§ MR. ANDERSON
rose to call the attention of the House to the subject of the Currency; and to move—That an humble Address be presented to Her Majesty for the appointment of a Royal Commission to inquire into the operation of the Bank Acts of 1844 and 1845.He remarked at the outset that after what had happened already that day, all he could hope for was an audience fit though few, and, therefore, he would confine his remarks as much as possible—
Notice taken, that 40 Members were not present; House counted, and 40 Members being found present—
§ MR. ANDERSON
, proceeding, said, that when he was met by the somewhat ungracious interruption of the hon. Member for Scarborough, what he was saying was, that he was not going to make a long speech. He intended, moreover, as far as possible, to avoid figures and statistics, because it was too much the custom to overload speeches on such subjects with figures and statistics, in order, as he supposed, that the audience, if not convinced, might at least be confused. It was just two years since he brought forward this question, and he might briefly allude to what then took place, for it was possible a similar thing might occur now. He was met by that serried band of bankers which, without any formal alliance, performed all the functions of a trade union, and at once put down anything like an attack upon its monopoly. This was nothing new, and nothing they need not have expected. They remembered how the land interest had fought for the Corn Laws, the shipowners for Navigation Laws, mine-owners against mine legislation, and they knew how officers were even now fighting for their privileges; but he had been of opinion that the House was accustomed to look with suspicion on men who were known to be battling for their own interests or privileges, and he hoped it would be so now. On that occasion, however, he was also opposed by the Gentleman who was then the Chancellor of the Exchequer, and was now the Member for London University (Mr. Lowe), and he regretted that the right hon. Gentleman was not in his place, as he intended to make some strictures upon him, and had sent him word to that effect. The right hon. Gentleman treated his (Mr. Anderson's) arguments and subject with a lofty scorn quite worthy of him, and said, in effect, that there was no reason at all for an inquiry; that the principles which regulated the currency were well known; that he understood them thoroughly; and that if the matter were left to him and the Government, they would bring in a Bill to set everything right, and make that admirable Bank Act more admirable still. They waited patiently, and at last they did get a Bill, and he never saw a Bill meet with such a shout of derision as that Bill was met with. The very newspapers which had patted 1930 the Chancellor of the Exchequer on the back when he advocated the Bank Act, scoffed at the Bill. No one would have it. It proved that he either knew nothing about it, or that he had brought in the Bill to shelve a troublesome subject. The Bullionists would not have it, because it was founded on the theories which he (Mr. Anderson) had advocated. Those theories were, that when gold went out of the country, the trade of the country required the equivalent of that gold; that there should be an extra issue of paper money to correspond to it; that that extra issue should be based on Government security; and that the profits upon it should belong not to the Bank, but to the Exchequer. These formed the basis of the Bill. But although it was founded on correct principles, these were adopted in such a manner as to be utterly impracticable and unworkable, and it almost seemed as if this were done intentionally. The Bill, in fact, seemed framed as a mockery to that suffering trade it was intended to relieve. The first provision was, that there should be no relief till the discount rate had risen to 12 per cent. which was 2 per cent higher than it had ever been before, and therefore a worse panic than ever before. The next condition was that the existing note issues should have become "ineffective through panic." But in no panic had any note issues even been ineffective. Panics made notes more effective, and in our previous panics the difficulty as to notes had only been to get plenty of them, or, indeed, to get any at all; but even if bank notes did become ineffective in a panic, it was very difficult to see how a farther issue would make them more effective. He had heard it said that this part of the Bill meant not ineffective through panic, but scarcity of notes through hoarding; but he could not think that a man with such a command of language as the right hon. Gentleman, could have used words which expressed a meaning so very different from that which was in his mind. Much more likely was it that the condition was intended for nothing else than to delay the coming into operation of the Act until the Greek Kalends. The next condition was that the foreign exchanges should be favourable to this country, and as it was not said what foreign exchanges, it might 1931 be supposed that all foreign exchanges were meant. But as soon as these foreign exchanges were favourable to this country, the panic was over, and so it was only after the disease had run its course, and the patient was on the fair way to recovery, that the State doctor was called in with his patent paper medicine, and took the credit of the cure, which would have been very well effected without his assistance. The next condition was that the profit should go to the Exchequer; but the mode in which this was proposed to be arranged for was just as impracticable as the rest. The Treasury was to get the 12 per cent. and it was to pay back to the Bank just 2 per cent for the trouble and risk of the discount. The result of this would have been that the bank managers would simply have declined to do business. They would have been manifest fools to do business on such terms. They would have acted in such a case just as they did in 1866. On that occasion they got a letter on the very terms provided for by the Bill, and instead of increasing their issue, and allaying the panic, they kept the letter carefully in their drawers, the result being that they were enabled to keep the rate at 10 per cent for a period of three months. A Bill for amending in such a way was either an insult to the understanding, or a mockery of the troubles of trade. The only glimmering of discretion that the right hon. Gentleman did show was in never venturing to bring the Bill up for discussion. Ultimately, the Bill bantling was exposed and deserted, and left to die of neglect. However, he (Mr. Anderson) met with other opposition. The Times was good enough to denounce him, and it admitted a letter signed "J. G. Hubbard," written, he believed, by a Gentleman who was now a Member of the House, and who he hoped was present to-night, for he believed he was considered a considerable authority in the City. That Gentleman commenced his letter by denouncing all currency reformers as people who wanted to eat their cake and have their cake, and he finished up a long letter by giving his own remedy, which was the issue of Exchequer notes. He now asked, passing over the respective merits of bank and Exchequer notes as regarded curing panics, where was the difference between them as regarded the eating 1932 their cake and having their cake? To have been consistent, he ought to have insisted on the withdrawal of all notes, and the return to bullion pure and simple. That was the high Toryism of currency, which would make the currency the master of trade instead of its servant. He did not wish now to defend or advocate his own particular views. In some places they had been misunderstood, and in others they had been misrepresented; but he wished at present only to argue for inquiry, and the ignorance or haziness of idea which he had shown to exist on the part of a Chancellor of the Exchequer and other authorities he considered a strong reason for inquiry. He would give other reasons. There had been no inquiry since 1848, and yet there had been many events to call for an inquiry. The French had since then inquired into our system, and at the close, instead of adopting our system, they adopted a free system, by which they had been able to keep up their stock of gold when ours failed, and to keep down their discount rate when ours rose, and to avoid panics. Then, moreover, the French had come through the trouble of an exhaustive war and an enormous money fine, and they came through it, too, comparatively scatheless. Surely it was time we knew the reason for their doing this while we fall into a state of collapse if gold to even a hundredth part of the French fine left the country. That was a fact which ought to be enough to prove the necessity for inquiry; but, again, we had had the crisis of 1873 since then, and on that there was a great deal of difference of opinion. The bullionist party said we should have had a panic but for the Bank Act. The currency reformers said that but for the Bank Act they would have had no 9 per cent and no crisis. Our commerce was then sound, and our work plentiful, and the only cause of the crisis was that a foreign nation wanted to buy a little of our gold. £4,000,000 left the Bank, but £1,000,000 went to Scotland, another to the counties, and so only £2,000,000 left the country—the result of this being that money rose from 3 to 9 per cent in three weeks, and that every trade we had was threatened with collapse, and fell into a state of prostration, from which even now they had hardly recovered. But the country was 1933 not poorer. Even the bullionist Times admitted that. It said that if the foreigners had not given something more valuable, the gold would not have gone. Even if the money had been sunk in the sea, it was inconceivable that it could have produced such an effect in a healthy state of matters; but that there was no scarcity of capital was shown by the fact that within a month Russia came with a demand for a small loan of £8,000,000 or £10,000,000, and our bullionists offered them £80,000,000. Very soon the rate was down again at 2½ per cent—and why? Not because our high rate attracted gold—because little gold came to the country—but because the paralyzation of our whole trade made home capital no longer needed. The bullionist party said the 9 per cent was only the natural result of supply and demand. He denied that it was natural demand and supply, but in a forestalled market, and unless the country was prepared to say that credit trade was bad, and ought to be put down; it was very questionable policy to have money laws which enabled all the lenders to make a raid every now and then on all the borrowers, blackmail them, and strip them bare. It was not the mere 9 or 10 per cent discount rate that formed the plunder, but that in a crisis all sorts of property and merchandize and stocks, except gold, became immensely depreciated, and then owners of gold stepped in and bought everything at half value. There was another good reason for inquiry. It was that the American system of bank notes had been established since the last inquiry. They were called inconvertible notes, and it seemed to be thought that there was something discreditable in that. He was well aware there was a party who wanted to overthrow the National Bank system of America. Of that party he would say—O fortunatos nimium, si sua bona norint.They had the best currency in the world, and did not know it. It had one fault, one serious defect—it was rigidly inelastic, and instead of trying to cure that fault, they were going to throw the whole thing away, and return to specie payments and free banking, by which they meant the right to any one to issue notes. If America attempted to resume specie payments, he believed she would have the same troubles which befel this country between 1819 and 1825, and 1934 she would only accomplish it at the expense of a crippled trade; and, on the other hand, if she adopted free issues, she would have mushroom banks and a bogus currency. They had other good reasons at home for inquiry, because a doubt had been raised as to whether the gold in the Issue Department of the Bank of England was absolutely held as against the issue of notes. The public always believed so, but the hon. Baronet (Sir John Lubbock) had greatly shaken this faith by saying that in the event of an extremity, the Bank of England would interfere with the gold in the Issue Department, and would be right to do so. Under these circumstances, it was time for the House to consider how far it was safe to leave the Issue Department of the Bank of England any longer under the control of the Bank's Directors. Another reason for inquiry was that they had a Committee of the House of Lords and a Committee of the House of Commons on the question of the Bank Act in 1848, and these two Committees came to absolutely opposite decisions, and no inquiry at all had been held since 1857. There was yet another reason for inquiry. Germany had lately changed her standard from silver to gold, and this had done this country great injury, and was calculated to do still more in the future. The loose ideas which prevailed in many quarters on this subject was also an additional cause for the inquiry he asked. Bullionists said the Bank Act was merely intended to secure the convertibility of the bank note, and that it had succeeded. Now, that was only a secondary object of the Bank Act; but they ignored all the principal objects which had ignominiously failed, and they paraded convertibility as a success; but he denied that the Bank Act insured the convertibility of the bank note; that convertibility had only been secured on three occasions by setting the Act aside. It would therefore be far fairer to say that the Bank Act put the convertibility of the bank note into hazard. Even admitting that it did secure its convertibility, he contended that they paid a great deal too much for it. They might pay too much for a good thing, and it was paying too much to secure the convertibility of the bank note only by destroying the convertibility of everything else in the country. On occasions of panic our 1935 commerce collapsed, our mills were stopped, ships rotted in the docks, and our workpeople starved, and all for what? Why, merely that they might avoid a depreciation of 5 or 6 per cent in the paper currency. People did not seem to understand what the convertibility was, for which they had to suffer such sacrifices. It was not a question of good or bad notes; it was a question between notes instantly convertible and notes ultimately convertible. In conclusion, he urged upon the Government the necessity of having a full and proper inquiry. Do not let them have the miserable thing they had two years ago. The country wanted to know whether there was not something unsound in a system of currency which contracted when more was needed, and expanded when less was required. The country wanted to know why France had refused to adopt our system, and had, in fact, adopted an opposite one. He asked for a Royal Commission because he had not confidence in a Committee of this House on such a subject. The difficulty was to find a Committee the Members of which had not formed some opinion on the subject. A Royal Commission would be much more likely to be independent, and therefore to arrive at a sound judgment.
§ MR. MORLEY
, in seconding the Motion, said, he should have been deterred from doing so if the object of the hon. Member had been to aid any particular crotchet or urge any impracticable theory upon the House in connection with this subject. The ground upon which he (Mr. Morley) ventured to press upon the Chancellor of the Exchequer to yield to the suggestion conveyed in this proposal was, that the trading classes of this country were exposed constantly to fluctuations which were destructive to small traders. Some hon. Members had beard with great pleasure the announcement of the Chancellor of the Exchequer, that he proposed to refer the Bill intended to prevent the Scotch banks from coming into London to a Committee for consideration. He was persuaded that he was expressing a very general feeling in the City, when he said that there would be a feeling of relief if the scotch banks were to come into London. The Scotch were confessedly the best bankers in the world. We needed more banking accommodation, and a substantial 1936 addition to the existing accommodation would be secured by the establishment, legally and absolutely, of the Scotch banks in London. The traders, in making this appeal to the House, were not asking for any pecuniary help. Trade was never more thoroughly sound or more based on capital, than it was now. The most intelligent part of the trading class believed that there was more danger in low rates of money than in high rates. The Bank of England, being a joint-stock bank, having to provide dividends twice a-year, frequently competed with Lombard Street for the discounting of bills, when, in the interests of trade, they ought to keep the rate high rather than low. He justified the competition as a matter of trade, but deplored its mischievous tendency. The solution of one great difficulty in that matter would be, that they should have a really national establishment for the issue of their notes and circulation. There was no subject more worthy of the attention of the Chancellor of the Exchequer than that. They were not raising the question of the Act of 1844, or pushing any extreme view; but he could state, as the result of many years of trading experience in the City of London, that a large number of small traders were needlessly and periodically ruined from causes beyond their own control, and were driven out of existence by a pressure which was so excessive. What they wanted was steadiness in the rate of discount. Gold, no doubt, like every other commodity, would find its level, but no commodity varied so constantly and largely in price. On September 17, 1873, the Bank Rate was 3 per cent. On November 12, or less than two months afterwards, it was 9 per cent. It was easy to see how such violent fluctuations must affect trading operations, which often took six or nine months for their accomplishment. When they approached a period of panic, the Bank of England was impotent to help them. In 1857, the Bank was reduced to such a condition, that unless the letter of the Government had been issued, it could not possibly have paid its notes. The Minister would have deserved impeachment if he had refused to issue that letter under the circumstances. No other country in the world had been subjected as this was to those tremendous panics, and as a commercial 1937 nation we had been made the laughingstock in every money-market of Europe. The Chancellor of the Exchequer would confer a boon on the trading class if he acceded to the present proposal.
Motion made, and Question proposed,
That an humble Address be presented to Her Majesty", praying that She will be graciously pleased to appoint a Royal Commission to inquire into the operation of the Bank Acts of 1844 and 1845."—(Mr. Anderson.)
§ SIR JOSEPH M'KENNA
said, he thought the necessity for that Motion was removed by the Notice that a Committee of that House would be moved for to-morrow. Such a Committee could better perform the duties that would devolve on it than a Royal Commission. The theory of financial panics was referrible to the state of our foreign exchanges; while the state of the exchanges was favourable to this country, no difficulty was experienced; but when the balance of trade turned against us, our margin of specie rapidly ran away, and a panic became imminent, if we kept our engagements to pay all our obligations in sterling, or in money that was convertible. The fear that we might not have in the country sufficient coin to balance our foreign exchanges was, in fact, the cause of panics; but did the hon. Member for Glasgow (Mr. Anderson) mean that we were to have money which was inconvertible? If such a principle were affirmed by the House, it would give the greatest possible shook to the trade of the world. The precious metals were the recognized medium of commerce all over the world, and we required specie to meet our obligations to other countries when the balance of trade was against us. When the balance of trade was in our favour, we paid other countries with their own bills. The Bank Acts of 1844 and 1845 were intended to make certain institutions keep margins of money in hand; and he could not see how trade and commerce, with the great expansion they had undergone since those years, could be carried on at all, unless they bad provision made that some capitalists should hold money in hand of such a nature as would enable us to discharge our debts abroad as well as at home.
§ MR. J. W. BARCLAY
said, interest was the price which was paid for the use of capital, and according to experience 1938 and theory, the rate of interest should depend upon the supply of capital. The loanable capital of this country was a very extraordinary sum, the deposits alone had been estimated at £600,000,000 sterling. Surely it was a very great anomaly that the withdrawal of £3,000,000 or £4,000,000 out of this £600,000,000 should so affect the price of the whole as to double the rate of interest. Recently, at a meeting of the Associated Chambers of Commerce, the feeling was strongly expressed that there ought to be an inquiry into the anomaly, by which the withdrawal of so small a quantity of gold could have such an effect upon the whole of the loanable capital of the country. So far as appeared, the panic of 1873, which raised the rate of discount from 3 to 9 per cent. might have been obviated by an increase in the stock of gold held by the Bank of England. If the Bank had had a few millions more in its coffers, there would have been no need for alarm. The question for the country was, how was it possible to increase this store of gold, so that the withdrawal of £3,000,000 or £4,000,000 might not be regarded with apprehension? If the note issue of the country, instead of being in the hands of 188 banks, were concentrated into one general bank of issue, the quantity of gold which would be required to be kept in store would be very much less than when scattered over the 188 banks. They had been told that the provisions of the Bank Act had ensured the convertibility of the notes since 1845, and it had been denied that the bank notes were ever in jeopardy. If that was the case, why had the Bank Act been suspended? The time had now come when this question of a national note issue ought to be fairly and clearly considered by the country. They were beginning to more and more understand what was the real value and service which a bank note performed; and practically, so far as currency or circulation was concerned, there was no difference whatever between a bank note and a sovereign. For all purposes of circulation, the one was really as good as the other, and the necessity for convertibility was only in order to insure that an undue amount of paper money was not put into circulation at once. The experience of the last 30 1939 years showed what had been the fluctuation of the currency from time to time, and what amount of gold or specie was necessary to maintain the convertibility. Looking over the expansion and contraction of the circulation of the whole country since 1845, so far as he had been able to discover, the greatest contraction which took place within a space of six months did not exceed £4,000,000 sterling. It therefore appeared, if the notes had been issued from a national Department, and if that Department had maintained in its coffers 5,000,000 of sovereigns, it could have insured the convertibility of the notes without its being necessary to realize any of the securities whatever. They ought to recognize that banking and the issue of notes should be separate, and that both could be better conducted when separate. What occurred to him as the simple remedy, not only for the circulation, but also for securing an additional store of gold in the coffers of the Bank of England, was to establish by Act of Parliament a separate Department of issue corresponding to the Mint Department, whose duty it should be to supply paper to the country in exchange for gold. The rules under which the Department was conducted could be made as stringent as those of the Mint. It would be the duty of this department to issue notes to all persons who wanted them for gold, and the law should settle what amount of gold the Department should hold for the convertibility of notes. There was a strong feeling in the country that the time had arrived when an inquiry ought to be made into our financial system, and that if the present anomalous state of things went on, great danger to our commercial prosperity was likely to arise. He, therefore, trusted that the right hon. Gentleman would consent to the appointment of the proposed Royal Commission.
§ MR. J. G. HUBBARD
agreed with the hon. Member for Glasgow that it was desirable, in the interest of trade and of the community, that the Bank rate of interest should fluctuate as little as possible, because commercial operations were carried on with more certainty when the rate of interest was steady. He was afraid, however, that the fluctuations in the rate of interest were beyond the control of any human being or 1940 of any Government, however great its power might be. He must demur to the assumption by the hon. Member for Glasgow and the hon. Member for Bristol (Mr. Morley) that trade had suffered to any great extent in consequence of those fluctuations. The House would recollect that those fluctuations had never lasted long, and that it was only for a short period during which the temporary pressure lasted that an exceptionally high rate of interest was demanded. The high rate of interest which the merchant had to pay occasionally for the money he borrowed was as nothing compared with the fluctuations in prices which were continually recurring from week to week, and from month to month. He affirmed that scarcely a house of position or of importance had failed during a commercial crisis, in consequence of its being unable to obtain the accommodation it required, provided it had good security to offer. Where the variations in the rate of interest were destructive was in cases where men had undertaken operations of an extended character at a time when the rate of interest was exceptionally low, and because neither their capital nor their credit was commensurate with their trade. The moral to be drawn from these facts was that people with little or no capital should limit their transactions accordingly, and he ventured to assert that in no case had a man failed owing to a high rate of interest who would not in all probability have failed if the rate of interest had remained stationary. In to-day's paper there was a most remark able illustration of his argument. It was that of a house which had failed for several millions, at a time when the rate of interest was only 3½ per cent. its failure having been occasioned by its engagements being infinitely beyond its capital and its deserved credit. He was ignorant of the fact that had been stated by the hon. Member for Bristol, that the Bank of England competed with other banks and discount brokers for bills, nor was it the business of the Bank of England to do so. Receiving as it did the surplus deposits of bankers and traders, it was bound to hold them with a degree of reticence that would not apply to any other bank. The hon. Member had expressed his surprise that with the enormous loan capital of this 1941 country the loss of two or three millions of gold should so largely affect the rate of interest; but he should not forget that the bulk of our loan capital was already out on loan, and that it was merely the small portion of it which was available for lending which was affected by the loss of the gold. The reason why this country was more subject to panics than France was because here credit was pushed and strained to its utmost degree; whereas such was not the case among our neighbours, who traded upon capital rather than upon credit. It was the knowledge of the immense operations carried through by the French and German Governments with reference to the engagements and payment of the indemnity to Germany, quite as much as the actual abstraction of gold, which necessitated some 12 months back the stringent action of the Bank of England. One feature very seldom noticed by those who criticize the Bank of England was that the Bank was not only agent of the Government in the management of the issue department, but was also a joint-stock bank, with banking business of its own. But where was the private or joint-stock bank which published its accounts from week to week? The Bank carried on business in a house of glass; everybody might see what it did. It not only published accounts of the issue department, but it published its private banking accounts. The Bank did not wish to escape criticizm; but it was an unheard-of proceeding for any bank to publish from week to week an account of its reserve and deposits. Very few banks in the country could carry on business if they were subject to such an ordeal. The hon. Member for Glasgow not only brought his Bill of Indictment against the Act of 1844, but also against certain writers in The Times who defended it. The principle on which that Act proceeded was that all issues beyond £15,000,000 must be based on gold—that when gold was carried away notes should be cancelled and the currency diminished pro tanto. The hon. Member for Glasgow said that was a very antiquated and mischievous policy—he held that when gold went away they should put something in its place, and that something was paper money. But where were they to stop in that process of substitution? The whole 1942 essence of the Bill of 1844 was this—at £15,000,000 they must stand. The hon. Member for Glasgow said the amount of paper issues was too small; but his argument, as a writer in The Times expressed it, amounted to this—it was trying to have your cake and eat your cake. They had not lent their gold for nothing. They got something for the gold that had been taken away. They had value received in corn, wine, cotton, foreign securities. But the hon. Member for Glasgow was not satisfied with the value received for the gold we parted with; he wished as fast as it left us to occupy its place with paper; but if they went on in this way as they had done in other countries, the convertibility of the Bank note would be lost, the value of all property would be shaken, and instead of the stability of appreciation which this country had enjoyed for so many years, they would be reduced to that deplorable state to which many Continental countries had been driven, by the unlimited issue of paper money. That was the state of things which would inevitably follow from the substitution of paper money desired by the hon. Member for Glasgow. There was a very great distinction between the issue proposed by the hon. Member for Glasgow and that proposed by the late Chancellor of the Exchequer. The hon. Member proposed to fill up with paper any gap caused by the withdrawal of gold; but the proposal of the late Chancellor of the Exchequer was the new creation of a circulating medium, for the purpose of being used at a period when our credit was internally shaken and was no longer available, and bills of exchange would no longer circulate, so that it became expedient for the Government to supply a greater amount of circulating medium for the purpose of settling the transactions of the country. He did not conceive that the operation proposed by the late Chancellor of the Exchequer could at all be an admission that the Bank Act of 1844 had broken down. On the contrary, it showed how safe in the estimation of the Government that Act must have been before they could venture to load it with the additional temporary responsibility which they proposed. His own opinion with regard to the measure of the late Chancellor of the Exchequer was that the whole question had better be left alone. 1943 He did not wish to see any such remedy-provided by anticipation; but if it had been provided, it would require all those safeguards by which the right hon. Gentleman's proposal was environed. With regard to the proposition of the hon. Member for Glasgow, he could not see that it was called for; and if the hon. Member would read the Reports of the inquiries which had already taken place, he would obtain an insight into the principle of the Bank Acts and the Bank of England—namely, that of limitation of credit—which would satisfy him that no further inquiry was necessary.
§ SIR ANDREW LUSK
said, he thought the hon. Member for Glasgow (Mr. Anderson) was deserving of credit for having called the attention of the House to this subject, which was one that related to the currency of the country, and, at the same time, included the question of issue by Scotch banks, and such English banks as possessed the privilege. There was no need to go into all the deeper quagmires of bank notes and such things, which no man could understand in this world or he believed in the next. There was no subject which he would rather not discuss with a man than banking matters. As far as his experience of money matters went—and he had had some experience—they were very much the same as other commercial transactions. A banking company was simply a commercial firm, established for the purpose of making money, and if we gave them the privilege of issuing notes, that was our fault, not theirs. He agreed with the right hon. Gentleman who spoke last. He had scarcely ever seen a house in the City of London which failed that did not deserve to do so. They came down because they trusted to credit, and the consequence was as we saw. He did not understand why the Government of this country should support any fictitious system of credit. He believed, however, that the Chancellor of the Exchequer would do well to grant the Commission which the hon. Member for Glasgow desired, for then people would be led to look into this affair of banking and currency. There was something in what the hon. Member had said. Things had changed a good deal since the sensible measure of Sir Robert Peel was passed; and he could wish that the Government of the day would appreciate 1944 the circumstances of the times as well as Sir Robert Peel had done. Sir Robert Peel had gone as far as any reasonable or intelligent man could go in his day, and there he stopped. Now, he would like to ask the right hon. Gentleman—who was an intelligent man also—why, if it was not desirable to appoint the Commission proposed by the hon. Member for Glasgow, he should not look into these matters himself, and see whether they could not be put into a better condition. The liabilities and money matters of the country were different from what they were in Sir Robert Peel's time, for the average of money that passed through the clearing house in a week was now about £100,000,000. It would be impossible to say what would happen if those who owned the money were to call it in. One thing was certain the time was come when, considering the riches of England, we ought to put an end to all private banks of issue. We ought to put all men on an equality and do away with all monopolies and privileges. It was an hallucination to think that bits of paper were money. When people wanted our gold and took it away from us, all we had to do was to give a higher price for it, and we should get all we wanted just as we should get corn, tea, or any other article. He hoped the time was coming when things would be allowed to take their natural course, and then men would not trade so much upon bank notes and regulations of currency which they misunderstood. He wished to see an end put to a system under which men stood upon crutches, when they might better stand upon their own feet.
§ SIR JOHN LUBBOCK
said, he had heard nothing during the discussion to shake his conviction that the panics of 1848, 1857, and 1866, were not due so much to the provisions of the Act of 1844 as to the fact that the operation of that Act had been completely misunderstood. It was, on the other hand, through the effect of that Act that the store of gold was maintained which ultimately brought us through those panics. The hon. Member for Glasgow (Mr. Anderson) spoke of bankers enjoying a monopoly and special privileges from the State; but out of more than 100 banks in London only four or five enjoyed any privilege from the State, and he was at a loss to see the alleged monopoly. The hon. Member said that with a paper currency when 1945 gold went out of the country it would be replaced by paper; but the only effect of that would be that more gold would continue to go out of the country, and at last they would have an entirely paper currency, a result which no one desired. The hon. Member for Glasgow had criticized the policy of the Bank of England. Well, there might be differences of opinion as to that policy. But the general opinion of the commercial community was, he thought, upon the whole, that the management of the Bank of England had on the whole been conducted with caution and prudence. The hon. Member for Glasgow had referred to the American system with great praise, and to the fact that in this country the rate of interest had gone as high as 9 per cent. But did the hon. Member know that in America the rate rose not to 9, but to 90 per cent. and even more? Again, the hon. Member had asserted that American notes had never been discredited; in this the hon. Member was entirely mistaken, and he entirely overlooked the panic through which America had passed within the last few months, and from the effects of which American trade and commerce had scarcely yet recovered? The hon. Gentleman, indeed, admitted that the American system had one fault—that it was not elastic. That was the greatest fault that a currency could have, and it was the elasticity of our system which accommodated it to transactions involving more than £6,000,000,000 per annum. He had great difficulty in understanding what was meant by a system of notes which would be ultimately convertible. If notes were payable at certain periods only, they became bills of exchange, and would have a different value according to the time they had to run, and therefore they would not be adapted for the purposes of currency. His hon. Friend the Member for Bristol (Mr. Morley) stated that the present system had led to a large number of failures. Now, he must say he entirely concurred with his right hon. Friend the Member for the City of London (Mr. J. G. Hubbard) and his hon. Friend the Member for Finsbury (Sir Andrew Lusk) that there had been few failures indeed which could fairly be traced or attributed to our system of currency. After all, what was the difference in the fluctuation of the rates? The rate of interest had 1946 reached 9 per cent. as had been stated, and within three weeks had fallen as low as 2½ per cent. and the result, said the hon. Member for Glasgow, had been to strip traders bare. He thought, indeed, that if the rate had been raised a little sooner it need not have been carried nearly so high; but, after all, they must look at the average. Now, what had the average rates been upon three months' bills? In 1868 it was £2 2s. per cent. in 1869 £3 4s., in 1870 £3 2s., in 1871 £2 18s., and for the last two years the average was, he believed, about 4 per cent. That being the case, he could not but think that in that respect there was very little to complain of. The hon. Member for Glasgow said that to avoid the evils of which he spoke there should be a paper currency which would vary 5 or 10 per cent in value. But what did that mean? It meant that every person who had an income of £1,000 a-year, should submit to a fluctuation of, perhaps, £200 a-year, without knowing whether his income would be decreased or increased to that amount. Such fluctuations would be most inconvenient, and would strike at the very root of our commercial prosperity; and although there were questions connected with the subject which might well be considered, he could not help thinking that the present system was not open to the accusations which had been brought against it by the hon. Member for Glasgow.
§ MR. HANKEY
remarked that almost all the speeches which had been delivered, save, perhaps, that of his right hon. Friend the Member for the City of London (Mr. J. G. Hubbard) and the hon. Baronet the Member for Maidstone (Sir John Lubbock) had reference to the subject of banking, and not to the subject of currency. Now, what was currency? Popularly understood, the word simply meant ready money—that which everybody wanted as the substitute of barter. Messrs. Baring and Rothschild might negotiate a loan of £30,000,000, and yet there might not be a sovereign passed in the transaction. It was the duty of the Government to coin money sufficient for the daily use of the people, but there the functions of the Government were at an end. But the great requirements of the country had nothing to do with currency. The power of obtaining that which was understood as 1947 currency was only limited by the means at the command of the individual—it was itself practically unlimited. There must, however, be some sacrifice made to obtain it, for if they could get on without gold and silver they would be so much the richer, as they would not be deprived of the use of them for other purposes. He frankly admitted that the railroad interest alone, which was now tenfold greater than it was some years ago, demanded an enormous amount of increased currency; but that had nothing to do with the Act of 1844, or with banking. Sir Robert Peel in framing that Act by which the convertibility of bank notes should always be secured, left the Bank of England and every other bank to act as free as possible; the only tie was with regard to the issue of paper money. As to that he refused to allow any new bank to issue paper money. The right hon. Gentleman the Member for the City of London had entered so fully into the question about the Bank of England that he (Mr. Hankey) would not trouble the House with any remarks upon it.
§ MR. C. PALMER
said, that the time had now arrived when this question of the Bank Charter Act ought to form the subject of investigation. It was said that no result would follow from such an investigation; but he thought the time for it was opportune, and that such a step would, at all events, have the beneficial result of at least satisfying the minds of the trading community. In countries that were not trammelled by a Bank Act the rate of interest was even; whereas in this country it was subject to sudden fluctuations. That subject itself deserved investigation.
§ MR. MUNDELLA
reminded the right hon. Gentleman the Chancellor of the Exchequer that he gave Notice he would to-morrow move for a Select Committee to inquire into the question of issue, and he would suggest to him to include in that inquiry the operation of the Bank Acts of 1844 and 1845. He contended that the inquiry should be conducted not by a Select Committee, but by a Royal Commission, the Members of which could be chosen from the widest field and not merely from the House of Commons.
§ THE CHANCELLOR OF THE EXCHEQUER
said, he agreed with the hon. Gentleman who had just sat down that 1948 a Select Committee of that House was not likely to set at rest some of the questions which had been touched upon that night, and which were more largely discussed in other quarters in this country; but he must go a little further than the hon. Gentleman, and say that, in his belief, neither would a Royal Commission settle those questions. A short time ago a deputation from the Associated Chambers of Commerce waited upon him and requested him to lay before the Government a proposal for the appointment of a Royal Commission to discuss those various questions upon which there was so much difference of opinion and set them at rest; but when he asked those gentlemen what their views were on different points which had been raised he found there was considerable difference of opinion among them, but that they had very wisely, for the purpose of getting a Commission appointed, resolved to put their differences of opinion behind a veil and to express no opinion on many of those critical questions. They alleged that the Government should appoint a Royal Commission for the purpose of showing who was right and who was wrong. He did not know whether any being in this world or in another world could select a Commission that would satisfy everybody when they pronounced against their opinions. He was quite certain that if it were the unfortunate position of a fallible body of men like the present Government, or any Government, to have to make such a selection they would find the task an exceedingly difficult one; because they must do one of two things—they must either select a Commission which would be composed of men who were all of one colour of opinion, in which case it would be said, "Oh! this appointing of a Commission is a mere mockery," or else they would have to appoint a Commission which would contain eminent men whose views would be equally well known, but whose opinions would differ from each other. The result of such a Commission would simply be to leave matters where they stood before. There would be the usual difference of opinion, and nobody would be satisfied. Therefore, he felt that they would be doing very little good, and probably a great deal of harm, by appointing a Commission of a roving character to ascertain whether we had 1949 exactly the right sort of currency system, and, if not, how we were to get it. An hon. Gentleman had said—"After all, what would he the harm of having a Commission? at the worst there would only be a little time wasted in investigation." Well, in his opinion the appointment of a Commission would have a wider result than that. It would create a false impression; and, as a great deal of the mischief which everybody now complained of was the result of a false impression, it was necessary to be particularly careful in this matter. The false impression which he ventured to think lay at the root of so much evil consisted in regarding the questions of credit and currency as one, instead of regarding them as perfectly distinct. In his belief, the evils attributed to our system of currency arose mainly from an over-straining of credit. There were, no doubt, some points of friction in the system of currency itself, and he should be prepared to-morrow to show the desirableness of practically considering those evils with a view to their mitigation. But that was a very different question from entering into the large inquiry now proposed. The Government felt that if they consented to the appointment of the Commission they would be betraying their own conviction and be seeming to throw doubt upon the general soundness of the Act of 1844. Several serious occurrences had taken place since the Act of 1844, but those troubles had arisen from causes which had nothing to do with the Act of 1844 or the question of currency. They had their origin in the fact that we were carrying on an enormous and unprecedentedly large system of commerce and trade; we were the centre of the monetary transactions of the greater part of the world; we were carrying on business which required not only a large amount of fixed capital, but a large amount of disengaged and floating capital. Now, the more we could utilize our system of credit, which stood towards currency very much in the same relation as currency stood towards barter, the less loanable capital we required, and we had learnt to carry on our transactions with a much smaller amount of currency than would have been possible without the system of credit. The great increase in the amount of our transactions was in itself a proof that the Act of 1844 1950 had not been of a character to restrain the development of the industry and energy of the country. What he wished to point out, however, was that since we had chosen to give a great expansion to our commercial and mercantile enter-prizes by means of a large amount of credit based on a small amount of loan-able capital, the withdrawal of capital affected our financial system in a proportionately high degree. The hon. Member for Glasgow (Mr. Anderson) thought it very strange that when we wanted more money we had less, and that when we wanted less we had more. But the matter was very easily explained. When a gentleman spent a good deal, his banker's balance fell, and when he spent little, his banker's balance got up. He would not detain the House after all the discussion that had taken place; he would only express a hope that the hon. Gentleman would not feel it necessary to divide the House on the Motion as he did not think any good would result from it. He (the Chancellor of the Exchequer) objected to a Royal Commission because it would be very difficult to constitute it satisfactorily, and also because if they succeeded in doing so they would raise false notions which had much better not be raised.
§ MR. SAMPSON LLOYD
said, the Associated Chambers of Commerce had no difference of opinion as to the advisability of having an inquiry into this subject, and he believed that this inquiry might be made more easily by a Royal Commission than in any other way
§ MR. ANDERSON
maintained that the inquiry on the minor question, which was to come up to-morrow, would in no way meet the end he had in view. He felt obliged to press his Motion.
§ Question put.
§ The House divided:—Ayes 47; Noes 133: Majority 86.