My dear Prime Minister,
On Thursday last I dined with Walter Elliot  in the House of Commons and had a very long talk afterwards about certain aspects of the political situation.
Elliot said that the outstanding feature at the present moment in the Tory Party was the sudden recrudescence of a demand for protection chiefly taking the form of a very vigorous movement to try to force the Government to reconsider its attitude in the matter of the safeguarding of iron and Steel.  The basis of this was the rise in unemployment figures, which are causing the most intense concern to Conservative Members of industrial constituencies. He said that Amery  was giving this movement his whole support and that he thought that it was absorbing all Amery's real attention at the present time. So much was this the case that Amery was reputed to have contemplated resignation from the Cabinet in order to lead a protectionist campaign but Elliot went on to say that, although Amery had actually made some such suggestion, no one had taken it very seriously or had really imagined that Amery would be likely to carry such a step into practice.
I agree that there is little probability of Amery resigning for this purpose but should he do so, I should not be in the least distressed, because his failure actually to impress the House and the country is one of the most serious difficulties which the Empire Movement has to face at the present time.
Elliot went on to say that, in spite of this demand from not less than 200 Members of the Party for the safeguarding of iron and steel, it was generally felt that such a measure would approximate so closely to a General Tariff as probably to involve Conservatives in the electoral disaster which all their previous efforts to introduce protection had encountered.
Elliot said that he had been considering the position and had in mind the possibility of attaching some very stringent measures to safeguarding so as to meet the main objections of free traders and of the public.
We had a very long talk and I have put down on paper the main points that Elliot made during this conversation. Elliot intends to try the effect of these ideas on the Conservative free traders and, if he finds that they react at all favorably, he will try to get Baldwin  to consider the scheme. The idea of attaching what might almost be described as Poor Law conditions to industries applying for protection is so interesting and novel that I feel quite sure that you would like to have the notes that I made. You will, of course, understand that they are of a most private character. I should be very glad if, at your leisure, you would let me have any comment that occurs to you.
There is one point that I should explain. Elliot was of opinion that the Imperial development loan  ought to be a radical part of the scheme and he felt that, on the whole, this loan should be more intended for Colonial than for Dominion development but when we argued about that, he agreed that there was no real reason why the Dominions should not also participate.
The idea of a priority list based on proportion of imports taken from Great Britain was, as you will probably imagine, one of my contributions to the discussion. 
Yours sincerely, F. L. MCDOUGALL