My dear Prime Minister,

I have received your letter of the 24th of December written from
Frankston [1] where you were enjoying a little peaceful
relaxation.

POLITICAL

I was very interested to learn of your talk with Shortt [2] and of
his forecast of Lloyd George's [3] 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 [4] 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. [5] 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 [6]
with this, he replied halflaughingly that the 'poor old Imperial
Development did not get very much attention and its only friend
was Ramsay Muir'. [7]

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 [8] 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 [9] that you had finally
decided to accept the position on the Consultative Committee of
the Economic Section of the League of Nations [10] and had
instructed the High Commissioner [11] 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 [12], who I think is nominated by the Economic
Section of the League itself, then there are W. T. Layton, Sir
Arthur Balfour [13], Col. Vernon Willey [14] and Arthur Pugh. [15]
This makes a strong and in so me ways formidable delegation. India
is represented by Sir Atul Chatterjee, the High Commissioner, for
whom Lindsay [16] frequently deputises, and Canada by Dr. Shortt
[17] 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. [18] 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. [19]

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 [20], who has decided to become the
Chairman of a Satellite Co. of the Mond [21] Chemical Combine, has
led to the appointment of Lord Stradbroke [22] 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. [23] 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 [24] 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