Reference my No. 17, 16th May. 
Economic Policy This subject was not included in the original agenda for meetings which was cabled to Australia before my departure. 
2. The meeting  considered the position of the International Monetary Fund and question of Commercial Policy in light of an oral statement by the Chancellor of Exchequer on former and of a short paper prepared for the Conference on the latter.  These and related matters had been considered in detail on technical level by Officials representing U.K., the Dominions and India, in London, in February and March. The agreed summary of their discussions is contained in document A.S.D.(44)16, 21st March , a copy of which has been taken to Australia by Melville.
3. The memo circulated to the Meeting on Commercial Policy briefly outlined proposals on this subject which had emerged from discussions on official level. It was stated that none of the Governments of the British Commonwealth was committed by these conversations, that no programme for further negotiation had yet been fixed, but that a resumption of informal discussions between United Kingdom and United States Officials would be a natural sequel to those already held.
4. In regard to the scheme for an International Monetary Fund, the Chancellor of Exchequer stated that the latest position as between the U.K. and the U.S. Governments was that Mr. Morgenthau, with the support of Mr. Cordell Hull and the approval of President Roosevelt, was urging the U.K. Government to take part in a further conference on the subject in the near future. The U.K.
Government had not so far informed the U.S. Government whether they were prepared to do so, nor had anything been said finally as to the status of any such conference.
5. The Chancellor of the Exchequer said that the Monetary Fund plan now under consideration represented a greater measure of agreement on the technical level between the U.S. and the Dominion and the U.K. experts than the earlier plan known as the Keynes plan. There were certain reservations, however, which the U.K.
Government had thought it necessary to make:-
First: That the International Monetary Fund should not operate in respect of the transitional period. It was felt that the general plan could not be regarded as complete, unless supplemented by a scheme for an International Bank which would make funds available for reconstruction.
Secondly: That if the scheme was accepted the full obligation[s]  under it which would fall on the United Kingdom could only be undertaken gradually.
6. Mr. Mackenzie King said that he had already stated his views on the proposals for an international Monetary Fund in the Canadian House of Commons at the time when he had tabled the draft principles for the fund as recommended by experts. The views he then expressed were the views he held to-day.
7. I said that the Australian Government was in the same position as was, I gathered, the Government of the United Kingdom. They had been [re]presented in these technical discussions, and they hoped that success would attend their outcome. They entirely favoured co-operation for the purpose of expanding trade and commerce, and overcoming the instability of exchanges. The Australian Government would have to face a political dilemma in the domestic arena similar to that which Mr. Churchill indicated might have to be faced in the United Kingdom. In the first place unless agreement was reached between the U.S. and U.K. Governments, any scheme would be doomed to defeat and would not work. More than an outline of principles was in issue-faith without works was no good.
Commerical and monetary policy could not in practice be disentangled from one another, except by economic experts. The ordinary public did not understand, and would not give a political mandate to any Government putting forward a plan with intricate terminologies beyond the grasp of the man in the street, who was apt to think that the interests of his country were being sacrificed to some general theoretical plan. That attitude was apt to be confirmed by [the criticisms] that would be levelled against any plan by those experts who were opposed to it and who would suggest that its acceptance involved sacrifice of particular countries or of very representative sections of those countries. I felt grave doubts whether U.S. could achieve a drastic reduction in their high tariffs and wished to make it clear that any scheme such as that now under discussion would have to be sponsored in the first place by the Great Powers. They could not expect a smaller Nation, such as the Commonwealth of Australia, to go out as a pioneer in a matter of this kind. The Australian Government would certainly not [negate] the principle of agreements of this nature. Its attitude would be to support them. But it was not in a position either to frame or to take the lead in contracting out of such a scheme. The larger powers must show that they regarded the scheme as sound and valuable and that they intended to proceed with it.
8. I also said that success or failure of the general objective would depend essentially not on the theoretical soundness of a particular scheme, however carefully worked out by experts, but on political decisions by Governments concerned. Experts would be fully capable of devising arrangements to give effect to a political policy laid down by individual Governments for high political reasons. And Governments in reaching their decisions in regard to a particular set of proposals for achieving monetary stabilisation must have in mind matters such as exchange and tariff ceilings and must be satisfied that their plan would not admit of being defeated by subsidies or by excessive depreciation of exchange rates. That was decision that Governments would have to make in first instance before technical experts got to work to frame details of a plan.
9. The scheme as drafted, in my judgment, omitted one major requirement. I had no doubt that it would be of value as oiling the machinery and it might be an excellent plan for the world after the transitional period. Where it failed was that the transitional period was the real and immediate problem.
Rehabilitation was more important than long term problem and a more urgent matter by far than the devising of machinery of the post-transitional period. It was essential to get something working without delay which would avoid the mistakes of the last twenty years.
10. Scheme now before the meeting could look for the warmest and most sympathetic consideration from the Australian Government.
But I could not exclude the relation of this matter to the issue of imperial preference. Australia had a trade agreement with Canada  and a commercial understanding with New Zealand.  With U.K. she was linked by a scheme of imperial preference which she was certainly not going to throw away for any doubtful utopia of some world agreement. Some countries were inclined to press for declarations of high policy on the basis of the open door in every country which they might wish to exploit. Australian Government had had to build up its secondary industries and indeed had it not done so could not have provided the steel, iron and many other goods which had been so essential to the conduct of the war and, because of the difficulty of import during the war Australia would have found herself defenceless at a critical moment. A country geographically placed as Australia was not in the same position as countries which were close to or contained great seats of industry; and with a view to building up its industrial capacity it might have to adopt whatever policy in regard to tariffs, subsidies or the like would be helpful in consolidation of that capacity. Moreover, Australia was anxious to see a large increase in her population. But that increase would mean a market for goods and additional products which would have to be sold. I was opposed to a Chinese wall around each country, but we must be realistic.
The Australian Government would be quite ready to commit itself, in the maximum degree that present circumstances appear to justify, to such a course of action for the good of the world in respect of trade and monetary stability as they might at the present time be satisfied was in their interests. But I must make it clear that it was impossible for me to pledge future Commonwealth Parliaments not to adopt a course of action that might be at variance with whatever course of action they subscribed to now, if famine, flood, or other unforeseen circumstances made it necessary for them later to change their attitude. I thought rehabilitation more important than getting the normal prewar machine a little better oiled than it was. U.S. were ready to give all possible help over relief but they were adopting a somewhat difficult policy over rehabilitation.
11. I continued that full employment and rehabilitation was the pedestal on which we must work out a good monetary policy. It was impossible to expect countries to abandon separatist treatment of a situation in which they find so many of their own people without ultimate employment. In such conditions a Government must be prepared to take steps to deal with the situation. Experience showed that the type of action which they were disposed to take, in the absence of any better scheme, was to put a penalty on imports and to make [agreements] with other countries in respect of marketing of such goods as they had to offer. I recognised that it had been our hope that the present monetary scheme, by providing a measure of stabilisation, would ensure a better exchange of goods and services all over the world, which would contribute to the ideal in view. But I remained strongly of the opinion that the technical experts could not work out a satisfactory arrangement unless there had been a preliminary direction on the high principles involved based on political decisions by the Governments concerned. The Australian Government would be very ready to assist in framing such political decisions.