My dear Prime Minister,

I concluded my letter of the 1st July by saying that I had been
very much impressed with the marked revival of interest that is
occurring in Empire economic questions. In the past week this
revival has been greatly intensified, with the result that all the
newspapers are devoting a great deal of attention to the subject.

Beaverbrook [1] continues his wild campaign for Empire free trade
and in all sorts of directions the subject is being canvassed.

Neville Chamberlain [2] made an important general declaration on
the immense importance of an Empire Policy and I was so interested
to find him coming out so definitely in that direction that I
wrote him a rather long letter, of which I enclose a copy. [3]
Chamberlain has replied to the effect that he finds himself in
agreement with practically everything I wrote and has suggested
that we should lunch together next week to further discuss the
points.

Of course the outstanding feature of the week has been the debate
in Parliament on the Conservative amendment dealing with
safeguarding and preference. I am enclosing the Hansard of the
Debate with the more important portions marked. [4]

Amery's [5] speech was quite good but, as usual, he insisted on
tying up local protection with Empire developments policy which I
regard as being extremely unhelpful and indeed unsound.

Philip Snowden's [6] reply is well worth your careful study. In
effect what he said on Empire questions was, firstly, that he
pledged himself not to abolish preferences as such but expressed
the hope that, before he left Office, he would have been able to
sweep away all taxes on food, including the taxes on sugar and
upon dried fruits, with the natural consequence of sweeping the
preferences away also. At the present moment most people regard
this as a rather far off and pious hope.

To abolish the sugar duty would involve a very considerable loss
of revenue. I will let you have the actual figure later. I do not
think it at all likely that the Government would feel in a
position to force a measure for additional direct taxation to
compensate for the loss of revenue on sugar.

The dried fruit duties do not constitute so valuable a return to
the revenue but they must bring in some half-a-million pounds. I
am also quite sure that, during the eight months that would have
to elapse before the Budget, one would be able to create a very
considerable feeling in the Labour Party against the abolition of
the dried fruit duties. I am, therefore, not at the moment
inclined to be seriously alarmed by Snowden's statement but, of
course, entirely agree with the view that you have apparently
already expressed that this was a very unwise move, just at a time
when the Governments of the Empire are trying to get closer
together on Imperial economic development. [7]

Snowden went on to accept the Empire Marketing Board without
qualifications, but very properly stated that the Government would
require to be satisfied that its administration was being
economically conducted and also to consider whether the fund was
being spent in the most useful way. He then went on to refer to
your speeches [8] and to the statements made by Ministers in
Canada and he said that the Government had noted these opinions
with very great pleasure. He concluded by saying that the
Government was in communication with the Overseas Government[s]
with a view to the holding of an Imperial Economic Conference.

If you cast your mind back and compare this attitude with the
attitude adopted by the Labour Government in 1924, you will
realise what a tremendous change has occurred-a change to which,
incidentally, the President of the Board of Trade, Graham'[9],
drew attention in his speech in the House on Monday last, the
Hansard of which I enclose herewith.

TOM JOHNSTON [10]

On Monday last I had Johnston to lunch to meet Gibson [11], of the
Melbourne Trades Hall. Johnston was in extremely good form but I
was most amused to find that three weeks' experience of office has
reduced him to a state of fury with the Treasury. He already finds
that Philip Snowden, with the Treasury backing, opposes a resolute
and determined front to all the schemes about which he is keenest
for improving employment in Scotland. I imagine that there will be
a series of hectic passages between Thomas's Unemployment
Organisation, which consists of a Committee of Thomas [12],
Lansbury [13], as First Commissioner of Works, Sir Oswald Mosley,
as Lord Chancellor of the Duchy, Tom Johnston, as representing
Scotland, and Philip Snowden, backed by the Treasury. On the whole
I expect Snowden to win most of the exchanges but the result to
the political fortunes of the Labour Party is likely to be
serious.

I was very interested in a suggestion that Johnston made, namely
that the Government should insist on all Institutions who are in
receipt of Government grants having an Empire Buying Clause in all
their purchases of foodstuffs and materials. If he could succeed
in doing this, he will have achieved something of real value.

IMPERIAL ECONOMIC CONFERENCE

I have naturally been extremely interested in Snowden's
announcement as to the consultations on the desirability of an
Imperial Economic Conference. I find, however, that there is the
utmost confusion of thought on the subject.

Yesterday I had a short discussion with Sir Sydney Chapman [14]
and he said that he thought that an Imperial Economic Conference
on the 1923 model would be definitely advantageous and that he
hoped to see that arranged. He was, however, not at all clear what
the various Governments or the various Trading Organisations had
in mind when they discussed the Empire Business Men's Conference.

He could see very great advantages from a series of Conferences
between the Iron and Steel people of Great Britain and those of
Australia, or of Canada, or of South Africa, but he was less
convinced that a general Business Men's Conference would be
useful. He was also exercising his mind whether, if such a
Business Men's Conference was held, it should be held before or
after the proposed Imperial Economic Conference. He was a little
afraid of the Business Men getting out of hand and spoiling the
position for the Prime Ministers and he was most emphatically of
opinion that an Empire Business Men's Conference ought not to be
held unless the Governments would take responsibility for the
selection of delegates on the same lines as was practised at the
World Economic Conference at Geneva in 1927. He also felt that
very great care would be needed in drawing up an Agenda for a
Business Men's Conference and, as we both agreed that to do this
properly would require a great deal of thought and much
consultation, we both arrived at the conclusion that if the
suggested Imperial Economic Conference was held in May or June as
you suggest, it did not appear probable that an Empire Business
Men's Conference could precede it.

I think I had probably better send you a cable making it clear
that people are rather confused at this end and asking for an
indication of the way in which your mind is shaping on the
subject. [15]

IMPERIAL ECONOMIC COOPERATION

As Philip Snowden can undoubtedly be regarded as about the least
sympathetic member of the present Government in Empire matters,
and as in spite of this he has now made a definite declaration in
favour of Imperial economic cooperation, I think the time has
arrived when we can safely claim that this subject has become the
national policy of Great Britain.

As I have already said, I am seeing Neville Chamberlain next week
and since I wrote that, Amery has rung up and said that he wanted
to talk to me also. I shall, of course, also be in as close touch
as possible with Labour people.

The line of country that I propose to take is as follows: I am
going to suggest that everyone should agree to definitely state
that Imperial economic cooperation is the national policy and that
the question as to how best to carry out that policy, particularly
in regard to the solution of marketing problems, should be
regarded as a matter in which we all ought to be prepared to be
frankly empirical. I am going to suggest that there is no simple
royal road to the solution of all marketing problems by one and
the same method. It is, for instance, obvious that the political
obstacles to a general food tax in this country are too great to
be overcome and even if they were overcome, a tax and preference
on wheat would not be a very great advantage to Canada, seeing
that Canada already exports far more wheat than the United Kingdom
can buy. I shall follow this up by stating that Great Britain
ought, at the Imperial Economic Conference, to discover from the
Dominions just which are their really pressing marketing problems
and to be prepared to consider what may prove to be the most
effective way of dealing with each individual marketing problem on
its own merits. I should hope that on some a tariff method might
be politically possible, and that on others bulk purchases through
the organisation of some amalgamation of existing trading
concerns, backed by a Government guarantee against contingent
trading loss, might prove feasible.

What I am really anxious to do is to get both sides away from
their horrible tendency towards thinking of Empire economic
cooperation in terms of the 1904-6 fiscal controversy. [16] So
long as people insist on thinking in these terms, just so long
shall we make remarkably little progress in Great Britain, but if
we can get an empirical spirit backed by a real determination to
find appropriate solutions, the whole subject will be raised on to
a higher plane.

UNITED STATES AND EMPIRE TRADE

I was asked by the 'Financial News' if I would write something for
them about this subject and I thought this was a good opportunity.

I therefore produced a short article, of which I enclose a copy.

I am also enclosing a question and answer from 'Hansard' on the
Empire Marketing Board. [17] The Government answer has, of course,
been amply supplemented by the Chancellor of the Exchequer's
speech last Tuesday.

I regret to say that the 'Hansard' for the first part of the
Safeguarding and Preference speech is out of print and I shall not
be able to obtain it until next mail.

Yours sincerely,
F. L. MCDOUGALL