My dear Prime Minister,
I have now completed two more sets of notes, which I have numbered 3 and 4, and copies of which I enclose.  I have very little idea as to what your reaction will be to No. 3, but it seemed to me necessary to make some practical suggestion to meet the point of view that is being expressed with increasing frequency, that some effort analogous to the work of the Empire Marketing Board should be undertaken to advertise British goods in the Dominions.
I shall be particularly interested to receive any comments that you have to make on the idea. No. 4 is a quite interesting analysis of the growing severity of American competition in the world's markets. I have little doubt that you will find this useful and interesting, and I certainly feel that the facts of the situation ought to be fully presented to the Imperial Conference when it meets. The League of Nations will be issuing a further series of figures, bringing their comparative tables up to the year 1927, but this will not be available until about March. I shall then revise this statement in the light of the later information.
As regards the use that I am making of these memoranda, the position is as follows: So far as Australia is concerned I am sending copies firstly to you, and also to Gepp , Rivett  and certain of the notes to A. F. Bell.  In London I am proposing to send the notes in a confidential and personal way to Amery , Ormsby-Gore ,Walter Elliot , Sir Horace Hamilton, the Permanent Head of the Board of Trade, Sir David Chadwick' of the Imperial Economic Committee, Tallents  of the Empire Marketing Board, Whiskard  of the Dominions Office, and to Casey.  I have arranged with Sir Horace Hamilton that he should lunch with me next week to discuss the question of preparatory work for the Imperial Conference, and I am thinking of making this suggestion, to him, that quite informally and with no commitments of any sort in any direction it might be worth while to arrange for a monthly meeting, perhaps in the form of a dinner, between the people mentioned above, together with perhaps two outstanding men, one a banker and one an industrialist; and that such a group, meeting monthly for the next six or eight months, might do a great deal of useful thinking about Empire economic problems and provide the Board of Trade with a whole series of notes which could perhaps form the basis for the documentation of the economic side of the Conference. All I am aiming at is to see that a certain number of people start to think about the problems in order that we may, in October 1929 or June 1930, have a much more definite preparation than was the case in 1923 or 1926. I feel fairly sure of your general agreement with this line of action, and I would of course appreciate direct comment on the idea.
It has occurred to me that perhaps you might find it expedient to create some small and private committee or group in Australia to discuss economic problems that may arise at the Imperial Conference. If you should think well of such an idea the papers that I am forwarding to you might provide some bases for discussion on some of the questions. In the event of your thinking such an idea a useful one and deciding to ask some men of ability to constitute such a group, it would perhaps not be a bad idea also to arrange for one member of the group to undertake to correspond with me on the subject and to let me get some of the Australian group's reactions to various points, and also to inform me of other matters which they discuss.
This morning's papers announced that over the fortnight from the 17th December to the 31st, unemployment in this country has increased by 249,000. It is quite normal for there to be a very big jump in unemployment figures over Christmas, but the enormous increase that has occurred this year, on top of the long period of increasingly bad unemployment returns, is a very formidable fact.
To-day there are 11500,000 unemployed-a total of 180,000 more than on 1st January 1928. My feeling is that if the Government is unable to achieve any sensible reduction in the unemployment figures between now and the General Election, the forecasts which I have sent to you may be vitiated and Baldwin's  Government may be actually defeated. It is, of course, quite possible that between now and the end of May there may be a reduction of three or four hundred thousand in the number of unemployed-but should the number remain at say 1,300,000 or over, the anti-Governmental arguments which this would afford to the Oppositions would be formidable indeed. It is a tragedy that Baldwin's Government has not made use of its opportunities. So far as Empire Development is concerned, apart from the action which they took in establishing the Empire Marketing Board at the commencement of their term of office, there has been little that they have done really to assist. A thing that amazes most intelligent people is the way in which Baldwin keeps men such as Cunliffe-Lister  in office when there is such general and almost complete agreement as to their ineffectiveness.
POSTERS BY WEST AUSTRALIAN ARTIST
By this mail I have sent to you one complete set of an Empire Marketing Board poster series. These posters are the first that the Board has had designed by an overseas artist who was actually working in a Dominion. The Poster Committee of the Empire Marketing Board has normally insisted on seeing rough sketches of designs before finally commissioning artists. In this case Huxley , who accompanied Amery on his Dominion tour, was impressed by Mr. Webb's  work and, after obtaining the authority of the Poster Sub-Committee, commissioned Mr. Webb to produce these posters. The Poster Committee of the Empire Marketing Board is very favourably impressed with Mr. Webb's work, and you will be interested to know that this work by a West Australian artist will next week be exhibited on 2,000 special frames throughout Great Britain.
GERMAN-SOUTH AFRICAN TREATY 
The result of the by-election of the Transvaal which was announced yesterday, recording as it does a victory for the South African Party over Labour, appears likely to have considerable influence on the effect of the South African-German Trade Treaty. It is pretty certain to make the rest of the Labour members in the House very nervous about supporting the ratification of the Treaty, and should it lead to a refusal by the Union Parliament to ratify, things will be much more satisfactory. From the various enquiries that I have made among people interested in South Africa, I gather that before this election result was known there was a general feeling that Smuts  had just about a fifty-fifty chance of winning the next Election. Presumably this by-election will tend to slightly increase the odds in his favour. From your point of view the return of Smuts to power before the Imperial Conference and the presence of South African representatives keen on economic co-operation within the Empire would be very satisfactory. If Smuts is returned to power, I think it is becoming obvious that it will be largely on the question of economic co-operation. Smuts himself, members of his Party and the bulk of the South African Press are giving a very great amount of attention to the work of the Empire Marketing Board and to the importance of South Africa retaining the preferences she receives and maintaining her position in the United Kingdom markets. In this connection I am forwarding a set of the Empire Marketing Board News Notes, which are issued to members of the Board once a fortnight. I have marked certain of the extracts which refer particularly to South Africa, and would particularly draw your attention to the editorial comment from the Cape Times in which the question of opposite numbers in the Dominions to the Empire Marketing Board is stressed. You may perhaps find it worth while just to glance through some of the comments on the work of the Board which are contained in this set. It is quite interesting to find that as each set comes out the only hostile criticism of the Board comes from British Liberals.
AUSTRALIAN EXPORTS TO THE CONTINENT OF EUROPE
Casey has sent me some views on the subject of Australian trade representation on the continent of Europe, and the matter is certainly one which ought to be carefully studied. I entirely agree with his view that if we are to have any definite commercial representation, it should be in close liaison with the British Commercial Attaches, but on the other hand the possibility of any large increase in Australian exports to continental countries is somewhat dubious, except in regard to wool, wheat and meat.
As far as wool and wheat are concerned, it is doubtful whether there is very much to gain from the presence of an Australian Commercial Representative. Meat is rather a different question.
There is also of course some possibility of developing trade in apples, but when one comes to the other commodities which normally engage so much of the time of the Trade Representative, dried and canned fruits, wine, butter, etc., I very much doubt whether we are likely to develop much trade in the near future in Europe. In each case in which a preference exists in this country, the mere existence of the preference makes it normally a more profitable market in the United Kingdom than in Europe. Then we have to take into consideration the whole of the Empire Marketing Board and Australian publicity in the United Kingdom. I certainly feel that for the next five years, so far as the Australian exports of butter and cheese, honey and eggs, dried and canned fruits, and wine are concerned, we should concentrate upon the consolidation of our position in the United Kingdom market rather than attempt to make slight inroads into continental markets. I will, however, go much more carefully into this matter and prepare a memorandum which you may find of some use.
This morning's paper contained the report of the Business Mission.
 The Times has given what appears to be a very good summary, and as far as one can gather from this comment, the report appears to be sound, practical and, I should imagine, useful from your point of view. The very fact that the Business Mission has actually issued a report seems to me to indicate that the Mission has been a decided success. I imagine that, had the hostile criticism which was rather marked during one of the stages of the preparation for the Mission continued, you would not have asked the members to present a written report.
It would be obviously stupid for me to attempt any detailed comment on the report after merely reading over for the first time the Times summary, but one thing struck me. I am a little doubtful whether the members of the Mission have quite properly assessed the value of Australian preference to British goods. Their remark that if a decrease in the tariff led to an increase in Australia's prosperity, it would be of such importance to Great Britain as to offset any decrease in British preference which might be a concomitant result, is, I fancy, not entirely sound. I do not think that the members of the Mission have really studied the growing severity of foreign competition, and my notes No. 4, which are accompanying this letter, may prove an interesting comment on this section of their report.
Let me just illustrate my point with a reference to one trade, namely cotton piece-goods. Twenty-five years ago Great Britain held the lion's share of the market in China, and probably supplied 80% of the Argentine's requirements, and between 80 and 90% of Australia's. To-day Great Britain supplies less than 20% of China's imports of cotton piece-goods, between 35 and 40% of the imports into the Argentine, but still retains about 82 or 83% of Australia's imports. It is impossible not to regard this fact as indicating the very great value to Lancashire of the maintenance of a tariff against the foreign piece-goods and, in this case, as Great Britain supplies so large a percentage of our total imports, the economic loss to Australia in the maintenance of this particular preference must be very small indeed.
Yours sincerely, F. L. MCDOUGALL