163

9th May, 1928

PERSONAL & CONFIDENTIAL

My dear Prime Minister,

The sudden unexpected death of Mr. Pratten [1] must have been a great surprise to you and to your colleagues in the Cabinet.

The vacancy thus created at the Ministry for Trade and Customs will doubtless give you a good deal of worry and anxiety. The mere contemplation of the factors that you will have to consider has confirmed, in my mind, the intense undesirability of a House of Representatives with only 75 members. With so few men, the temptation towards intrigue must be intense. A cabal of very few men is sufficient to endanger the safety even of a powerful Government. I am afraid, however, that it will be a long while before we can have a campaign to increase the number of politicians. Even you might well hesitate before launching such a proposal to the Australian public. Probably any such reform would have to wait until it has become possible to reduce the number of Houses of Parliament and the number of parliamentarians in the State Legislatures and at the same time to diminish the powers and functions of the State. [2]

CONSULTATIVE COMMITTEE OF THE ECONOMIC SECTION OF THE LEAGUE OF NATIONS (C.C.E. (L. OF N.))

The first meeting of this body takes place on Monday, the 14th May, and I shall be leaving for Geneva on Saturday, the 12th.

There have been two meetings of those members of the British Empire Delegation who are available in London. In all there will be eight members of the Committee connected with the British Empire. Sir Sydney Chapman [3], nominated by the Economic Committee of the League of Nations itself; Sir Arthur Balfour [4], Col. the Hon. Vernon Willey [5], W. T. Layton [6] and Arthur Pugh [7] from Great Britain; Dr. Shortt [8], from Canada; myself from Australia and Sir Atul Chatterjee [9] from India. We have all met with the exception of Dr. Shortt, who has not been in London.

After very carefully considering the whole position, I have come to the conclusion that the right line of country for me to take at Geneva is to be an interested onlooker, so far as commerce and industry is concerned, but an active participant in discussions on agriculture. In my view it may become necessary at some stage, either this year or on some later occasion, to warn the Committee of the dangers to the League of Nations of its interference in the economic affairs of nations, and particularly the economic affairs of the younger nations of the World, who are developing their industrial status and may resent dictation from the older industrialised countries. Should the necessity for such a warning ever arise, I am quite sure it could be given much more effectively by a member of the Committee who had participated in the Committee's work and had not merely sat with folded arms acting as an observer.

Having arrived at this conclusion, with which I hope you will agree, I then considered what were the legitimate functions of the League of Nations in the economic field and I came to the conclusion that the one really useful function that the League can serve is to provide us all with information and with really good comparable statistics in regard to production, to trade, to wage rates, etc.; to make available information about the progress of rationalisation and of industrial agreements among countries and, in general, quietly to use its influence to induce Government Statisticians and other people concerned in the preparation of the facts upon which any survey of world industry, trade or agriculture must be based, to do it in a way which will enable comparable surveys to be undertaken.

My feeling is that if the Economic Section of the League of Nations really undertook work of this character, it would be distinctly helpful to everybody and would perhaps especially assist those countries which already maintain a high standard of living.

As far as I understand your own point of view about the political functions of the League of Nations, it is in many ways largely the same as what I conceive to be the League's proper sphere in economics. You, I think, have said that the League's duty is to assist in the formation of world public opinion in world economics. If anything of the sort is to be done, we must all be provided with far more information about one another than we have at present and it must be on a comparable basis. [10] Having arrived at the above conclusion, I have prepared a brief speech which, should occasion seem appropriate, I may deliver to the Committee. I am enclosing a copy herewith.

'THE PROSPERITY OF AUSTRALIA' By F. C. BENHAM [11]

Mr. Benham, the Lecturer in Economics in Sydney, has written a book entitled 'The Prosperity of Australia', which was published here about five or six weeks ago. It is not very interestingly written but contains a good number of rather striking points. You are sure to have it brought to your notice but, knowing how intensely busy you are, it is likely that you will not have time to read it. I have, therefore, had a very brief summary of his main points put together which I am forwarding herewith.

BRITISH MEAT SUPPLIES

In my recent letters I have been constantly mentioning the position of British meat supplies and Foot and Mouth disease in the Argentine.

A further step towards the education of the country and of the Ministry of Agriculture towards the need of resolute action has been taken by Lord Ernle [12] in the House of Lords. I enclose the 'Times' report of Ernle's speech, Lord Kylsant's [13] objection, Lord Novar's [14] support and Stradbroke's [15] reply on behalf of the Government.

In my last letter I told you that I had strongly advised the High Commissioner [16] to refrain from any overt action and I am glad to say that Sir Granville quite agrees with my point of view.

Yesterday the Official Secretary to the New Zealand High Commissioner's office [17] consulted me as to what, if any, action the Dominions could take in this matter. I told him very emphatically that while we should do all we could to keep the matter alive, we should not commit the error of making any public pronouncement of any sort. He told me that he quite agreed and that he would put that point of view before Sir James Parr. 18

BUDGET INCIDENT

In my letter of the 3rd May [19] I described, at considerable length, the very bad 'faux pas' which Arthur Michael Samuel [20] had made at the instigation of Amery. [21] There has been a great deal of comment and discussion on the matter but I gather that well informed opinion in the House has come to the conclusion that Baldwin [22] hatred of any changes will save Samuel from the obvious immediate consequence of his indiscretion. I gather that Amery's reputation has been distinctly blown upon.

GENEVA DOCUMENTATION

There has been no great flood of documents for the Consultative Committee or at least nothing comparable with the immense mass which was produced by the Preparatory Committee before the World Economic Conference. I have, however, been studying not only the new material but also some of the more important documents that were prepared for last year's conference.

Among the new documents the most interesting is a Review of Economic Conditions in 1927 by Pirelli [23], the new President of the International Chamber of Commerce. He estimates that 1927 showed a further increase in the volume of world trade over 1926 and that the increase was something greater than 6% or 7%. In his speech he made the following statement which I think you may find extremely useful:-

The tendency towards increased trade between continents, shown ever since the war, continued to make itself felt. This tendency is in no way affected by the progressive industrialization of new countries-despite their decreasing exports of certain raw materials and their decreasing imports of certain manufactured products-for it is clear that the industrialization of a country increases its purchasing power and creates new demands for manufactured goods.

W. T. Layton drew my attention to the importance of the document prepared by the Preparatory Committee last year on Tariff Level Indices. I have only one copy which I must take to Geneva but I will certainly obtain another copy for you and forward it. You probably have the document in the League of Nations Section of the Prime Minister's Department, so I will give you the reference number which is 'C.E.I.37'. [24]

Layton told me that, at the commencement of the work of the Preparatory Committee, when it was decided to try to get comparable figures to show the tariff levels of various countries, a number of the members of the Committee immediately said that the obvious way to do it was to divide the total value of the revenue collected from customs duties by the total value of the goods imported. This method gives, for the year 1925, the results which show Spain to have the highest tariff in the world, Australia the second highest, Canada the third, Argentine the fourth and U.S.A.

the fifth but, as Layton explained, the Preparatory Committee immediately saw that this method was hopelessly faulty, because in so far as a tariff on a given commodity was sufficiently effective to prevent the entry of goods, this method of estimating the level did not show the incidence of that particular tariff. The Committee therefore, adopted a series of methods which were theoretically sounder and give quite different results. Knowing how tremendously occupied your time is, I am preparing a summary of this memorandum which I hope to be able to forward to you in about a fortnight's time.

The net result of the various methods is to show that, for the year 1925, if you take the tariff level on all goods, the height of tariffs of countries occurred in the following order:-

Spain U.S.A.

Argentine Hungary Poland Yugo Slavia Australia Canada Czecho-Slovakia Italy If, however, the level of the tariff on manufactured commodities only is taken, a very different picture is obtained. In this case Spain again comes first with an average tariff of 40% ad valorem;

U.S.A. second with a tariff of between 35% and 40%; Poland third with a tariff between 30% and 35%, followed by four countries with tariffs varying from 25% to 30% in the general instance of manufactured goods, these countries being Argentine, Australia, Czecho-Slovakia and Hungary.

THE EMPIRE AND THE NEW ERA

I enclose a copy of a report of a speech made by Amery at a dinner given by the Royal Colonial Institute. On the whole it was very good and well worth your while to read. [25]

Yours sincerely, F. L. MCDOUGALL

1 H. E. Pratten, Minister for Trade and Customs, died on 7 May.

2 In a letter dated 27 August (file AA:M111, 1928) Bruce agreed that a limit of seventy-five members was 'somewhat disastrous', adding that the limitation had forced him to take Pratten's portfolio himself until the elections on 17 November. As McDougall predicted, no increase was made in the number of Federal members until 1949, when the House of Representatives was increased to 121 and the Senate to sixty.

3 Economic Adviser to the British Government.

4 Industrialist; Chairman of the Committee on Industry and Trade.

5 Wool merchant and company director.

6 Editor of the Economist.

7 Secretary of the Iron and Steel Trades Federation; Vice- President of the General Council of the Trades Union Congress.

8 Adam Shortt, Canadian political scientist.

9 High Commissioner for India in the United Kingdom; member of the Imperial Economic Committee.

10 In the letter cited in note 2, Bruce commented: 'I feel very considerable doubt, and no small amount of anxiety with regard to the League of Nations' activities in the economic sphere'. Such activities were apparently 'unavoidable', but should be limited 'to the preparation and dissemination of information'. He praised McDougall's attempts to keep the work of the Committee 'down the right lines'.

11 F. C. Benham, The Prosperity of Australia-An Economic Analysis, P. S. King and Son Ltd Westminster, 1928, argued against Australia's 'High Protection' policy, proposing instead a gradual reduction of tariffs and abandonment of the universal basic wage in favour of schemes to maintain minimum real income.

12 Conservative M.P. 1914-19; President of the Board of Agriculture and Fisheries 1916-19. Ernle moved that meat from affected countries be kept in cold storage for twenty-one days after arrival in Britain. See the Times, 9 May.

13 Conservative M.P. 1916-22; Chairman and Managing Director of the Royal Mail Steam Packet Co., the White Star Line and the Union Castle Line.

14 Formerly Sir Ronald Munro-Ferguson, Governor-General of Australia 1914-20; Secretary for Scotland 1922-24.

15 Earl of Stradbroke, Parliamentary Secretary, Ministry of Agriculture and Fisheries.

16 Sir Granville Ryrie.

17 Alexander Crabb.

18 High Commissioner for New Zealand.

19 Letter 162.

20 Financial Secretary to the Treasury.

21 Leopold Amery, Secretary for the Colonies and for Dominion Affairs.

22 Stanley Baldwin, Prime Minister.

23 Alberto Pirelli, Italian industrialist.

24 A standard system of identifying League documents by 'sales numbers' was introduced in 1926. The document is thus more usefully cited as: Tariff Level Indices, League of Nations Publication, 1927.II.34.

25 The speech was reported in the Times, 19 April. Amery claimed to be convinced by his tour of the Empire that fiscal preference was essential to 'develop the wider home market of the Empire' and to solve the industrial problems of Britain and the economic problems of the Dominions.