My dear Prime Minister,

By this mail I received from you two letters-one dated the 9th of
January and the other the 10th of January. [1]

I very much appreciated your kindness in sending me the letter of
the 9th of January which included extracts from the letter
received from Mr. Gepp [2] and from Dr. Rivett [3] about liaison
between their Organisations and myself. By the last mail I
received almost an overwhelming amount of correspondence from the
Development & Migration Commission. So far as the Commonwealth
Council is concerned, from the very commencement they have
maintained a regular flow of information and liaison in that
direction is very satisfactory.

It has been a matter of very great satisfaction to me to find that
Julius [4], Rivett and Richardson [5] have all felt able to
express, in the strongest way, their sense of the value of this
liaison.

Your letter of the 10th of January was chiefly comments on recent
communications from me.

THE CITY AND AUSTRALIA

I have no doubt that you are only too vividly aware of the present
attitude of the City of London towards Australia. Nevertheless I
think I ought to express to you how very widespread and,
therefore, serious, is the distrust of Australian economic policy
in very large sections of influential opinion in this country. It
is by no means confined to financial circles but affects the
attitude of many men who are essentially friendly to us.

There is no doubt that the Parliamentary Party [6] that visited
Australia last year returned with a feeling that Australia's
economic policy had created a very difficult position and that it
was likely that things would have to get worse in Australia before
they became better. The publication of the Tariff Board's report
[7] has added to this feeling and wherever I go I come across
people whose attitude of mind in things Australian is profoundly
affected by the idea of the vicious circle, the increasing tariff,
the increasing wages, rising costs of living and, therefore, of
production.

While I find little difficulty in conclusively demonstrating that
the Australian tariff has, up to the present moment, been markedly
beneficial to British trade on the whole, and in pointing out the
extraordinary importance of Australia as a market to Great
Britain, and while I am able to convince many people of the
immense possibilities of Australian primary production, yet it is
impossible to inspire very much confidence in the immediate future
among those who have made any considerable study of recent
happenings.

You, of course, must be anxiously considering this position. I
feel, however, that what is essential, if confidence in the
immediate future of Australia is to be restored, is that a
definite Governmental declaration should be made that steps are
going to be taken to break the circle which is causing rising
costs. The political difficulties of the Commonwealth Government
taking such action are always present in my mind. I am, therefore,
hopeful that you will find the suggestions in my long letter of
the 19th of January [8] on Empire Rationalisation as being a
contribution which might assist in this direction.

I was dining in the House of Commons the other night with Sir
Sydney Henn. [9] He told me that he was the Chairman of an
Insurance Company which holds comparatively large quantities of
Australian securities. He said that his Co-Directors were
continually urging the desirability of realising Australian
securities because of their doubts as to Australia's immediate
economic future. I cannot resist the feeling that this sort of
thing is very widespread and must seriously affect Australia's
position.

AMERY'S [10] RETURN

Amery's return has not created any very wide interest in the
press. This fact is due, I think, to lack of interest in Amery's
personality which is his most serious handicap in British
politics. He presided yesterday at a meeting of the Empire
Marketing Board and appeared to be in very good form and immensely
pleased with his trip.

Huxley [11] is most enthusiastic and has returned bubbling over
with enthusiasm and zeal, which I am sure we shall be able to turn
to extremely good account in the work of the Empire Marketing
Board.

Huxley is of the opinion that Amery was extremely successful
particularly in South Africa and Canada but felt that in Australia
and in New Zealand there was less for Amery to do and that he,
therefore, did not shine to the same extent in the two
predominantly British Dominions.

The 'Evening Standard' published a wonderful cartoon of Amery's
return and I am enclosing a copy. [12] Casey [13] told me
yesterday that he was sending you a copy but I am sure that you
can pass on this additional copy to someone else.

LABOUR AND THE EMPIRE

I am enclosing a rather interesting cutting from an obscure Labour
paper called the 'Finsbury Star' giving a report of a meeting of
the Finsbury Borough Council. I think there is very considerable
significance in this small episode.

POLITICAL

The result of the Lancaster By-Election has given the Liberals
some rather definite encouragement, although I am inclined to
think that the autocratic intervention of Lord Ashton [14] in
favour of the Conservative Candidate probably put the backs of a
great number of people in the Constituency up and thus swelled the
Liberal vote.

From the results of the other pending By-elections, one ought to
be able to make a fair estimate of the present position of the
Government in the country but, as things stand, I am inclined to
think that the estimate I gave you in my last letter will not
prove very inaccurate.

Sir Archibald Sinclair [15], the Liberal member who has been
appointed to the Empire Marketing Board, attended his first
meeting yesterday. I had no opportunity of speaking to him and I
do not know him. I shall, however, try to make an early
opportunity of cultivating his acquaintance.

Yours sincerely,
F. L. MCDOUGALL