My dear P.M.,

Hankey [1] had a heart to heart after-dinner conversation a few
days ago with an ex-Minister in the late Labour Government, from
whom he got the definite impression that they are not at all
hopeful about their chances at the next election. The renegades
from the Liberal Party to the Labour Party are not at all cheerful
about any coalition with the Liberals, as they know how unpopular
they are with the Liberals and that they would individually meet
great opposition in getting office in the event of a Liberal-
Labour majority. These people are the Rt. Hon. C. P. Trevelyan
[2], Lieut.-Commdr. the Hon. J.M. Kenworthy [3], Arthur Ponsonby
[4], the Rt. Hon. Noel Buxton [5] and Lord Arnold. [6]

The other two prominent Labourites who came to the Labour Party
from outside are Lord Haldane [7], who presumably has outgrown a
desire for office, and Lord Parmoor [8], who was a Tory before he
crossed over. Lord Thomson [9] started life as a Labourite and was
made a Peer by the Labour Party from being a retired R.E. officer.

Lloyd George [10] and Ramsay MacDonald [11] I do not like each
other; but as a pis aller Lloyd George will be willing to serve
under MacDonald as Prime Minister.

Winston Churchill [12] has lately been thinking hard about how he
can save money in view of his forthcoming Budget, and has
apparently seized on this blockade question [13] as a potential
lifebelt. He has leanings towards some arrangement with the
Americans. Hankey has had indications of the above and very much
hopes that it doesn't mean reopening the question again when he
had it all nicely tucked up in a Committee of which Winston was
not a member.

I send you from time to time copies of the telegrams that are
being exchanged regarding the trouble between Canada and Mexico,
not that it has any real interest for us but rather because you
may wish to have on record a typical case of how a foreign Consul-
General may mix himself up in the domestic affairs of the country
to which he is accredited. [14] The papers are of interest but not
of sufficient importance for you to read.

The Foreign Office are rather perturbed that it may result in this
country having to break off relations with Mexico. Anglo-Mexican
diplomatic relations are of infinitely greater value to Great
Britain than they are to Mexico. There are large British interests
in Mexico, but no Mexican interests in England. The same applies
to Canada. The Mexicans are proud and stiff-necked and they rather
like humbling a great power.

Canada has apparently been rather foolish over the whole matter.

If Mackenzie King [15] had reported the incident to the Foreign
Office as soon as it occurred, they say they could probably have
smoothed it over, but the Canadians let so much time go by that
the Mexican Consul-General at Ottawa [16] was able to get his own
story into his own Government, who immediately set about raising
public opinion in Mexico City against the Canadians, with the
result that the situation was out of hand by the time Canada asked
His Majesty's Government to come to their assistance. It looks now
very much as if the Canadians will have to eat humble pie, or else
be the cause of His Majesty's Government breaking off relations
with Mexico, which would be a real case of the tail wagging the
dog.

The Government enquiry is proceeding in the unfortunate 'Francs'
case [17], in which Gregory [18], O'Malley [19] and Maxse [20] are
involved. The French press treats the matter in the way one would
expect-the non-Socialist section records the disclosed facts fully
but suspends judgment until the affair is thrashed out-the
Socialist and Left wing press leap into the air with indignation
and publish scandalous articles of which the following extract
from 'Humanite' is an example:-

They (His Majesty's Government) will not get it out of anyone's
head that the venal 'canailles' who could traffic in influence
were the same people who in 1924 inspired the Zinovief forgery.

Such is diplomacy but it must not be supposed that London is an
exception.

I remember that Gregory said to me two years ago, when he was
talking of the Zinovief letter [21], that if ever the Labour Party
in this country could get anything against him, he knew he could
expect no mercy. He happened by chance to have had to sign the
letter to the Russian Charge d'Affaires [22] with regard to the
discovery of the Zinovief letter and, not unnaturally, the
ignorant public connected his (Gregory's) name with the affair,
with regard to which he was, of course, not in any way
responsible. [23]

I know all three men (Gregory, O'Malley and Maxse) quite well, and
am very sorry for them. No doubt it was particularly unwise to
have done what they are supposed to have done. None of them has
any business experience whatever. I am afraid nothing can save
Gregory, but I very much hope that the other two will not be
completely undone.

There is, I should say, about the average amount of speculating
amongst Civil Servants who have a little money, but, as far as I
have come across it, it has been in securities and not in
currency. No doubt this enquiry will damp down any and all forms
of Stock Exchange operations by people in official positions.

Amongst the Foreign Office print going to you officially by this
mail are two articles descriptive of the position in Russia-mainly
with regard to the exile of the Opposition. They are of interest
but of no immediate importance.

I enclose article on Australian Finance from the 'Times' Annual
Financial and Commercial Review of 7th February. It is gloomy and
pessimistic in tone. I understand that McDougall [24] is drafting
a reply for the High Commissioner's approval.

In conversation with Sir Austen Chamberlain [25] this week, he
gave me to understand that he intended to press very hard to get
the appointment of the British representative to Canada (High
Commissioner, or whatever he is to be called) for the Foreign
Office. He realised that he would probably find opposition from
Mr. Amery [26] on his return. However, I know that Chamberlain has
been enlisting the sympathy of the Prime Minister [27] on his
side, and my impression is that Chamberlain will win. I have heard
the name of Sir F. Lindley suggested, who is at present H.M.

Minister to Norway. [28] It is also probable that H. G. Chilton
will be considered. [29] He is Minister at H.M. Embassy at
Washington, but is on a few months' leave in London at present.

I lunched yesterday with Sir Charles Hipwood, the Head of the
Marine Department of the Board of Trade. He asked me to lunch
primarily to tell me his ideas about the Italian reply to His
Majesty's Government's last Note on the Italian Flag
Discrimination position. [30] He thinks we are getting reasonably
close to a satisfactory solution. He is particularly keen that we
should win this argument without reservations as the result, he
thinks, will have a very salutary effect on a number of other
countries that have it in mind to bolster up their national
mercantile marine to the exclusion of British shipping.

On other subjects he is quite interesting. He says that he has
reason to think that the Americans are very scared of the possible
outcome of what he says is called the 'Amery stunt' of Imperial
economic solidarity. They see a great world rival in a solid
British Empire, and he thinks he sees all sorts of efforts to
combat it by offering baits to Dominions to fall away from the
Imperial centre.

Comparing the United States with the British Empire he makes what
I think is a true, if perhaps trite, generalisation that we have a
large invisible balance in our favour in the shape of our national
character which sets great store on fair play (based on the spirit
of the public school and similar organisations), which, in
general, makes us believe that success can at times be too dearly
bought-a principle that it would take a good deal of effort to
make the average American understand.

He is interesting about Inchcape [31], who he thinks is quite
unconscious of the unpopularity of his company and himself. He
lives for his shipping interests and the other members of his
Board are terrified of him. He says it is essentially a one-man
organisation and is, in many ways, an antiquated machine. Inchcape
is an old man (76). He says he doesn't know what will happen to
the organisation when Inchcape goes.

He can't understand how Kylsant [32] has built up and maintains
his big shipping interests, but that as his own people always
speak well and respectfully of him, he must have hidden merit
which isn't open to the eye of the ordinary observer.

With regard to the Senior Air Force Officer to go to Australia.

Sir John Salmond, who commands the Air Defences of this country
and who is fully in touch with the most recent 'Air' point of
view, from the best information that I can get, would be the best
man for you. But unfortunately his wife is to have a baby in June
and it is thought that his arrival in Australia in August at
earliest would be rather too long delayed. So that means have been
put in train to get his brother, Sir Geoffrey Salmond (commanding
the 'Air' of India), to go to you. He isn't quite as good a man as
John but apparently runs him fairly close. If it is decided that
Geoffrey is to go, the Air Ministry would set about posting him up
in all their latest lines of thought. [33]

If, as I gather, you are postponing consideration of the Defence
of Australian Ports until you get the papers that I have sent out,
then, if the matter is not particularly urgent, might it not be a
good thing to postpone it a little longer until this Senior Air
Officer gets out to Australia and can let you have the benefit of
his advice on the spot?

About the Gregory affair, I have since heard on the best authority
that they have been able to produce no adequate defence and that
it looks black for all three. They have, I am told, transgressed
no written law but have contravened the unwritten standard of
conduct of civil servants in responsible positions. I have heard
on less good authority that Gregory's defence consisted in trying
to implicate a number of other people, but it is hard to believe
it.

In another letter by this mail I send you an important Cabinet
paper by Chamberlain (actually written in the main by Craigie [34]
of the American Department) on the proposed United States-French
'Renunciation of War' Pact [35], and on the renewal of the Anglo-
American 'Root' Arbitration Treaty. [36] It is not worth your
while to read the paper itself, but I should certainly, if I were
you, read my able summary of the two treaties in letter covering
(LON. 693).

An individual who might be said to be rather a good connoisseur of
Cabinet Ministers tells me that Lord Cushendun is as poor a
specimen as any that have come his way for many years. He was
Ronald McNeill (Financial Secretary to the Treasury) and became
Chancellor of the Duchy of Lancaster in succession to Lord Cecil.

He is the most vocal-indeed, almost the sole-advocate of the
cession of our rights of blockade in favour of Freedom of the
Seas.

I enclose cutting from today's 'Times', containing criticisms of
the new Canadian diplomatic posts about to be created.

I welcome Vansittart's [37] appointment as Chief Private Secretary
to the Prime Minister, as it will give me a line of approach to
the Prime Minister and his office that did not exist for me
before. I know and get on well with Vansittart and he has, of his
own accord, asked me to keep in touch with him in his new job. Sir
Ronald Waterhouse was a very difficult person to do anything with,
and the result was that I had no real access to the Prime
Minister. [38]

When I have got one week's mail off to you, I have the feeling
that there can't possibly be anything more of interest to tell you
now for some time. But as the next week matures, things crop up
out of the blue and I find myself again putting down just about
the same amount of material. The range is so wide, I suppose, that
what one loses on the swings one picks up on the roundabouts. I
find things coming rather easier now than when I was here before-
material of interest to us positively flows in now.

I enclose Low's [39] latest political cartoon-'The Unveiling of
Parliament'. I think his skill in drawing native bears stands him
in good stead in drawing Lloyd George.

I am, Yours sincerely,
R. G. CASEY