Sorry "Slugboy", but I must disagree with you.
Being in the medical profession for 20 years, having been married for 17 years, not to mention the occassional "rendezvous" I had prior to marriage, I've been exposed to many a nipple.
I've looked again at this note. On the link, and on my own. I've magnified the area.
It's definitely a nipple. And nipples are attached to breasts. So my conclusion is that this is a breast.
I tried picturing what you are seeing, but I just can't agree. Remember, this is 1937 and art such as this was perhaps common place...? I don't think this would be acceptable today...even though morals and standards are, ironically, less today then they were then.