‘I am delighted to see your handwriting again. I had begun to fear the well of truth and inspiration was running dry. Do not, however, shut your mind against a programme. The Chancellor of the Exchequer and I have been agreed on this policy ever since 1909, and I am quite certain that it can be developed so as to secure the greatest advantages without any sacrifice of elasticity. Such a programme as I have in mind will cover the whole period of the existing German Navy Law. It will deal only with the numbers of capital ships. It will be framed on certain clearly defined assumptions. It will be capable both of expansion and of diminution, of retardation and acceleration. It will not necessarily be embodied in an Act of Parliament. It will probably have to be revised after four years. It will recite certain definite facts of the existing shipbuilding situation, particularly in relation to Germany and Austria. It will be measured in relation to these facts so as to secure ample margins of superiority both in new construction and in establishment over those Powers. Unforeseen contingencies will be met by additions, but it would always be open within certain limits for England and Germany to agree upon proportionate reductions. The programme of minor construction will be entirely flexible and expressed only in terms of money. ‘At present we suffer every disadvantage: a panic and a row every year, spasmodic building, hopeless finance, total lack of foresight in regard to the labour market, and no means of bargaining with our competitors. At present we have nothing to put against their threats. Nothing, in my opinion, would more surely dishearten Germany, than the certain proof that as the result of all her present and prospective efforts she will only be more hopelessly behindhand in 1920. She would know it was not bluff because if a Liberal Government could propose it, a Tory Government would _a fortiori_ carry it farther. The vast financial reserves of which John Bull can dispose would come into view, and would weigh in the balance with a direct and real weight. It is the uncertainty as to whether we shall throw up the sponge or not, on which the German Navy has lived and fattened. The standard will be 60 per cent. preponderance in new construction against the present law, and two keels to one for all increases above it. Sixty per cent. preponderance in men, 20 to 12 in destroyers, at least 2 to 1 in armoured cruisers, protected cruisers and their equivalents, submarines and small fry generally. This is no new idea of mine. I have been working it out ever since I came to the Admiralty, and am absolutely convinced that it is the only way of securing economy, efficiency and moral effect. Whether the plan when made should be published is a political question. How Navy Estimates should be financed is for the Treasury and the House of Commons to decide. What