Members of Congress strongly 
hold, and I determined when I went to the State Department that 
I would do all I could to respect and uphold the wishes of the Congress 
in this regard. 

We have done and shall continue to do everything we can to this end. 
I think it is fair to state that we have made remarkable progress since 
this problem came into sharp focus in 1952. The procedure we have 
today serves, in my judgment, the best interests of the United States. 
We believe this procedure will continue to meet the common objectives 
of the Congress and of the executive branch. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2081 

I might say in conclusion, Mr. Chairman, that I appreciate the 
interest this committee has shown in this problem and the encourage- 
ment which it has given to us. 

Senator Jenner. Mr. Wilcox, I was a little late. 

In your statement you made a reference : it "came into sharp focus 
in 1952." Just what did you refer to ? Was that where this subcom- 
mittee took testimony from several employees of the United Nations, 
and they took the fifth amendment. Is that the incident you refer to ? 

Mr. Wilcox. A series of events, yes, and your committee was instru- 
mental, I think, in bringing this question into focus. I think it is 
safe to say that, prior to 1952, there hadn't been too great a concern 
expressed on the part of the American people, the problem hadn't been 
felt thoroughly prior to that time. 

Mr. Sourwine. Mr. Wilcox, how many international organizations 
are there to which the procedure, under the two Executive orders you 
mentioned, are applicable? 

Mr. Wilcox. There are some 26, Mr. Sourwine. 

Mr. Sourwine. And they have all agreed to this procedure now ? 

Mr. Wilcox. Yes, they have. 

Mr. Sourwine. How many Americans are employed in total, in 
these organizations? Do you have a figure? 

Mr. Wilcox. We don't have the figures, but we can get them. 

Senator Johnston. I think it would be well for you to give the 
names and set them out, so we will have them. 

Mr. Wilcox. I will be glad to supply them for the record. I do 
not have the detailed figure here this morning. 

Senator Johnston. Will you do that ? 

Mr. Wilcox. Yes, sir. 

(The information supplied by Mr. Wilcox was marked "Exhibit 
No. 355" and reads as follows:) 

Department of State, 
Washington, February 6, 1957. 
Hon. James O. Eastland, 

United States Senate, Washington, D. C. 

Dear Senator Eastland : I refer to the letter dated December 17, 1956, from 
Mr. Robert Morris concerning 11 items of information which your subcommittee 
requested me to submit for the record in the course of its hearings on Monday, 
December 17, 1956. 

Except as noted below, the enclosed material covers all items listed in Mr. 
Morris' letter. 

Item 11, "Number of advisory opinions or memos presented by the International 
Loyalty Board, information by agencies," was submitted during the course of 
the hearing by Judge Waldman in the form of a status report dated November 
30, 1956, prepared by the International Organizations Employees Loyalty Board. 
A portion of the information requested under item 10, "Number of cases from 
each international agency," is contained in the status report referred to above. 
The information not contained in the status report, "Number of cases of doubt- 
ful loyalty," is supplied in one of the enclosed papers. 

There will be a delay in providing "Number of Americans employed by inter- 
national organizations who were formerly citizens of other nations, with suit- 
able cutoff date" (item 9) as the records of the International Organizations 
Employees Loyalty Board are not maintained on the basis of nationality. The 
Department and the International Organizations Employees Loyalty Board are 
endeavoring to provide this information if it is possible to do so. 

With regard to item 2, "Number of American nationals employed by interna- 
tional organizations," the enclosed tables do not include information on the num- 
ber of Americans employed in the following voluntary programs : The United 



2082 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Nations Relief and Works Agency for Palestine Refugees in the Near East, the 
United Nations Korean Reconstruction Agency, the United Nations Children's 
Fund, and the Office of the United Nations High Commissioner for Refugees. 
Figures for these agencies will be supplied in supplemental tables as soon as 
they can be obtained from the field. 

I trust that the information enclosed will be helpful to you and to the mem- 
bers of your subcommittee. 
Sincerely yours, 

Feancis O. Wilcox, 
Assistant Secretary. 

Mr. Sourwine. Will you give us the names of all the organizations ? 
Mr. WrLcox. Yes, sir. 

(The list of organizations as furnished by Mr. Wilcox was marked 
"Exhibit No. 356" and reads as follows:) 

Exhibit No. 356 

International Organizations Coming Within the Scope of Executive 
Order 10422 as Amended by Executive Order 10459 

Following is a list of all international organizations coming within the scope 
of Executive Order 10422, as amended by Executive Order 10459 : 

United Nations — includes : 

Office of the United Nations High Commissioner for Refugees 

United Nations Secretariat 

United Nations Relief and Works Agency for Palestine Refugees in the 
Near East 

United Nations Korean Reconstruction Agency 

United Nations Children's Fund 
United Nations Educational, Scientific, and Cultural Organization 
International Civil Aviation Organization 
Food and Agriculture Organization 
World Health Organization 
International Labor Organization 
International Telecommunication Union 
International Bank for Reconstruction and Development 
International Monetary Fund 
World Meteorological Organization 
Pan American Union 
Pan American Sanitary Bureau 
Inter-American Institute of Agricultural Sciences 
Inter-American Defense Board 
Pan American Institute of Geography and History 
Inter-American Radio Organization 
Intergovernmental Committee for European Migration 
General Agreement on Tariffs and Trade 
Cotton Advisory Committee 
Interparliamentary Union 
International Hydrographic Bureau 
Caribbean Commission 
South Pacific Commission 
Inter-American Tropical Tuna Commission 
International North Pacific Fisheries Commission 
International Pacific Halibut Commission 
International Pacific Salmon Fisheries Commission 
International Commission of the Cape Spartel Light 
International Union for the Protection of Industrial Property 
International Bureau of the Permanent Court of Arbitration* 
International Bureau of Weights and Measures 
International Sugar Council 
International Whaling Commission 
International Wheat Council 
Northwest Atlantic Fisheries Commission 
Permanent International Association of Navigation Congresses 
Centra] Committee for the Navigation of the Rhine 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2083 

International Tin Study Group 

Universal Postal Union 

International Finance Corporation 

American International Institute for the Protection of Childhood 

Postal Union of Americas and Spain 

Pan American Railway Congress Association 

Inter-American Indian Institute 

International Wool Study Group 

Rubber Study Group 

International Council of Scientific Unions and Associated Unions 

Mr. Sourwine. Will you also give us the figure on the number of 
American nationals employed, and break it down % 

Mr. Wilcox. Yes. 

Mr. Sourwine. Since you don't have the figure, will you give us a 
percentage of Americans to the whole staff? 

Mr. Wilcox. Yes. 

Mr. Sourwine. Can you show that as a figure ? 

Mr. Wilcox. We shall be glad to do that. 

(A list of international organizations employing United States 

citizens, as furnished by Mr. Wilcox, was marked "Exhibit No. 357" 

and is as follows:) 

Exhibit No. 357 

International Organizations Employing United States Citizens 

The following 27 organizations presently employ United States citizens : 

United Nations — includes : 

Office of the United Nations High Commissioner for Refugees 
United Nations Secretariat 
United Nations Relief and Works Agency for Palestine Refugees in the Near 

East 
United Nations Korean Reconstruction Agency 
United Nations Children's Fund 

United Nations Educational, Scientific, and Cultural Organization 

International Civil Aviation Organization 

Food and Agriculture Organization 

World Health Organization 

International Labor Organization 

International Telecommunication Union 

International Bank for Reconstruction and Development 

International Finance Corporation (the arrangement for coverage under Execu- 
tive Order 10422, as amended, for applicants for employment with the Inter- 
national Finance Corporation is included in the arrangement with the Inter- 
national Bank for Reconstruction and Development) 

International Monetary Fund 

Pan American Union 

Pan American Sanitary Bureau 

Inter-American Institute of Agricultural Sciences 

Intel'- American Defense Board 

Pan American Institute of Geography and History 

Inter-American Radio Organization 

Intergovernmental Committee for European Migration 

General Agreement on Tariffs and Trade 

Cotton Advisory Committee 

Interparliamentary Union 

International Hydrographic Bureau 

Caribbean Commission 

South Pacific Commission 

Inter-American Tropical Tuna Commission 

International North Pacific Fisheries Commission 

International Pacific Halibut Commission 

International Pacific Salmon Fisheries Commission 
The following 20 organizations presently employ no United States citizens: 

World Meteorological Organization 



2084 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

International Commission of the Cape Spartel Light 

International Union for the Protection of Industrial Property 

International Bureau of the Permanent Court of Arbitration 

International Bureau of Weights and Measures 

International Sugar Council 

International Whaling Commission 

International Wheat Council 

Northwest Atlantic Fisheries Commission 

Permanent International Association of Navigation Congresses 

Central Committee for the Navigation of the Rhine 

International Tin Study Group 

Universal Postal Union 

American International Institute for the Protection of Childhood 

Postal Union of Americas and Spain 

Pan American Railway Congress Association 

Inter-American Indian Institute 

International Wool Study Group 

Rubber Study Group 

International Council of Scientific Unions and Associated Unions 

Mr. Sotjrwine. Can you also show the percentage of the budget of 
these organizations which is paid by the United States? 

Mr. Wilcox. I will be glad to do that. 

Mr. Sourwine. This will point up what you said, that the budget 
was far out of proportion to the total Americans employed. 

Mr. Wilcox. Yes, sir. 

(The information furnished by Mr. Wilcox was marked "Exhibits 
Nos. 358 and 358-A" and is as follows:) 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2085 






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2086 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



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SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2087 

Exhibit No. 358-A 

Employment of United States and Iron Curtain nationals on professional (inter- 
nationally recruited) staffs compared with percentage of assessment — Other 
unilateral organizations and bilateral commissions governed by Executive 
Order J0'i22 as amended 



Country 



United States: 

Number of employees 

Percent of employees 

Percent of assessment 

U. S. S.R.: 

Number of employees 

Percent of employees 

Percent of assessment 

Albania: 

Number of employees 

Percent of employees 

Percent of assessment 

Bulgaria: 

Number of employees 

Percent of employees 

Percent of assessment 

Czechoslovakia: 

Number of employees 

Percent of employees 

Percent of assessment 

Hungary: 

Number of employees 

Percent of employees 

Percent of assessment 

Poland: 

Number of employees 

Percent of employees 

Percent of assessment 

Rumania: 

Number of employees 

Percent of employees 

Percent of assessment 

Total of Iron Curtain coun- 
tries: 

Number of employees 

Percent of employees 

Percent of assessment 

Total staff. 



ICEM 



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2.56 



.71 



2.83 



1.94 



20.50 
8 



Hydro- 
graphic 
Bureau 



1 

7.69 
10.60 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 

( 4 ) 

( 4 ) 

fa 

( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
(') 



1.87 



( 4 ) 
( 4 ) 
( 4 ) 



1.87 
13 



Caribbean 
Commis- 
sion 



2 

2.94 
38.40 



( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
(«) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 



( 4 ) 
( 4 ) 
( 4 ) 



68 



1 As of June 30, 1956. 

1 1956 assessment. 1957 not yet available, but not expected to differ significantly. 

3 This percentage refers only to the assessment for administrative expenses. Operational expens es are 
met through voluntary contributions. The United States contributes up to 45 percent of operational 
expenses. 

4 Nonmember. 



2088 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 



Employment of United States and Iron Curtain nationals on professional {inter- 
nationally recruited) staffs compared with percentage of assessment — Other 
unilateral organizations and bilateral commissions governed by Executive 
Order 10422 as amended — Continued 



Country 


South 

Pacific 

Commission 


Inter-Ameri- 
can Tropical 
Tuna 


International 

North 

Pacific 

Fisheries 


International 
Pacific 
Halibut 

Commission 


International 

Pacific 

Salmon 

Fisheries 


United States: 

Number of employees 

Percent of employees 

Percent of assessment 

U. S. S. R.: 

Number of employees 

Percent of employees 

Percent of assessment 

Albania: 

Number of employees 

Percent of employees 

Percent of assessment 

Bulgaria: 

Number of employees . 

Percent of employees ._ 

Percent of assessment .. 

Czechoslovakia: 

Number of employees. 

Percent of employees . . 

Percent of assessment 

Hungary: 

Number of employees 

Percent of employees 

Percent of assessment 

Poland: 

Number of employees 

Percent of employees 

Percent of assessment 

Rumania: 

Number of employees 

Percent of employees 

Percent of assessment 

Total of Iron Curtain countries: 

Number of employees 

Percent of employees... . . 
Percent of assessment 

Total staff 


1 

1.89 
12.50 

( 4 ) 
( 4 ) 

m 

m 
( 4 ) 

m 
m 
m 

(*) 
(*> 
w 

w 

m 

( 4 ) 
( 4 ) 
( 4 ) 

m 

( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

53 


15 

57.70 

99.00 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 
26 


1 

33.33 
33.33 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 
3 


15 

83.33 

50.00 

( 4 ) 
( 4 ) 

( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 
18 


4 

11.76 
50.00 

( 4 ) 

( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 
( 4 ) 
( 4 ) 

( 4 ) 

iV 

( 4 ) 
34 







4 Nonmembers. 

Employment of United States and Iron Curtain nationals on professional staffs 
(internationally recruited) compared, with percentage of assessment — Inter- 
American organizations covered by Executive Order 10422 as amended 









Inter- 










Pan 


Pan 


American 


Inter- 








American 


American 


Institute 


American 


PAIOH 


OIR 




Union 


Sanitary 
Organiza- 
tion 


of Agri- 
cultural 
Sciences 


Defense 
Board 






United States: 














Number of employees 


94 


45 


14 


15 


2 


1 


Percent of employees 


52. 81 


41. 66 


27.45 


55.54 


5.71 


25.00 


Percent of assessment 


66.00 


66.00 


69.68 


i 66. 00 


39.41 


25.51 


(Iron Curtain countries are 














not members.) 














Total staff (internationally 














recruited) 


178 


108 


51 


27 


'35 


4 







i Funds for the Inter-American Defense Board are allocated from OAS funds, so the same percentage 
must be used for both. 
* Total staff. No breakdown available. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2089 

(Information submitted by Mr. Wilcox on nationality of employees 
in various international organizations was marked "Exhibits Nos. 
359 through 359-AA" and is as follows:) 

Exhibit No. 359 
United Nations distribution of staff by nationality as of Dec. 31, 1956 



Country 



Afghanistan -- 

Argentina 

Australia. -- 

Austria 

Belgium 

Bolivia 

Brazil - 

Bulgaria --- 

Burma --- 

Canada 

Ceylon - 

Chile- 

China.- 

Colombia-- -- 

Cuba 

Czechoslovakia 

Denmark 

Dominican Republic- 
Ecuador 

Egypt.— 

Ethiopia 

Finland. 

France.. 

Germany (nonmember) 

Greece 

Guatemala- 

Haiti 

Hungary- 

Iceland 

India 

Indonesia 

Iran 

Iraq... 

Ireland 

Israel 



Staff i 



4 

14 

20 

3 

28 

5 

12 

1 

5 

44 

6 

14 

48 

7 

6 

12 

15 

1 

7 

7 

1 

2 

90 

1 

12 

2 

6 

2 

2 

51 

4 

9 

2 

2 



Percent- 
age 



0.34 

1.20 

1.72 
.26 

2.41 
.43 

1.03 
.09 
.43 

3.78 
.52 

1.20 

4.12 
.60 
.52 

1.03 

1.29 
.09 
.60 
.60 
.09 
.17 

7.73 
.09 

1.03 
.17 
.52 
.17 
.17 

4.38 
.34 
.77 
.17 
.17 
.43 



Country 



Italy 

Japan 

Jordan 

Lebanon 

Luxembourg 

Mexico 

Nepal 

Netherlands.. 

New Zealand 

Nicaragua 

Norway 

Pakistan 

Panama 

Paraguay 

Peru 

Philippine Republic 

Poland 

Saudi Arabia 

Spain 

Sweden 

Switzerland (nonmember).. 

Syria 

Thailand.. 

Turkey 

Union of South Africa 

U. S. S. R 

United Kingdom 

United States 

Uruguay 

Venezuela. 

Yemen 

Yugoslavia 

Stateless and undetermined 

Total 



Staff i 



6 
5 
3 
4 
2 

12 
1 

22 
9 
1 

21 

12 
1 
1 
7 
7 

18 
1 
2 

18 

22 

6 

4 

6 

10 

25 

150 

322 

4 

3 

1 

7 

1 



1,164 



Percent- 
age 



.52 
.43 
.26 
.34 
.17 

1.03 
.09 

1.89 
.77 
.09 

1.80 

1.03 
.09 
.09 
.60 
.60 

1.55 
.09 
.17 

1.55 

1.88 
.52 
.34 
.52 
.86 

2.15 
12.88 
27.65 
.34 
.26 
.09 
.60 
.09 



100. 00 



• Internationally recruited, but includes 116 staf members in the principal level, general service category* 



2090 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Exhibit No. 359-A 

United Nations Educational, Scientific, and Cultural Organization — Nationality 
distribution of staff members as of Oct. SI, 1956 1 



Country 



Afghanistan 

Argentina 

Australia 

Austria 

Belgium 

Bolivia 

Brazil... 

Canada 

Ceylon... -. 

Chile. 

China 

Colombia 

Czechoslovakia. .. 

Denmark 

Ecuador 

Egypt. - 

France 

German Republic 

Greece 

Haiti 

Hungary 

India 

Iran 

Iraq 

Israel. 

Italy 

Japan 



Profes- 
sional 
posts 



1 
2 
6 
5 

11 
1 
2 

10 
1 
3 
4 
1 
8 
7 
2 
8 

96 
6 
3 
2 
1 
8 
1 
1 
1 
8 
3 



Percent- 
age 



0.25 
.50 

1.50 

1.25 

2.74 
.25 
.50 

2.49 
.25 
.75 

1.00 
.25 

1.99 

1.74 
.50 

1.99 
23.93 

1.50 
.75 
.50 
.25 

1.99 
.25 
.25 
.25 

1.99 
.75 



Country 



Jordan. 

Korea 

Lebanon 

Mexico 

Netherlands 

New Zealand 

Norway 

Pakistan 

Panama 

Peru 

Philippines 

Poland 

Spain 

Sweden 

Switzerland 

Syria 

Thailand 

Union of South Africa 

United Kingdom 

United States 

U. S. S. B 

Uruguay 

Yugoslavia 

Stateless 

Total.... 



Profes- 
sion nl 
posts 



2 
1 
1 
6 

13 
5 
3 
3 
1 
3 
2 
1 

14 
3 

12 
2 
1 
5 

71 

37 
5 
2 
2 
4 



401 



Percent- 
age 



.50 

.25 

.25 

1.50 

3.24 

1.25 

.75 

.75 

.25 

.75 

.50 

.25 

3.49 

.75 

2.99 

.50 

.25 

1.25 

17.70 

9.22 

1.25 

.50 

.50 

1.00 



100. 00 



"Internationally recruited. In addition, there are 521 on the General Services Staff, and 76 ETAP 
financed staff. 

Exhibit No. 359-B 

Food and Agriculture Organisation — Nationality distribution of staff, Oct. SI, 

1956 '■* 



Country 


Profes- 
sional 
staff 


Percent of 
professional 

staff 


Country 


Profes- 
sional 

staff 


Percent of 

professional 

staff 


Argentina . 


2 
11 
3 
8 
3 
1 
15 
1 
3 
5 
1 
1 
1 
5 
2 
3 
1 
2 
38 
13 
1 
1 
1 

12 
1 
2 


0.58 

3.17 
.86 

2.30 
.86 
.29 

4.32 
.29 
.86 

1.44 
.29 
.29 
.29 

1.44 
.58 
.86 
.29 
.58 
10.95 

3.75 
.29 
.29 
.29 

3.46 
.29 
.58 


Italy 


18 
4 
2 
5 

11 
5 
1 
3 
2 
1 
4 
1 
2 

13 
6 
9 
1 
3 
2 

61 

49 
1 
2 
4 


5.19 


Australia 


Japan . 

Jordan _ 


1.15 


Austria 


.58 


Belgium 


Mexico 


1.44 


Brazil - 


Netherlands 

New Zealand 


3.17 


Burma 


1.44 


Canada 


Nicaragua. 

Norway 

Pakistan 

Panama 

Peru _ 

Philippines .. 

Portugal 

Spain. .. 

Sweden 

Switzerland. 


.29 


Ceylon 


.86 


Chile. 


.58 


China 


.29 


Costa Rica 


1.16 


Cuba. 


.28 


Czechoslovakia 


.58 


Denmark 


3. 75 


Ecuador __ 


1.73 


Egypt 


2.59 


El Salvador 


Syria 

Thailand 

Union of South Africa 

United Kingdom 

United States 


.28 


Finland 


.86 


France _ 


.58 


Germany 


17.58 


Greece 


14.12 


Honduras 


Uruguay... . 

Yugoslavia. . 


.29 


Iceland 


.58 


India 


Stateless 


1.15 




Total. 




Ireland 


347 


100.00 









1 In addition to the totals listed above, there were 566 general service staff employed at headquarters 
and in regional offices. There were also 719 employees paid from ETAP funds, and 41 paid from special 
funds. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2091 

Exhibit No. 359-C 

International Civil Aviation Organization — Distribution of staff by nationalities 

as of Nov. 1, 1956 1 



Country 


Professional 
staff 


Percentage 


Country 


Professional 
staff 


Percentage 


Argentina 


3 

4 
3 
1 
1 

27 
2 
3 
3 
2 
1 
2 

25 
1 
4 
4 


2.11 
2.82 
2.11 

.70 

.70 
19.02 
1.41 
2.11 
2.11 
1.41 

.70 

1.41 

17.61 

.70 
2.82 
2.82 


Italy 


3 
1 
4 
1 

2 
1 
2 

5 
2 
2 

18 
14 

1 


2.11 


Australia 


Mexico 


.70 


Belgium . 


Netherlands 


2.82 


Bolivia 


New Zealand 


.70 


Burma . 


Norway 


1.41 


Canada 


Peru 


.70 


Chile 


Poland 


1.41 


China. . 


Spain 


3.52 


Cuba 


Sweden 


1.41 


Denmark 


Switzerland 


1.41 


Ecuador 


United Kingdom 

United States 


12.68 


Egypt 


9.86 


France 


Stateless 


.71 




Total 




Tndia 


142 


100. 00 


Ireland 







i In addition there were a total of 248 general service employees, of whom 3 were United States nationals 
and 100 employees paid from TA funds of which 13 were a United States national. 



Exhibit No. 359-D 

International Labor Organisation — Distribution of Staff by nationalities as of 

Nov. 6, 1956 



Country 



Argentina 

Australia 

Austria 

Belgium 

Bolivia 

Brazil 

Burma 

Canada 

Ceylon 

Chile 

China 

Costa Rica 

Cuba 

Czechoslovakia 

Denmark 

Ecuador 

Egypt 

El Salvador 

Federal Republic of Germany. 

Finland 

France 

Greece 

Guatemala 

Haiti -_. 

India 

Indonesia 

Iran 

Ireland 

Israel 



Number 



5 
7 

10 
9 
2 
5 
1 

16 
1 
5 
5 
1 
4 
1 
1 
2 
2 
1 

11 
1 

57 
2 
1 
1 

12 
1 
1 
4 
1 



Percent 



1. 



1.36 

1.90 

2.71 

2.44 

.54 

1.36 

.27 

4.34 

.27 

1.36 

1.36 

.27 

.09 

.27 

.27 

.54 

.54 

.27 

2.98 

.27 

15.45 

.54 

.27 

.27 

3.25 

.27 

.27 

1.09 

.27 



Country 



Italy 

Japan 

Lebanon 

Mexico 

Netherlands 

New Zealand 

Norway 

Pakistan 

Panama 

Peru 

Philippines 

Poland 

Portugal 

Spain 

Sweden 

Switzerland 

Thailand 

Turkey 

Union of South Africa 

United Kingdom 

United States of America 

Uruguay 

U. S. S. R 

Venezuela 

Vietnam 

Yugoslavia 

Stateless 

Total 



Number 



■369 



Percent 



10 


2.71 


2 


.54 


1 


.27 


9 


2.44 


5 


1.36 


3 


.81 


3 


.81 


3 


.81 


1 


.27 


4 


1.09 


1 


.27 


2 


.54 


2 


.54 


8 


2.17 


4 


1.09 


34 


9.21 


1 


.27 


2 


.54 


1 


.27 


64 


17.34 


26 


7.05 


3 


.81 


4 . 


1.08 


1 


.27 


1 


.27 


1 


.27 


3 


.81 



100. 00 



1 Internationally recruited, 
funds. 



There are also 308 in the general services category, and 256 paid from ETAP 



2092 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Exhibit No. 359-B 

International Telecommunication Union — Nationality distribution of staff Oct. 

SI, 1956 



Nation 



Argentina 

Australia 

Belgium 

Canada 

China 

Cuba 

Czechoslovakia 

Denmark 

France 

Italy 



Employ- 
ees 



3 

1 
2 
1 
3 

2 
1 

1 

17 
2 



Percent- 
age 



5.17 
1.73 
3.45 
1.72 
5.17 
3.45 
1.73 
1.73 
29.31 
3.45 



Nation 



India 

Spain 

South Africa 

United States of America 

U.S. S. R 

United Kingdom 

Ukraine S. S. R 

Stateless 

Total 



Employ- 
ees 



1 
4 
1 
3 
1 

13 
1 
1 



J 58 



Percent- 
age 



1.73 
6.90 
1.72 
5.17 
1.72 
22.41 
1.72 
1.72 



100.00 



1 Internationally recruited, 
and 1 Operational Services. 



In addition there are 166 locally recruited staff, 22 ETAP financed staff, 



Exhibit No. 359-F 

World Health Organization — Distribution of internationally recruited staff by 

nationality as of Oct. SI, 1956 x 



Country 


Number 


Percent 


Argentina 


4 
9 
6 
7 
2 
6 

26 
2 
9 
7 
3 
1 
2 
1 

22 
3 
9 
1 

40 
6 
6 
1 
3 
1 

12 
2 
4 
2 


0.75 

1.69 

1.13 

1.32 

.38 

1.13 

4.89 

.38 

1.69 

1.32 

.56 

.19 

.38 

.19 

4.13 

.56 

1.69 

.19 

7.52 

1.13 

1.13 

.19 

.56 

.19 

2.25 

.38 

.75 

.38 


Australia 


Austria 


Belgium 


Bolivia 


Brazil 


Canada 


Ceylon 


Chile. 


China. , , 


Colombia 


Costa Rica 


Cuba 


Czechoslovakia 


Denmark. 


Ecuador 


Egypt 


Finland.. 


France 


Germany 


Greece. 


Guatemala 


Haiti 


Hungary 


India 


Iran 


Ireland... 


Israel.. 





Country 



Italy 

Japan 

Lebanon -_ 

Luxembourg 

Mexico 

Netherlands 

New Zealand 

Norway 

Pakistan 

Peru 

Philippines.- 

Poland 

Portugal.-. 

Rumania 

Spain... 

Sudan 

Sweden 

Switzerland 

Syria. 

U. S.S. R 

Union of South Africa 

United Kingdom 

United States 

Venezuela 

Yugoslavia 

Stateless 

Total 



Number 



532 



Percent 



12 


2.25 


1 


.19 


5 


.94 


3 


.56 


4 


.75 


18 


3.38 


8 


1.50 


10 


1.88 


1 


.19 


1 


.19 


3 


.56 


4 


.75 


3 


.56 


1 


.19 


15 


2.82 


1 


.19 


9 


1.69 


42 


7.89 


1 


.19 


1 


.19 


7 


1.32 


113 


21.24 


67 


12.59 


1 


.19 


3 


.56 


1 


.19 



100. 00 



1 In addition, there are 464 locally recruited; plus 404 who are financed from technical assistance funds and 
10 financed from the children's fund budget. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2093 

Exhibit No. 359-G 

International Monetary Fund — Nationality distribution of staff members as of 

Dec. 31, 1956 



Country 



Australia 

Austria 

Belgium 

Brazil . 

Burma 

Canada 

Ceylon 

Chile 

China 

Colombia 

Czechoslovakia 

Denmark 

Ecuador 

Egypt 

France 

Germany 

Greece 

Guatemala 

India 

Iran 

Italy 



Profes- 
sional 
posts 



3 
1 
1 

1 
1 
9 
1 
3 
11 
1 
2 
2 
1 
3 
8 
2 
4 
1 
7 
1 



Percent- 


ages 


1.40 


.47 


.47 


.47 


.47 


4.21 


.47 


1.40 


5.14 


.47 


.93 


.93 


.47 


1.40 


3.74 


.93 


1.87 


.47 


3.27 


.47 


2.34 



Country 



Japan 

Mexico 

Netherlands 

New Zealand 

Nicaragua 

Norway 

Pakistan 

Paraguay 

Philippines 

Poland 

South Africa 

Sweden 

Syria 

Thailand 

Turkey 

United Kingdom 

United States 

Venezuela 

Total 



Profes- 
sional 
posts 



2 
2 
8 
1 
1 
2 
2 
2 
1 
2 
1 
1 
1 
1 
2 
22 
93 
1 



214 



Percent- 
ages 



.93 
.93 
3.74 
.47 
.47 
.93 
.93 
.93 
.47 
.93 
.47 
.47 
.47 
.47 
.93 
10.28 
43.45 
.47 



100. 00 



Exhibit No. 359-H 

International Bank of Reconstruction and Development — Nationality distribution 

of staff members as of Dec. 31, 1956 



Country 


Professional 
posts 


Percentage 


Country 


Professional 
posts 


Percentage 


Australia 


3 
1 
3 
9 
3 
2 
1 
3 
1 
1 
13 
3 
3 
1 
1 
5 
6 


1.26 

.42 

1.26 

3.78 

1.26 

.84 

.42 

1.26 

.42 

.42 

5.47 

1.26 

1.26 

.42 

.42 

2.10 

2.52 


Jordan 


1 
1 
1 

14 
2 
2 
3 
1 
1 
3 
3 
1 

29 

116 

1 


42 


Austria__ 


Luxembourg 


.42 


Belgium 


Mexico 


42 


Canada 


Netherlands 


5.89 


China 


New Zealand 


.84 


Colombia 


Nicaragua 


.84 


Cuba 


Norway 


1.26 


Denmark... . . 


Pakistan 


.42 


Egypt 


Sweden 


.42 


Finland 


Switzerland 


1 26 


France 


Stateless 


1 26 


Germany 


Turkey 


.42 


Greece . 


United Kingdom 

United States 

Yugoslavia 

Total 


12 19 


Guatemala.. 


48 73 


Iceland 


42 


India 




Italy 


238 


100 00 









Exhibit No. 359-1 

Pan American Union — Nationality distribution of staff members as of Oct. 31, 

1956 



Country 


Professional 
posts 


Percentage 


Country 


Professional 
posts 


Percentage 


Argentina. 


12 
1 

13 
6 

12 
4 
4 
3 
1 
1 
4 


6.74 

.56 

7.31 

3.34 

6.74 

2.25 

2.25 

1.69 

.56 

.56 

2.25 


Honduras 


1 
6 
7 
2 
3 
94 
2 
2 


56 


Bolivia 


Mexico 


3 37 


Brazil 


Panama 


3 93 


Chile 


Paraguay 


1 13 


Colombia 


Peru 


1 69 


Costa Rica 


United States.. 

Uruguay 


52 81 


Cuba 


1 13 


Ecuador 


Venezuela .. 


1 13 


El Salvador 


Total ... 




Guatemala 


178 


100 00 


Haiti 











2094 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Exhibit No. 359-J 

Inter-American Defense Board — Nationality distribution of staff members as of 

Dec. 31, 1956 



Country 


Professional 

posts 


Percenta 


Country 


Professional 
posts 


Percentages 


Argentina 


2 
1 
2 

1 
2 
1 


7.40 

3.71 
7.40 
3.71 
7.40 
3.71 


Mexico- 

Nicaragua.-. ._- 


1 

1 
1 

15 


3.71 


Bolivia 


3.71 


Brazil 




3.71 


Chile 

Cuba 

Ecuador 


United States 

Total 


55.54 


27 


100. 00 



Exhibit No. 359-K 



Inter-American Institute of Agricultural Sciences — Nationality distribution of 

staff members as of Oct. 31, 1956 



Country 


Professional 
posts 


Percentages 


Country 


Professional 
posts 


Percentages • 


Bolivia 


5 

3 

11 

2 
1 


9.81 
5.88 
23.57 
1.96 
1.96 
1.96 
1.96 
3.93 
1.96 


Mexico 


3 
1 
3 
3 
14 
1 


5.88 


Colombia 


Paraguav __ _. 


1 96 


Costa Rica 


Puerto Rico. . 


5.88 


Chile 

Ecuador . 


United Kingdom 

United States. 

Venezuela . 


5.88 
27.45 


France 


1.96 




Total 




Guatemala 


51 


100.00 


Haiti 









Exhibit No. 359-L 

Inter-American Radio Office — Nationality distribution of staff members as of 

Oct. 31, 1956 



Country 


Professional 
posts 


Percentages 


Cuba 


2 

1 

1 


50.00 


United Kingdom.. 


25.00 


United States 


25.00 








Total... 


4 


100. 00 







Exhibit No. 359-M 

Inttr-Amcrican Tropical Tuna Commission — Nationality distribution of staff 

members as of Oct. 31, 1956 



Country 


Professional 
posts 


Percentage 


Canada _ . . 


2 
4 
4 
1 

15 


7.69 


Costa Rica . ... . 


15.39 


Panama . 


15.39 


Peru 


3.84 


United States 


57.69 








Total. 


26 


100. 00 







SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2095 

Exhibit No. 359-N 

Pan American Institute of Geography and History — Nationality distribution of 

staff members as of Oct. 31, 1956 



Country 


Posts i 


Percentage 


Argentina 


3 

5 

25 

2 


8.57 


Brazil -. 


14.29 


Mexico 


71.43 


United States 


5.71 








Total 


35 


100.00 







1 Total stafl. No breakdown available. 

Exhibit No. 359-0 

Pan American Sanitary Organization — Nationality distribution of staff members 

as of Oct. 31, 1956 



Country 


Professional 
posts 


Percentages 


Country 


Professional 
posts 


Percentages 


Argentina.. 


4 
1 

8 
3 
10 
3 
1 
3 
1 
1 
1 
1 
2 
5 


3.70 

.93 

7.40 

2.77 

9.26 

2.77 

.93 

2.77 

.93 

.93 

.93 

.93 

1.85 

4.63 


Netherlands 

New Zealand 


1 
2 
2 
1 
2 
1 
1 
7 
45 
1 
1 


0.93 


Bolivia. 


1.85 


Brazil 


Nicaragua. 

Panama 


1.85 


Canada 


.93 


Chile 

Colombia 


Peru 

Portugal 


1.85 
.93 


Costa Rica 


Spain.. 

United Kingdom 

United States 

Uruguay 


.93 


Cuba 

Denmark 

Dominican Republic. 


6.48 

41.66 

.93 


Ecuador 


Venezuela 


.93 




Total 




Guatemala 


108 


100. 00 


Mexico.. 







Exhibit No. 359-P 

Caribbean Commission — Nationality distribution of staff members as of Oct. 

31, 1956 





Country 


Posts i 


Percentage 


France.. 


12 
1 

53 
2 


17 65 


Netherlands 


1 47 


United Kingdom 


77.94 


United States ... . 


2.94 








Total 


68 


100. 00 







i Total staff. No breakdown available. 

Exhibit No. 359-Q 

General Agreement on Tariffs and Trade — Nationality distribution of staff mem- 
bers as of Dec. 20, 1956 



Country 


Professional 
posts 


Percentages 


Country 


Professional 
posts 


Percentages 


Australia 


1 
1 
1 
1 
3 
1 
1 
1 


5.55 
5.55 
5.55 
5.55 
16.67 
5.56 
5.56 
5.56 


Norway 


1 
1 
2 
2 
2 


5.56 


Belgium 


South Africa 


5 56 


China 


Switzerland 


11.11 


Finland 


United Kincdom 

United States 

Total 


11 11 


France 


11.11 






India 


18 


100. 00 


Italy 











2096 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Exhibit No. 359-R 

The Interparliamentary Union — Nationality distribution of staff members as of 

Dec. 31, 1955 l 



Country 


Posts « 


Percentage 




1 
4 
2 
1 


12.50 


Switzerland 


50.00 




25.00 




12.50 








Total 


8 


100.00 







1 1956 figure not yet available. 

2 Total staff. No breakdown available. 



Exhibit No. 359-S 

Intergovernmental Committee for European Migration — Nationality distribution 

of staff members as of June 30, 1956 



Country 


Professional 
posts 


Percentages 


Country 


Professional 
posts 


Percentages 


Argentina 


2 
9 
2 
3 
2 
4 
1 
1 
4 
11 
8 
4 


1.62 
7.26 
1.62 
2.42 
1.62 
3.23 
.80 
.80 
3.23 
8.87 
6.45 
3.23 


Israel . 


1 

12 
6 
3 
1 
1 
5 
6 
37 
1 


0.80 


Australia 


Italy 


9.68 


Austria 


Netherlands 


4.84 


Relgium 


Norway 


2.42 


Brazil 


Rhodesia 


.80 


Canada 


Sweden 

Switzerland . 


.80 


Chile 


4.03 


Costa Rica .- 


United Kingdom 

United States 

Venesuela 

Total 


4.84 


Denmark. .- 


29.84 


France 


.80 






Greece 


124 


100.00 









Exhibit No. 359-T 

International Cotton Advisory Committee — Nationality distribution of staff 

members as of Oct. 31, 1956 



Country 


Posts i 


Percentage 


Country 


Posts 1 


Percentage 


Canada 


1 
1 
1 
1 


11.11 
11.11 
11.11 
11.11 


United States 

Total 


5 


55.56 






Mexico 


9 


100.00 


United Kingdom 







i Includes General Service staff. 



Exhibit No. 359-U 



International Hydrographic Bureau — Nationality distribution of staff members 

as of Oct. 31, 1956 



Country 


Posts 1 


Percentage 


Country 


Posts i 


Percentage 


France 


6 
3 
1 
1 


46.16 

23.08 

7.69 

7. 69 


United Kingdom 

United States 


1 
1 


7.69 


Italy 


7.69 




Total 




Switzerland 


13 


100. 00 









Total staff. No breakdown available. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2097 

Exhibit No. 359-V 

International North Pacific Fisheries Commission — Nationality distribution of 

staff members as of Oct. 31, 1956 



Country 


Professional 
posts 


Percentage 




1 
1 
1 


33.33 




33.33 




33.33 








Total - 


3 


100.00 







Exhibit No. 359-W 



International Pacific Halibut Commission — Nationality distribution of staff 

members as of Jan. 1, 1951 



Country 


Professional 
posts 


Percentages 




3 

15 


16.67 




83.33 








Total 


18 


100.00 







Exhibit No. 359-X 

International Pacific Salmon Fisheries — Nationality distribution of staff 
members as of Oct. 31, 1956 (estimated) 



Country 


Professional 
posts 


Percentages 




30 

4 


88.24 


United States - -- - --- ------ - - 


11.76 








Total 


34 


100.00 







2098 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Exhibit No. 359-Y 

South Pacific Commission — Nationality distribution of staff members as of 

Oct. 31, 1956 



Country 


Profes- 
sional 
posts 


Percent- 
ages 


Country 


Profes- 
sional 
posts 


Percent- 
ages 




23 

13 

4 

3 

3 


43.40 

24.53 

7.55 

5.66 

5.66 


United States 


1 

5 


1.87 




Other 


9.43 




Total 






53 


100. 00 


United Kingdom 











Exhibit No. 359-Z 

United Nations expanded program of technical assistance — Distribution of experts 

by nationality, Sept. 30, 1956 



Country 


Number 
of experts 


Percent- 
age 


Country 


Number 
of experts 


Percent- 
age 




23 

60 

17 

32 

7 

22 

59 

24 

14 

5 

6 

4 

1 

53 

1 

7 

39 

7 

2 

12 

155 

45 

12 

3 

6 

60 

5 

1 

4 

35 

10 

12 

9 


1.49 

3.90 

1.10 

2.08 

.45 

1.43 

3.83 

1.56 

.91 

.32 

.39 

.26 

.06 

3.44 

.06 

.45 

2.53 

.45 

.30 

.78 

10.07 

2.92 
.78 
.19 
.39 

3.25 
.32 
.06 
.26 

2.27 
.65 
.78 
.58 


Malaya 


1 
1 

14 

91 

19 

32 

3 

1 

14 

8 

1 

4 

3 

1 

11 

1 

43 

56 

2 

1 

1 

3 

11 

3 

248 

195 

7 

7 

10 

5 


.06 


Australia 


Mauritius 


.06 




Mexico 


.91 


Belgium 


Netherlands 


5.91 


Bolivia 


New Zealand 


1.23 


Brazil 




2.08 


Canada 




.19 


Chile 


Paraguay 


.06 


China 




.91 


Colombia 


Philippines 


.52 


Costa Rica 


Poland . 


.06 


Cuba 


Portugal 


.26 


Cyprus 


Puerto Rico - -- 


.19 


Denmark 


Rhodesia and Nyasaland, 
Federation of 




Dominican Republic 


.06 




Spain 


.71 


Egypt 


Sudan 


.06 


Eire 




2.79 


El Salvador 




3.64 


Finland 


Syria 


.13 


France 


Trinidad 


.06 


Germany, Federal Republic 
of 


Tunisia 


0.06 


Turkey.. . 


0.19 


Greece 


Union of South Africa 

U. S. S. R 


0.71 


Guatemala 


0.19 


Iceland 


United Kingdom 


16.11 


India 


United States 


12.67 


Iran 


Uruguay 


0.45 




Venezuela 


0.45 


Israel 


Yugoslavia. .-. 


0.65 


Italy 


Stateless 


0.32 




Total 




Jordan 


1,539 


100. 00 


Lebanon 











SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2099 

Exhibit No. 359-AA 

United Nations expanded program of technical assistance — Distribution of ex- 
perts by nationality and organization, July 1, 1956 



Country 










Organization 












UNTAA 


ILO 


FAO 


UNESCO 


ICAO 


WHO 


ITU 


WMO 


Total 


Percent 






2 
11 

3 
2 
3 

1 
1 


6 

23 

9 

5 

1 

17 
1 
9 


1 
4 

1 
5 

1 
1 
7 
8 


2 
10 


8 
4 
3 

6 
o 

12 
24 

8 
3 

1 






19 

61 

17 

29 
6 

18 

61 

29 

13 
8 
7 
3 
1 

47 

1 

8 

44 

1 

12 

148 

41 

4 

12 

1 

1 

6 

50 

2 

4 

5 

3 

24 

10 

13 

5 

20 

92 

16 

36 

3 

1 

1 

14 

9 

1 

5 

14 

7 

43 

47 

1 

1 

5 

11 

257 

1S9 

6 

8 

5 


1.26 




8 
4 
9 

11 
6 


1 




4.05 




1.13 




1 






1.93 








.40 










1.20 




3 






4.05 


Chile 






1.93 










.86 


Colombia. 

Costa Rica 

Cuba 


1 




3 




.53 


1 


3 
1 


2 


.46 




1 






.20 












.07 


Denmark 

Dominican 
Republic 




19 


4 


4 


15 






3.12 






.07 


2 
12 


6 

1 

4 

39 

21 


2 
10 




3 

8 






.53 


Egypt 




1 


1 


2.92 


El Salvador 




.07 




5 
32 
3 
3 
1 
1 
1 


39 

7 




1 
5 
2 


2 

13 
2 






.80 


France 


13 

2 

1 


6 

1 


1 
3 


9.82 


Germany 

Guatemala 


2.72 
.27 


1 


2 


1 


7 






.80 


Haiti 








.07 


















.07 






6 
14 












.40 


India 


10 
2 


4 


14 


2 


5 




1 


3.32 




.13 






1 
1 
1 

10 
2 
3 
3 
1 

43 

8 
2 


3 










.27 








1 


2 
1 
4 




1 


.33 






1 
2 

1 
6 
1 
2 

10 
1 
1 
1 




.20 


Italy 


3 
3 

1 


5 
4 
3 








1.59 










.66 












.86 






1 

6 

11 

6 

7 






.33 




2 
14 

2 
10 


7 
4 
6 
6 


2 

10 






1.33 








6.11 


New Zealand 


1 


1 


1.06 




3 


2.39 




.20 






1 










.07 








1 
4 
2 










.07 




3 
2 

1 


1 


3 

2 




3 
3 






.93 


Philippines 








.60 








.07 






3 
3 
3 
9 
22 


1 
8 
2 
5 
4 
1 




1 
1 






.33 


Spain . 






1 


1 




.93 






2 

6 
4 


.46 


Sweden 


12 
10 


4 
1 


5 
4 


2 


2 


2.85 


Switzerland 


3.12 
.07 






1 

43 
11 












.07 




1 

1 

49 

42 

1 5 

i 3 

2 


4 

5 
64 
53 












.33 


Union of South 
Africa 




1 

15 
15 


4 
55 
36 
1 
1 
2 






.73 


United Kingdom. 


25 
32 


3 


3 


17.06 
12.54 


USSR 






.40 




1 


1 
1 


2 








.53 


Yugoslavia 








.33 












Total 


289 


184 


437 


199 


86 


281 


17 


13 


1,506 


100. 00 



2100 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Wilcox. And I want to reiterate that we have been working 
quite hard on this problem to bring the percentage of Americans em- 
ployed on these organization secretariats in line with the financial 
contribution which we made to the organization. But one of the 
problems 

Senator Johnston. What do you give as a reason why we do not 
have as many American nationals as the other countries, in pro- 
portion ? 

Mr. Wilcox. Mr. Chairman, I think one of the reasons is that we 
are just a little too prosperous in this country, that the job opportuni- 
ties in industry, business, and the professions, those opportunities 
are great, and the salaries and the inducements of the international 
agencies aren't such as to attract the high caliber individuals that 
these agencies would like to have. 

There is another factor, too. A good many of them would be sent 
out as staff members on the technical assistance programs, experts 
going to the underdeveloped areas of the world. I think a good many 
Americans, with very comfortable homes and good jobs, hesitate to 
go to undesirable climates for 2 or 3 or 4 years, leaving their homes 
and their work opportunities in this country. 

Those are some of the problems we face. We are trying to over- 
come them and do our best to get Americans to accept the challenging 
opportunities that are in these various international agencies. 

Mr. Sourwine. Do you mean to testify, sir, that the salary scale of 
the international organizations compares unfavorably with the salary 
scale for similar kinds of appointments in the United States ? 

Mr. Wilcox. That is correct. 

Mr. Sourwine. That is true, even after taking into consideration 
the tax benefits of international employment ? 

Mr. Wilcox. Yes, I think that is correct, particularly when you 
consider the handicaps that the employees go through in going to 
very hot climates, or countries where they might catch certain types 
of diseases, and things of that sort. 

Mr. Sourwine. You spoke of the strenuous efforts the State De- 
partment is making to procure the employment of more Americans 
by these international organizations. Does the State Department 
recommend individual applicants in any case? 

Mr. Wilcox. We do not normally recommend individual applicants. 
If the secretary of an organization, for example, should approach 
me, as some of them have, for recommendations about a particular 
post in which he has a very keen interest, we might in that case in- 
formally advance names of individuals who might be qualified. 

We do not want to leave the impression, however, that we are trying 
to hire for him the personnel which he is charged with the hiring, 
and the personnel which must be responsible to him and not to the 
United States Government. 

Mr. Sourwine. Do you urge individuals to make applications to 
these various agencies? 

Mr. Wilcox. We do, indeed. 

And we have in the bureau over which I have jurisdiction and 
individual who is charged with working on this particular problem. 
We have taken this matter up with the Appropriations Committees 
of the House and Senate, and have gotten authorization for this sort 
of job. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2101 

Mr. Sourwine. What is his title ? 

Mr. Wilcox. He is in the room here ; I don't know that I can give 
you his title, but he is the staff assistant, special assistant to me in 
the Bureau of International Organization Affairs, working on this 
job of encouraging the proper employment of American nationals in 
international agencies. 

Mr. Sourwine. You are handling it in your own office? 

Mr. Wilcox. It is right in my own bureau, yes. 

Mr. Sourwine. Do you maintain in your office under this staff 
assistant, perhaps, facts with regard to the jobs that are presently 
available and those that are likely to become available? 

Mr. Wilcox. We are accumulating such records, Mr. Sourwine. It 
takes considerable time, of course, to make real headway on this prob- 
lem. He has only recently been appointed, but he is making, I am 
sure, a rather considerable amount of headway in this direction. 

Mr. Sourwine. If I wanted a job with the international organi- 
zations at this time, and I wanted to know what jobs were available, 
would you be able to tell me ? 

Mr. Wilcox. To a certain degree we would be able to tell you, yes. 
I don't know that we could tell you every job that is open, but we could 
be helpful to you. 

Mr. Sourwine. I would like to ask, Mr. Chairman — I don't want 
to ask for it by way of oral testimony — but with the approval of the 
chairman, I would iike the Department to give us a little statement for 
the record, an outline of all the things they are doing to get Americans 
employed. I am sure there are a number of things they are doing in 
that regard. 

Mr. Wilcox. We would be glad to submit that for the record, if 
you so desire. 

Senator Johnston. We do desire it, because I think it would be help- 
ful in the employment of American nationals. 

Mr. Sourwine. I think it would also be helpful if all the Americans 
who want to get jobs in these organizations knew who to go to in the 
State Department. 

Senator Johnston. There is no question about it. Frequently some- 
one comes to me wanting to know how to get a certain job, and I don't 
know just where to tell them to go. 

Mr. Wilcox. We will be glad to be helpful in that respect, and we 
will be glad to have the names of really qualified Americans called 
to our attention. 

(The information submitted by Mr. Wilcox was marked "Exhibit 
No. 360" and is as follows:) 

Exhibit No. 360 

Functions of Individual Assigned to Work on Matters Relative to the 
Employment of United States Nationals in International Organizations 

The Department of State recently established a new position as Special 
Assistant to the Assistant Secretary of the Bureau of International Organization 
Affairs to permit assignment of an officer to work full time on matters related 
to the employment of United States nationals in international organizations. 
The position has been filled since September 1956. 
The responsibilities of the position are to : 

(c) Assist international organizations to find the best United States re- 
cruiting sources for each occupational skill being sought. 



2102 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

(&) Enlist the support of these recruiting sources to make an organized 
effort to produce well-qualified candidates as vacancies in international 
organizations occur. 

(c) Serve as a focal point within the United States Government for see- 
ing that prompt action is taken on problems encountered either by inter- 
national organizations or by recruiting sources as regards employment of 
United States nationals. 

(d) Develop a panel of names of qualified candidates for certain key inter- 
national organization positions where the international organization spe- 
cifically requests this type of assistance. 

(e) Initiate and follow through on general programs aimed at improving 
recruiting conditions for all international organizations. 

In connection with the above responsibilities, following are several typical 
projects that have been undertaken and are now in the process of development : 
(a) A start has been made toward acquiring full and current information 
on the vacancy situation in all international organizations. The purpose 
is to establish for the first time at a central point vacancy data that can be 
used to determine the overall scope of employment opportunities in inter- 
national organizations. 

(ft) Background information has been obtained to begin analyses of the 
recruitment methods in the United States of the major international organi- 
zations. The purpose of these analyses will be to assist international organi- 
zations in eliminating unproductive recruiting sources and in creating more 
responsiveness in recruiting sources known to possess the best qualified 
candidates for the various occupational skills required. 

(c) A study has been made and certain actions have been taken to de- 
velop a positive program within the Federal Government to make Federal 
personnel available to international organizations in greater numbers than 
heretofore. (The Federal service represents an excellent recruiting source, 
since the training and experience acquired in a great variety of occupational 
fields are precisely what are needed by international organizations.) 

{(I) Authoritative information is being obtained concerning employment 
conditions, qualification requirements, application processes, etc., of inter- 
national organizations. The purpose is to establish a central informational 
service for United States nationals who are seeking general or specific 
information about international organization employment opportunities and 
facts concerning the nature of such employment. 

(c) Considerable attention is being given to ways in which more pro- 
fessional prestige and public recognition can be attached to international 
organization assignments. This is one of the few effective means by which 
highly qualified United States nationals can be attracted away from the 
high-salary scales an 1 generally favorable employment conditions now exist- 
ing in the United States. (Well-qualified personnel of many countries seek 
assignments with international organizations because of the improved liv- 
ing conditions and higher salaries such employment will bring them. The 
reverse situation is true as regards well-qualified United States nationals, 
who usually have to be sought out and induced to accept international 
organization assignments on grounds other than salary rates or improved 
living conditions.) 
As experience is gained in developing a program to assist international organi- 
zations to recruit in the United Stales, an increasing number of steps will be 
taken that should have beneficial effects both for the organizations and for the 
interests of the United States. However, the major emphasis of this program 
will be on attracting highly qualified, representative United States nationals to 
international organizations rather than on merely increasing the number of 
Americans employed by international organizations. 

Mr. Sourwine. Mr. Wilcox, do you think under the present pro- 
cedure, as it is worked out, you are able to prevent the employment of 
American nationals of questionable loyalty to the United States? 

Mr. Wilcox. Yes, I think it is working out quite satisfactorily. 

Mr. Sourwine. Would it be helpful in any way for American na- 
tionals employed by international organizations to be required to 
answer questions ? You pointed out in your statement that the Execu- 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 2103 

tive order wasn't mandatory. If there was a way whereby they could 
be required to answer these questionnaires, would it be helpful to this 
program ? 

Mr. Wilcox. Well, sir, I really don't think it is necessary. I think 
the procedure that we have is working adequately now, and I do 
think it would stir up questions in the minds of the agencies them- 
selves and the countries that belong to the agencies as to whether the 
procedure wasn't working satisfactorily and whether we had doubts 
about it, when in fact I don't really feel that we have or that we should 
have doubts about it, because I do believe that we are meeting the pur- 
poses and intents of the Congress with respect to this matter in a very 
satisfactory way. 

Mr. Sourwine. You do not think it would be helpful to have some 
force requiring answering the questionnaire? 

Mr. Wilcox. No, sir. On the contrary, I think it would be unhelp- 
ful. 

Mr. Sourwine. Do they all answer the questionnaires at the present 
time? 

Mr. Wilcox. Yes. 

Mr. Sourwine. They all answer them ? 

Mr. Wilcox. Yes. 

Mr. Sourwine. You have had instances in which they refused to 
answer them ; have you not ? 

Mr. Wilcox. In the early days, yes. But I think those cases have 
all been taken care of, as far as I know. And we don't now have any 
difficulty in securing the information that is needed with respect to 
these individuals. 

Mr. Sourwine. Could you furnish for the record the number of 
cases in which individuals refused to answer questionnaires, and the 
date of the most recent of such cases; and, if you know, the number 
of persons, if any, who refused to answer questionnaires who are still 
employed ? 

Mr. Wilcox. Yes, sir ; we will be glad to do that. 

Mr. Sourwine. The answer may be zero, of course. 

Mr. Wilcox. We will be glad to do that. 

Mr. Toussaint is here, and, as you know, Mr. Toussaint also spent a 
number of years on Capitol Hill, and is also familiar with the problem 
under consideration and the congressional interest in the problem. 

(The information furnished by Mr. Wilcox was marked "Exhibit 
No. 361" and is as follows:) 

Exhibit No. 361 

Refusals To Answer Questionnaires 

It seems quite probable that, upon the issuance of Executive Order 10422 on 
January 9, 1053, some resignations came about because the individuals did not 
wish to submit Executive Order 10422 forms. Although such resignations would 
constitute implied refusals to submit the Executive order forms, the records held 
by the international organizations concerned would not indicate that the resig- 
nations were submitted in order to avoid completing the Executive order 
forms. There is, therefore, no accurate record as to the total number of express 
or constructive refusals to submit the Executive Order 10422 investigative 
forms. 



_. 4 scope cr 5:*:i7 achvitt en" tee exited states 

-stigatiotts were conducted and completed, ho - i - -. ndividuals who 

did not submit Executive order forms and who remained in the employ of the 
.onal organizations Ehe s tos :' these 1 - a is ks ::".'.. ~s 

1. UnfaTorahle determinations issue" e International Organizations 

Em] - ralty Board 4 

2. Terminations by the international organizations concerned 3 

3. Unfavorable determinations -  the international organizations 

concerned i:.;i iss - December 1956 trans- 

: national organization December 1956) 1 

-L Cases -1 under eonsidera: a r the International Orga niz ations Em- 

- Board 1 



z:::t N . 

tdsablz - TTxdes Esi : t ?deb 10422, 

.=.5 a:.i: :i: 

-... issued J tarj iSa -s amended by Executive Order 
: -" . -- - J _ : " s : .ration cf United States nationals 

employed or being considered for employment by international organizations s 
Ac United Si tea 
the American : : :ens who were empl.rsi _ ... :. e international organ- 
izations at the thne 'JoeSxe rders came intx effect; IT have been detrr- 
mfci lal Organizati::.- Employees Loyalty B;*ard to be of 
doubtful k: " the " SI tes : the 17 empi fees f doubtful I 
9 haTe been terminated ::  then empioymen] with the international organi- 
zation concerned. The remai: - - L employee a - are pending in the inter- 
i "-:; 1.2". .1.:..:.-: is 

Since issuance of the ■::: - i re I 000 applic-ants have been investigated 

: : ment -mational organizations. Of these, there has been only 

le '-:-::.. .i ~. .. : t 7 . . : ' '." -- '.- '. ~ :'_r Ii"- r: "- "- '■'- "':::i:i.::'i> 

Employees Loyalty Board. 7"..- tional organization concerned, upon 

bang notified this nbtful . erminanom declined to employ the 

ft is nous from the im st complete lack of doubtful loyalty 

cas- ig since Jam::. - '. ' the clearance procedure has been suffi- 

. .:■ :" miliar to i - employees that it 

r- '.« - oot measure up and who 

: : _ ".-- ~—> eni" ymenl international organizations. 

I - . what the Soviet Union does in 

regard to seeking env - - nd clearing its na- 

'- f or employr. teraai :<nal organizations ? 

Mr. Wilcox. On general * - Mi Sourwine. It is my as- 

"..."". Soviet national employed by the Secretariat of 

the United . - r If the specialized agencies would, of com 

ha" approval of - S " 'Tovernmer.-. ind my assumption is 

learanee procedure- ~ " ..d have been undertaken in 
those cast 

I m - . however, that S viet L nion does not have on the 
- : - of the international organizat. ns the number of individuals to 
lid be entitled in accordance with the contributions 
they makr f tt.ese agencies. 

wins. For th of that comparison, would you furnish 

- th regard to the S : Union and the satellite countries behind 

in comparable figures with those that you are going to 

fu: rith regard to Americans, the number employed, and the 

pe: _ f contributi<: 

:an furnish that. I am not sure it will be 
. _ -- - the fig res " we furnish with respect 

to America: ..i.e. 

-ee exL its 2 r S and S58-A.) 



.OPE OF SOVIET ACTIVITY IS THE I3TTI: .AXES 2105 

Mr. Soubwixe. Would it be helpful, sir. if American nationals em- 
ployed by international organizatk ~d be required to appear and 
give testimony before the International Employees Lovalty Board, 
or a division of that Board, if and when it was convened! at the place 
where they have their station ' 

Mr. Wilcox. I don't believe, sir. that that would help the situation. 
My impression would be that the procedure — I don't mean to rest my 
case on this one point — but it does seem to me that the procedure that 
we have is working f arily well, and I think it would not be helpful to 
encumber it with that additional requirement, when we could get the 
information we want with the methods we now use. 

Mr. Souewlxe. There have been cases where employees have refused 
to appear before the Board ! 

Mr. Wilcox. There have been. 

Mr. Soubwixe. You think that is all over nc 

Mr. Wilcox. I think that is in the past, I think we are clear on that, 
and we get good cooperation now from individuals in organization 

Mr. Soubwixe. Would it be helpful if the Board had the right to 
compel answers from those who appear before it, in exceptional in- 
stances where an individual may claim his privilege under the fifth 
amendment ? 

Mr. Wilcox. Again, sir, I don't think it would be particularly help- 
ful, because we are able to get the answers we want at the present time. 

Mr. Souewlxe. The Board has no authority to compel answers, 
d'-.r: i: ': 

Mr. Wilcox. I think that is corre 

Mr. Souewlxe. You can't even put an employee as a witness under 
oat/. ! 

Mr. Wilcox. I think that is correct. 

Mr. Solkwixe. Do you think it would be helpful if the Board had 
the authority to put a witness under oath \ 

Mr. Wilcox. Well, sir, the time might come when an individual 
would be recalcitrant, but I think he would feel it would not be in his 
interest to do that sort of thing, because the chances of him _ ? a 

job would be pretty slim if he didn't coopera- 

Mr. Souewlxe. You say the rime might come. You mean it has 
happened yet \ 

Mr. Wilcox. Xo. sir. not under this procedure, 

Mr. Solkwixe. Xo witness - refused to testify \ 

Mr. Wilcox. That is correct. 

Mr. So ik west. Mr. Wilcox, this is a trial question. When 'Sir. 
Pierce Gerety testified before this committee at the time when he n a 
Chairman of the International Organizations Employees Loyalty 
Board, he stated that there was a clique of people in UNESCO who 
placed the interests of communism and Communist ideology above any 
service to UXESCO and above their own countries. Do you have any 
opinion on that point ? 

Mr. Wilcox. Was he referring to American na:. . or was he re- 

ferring to other Secretariat members f 

Mr. Suukwimk He clearly was not referring entirely to American 
nationals, although I gathered that there were some included in this 
clique. But he did not mention them by name or countries involved- 
he simply stated that there was a clique in UNESCO ^ho placed the 



2106 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

interests of communism and Communist ideology above any service to 
UNESCO and above their own countries. 

Mr. Wilcox. If I may, in the first instance, confine my remark to 
American nationals, I would say that certainly if that were true, then 
it no longer applies. And then, going into the second phase of my 
answer, I would say that in UNESCO, as in most international organi- 
zations to which the Soviet Union and its satellite states belong, there 
are, of course, members of the Secretariat from those countries. And 
1 would be greatly surprised if they did not share the views of their 
governments. 

I have stated earlier, however, that the number of Soviet and satel- 
lite staff members is not as large as the number to which they would be 
entitled if they were to make available staff members in accordance 
with the size of the contribution they make. 

Mr. Sourwine. You think it is entirely proper that nationals of 
foreign countries who are employed by these international organiza- 
tions should carry the interest of their own countries at the top of 
their consideration. 

Mr. Wilcox. Well, sir, that is a difficult question, of course, they 
do have a loyalty to the international organization which employs 
them. But my assumption is that a good American, going into an 
organization of this kind, would remain a good American, and that 
there are not really any conflicting loyalties as between his loyalty 
as an American citizen — I think he ought to remain a good American 
citizen — and his loyalty to the agency which employs him. 

Mr. Sourwine. Of course there shouldn't be. You have jumped the 
point. I asked you about those who were nationals of foreign coun- 
tries, and the second question would have referred to Americans. 
You have mentioned that you felt the employees who were nationals 
of foreign countries held the interests of their own government very 
closely at heart. 

Mr. Wilcox. Yes. I think it is rather natural that people recruited 
from a particular country would tend to reflect in varying degrees 
the ideals and the sentiments and the aspirations of the land that 
gave them birth, origin — I think it is a rather natural thing. 

If I may get back specifically to your question about UNESCO, 
I have been somewhat concerned about UNESCO, because there have 
been some charges made about it. I looked into the findings of the 
American Legion committee set up to look into UNESCO, and it 
is my feeling that the report of that committee was a good, solid 
report, and I could not, myself, think that UNESCO is engaged in 
attempting to spread communism in the world, or to spread anything 
like world citizenship, or anything of that sort. 

Mr. Sourwine. I hadn't gone into the question of a general charge 
against UNESCO, I was asking specifically about the matter as to 
which Mr. Gerety had expressed an opinion. 

Mr. Wilcox. I do not think that — if I can put it another way — 
while there are, of course, staff members from the satellite countries 
on the staff of UNESCO, I do not think they are exerting an undue 
influence, and I do not think they are in any sense controlling the 
program of the activities of that agency, I think it is in good hands, 
and I think it is being soundly run at the present time. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 2107 

Senator Johnston. I believe from your statement you do keep a 
complete record of each nation as to their own nationals that are 
employed by the United Nations? 

Mr. Wilcox. We can get that for you, sir. 

Senator Johnston. Now, then, do you have any record of, say, 
an American who was one time a citizen of another nation ? 

Mr. Wilcox. We can get that, too. 

(This information was not available when the hearing was prepared 
for printing.) 

Senator Johnston. We ought to have that in regard to the different 
ones to show a true picture of it all. I am not questioning the loyalty 
of anybody that comes from another nation, but at the same time I 
believe that somebody that grew up in the United States would have 
a sympathetic viewpoint as to anything that might come up concern- 
ing the United States, and it might be true of other people that were 
born in other countries. 

Mr. Wilcox. Could we take a certain date, a cutoff date, Mr. 
Chairman, in) compiling those dates? 

Senator Johnston. Whatever you have to do. And I think you 
would have to do that. But we would like to have the records on 
that. 

Mr. Sourwine. The application forms as used in this program, have 
they been changed since last year? In other words, have they been 
changed since thev were offered for the record a year ago ( 

Mr. Wilcox. It is my understanding that they have not been 
changed, Mr. Sourwine. 

Mr. Sourwine. I have no more questions of this witness. 

Senator Johnston. Any questions ? 

Senator Jenner. I have none. 

Senator Johnston. Thank you, Mr. Wilcox. 

(At this point in the hearing, Mr. Wilcox completed his testimony. 
The subcommittee then called Henry S. Waldman, chairman, Inter- 
national Organizations Employees Loyalty Board, Elizabeth, N. J. 
Mr. Waldman's testimony is printed in the next volume of this series, 
part 38 of Scope of Soviet Activity in the United States.) 



INDEX 



N 0TE . — The Senate Internal Security Subcommittee attaches no significance to 
the mere fact of the appearance of the name of an individual or an organization 
in this index. 

A Page 

Appropriations Committee, House and Senate 2100 

B 
Bureau of International Organization Affairs 2101 

C 

Capitol Hill 2080, 2103 

Caribbean Commission 2095 

Charter of the United Nations 2080 

Communist 2105 

Congress 2077, 2079, 2080, 2103 

Member of 2080 

E 

Eastland, Hon. James O 2081 

Executive order 2077, 2079-2083, 2103-2104 

Exhibit No. 354 — S. 3 : An act to prevent citizens of the United States of 
questionable loyalty to the United States Government from accepting 
any office or employment in or under the United Nations, and for other 
purposes 2074-2075 

Exhibit No. 354-A— S. 782 : A bill to prevent citizens of the United States 
of questionable loyalty to the United States Government from accepting 
anv office or employment in or under the United Nations, and for other 
purposes 2075-2076 

Exhibit No. 355 — Letter February 6, 1957, to Hon. James O. Eastland from 

Francis O. Wilcox, re 11 items requested by subcommittee 2081-2082 

Exhibit No. 356 — International organizations coming within the scope of 
Executive Order 10422, as amended by Executive Order 10459 20S2-2083 

Exhibit No. 357 — International organizations employing United States 
citizens 2083-2084 

Exhibit No. 35S — Employment of United States and Iron Curtain nationals 
on professional (internationally recruited) staffs compared with per- 
centage of assessment, 1956 — United Nations and specialized 
agencies 2085—2086 

Exhibit No. 358-A — Employment of United States and Iron Curtain 
nationals on professional (internationally recruited) staffs compared 
with percentage of assessment — Other unilateral organizations and bilat- 
eral commissions governed by Executive Order 10422 as amended — 2087-2088 

Exhibit No. 359 — United Nations distribution of staff by nationality as 
of December 31, 1956 2089 

Exhibit No. 359-A— United Nationals Educational, Scientific, and Cultural 
Organization — Nationalitv distribution of staff members as of October 
31,1956 2090 

Exhibit No. 359-B — Food and Agriculture Organization — Nationality dis- 
tribution of staff, October 31, 1956 2090 

Exhibit No. 359-C — International Civil Aviation Organization — Distribu- 
tion of staff by nationalities as of November 1, 1956 2091 

Exhibit No. 359-D — International Labor Organization — Distribution of 

staff by nationalities as of November 6, 1956 2091 



II INDEX 

Page 

Exhibit No. 359-E — International Telecommunication Union — Nationality 

distribution of staff, October 31, 1956 2092 

Exhibit No. 359-F — World Health Organization — Distribution of interna- 
tionally recruited staff by nationality as of October 31, 1956 2092 

Exhibit No. 359-G— International Monetary Fund— Nationality distribu- 
tion of staff members as of December 31, 1956 2093 

Exhibit No. 359-H — International Bank of Reconstruction and Develop- 
ment — Nationality distribution of staff members as of December 31, 
1956 2093 

Exhibit No. 359-1 — Pan American Union — Nationality distribution of staff 

members as of October 31, 1956 2093 

Exhibit No. 359-J — Inter-American Defense Board — Nationality distribu- 
tion of staff members as of December 31, 1956 2094 

Exhibit No. 359-K — Inter-American Institute of Agricultural Sciences — 
Nationality distribution of staff members as of October 31, 1956 2094 

Exhibit No. 359-L — Inter-American Radio Office — Nationality distribu- 
tion of staff members as of October 31, 1956 2094 

Exhibit No. 359-M — Inter-American Tropical Tuna Commission — Nation- 
ality distribution of staff members as of October 31, 1956 2094 

Exhibit No. 359-N— Pan American Institute of Geography and History — 

Nationality distribution of staff members as of October 31, 1956 2095 

Exhibit No. 359-0 — Pan American Sanitary Organization — Nationality 

distribution of staff members as of October 31, 1956 2095 

Exhibit No. 359-P — Caribbean Commission — Nationality distribution of 

staff members as of October 31, 1956 2095 

Exhibit No. 359-Q — General Agreement on Tariffs and Trade — Nationality 

distribution of staff members as of December 20, 1956 2095 

Exhibit No. 359-R — The Interparliamentary Union — Nationality distribu- 
tion of staff members as of December 31, 1955 2096 

Exhibit No. 359-S — Intergovernmental Committee for European Migra- 
tion — Nationality distribution of staff members as of June 30, 1956 2096 

Exhibit No. 359-T— International Cotton Advisory Committee — Nation- 
ality distribution of staff members as of October 31, 1956 2096 

Exhibit No. 359-U — International Hydrographic Bureau — Nationality dis- 
tribution of staff members as of October 31, 1956 2096 

Exhibit No. 359-V — International North Pacific Fisheries Commission — 
Nationality distribution of staff members as of October 31, 1956 2097 

Exhibit No. 359-W — International Pacific Halibut Commission — Nation- 
ality distribution of staff members as of January 1, 1957 2097 

Exhibit No. 359-X — International Pacific Salmon Fisheries — Nationality 

distribution of staff members as of October 31, 1956 (estimated) 2097 

Exhibit No. 359- Y — South Pacific Commission — Nationality distribution of 

staff members as of October 31, 1956 2098 

Exhibit No. 259-Z — United Nations expanded program of technical assist- 
ance — Distribution of experts by nationality, September 30, 1956 2098 

Exhibit No. 359-AA — United Nations expanded program of technical assist- 
ance^ — Distribution of experts by nationality and organization, July 1, 
1956 2099 

Exhibit No. 360 — Functions of individual assigned to work on matters 
relative to the employment of United States nationals in international 
organizations . 2101-2102 

Exhibit No. 361 — Refusals to answer questionnaires 2103-2104 

Exhibit No. 362 — Status of unfavorable determinations under Executive 
Order 10422, as amended 2104 

F 

Fifth amendment 2081 

Food and Agriculture Organization 2090 

Foreign Relations Committee 2076 

G 

General Agreement on Tariffs and Trade 2095 

Gerety, Pierce (Chairman, International Organizations Employees Loyalty 
Board) 2105 



INDEX in 

I Page 

Inter-American Defense Board 2094 

Inter-American Institute of Agricultural Sciences 2094 

Inter-American Radio Office 2094 

Inter-American Tropical Tuna Commission 2094 

Intergovernmental Committee for European Migration 2096 

International Bank of Reconstruction and Development 2093 

International Civil Aviation Organization 2091 

International Cotton Advisory Committee 2096 

International Hydrographic Bureau 2096 

International Labor Organization 2091 

International Monetary Fund 2093 

International North Pacific Fisheries Commission 2097 

International organizations coming within the scope of Executive Order 

10422 as amended by Executive Order 10459 20S2-2083 

International Organizations Employees Loyalty Board 2078, 2104, 2105, 2107 

International organizations employing United States citizens 2083-2084 

International Pacific Halibut Commission 2097 

International Pacific Salmon Fisheries 2097 

International Telecommunication Union 2092 

Interparliamentary Union, The 2096 

Iron Curtain 2104 

J 

Jenner, Senator William E 2073 

Johnston, Senator Olin D 2073 

M 

Mandel, Benjamin 2073 

P 

Pan American Institute of Geography and History 2095 

Pan American Sanitary Organization 2095 

Pan American Union 2093 

R 

Refusals to answer questionnaires 2103-2104 

Rusher, William 2073 

S 

S. 3— 83d Congress (exhibit 354) 2073-2075, 2077, 2079 

S. 782— 84th Congress ( exhibit 354-A ) 2073-2077, 2079 

Secretariat 2105 

Senate Calendar 2073 

Sourwine, J. G 2073 

South Pacific Commission 2098 

Soviet Union 2104, 2106 

State Department 2076-2080, 2100, 210] 

State, Secretary of 2078 

Status of unfavorable determinations under Executive Order 10422, as 
amended 2104 

T 

Toussaint, Paul A. (special assistant to the Director, Office of Interna- 
tional Administration) 2073, 2103 

U 
UNESCO 2105-2106 

United Nations 2073-2074, 2079-2081, 2104, 2107 

United Nations Education, Scientific and Cultural Organization 2090 

United Nations expanded program of technical assistance 2098-2099 



IV INDEX 

W Page 

Waldman, Judge Henry S 2078, 2080, 2107 

Chairman of the International Organizations Employees Loyalty 

Board 2078 

Elizabeth, N. J 21 07 

Wilcox, Francis O. (testimony of) 2073-2107 

Assistant Secretary of State for International Organization 

Affairs 2073,2076 

Foreign Relations Committee 2076 

World Health Organization 2092 

o