208

25th July, 1929

PERSONAL AND CONFIDENTIAL

(Due to arrive Canberra 24.8.29)

My dear P.M.,

You will have seen from the press with interest and, I think, disappointment the fact that Lloyd [1] has been sacked. As I think I told you this has come about by the machinations of the Foreign Office working in conjunction with the known dislike of the Labour Party for Lloyd. It is most unfortunate and all decent people deplore it.

As soon as it appeared in the press Rudyard Kipling [2] got in touch with me to know if you could do anything about it-I told him that in my opinion it was impossible for you to make any representations on the subject, but that if it subsequently transpired that the British policy, vis-a-vis Egypt, was going to be reorientated, then possibly you might have something to say.

Sir Granville Ryrie [3] got back from Geneva last night and I did my best to explain to him early this morning the situation as regards Singapore, Naval limitation and Egypt-before this morning's C.I.D. Meeting. I will not repeat the story to you here as it has been all covered in telegrams between us.

International Affairs are seldom dramatic, except in retrospect- but this last month has seen rather a thriller in a mild way. The French were due to pay the United States 80 million on 1st August for war stores, railways etc., taken over from the Americans at the end of the war. They had to find this huge sum in cash if the French debt to U.S. was not funded by that date-or at least if the funding agreement had not been ratified by the French Parliament.

There was violent opposition, in that lunatic assembly, to binding themselves to funding (and so crystallising) their debt to U.S.

until they had a quid pro quo in the shape of a hard and fast guarantee from Germany for the Reparations debts-in order to leave no doubt that they would get the annuities from Germany in order to be in funds to meet the service of the debt to the United States.

The Reparations Expert Committe report was more or less acceptable to France but it was no use until it had been accepted internationally, even possibly with minor variations. Then came the race-whether the International Reparations Conference could be held and decision arrived at by all the nations concerned, so as to enable a document to be signed engaging Germany to a certain definite reparations annuity programme before 1st August-which would have enabled Poincare [4] to get the French Parliament to agree to ratification of the United States debt funding agreement with an easy conscience. Failing this (which it became clear in early July was quite impossible to do in the time) it was a question of Poincare trying to force ratification of the United States debt through his Parliament in the teeth of opposition of the most determined type-and his Government going out if he failed. Otherwise he had the comparatively easy but pusillanimous alternative of drifting with the tide of biassed, ignorant and irresponsible opinion in France, refusing to ratify the U.S. debt funding agreement, and having to find the 80 million in cash on 1st August. Luckily Poincare has recognised his obligation to his country and has forced the funding agreement through his Parliament-and got away with it by only eight votes. So that the 80 million is now to be funded with the rest of the French debt.

The danger to this country inherent in the position was that if the 80 million had had to be found, a good proportion of it would have been drawn from London, in the form of gold and credit, which would (so I learn from the Treasury and Foreign Office) have had a distinctly bad effect here, and at a time when the City was not in good shape to withstand it. Curiously enough the general public and the press did not realise the danger, so the cloud has passed without people realising that there had been a cloud.

G.L. Wood, Lecturer in Economics at Melbourne University [5], is in London doing research into the economic history of the Commonwealth, and is producing a book on the subject. He has been letting me see the chapters in draft form as he has written them.

He is intelligent, although rather narrowly an economist. The book is most depressing, and can only have a depressing effect when it is published-although it is so tough and heavy to read that it will have only a limited public.

In short-he lays all our troubles at the door of our overseas borrowing. He thinks we are in for a crash-and that it will be due to nothing less than the borrowing sins of the past generation-and not to some curable cause, such as high cost of production-except in so far as the two are connected.

The book is a profound study of our finances, but as the economic practitioner is like the doctor, more interested in disease than in health, the book makes gloomy reading. As he has asked me for my comments I have begged him to put a warning to this effect prominently in his preface-which he is doing.

He is convinced that we were on the verge of a crisis in 1914 when the War intervened.

He goes so far as to think that all our borrowing has been a mistake-which common sense tells one is an over-statement.

However, such a book is really only of academic interest-it underlines the mistakes of the past, probably too severely-but gives but little guide to the future.

Your speech to the Commercial Travellers' Association in mid-June seems to me, if I may say so, to put our present economic position briefly and convincingly.

I dined with John Sanderson [6] this week and got his impressions.

He confirms that the country is waking up to the unpleasant facts and seems in rather more of a mood to face them-thanks to your patient and careful handling.

We certainly have not been lacking in the last year or so in people ready to warn us of the wrath to come, and I expect it is possible that their cries will have the effect of producing a flight from investment in Australian industry, although from the reports that I get this does not yet appear to have begun.

I enclose a good cartoon of Low's. [7]

Hankey's '[8] daughter was married this week to young Berm, the son and heir of the publishing house of Ernest Benn. [9] Just before going to the Church from this office, Hankey appeared, rather perturbed-(as you know he isn't a very dressy fellow)-and said he'd never worn spats before, and did the buttons go on the inside or outside!

I am, Your sincerely, R.G. CASEY

1 Lord Lloyd, High Commissioner for Egypt and the Sudan. See letters 207 and 209.

2 Kipling was Stanley Baldwin's cousin.

3 Australian High Commisioner.

4 Raymond Poincare, French Prime Minister.

5 Later (1944) Professor of Commerce in the University of Melbourne, author of Borrowing and Business in Australia: the Correlation between Imports of Capital and Changes in National Prosperity, Oxford University Press, London, 1930.

6 Director of the Australian Agricultural Co. Ltd, the Bank of Australasia, and the Australian Mercantile Land and Finance Co.

Ltd.

7 David Low, formerly of the Sydney Bulletin.

8 Sir Maurice Hankey, Secretary to the Cabinet.

9 Ursula Hankey married John Benn, eldest son and successor in business and title to Sir Ernest Benn, Bart, on 23 July 1929.