My dear P.M.,

In connection with my attempt to get some information on the
effect of international finance on the cause of peace, I got in
touch, through Hankey [1], with Grigg [2], Winston Churchill's [3]
very able Private Secretary, and discussed with both Hankey and
Grigg the best method of approach to the subject. They both agreed
that it wasn't much use talking to Winston as he had no knowledge
of the matter. They first put me on to Hawtrey [4], a high
Treasury official and brother of the actor. He is, I am told, one
of the world's leading theoretical economists, for whom a special
non-executive position was made in the Treasury. He goes his own
way to a great extent, writes a good many books and browses about
amongst subjects that appeal to him. They put their problems up to
him and he finds the answer, but they do not always take his
answer as the complete truth, as he is liable to be too
theoretical and divorced from considerations of practical finance.

I had an interesting hour with him, the result of which I record
in another letter.

Apart from the subject that I specifically wanted to discuss with
him, he made some interesting remarks about other matters.

He has (as they all have) a great regard for Montagu Norman. [5]
He said that Norman's frequent visits to New York and to Berlin
were in order to collaborate with Benjamin Strang, the Chairman of
the Federal Reserve Bank, and Schacht, the head of the German
Reichsbank. This has been going on with great advantage to all
concerned since the Genoa International Economic Conference in
1922, and was in conformity with the Resolutions there adopted for
the regulation of credit, in order to stop undue variations in the
purchasing power of gold, or, in other words, in order to keep
price levels steady.

The fountains of credit in Great Britain, the United States and
Germany are regulated, by the simple means of turning the tap
slightly more on or off, by these three men. The pre-war economic
story of all countries was a succession of comparative gluts and
slumps-a wavy curve. This uneven progress began to assert itself
again after the War and culminated in the 1920-21 slump, the
effect of which was felt worldwide. The co-operation of these
three banking colossi was designed to flatten out the curve into
something like a straight line, and they had been very successful
up to the present.

Their co-operation results in adverse criticism in uninformed
quarters. One hears in England that Montagu Norman goes too much
to New York, that he is becoming pro-American, and that his
actions give point to the suggestion that the financial centre of
gravity is moving to New York. In America you get similar comments
reversed-that Ben Strang is hoodwinked by Norman and that the
Federal Reserve Bank system is being manipulated to the benefit of
Great Britain.

Hawtrey gave me a copy of his own small book, 'The Gold Standard
in Theory and Practice', and suggested that I should get a copy of
a similar work by an American-'The Federal Reserve System and the
Money Market' by W. Randolph Burgess. Both deal with this
interesting subject in language that is intelligible to someone
whose knowledge is limited to a rather popular grasp of banking
and finance. I will send you copies of each by an early mail. [6]

I sent a copy of the letter that I wrote you by last mail, on the
effect of international finance, to Montagu Norman, and I have his
courteous reply which I enclose to you. You will gather from it,
as I have noticed in conversation with him from time to time, that
he obviously feels rather left out of the picture as regards
Australian financing.

I showed Norman's reply to Hawtrey, who smiled and said it was one
of the Governor's usual 'very pregnant letters'. I said that I
thought 'pregnant' was an adjective that wasn't capable of being
comparative.

Hawtrey said that, with regard to Dominion loans, the Board of
Trade Journal of February 2nd had an interesting article on the
national credit balance available for investment abroad. I have
since got copy of this from the Board of Trade and enclose it
herewith. The only point in it that will be of real interest to
you is the fact that the British balance of trade for 1925 showed
a credit of 54 millions, for 1926 a debit of 7 millions, and for
1927 a credit of 96 millions. And, as the writer of the article
points out, this surplus is the main source of investments abroad.

Hawtrey mentioned these figures as indicating that the position
had completely altered from that which obtained when His Majesty's
Government had been compelled to advise Australia to go to New
York for part of her loan requirements.

I said that the figures seemed to indicate a wonderful recovery in
the position, to which Hawtrey replied that, with a national
income of about 4,000 millions, it did not take much of a turn
for the better to produce a surplus of 100 millions in the Trade
Balance.

I am, Yours sincerely,
R. G. CASEY