15th February, 1928


My dear P.M.,


I attach hereto the notes of a conversation with R.G. Hawtrey [1] of the Treasury on this subject.

I also enclose letter from Mr. Montagu Norman [2] covering some relevant notes.

A certain amount of material of interest comes out of the above, but, I admit, not as much as I had hoped. [3] I may be able to get some more inspired comments in the next few weeks.

I am, Yours sincerely, R. G. CASEY

[Enclosure A]


Notes on conversation with Mr. R.G. Hawtrey at the Treasury on 6th February, 1928.

With regard to the activities of International Combines and of Cartels, Mr. Hawtrey did not think, in general, that they had much international influence towards or away from peace.

International combines in the heavy industries-iron, steel and engineering, and possibly in the chemical industry (and, in general, in all 'mass production' industries)-undoubtedly tend to eliminate bitter competition, and so tend to stop countries from manoeuvring to gain political influence in possible markets. These big industries are so formidable and are so closely associated with the economic power of a country that the fact that they are at peace with their opposite numbers in neighbouring countries is undoubtedly beneficial.

Mr. Hawtrey mentioned that he had himself used the generalisation that the Great War was a war between the coalfields of Great Britain against the coalfields of Germany, which had eventually been decided by the coalfields of the United States-coal being the basis of those industries which are most important in warfare.

As a comparative side issue, Mr. Hawtrey mentioned that leading industrialists may exercise great political influence in their own countries, and if their interests are internationalised, this conduces to peace.

Mr. Hawtrey thought there were three classes of investments in (or loans made to) one country by the nationals of another country which would have a political bearing:-

1. Government loans.

2. Public utility loans.

3. Concessions.

With regard to Government and quasi-Government loans, assuming that the borrowing country was normally civilised and did not default in the payment of interest and the repayment of capital, he was of the opinion that, once the loan was made, the lending country had no appreciable influence on its policy, domestic or otherwise.

On the contrary the lending country became dependent on the good faith and capacity of the borrowing country. Investing does not in normal circumstances give the investor any real power over the lender.

Should default become actual or probable, the investor is put in a position in which he may want to get power over the borrower, and he will use his influence with his own Government to get it to exercise diplomatic pressure, or even force, to back his demands.

In that case the investment does not facilitate political intrusion, but only supplies the motive (or pretext) for it.

The problem of dealing with defaults was responsible for the formation, in Great Britain, of the Council of Foreign Bondholders, from whom Mr. Hawtrey suggested that I should be able to get information as to what has been the past history of cases of default as regards Government loans.

The political bearing of public utility undertakings and of concessions (e.g. mining or transport) is on the same footing.

That is to say, administrative or legislative interference being necessary, the promoters are led to interfere in the political affairs of the country concerned, but the enterprise itself puts them in a position rather of dependence than of power.

With regard to foreign companies establishing branch factories or subsidiary companies in 'borrower' countries, and also with regard to concession seekers, Mr. Hawtrey did not consider that they had much influence, unless their numbers became excessive and unless they were accompanied by a large influx of the foreign nationals.

Their representatives had, of course, the personal influence that men of ability who can command wealth always have.

Those in control of such activities may appeal to the Government of their own country for defence against undue taxation in the 'borrower' country. This comes to the same position as mentioned above with regard to Government loans-diplomatic negotiations or pressure to ensure for the lender nationals of one country better conditions or redress of grievances in the course of their activities in a foreign 'borrower' country.

In general, however, it pays the concession hunter and the foreign company promoter to conform to the conditions of the 'borrower' country and to conduct himself as much like a national of the 'borrower' country as possible.

The position as between Canada and the United States is in a special category, as in this case you have very intimate economic relations and the extension of American enterprise into Canada is often accompanied by a free movement of population across the border. In this case, and in the case of the movement of large numbers of Italians into the south of France, you get conditions operating which are distinct from the movement of the finance that is involved.

Mr. Hawtrey mentioned the case of the United States and Mexico in the past when the very considerable infiltration of Americans into some of the Northern Mexican provinces resulted in eventual revolt and the adhesion of these provinces to the United States.

Notes approved by Mr Hawtrey 10.2.28

[Enclosure B]

BANK OF ENGLAND, LONDON, E.C.2 13th February, 1928


My dear Mr. Casey,

I find myself as the days pass by more willing but less able to discuss your three questions as I promised to do in my letter of the 4th instant. Each of the three needs much interpretation before it can be dealt with and each of the three might well be made the subject of an essay! So all I can do is to send, herewith, certain considerations (rather than conclusions) bearing on your three questions. I am so bold as to add that what took place at Geneva last July is likely in the long run to have a greater influence for or against international peace than most other happenings: but that, as Mr.

Kipling would say, is another story.

But although I cannot help you now, I hope you will let me do so at some other time.

Believe me, Yours sincerely, M.NORMAN

[Enclosure C]


1. To what extent does the modern tendency to large scale international trustification of industry (or 'rationalisation', to use a not altogether synonymous term) tend towards international peace? The organisations referred to in this question are of such diverse character that some discrimination must first be made between them. International concerns, which are yet not sufficiently international to possess a virtual monopoly, are likely to produce intensified competition inter se and are therefore hardly likely to tend towards international peace. Other cartels which have a monopoly, or whose products do not come into sharp competition with similar bodies, might be thought to have an influence towards peace if they reduce uneconomic competition, promote stability of employment and in fact make for economic prosperity. These cartels, however, mostly function through rationing output, and after a relatively short life have usually broken down because of the inability of their members to agree upon the allotment of the output. In any case their raison d'etre would vanish upon the outbreak of war because at that time the demand for nearly all products likely to be subject to a cartel would become practically unlimited. The existence of cartels would therefore not be a factor interposing resistance to influences making towards war.

Worse still, cartels might themselves tend towards war since the national groups represented in the cartel might ask their respective Governments to intervene in bargaining for a more favourable allotment.

Moreover, there is the danger that 'international' trusts confined to certain countries only might stereotype existing conditions to the disadvantage of other countries, or might endeavour to restrict the supplies of certain countries, and such action might easily lead away from peace.

So far we have dealt with trusts or cartels concerned with production. Of a rather different type are financial houses. These are probably an influence for peace, though they do not necessarily stand to lose by war; again it is not too much to hope that the co-operation of Banks, or rather of Central Banks, might be developed to a point where it would have an influence towards the maintenance of peace. An international financial control of the Press would probably be an extremely valuable contribution towards the world's peace. since it is the nationalist control of the papers in each country which has been largely responsible for war in the past.

2. At what stage does a wealthy country begin to get indirect political control over a poorer country to whose Government she is in the course of making loans for development and other purposes of Government? If the words 'indirect political control' refer only to the purely informal, personal and advisory relationships of individuals or organisations, it does not seem possible to make any useful generalisations on the matter. If, however, reference is intended to rather more direct forms of control, it may be said that these come into existence prominently at two points-(a) when the borrowing country attempts to borrow and (b) if and when it fails to pay the interest or capital of its borrowing. If political control be taken to include all interference with how the money to be borrowed is to be spent by the borrower, it frequently exists even where the Government of the lending country does not itself take a hand in imposing the conditions, but Government interposition also has been not uncommon both before and since the War. If the borrowing country defaults, control is likely to come whenever the resistance of the borrower is expected to be not so great as to make intervention unprofitable. Such intervention will usually require the consent or assistance of the Government, or Governments, of the lending countries, which will usually be forthcoming unless those Governments have a high regard for national autonomy, or, alternatively, fear the attitude of non- intervening powers, or both.

3. Is there an influence for peace in the increasingly widespread taking up of the bonds of poorer countries amongst the nationals of more wealthy countries? The answer to this question would seem to depend partly on whether it is contemplated that the bonds of the poorer countries are held in one or in several countries. Whether widely or narrowly held within each country, if they are spread over several countries it may perhaps be supposed that at any rate the interests of peace are slightly less in danger. As regards their spread within the same country, it seems impossible to generalise as to whether a large or a small number of people is more likely to show a pacific tendency, nor does past history help to decide the question. It would seem more important that the bonds should be held (either narrowly or widely) by a country which is likely, as a whole, to exercise an influence for peace. Those persons, however, whether many or few, or in whatever countries resident, who hold bonds of loans issued under the auspices of the League of Nations, may be supposed to be well-wishers to the cause of peace.

1 Director of Financial Enquiries at the Treasury.

2 Governor of the Bank of England.

3 The enclosures are published here because of their relevance in part to Bruce's anxiety about the effects on Australia of non- British investment from overseas, especially-and with Canada in mind-from the United States.