9th February, 1928
PERSONAL & CONFIDENTIAL
My dear Prime Minister,
I have received your letter of the 24th of December written from Frankston  where you were enjoying a little peaceful relaxation.
I was very interested to learn of your talk with Shortt  and of his forecast of Lloyd George's  return to power at least by the election succeeding the next.
The past month has, I fancy, dissipated even in the minds of the Liberals themselves, any such anticipations. The Faversham by- election was another rude shock to the hopes of a Liberal revival, and Bristol seemed to show no sign of a return of the West Country to its traditional Liberal allegiance. Today Lancaster polls and the result should be interesting. There are three further by- elections pending: Ilford-safe Conservative, Middlesbrough, which ought to be a safe Liberal seat as the Liberal majority was about 9,000 at the last election, and St. Ives in Cornwall-a seat captured from the Liberals by the Tories at the 1924 election by about 1,000 majority but one which is like all the West Country seats traditionally Liberal.
The general feeling is that, owing to the results of the recent by-elections, the Government has started the new Session in a very favorable position in the country. It seems almost impossible that the country can have any special love or admiration for this administration but, on the other hand, I am quite certain that the country has a profound mistrust for Mr. Lloyd George and that he and his fund  are such serious handicaps to the Liberals that it is extremely doubtful whether the Party will do more than win perhaps 20 or 30 seats at the next general election.
As their present representation is only 42, this would leave them still in a position of hopeless inferiority.
In a somewhat similar, though less intense way I feel that the country has no real trust in Ramsay MacDonald and that his leadership is, therefore, on the whole a handicap to Labour.
Labour is, of course, certain to win a considerable number of seats at the next election.
The general feeling today is that, barring accidents, the Government ought to get back in 1929 with a working majority. This is a very different attitude to the feeling at the end of the Summer Session when I think most good judges would have said that the next election would result in no Party having a clear majority and that, therefore, a LiberalLabour combination would be the most probable form of Government.
While on this subject, I should mention that last week I went to Glasgow to speak to the City Business Club and that, after the meeting, I met Tom Johnston M.P. and had a very long and interesting talk with him. He told me that, so far as Scotland was concerned, the one thing that he was anxious about in the Labour interest was that the Liberals should run candidates for every seat. He felt certain that if they did so, they would not win any seats but in Scotland they would detach sufficient votes from sitting Tory Members to give Labour a substantial majority of the 70-odd Scotch seats.
LIBERAL INDUSTRIAL REPORT
The long expected Liberal Industrial Report has now been published.  I spent the greater part of Sunday reading it. I hope to be able to forward a copy to you by this mail.
There can be no doubt that it is an enlightened and interesting document, containing a number of really useful suggestions- especially the proposal for the creation of an economic general staff somewhat analogous in its duties and responsibilities to the Committee of Imperial Defence. The section dealing with Imperial Development is poor and thin. When I challenged W. T. Layton  with this, he replied halflaughingly that the 'poor old Imperial Development did not get very much attention and its only friend was Ramsay Muir'. 
However, the Liberals have at least made two definite admissions.
Firstly that the preferences given by the Empire are valuable to British trade and, secondly, Empire Development is not only the duty but also the interest of the people of this country.
After reading the report, one feels that it is a really useful contribution to the general question of industrial reform but, from an electoral point of view, it will not assist the Liberals to any very substantial extent.
Layton tells me that the report is to be sectionalised and very widely distributed in the form of pamphlets.
W. T. LAYTON
On Monday last Oscar Thompson  arranged a small lunch with the object of bringing W. T. Layton and I together. We had a very interesting talk, partly on the Liberal Report to which I have already referred, and partly on the attitude which Layton is taking in regard to the Report of the World Economic Conference at which he was such an outstanding figure.
One thing emerged very clearly from the conversation, namely that Layton himself is in no way interested in the question of Empire Development-a fact, I suggest, of the very greatest significance, because Layton, as the Editor of the 'Economist', as the most influential member of the British Delegation to the League of Nations Economic activities, and as the centre of a group of Economists who profoundly affect Treasury and Banking policy, is the key figure in British economic thought. I find that his whole real interest was being concentrated on the question of how to induce countries to lower tariff barriers. He said that he was thinking about two plans- (a) to obtain agreement that a tariff of over 50% ad valorem was economically stupid but that every country should be fully entitled, without any question or thought, to impose tariffs up to 10% ad valorem;
and then having established these two points, to obtain promises from all protectionist countries to reduce extreme tariffs within 5 years to say a maximum Of 40% and within another 5 years to a maximum of 30%.
(b) His alternative scheme was to obtain agreement among countries that extreme tariffs should not be levied on more than 10% of imports and that moderate tariffs should not be levied on more than say 25% of imports, leaving countries quite free to levy a low tariff of say 10% on all imports.
I asked him whether, as a further alternative to these ideas, he had given serious consideration to a policy of stabilization of existing tariffs over a period of years. He replied that, although there were certain advantages in such an idea, he was strongly opposed to it on the ground that the present world level of tariffs was absurdly high.
Throughout the conversation, it was only too obvious that Europe and America were of far greater interest to Layton than any form of Imperial problem. He appeared to have rooted objections even to the maintenance of preference on existing duties and told me quite frankly that he disliked the publicity side of the work of the Empire Marketing Board, although he would be prepared warmly to support its research and marketing activities.
LEAGUE OF NATIONS AND ECONOMICS
On Tuesday I was notified by Trumble  that you had finally decided to accept the position on the Consultative Committee of the Economic Section of the League of Nations  and had instructed the High Commissioner  to invite me to act.
I shall, of course, be glad to do so and, on the whole, I think that it was a wise decision of the Commonwealth Government to decide to accept this seat. I have not yet had an opportunity of looking at the papers connected with the work of this Committee but so far as the British Empire representation is concerned, the position is as follows:-The British representatives consist of Sir Sydney Chapman , who I think is nominated by the Economic Section of the League itself, then there are W. T. Layton, Sir Arthur Balfour , Col. Vernon Willey  and Arthur Pugh.  This makes a strong and in so me ways formidable delegation. India is represented by Sir Atul Chatterjee, the High Commissioner, for whom Lindsay  frequently deputises, and Canada by Dr. Shortt  of Toronto.
I shall look forward to hearing from you about the general attitude of the Commonwealth Government to this work but I feel confident that I have a fairly clear idea as, both before and after the World Conference, I discussed the position, after reading the papers, with Bell.  I will take the earliest opportunity of going carefully through the whole of the papers which I presume the League Secretariat will now send to me, and will then send you a considered statement on any points that appear to be of significance to Australia. I hope to be able to do this so that you will have ample time to reply before the meeting of the Committee in May.
I understand that there will only be one meeting a year and that it will normally last from ten to fourteen days. The only awkward aspect is that this year the meeting will be held in May at a time when the Imperial Economic Committee and the Empire Marketing Board are likely to be busy. However, a fortnight's absence is not very serious. Your appointment of me to this Committee does, however, perhaps give a fresh point to my suggestion that an alternate might be appointed to the Imperial Economic Committee the person of Faraker. 
THE KING'S SPEECH
The King's speech at the Opening of Parliament was an amazingly brief document. Already in the Debate on the Address-in-Reply the Government have been taken to task both from the Labour Benches and from their own side owing to the lack of any reference to Empire Development in the speech.
EMPIRE MARKETING BOARD
The resignation of Bledisloe , who has decided to become the Chairman of a Satellite Co. of the Mond  Chemical Combine, has led to the appointment of Lord Stradbroke  as Parliamentary Secretary to the Ministry of Agriculture. This automatically brings Stradbroke in Bledisloe's place on the Empire Marketing Board.
In 1923, when I was going to meet you, I travelled from Toulon to Port Said with Stradbroke and saw a good deal of him on board. He did not impress me as having any marked ability. However, his tenure of office in Victoria may render him a useful ally on the Board and on the Research Grants Committee of the Board, should he take any active part in the Board's work.
I am enclosing a copy of a letter which appeared in yesterday's 'Times' from the Rt. Hon. W. Graham.  I would particularly like to draw your attention to it not because it is an interesting letter but because of its marked political significance so far as the existence of the Empire Marketing Board and the scope of its work is concerned. Graham is respected and admired by all sections of the Labour Party and the appearance of this letter under his signature in the 'Times' is, therefore, of really substantial significance. This makes me feel that, when I, with some difficulty, induced Amery  to agree to Labour representation on the Board and its Main Committees, I really did a useful piece of work.
I am also enclosing three quite interesting articles from the 'Times' and the 'Financial Times' on various aspects of the Empire Marketing Board's work.
Yours sincerely, F. L. MCDOUGALL