170

(Due to arrive Canberra 1.3.29)

My dear P.M.,

Sir Basil Blackett [1] came in to see me a few days ago, with the object, as he said, of acquainting me with the present position of the Cable-Wireless Merger Company and of telling me his plans for its future. [2] It so happened that the decode of your telegram to Clive Baillieu, on the subject of the relation of Amalgamated Wireless (Australia) with the Merger Company, was handed to me while he was in the room, so I merely turned it over and went on talking to him. I had had talks to Sir Otto Niemeyer [3] on the subject of the Merger Company previously and was reasonably well informed about their position and plans, but I am very glad to have met Blackett.

I have now met half-a-dozen of the Directors of the Bank of England and am in a position to go and talk to any of them.

This may be of use from time to time when one wants to discuss something that is not of the first order of importance-but, as you may know, where any matter of policy is concerned, Montagu Norman [4] is the only man that it is worth seeing. He keeps the strings very closely in his own hands and only tells his co-directors and associates the very minimum of what it is necessary for them to know. They all realise this and two of them have mentioned it to me in conversation at different times. Their irritation at being treated 'like irresponsible schoolboys' is tempered by their genuine affection and regard for the Governor. One director told me a few months ago, evidently with some particular incident in mind, that Norman was temperamentally most difficult to work with.

The Bank of England Board and staff is, I gather, in course of being modernised and so brought more closely in touch with the life and industry of this country-and of the Empire.

I asked Blackett if he could discover for me some particulars of what Lord Melchett's [5] Anglo-American Finance Company was doing- and this he is going to do.

Luckily for me another link has been added to my liaison with the Bank in that Rodd, son of Sir Rennell Rodd, who used to be in the Foreign Office and has been for several years with a broker's firm in the City, is to join the staff of the Bank next month. [6] I know him quite well and it will be quite a help to me. In the past, although I have always been able to approach Montagu Norman and Otto Niemeyer, I have hesitated to do so except when you have so authorised me, but I will now be able to keep in closer touch through a contemporary.

I saw Bridgeman [7] and the proper departmental people in the Admiralty about the nomination of Captain McPherson for Jervis Bay. They saw the point at once and withdrew his name, as I telegraphed you. They all maintain that he is a first-rate fellow and admirably suited for the job. His court martial found him technically guilty but, in the circumstances, the Admiralty do not hold it against him and he will be employed afloat again. [8] Bridgeman and the others all stress the difficulty in getting men to go willingly to these appointments in Australia, owing to the fact that Australia will not pay the fares of their wives and families. New Zealand apparently do pay family moving expenses and, in consequence, they have a wider choice of officers to select from. Bridgeman maintains (and one can't help sympathising with his point) that officers should not be asked to go to these appointments on worse financial conditions than they would incur in other appointments in the British Navy. The official answer would be that they needn't take their wives to Australia-but as they are given a house, it is beyond human nature to expect that they will not want to do so.

I gathered that they are to make representations to you in this regard in the next few months.

There are several interesting Foreign Office prints going to you officially by this mail. Foremost amongst them is a long memorandum from Chamberlain [9] to Lampson [10], which sets out to appreciate the position in China from the point of view of increased British trade. He would like to think that the time had arrived when economic development might begin in earnest in China, with consequent orders for British firms. This leads him to the consideration of foreign loans for China, after what has amounted to a financial blockade of China by the Powers for some years. He asks for Lampson's considered opinion on the above and related subjects after consultation with all concerned-which should produce an interesting reply in due course. A 'Times' article of this week (possibly inspired) deals with this same subject.

The memorandum from Tokyo on Japan's position in Manchuria shows that Japan has difficult times ahead in justifying and maintaining her position in the face of increasing Chinese nationalism. The recently expressed desire on the part of the Japanese for close co-operation with Great Britain in China, and, in some quarters, for the resuscitation of the Anglo-Japanese Alliance, is no doubt born of the desire to re-form a powerful friendship so that chestnut pulling may be more easily performed.

I enclose, as a matter of general interest, the extracts from recent copies of the 'Times' of Haldane's [11] reminiscences.

I feel much more comfortable now that we have a reasonably safe cypher for confidential messages. It is time that the old worn-out Cypher 'B' was scrapped, as it gives a false sense of security and is really no defence at all against anyone who wants to break it.

As soon as the next Foreign Office cypher is taken out of commission, I will try and get 20 or 30 copies of it to replace Cypher 'B' for general telegraphic work between Canberra and Australia House. It would only need about 100 additional groups of particular Australian significance. This seems the only alternative-and a cheap one-to having a new cypher put together for us by the F.O. Cypher School at a cost of 500 or so.

I see that you have agreed to the Bruce Toby Jug being sold to the public. I enquired of the potters about it and got two of them. I think they have turned out very well indeed. If you want any I can get them and send them out.

I enclose cutting with regard to Dean Inge [12] and his remarks about Anglo-American relations-his peers have turned him down! The same three questions concerning Anglo-American relations continue to occupy people here. These are:-

1. Belligerent Rights.

2. The Anglo-American Arbitration Treaty.

3. Limitation of Naval Armaments.

The latter is not as pressing as the first two. The most clear and sensible statement on the subject is that by Malkin [13], one of the legal advisers at the Foreign Office, copy of which I am sending out amongst the many papers on this subject by this mail- and I enclose an additional copy in this letter. He comes to the conclusion, as you see, that the most urgent of the above three is the Anglo-American Arbitration Treaty.

It looks as though 'the necessity of consultation with the Dominions' would again be the useful peg on which H.M.G. can postpone consideration of the other two questions until the next Imperial Conference-which gives eighteen months' breathing space at least.

However much we talk to the Americans in the future with regard to belligerent rights, one thing seems clear-we surely cannot accept for the future any arrangement which would have broken down in the past. The last war would have been lost if we had been forced to put any lower interpretation on our belligerent rights at sea than we did. We cannot be expected to agree to a solution now which would have spelt disaster fifteen years ago.

Channel Tunnel propaganda has crystallised into an investigation by a Cabinet Sub-Committee, which will investigate and investigate until the election puts a stop to it. After reading a great many of the papers on the subject, it seems to me that the common-sense way to attack the question is to discover first if it is likely to be economically a success or not. If, as I suggest, it is doubtful if the tunnel can be made a profitable undertaking under the conditions that the Government would have to insist on-then throw it out on this. The real reason against it to my mind is that it would tend to tie this country up much too closely to France, which would embarrass H.M.G. in the eyes of all Europe generally.

In addition, it would create a definite military objective and another defence preoccupation.

I understand that D'Erlangers and Sir William Bull [14] are the moving spirits in the Channel Tunnel Company, and that they are not the sort of people who would take any standpoint other than that of their own pockets.

I am, Yours sincerely, R.G. CASEY