It was particularly important that Hughes and Watt work together closely at this time: their actions needed to be mutually reinforcing because the domestic and international aspects of the wool market were interconnected. While Watt was attempting to gain payment from Great Britain for the wool that had been exported, the prime minister had to explain the state of play to wool growers in Australia and also attempt to get their agreement to pooled marketing arrangements in the future.
Hughes proposed to the Australian wool sector that exports to Great Britain be embargoed to avoid competing with the excess British wartime wool stock that was coming on the market, and he also explained Watt’s role in London. When Watt got to London and read about Hughes’ activities in the The Times, the response was inevitable and familiar:
Astonished that you should have expounded a scheme to outsiders, portion of which vitally affects my mission, without prior consultation with me. Times today publishes telegram from Sydney … outlining whole (?) scheme which, it says, has caused consternation in wool circles, and this publicity is a gravely embarrassing fact. You must see that it is impossible to run business on these lines.
Nevertheless, Watt went to work and got good results. The chancellor of the exchequer, Austen Chamberlain, agreed to defer discussion on the repayment of war debts until the issue of British payments for Australian wool had been resolved. Watt then succeeded in getting the British Government to agree to pay almost £9 million of its wool debt, and he was hopeful of getting a pledge of up to £20 million more before he returned to Australia.
However, just as Watt was sending a cable to Hughes to advise him of his progress, Hughes was dealing with the related discussions with wool growers in Australia. Yet again, the tension between them boiled over. Hughes had gained the agreement of peak wool groups to his plan to stop exports to the United Kingdom, but they also pressured him for progress on the wool negotiations in London. Instead of waiting for an update from his treasurer, Hughes sent a cable to the British secretary of state for dominion affairs, urging that the matter be resolved immediately and in Australia’s favour. His cable to the British Government crossed with the update from Watt.
Hughes’ intervention in the negotiations provoked an explosive reaction from Watt. Hughes may have just been trying to assist his treasurer, strengthening his hand by letting the British know that the Australian Government wanted an early and positive result, but this was not how Watt saw it. And the British Government heightened the tension between the two of them by telling Watt that they could not carry out dual-track negotiations with Watt in person and Hughes by cable. Watt sent a scathing cable to Hughes, which expressed regret that he had ever come to London, given the prime minister’s lack of support.
As well as sending Watt to London to negotiate on wool and debt, Hughes had also appointed him Australia’s representative to the Spa Conference, established to revise the Treaty of Versailles. This time it was Watt’s turn to be provocative. In his opening remarks at the conference, Watt criticised the separate representation of dominions in the peace process, the very thing Hughes had argued for so hard two years earlier—in so many ways, the disagreements between Hughes and Watt from that earlier separation were coming back to haunt their relationship. Hughes instructed Watt that he was not to agree to revisions to the Versailles Treaty without Hughes’ explicit approval. Watt’s reply was caustic. This was clearly the final straw:
You do not propose that I should act as a plenipotentiary, but merely as channel of communication between British Ministers and yourself … it would be incongruous for me to wear the garb of a plenipotentiary and mind of a telegraph messenger … If you want me to do good work here, you must leave matters confided to my care entirely in my own hands, and trust my judgment as to whether I should consult you or decide them here.
You must also request Secretary of State to send me copies of all cable correspondence both ways about other matters. If you are not prepared to do so, kindly say so at once and I will take course I think necessary and proper.
The threat in the last sentence of the cable was readily apparent to Hughes, who convened a special meeting of Cabinet so he could brief them about it. Hughes then sent a long reply that was simultaneously conciliatory and combative. He expressed sympathy for Watt’s workload and stresses, and conceded that no further cables about wool would be sent to anyone but him. He reassured Watt that he wanted to be supportive and expressed regret if Watt felt he had behaved in any other way. But he also turned Watt’s previous words against him, saying it would be impossible to give him a free hand in the Spa negotiations because the precedent that Watt had set in insisting that Hughes abide by Cabinet decisions in negotiating the Versailles Treaty would have to be honoured.
Hughes must have known that this revisiting of the issues that had led to his last confrontation with Watt ran a high risk of insulting the treasurer further. If he had in fact been fishing for Watt’s resignation, he was not disappointed. Once Watt knew that the Cabinet had expressed support for Hughes, he cabled his resignation. Hughes attempted to get the resignation withdrawn by offering to have a Cabinet discussion on Watt’s return, but Watt replied that Cabinet discussions were no longer of any interest to him, given he was no longer a member of it. When Watt later ascertained that Hughes had not submitted his resignation to the governor-general, Watt sent
