(Due to arrive Canberra 12.10.28)

My dear P.M.,

In conversation with Batterbee [1] in this last week, he asked if
you had given any thought as to whom you wanted as the next
Governor-General in Australia. Although there is, I think, about
two years still to run before the expiration of the present
regime, it appears that you will have to put in a fairly early
application if you want to get either the Duke of York or the Earl
of Athlone. The latter, I understand, has thoroughly proved
himself as a most admirable and effective Governor-General in
South Africa [2]-I have heard nothing but praise for him in all
quarters. Since the death of his son in a motor accident, I
understand that life in England in the immediate future has not
the attraction for him that it would otherwise have had. I know no
more than this-I don't know in the least whether he would want to
come to Australia.

I don't know how your mind is working on the subject or whether
you want a Royal Prince out there at all. As regards the Duke of
York, as I have said before, I think it would be a good deal of an
experiment, the success of which could not be foretold. I have had
indications that South Africa may try and get the Duke of York.

I hear from Hankey [3] that the stories about Chamberlain's [4]
health have been much exaggerated. The cheap press had him killed
off and done for. I hear that he has every intention of standing
again next election but that efforts will be made to relieve him
of as much work at the Foreign Office as possible between his
return from his trip and the election.

Hankey seems sure that the election will be in May or June 1929.

The House meets in November and will sit (with a month's break at
Christmas) until it rises for the election.

Hankey thinks that if by chance Chamberlain's health did not allow
him to go back to the Foreign Office after the election, and if
Birkenhead [5] remains in politics, then he (Birkenhead) would
probably go to the Foreign Office.

One of the papers here has the story that Birkenhead is leaving
politics to take the Chairmanship of the Cables-Wireless Merger
Company at a high salary. Birkenhead, so Hankey tells me, has
since written privately to Baldwin [6] denying the truth of this
story and also, I believe, denying the many rumours that he is
leaving politics for the City.

I have heard a little about the Cables-Wireless business to the
effect that neither Company will agree to the other's nominee as
Chairman. [7] Sir Robert Horne [8] and Lord Reading's [9] names
have been mentioned. Hankey himself, I believe, is vaguely in the
running and I think is just a little intrigued with the idea.

A development of interest has taken place lately in this country
in the shape of trials of the use of pulverised coal as a fuel for
ships. I am told from the Admiralty that the initial installation
in a merchant vessel was a success and that the firm (Blue Funnel,
I think) intend to convert several more of their ships from oil
burning to coal dust firing. The coal is carried in the ordinary
way in bunkers and is pulverised and blown into the firebox as it
is wanted.

Such pulverised coal firing for steam raising and other industrial
purposes on land has been in successful use for many years but its
use at sea is a novelty. The application might be a lifebelt for
the coal industry if it makes good.

J. M. Keynes [10] contrives to deplore the return of this country
to the gold standard. In an article published lately he says that
he thinks it very possible that it has cost us 500 millions. The
'Economist' tackles him on this statement and, to my untutored
mind, floors him. The issue between the gold standard protagonists
and those who advocate a moderate inflation by a devaluation of
sterling comes down to an issue between those who hold that the
'money' business of the country is the most important
consideration and those who put the prosperity of industry first.

The 'Economist' invades Keynes' camp by doubting at some length
whether inflation would be a permanent assistance to industry. It
would apparently wreck London as the monetary centre of the world.

However, we are on the gold standard and the question is therefore
quite academic.

The question of whether or not it is right and proper for the Bank
of England and the Federal Reserve System to try and control
credit still exercises some of the financial writers in the press
and certain economists. As you will remember, the major countries
of the world agreed at the Genoa Conference in 1922 that
... once the foreign exchanges have been stabilised on a gold
basis, monetary policy should aim at regulating credit, not only
with a view to maintaining the currencies at par with one another,
but also with a view to preventing undue fluctuations in the
purchasing power of gold.

This was the resolution on which the Bank of England and the
Federal Reserve Board got their mandates from their respective
Governments. After reading a good many of the arguments, it seems
to the ordinary individual that this control has been a good
thing. It has not been completely successful in ironing out all
fluctuations and upsets, but one feels that things would have see-
sawed much more violently in its absence.

However, in spite of the efforts at control that the Federal
Reserve Board have instituted in America, something is happening
there that they do not seem to understand and that they do not
seem to be able to cope with. In spite of their assurance, I don't
believe the economists really know much about the large scale
activity of money and its equivalents in the mass. Either that or
the control-machine in America is defective. They can only control
credit in the mass and cannot apparently differentiate between
legitimate industrial credit, essential crop-moving credit (the
white-haired boys of the family), and their black-leg brother,
Stock Exchange operation credit-and the latter is running wild
down the street and wearing out his brother's clothes!

The degree of control by the Central Banks is very difficult in
London and New York. In London there are only the Bank of England
and a limited number of Joint Stock Banks with many branches. The
Bank of England, although in daily relations with the Treasury,
cannot be said to be susceptible to political control. In America
there are twelve Federal Reserve Banks and their policy and that
of their coordinating centre, the Federal Reserve Board, has been
the subject of criticism in informed quarters by reason of their
being amenable to pressure to ensure easy financial conditions
rather than sound banking. The money market in London is well
organised; the discount market in New York is young and relatively
small. There are 28,000 independent banking institutions in the
United States, of which only 10,000 belong to the Federal Reserve
System.

The present is a fruitful period in which to carry out even the
meagre study that I am able to devote to these matters, as there
is sufficient movement going on to facilitate recognition of the
various joints that are articulating. The Bank Rate here is 4
1/2%, and 5% in New York; both the Bank of England and the Federal
Reserve System have been buying securities to defend themselves;

sterling exchange is just about at the gold point at which bullion
will begin to move to America. New York has been tardy in putting
up her Bank Rate so as not to disturb unduly ordinary industrial
financing, with the result that credit has flowed into the Stock
Exchange and has inflated market prices into boom proportions.

Barclays Bank Review for September implies that it would have been
wiser for them to take more definite action at an 'earlier date to
prevent the speculative position developing to the proportions it
has. It will be interesting to see if this last renewed outburst
of speculation in New York forces them to raise their Bank Rate
again, which would be awkward for them just as the crops have to
be financed-and if such an upward move would induce a rise in the
Bank Rate in London.

The best of the pundits seem to agree that the period of dear
money will continue in the next three months, and that cheaper
money cannot be predicted before the New Year.

I have had two jobs in hand for some time which I hope to get off
to you shortly. One is a file of curves showing all the important
Australian statistics in graphic form, and the other a summary of
the 'Economic Impact of America'.

The important resolution of the Trades Union Congress in this
country in this last week will have interested you. I enclose
'Times' cutting recording the continuance of the policy of co-
operation with the Mond Industrial Enquiry. [11]

I will continue to write you both 'Personal and Confidential' and
'Confidential' letters, although I expect election preoccupations
will stop you reading them for the next month or two. [12]

I am, Yours sincerely,
R.G. CASEY