8th February, 1928


My dear P.M.,

In connection with my attempt to get some information on the effect of international finance on the cause of peace, I got in touch, through Hankey [1], with Grigg [2], Winston Churchill's [3] very able Private Secretary, and discussed with both Hankey and Grigg the best method of approach to the subject. They both agreed that it wasn't much use talking to Winston as he had no knowledge of the matter. They first put me on to Hawtrey [4], a high Treasury official and brother of the actor. He is, I am told, one of the world's leading theoretical economists, for whom a special non-executive position was made in the Treasury. He goes his own way to a great extent, writes a good many books and browses about amongst subjects that appeal to him. They put their problems up to him and he finds the answer, but they do not always take his answer as the complete truth, as he is liable to be too theoretical and divorced from considerations of practical finance.

I had an interesting hour with him, the result of which I record in another letter.

Apart from the subject that I specifically wanted to discuss with him, he made some interesting remarks about other matters.

He has (as they all have) a great regard for Montagu Norman. [5] He said that Norman's frequent visits to New York and to Berlin were in order to collaborate with Benjamin Strang, the Chairman of the Federal Reserve Bank, and Schacht, the head of the German Reichsbank. This has been going on with great advantage to all concerned since the Genoa International Economic Conference in 1922, and was in conformity with the Resolutions there adopted for the regulation of credit, in order to stop undue variations in the purchasing power of gold, or, in other words, in order to keep price levels steady.

The fountains of credit in Great Britain, the United States and Germany are regulated, by the simple means of turning the tap slightly more on or off, by these three men. The pre-war economic story of all countries was a succession of comparative gluts and slumps-a wavy curve. This uneven progress began to assert itself again after the War and culminated in the 1920-21 slump, the effect of which was felt worldwide. The co-operation of these three banking colossi was designed to flatten out the curve into something like a straight line, and they had been very successful up to the present.

Their co-operation results in adverse criticism in uninformed quarters. One hears in England that Montagu Norman goes too much to New York, that he is becoming pro-American, and that his actions give point to the suggestion that the financial centre of gravity is moving to New York. In America you get similar comments reversed-that Ben Strang is hoodwinked by Norman and that the Federal Reserve Bank system is being manipulated to the benefit of Great Britain.

Hawtrey gave me a copy of his own small book, 'The Gold Standard in Theory and Practice', and suggested that I should get a copy of a similar work by an American-'The Federal Reserve System and the Money Market' by W. Randolph Burgess. Both deal with this interesting subject in language that is intelligible to someone whose knowledge is limited to a rather popular grasp of banking and finance. I will send you copies of each by an early mail. [6]

I sent a copy of the letter that I wrote you by last mail, on the effect of international finance, to Montagu Norman, and I have his courteous reply which I enclose to you. You will gather from it, as I have noticed in conversation with him from time to time, that he obviously feels rather left out of the picture as regards Australian financing.

I showed Norman's reply to Hawtrey, who smiled and said it was one of the Governor's usual 'very pregnant letters'. I said that I thought 'pregnant' was an adjective that wasn't capable of being comparative.

Hawtrey said that, with regard to Dominion loans, the Board of Trade Journal of February 2nd had an interesting article on the national credit balance available for investment abroad. I have since got copy of this from the Board of Trade and enclose it herewith. The only point in it that will be of real interest to you is the fact that the British balance of trade for 1925 showed a credit of 54 millions, for 1926 a debit of 7 millions, and for 1927 a credit of 96 millions. And, as the writer of the article points out, this surplus is the main source of investments abroad.

Hawtrey mentioned these figures as indicating that the position had completely altered from that which obtained when His Majesty's Government had been compelled to advise Australia to go to New York for part of her loan requirements.

I said that the figures seemed to indicate a wonderful recovery in the position, to which Hawtrey replied that, with a national income of about 4,000 millions, it did not take much of a turn for the better to produce a surplus of 100 millions in the Trade Balance.

I am, Yours sincerely, R. G. CASEY

1 Sir Maurice Hankey, Secretary to the Cabinet.

2 P.J. Grigg.

3 Chancellor of the Exchequer.

4 R.G. Hawtrey, Director of Financial Enquiries at the Treasury.

5 Governor of the Bank of England.

6 R.G. Hawney, The Gold Standard in Theory and Practice, Longmans, London, 1927. In a letter to Casey of 20 March 1928 (on file AA:A1420) Bruce acknowledged receipt of Hawtrey's book and undertook to 'try to take an early opportunity of reading it'. It is unlikely that Bruce enjoyed the experience. Referring to international trade balances, he mourned that 'for my sins, during the last few months I have had to dig about in this subject to some extent, and it is about as tricky a one as I have ever encountered'. For Burgess's book, see note 2 to Letter 130.