My dear Prime Minister,

DELEGATION TO AUSTRALIA

Since my last letter, I have seen Sir Maurice Hankey [1] and E. J.

Harding [2] on this subject. Hankey told me that he was extremely
keen on the whole idea and would do everything in his power to
back it and to help towards a strong and effective delegation.

Harding lunched with me on Tuesday and, on Amery's [3]
instructions, showed me your last cable on the suggested terms of
reference. [4] Harding's attitude was rather curious. He was quite
prepared to help the idea and to further the delegation on the
ground that Australia desired it but he was not impressed with the
value of the step from a British point
of view.

Further talk showed that he was very much seized with what may be
described as the Treasury point of view. He stated that the main
purpose of Cabinet policy today is to secure such conditions as
shall enable very large scale conversion transactions to be
carried through in two or three years' time. These conversions, if
successful, would result in lowering taxation by say 40,000 000
and this would help British industry more than any other possible
step. He, therefore, subscribed to the Treasury idea of
discouraging oversea loans and curtailing expenditure. This made
him sceptical as to how far Great Britain could cooperate with
Australia on speeding up development. He was in general agreement
with the terms of reference tentatively put forward in your cable
(Feb. 18th or 19th) but considered that it would be easier to
arrange for the delegates to continue to act as an advisory body
on Australian development after their return if they were not
asked to do so before they started.

MR. AMERY

I had a long talk with Mr. Ormsby-Gore [5] on Wednesday evening.

He told me that Mr. Amery was not feeling very happy at the
present time and that this was probably due to his increasing
difficulty in obtaining Cabinet approval of many of his plans. I
gathered that Amery was not pleased at the inclusion of Labour on
the Empire Marketing Board, a step for which I was largely
responsible. It is rather a tragic business that a man of Amery's
ability and knowledge should be so ineffective and, being
ineffective, should be tending to suffer from our friend 'the
inferiority complex'.

MAJOR WALTER ELLIOT [6]

Elliot told me that he was keen on an idea of trying to get a
Cabinet change to enable a Minister without Departmental
responsibilities to devote his whole time to the work of Empire
Development. He suggested as the line of least resistance, the
retirement of Lord Salisbury [7], who could become a Governor-
General when a vacancy occurred, Lord Robert Cecil [8] to take his
place, and Ormsby-Gore to become Chancellor of the Duchy of
Lancaster and Chairman of the Imperial Economic Committee; the
idea being to give Ormsby-Gore scope to devote his whole time to
Empire questions. I think this is a Utopian scheme although one
which, if practicable, should have many advantages. I should very
much appreciate your views on this one point. Supposing the
Government made a man such as Ormsby-Gore Chancellor of the Duchy
and directed him to concentrate his whole energies upon Empire
Development, would there be, in your view, any objection to his
becoming Chairman of the Imperial Economic Committee?

'TIMES TRADE SUPPLEMENT' ARTICLE

I enclose a copy of an article on British trade and the Empire
from the 'Times Trade Supplement'. [9] You will observe that I
have used the graphs I showed you but, having brought them right
up to date, rendered them even more effective. I sent copies to
about 80 Members of Parliament, who I know personally, and to
about eight Ministers. I have already received replies from about
40 of them. This sort of work seems to me one of the most
effective methods of quiet propaganda.

THE LABOUR PARTY

I had Tom Johnston [10] to dinner last night and we had a long
talk about the Labour Party and the Empire. He wants to use every
means of educating Labour during the next two years. If a Labour
Government comes into office after the next General Election, he
says that means an additional 150 Labour Members. These men, who
may be anywhere, must, in his view, be made to see what the Empire
means before they reach the House and not after. He therefore
wants the Empire Marketing Board to advertise largely in Labour
papers and to use the facts about trade and about Labour
conditions which will appeal to Labour people. I have drafted a
suggested advertisement for a Labour paper (Cooperative News
perhaps) which I enclose.

When speaking on the China debate, Johnston made one really very
sound point of very wide application. He asked whether it was
sound policy from a British point of view to invest money for
factories in such places as China where horribly sweated
conditions prevail. I append the quotation:

What I do not regard as disputable is that the continuance of
cheap sweated labour and the export of British capital, British
brains, British management and intelligence for the exploitation
of that cheap sweated labour in the Far East or anywhere else is a
British interest. I believe it is an anti-British interest. It is
opposed by our Australian cousins. They will not have it. They
will not assist in bolstering up this sort of thing. I do not
believe it is in the interests of Lancashire or of our foreign
trade; I do not believe it is in the interest of sane British
capital as a whole. For the life of me, I cannot understand why
any industrialist in this country continues to support or to allow
his name to be used in support of a policy which, if developed,
must end by beating us in the markets and trailing us down to the
coolie level of civilisation.

You will be glad to hear that the Labour Members of the
Parliamentary Delegation to Australia came back very much
impressed with all they saw. I fancy the impression made on them
was better than on the Tories who were rather scared by the Tariff
and Labour combination to raise the cost of production.

Johnston and other members of the party have assured me that your
speech at the Labour Commonwealth Meeting made the happiest
impression on your audience.

THE 'TIMES' AND AUSTRALIA

The pages of the 'Times' have, for at least two years, shown a
curious inconsistency in regard to Australia and indeed to the
Empire.

The news service has been good, the general tenor of the leading
articles has been helpful, the 'Times Trade Supplement' has been
most friendly and helpful and yet the City columns of the 'Daily'
have been cold, frosty, critical and discouraging. This attitude
was clearly evidenced in the recent Annual Supplement on 'Finance
and Commerce in 1926' for which the City Editor is responsible.

Last night I saw J. J. Astor [11] and strongly expressed my sense
of the inconsistency of the City columns to the general helpful
attitude of the paper. I made it dear that I was in no way
commenting upon the occasional publication of an article severely
criticising Australian finance but was referring to the general
tone of the City columns.

Astor was very surprised and suggested that the City columns did
not deal with policy. I replied that they were often full of
defence of such policies as free trade, deflation, gold standard,
the need to restore European stability or to uphold the policies
of the shipowner but never of the value of concerted Empire
Development. I think Astor quite appreciated the way I put the
case and he promised to watch the points raised.

I feel that the complete friendship of the 'Times' is a most

essential asset to Australia. We have it everywhere save in the
financially important City columns.

Astor told me that the 'Times' Correspondents in Canada had
reported that your speeches had been very well received and that
Mackenzie King's [12] rejoinder had not damaged the prestige you
created there.

IMPERIAL ECONOMIC COMMITTEE

The notifications have at last been sent out summoning the
Imperial Economic Committee to meet on the 8th and 9th of March
and to continue its meetings up to Easter. Six full months have
elapsed since the
last full meeting of the Committee.

I have not been informed as to what replies have been received
from Canada about the immediate terms of reference. As soon as
Chadwick [13] takes up his duties, I will obtain full information.

TRADE AGREEMENT WITH IRELAND

You will remember that while you were in London the subject of
some trade agreement between the Irish Free State and Australia
was discussed by you and President Cosgrave [14] and later by an
official of their Customs Department and myself.

I have had a further discussion with Mr. Dulanty [15], who is
acting in the capacity of Trade Commissioner for the Irish Free
State in London and he tells me that, with a General Election
expected in June, the Irish Government is not anxious to pursue
the matter at the moment and that he hopes that you will leave
matters in abeyance until about that date.

I told him that I could in no way indicate whether or not you
would agree to this but that I would inform you of what he said.

In view of the extremely small direct trade between the Irish Free
State and Australia, it may, however, be as well to let the
subject stand over until June. On paper Ireland enjoys the full
British preference at the present time but as their total direct
exports to Australia are less than 100,000, it is of little or no
practical importance. After June I would recommend that the
Commonwealth should notify Ireland that she cannot continue to
enjoy full British preference rates but that provided a basis for
trade agreement can be found, the Commonwealth would have no
objection in giving British preference rates to such articles as
may be of substantial interest to the Irish Free State.

PARLIAMENTARY QUESTIONS AND ANSWERS

I enclose copies of such Parliamentary questions and answers as
appeared likely to be of interest to you. I am aware that you
receive Hansard regularly but think it extremely probable that
under the pressure of work you do not find it possible to look at
the records and I think that by forwarding points to you in this
way, you are more likely to be able to keep in touch with what
occurs here than by any other method.

'LONDON WEEKLY'

I enclose copy of the 'London Weekly' dated 19.2.27.

I also enclose letter to the 'Times' from Major Walter Elliot
which is of interest. [16]

GENERAL

I am not worrying you with many of the details I used to report.

For instance the question of lodging applications under the
Merchandise Marks Act is taking up some time. On such a matter I
am writing to Mr. Paterson. [17]

Yours sincerely,
F. L. MCDOUGALL