PURCHASES OF SILVER (MESSRS. SAMUEL MONTAGU AND COMPANY).

HC Deb 13 February 1913 vol 48 cc1224-333

Mr. RUPERT GWYNNE

I beg to move, "That a Select Committee be appointed to inquire into the administration of Indian Finance and Currency by the Secretary of State for India and Council of India, and the responsibility and powers vested in the Finance Committee, in special relation to the recent purchases of silver and the distribution of cash balances."

I think it will be generally admitted on both sides of the House that the opportunities which we have for discussing Indian affairs are far too few, and therefore it is a matter of regret that this opportunity which has been afforded to us for discussing financial questions in relation to India should come on at a time when hon. Members are worn out and anxious to get away. The terms of my Motion are not so wide as many of those who are interested in Indian affairs would wish to see them, but on the present occasion it has been thought advisable to somewhat limit the terms of this Motion because there are other matters affecting the finances of India which require attention, but which I feel would be dealt with better by a Royal Commission, and these particular matters relating to the purchase of silver and the distribution of cash balances seem to be matters which might be more properly and more promptly dealt with by a Select Committee. I should like to say at once that my first complaint against the India Office is the difficulty which we on this side of the House have experienced during the last four months in obtaining information as to the recent purchases of silver. I do not for a moment blame the hon. Member for Accrington (Mr. Harold Baker), on whose shoulders the responsibility has fallen of answering the various questions which have been put to him, but I think that one may fairly say that the powers of prevarication which the India Office have exhibited are as fully developed as it would be possible for any Government Department to exhibit. We have been forced time after time to put question after question before we could get at the real facts of the case. A short time ago the Prime Minister resented somewhat a suggestion made by the Leader of the Opposition when he stated in this House that information on this subject had to be extracted from the Government as if we were drawing teeth. As I have been one of those who have endeavoured to bring about that process, I should like to take one example of this prevarication and this reluctance on the part of the India Office to give information. At the start no one was aware of what had taken place with regard to the placing of this contract. We were all in the dark, and I put down a question asking for a copy of the contract with Messrs. Samuel Montagu and Company for the purchase of silver and a copy of the terms on which they were instructed to purchase, and this is the reply I received:— Mr. H. Baker: No formal contract for the purchase of silver was entered into with Messrs. Samuel Montagu and Company. Letters of instruction were sent on each occasion, and, with the hon. Member's permission, I will circulate copies of them with the Votes, together with a specimen of the contract notes that were furnished in respect of the several purchases. I then put the following supplementary question:— May I ask if he will give the complete correspondence and not merely extracts from certain letters, as he has done previously? To which the Under-Secretary replied:— No, I think it was complete."—[OFFICIAL REPORT, 19th November, 1912, col. 96, Vol. XLIV.] That was on the 19th November, 1912. When I had looked through the correspondence which I had been given, I put down another question on the 22nd of November, in which I asked the Under-Secretary of State for India— if lie will give the complete correspondence which has taken place this year between the India Office and Messrs. Samuel Montagu and Company in regard to the purchases of silver, instead of extracts from certain letters, as already furnished? The Financial Secretary (Mr. H. Baker) replied:— The correspondence circulated in accordance with the hon. Member's previous question consisted of the full text of the letters instructing Messrs. Samuel Montagu and Company to purchase, and of such letters from the firm as were mentioned therein. In no case was an extract given. I am now circulating with the Votes copies of such other letters as were received relating to the various orders and to the terms."—[OFFICIAL REPORT, 22nd November, 1912, col. 678, Vol. XLIV.] I read through those letters, and I found that reference was made to other correspondence which did not appear. Consequently, on the 27th of November, I asked the Under-Secretary:— If he will give copies of the replies of Messrs. Samuel Montagu and Company to the letter written to them by the India Office on 3rd September and 11th September of this year, which has been omitted from the correspondence asked for on 22nd November? The Financial Secretary replied:— I am circulating with the Votes a copy of the firm's reply to the letter of the 11th September, which was omitted by an oversight from the correspondence previously circulated. When I got that information I then found that there was other information which had been kept back, and I asked for the White Paper containing the full and complete correspondence, and on the 17th December a White Paper was issued, from which there was omitted the beginnings and endings of all letters, which may not be very material in ordinary cases, but in this particular case it is important, because it is necessary to see who had written and who had signed these various papers. The important thing is that when eventually we did get this White Paper, after four different efforts to get the complete correspondence, and when it became patent what I wanted to get at, we found that the letter of 8th January, 1912, had been deliberately kept back the whole time. This letter was a most remarkable production, and it is so fantastic that I will ask the House to allow me to read it:— January 8th, 1912. To Sir Felix Schuster, dated 8th January, 1912. "We venture to make a suggestion to you with regard to silver purchases for the Indian Government which you may consider as of value. From our careful study of the statistical position of the Indian Treasury reserves, it appears to us that the time is not far distant when it will be considered prudent for them to strengthen themselves by coining rupees. You will not fail to have remarked, if you have read our circular, that The net is being spread in the sight of the bird.' If, therefore, you postpone your purchases until you are absolutely pressed for currency, the chances are that you will have no other supply available beyond that that is being nursed for you by Indian speculators. The inevitable result being that you will have to pay more or less whatever you are asked by them.

4.0 P.M.

[HON. MEMBERS: Hear, hear.] Hon. Members who say "Hear, hear" will perhaps wait my comment upon that. They must not think I have finished when I have done reading. I shall have a few observations to offer:— Our proposal is this: We receive consignments from special clients of our own, of silver peculiarly adapted to coinage purposes, averaging about £50,000 per week, which we have to sell at the market prices. We suggest that we put this silver down to your account at the market prices ruling on the days we make the sale, and deposit it in the Bank of England for your account. We should not in the least disturb the market because we should make no purchases for the Council 'at fixing,' and, what is most important, no one would have the remotest idea that you were buying, and prices would not, as has been the invariable case in the past, be run up against you, as the amount of silver passing through our hands is, as you can well imagine, vastly more than £50,000 per week. Putting silver into the Bank of England is such an everyday occurrence just now, that our doing so would create no comment. We particularly do not care about approaching Edwin Montagu on this matter for reasons that must be obvious to you. We do not see, however, that our close relationship to this gentleman should militate against the Indian Council's doing business with us if they conscientiously think that it is to their advantage to do so.

That is followed the next day by this short, but significant letter:—

"Dear Sir Felix Schuster,

"Of course there would be no need for the Bank of England to be made acquainted with your purchases. They need only be told that they are to receive the silver against loans. This method, would, I think, close every possibility of a leakage.

"Yours very truly.

"E. L. FRANKLIN."

Up to that time, so far as the India Office was concerned, it had not occurred to the Secretary of State or to any of his financial advisers so far as we can find out, that there was any reason for them to alter the ordinary process by which they had in the past been in the habit of making their purchases of silver. They had had no reason to complain of the way in which the Bank of England had carried through their business in the past. It had been the custom of the India Office when silver was required to instruct the Bank of England who, in their turn, instructed one of the bullion brokers to make the purchases. So far as we can see the India Office, far from being dissatisfied with the Bank of England, were so satisfied that in 1906 they entered into an agreement with the Bank of England to carry out the purchases on specially reduced terms for seven years. Yet, after the receipt of this letter from Messrs. Samuel Montagu and Company, it seems to have suddenly occurred to Sir Felix Schuster that something must be wrong with the way in which the work had been carried out through the Bank of England. This heaven-born inspiration which seized Mr. Franklin of Messrs. Samuel Montagu and Company, or Sir Felix Schuster, or all of them at the same time, seems to have had great authority with the Financial Committee of the India Office. Let me take this letter sentence by sentence:— We venture to make a suggestion to you with regard to silver purchases for the India Government which yon may consider of value. From our careful study of the statistical position of the India Treasury reserves, it appears to us that the time is not far distant when it will he considered prudent for them to strengthen themselves by coining rupees. I do not know what special information Messrs. Samuel Montagu and Company had with regard to the India Treasury Reserves, but apparently their information must have been greater than the India Office themselves possessed, because in answer to a question on 12th November the hon. Member for Accrington said to me this:— In January rupees in the Reserves of the Indian Government had not fallen so low as to show purchases would be required. And yet Messrs. Samuel Montagu and Company knew they would be required. That only shows they had considerable knowledge and had carefully studied the position of affairs. Let us go on to the next sentence:— You will not have failed to have remarked if you had read our circular that 'the net is being spread in the sight of the bird.' If, therefore, you postpone your purchases until you are actually pressed for currency, the chances are you will have no other supply available beyond that that is being nursed for you by Indian speculators, the inevitable result being that you will have to pay more or less whatever you are asked by them. If you turn to Sir Guy Fleetwood Wilson's speech, which he made on 1st March last year—which was after this letter was written—in introducing the Indian Budget, you will see he said this— The absorption of rupees in the intervening three years has been about 32 crores; and, by whatever test the figures are tried, it is clear that the demand has been less active than in the early years of the century, when the resourses of our Mints were severely strained to meet the calls of trade for silver currency. This change in the habits of India, swift and momentous in its possibilities, has defeated the calculations of the silver speculators. It has also absolved me from the necessity of undertaking fresh coinage, in spite of no inconsiderable pressure from interested quarters. That is a very remarkable statement, because, if that was true, it distinctly contradicts the Messrs. Montagu's letter. The suggestion that anyone could make a corner in silver is positively fantastic. Let us deal with this mysterious ring in India who were going to corner the Government in silver. It is common knowledge that there is a big native financier of the name of Choonilal, who is, I believe, chairman of the Specie Bank out there, who had been buying up considerable quantities of silver in the expectation I imagine of a rise in price. You may buy things for a rise in price without trying to corner them. It is a totally different thing to buy certain quantities of a thing because you think the price is going up from saying you are going to make a corner, and make it impossible for the whole world to buy except through you. The world's output of silver is from £25,000,000 to £28,000,000 worth per year. Choonilal and those associated with him had not accumulated more than £5,000,000 worth, and that had been accumulated out of the preceding year's output. How can it be suggested, therefore, they were going to corner the whole of the £25,000,000 or £28,000,000 worth in 1912? It was admittedly a matter of surprise in the bullion market that that group had been able to hang on to their silver so long. Surprise was expressed in various bullion circulars week by week that they were able to hold on so long to their silver. Yet it is suggested this man and those associated with him were going to corner the silver of the whole world, and that the India Office was going to be entirely dependent upon them— Our proposal is this. We receive consignments from special clients of our own of silver peculiarly adapted to coinage purposes, averaging about £50,000 per week, which we have to sell at the market prices. We suggest that we put this silver down to your account at the market prices ruling on the days we make the sale, and deposit it in the Bank of England for your account. What do they mean by "silver peculiarly adapted to coinage purposes?" Silver either comes from the mines or it is re-coinage. If it comes from the mines, it is either high or low quality silver. If it is low quality, it is not suitable for coinage, but, if it is high quality, it is suitable. Why do Messrs. Samuel Montagu and Company say their silver is peculiarly adapted for coinage purposes? A stockbroker might as well write and say he has some specially good Consols to sell. Messrs. Samuel Montagu and Company have no different silver from that in which other bullion brokers deal— We should not in the least disturb the market because we should make no purchases for the Council at fixing' and what is most important no one would have the remotest idea that you were buying and prices would not, as has been the invariable case in the past, be run up against you. That statement is absolutely untrue, because it did disturb the market, and the price did go up. If it was true, they would be able to put £50,000 worth of silver per week quietly to the account of the India Office without raising the price in anyway, then they were not acting in the best interests of those clients who had entrusted them with the sale of the silver. Did not the Secretary of State see they were placing themselves in an impossible position? They were entrusted by certain clients to sell silver at the best prices, and those best prices were the market prices, but they were trying to keep the market prices down by secrecy, and by doing so they must have been acting unfairly to those clients; otherwise, the statement is not true. It may surprise right hon. and hon. Gentlemen opposite that one should want justice for other people when he is not himself interested. I do not know from whom the silver came, but we are entitled to look at the bona fides of a firm who are acting in a dual capacity. Can they act fairly in a dual capacity when they are going to keep down the prices? As a matter of fact, that paragraph is not true. They did not confine themselves to buying £50,000 worth in this way from their own clients. A large proportion was bought abroad from other sources. If you follow the contract notes throughout, you will see a great deal was bought in the market and not in this secret way. We particularly do not care about approaching Edwin Montagu on this matter for reasons that must be obvious to you. There the India Office quite directly had their attention called to the undesirability of placing this work with a firm so closely connected with the Under-Secretary of State. Lord Crewe, speaking in another place on 14th November, defended this action in the following words:— It must be remembered that as a matter of fact Mr. Montagu has no more to do with the finance of India at the India Office than he has to do with the finance of the Panama Canal, and he has no more connection with the firm of Samuel Montagu and Company than with the firm of Marshall and Snelgrove. I do not in the least wish to make any attack or any suggestion that this contract was obtained for Messrs. Samuel Montagu and Company either by the influence of or at the wish of the Under-Secretary of State. I admit at once without reservation that I do not believe that at the time this letter was writen or when it was received the Under-Secretary of State knew nothing about it at all. On the contrary, to use an expression of which Messrs. Samuel Montagu and Company themselves seem rather fond, I think they spread their net and the Under-Secretary was the bird they caught. I think, so far as the Under-Secretary of State is concerned, he might say not "spare me from my friends," but "save me from my relations." He has been placed in a most unfortunate position, and my only regret is that he is not here himself to-day in order that I may make these statements in his presence. Let me say at once that is not my fault. We have not proceeded with this discussion until there has been ample time for the Under-Secretary to come back from India three or four times. [An HON. MEMBER "Why should he come?"] Because it is most desirable that when a question of this sort is being raised there should be an official representative of the India Office in this House. Entirely apart from the fact that there is this charge in connection with his own family, in his own position—

The PRIME MINISTER (Mr. Asquith)

What is the charge against the Under-Secretary?

Mr. GWYNNE

I have said distinctly I make no charge against the Under-Secretary. This charge is against the Government for having permitted contracts to be given to the family of the Under-Secretary, and, quite apart from the fact that the Under-Secretary is connected with the firm of Messrs. Samuel Montagu and Company, when there was a question of an investigation or allegation of any kind against the India Office, I think it would have been much better if he came back so as to be in his place, quite apart from personal consideration, because we have had to get the information from someone who obviously was not in the same position to give it as the Under-Secretary would himself have been. So far as regards Lord Crewe's sugges- tion that the Under-Secretary had no more to do with the finance of the India Office than with the finance of the Panama Canal, I must remind the Noble Lord that the Under-Secretary, whatever his position or whatever part he takes in the discussions of the Finance Committee, is, so far as this House is concerned, the sole representative of the India Office, and it is his duty often to explain the financial policy of the India Office, and therefore it was his duty to know what was going on in the Finance Committee so that he could keep the House informed, and, if they wished it, to inform them of the transactions and the work of that Department. So far as the second suggestion of Lord Crewe is concerned, that, the Under-Secretary has no more to do with the firm of Messrs. Samuel Montagu and Company than with the firm of Messrs. Marshall and Snelgrove, that is really putting it too high. I think it would be quite impossible to conceive of any case in which a Member of the Government could be more closely connected with a firm than the Under-Secretary is with the firm of Messrs. Samuel Montagu and Company.

It is very unpleasant to have to go into details of this kind; it is difficult to do so in the absence of the hon. Gentleman, but I think that after Lord Crewe's statement I am bound to remind the House exactly what the situation of this firm is. There is, first, Lord Swaythling, and then there is Mr. Gerald Montagu, both of them brothers of the Under-Secretary. There is Sir Stuart Samuel, brother of the Postmaster-General and cousin of the Under-Secretary. There is Mr. Franklin, who was so prominent in carrying on these negotiations, and who is a brother-in-law not only of the Under-Secretary, but, I think I am right in saying, of the Postmaster-General as well. Therefore, here is this firm as closely connected as it is possible to be with the Under-Secretary. The firm is also, to a certain extent, closely connected with the Radical party. Lord Swaythling supports Lord Crewe in the other House; Sir Stuart Samuel supports the Government in this House. Added to that, there is a further connecting link, and that. is Sir Felix Schuster. He is chairman of the Finance Committee of the India Office, and also happens to be Messrs. Samuel Montagu and Company's banker or chairman of the bank, and therefore there is a connection there. Any one of these connections might not be very strong, but putting them all together it does make a case, at any rate strong enough. [An HON. MEMBER: "What case?"] [Another HON. MEMBER: "What about the Chamberlain family?"]

Mr. SPEAKER

I must ask the hon. Gentleman to refrain from making a regular fire of questions during the whole of the speech. If he will restrain himself, he will have an opportunity of speaking later on. It is not fair to the hon. Member at the conclusion of every sentence to interrupt with cries of "Why?" "What case?" "When?" and so on. That is not the way to conduct debates in this House.

Mr. GWYNNE

I do not think it can be said that the Under-Secretary has no more connection with the firm than he has with Messrs. Marshall and Snelgrove. I think the Noble Lord understated the case, and it would have been much better if he had frankly said in the other House that the connection was very close. It would have carried much more weight in the House than trying to deny it. Coming now to the question of the Bank of England, Mr. Franklin wrote to Sir F. Schuster on 9th January, 1912:— Of course there would be no need for the Bank of England to be made acquainted with your purchases; they need only be told that they are to receive the silver against loans. This method would, I think, close every possibility of leakage. I should like to ask the India Office why was there this secrecy from the Bank of England, and why were there these elaborate plans to deceive them, because that is what it amounts to? Some bank had to be trusted. Why should the Union of London and Smiths Bank and its officials be trusted, and yet all these elaborate precautions be taken to deceive the Bank of England? What had they done? If they had divulged anything in the past, any secret, let the right hon. Gentleman say there was such, and I will take that as an excuse. So far as we know no complaint was made against them, yet we find this plot going on and all these contortions to avoid anyone in the Bank of England knowing anything about it. What has been the result of keeping this transaction from the Bank of England, apart front the fact that it created a want of confidence in the whole transaction? The direct result was that £661,000 of purchases had to be postponed because they did not want to place it in the Bank of England. They did not want the Bank of England to know what was going on, and that had to be done at a cost of £4,900. If there was a necessity, and it has been suggested by the Government that there was a necessity, that the silver should be bought from some other source, and that the same firm of bullion brokers should not be employed for this purpose as in the past, why could not the Bank of England have been taken into the confidence of the Secretary of State? Why did he not say to them, "We are afraid of this corner and of having the price forced up, and we want to change our tactics, and want to have it done through you."?

Let me explain to the House why it was particularly desirable that if this purchase must be made it should have been made through the Bank of England, in order that you might have had some third or interested party. There have been suggestions in one place and in another, in the Press and in this House, as to whether Messrs. Samuel Montagu and Company acted as dealers as well as brokers, and they themselves in their correspondence resented the suggestion. The Under-Secretary told me here distinctly several times that they acted as brokers only. Now my opinion of the bullion market is that all the bullion brokers at times carry on transactions which are really, and would be more properly called, dealing transactions than they would be brokerage. In some of their transactions it is impossible to say whether they are acting as brokers or as dealers. Let me give you two examples of these transactions, and I could give a great many more. These two, I think, will show even to laymen that it was quite reasonable to suggest that the firm were acting as dealers as well as brokers. On the 25th June, 1912, Messrs. Montagu wrote to the India Office:— We have debited you for to-morrow some silver coin, which will work out very favourably for you … If the coin should not be desired we will, of course, substitute silver bars with pleasure. Surely they were acting as dealers if they made a purchase, and then offered to substitute something else if that did not suit. That was a transaction of buyer and seller and could not properly be called brokerage. Take another case, on the 21st May, they wrote:— We have purchased according to contracts enclosed £39,000 for delivery, 1st June. We have fixed the price at 1–32nd of a penny above cash price in order to compensate ourselves for loss of interest. It seems to me quite clear that they were acting as dealers if they had bought silver and then held it over for the India Office at a different price. I am not suggesting there is dishonesty or anything wrong in acting in that capacity because that is done in the bullion market, but what I do say is that it is all the more reason why you should have had a bank like the Bank of England, some third party, to watch these things and see that the firm were acting rightly between the buyer and seller, and if there is buying and selling of silver, such as is in these contracts, to see that the price paid is a right one. It is obvious that the fact that the Bank of England should not have been employed is an unfortunate thing about this transaction. When we asked this question and try to get out whether they were acting as brokers or dealers they quite resented it. Yet on the 13th November, 1912, Messrs. Montagu wrote to the India Office:— While we would be glad to give you any information you ask, we regret that it is quite impossible for us to give the names of our clients from whom we purchase silver … Although your orders have been large, they formed at times but a portion of our business (which involves a considerable number of clients), and supposing we felt justified in divulging the names of those clients with whom we did business on the same days as with you it is no more practicable to disentangle from the list those which provide your silver than to identify the grape from which any given drop of wine had been obtained. If they cannot identify one seller from another it shows that they were acting as owners of that silver, and that is a statement which requires explanation. In face of that letter it is positively astounding to find that on the 24th of May before the investigations began, the India Office wrote to Messrs. Samuel Montagu and Company:— As the time is approaching when you will be taking delivery of silver for us, I write to mention a point that has arisen in connection with our purchases in the past, viz., the marking. for purposes of identification of the seller, of bars or boxes of silver shipped for us. We have at times bought Mexican dollars, and among these counterfeits have been discovered on delivery at the Mints in India, in respect of which we have had occasion to claim refunds from the sellers … I suppose all bars or boxes will bear distinguishing marks which will enable them easily to be traced to the source of supply? Messrs. Montagu wrote on the 26th May:— All the bars we ship have identification marks and the same applies to our dollar boxes. If this is the case why was it that in November they were not able to distinguish one seller from another. Either one letter or the other was untrue. At any rate, it requires explanation. It was suggested by the Secretary of State in another place that this silver had been bought so well that hundreds of thousands of pounds were saved for the Government of India. That was the chief justification for having placed this contract with the firm in question. Obviously whether silver was bough well or not must be a matter of conjecture. It is a thing no one can say at the present time, or ever will be able to say, because the circumstances have not arisen. He is entitled to say that when the firm commenced purchasing in March the price of silver was 26 5–8ths, and that when they finished buying in October the price was roughly 29, the average price at which the whole £5,000,000 was bought being 28¼. Is it not fair comment to say that the Indian speculators, the people who made a corner in silver, could have bought the same quantity of silver without raising the price above 25? Does it look like an extraordinary deal on the part of Messrs. Montagu to have raised the price to nearly 29. It might well be remarked here that the order was given back to the Bank of England the day after I asked my first question in the House, and five days after I put it on the Paper. It may be a coincidence, but it is a curious thing, and the fact remains that they did go back. Since silver has been bought from the Bank of England the price of silver has not appreciably risen at all. The Government may possibly say, "Look at the way in which silver was run up in, former years." My answer is that in former years the Government bought very large quantities of silver. Those purchases were for a period of four years, and the orders were given in quite a different way. They had to buy at once. There was no buying forward for two months, and the silver had to be bought, so to speak, at forced sales. Even if we take the former purchases, if we are going to compare at all, we must compare like with like. The purchases began in 1904, and we find that in 1904, when the Government began buying, the price was raised 2d. Yet last year, when the Government placed the order, the price was raised very nearly 3d. When they talk about the hundreds of thousands of pounds they have saved, will the Government turn to Messrs. Montagu's own "Bullion Circular," in which they say that— Silver is quoted at 29 1–8; much the highest price since October, 1907. Yet at that highest price they went and bought £600,000 worth, and the rest of the £2,000,000 was bought at just under 29, to be exact, 28⅞. I do not say that any other firm would have bought better, but it is not a good excuse to say that this transaction is fully justified merely because the silver was bought so cheap. Lord Crewe asked whether a firm of this standing was going to sell their souls for the mere sake of £7,500 commission? I do not suggest that the firm would sell their souls for any sum, nor do I suggest that the question of commission was of great import to them, but why were they so anxious to obtain this order if the commission was of no moment to them? Why did they go to these contortions and write these letters to obtain the order, if it was of no moment to them to have it. I do not suppose they suggest that they were acting merely as philanthropists towards the India Office in this matter. They were doing it as a matter of business, because they knew that the knowledge of Government purchases was of the greatest value. The knowledge of that fact would be of the same use to any firm which carries on business in the same market as Messrs. Samuel Montagu themselves. It is perfectly clear to my mind that Messrs. Montagu were told at the start that they were to buy at least £2,000,000 of silver, for they wrote this letter on the 5th of July to the India Office:— We have to-day bought for you £12,000 silver thus completing your last order of £250,000. We enclose contract. Having now purchased for you the whole £2,000,000 that was suggested when first you gave us au order, we take the opportunity of saying how much we appreciate the confidence that you have placed in us in giving us so much freedom in carrying on the business. The India Office then wrote back:— I am directed to acknowledge the receipt of your letter of the 5th instant, reporting the completion of the purchase of silver to the value of £2,000,000 on behalf of the Secretary of State for India in Council. In reply, I am to convey to you his Lordships cordial thanks for the satisfactory manner in which you have carried out the transaction and the secrecy which has been observed. When I asked in this House when that information was given, the answer I got was:— No such information was given to the firm either in writing or orally. The reference in the firm's letter of 5th July appears to have been made under a misapprehension. Why was it not contradicted at the time. They wrote and acknowledged the letter, yet when we used it for the purpose of showing that they knew in advance that large purchases were going to be made, the India Office turned round and denied it. The value of it is this: That without knowing how much was going to be bought, the very fact of knowing that the Government were going to buy told these people that the price of silver would not go down, but would very likely go up. To have a certain knowledge that silver would not go down was of itself of great value to anyone in the silver market, because the silver market fluctuates quickly and greatly. They had the certain knowledge that for the next six or eight months silver would not go down, which was of enormous value, and it carried with it the strong probability that it would go up, which is of great value. It would affect not only the silver market, but many other interests in which a firm dealing in silver are concerned, such as silver securities and so forth. It may be fairly said that someone must have this knowledge and this advantage. I quite agree. But I think that the best traditions of English public life make it quite clear that whoever is to gain the advantage, the people to gain it should not be relations of Ministers.

There is another point. If this business was to be given to the firm in question, the House is entitled to say, and I believe Members on both sides will agree would say, that provided the order was given—I do not think it was right that it should be given—the greatest care should have been exercised in carrying out the transaction in the most businesslike way possible. Instead of that, I do not think it is unfair comment to say that it was carried out in a loose way, in a way which no limited company would stand if taken by their officers. The whole question of brokerage fees is an important matter. It was arranged verbally, and not confirmed in writing until after the order for the first £500,000 had been given. When I noticed the transaction of May 21st, I asked what sum was being paid, the cash prices and the date. I was told that it was a verbal arrangement; that they could not trace the date, and that it was either the 20th or 21st May. I was afterwards told that it was arranged on the telephone, and that no record was kept. I asked— Does not the India Office think it necessary to keep a careful note of all conversations, telephone messages, and interviews, relating to business transactions, in case of dispute afterwards? Mr. H. Baker: No. Even gentlemen on the Turf, who carry on their transactions in rather a loose way, take the trouble to write them down in a note book. I am sorry, for a good many reasons, that a careful note of all these transactions was not taken, for we might have got some more literary productions of the same fantastic nature as that of 8th January which would have been amusing reading, if nothing more. For a Government Department to carry on business like this without any note of conversations or arrangements in matters dealing with millions of pounds is unbusinesslike. Supposing anything had happened to the parties who were carrying on these conversations; suppose Sir Felix Schuster had been taken ill, and a dispute had arisen, how should we have found out what really took place at the conversations? It would be a matter of conflicting evidence, or, perhaps, of no evidence at all. Would any firm carry on its business in this way? One of the worst complaints we have against the Government with regard to this matter is the slack, careless way in which it was carried out. It is not as if it was carried out by two parties. We have a big firm on the one side, consisting of several persons, and on the other side the India Office. Sometimes the letters were written by Sir Felix Schuster, sometimes by Mr. Abrahams, at others times by Mr. Robinson, Mr. Badock, Mr. Jacquet, and Mr. Newmarch. The same parties appear to have written letters, and to have had telephone communications and verbal interviews, and yet no note was kept. It is impossible to conceive anything more unbusinesslike than this transaction. If, as Lord Crewe said, this order was given to the firm because it was only temporary, and in order to get over a difficulty and obtain secrecy, why was not the work transferred to the Bank of England until it was disclosed in this House. It was public knowledge. All the world knew, and the money market knew in August that the Government were buying through Messrs. Montagu. Their own circular of 22nd August states that the Government had been shipping £750,000 worth of silver, yet after that circular was issued, and after the Indian Mint began coining it, orders were still given to the firm. It could not have then secured secrecy. It is fair comment to say that it was only after we had dragged the matter out in the House that. the orders went back to the proper channel, the Bank of England. The most remarkable statement made in regard to this contract was the statement of the Prime Minister on 12th December, in answer to the Leader of the Opposition. He said:— I cannot accept for a moment that there is anything unusual. On the contrary, in all essentials, the transaction, so far as I am aware, has been in strict conformity with the practice of the present and previous Administration. The Prime Minister is entitled to speak for his own Administration, but certainly not for Administrations formed from this side of the House, if he suggests that anything of that sort went on. It is certainly a new style in Government Depart- mental work, which we on this side of the House do not wish to copy. The whole question of this contract requires a great deal of explanation. We have only to refer to the utterances of the present Chancellor of the Exchequer, the present Lord Chancellor and other prominent Members of the Radical party who a few years ago sat on this side of the House, when they indignantly attacked this party because certain Members of it were interested or had shares in limited companies which held Government contracts. The present Chancellor of the Exchequer used strong language, as he generally does, in expressing himself. He said that in these matters they should be like Cæsar's wife, above suspicion. He went on to say:— When once these rules are broken by any person in high position, it leads to the complete demoralisation of the whole Civil Service. It is setting a dangerous precedent. If the Government had frankly admitted in this House that there had been a mistake, if they had given us an opportunity of discussing it in the House, and had taken the opportunity of explaining it in the House at an earlier period, they would not only have been in a much stronger position themselves, but they would have saved much discomfort and disquietude in India.

There is only one other point in regard to my Motion, and that is in regard to the cash balances. That is a more lasting question than the question of the contract, and therefore is, in its way, more important. That the balances at present, or latterly, have been far too large, must, I think, be admitted on all sides of the House. When we consider that during the last two years we have had at times as much as £45,000,000 of Indian money in this country entirely at the discretion of the Secretary of State, it must be admitted that that is a matter which requires investigation, because any system which allows balances to be accumulated to that extent should at any rate be revised, and so far as the cash balances themselves are concerned, we see that they have been gradually growing. I doubt whether there is another part of our Empire which would tolerate the keeping of £45,000,000 of their money over here, and handling it entirely as one or two men in the City think proper. The cash balances have been quickly growing. In 1908 they were £5,000,000; in 1909, £10,000,000; in 1910, £16,000,000; 1911–12, £19,000,000. The amount is excessive, and the rate of interest is small. I do not say that the rate of interest was smaller than should have been obtained, but at any rate it was not sufficient to justify these large balances. Whatever rates could have been got, I do not think balances to such an extent should have been kept here. With regard to the employment of these balances, I cannot help feeling that it is unfortunate that they should have been deposited so largely with banks whose governors are so directly connected with the India Council. We have been told that that question has been separately considered and approved by the Secretary of State. I have no doubt the Secretary of State had a good reason for coming to that decision. At any rate, I think it regrettable that so large a sum as £3,000,000 last year should have been deposited with one bank—London Union and Smiths—whose chairman is Chairman of the Finance Committee. I do not say that as much interest was not given as if it had been employed at another bank, but this kind of thing gives a feeling of suspicion and uneasiness, both here and in India, and I think the Secretary of State would have been wiser if he had said these members of the Finance Committee would please him much better if they did not lend sums to banks with which they are directly connected.

As far as the approved borrowers go, I quite recognise that there is a long list. I do not wish to make an unfair attack on Messrs. Montagu in this matter, but let us remember that these balances have largely increased, and that the amounts lent to various firms have been increased, and what may at one time be a use, if multiplied by eight or ten, becomes an abuse; and it is again regrettable that that particular firm, bearing in mind its close connection with the Government, should for two years have been the largest borrowers on the approved list. I do not think we can be too careful in regard to the management and manipulation of Indian money. We must remember that the people of India have no direct representative in this country. They have no one to look after their interests except the Secretary of State, and even those of us who take an interest in Indian affairs very seldom have an opportunity of raising them in this House. Lord Curzon the other day, in referring to the power which the Secretary of State wields over these finances, said that he is almost omnipotent. He is a financial autocrat. Surely, if that is the case—and Lord Curzon ought to know with his experience in that country—it is only right that he should see that that patronage and the power of dealing with these vast sums should be placed in the hands of men who have no interests which may be antagonistic to the interests of India. No one doubts for a moment the ability or the honesty of the members of the Finance Committee, but no one can deny that Sir Felix Schuster and others have interests, and are engaged in other undertakings which, at times, may not be strictly the same interests as those of India. They have large interests in the money market of the City of London. It does not follow that what is good for the money market here is good for India. Those interests may be brought into conflict, and although they may wish in every way to subordinate their own interests for the good of India, yet there are times at any rate which may give grounds for suspicion that that will not be the case. In order to show that this is not merely an idea which exists on this side of the House, but is felt very strongly in India, I should like to read a short quotation from the "Times" of India, a paper which I think carries great weight in that country, and is looked upon generally as an impartial organ:— No definite personal distrust has been created during the discussion. But it cannot be denied that an uncomfortable feeling has arisen around operations which the public should have no possible excuse for contemplating otherwise than with absolute confidence Honourable men may always be trusted, when performing a public duty, to resist the influence of their professional or financial environment. All the same, it is not a politic thing, to say the least, to put men even of invulnerable integrity in a position in which they may have to decide between two interests, one of them much closer to them than the other. To put it more directly, no one whose interest is associated with the London money market should have a determining, or even an influential, voice when a decision has to be taken between the financial interests of India and those of the city. That conveys very fairly the feeling which is held in regard to this matter in India, and I feel that the Government will be acting in their own interests, as well as in the interests of this country and India, if they grant a Select Committee to inquire into these two matters and generally into the question of Indian finance. There is a precedent for demanding a Select Committee to inquire into such a thing as this, because I see that Mr. Gladstone in 1871 moved for a Select Committee to inquire into the financial administration of India. That Committee was appointed, and I hope the Prime Minister will see his way to follow that precedent.

Captain CRAIG

I beg to second the Motion.

The FINANCIAL SECRETARY to the WAR OFFICE (Mr. Harold Baker)

The hon. Member covered, in the course of his speech, a great variety of transactions, and I listened to him with considerable curiosity, as I imagine many other Members of the House did. For three months past he has conducted a campaign through the medium of questions investigating the particular problem to which he has referred. He began that series of questions in a very proper spirit, with a very natural demand for information upon a certain point which seemed to call for inquiries, but he did undoubtedly, before the end, degenerate into a state of mind which, I am sorry to say, it is clear from his speech this afternoon still prevails, and in which he regarded a number of transactions, the facts of which have been completely exposed and made clear to him, still with the same attitude of suspicion as at the beginning. He ended his speech by saying that no doubt all these matters were perfectly correct, and no objection could be taken to them, but that still they gave grounds for suspicion. He ended by saying in so many words that he did not doubt the honesty of one single person whose name had been mentioned in connection with this affair, but still at the same time there was very good reason for suspecting everybody. I propose, as far as I can, to go through the various points which he has mentioned, and deal with them one by one; and I think before I have finished I shall have shown to the satisfaction of the House that though there may be grounds for suspicion in the mind of a person who is temperamentally inclined in that way at the beginning, that when the facts are fully explained no one with any honesty or impartiality in his mind can say there is a shred of justification for suspicion at the end.

The hon. Member began by accusing the India Office of having pursued a consistent course of prevarication in giving answers to the questions which he had put. I will take that at the beginning, because, though personally I am considerably touched by that charge, I have equal confidence that in the face of that charge I can show that he had no justification whatever for anything of the sort. I really find it difficult to know what the hon. Member was referring to when he said that information had not been freely given to him at his demand. What is it that he means? I know quite well that his Leader used the phrase "drawing teeth." It was a phrase which my right hon. Friend at the time, very properly, objected to very strongly, because either it is a phrase which might apply equally well to all questions addressed to any Minister or it is one which carries with it some meaning which has no connection with the matter in hand. What are the facts? I will mention some of the most important items—I am sorry it is necessary to do this—I wish it had not been necessary—on which the hon. Member has asked for information, and we will see what happened. On 29th October he asked for a very important piece of information—the names of those who were on the list of approved borrowers. It was a breach of confidence that those names should be disclosed at all. Such a thing has never been done in any single case probably in the history of the Money Market, but simply and solely so that the India Office should show that they had nothing to conceal from the very beginning, and that the hon. Member in his inquiries should not be able to say he had been met by a refusal, I gave him on the spot, without any hesitation at all, an absolute promise that he should have those names. Then in the ordinary course he repeated his question a few days later, and, when the question was repeated, at once he was given the list of approved borrowers.

Mr. GWYNNE

I made no charge against the India Office of having suppressed information in regard to cash balances. I said my charge against the India Office was of prevarication in regard to the silver purchases.

5.0 P.M.

Mr. BAKER

I am very glad to hear that the hon. Member has withdrawn, at any rate, that charge. It is very difficult to know what charge he is persisting in. At any rate, in bringing it forward, I think it was not irrelevant, considering that a general charge of prevarication might be preferred, to show that the India Office had not, even on the point of the cash balances, withheld any information for which they had been asked at any stage of the proceedings without very good reasons. The hon. Member confines his charge of prevarication and withholding of knowledge to the silver question. On that very same day, 29th October, he asked a question which was quite as important in connection with the whole discussion, namely, what were the names of the firms or agencies through which the India Office purchased silver, and at once, without delay or prevarication, I told him it was the firm of Messrs. Samuel Montagu and Company. On 19th November, it is quite true, he asked the names of those who had sold silver to Messrs. Samuel Montagu and Company. That was refused, because the practice of the bullion market is not to give the Secretary of State the names of those who sell silver, either when purchases have been made by the brokers employed by the Bank of England, or now when they have been made through Messrs. Samuel Montagu and Company. The only relevancy of that question is as to whether Messrs. Samuel Montagu and Company acted as brokers or dealers in these transactions. I shall deal with that satisfactorily, I think, before I sit down.

Then the hon. Gentleman laid great stress on the fact that the correspondence had not been given to him exactly as he asked for it. I think if he will look fairly at the questions put and the answers given at the time, he will see that is not strictly so. He asked on 14th November for the contract between Messrs. Samuel Montagu and Company and the India Office in respect of silver, and the terms on which they were instructed to purchase. That information was given to him in full that day. Having asked for the terms of the contract, he asked in a supplementary question for a copy of the correspondence which it was impossible to give then, but it was given at the first possible moment. He returned to that question—originally a supplementary question—on 22nd November, and then he got the information, with certain exceptions which were specified to him at the time. I really was astonished in the course of his speech at his alleging that there had been some correspondence withheld at the time, though it was said to be complete, whereas by his own ingenuity he had discovered that it was not complete. He was assured at the time that it was not complete, and that certain excoptions had been made. On 27th November he specified two particular letters which were omitted. One of these was non-existent. It was a letter which existed only in the imagination of the hon. Member. The other letter was one of a perfectly trivial description, and it was given to him. On 27th November he asked for these letters. He was quite well aware on 22nd November that exceptions had been specified. He was told that if he wanted them he should have them. Then he said that, after all, the most important thing was the letter of 8th January, 1912—the letter on which he based such a large part of his speech. All I have to say to the hon. Member in connection with the withholding of that letter at the beginning, is that, as the White Paper shows, and as indeed the phraseology of the letter itself shows, it was purely a private letter, that it was not part of the contract between the India Office and Messrs. Samuel Montagu and Company, and that it was in no sense an official letter at all. In spite of that, it was given to him, and it is printed in the White Paper, and the hon. Member has made such use of it as he could to-day.

I wish to turn to that letter, and I will reply specifically to each point he raised, but before I come to that—inasmuch as this letter of 8th January, 1912, is really preliminary to the actual contract, and as the hon. Member, who, I think, showed a very proper desire to save time because it was not germane to the purpose, did not describe all the attendant circumstances and state the exact reason why the Government of India approached Messrs. Samuel Montagu and Company—I think I must in a few words explain to the House how matters stood. The India Office does not purchase silver in every year. It only has to purchase silver when it requires it for replenishing its reserves of rupees when it finds that its reserves of rupees are sinking, and that it may be necessary to coin rupees. It was thought they might have to coin in 1910. There was a possibility in 1911 that they might have to do so, and that possibility became a probability in 1912. All forecasts in these matters are always difficult at the India Office. But in 1912, it became quite evident to those who brought experienced minds to bear on this matter that coinage would have to take place in the course of the year. The test which the India Office applies is that on 1st October they should have £16,000,000 of rupees—that is twenty-four crores—in the reserves. It is not always easy to apply that rule, because while coinage may appear to be necessary, still they cannot be sure that in the course of the next few months there may not be a great influx of rupees, which will avoid the necessity for it. At any rate, in the middle of February, 1912, they knew that they were six crores short of the total rupees they considered necessary that they should hold in reserve.

The PRIME MINISTER

That is the Government of India?

Mr. BAKER

Yes; the Government of India were then aware, although not certain of the exact amount, that coinage would be necessary. It seemed to them probable that some purchase of silver would be necessary. The Secretary of State, of course, was informed of these facts, and he had to consider very carefully the question of buying silver. The purchase of silver had not been performed for several years, and the situation had changed a good deal since the last time that it was bought. He had to take account of three special difficulties, some of which confronted his predecessors, but not all. He had to consider, first of all, that there were large fluctuations in the price of silver. In the ten years, 1902 to 1911, silver varied in price between 24⅛d. and 30⅞d. per standard troy ounce—a change of 27 per cent. The Secretary of State had to consider that. He also had to consider that there were very strong reasons for believing that silver was being held up by speculators, both in Bombay and in London, in anticipation of purchases by the India Office. The hon. Member said that was a fantastic supposition. Fantastic was the word he used and he said there was no ground for it. He said that there was no corner: but these are, after all, matters of degree. It is quite sufficient if the Secretary of State had—and there is plenty of documentary evidence to show he had—adequate ground for believing that silver might be held up against the Indian Government in a way which might increase the price against him. He felt that he would be perfectly justified in considering whether some other course could not be adopted. As to the holding up of silver by speculators in order to raise the price against the Secretary of State in case he came into the market, there is overwhelming evidence, and it is quite impossible to deny it. That was very much operative in the mind of the Secretary of State. Then he had to consider another factor of very great importance, namely, that the silver market itself is an extremely limited one. There are, all told, not more than four firms engaged in the silver bullion market. They are Messrs. Sharps and Wilkins; Messrs. Pixley and Abell, Messrs. Mocatta and Goldsmid, and Messrs. Samuel Montagu and Company; and if silver was to be purchased it had to be purchased, whoever was employed as the intermediary, through one of these four firms. That was the state of affairs, and, as the hon. Member informed the House quite truly, the purchases made by the Indian Government had formerly been made through the Bank of England. The Bank of England had invariably employed either Messrs. Mocatta and Goldsmid or Messrs. Sharps and Wilkins. Secrecy was of the utmost importance. It was of the essence of the whole transaction. If the manœuvres of the speculators were to be defeated. it was perfectly necessary to adopt some method of preventing from knowing that the Secretary of State was coming into the market to purchase silver for the purpose of coinage. If the Secretary of State had in that dilemma carried out the previous practice and gone to the Bank of England, who would have employed one of these two firms, that would have been advertising the fact that the Secretary of State was purchasing silver, and the price would undoubtedly have been raised. It is almost a matter of common knowledge—I do not think it is denied—that one, if not two of the firms were acting for the speculators who were holding up silver against the Secretary of State. It may be said, "Why not go to the Bank of England and allow them to employ, as intermediaries, Messrs. Samuel Montagu and Company?" That was impossible. The Bank of England had already on the 10th February informed the Secretary of State that they had entered into an arrangement with the two firms of Messrs. Mocatta and Goldsmid, and Messrs. Sharps and Wilkins, by which they would much prefer to buy silver only through them. That arrangement was to continue up to 31st March in this year. There remained only two firms through which the Secretary of State could act, namely, Messrs. Samuel Montagu and Company, and Messrs. Pixley and Abell. I understand that Messrs. Pixley and Abell is a firm of very high standing indeed, but it is a firm whose operations are carried on on a smaller scale than those of Messrs. Samuel Montagu and Company, and as it was possible that a very extensive purchase of silver might be required, the Secretary of State decided that, though the standing and reputation of the two firms were equal, it was his duty to choose Messrs. Samuel Montagu and Company,

That is a very short summary, and I am afraid it is no more, of the circumstances under which the Secretary of State came to choose the firm of Messrs. Samuel Montagu and Company for this purpose. The hon. Member, when referring to the letter of 8th January, made a good deal of superficial play about the exact operations by which the contract was formed, and the precise negotiations entered into between Messrs. Samuel Montagu and Company and their representatives and the India Office itself. I will now turn to the letter of 8th January. I may say, parenthetically, that the hon. Member adopted the method which he adopted previously at Question Time of paraphrasing words used in a letter and putting a meaning on them which they do not bear and drawing an inference which is not justified. He said that he would read the letter through. He read it through and said he would not be content with that. I knew it, and that he would not be content unless he went on to alter the phrasing to find some foundation for his allegations. He began by quoting a passage by which Messrs. Samuel Montagu and Company say— it appears to us that the time is not far distant when it will be considered prudent for them (the Indian Treasury) to strengthen themselves by coining rupees. He asked how had they any such, knowledge. The necessity had not then arisen. It did not arise until August, 1912. I would go too far in wasting the time of the House in explaining the position which the hon. Member tried to maintain that by using these words "the time is not far distant" they are contradicting something which he alleges was the case in January, 1912. The time was not far distant. It did arrive, but not in January, 1912. He then went on to read:— If, therefore, you postpone your purchases until you are absolutely pressed for currency, the chances are that you will have no other supply available beyond that that is being nursed for you by Indian speculators. I agree that perhaps it was a rather extravagant statement on the part of Messrs. Montagu to say that there would be no other supply, and that perhaps that would be putting it too high, but it is unfair to take these words written before a contract was made by a business firm and then to say it was misleading. The fact was that there was, if not a complete corner in silver, at any rate a very considerable holding by speculators. I think that that is something which could not have been misunderstood and certainly was not misunderstood by anybody except the hon. Member who draws attention to it to-day. Then he went on:— We receive consignments from special clients of our own of silver peculiarly adapted to coinage purposes, averaging about £50,000 per week, which we have to sell at the market prices. There the hon. Member surprised me, because, if anything, I thought he was a very close student of this correspondence, and he said, "What on earth is the meaning of that? Of course there is only one quality; it must be the right quality." If he had looked at the letter further on in this same White Paper he would have found the statement made— We have at times bought Mexican dollars, and among these counterfeits have been discovered on delivery at the Mints in India, in respect of which we have had occasion to claim refunds from the sellers. The authorities in India have also found fault with, and asked not to be supplied with, certain sorts of bars, viz., Raritan bars and 'D.R.W.' bars. In view of the contingency of any faults being found with silver shipped for us, I suppose all bars or boxes will bear distinguishing marks which will enable them easily to be traced to the source of supply. That is a fortunate illustration ready to my hand. It shows that those who purchase silver have to be very careful about the grade and quality of silver, and it was a very proper phrase to put in a letter of this kind. Then he draws attention to the passage in which Messrs. Samuel Montagu and Company say, "No one would have the remotest idea that you are buying." The hon. Member said. "How unfair. You are going to conceal from the other people that the Secretary of State is the person who is buying." Why no one enters into a transaction of this nature and gives this information. You never know who is buying and selling. The transaction is conducted by a broker, and neither party has the faintest idea of the identity of the other. It would be not only against public interests, but would have been a gross breach of all custom if in this case the identity of the Secretary of State had been allowed to leak out.

Mr. GWYNNE

The hon. Gentleman is either misquoting me or has misunderstood me. What I said was it would be unfair to say that they were keeping down the market price of silver and at the same time acting fairly for those people for whom they were selling. In keeping down the market price of silver they were not acting in the best interests of those for whom they were selling.

Mr. BAKER

Surely the hon. Member will see that they are only keeping down the price of silver by concealing a fact which is always concealed, and the existence of this condition is normal instead of being, as the hon. Member would seem to imply, abnormal. He also read the passage in which they said— We particularly do not care about approaching Edwin Montagu on this matter for reasons which must be obvious to you. I can only say in reference to that what everyone can understand that no one regrets more sincerely than I do that the hon. Member (Mr. Montagu) is unable to be here to make the defence which, I am sure, he could make with complete propriety to the case made in this House this afternoon. Then the hon. Member quoted the following letter of the 9th January, and said why should there be secrecy against the Bank of England? There, again, I must apologise to the House for detaining them when no explanation whatever is necessary. The letter quite clearly does not imply that the Bank of England is not to have knowledge, but the point is that other people should not know that silver was deposited on behalf of the Secretary of State. The hon. Member then went on to ask why Messrs. Samuel Montagu and Company could not have been employed through the Bank of England. I have already dealt with that point, and shown that the hands of the Bank of England were tied by their own voluntary agreement with the other firms, so that they were quite unable to employ Messrs. Samuel Montagu and Company if they wished, or, at any rate, they had a moral obligation to have recourse to the other two firms.

I pass on to those matters which the hon. Gentleman raises with regard to the actual execution of this contract. I confess I did think that he would drop the allegation in which he persisted this afternoon that Messrs. Samuel Montagu and Company had been acting not as brokers for the Secretary of State in this transaction, but actually as dealers. I think, in fairness to Samuel Montagu and Company, that I ought to say a word on this. We would really seem, from the hon. Member's speech, to be considering this afternoon the administration of Samuel Montagu and Company rather than the administration of the India Office itself. What are the facts? Samuel Montagu and Company were instructed definitely to buy on behalf of the Secretary of State, and the same thing appeared on the contract notes which have been exhibited, and which show that they bought on behalf of the Secretary of State. They definitely state that they were acting as brokers. The hon. Member asks why the names of the sellers were not disclosed. They never have been disclosed in such a case, and the three other firms, competitors, as they must be of Samuel Montagu and Company, in this matter have put in writing that it would be a breach of confidence if it were done in this particular instance. The very moment that this question was raised by the hon. Member in this House as to whether Samuel Montagu and Company had acted as brokers or dealers, they offered their books to the Secretary of State for his inspection, and the Secretary of State had a full opportunity to investigate them if he had so chosen. He did not accept it, but in order to defeat suspicion he reserved the right to do so at any time in future if he thought it necessary. The Secretary of State has full confidence in this firm which had relations with the India Office ever since 1887, and nothing has occurred in the House or elsewhere which has made it necessary for him to subject them to the indignity of a search of this description.

When the Select Committee sat dealing with the case of the seat of the hon. Member for Whitechapel, there was one special instance of a sale and the name of the seller which was raised, and without any consideration of difficulty it was handed to the Committee by the representative of Samuel Montagu and Company. I will only add one point as to that. The hon. Member has attached a great deal of importance to this question as to whether Samuel Montagu and Company acted as brokers or dealers, and also said that the India Office should have acted through the Bank of England. If the Bank of England had been employed, how were they going to prevent that? How were they going to prevent Samuel Montagu and Company acting as dealers and not as brokers? What difference would it have made? Nothing of any sort has been produced to lead the mind of any man whose mind is not perverted by suspicion to imagine that Samuel Montagu and Company did anything but what was regular. The hon. Member referred to the question of postponing delivery, and suggested that a great deal of additional cost had been incurred. The reason for postponement was very simple. The purchasing of silver began in March The contracts were for forward delivery—usually at two months—as they always are when silver is not yet required. The delivery of a very large amount was postponed, the total being no less than £660,000, and an extra brokerage was entailed, and there was additional cost. Against that you have to set again the interest which accrued to the India Office from the later payment of the money and also, and most important of all, and what was the governing motive in the mind of the Secretary of State at the time, secrecy was maintained, and the price was prevented from rising against them. I do not think that the hon. Member really can claim to make any capital out of that matter. It was part of a deliberately arranged policy of secrecy between the Secretary of State and the other parties in order to secure that the India Office should get the silver at the cheapest price possible.

Then as to identification marks. Again I must apologise to the House for going into an explanation which is elementary to those who are acquainted with the practice of the bullion market, but the hon. Member did so misrepresent the facts that really I am compelled to give this explanation to the House. The hon. Member has alleged that I have given a false answer to a question on that point. On the same day one of these brokers on the bullion market buys silver from a selling client who wants to sell it—sells it to a buying client who wants to have it. Those two operations are two sides of the same transaction, but in due course, in many cases two months afterwards, and not on that day, the seller delivers to the buying firm silver which is of a specified weight and quality. No buyer in the bullion market ever buys certain specific bars a, b, and c. They buy silver of a certain weight and quality, and nothing else. The bars delivered eventually are not necessarily the bars which were bought at the time under any contract for brokerage. Then when the buyer comes at a later day to receive on such a contract, there is no means of knowing that he gets these bars—a, b, and c. The broker cannot say. No broker who ever operated in the silver market could do so. It would be quite impossible. He cannot possibly allocate them to a particular contract made on behalf of the particular buyer. He can, of course, place the actual sellers of these bars. That is the whole point and purpose of the identification marks themselves. The effect is that Samuel Montagu and Company could not possibly show that against each particular contract, and there were a great number, with the India Office they had also a specific contract with a seller for the particular bars delivered. That is not the way in which the operation is carried on. All they can show is, when the due date arrives, that the bars are of the requisite quality asked for. I hope hon. Members will recollect the explanation given by the hon. Gentleman on that subject, and will compare it with mine and observe the differences which appear.

I now pass to his next point, and that was whether there had been a saving or not by purchasing through Samuel Montagu and Company. The hon. Member said it was a matter of conjecture. I am afraid it must be. I remember a story about somebody who, having gone into a certain examination, had a proposition in Euclid to do, but he was not sure that he had succeeded in proving it, though he said he had made it extremely probable. I can make it appear extremely probable that there was a great saving by purchasing through Samuel Montagu and Company. You have the price of silver, you have the restricted market, four brokers only, and you have also the question of speculation for a rise. I am going to put this question to the best test there is—I do not say it is very good, because it is impossible that the result can be more than conjectural; I give it for what it is worth. The first purchase of silver was on the 4th March; the first actual shipment did not take place until the 9th August. The first suggestion that the Secretary of State was a purchaser at all was on the 9th August. That was in the bullion circular of Messrs. Mocatta and Goldsmidt. This appeared in print on the 9th August, and I think we may fairly assume that the rumour that the Secretary of State was purchasing existed on the 7th August. The price of silver on the 7th August was 27 11–16ths. Ten days later, after that rumour first began to spread, on the 17th August, the price was 29 1–8th. It was the rumour which sent it up.

There may have been other factors to be taken into consideration, but here you have the fact that after this rumour the price rose above what it was during the five months' period of secrecy; and if there could be such a rise in consequence of the rumour, the House may judge what must have been the saving in the period of secrecy. It must have been a very large sum indeed. Taking all the purchases made up to the 9th August, the date up to which secrecy was maintained, the purchases up to that point were made at the price of 27 3–8ths. Taking the period from the 9th August to the 24th September, which may fairly be called the period of suspicion when there was considerable suspicion about the Secretary of State's purchases, the price during that period was 28 3–4ths. After 24th September, when it was known that the Government were purchasing, and in the later purchases made from November up to January through the Bank of England, the purchases were made at the cost of 29 3–16ths. There you have three periods—the period of secrecy, the period of suspicion, and the period of certainty. In the period of secrecy the price was 27 3–8ths; in the period of suspicion it was 28 3–4ths; in the period of certainty it was 29 3–16ths. [An HON. MEMBER: "The hon. Gentleman has made a mistake in his figures, because on the White Paper the price is given at 28 1–8th."] I have given the average prices. If anyone has any doubt on this subject I may mention that other people concerned in the market have admitted that the Secretary of State, by the method he adopted, succeeded in keeping the price low, and in bringing about a considerable gain to the India Office.

Mr. BONAR LAW

What other people admitted it?

Mr. BAKER

If the right hon. Gentleman wants to know the name, it was Messrs. Mocatta and Goldsmidt. If you take the figures I have given over the periods stated, I estimate that we have effected a saving in connection with the purchases of silver of £175,000, and anybody able to judge probably may give good reasons for stating that the amount was very much more than that. Now I come to a point somewhat personal to the hon. Member, and I am very sorry to have to dispel an illusion under which I fear he is labouring. He said that our return to the Bank of England was caused by the questions put to me in this House. The hon. Member said there is no complaint as to the Bank of England, but I would like to point out what is very much overlooked, that when you go to the Bank of England in order to purchase silver, you have to pay them a commission, in addition to the ordinary commission, on the purchases. Although there is no reason to complain, from the year 1900 the Bank of England received the sum of £34,700 by way of extra commission from the India Office, an outlay which would have been avoided in purchases made direct through brokers. Although we have no reason to complain of the Bank of England as to the way they have done the work, it is a more costly proceeding to purchase through the Bank of England. An extravagant Conservative Government from 1900 to 1906 paid £1,250 over and above the ordinary brokers percentage on each million of silver purchased. But when the present Government came into power one of the first acts in 1906 was to reduce these extravagant and excessive terms of the Bank of England to one-eighth on the first £2,000,000, instead of one-eighth on all the purchases. Negotiations are in progress by which we hope with great confidence that the amount given to the bank employed will be considerably reduced. The hon. Member suggested that it was in panic, in consequence of public exposure, that the India Office had given up their friends and deserted Samuel Montagu and Company and rushed back to the Bank of England in order to resume transactions through them. What is the fact? From the first Samuel Montagu and Company were told that these transactions were to be of a temporary and exceptional nature, and that there was no hope of their continuance. It was stated to a member of the firm, who told the Select Committee that they understood it was a temporary measure, and that was confirmed by Lord Swaythling in the House of Lords.

The hon. Member apparently suspects everybody, but it so happens that there is a record in the India Office dated 15th October—before the hon. Member put a single question in this House to me—which says that the need of secrecy is withdrawn. It was then thought that further purchases possibly might not be required. That was on 15th October, but on the 18th the Government of India telegraphed that they would require another £1,000,000 worth of silver. Mark the dates. On 24th October the Secretary of State received a letter from the Bank of England, in which they claimed that under certain correspondence which passed in the year 1906 they had an exclusive right to these transactions, and that it was a breach of that agreement to employ Samuel Montagu and Company at all. It was quite evident to anybody, whether they have a legal mind or not, that on the correspondence they had no such right at all, but the Secretary of State was informed by Lord Inchcape that a collateral agreement to that effect had been made orally. The Secretary of State accepted that, and decided to carry out that engagement, which existed up to the 31st March, 1913. That was on 24th October. Actually that letter arrived on the same day on which the first question was put upon the Order Paper by the hon. Member as to these matters. The hon. Member put a question as to through what firms purchases had been made. That was answered on the 29th. On the 30th October, £1,000,000 of silver was ordered to be purchased through the Bank of England. If hon. Members will look fairly at these dates, they will see that it became necessary that the Secretary of State, in accordance with the agreement, should go back to the Bank of England in order to carry out the small purchases of silver through them, and not through Samuel Montagu and Company.

The hon. Member next made a great point as to the internal maladministration of the India Office. The fact is that the brokerage charges made by Samuel Montagu and Company were arranged in a conference. It is quite true that the actual figure does not appear in the first letter, and only appears in a later one, but the later letter refers back to the oral arrangement which was made; and more than that, the brokerage amount was an amount which could not have been varied in any possible particular; it was the brokerage always charged on every transaction in the silver bullion market. It was because the charge was so normal, so certain, and so inevitable, that, by an oversight, it was omitted from the first letter, and put only into the second letter. From the beginning there never could have been any variation in the rate of brokerage, and the hon. Member can make no point of the fact that by a mere oversight it was omitted from the first letter. I have dealt with all the questions raised by the hon. Member, but, before concluding, I wish to make allusion to a second subject, one rather apart—I mean the question of the list of approved borrowers. There is no need to go into that in any considerable detail, but the hon. Member did suggest even there that the amounts of the balances lent to borrowers had increased so much that Samuel Montagu and Company profited in some way from those increased amounts.

I think I can confute that plea. If you take the years 1900 to 1906, you will find that taking the maximum of those loans to borrowers held on any one day, Messrs. Samuel Montagu and Company's proportion of the whole amount was 9.5. If you take the later years, when the Liberal Government was in power, from that time onwards you will find that that has only increased to 9.66. The hon. Gentleman is welcome to the difference between 9.5 and 9.66. Those figures are quite correct, and I think they prove conclusively that no unfair advantage has accrued to Messrs. Samuel Montagu and Company under the Liberal Government. I regret I am not able in the course of my speech to deal with those rather larger questions which must arise, and which no doubt will be dealt with by those following me.

I have dealt to the best of my ability with those specific allegations and ground for suspicion which have been brought forward by the hon. Member in connection with the India Office transactions with Messrs. Samuel Montagu and Company. I can assure him and the whole House that as far as inquiry goes, whether by Select Committee or by any other body, the very last people who would resist it are the India Office themselves. They have nothing to conceal in this matter, and they court the fullest investigation. As to whether an inquiry, so far as Messrs. Samuel Montagu and Company are concerned, should take place, I venture to suggest, speaking for myself, that not one scrap of evidence has been produced to show any necessity for an inquiry. The hon. Gentleman referred to the fact that these questions and answers, and these allegations, and these expressions of suspicion had created a serious effect. Yes, I believe that is right; I believe they have created a very serious effect, and I think there is a very serious responsibility on those who now know that they have by their proceedings of the last few months done a great deal, unjustly and unfairly, to cast suspicion on the reputation of the English Government of India. I have no more to say. That suspicion, which the hon. Member adhered to, even at the very end of his speech, and seemed to think was the natural element in which he must live and breathe and move, is, I fear, not confined to him. The right hon. Gentleman the Leader of the Opposition has brought suspicion from being a mere attitude of mind into a place into which it is a cardinal point of party policy. As far as these transactions with which I have been dealing are concerned, we can show that the hon. Member who moved has not any case, but has even wilfully perverted it beyond the point to which a reasonable man would take it.

Mr. BONAR LAW

I need not assure the House I am not going to follow the hon. Gentleman into the mass of detail which quite properly he has read out. I shall say a little about the last point which he raised, but in the meantime, I desire to say that I do not intend, in the very short speech which I shall make, to deal with those larger questions which are connected with the finances of India. Questions of that kind are extremely difficult, and I am bound to say, among all the subjects which I have tried to understand, there is none which has seemed to me more complicated or difficult than the question of currency, of exchange, and of credit on which business rests. Those questions are all connected with Indian finance. I am not going to deal with them this afternoon, not even with the smaller point as to whether or not those large cash balances should be kept in London, or whether there should be coinage of silver in India. Those are smaller questions, but even in regard to them, from the little examination I have been able to give them, I think there is room for some difference of opinion. As to whether a mint in India is to the advantage of India, on that again I express no opinion. The points which have been raised to-day, and which are specially dealt with in this Resolution, are really two, The hon. Member, like my hon. Friend, dealt in the end of his speech with the question of the cash balances. It has been suggested that it is awkward that Sir Felix Schuster, who is Chairman of the Finance Committee of India, should also be chairman of the bank which does business with India. Of course, other things being equal, that is a disadvantage, but I am certainly not going to press that point here, for this reason: If we are to have business men to guide the India Office, they must be business men who know something about the subject, and precisely the kind of experience which Sir Felix Schuster has got is the kind which is useful to the India Office. Therefore, I think the Government of India would be unduly tied if they felt bound to take as financial adviser, someone not connected with the bank which does business with India.

In a case of that sort all that I say is this—and perhaps I go further than most politicians, since I have a business point of view of looking at these things—all that one has the right to ask in a case of that kind, is that there should not be any conflict of interests between the two bodies. In my opinion, so far as I have seen, there is no conflict of interests in this case. The bank has the use of the money for which it pays the ordinary market rate, and this kind of transaction went on before Sir Felix Schuster was financial adviser. The only point I make in regard to these financial balances is, that after looking into them very closely, I do not think the Government of India got as large a rate of interest as they ought to be able to get. [Mr. ANNAN BRYCE made an interruption which was inaudible.] The hon. Member is a great financial expert, but perhaps he will allow me to develop my own argument. I do not think they got as large a rate of interest as they ought to get. I have looked at the figures given to my hon. Friend, and I find, taking the years 1910 and 1911, the two years for which complete returns are given, the rate of interest obtained by the Government of India was fully 1 per cent. less than the Bank of England rate. I think that was distinctly lower than the Government of India might obtain without any risks whatever.

Mr. ANNAN BRYCE

No, no.

Mr. BONAR LAW

I have a little experience. I was for a very long time a director of a bank, and, without being dogmatic, I must be allowed to express that as my opinion. In my opinion it ought to be got—

Mr. ANNAN BRYCE

They are short terms.

Mr. BONAR LAW

But there is no need of short terms. They have a very large amount of money to dispose of, and it is quite obvious that they must have the right to call some of it up on short notice. I would not suggest that any of it should be lent for a long time. It is not that I have in my mind, but I see no reason why the loans should not be so arranged to fall in at stated intervals.

Mr. ANNAN BRYCE

So they are.

Mr. BONAR LAW

The hon. Gentleman has a very strong opinion on this subject, but I am bound to say, and I think I have some reason for saying it, that you could lend that money on an average of years with perfect security at something like a half per cent. below the Bank of England rate. That is my belief. If that is possible, it would mean a saving to this country on the £15,000,000 of something like £75,000 per year. I know that under the present arrangement one of the reasons why they get such a low rate is that the Government of India insist on a particular kind of collateral security.

The PRIME MINISTER

From the borrower.

Mr. BONAR LAW

I do not think that is necessary. All they want to have is absolute security for the loan. I do not think the particular kind of security is necessary. Without being dogmatic I do say I think it is worth while that inquiry should be held, and perhaps the right hon. Gentleman would examine into it and see if there is not ground for a reasonably higher rate of interest than that obtained now. I think inquiry of that kind at least ought to be made. The other subject is the question of the silver coinage. The hon. Gentleman who has just spoken made reference to a remark which I made when I was asking for a date for this subject, and on that occasion I said the question seemed to me like "drawing teeth." The right hon. Gentleman took exception to the phrase, and said he was sorry I had used it, but I do not think he was present in the House while these questions were going on as frequently as I was. It really did seem to me the way in which the information was got was, as it were, tooth by tooth, instead of making a clear statement. That was all I meant, and if the right hon. Gentleman refers to the question, when I asked for the Debate, he will see I distinctly stated then that in the public interest, and in the interest of the Government themselves, the moment they found there was suspicion in regard to this matter, they ought, in justice to themselves, to have taken time to explain the whole thing to the House to get rid of that suspicion, and bring the matter to a head. That was all I had in mind by pressing it in that way.

The hon. Gentleman has said that I have made charges of corruption in party politics on suspicion. I wish to point out to the House that, though I have made charges of corruption or suspicion of corruption, I have never suggested, and I have never had in my mind, the smallest suspicion that there was any personal ground of suspicion against any Member who sits on the Government Bench. That is not what I meant by corruption. The kind of corruption I think we have a right to fear, is not that Cabinet Ministers, like the right hon. Gentleman, or his colleagues, will try to enrich themselves out of the public purse; there is no fear of that at all. I never suggested it.

The PRIME MINISTER

Or their families?

6.0 P.M.

Mr. BONAR LAW

And the families. I believe that when a man makes political life his ambition, he sinks the smaller things, and even money, however important it may be, becomes a secondary consideration for the sake of the higher ambition; and that he would not, even from the most selfish motives, for the fear of losing the thing to which he attaches the greatest value, listen to something much less, and which is secondary. I have never entertained that kind of suspicion. The suspicion which I do entertain, and which I think is more dangerous to the State, is that of using patronage in order to help your political party, and to strengthen the political machine. That is what I mean. I do not say, and I do not suggest, that even that kind arises in connection with this matter, although there was a possibility of it. I say at once I do not for a moment suggest that the right hon. Gentleman, the Postmaster-General, as I have far too much respect for his ability to suggest anything of the kind, had anything to do with this transaction. On the contrary, I give him credit if he had known of it, knowing what politics are, he would have done his best to stop it, and would have stopped it if he could. I say the same of the Under-Secretary of State for India, and I take exactly the same view. I believe that among all those who feel aggrieved by this transaction, there is nobody who had so much right to feel aggrieved as the Under-Secretary of State for India. He was in a position of peculiar delicacy in this matter. Such a transaction which might directly affect him and his political future ought not to have been entered into without his knowledge by his brother's firm. They took the purely business point of view, that as long as the Under-Secretary knew nothing about it, it was all right; but if they did not protect him, I think the India Office ought to have protected him, and pointed out clearly the nature of the transaction which was carried out by the firm with which he was so closely connected. There is no charge of that kind, but I do say this: after looking into it as closely as I could, that this business was just as unwise in the public interest as could be undertaken by any Government Department. That is my belief. I will tell the House why. It is not like giving a public contract with the Government where there is competition and where the most you can give is some slight favour. It is far more important than that. It is a far greater advantage to the firm which gets such a contract as this. What is the advantage? To any firm whose business it is to deal in silver the obtaining of this contract gives them without any doubt the means—I do not suggest that they took advantage of it—of making money practically to any extent they chose. That is the real effect, and it is obvious. My hon. Friend has pointed out that the knowledge that the Government of India were buying, and still more the knowledge given to the firm at the outset that they were going to buy right away £2,000,000, gave them the means of making money by dealing in silver on their own account. If they chose to buy they would know exactly the moment to sell, when the Government of India ceased to buy, and they could make practically any money they chose out of the transaction. No honest firm would do that, and I do not suggest that this firm did it. But there were other indirect ways of which business firms might think. For instance, there is a tremendous amount of business done in exchange. That exchange depends in Eastern countries—not in India—on the price of silver. The knowledge that this firm had, that silver was going to keep firm and probably rise, gave them the means of dealing with that exchange in a way that no other firm in London could, and they had the possibility of making any amount of money in that way. The point is that by giving this contract you do give a particular firm a means of making money to whatever extent they think reasonable, and I say that, of all the firms in London, the very last to which such a special privilege should have been given, unless there was special necessity, was the firm of Messrs. Samuel Montagu and Company. I do not think that that would be disputed.

In business life the principle which is daily acted on is that we should help our friends. If a friend of mine can do my business as well as anybody else I give him the business. But if that becomes the principle in Government contracts nothing could be more fatal to the purity of administration. The very opposite principle ought to apply. If a firm has any special connection with the Government or with the party it ought to be a handicap rather than an advantage to them in obtaining business. I think that will be admitted. The view of the Government in these circumstances is pretty evident. I remember that the first Debate to which I listened in this House was a Debate on the Address on the question of contracts, and if anyone wants to know what the views of the Government are let them read the Debate on that Amendment. What was it? I remember it well, because, as I say, it was the first Debate to which I listened in this Houe. Every one of the speakers who were making charges against my colleagues, as they afterwards became, said that there was no charge of corruption and no charge of improper motive. The speeches were full of "Cæsar's wife," and of "avoiding even the appearance of evil"; but they said that the Government had put themselves into a position where they would be suspected, and that that was enough to open the floodgates of corruption. I have some extracts here, but I do not know that it is worth while to read them. I am sure the Prime Minister remembers them.

The PRIME MINISTER

I did not take part in the Debate.

Mr. BONAR LAW

No, I do not think the Prime Minister is very fond of that particular form of controversy, but probably he voted. The speeches contained very unpleasant insinuations, but every one of the speakers repeatedly said that there was no charge of improper motives against anyone, and that their whole contention was that the Government ought to avoid suspicion. Can anyone imagine a case more likely to raise suspicion than the giving of this special privilege to this particular firm? We all know what their position is. The partners are related in the closest way to Members of the Government, and to one Member who is connected with the Department concerned. But I do not think that that is the worst feature. I do not think that that is a connection which should have precluded them more than any other. But look at the relations in which they stand to the Radical party. One member of the firm is a supporter of the right hon. Gentleman in this House, and was made a Baronet. The late head of the firm was made a Peer by the present Government. A firm of that kind is the last to whom such a contract ought to be given. It all comes down to this: Was there any necessity for departing from the previous custom in this matter? That is the whole question. Unless that can be shown the Government have at least made a mistake. I am not going to find fault with the literary correspondence of Messrs. Samuel Montagu and Company, but I really must refer again to what the hon. Gentleman describes as the vivid and graphic language. They are a business firm trying to get an order, and they are pushing their wares to the best of their ability, just as other people push theirs. Substantially they say, "The inevitable result will be that you will have to pay more or less whatever you are asked." The hon. Gentleman said, "These speculators are holding silver against the Government." How in the world can you hold silver against the Government? If a man holds silver he does not injure the Government; he only injures the Government by buying against them. Just see how this corner works. I am sure there are business men present who know what a corner is, and understand the whole transaction. It is not an easy thing in any case, but the way in which a corner is brought about is by getting your power over the "bears," the people who have sold the particular commodity in the expectation that they will make a profit. It is comparatively easy to make a corner in that way for this reason, that the material is sold for delivery on a particular date, and if you cannot deliver it on that date, then your buyer has you in his power, and can force you to pay practically any price that he chooses to demand.

But how in the world are you going in that way to corner the consumer? Think what it means. Of the total quantity of silver which comes to this market, something like three-fifths, or nearly two thirds, is used in industry and art and that kind of thing. You can only corner the Indian Government by cornering the whole silver trade at the same time. One is in precisely the same boat as the other. How would they proceed to do it? The silver they hold does not help them in the least. The silver is coming into the market, and the Government would buy it. The only way they can corner the Government is by going in and buying the silver as it comes week by week into the London market. See how the Government could deal with that. They would at once stop buying. They are under no compulsion to buy. The hon. Gentleman said that they did not need to buy at all till August, and these purchases began in January. How would these "wicked speculators" get on? Let the Government of India refrain from buying for three months. Seven and a half millions would come into the market, and these people would have to buy and hold. That is assuming that they are raising the price against the Government. If the Government held off for six months, fifteen millions would come in, and the speculators would have to buy it all at inflated prices. The only way that they could make a profit out of it, after buying the fifteen millions, would be to sell to the Government of India something like half the quantity, and to sell the remainder at a price which they cannot get. Obviously, to say that the inevitable result would be that you will have to pay any price you are asked is simply nonsense, and though the letter was written to Sir Felix Schuster, I think he must have smiled when he read it. I do not think it was intended seriously, but it had its effect.

I read the speech of the Secretary of State for India in the House of Lords the other day, and I do not remember any speech which amused me more. He pointed out that in the last ten years there had been a fluctuation in the price of silver of so much. "Now," he said, "suppose we had made this contract at the highest point of difference between these prices, we would have paid three millions sterling more than we have done by buying the silver through Messrs. Samuel Montagu and Company." "Of course," he went on to say, "I do not suggest that we have made that saving, but we have saved hundreds of thousands of pounds." How does he prove that? Because in the course of ten years the price of silver has risen 50 per cent., therefore we must have saved hundreds of thousands of pounds by buying it through Messrs. Samuel Montagu and Company. I do not see any other object in giving the figures. Secrecy, I admit, was desirable if you could get it. I quite admit that. If you buy you will probably raise the price, however much secrecy you use. But what I do not understand is the ground on which the Government decided that they were less likely to get secrecy through employing the Bank of England than through employing Messrs. Samuel Montagu and Company. In these letters Messrs. Samuel Montagu and Company say that they are constant sellers, and that is one of the inducements held out. There are only four firms engaged in this bullion market. These people will watch it as a cat will watch a mouse. They will watch every transaction to try to find out if there is any buying and where it is coming from. If Messrs. Samuel Montagu and Company, who are not large brokers, instead of being regular sellers, became heavy buyers, do you suppose that these people did not notice it? As a matter of fact, since the hon. Gentleman has given me the opinion of a firm engaged in the bullion trade, I will tell him this. I have made inquiries of those who are actually in closest touch with the silver market, and they tell me on information which I believe to be quite undoubted, and which the Government can verify if they choose to go into it, that at a very early stage there was a suspicion which amounted to certainty that Messrs. Samuel Montagu and Company were buying for the Indian Government. I do not see how it could be otherwise.

What in the world, then, is the good of all this mystery? What is the good of all these tricks of exchange? What is the good of these suggestions, that it is necessary to hide it from the Bank of England for fear they would take advantage of it? When the hon. Gentleman said that there was nothing of that kind he was quite wrong. Some bank had to be trusted. What reason had they to suppose that there ought to be a conspiracy between Messrs. Samuel Montagu and Company and the India Office to hide the transaction from the Bank of England for fear that the Bank of England would do an injury to the public service? Why ought we to suppose that the Bank of England could not have done it as well? The hon. Gentleman says because they would have employed brokers who were known to act for the Government. Yes, but he has told us that there are only four. All business must be done by these firms. Everybody knows that these firms are employed by the Bank of England, and do an immense business outside the Bank of England. Why should one suppose that they would be discovered any more than anyone else? More than that, the whole basis of this change is that you were afraid of a corner. Well, now, who is better able to deal with that—Lord Crewe or the Bank of England? If you had trusted the Bank of England, as you have trusted it in the past, why should not you have gone to them and said, "Can you buy in such a way as to do it as secretly as anyone else?" From what I know of the Bank of England, and from their whole history, if the Governor had not been able to say, "Yes, we can," he would have said, "Do it through somebody else."

I put another point which was not dealt with by the hon. Gentleman. My hon. Friend said, "Why did they not go to the Bank of England, and—if the facts are as you say—get them to employ Messrs. Samuel Montagu and Company?" What was the answer? The hon. Gentleman said that in 1910, two years before this time, the Bank of England had told them that there was a moral obligation to employ two particular brokers. If there was that moral obligation, it is precisely the same moral obligation which was broken by the India Office in taking away business from the Bank of England. Do they really say that the facts are as they thought them? Do they really say that they were bound to take the opinion of the Bank of England two years before. and that they ought not to have trusted the Bank of England again, gone to them and said, "Will you not in this case employ Messrs. Samuel Montagu and Company?" If they had done that they would have produced precisely the same result, and all this suspicion, which in itself is bad, would have been saved to the Government, and saved to the country—which is more important. I must say that I was surprised at one remark made by the hon. Gentleman the Financial Secretary. I thought he was familiar with the details of this business. He said that to have employed the Bank of England they would have paid a bigger commission. He is quite wrong. If he will look at the correspondence he will find that precisely the same commission would have been paid if the Bank of England had been employed as to Messrs. Samuel Montagu and Company.

Mr. BAKER

Will the right hon. Gentleman allow me? I really think he is wrong on that point. In addition, there would have been the commission paid to the broker.

Mr. BONAR LAW

If the hon. Gentleman will read the correspondence of 1907 he will see what the bargain was. He ought to know that the bargain was that the rate was to be ¼ per cent. on the first £2,000,000 and ⅛ per cent. on all subsequent millions. If they had employed the Bank of England for the whole amount, precisely the same commission would have been paid in the one case as in the other.

Mr. BAKER

We would have had to pay ⅛ per cent. to the broker as well.

Mr. BONAR LAW

Not at all! Really that shows an amount of ignorance that is surprising. The Bank of England made a bargain, and the letters show that these rates are to include the fee to them and the fee to the brokers as well. The only effect, therefore, of employing Messrs. Samuel Montagu and Company would have been that the country would have paid precisely the same amount, but that Messrs. Samuel Montagu would have had to be content with a smaller commission. That is the whole matter. As regards this question of having saved money. I say it is purely conjectural. Nobody can tell. But there is this fact, which at least is as near a proposition in Euclid as anything the hon. Gentleman can give: Messrs. Samuel Montagu bought £5,000,000, and in buying it they raised the price something like 10 per cent. The order was then taken from them and given to the Bank of England, and they, according to the correspondence, bought £1,000,000—I suppose they are still buying—I suppose I am right in saying that they have bought £2,000,000 since? What happened? Messrs. Samuel Montagu and Company raised the price 10 per cent. The Bank of England bought £2,000,000, and have not raised the price a single percentage. I do not say that is due to better buying. I do say that we would have a better right to say that the Government have saved money by buying through the Bank of England and by taking away the order from Messrs. Samuel Montagu than they can say they have saved money by having taken it away from the Bank of England and giving it to Messrs. Samuel Montagu. That is really all I want to say. I do think that the case for the special necessity which justifies this special method of dealing has not been made out. I am not going to make any charge against Messrs. Samuel Montagu. A business firm has a right to push its business. It is the Government alone who are responsible, if there is any blame in the matter. More than that, in looking through the correspondence, they have so far as I can see done their best to do the business satisfactorily.

So far from suggesting that it has been a tremendous scoop for them in which they have acted dishonestly, I think they must have actually lost money by this transaction. I do not see how it can be otherwise. In the letter which they wrote begging for the business they showed clearly that they expected the price would go up. That is their reason for the advice they gave. They are dealers in silver, and naturally, holding that view, they would have held silver on their own account in the hope of making a profit. Obviously they could not do that after they were trusted by the Government. Of necessity—at least they would be departing from all commercial morality—if after they were trusted by the Government they continued to deal for themselves, and the result of that must have been, in my opinion, that instead of making £7,500, they would have lost a great deal more. I do not suggest that they did think of that, and I do not ask for an inquiry into that matter. It does not concern the Government. It is a question for a private firm. I do not believe they did that. If they are satisfied to leave it where it is so am I. It is no business of mine. I am quite ready to accept the statement that they have made no improper use of the information given. I do not think we have put this case unfairly. I think I have a right to say that you cannot be too careful in cases of this kind, and that the very last thing that you ought to do is to give Government business, which must be of special value, to a firm which is specially connected with the Government. I do not know whether the right hon. Gentleman thinks that some further inquiry of some kind is desirable. The only point really that I think in the public interest an inquiry is of importance is in regard to the investment of cash balances on the one hand, and also I think it is useful for the sake of future dealings of this kind to try and find out whether all this melodramatic secrecy had any result. I think both these things might be worth inquiring into. So far as I am concerned I make no charge of corruption, either against the Government or against Messrs. Samuel Montagu and Company. I say only that in my view a very grave mistake was made in taking the business from the Bank of England. I think the Government treated the Bank of England most unfairly. I think if there is one thing that the whole traditions of this country show, it is—I am sure the right hon. Gentleman the Prime Minister will agree—that the Bank of England does look upon itself as something in the nature of almost a Cabinet; that they do regard their responsibility as as grave as that of any Member of the Government; and I think if proof were needed of that—though it is a very small kind of proof—the suggestion was made that the Bank of England had written a letter—I heard an hon. Gentleman ask was there any connection between the two? Well, I have tried to get information about this, but I would just as soon have thought of going to the Prime Minister as going to the Governor of the Bank of England. I believe—and I am sure I am right—that they act for the Government of the day, whatever it is; and that the last thing they would do would be to give information in a matter of this kind that would be used by the Leader of the Opposition against the Government. I think the Bank of England have been badly treated. I think it was a mistake from the beginning to the end, and I hope the hon. Gentleman will give us an indication that mistakes of this kind will not be made again.

The PRIME MINISTER

I have listened with great interest to the speech of the right hon. Gentleman. With its general tone and tenour, I have no reason to make any complaint. The right hon. Gentleman gave us at the outset—and I was very glad to hear it—a definition, or at least a more extended exposition than we have hitherto had, of his view of what I may call "the ethics of political corruption." In the course of that exposition he was good enough to acquit himself and my right hon. and learned Friends who sit on this Bench, of any charge of complicity contrary to the public interest, in the various transactions. I am quite sure the right hon. Gentleman said that in full sincerity, nor have I ever thought, to do him justice, that he ever thought anything worse. I should like to take the opportunity on these observations of his to say that I think terms like "corruption" and "suspicion of corruption" are too freely employed in the vocabulary of the present day. Although we know quite well in this House the sense in which they are used, they are read, interpretated, and understood in a very different sense by people outside. No one knows better than those I am addressing on both sides of the House that if any man in this country of decent abilities and character wants to further his own personal and pecuniary interests, the last thing he would do would be to take up politics as a profession. That I believe to be the case—indeed, I am sure it is the case! I do not say anything about individuals either on one side or the other, but I do not think I am exaggerating or taking an exaggerated view of our individual and corporate life, when I say that we could have taken our pigs to a much more profitable market in almost any part of this country, and in any career in the world than in the career of politics. I was glad to hear, and to have got, that very explicit statement of the right hon. Gentleman. It is desirable that it should be understood everywhere in the country on all sides that when allegations of this kind are made, they do not affect and are not intended to affect—

Mr. BONAR LAW

By me.

The PRIME MINISTER

I take the right hon. Gentleman as the spokesman of his party—are not intended to affect the personal integrity and honour of individuals. That by the way. I was particularly glad to hear the right hon. Gentleman say what he did—because, although the hon. Gentleman who made this Motion disclaimed quite pointedly and explicitly any intention of making reflections on my hon. Friend the Under-Secretary, yet there was a passage in his speech which I hope, upon reflection, he will see was not only totally unnecessary to his argument, but was calculated to give, at any rate, some kind of colour to the imputation which he did not expressly and directly make. May I say, in passing, that while I very much regret the absence of my hon. Friend, I take the whole responsibility. He went to India at the request of the Viceroy, and in the opinion of the Government, for the very useful purpose of studying at first hand—before any of these questions were raised—Indian policy and Indian administration. I know from communications I have had from him that he was most anxious to return and deal personally with these matters, but I took upon myself the responsibility of telling him that he ought not to curtail his visit, which is in the public interest. If I was wrong, the fault is mine and not his. When the hon. Gentleman elaborated at some length the various relationships and connections of my hon. Friend with members of this particular firm I cannot conceive what object he had in view, or how in any way he advanced his argument, unless it was to suggest, at any rate, that there was some kind of indirect, subterranean connection between the giving of this contract to Messrs. Samuel Montagu and Company and the presence of my hon. Friend in the position of Under-Secretary for India. I know he disclaimed that.

Mr. GWYNNE

To which passage is the right hon. Gentleman referring?

The PRIME MINISTER

To the passage which is in the recollection of the House. I took particular note of it at the time: I listened to it with very great regret, and I am sure the hon. Gentleman did not intend the interpretation which everybody who heard it would naturally put upon it. That brings me to what the right hon. Gentleman who has just sat down said upon that subject. I quite agree with him that any Government—I do not care which party is in office—ought to show scrupulous care in giving contracts or employment in the public service to persons who are directly or indirectly connected either by relationship or business with any of their members. I do not think you can be too scrupulous, and although I should hardly like to accept the phrase of the right hon. Gentleman that such firms or persons ought to be regarded as handicapped, certainly they ought not to be entitled to preferential treatment, and they ought not to be employed in competition with others, unless a case of clear superiority in the public interest for that particular purpose can be established and made out. There, I think, we are on common ground. And the real question to which the whole of this controversy of the silver contract is now reduced is whether the India Office—of course, many of us had no direct connection at the time with the matter; it was a Departmental matter, but we take full responsibility for it—when this contract was entered into about the spring of last year, were, or were not, acting in the interest of the people and Government of India in this contract which they made. That is the whole point. If, as I think, and as they think, acting in that interest and that interest alone, they choose the wisest and best course, then the right hon. Gentleman will not dispute that the mere fact that the firm employed happened to be connected by ties of blood, or whatever it may be, with Members of the Government, ought to prevent the Government or the Secretary of State from employing those they thought best able in the interests of India to carry out this particular contract. Let us see how that worked out.

The Financial Secretary to the War Office, in his admirable speech, has covered the ground completely, and I am not going to travel again over what he said; but in reply to the points raised by the right hon. Gentleman, let me point this out. Two things are not disputed; in the first place that there was an exceptional need which came, not from here, but from India, which was made out by the Government of India to the Secretary of State for a supply of silver for coinage purposes in 1912. The reserve supplies had been considerably reduced. Fresh coinage had not taken place I think for several years, at any rate, for some considerable time past, and there was a prospective and anticipated deficit of the necessary supplies which had to be made good during the course of the summer and autumn. That is not disputed. For the purpose of making good that supply, silver had to be purchased and purchased here in England, for this is the market, the largest—I am not sure that it is not the only market—but certainly the largest and most elastic market in the world for the purchase of silver. Further, it is conceded—the right hon. Gentleman most frankly made the admission just now in the speech he made—that for the purpose of carrying out the particular transaction, secrecy, I will not say was essential, but certainly was desirable.

Mr. BONAR LAW

Secrecy, as far as practicable.

The PRIME MINISTER

Secrecy, as far as possible, because even if the market were in a normal state, the fact that a purchase like the Secretary of State, under the stress of necessity, had to make within a comparatively limited space of time, and that he was coming into the market to purchase so large a figure as £6,000,000 sterling of silver—51,000,000 ozs. of silver—must necessarily have the effect of raising the price of silver, and of increasing the inducements to holders of silver, to stand out for a higher price than they otherwise would have got. Then, I do not think that the right hon. Gentleman seriously disputes what I think has been quite established by my hon. Friend and colleague that there was, I will not say a corner—the phrase "corner" has never been used, so far as I know, certainly not on this side of the House, and not in any of the documents of the India Office, or of Messrs. Samuel Montagu and Company—I will not say that there was a corner, but there was then what is called a speculative position for a rise. I am not so well versed as the right hon. Gentleman is in this terminology, but it is no doubt a fact. And, remember, in this matter, though I do not in the least degree depreciate the right hon. Gentleman as an authority—I very much regret that the India Office could not have taken him into counsel—he is an expert in this matter—although I do not appreciate his authority in any way, the India Office had to act on the authority and advice of their expert counsellors, and it was the opinion of those counsellors, both in India, and Bombay particularly, where speculative manipulation or organisation had reached its largest dimensions, it was the opinion of the expert advisers of the India Office, both in India and in this country, that there was such a position, and that it would be in the power of those who had made their arrangements in advance, in anticipation of some such necessity, to raise the price of silver as against the Secretary of State, if he was known to be coming into the market to purchase it, and to compel him to pay a much higher price than was necessary, and therefore to inflict a heavy fine upon the revenues of India.

These being the facts, and they are really admitted facts, was it not the plain duty of the Secretary of State, acting on the best advice he could command, to take such steps as would enable him first to obtain within the time prescribed the large amount he required, and next, to obtain it under such conditions of secrecy or, at any rate, ignorance on the part of the public, particularly those who were speculating in the market, so that they might not know that whatever purchases were being made, were made on behalf of the Government of India? I say it was his bounden duty to take whatever steps he thought necessary for the attainment of these two ends. What were the possible courses to which he might resort? He might have gone, as the right hon. Gentleman says he ought to have gone, to the Bank of England. If he did not go to the Bank of England, I do not think it is disputed that the only firm in the market who were capable of carrying out a transaction of this kind—perhaps I may assert this—were Messrs. Samuel Montagu. I am not going to say a word against the Bank of England. I agree entirely as to the services it has rendered and is rendering to the Government of this country; but it was no reflection whatever upon the Bank of England that in this particular case, and in these particular circumstances, the Secretary of State did not go to them. And the reason has been given by my hon. Friend, and really it is not controverted by the right hon. Gentleman. The reason was this: the Bank of England employ, whether under a binding contract or honourable obligation. I do not care—it is totally immaterial—they employ, and conceive themselves bound to employ as brokers for transactions of this nature, two firms—I need not mention their names—out of four available in the London market, who had, in all previous transactions of this kind, acted on behalf of the Bank of England acting for the Secretary of State in buying silver in the market.

Of course, you cannot better advertise the fact that the Secretary of State was the real purchaser in the background in these transactions than to make your purchases through the medium of the Bank of England, or directly or indirectly to employ either of these firms. I agree it is difficult to say what the precise effect would be measured in terms of price; but looking at it from the prudent business point of view, secrecy being the object, time being important, the amount involved being very considerable, any wise business man would have done what the Secretary of State in Council had done, and would have said, "This is an exceptional case in which I must go to a broker whom I have never hitherto employed, and who is capable of carrying out transactions of this kind." The right hon. Gentleman says, I do not know on what authority, that Messrs. Samuel Montagu were more dealers than brokers. As far as I know, they are brokers on a very large scale. There are only four brokers in the market, and I do not believe Messrs. Samuel Montagu's position is second to any of the others. Then the right hon. Gentleman made a statement, not made before, which I confess a good deal surprised me. He said he had been informed in the City—as I understood him the information came from the City—that at a very early stage of these transactions, not- withstanding the precautions taken, there was a suspicion that the Montagu purchases were being made on behalf of the Government. I do not know what the right hon. Gentleman's authority is, but I can give him—I think it has been quoted already—very strong authority; in fact, the best authority in a different sense, namely, the weekly circular of Messrs. Mocatta and Goldsmidt, who are, after all, one of the most important of the four firms concerned in this market. As late as the 9th August—these purchases having been going on ever since the month of March—in their weekly circular they state:— Things within a few days of our last circular were more or less affected by the Bank Holiday, the price falling to 27 9–16 in the absence of buyers. Since then, however, there has been a somewhat unexpected and sudden recovery. and to-day's price is 28 1–16. The reason for this rise is very difficult to trace and appears to be chiefly due to the rumour that the Indian Government has been, and is, buying in the market, and that a large portion of the present, stock in England itself is supposed to be held by them. Between the Bank Holiday and the date of this circular, 9th August, the effect of that rumour was to raise the price from 27 9–16 to 25 1–16d. How is that reconcilable with the suggestion that during all these earlier months—April, May, June, and July—it had been known, or even rumoured, that the purchasers were Messrs. Montagu acting on behalf of the Government?

Mr. BONAR LAW

I would like to remind the right hon. Gentleman that brokers do not put into their circulars everything they know.

The PRIME MINISTER

No, Sir. The right hon. Gentleman has an advantage of me there. I am quite sure he is speaking the truth, but what I am entitled to assume is that they do put into their circulars things that they do know:— Since then, however, there has been a somewhat unexpected and sudden recovery, and to-day's price is 28 1–16. And the reason they give for that rise that took place between the Bank Holiday and the 9th August is the rumour that the Indian Government has been buying, and that is absolutely inconsistent that any credible rumour was prevalent in the market previously. Then the right hon. Gentleman said, and it was his last point, that he is not satisfied that a real saving resulted from the employment of Messrs. Samuel Montagu and Company. Let me say, in passing, that when you are judging in these matters that is not really conclusive. The question we have to consider is whether the Government were well advised in the course they took, having regard to the circumstances which then existed? I think I have shown conclusively that they were. They adopted the course which any wise and prudent man of business dealing with his own affairs, and still more acting as trustee on behalf of his beneficiaries, would have pursued. I think the evidence goes much beyond that and shows that they were justified by the result. Let me quote once more the actual figures. The first period before these rumours got into circulation—they originated the first week in August—Messrs. Montagu and Company had purchased £2,300,000 worth of silver at an average price of 27⅜. Then the rumours got into circulation, and the price went up. The second period, from the 9th August to the 24th September, which is the date of the last purchase by Messrs. Montagu and Company, they purchased £2,700,000 worth, and the average price was 28¾, a rise of a quarter per cent. Then in the subsequent period, when purchasing through the Bank of England was resumed, Messrs. Montagu, having fulfilled their contract, from November to January in the present year £2,000,000 was purchased at an average price of 29 3–16. I agree that there was other factors. My hon. Friend expressly stated that there are other factors that had determined the price of silver than a particular contract put on to the market by a particular individual. It is very difficult to isolate these different factors, and to say how much of any particular rise or fall is due to one or another or a combination of circumstances. But so far as you call judge, at any rate we are entitled to say that the price of silver was less while Messrs. Montagu were purchasing in secrecy, and it rose after it became known or after it was suspected that they were purchasing on behalf of the Secretary of State for India, and rose still higher when the task of purchasing was entrusted to the Bank of England.

Sir F. BANBURY

If I may say so as an old broker, is it not a fact that after a big purchase, and the market is depleted of its stock, the last buyer has always to pay a higher price?

The PRIME MINISTER

That depends on whether or not more stock has come into the market in the meantime, if I may say so to an old broker. That is another factor in the case. I say that the whole thing being more or less conjectural, if I have established my first proposition, which I think I have, that it was a prudent course to take in advance, I have gone some way in establishing that events justified the course we took. That being so, I agree with the statement which the right hon. Gentleman made at the close of his speech that there really is no case for any further inquiry into this matter. Now I come to deal with another matter which I think is very important, more important even than this question of the Montagu contract, and that is the question of the balances. It was referred to by the Leader of the Opposition, and rather briefly by the hon. Member who raised this question. I regard it as a very important matter, and I wish to say two or three words about it. I dare say it is familiar to most of us how these balances arise and how they are dealt with. Ever since 1838, in the days of the old East India Company, it has been the practice, since the transfer of the Government of India to the Crown in 1858, for the Secretary of State to lend out in the London market these cash balances at interest. It has the advantage that it enables the India Office to obtain interest on money which if they left it at the Bank of England would not secure any interest at all. In the last three years circumstances have been very exceptional. Up to May, 1909, it had been the habit of successive Secretaries of State to lend out the available balances to what are called approved borrowers. A list of these borrowers was kept and added to from time to time, and it amounts now I think to some sixty firms. I do not think it is an exaggeration to say that they represent in the money market of England a large number of firms of the highest repute. The balances of the Secretary of State are lent out upon approved security to these approved borrowers. I think the Leader of the Opposition rather criticised the security.

Mr. BONAR LAW

All I meant was that I did not see any necessity for having a very narrow list.

The PRIME MINISTER

It may be that the list was a little too narrow, but at any rate the security is of a very high class, and I do not believe there has ever been any appreciable loss on these advances to approved borrowers. Perhaps the Secretary of State has been a little too cautious in this matter, but at any rate he has been justified by the result. That has always been the practice. In May, 1909, a new departure was taken in connection with these cash balances for exceptional reasons, which are set out in the White Paper which has been circulated. I am not going to go into those details. The cash balances in the years 1909, 1910, and 1911 were exceptionally large, and the Secretary of State and his Finance Committee found it impossible to get the approved borrowers to absorb the whole of the available balances. The consequence was that for the first time the surplus that could not be lent to the approved borrowers was placed upon deposit at various large bankers of very high position. In the first instance I think three banks were selected. Then the number was raised to six, and, finally, it was raised to seven. No one will dispute that the banks selected were of the highest reputation in the City of London and they had head offices in London. Those advances were in the form of advances to borrowers on approved security or in the form of deposits, a method which was adopted in 1909, and they were made upon the advice of the Finance Committee and the Secretary of State.

It has always been the habit of successive Secretaries of State to have upon the Indian Council and, of course, upon the Finance Committee, one or more representatives of the highest class of the banking world in London. At first there was Mr. Le Marchant, and then Lord Inchcape, and when he retired Lord Morley appointed as his successor Sir Felix Schuster, and then Lord Crewe appointed Mr. Lawrence Currie. No one will dispute that these were the strongest men amongst the banking community of London, and when it is said, as I have heard it said, that deposits were made after the system of deposit began in 1909 with banks of which one or more of these gentlemen were governors or directors, that is perfectly true. At the same time the list of bankers with whom the deposits were made has been constantly enlarged. I am told that bankers often refused deposits because the charge exacted by the brokers of the India Office was higher than they could afford to pay, and no kind of favouritism and partiality of any sort was ever shown. It is important to remember that every week these advances, whether made upon security or by deposit in joint stock banks, were submitted for approval to the Finance Committee, which comprises, in addition to eminent bankers, very distinguished Indian experts, such as Sir Charles Egerton and Sir Theodore Morison. So you have the joint opinion of these estimable men as to whether or not these particular borrowers, securities, or banks were for the time being proper securities. That system of deposits continued for three years, and it has now come to an end because the surplus balances during the last two years have been very largely applied in paying off the floating debt of India, which has been reduced by very many millions. I do not complain in the least of the questions that have been put and the legitimate curiosity which has been shown in regard to this system. It is perfectly natural, indeed it is very desirable, that the House of Commons should keep in touch with these matters, and I thought it right to go into the matter at some length in order that the House may be assured that every possible precaution was taken in very exceptional circumstances to secure that the revenues of India were applied to the very best possible advantage.

Sir J. ROLLESTON

Will the right hon. Gentleman explain to the House how these balances arose? I was rather disappointed that he did not do so.

7.0 P.M.

The PRIME MINISTER

I said they were explained in great detail in the White Paper, and it was to save the time of the House that I did not go into details. I may say that, in the first place, owing to a very large active movement of trade in this country and India, a large number of bills were sold by the Secretary of State which were met by rupees in India, and they were due to unexpected excesses in the Indian revenue, particularly in regard to opium and under-spendings on the part of railway companies and other companies in India. I wish in conclusion to say this: I think this question of the balances, and, to some extent, perhaps, the other question, opens up matters of very large importance. It opens up the question of the location and management of the balances of the Government of India and the organisation of and responsibility for the financial side of the India Office; and in their turn these questions lead up to a consideration of the system adopted in relation to the maintenance of the exchange value of the India currency. In all these matters the India Office, if I may say so, has lived on as a kind of survival and development of the old parent commercial company, the East India Company. Neither the Government of India nor the India Office are indifferent to their importance, and we think, and they agree with us in the view, that, although an inquiry into matters so technical by a Select Committee of this House would not probably be the best means of obtaining the desirable result, we have reached the stage at which there should be a thorough investigation of these matters by an expert body, I think, in preference, I should say a Royal Commission, but at any rate by an expert body which can go into the whole question, the organisation of the India Office, the use of the balances, the maintenance of the standard of currency, and in particular—it is most important in this matter to have Indian opinion with us—as to how far we are dealing fairly as between India and the United Kingdom with regard to the manner in which we employ the surplus revenues. I think I may say this Debate will have served a very useful purpose if it enables us to put on record with the general assent of both sides that the time has come for the institution of such an inquiry which will, I hope, be attended with beneficent results, both to the United Kingdom and to India.

Mr. TOUCHE

I listened with great satisfaction to the concluding sentences of the Prime Minister's speech, because they show the Government recognise the time has come when an investigation should be made, not into the narrow question of the recent purchases, but into the much larger and more important question of the administration of India Office finance. I regret, as no doubt all the Members of the House regret, the absence of the Under-Secretary of State (Mr. Montagu) during this Debate, but I think all will agree that the defence of the India Office has in no way suffered from his absence. I do not wish to refer to the atmosphere of suspicion about which a great deal has been said but I think it has been largely owing to the methods adopted by the India Office themselves. The Financial Secretary to the War Office (Mr. H. Baker), in his able statement, took pride in the fact that he had not been reticent, but that he had given a very full and complete and ready answer to the questions addressed to him across the floor of the House. I would like, however, to remind him that some of the information asked for and supplied by him had been asked for by me a good many months earlier, and had been refused by the Under-Secretary of State for India. I do not know whether that means the hon. Member for Accrington is of a more frank disposition than the Under-Secretary of State for India. Perhaps it only means that the hon. Member for Eastbourne (Mr. R. Gwynne) is more persistent in his inquiries than I could ever hope to be. I cannot claim, like the hon. Baronet who represents the City (Sir F. Banbury), to be an old broker, although I have come into contact with a good many brokers and have seen a good many transactions; but, as one who has some knowledge of City affairs, I felt it quite an education to sit here to-day and listen to the views of politicians upon these intricate questions of buying and selling. They have given me quite a new light upon many subjects. I was particularly pleased to observe the simple faith which the Prime Minister has in brokers' circulars. He evidently believes they tell the truth, the whole truth, and nothing but the truth. Apparently they are a much more guileless body of people than we have hitherto supposed.

Let it be admitted for the sake of argument that the procedure adopted by the Government had the advantage of securing secrecy and that the market did not know that Messrs. Samuel Montagu and Company were buying for the India Office, then we have got this state of things: Messrs. Samuel Montagu and Company were known in the market to be large buyers, not for the India Office, but for some other client. It was also pretty well understood that the Government of India. if not actually buyers at the moment, would soon be buyers, so the result of this secrecy was to give the dealers in and sellers of silver the notion that they had not only one big buyer, but two big buyers. Everybody who has had any experience of dealings knows that if you wish to put the price up the best way is to let it be supposed there is more than one big buyer. It seems to me, therefore, this elaborate programme of secrecy, if it had been successful—I do not for a moment think it was—would have had the result of putting up the price instead of cheapening the price. I am personally much more interested in the larger questions referred to by the Prime Minister in his concluding observations than in any of the smaller and narrower transactions which have been discussed at great length to-day. I am much more interested in the broad questions of policy. The question of the silver purchases is undoubtedly important, but it is only a by-product of the present administration, faulty as I think it, of the India Office. It is the failure of the India Office methods which has created the situation from which the recent troubles have sprung, and I am a little surprised that during the Debate today we have heard so much about the silver purchases and so little about the policy which has made it necessary for the Government of India to buy these large quantities of silver within a very short period of time, and also about the policy which has produced those large balances belonging to India which have been in the London money market in recent years. It is the general policy pursued by the Government of India which encouraged this ring of native speculators to attempt to put up the price against the Government, and to "spread the net in sight of the bird," as stated in Messrs. Samuel Montagu and Company's letter. It has to a certain extent been successful, because, when the Government did buy, it made the price considerably higher than that which had been ruling for a good many years. It was that policy which gave the enterprising firm of Messrs. Samuel Montagu and Company the opportunity, I will not say of poaching, but of competing on the Bank of England territory on the plea that they were in a position to outwit the speculators.

I think it is desirable in considering this question that we should distinguish between the policy which led to the recent purchases and the agents who were employed in making the recent purchases. India's complaint would have been strong if there had been no employment at all of Messrs. Samuel Montagu and Company. The complaint which India makes is that the India Office juggles with the balances of India, and interferes in the business of exchange and currency in a way which is prejudicial to India's interests and contrary to the recommendations of the Committee on whose Report the present monetary arrangements of India are based. Whether that Report represents the last words of wisdom in the question is not a matter we need discuss at this moment. I do not think it does. A certain system having been adopted, it was the duty of the India Office to give it free play and a fair chance, and that is what they have not done. They have tampered with India's system of exchange; they have interfered with it as no Government should interfere. A system of exchange should, as far as possible, be automatic; the less a Government interferes with its working the better. The India Office does not allow it to be automatic; it is always dealing in exchange; it has become one of the biggest money trusts of the world. I submit the India Office have no right to interfere with the natural course of exchange beyond restricting fluctuations within the bullion points of about 1s. 3 7–8d. and 1s. 41–8d., or 1s. 45–32d., which is the whole basis of the present currency system of India. The public, in other words, should always be able to buy from the Government of India rupees at not less than 1s. 41–8d., and to sell them at s. 37–8d.

This is not a question which can be discussed as a single issue. The purchase of silver, the sale of Council Bills, the sale of telegraphic transfers, the large balances, and the Gold Standard Reserve, are all intermixed and all related to one another. One cannot take one branch of the subject and deal with it apart from the others without leaving the question very incompletely considered. The subject receives far, far too little attention from this House, and I am afraid does not carry with it that element of public interest which is involved in questions of a more lively, personal character. I hope, however, the House will grant me their indulgence while I recall to their attention the system of currency and the system of exchange which exists with regard to the financial affairs of India. It must be remembered that the rupee is used for nearly all internal transactions with the natives, and I think it will continue to be so used for a long time in India notwithstanding the gold standard.

Gold is used in financial circles and to some extent for hoarding, but silver is, and will long remain, the coinage of the people. The coinage of the silver rupee is a very profitable Government monopoly and it is the duty of the Government to see that there is always a sufficient supply. They took upon themselves that responsibility when they closed the mints. When people here wish to make payments in India and owing to the balance in favour of India's trade, these remittances to India have been very large lately, they pay gold to the India Office and receive a credit for rupees in India. The effect of that is to diminish the rupees in the possession of the Government in India and to replace it by gold in the possession of the Secretary of State in London. Such transactions as these enable the Secretary of State by selling Council Bills to bring over here not only the amount required for home charges, which is some £16,000,000 or £17,000,000, but they enable him to provide a margin for contingencies. In the old days a margin of a few millions was considered ample. Now it goes far beyond that. The Secretary of State goes on accepting gold here and giving rupees in India, thereby transferring money from India here. The result is that these immense cash balances have been growing year by year. It was reiterated in yesterday's White Paper, that the explanation of these large balances, or at any rate one of the chief explanations, is the excess of the sales of bills and telegraphic transfers over the Budget Estimate. These transactions are not required for the needs of the Secretary of State at all, nor for the needs of the Government of India. Why are they engaged in? We are told it is to help trade. That is a protectionist doctrine which naturally appeals to me, but it should be remembered that the Government is not the only channel for getting money here or sending it out, nor is the Secretary of State for India the only medium of exchange. There are transactions to and fro with other British Territories without their aid.

Assuming it to be right to sell transfers beyond the requirements of the Secretary of State it should not be done below the rate of 1s. 4⅛d. The undertaking they have given is to sell at is. 4⅛d. This is done in order to give automatic stability to exchange. Gold then would be received by the Government here and rupees would be paid out in India. The gold received here would be used in buying silver to be sent out to India and minted there to take the place of the rupees sold. The difference between the cost of the rupees, which is 9d. or 10d., and the token value, which is 1s. 4d., would go to the credit of the gold standard reserve, so that the gold standard reserve cannot be treated as a question apart from the silver purchases. That was the automatic system established in India, and it would have worked very well if it had not been interfered with by the India Office. One criticism and fear at the time it was established was that it might lead to a redundancy of currency in India. It was therefore intended that sales of bills and transfers should only be made at 1s. 4⅛d., and not as the Secretary of State has been doing below that rate. The Secretary of State would not then be used as the constant channel for commercial remittances, as the remitters would not buy more than they had actual necessity for at that rate, knowing it to be the maximum. That in itself would have been a check upon redundancy of currency, and the large balances would not have accumulated here. The Secretary of State has not observed these provisions. He has sold continuously below the bullion point of 1s. 4⅛d., and has thus deprived the gold standard reserve of profit, and has increased the risk of redundancy of currency. I think the risk of redundancy of currency has often been greatly exaggerated.

The Secretary of State's operations have had this effect: they have depressed the rates against the interests of those who export British manufactures to India, especially Manchester. He has accumulated these large balances of gold here instead of buying silver automatically and placing the profit to the gold standard reserve again robbing the gold standard reserve. That is how it was intended the gold standard reserve was to be built up. When money is flowing to India a reserve is being created to meet the demand when the flow is the other way. Some day exchange will be the other way. There will be famine or bad trade or disturbance and an adverse trade balance, and people will be sending remittances home. They will then bring their rupees to buy gold, and if the Government refuse them gold against rupees, the whole currency system will break down. If they grant gold the profit on coinage, which they are now making, and some of which they are spending as if it were revenue, will all have to be given back to the public. If they do not build up a reserve, they may be compelled to refuse to give gold for rupees, with disastrous results to the Indian trade by the destruction of confidence in the currency system. Under adverse trade conditions in India exchange can only be guaranteed in so far as the Indian Gold Standard Reserve suffices to guarantee it.

What has the India Office been doing? It has not been using the gold received in London for the purpose of replacing rupees, but it has been keeping the money here and lending it at 2½ per cent. to bankers and approved borrowers, people who have done nothing for India, when, to a more or less extent, the Government themselves were actually borrowing at 3½ per cent., and more than that, because they were placing loans at a discount, the price being 90 to 97. I cannot see any justification for a policy of that sort, and the only shadow of justification is that during the adverse conditions which prevailed in 1908 the Gold Standard Reserve had to be brought into use, and was applied in paying gold for rupees, and thus became choked with rupees. In October, 1908, the total reserve was £18,000,000. Of that the sterling portion had been reduced below £6,000,000, making a balance of £12,000,000 represented entirely by rupees. They had about 1,808 lakhs of rupees, which were valued for reserve purposes at is. 4d., but were only worth 9d. or 10d. There was no gold in the reserve. It barely proved enough in that year for the first moderate strain put upon it. This glut of rupees, which was exceptional, took place in 1908. It affords the only shadow of excuse which the Government had for not completing the ordinary programme. I daresay they thought they were doing the best they could do under the circumstances. They used that temporary glut of rupees as an excuse for not making provision to meet the expanding trade of India and providing for the inevitable demand for rupees. For four or five years they bought no silver. There might have been some justification for going short for a limited period, but there was none for going short for a period of four or five years. They might during that time have bought gradually month after month without disturbing the market, but they kept off, and they lent money in London at 2½ per cent. until a time approached when they were compelled to buy an enormous quantity of silver in a period of a few months. There may have been a certain amount of Oriental magnificence about it, but it is not business.

The members of the India Council did not foresee the demand for rupees. They underestimated the position. They might have been forgiven if it was the only time, but it was not the first time nor the second. It was the third time. They had been warned against the dangers of drifting into a position of that sort. They ran the risk, and so caused a great deal of unnecessary anxiety to traders and bankers. I venture to think that this much-abused firm of Messrs. Samuel Montagu and Company made a much better estimate of the statistical position than the India Council did. They saw the position into which the India Council was drifting. That was the very origin of their letter of 8th January last year. Other people also had seen the statistical position. Everybody seems to have seen where the India Office was drifting except the India Office itself. Native speculators made a better estimate than those distinguished financiers who at present control the finances of the India Office. That was the position which the India Council had gambled themselves into, and having arrived at a time when they were compelled to buy very large quantities of silver during a very short period, naturally under these circumstances they were made to pay a higher price than otherwise they would have had to pay. You cannot make an absolute corner in silver, but you cannot go into the market and buy large quantities within a limited period without putting up the price. I admit that to some extent that difficulty may have been met by the employment of Messrs Montagu and Company. It clearly was not wholly met. There was a substantial advance of the price, and there was also all this undignified procedure and subterfuge and these manœuvres, which make very unpleasant reading in the White Paper, and which were not worthy of a great Government. One hon. Member who has spoken has pointed out that the annual output of silver in the world is limited. It is pretty well known what it will be, where it will come from, and what proportion will be required for arts and manufacture. The India Office actually drifted into a position where they were compelled to buy within a single year an amount equal to nearly the whole of the silver output during that year which was available for the purposes of coinage.

We have discussed whether a profit or loss has been made by this transaction. I have no hesitation in expressing the opinion that the policy of the India Office led to their having to pay some hundreds of thousands of pounds more than they need have done for the silver. In the four years 1908, 1909, 1910, and 1911, the price of bar silver was 24 and a fraction. There is nothing very abnormal about that. If we go back about ten years the rate was about the same. It was much higher at one period during the interval, and the reason why it was so much higher was that the India Office were then doing what they are doing now. They had got into a position where they had to make enormous purchases in a short period of time, during the years 1906 and 1907. In the months between 5th March and 15th August, 1912, the India Office bought at an average of 27 11–16ths, whilst the rate was 24 3–8ths in the corresponding period of the year before. We are told this purchase at 27 11–16ths was made during the period of secrecy. We have had a division into three periods, a period of secrecy, a period of suspicion, and a period of certainty. During the period of supposed secrecy they were paying nearly 3d. per ounce more than the price ruling during the corresponding period of the year before. I believe, although brokers do not put it in their circulars, that includes the period in which it was rumoured persistently that large purchases were being made on behalf of the India Office. In the two months, August and September, over £3,000,000 was purchased at an average price of 4⅛d. per ounce higher than the price which ruled in the year before. That was an advance of something like 17 per cent.

Fourpence an ounce on 50,000,000 ounces represents a loss of over £800,000. I do not believe they could have carried on these operations for a period of years without raising the price to some extent. But even 3d. an ounce would have represented £625,000, therefore it is no exaggeration to say that by delaying their purchases until the last moment the India Office have had to pay an additional price of some hundreds of thousand pounds. Lending money at 2½ per cent. does not go very far towards making good losses of that sort, yet we are told that the transaction resulted in financial advantage to the India Office—I think the expression used by the Financial Secretary to the War Office to-day was that there was an enormous saving. If people can delude themselves into taking that sort of view they ought not to be in charge of important financial affairs. That there was a need to buy was obvious to everybody but the India Office advisers. It would have existed in any case. It only required a bountiful harvest to make the demands acute. The complaint made against the Council is that they deliberately ran alternative risks; first, of having to buy, in the words of Messrs. Samuel Montagu and Company's fatherly letter, paying more or less what the Indian speculators asked, or of having to face a shortage of rupees and being obliged for the third time to refuse to give rupees in India by telegraphic transfer against sovereigns tendered in London at 1s. 4 5–32d. The action of the Secretary of State for India has practically been an encouragement to speculation in silver. All this scandal, trouble, and suspicion would have been avoided if the ordinary course had been followed, and the India Council had not speculated.

Nothing causes more resentment in India than the way in which India's cash balances are exploited for the benefit of the London Money Market; I will not say for the benefit of certain financial groups in London, because I do not want to say anything invidious about the borrowers. It is the principle of having the funds here, and lending them in the Money Market when India has need of them to which I take exception. The total securities in cash held in London have grown from £24,071,000 on the 25th June, 1909, to £45,590,000 on the 14th June, 1912. I make an exception in favour of the gold standard reserve which represents nearly £18,000,000 of that amount, but the cash balances, irrespective of that reserve, have grown very steadily.

The figures were set forth in the paper circulated by the India Office yesterday, showing that the balance on 31st March, 1908, was £4,607,000; 1909, £7,983,000; 1910, £12,779,000; 1911, £16,696,000; and 1912, £18,390,000. That is an extraordinary position of affairs. Most Chancellors live by borrowing, but with the India Office the reverse process is followed. These large balances create a bad impression in India, the impression that the poor peasants there are being unduly taxed, and give colour to the complaint that Indian revenues are being systematically underestimated and Indian expenditure systematically overestimated. Perhaps that is owing to the fact that there is no permanent European population in India to give that vigorous criticism to the Budget that it deserves. For whose benefit are these large balances accumulated here? Can it be claimed that they are for the benefit of India? The money is withdrawn from India, where some of it might be used to reduce taxation. It is lent to London bankers and approved borrowers at low rates of interest. The Government have been urged to make these surplus balances available to the public in India during the crop season. That was urged again on the 18th September, 1911, at the meeting of the Governor-General's Council. At that season the Presidency Bank rates for loans usually advance to 7 or 8 per cent. It was suggested that the Government should grant loans against the security of Government paper. What reply did the Government make? The reasons for a refusal are stated in the White Paper published yesterday, in which it is said:— It is not the practice to lend to other institutions and firms in India. That is, institutions other than the Presidency Banks. It is something to be told that the Government's procedure is entirely hide-bound by practice, and that they will never make a new departure. What was the employment of Messrs. Montagu and Company but a new departure? The White Paper says that "they do not consider it desirable." That is no answer at all. The proposed borrowers are told that they ought to go to the Presidency Banks and borrow from them. There have often been times when the Presidency Banks either declined or were not in a position to lend on Government paper.

The refusal to lend to the public in India is a very short-sighted action. It means a loss of interest to the Government, a loss of market and price for Government loans, a check on the free movement of crops, and a loss of benefit to India's trade. I see the extraordinary statement made in the White Paper that if loans were made by the Government upon rupee paper it would do harm to rupee paper. I can imagine nothing more calculated to help the Government issues of rupee paper. The banks would hold more Government paper as an investment during the monsoon months if they knew they could borrow on it freely from the Government. The removal of these balances to London from India for the benefit of the London Money Market has caused great uneasiness in financial circles in India. I have already referred to the Gold Standard Reserve. I do not wish to speak on that at any great length. The object of that is to maintain exchange at its present level. That Gold Standard Reserve is the key to the whole situation. There are two important things about it. All profits on the coinage of silver should go to it. They may all have to be paid away to the public irrespective of current liabilities. That has not been done. The coinage profits have not all gone to it; they have been diverted to other purposes, and I say that is utterly unsound and indefensible finance. The second point is that the gold reserve should be kept liquid, even at the cost of the loss of interest. It is most needed at times of disturbance and financial pressure, and in so far as it is not liquid and not available it is no reserve at all. It has not been kept liquid. The most liquid form would be gold, but we find it invested in depreciating securities. Nearly £17,000,000 is in sterling securities, a large part in Consols, and showed a depreciation a short time ago, when a valuation was made, of over £1,000,000 sterling. That is what happens in the time of our prosperity when all the land is blooming and burgeoning under the irrigating influence of the Chancellor of the Exchequer's finance. Imagine what would happen in the time of adversity, in the time of panic, and in the time when we were, perhaps, engaged in war, when the people were drawing money out of the savings banks, and when the whole of these securities had been thrown on the investment market. They would be practically unsaleable and the whole system of exchange would break down.

Failure of rains or political troubles might easily overtake India and lead to an enormous strain on the reserve. I take the view that the bulk of this gold reserve ought to be in London, because it is in London it will be wanted to meet drawings from India in times of adverse trade conditions—in other words, to buy silver rupees from persons remitting home, giving gold in London. If any balances are to be kept in London—I would prefer' to see this fund kept here—and if any balances are to be lent to banks or approved borrowers, I would rather see the gold standard reserve balances lent to them than invested in depreciating securities. The only justification for putting them into depreciating securities is that gold produces no interest. That criticism would be gone if the money were lent on the London money market, when it would be in a much more available condition than if placed in Consols. The experience of 1907–8 ought to have taught the Government the inadequacy of the reserve. It very nearly broke down under the first moderate strain put upon it. If the adverse conditions had lasted a few weeks longer, or if the Indian public had lost confidence in the efficacy of the reserve to check the fall, and had begun to remit their capital home, the Gold Standard Reserve would have been completely wiped out and panic would have followed. Yet, with such a lesson before him, the Secretary of State actually fails to build up the reserve, and fails to see that it is put into a liquid form. Even the profit on bills sold by the Secretary of State to restore the Gold Standard Reserve after it had been depleted was actually added to the general balances of the Government of India. The hon. Member for Accrington (Mr. Baker) told me that was the usual practice. It was not the usual practice under a proper application of the system supposed to be in vogue. I fear that the hon. Gentleman did not sufficiently understand the significance of the course he was then advocating. Even since attention has been drawn to the diversion of profits on coinage and that bad finance has been stopped, we are told that the proper course is only going to be followed until the reserve reaches the sum of £25,000,000. No one can possibly say that £25,000,000 is sufficient. No one can say that £50,000,000 would be sufficient. Indian exports of merchandise increased in the last two years by £26,000,000, and £50,000,000 or £60,000,000 might not prove a sufficient reserve in time of strain; so that what is now being done by the Government is a mere pretence of doing the right thing. It is an utterly indefensible system of finance which treats the profits of coinage or exchange as available for purposes other than the reserve established to maintain the Exchange.

There has been the most extra ordinary confusion with regard to the various reserves. We see the paper currency reserve which has to meet obligations which can only be demanded in silver largely held in gold. On the other hand, a portion of the Gold Standard Reserve is now systematically held in silver. This is sheer muddling. On 26th November I asked why the paper currency reserve was held in gold to meet obligations which can only be demanded in silver. I should like to give the answer, because it was an example of disingenuousness:— It is not the case that the obligations against which the paper currency reserve is held can only be demanded or met in silver."—[OFFICIAL REPORT, 26th November, 1912, col. 989, Vol. XLIV] Observe the interpolation of those words "or met." That is not what I asked. Of course you can meet a silver obligation in gold at its face value if you wish to do so. You are entitled to pay rupees at ls. 4d. in gold, if you are fool enough to do so, instead of paying in rupees at the token value, which would only cost 9d.

The present monetary system of India is based on the recommendations which assume the free coinage of gold. As far back as 1900 the Indian public were informed by the then Finance Minister that the Government intended to constitute a Royal Mint for the unrestricted coinage of gold in India. For reasons best known to themselves, that has never been done. Several questions have been put on the subject. We are told that there is objection to a Royal Mint. Why, I do not know. What about Australia? The suggestion is thrown out that the desire of India for a gold mint will be satisfied by allowing the coinage of a 10 rupee piece, or 13s. 4d. So far as I know, no one wants a gold coin of that sort. If you are going to give India a gold coin, why spoil it by giving a coin which will be very little known, whose international use will be greatly diminished, and which will be of no use outside India except as bullion, whereas sovereigns are used everywhere? The more we can make the British sovereign circulate the better. The advantage of the sovereign as an Empire coin is shown by the fact that a great many Australian sovereigns go to India every year, and many of them are passed on to Egypt. If you want to give the natives confidence in your gold standard you should have unrestricted coinage of sovereigns and half-sovereigns as you have here. That would strengthen their confidence, and it would enable the native, in a time of famine, to convert his gold ornaments without being subjected to the squeeze of the village jeweller. It would also mean that the profits of the assay and the refinement of the gold produced by the Indian mines would be retained in India. Mining would be encouraged and developed by the saving of freight and insurance and other expenses.

I think enough has been said on this rather dry subject to show that there is a strong case for some kind of inquiry. I am only afraid, if it takes the form suggested by the Prime Minister, a good many years may elapse before any reforms are carried out, but there are many matters here which undoubtedly do call for investigation, not in any partisan spirit. I have not the slightest desire to make any party capital out of the questions. There is the question of interference with the automatic working of exchange; there is the question of speculating in silver; there is the injustice of handing over Indian balances to be played with here. Just imagine what Canada or Australia would say if it were proposed to deal with their balances as the India Office is dealing with the balances of India. There is the insufficiency of the Gold Standard Reserve, and there is its lack of availability in time of need. I do not think it is necessary to go into any other evil, especially evils of a personal character. There are subjects enough to justify an inquiry, and I trust that what has been said to-day by the Prime Minister will be given practical effect to at a very early date.

The POSTMASTER-GENERAL (Mr. Herbert Samuel)

As my name has been mentioned in the Debate, in terms to which I take no exception whatever, as that of a Member of the Government who is connected by ties of relationship with the members of the firm of Samuel Montagu and Company, I should like to be allowed to say just this: Without entering at all into the question whether or not the employment of that firm in the purchase of silver by the India Office was wise or unwise, or whether it was necessary or unnecessary, I should like, as a matter of personal explanation, to say I had no part or lot in it at all from first to last, and I was, as a matter of fact, totally unaware that there was any question of employing that firm, or that they were buying silver, until the purchase had been completed; and though no one, indeed, has suggested anything to the contrary, I thought it desirable, if the House would kindly grant me leave, to make that brief, explicit statement.

Mr. MILLS

I do not propose to enter into the question of the method pursued by the Government and the Council of India for the purchase of silver, but I think the House will agree that this Debate, and the inquiry which gave rise to it, has raised the whole question of the financial relations between this country and India. Attacks have been made upon the policy of the India Council, mostly originating from outside the House. It has been stated in the Press that India is being bullied in her finance by this country, and that her commercial progress is being strangled by the selfishness of London financiers. These criticisms have, I believe, attracted great attention in India, and it seems to me that they may do a great deal of harm to our rule in India if the Government do not take strong steps to give them the freest possible discussion and notice here. Amongst other matters, a great deal of criticism has been directed against the size of the cash balances which the India Council keep in London and their method of employing them. These criticisms fall under two heads. There is personal criticism and criticism on the ground of policy. The first objection is that certain members of the Finance Committee of the India Council have lent part of the balances to firms with which they are personally connected. I do not wish to say anything on that, but I should like to say one or two words on the question of general policy. It has been asserted frequently in this Debate that these cash balances are excessive, and that they are employed in such a way as to be an advantage to the London Money Market, and a disadvantage to the taxpayers of India. May I deal with the second of these suggestions first? May I assume, for the sake of argument, that the size of these balances is justifiable and normal? If we take it for granted that it is right and necessary for the Government of India that you should have a balance of something like £20,000,000 in this country, the question arises how you are going to employ them. There are only two ways in which the India Council can possibly use these balances. Either it can let them lie idle in the Bank of England or else it can put them out at interest. I do not think anyone will suggest that it would be to the interest of the Indian taxpayer that these balances should be allowed to lie idle in the Bank of England. It is quite obvious that these very large sums bring in a very substantial revenue to the Indian people, and therefore, if they can be lent with safety, I do not suppose that anyone will object to their employment. The only question that remains is whether they can be employed with security and safety, or whether they cannot be.

Before we discuss the question of how they are to be lent, it is essential that the House should remember the nature of these balances. They are not permanent balances in any sense of the word, but they are, as far as I gather, accumulations of weekly payments to the Secretary of State for India, with which he has to provide for large periodical payments in London. Therefore large sums of money have to be drawn from these balances periodically, and therefore it stands to reason that the balances cannot be invested in securities, but must be employed in some other way. If you have got large sums of money in your hands under these circumstances, the only possible place where you can employ them is on the London market. I do not think that is a matter of disagreement in any part of the House. That is exactly what the India Council have done. They have lent them to various discount houses and approved borrowers on certain selected securities, and as these balances have got to be kept in such a liquid state, and as they have got to be readily accessible at the required time, the question of security becomes of the very first importance. The India Council are in the habit of lending on Home Government securities and on India Stocks with the usual 5 per cent. margin, and this margin gives the India Council complete security. If the borrower were to fail to repay the loan at the required date the India Council would be able to sell the securities which it had in its hands and the 5 percent. margin would be ample to cover it against any possible depreciation.

An HON. MEMBER

Not enough.

Mr. MILLS

That is the almost universal practice in the City of London, and I do not think first-class securities, such as Home Government and Indian Government securities, are likely to have a greater fall than 5 per cent. while the Government have them on their hands. But there is another class of security which the India Council lend on, and their action has been a good deal criticised in this respect. They are accustomed to lend on short dated Indian floaters, that is Government guaranteed railway bonds without margin. I think the India Council were justified in this course. It must be remembered that the Secretary of State has to make a large number of loans during the course of the year on the London Money Market. It is therefore very essential to him that the credit of the Indian Government should be maintained and that Indian Stocks should be popular. One of the best ways of popularising Indian securities and keeping up their price is to make it to the advantage of the discount houses to hold these Indian securities because the Government of India will take them as security for loans and will take up this system of lending on these securities without margin in order to popularise Indian securities. I think they can do it in this case without any risk because these floaters are all short dated, and therefore in the event of the borrower not being able to repay his loan at the required time, the Government of India would naturally take the security, which would be repaid to them in full in a very short space of time. But of late years the situation has arisen that the Finance Committee of the India Council have been unable to lend the whole of their balances in this way because these balances have reached such a high figure. There are two main reasons why they cannot lend any more on the Money Market; first of all, probably because the large discount houses to whom they consider it advisable to lend will not take any more money, or perhaps the market, as a whole, has not got any more of the particular securities which they are willing to accept; because the India Council will only lend on selected securities, and I quite agree with the right hon. Gentleman (Mr. Bonar Law) when he says it would be extremely desirable for the India Council to enlarge the list of securities which they would take. For instance, I think they might with great propriety take first-class bills, as the Bank of England and all other banks, so far as I know, are willing to do as security for loans.

8.0 P.M.

The question before the Indian Government was how they were going to employ this surplus balance. It was suggested in this House, in a supplementary question, that the India Council should lend this money from account to account on the Stock Exchange. This rather horrified me because it is breaking the only principle upon which it is permissible in the interests of India to lend this money. You are not lending on first-class security. You are speculating. If you lend money in this way you are lending it on ordinary Stock Exchange securities, subject to immense fluctuations, and we all know very well that in time of panic, if the borrower fails and the India Council had to liquidate these securities, very likely he would not be able to do so at all, or, if he did so, he would sustain a very large loss. The only method that remains for the Indian Government is to employ its surplus by putting it on deposit with the London Clearing Banks. Three main objections have been stated to that method. The first is, that the interest is not high enough; the second, that there is no security given for these deposits; and the third, that the deposits are so useful to them that the banks would exercise undue influence on the India Council to increase the balances to such a size that they would have something over to lend to the banks. As to the first objection that the interest received by the India Council is not high enough, the House will remember that these deposits are only made for short periods, as the India Council has to recall them when they require them for their payments. Therefore the banks could only lend them in the short loan markets, or else by bills falling due on the same day as the loans. The banks cannot give the same rate of interest as they could do if the deposits were with them for a longer period, and if they could put them to more profitable use. Therefore the rate cannot be the highest rate. It has to be a rate at something approximating to the market rate of the day. We have heard it said that the India Council borrow at 3 per cent., and lend at 2 per cent. That is only half the truth, if I may say so, and it is rather a misleading way of putting the case. It is perfectly true to say that there were times when in fact it did happen that the India Council were borrowing at 3½, per cent. and lending at 2½ per cent. and under; but I think anyone who reads the financial articles in the "Times" will see that the India Council has a large amount of money out at 4¾ per cent. It is not a fair thing in making a case of this sort that that statement should be made. Everybody knows that no individual or Government can possibly borrow money for a long period, or even for a number of years, at the same rate as they could exact for loans and deposits of a few weeks run.

Then, as to the second objection, that the India Council should not lend to the clearing banks without security, I do not think that has ever been seriously advanced by responsible people. The deposits in these banks amount to about £600,000,000, and an enormous percentage remains with them without security asked. It is because the public in this country believe the banks can repay these deposits that our credit exists, and that our trade which rests on that credit goes on. People who say that the clearing banks cannot receive £5,000,000, £6,000,000, or £7,000,000 without giving security for it, are attacking the very basis on which our credit rests. The third and last criticism is that this money is so important to the banks that the bankers in London would exercise undue influence in order to compel the India Council to pile up exceedingly large balances so that they might get some on deposit for themselves. This charge has not been made in this House actually, but it has been made in articles in the Press. I think people who say this seem to have a misconception as to the duty of a banker. After all, a banker deals in money exactly in the same way as a grocer deals in hams. A grocer's profit does not depend on the number of hams he has in his possession, but it depends on whether he can dispose of them at a profit. Some people have lost sight of the fact that these deposits are of extreme usefulness when money is tight; but it follows that because the India Council has £18,000,000 on the London money market money will not be tight, and that the banks will not be able to lend the money profitably, together with the rest of the money they have on their hands, in comparison with which the deposits of the India Council are almost insignificant?

I have tried to show that, granted these balances are to be kept at this very high level, they have been employed by the India Council in the only possible and legitimate way. I am far from assenting to the view that these balances are normal. It seems to me that it is a question of Indian finance as opposed to English finance. I hesitate to express an opinion on the subject, but I gather from the White Paper and from speeches made by Members of the Government that the present size of these balances does not represent the settled policy of the Government, but are rather due to accidental circumstances such as the trade boom in India which has made the India Council think it right to spend a large amount of money on telegraphic transfers. Then there is the difficulty of estimating in advance the revenue and expenditure of India owing to the uncertainty of the harvest. There is also the fact that the India Council have raised loans, whether they are wanted or not. I do not know to what extent these circumstances are a justification of the Government or not. I would only say that anybody who looks at the fluctuations during the year of Indian securities, will see that it would have made a very great difference to the Indian taxpayer if the Government had not raised their loans at the beginning of the calendar year, but had waited until towards the end of the calendar year in order to make certain whether the money would be wanted or not. I do not know sufficiently of Indian matters to say whether that is an adequate justification of the action of the Indian Government. As to the selling of Council Bills and the business in telegraphic transfers, I quite agree with the policy to a certain extent. I agree that it is of inestimable benefit to the trader in India during busy times that these telegraphic transfers should be sold. It gives him the great advantage of turning over his money quickly, and of doing more business than would be possible if he had to ship the money over from England. The question is not whether Council Bills should be sold at all, but whether they should be sold practically without limit, and that is one matter which I think could be usefully discussed by the Commission the Prime Minister proposes to set up.

I wish to refer to the question which was mentioned by my hon. Friend the Member for North Islington (Mr. Touche), namely, the Gold Standard Reserve. Articles have appeared on this subject in the Press which savour more of electioneering pamphlets than the serious discussion of an extremely difficult financial problem. Here again the Government of India have been accused of pandering to the interests of London financiers. I would like to examine the policy of the Government in this particular. I do not think it is necessary to discuss when and how the reserve was founded, but I think it would be as well to remind the House of its objects and nature, because I think a great deal of the attack is due to misapprehension of its functions. Many people seem to regard this Gold Standard Reserve as an ordinary currency reserve. Of course, it is nothing of the sort. The system we enjoy in India is not an ordinary gold standard, but a gold exchange standard. The object of the Government has been to maintain the value of the rupee by giving it a fixed relation to gold, and this is done by enabling India to meet her foreign indebtedness at a fixed rate of exchange between the rupee and the sovereign. The Gold Standard Reserve was instituted in order to maintain the stability of this exchange. We are told that because we do not allow India a gold currency and the free coinage of gold, we are therefore robbing her of her birthright. That may be very good oratory, but it seems to me remarkably bad finance.

I think everybody will agree that a token coinage, if you have a decently honest Government, is quite sufficient to meet the needs of internal exchange, provided that you have assured the people that they will be able to meet their indebtedness in a commodity generally acceptable all over the world—that is to say in gold. This is exactly what you have done for the people in India by the Gold Standard Reserve. The Government of India can sell exchange on London at fifteen rupees to the £1, and therefore the Indian buyer can settle his indebtedness in gold in London. London, being the commercial centre of the world, that will allow him to settle his indebtedness in gold in Europe, America, or anywhere else. It seems to me that this is good for India and good for England. In bad times in India the price of the rupee will depreciate enormously, and, if there is a bad season there, exports will fall off, and therefore you would have an increased demand for sterling grants in India, and they would fetch more rupees, so that the value of the rupee in relation to gold would fall. Of course, it would follow there would be great loss to the people of India, and the people of England, and incidentally the Government of India, which has to exchange the rupee for gold. Anybody who looks at the Gold Standard Reserve will realise that it meets the requirements of India without a more expensive system of gold currency.

I hope that the Royal Commission, when it is set up, will not listen to the type of argument we have had in these articles in the Press about India. I hope also if they deal with the question of gold currency they will consider it as business men and not on sentimental grounds. To my mind, the rupee is as good as the sovereign. I hope they will take into consideration the fact that Indian experts are very much divided as to whether a gold currency is wanted in India or not. I hope they will take into consideration the further fact that India already absorbs about one-third of the total annual gold production of the world. In spite of that, gold is not in general use in India. I would ask this question—if she absorbs one-third of the gold production without having gold in general use, how much would she have to absorb in order that she might have a gold currency, and would she not absorb so much as seriously to disarrange the whole international trade of the world? I do not wish to give an opinion about it, but it is a very serious question, and I hope that well-meaning enthusiasts will not attempt to settle it on grounds of sentiment instead of finance. It has been suggested by someone—I rather think my hon. Friend the Member for North Islington (Mr. Touche) held this view—that although the policy of the Gold Standard Reserve is right, yet the method of handling that reserve is wrong. It has been urged that this Gold Standard Reserve should be kept here in gold and not in securities, or alternatively that it should be kept in India and not here.

My hon. Friend the Member for North Islington said that recent depreciation of securities in England has caused a loss of over a million pounds to the taxpayer in India, because this reserve was invested in securities here. I would remind him of two things. First, I am glad to say our present Chancellor of the Exchequer is not permanent. We shall not always enjoy the present system of finance, and I am confident that when we have got a more reasonable method of finance we shall not have this depreciation of securities, and therefore the Indian owner of these securities has perhaps passed through his worst time. Besides, I would like to point out that the statement is only a half truth, for, though it is correct to say that the depreciation of securities has entailed a loss of a million, yet the net profit, taking depreciation and interest together, to the people of India through this system of holding the gold reserve in securities here is something rather over £2,000,000. Of course this system does put upon these London financiers the responsibility of finding gold for the market price of these securities, but I do not think that the people who are always inveighing against the greed of the City of London as opposed to the poverty of the Indian taxpayer need worry their heads very much about it. The second objection is that this money should be kept in India. If it is kept in India it has got to be kept in gold, for it is obvious that it cannot be kept in rupee securities, which is all they have got. What is the result? I think my hon. Friend suggested that the proper function of the gold standard was to keep gold in India in order to be paid out to the people of India in exchange for rupees. It seems to me that the policy of our Gold Standard Reserve is rather to avoid anything of the sort, as this gold after all is not going to stay in India. It is going to be shipped to England. To avoid this, this system is set up. The result is that if this reserve is kept in gold in India it is obvious that this money is intended for bad times and not for good, because in good times the natural bulk of trade, being always in India's favour and against this country, automatically maintains the value of the rupee.

But suppose you have bad seasons, that the crop fails and exports fall off. You would have people importing from England and a diminution of exports to England. You would have many people in India wanting to pay money in London, and you would have few people in London wanting to pay money in India. Therefore the Secretary of State here will not be able to sell his Council Bills except at a ridiculous price, because there will be nobody who wants them to pay debts in India, and the Government who are going to maintain the value of the rupee can only do so by selling exchange on London at the fixed rate of fifteen to the £1. What is going to happen is merely this, that this gold which was taken with such difficulty from London to India has got to be shipped all the way back to London before it can be of the slightest use to the taxpayer of India. If you have this reserve kept in London in gold and securities so that you can always meet any stress of this sort, I believe this principle is sound, but I do think it might be modified in the direction of giving the India Council a bigger hold of gold in proportion to their holding of securities, because their holding of securities is so large to my mind in proportion that it puts an extra strain upon the Bank of England and the City of London in time of great stress. I have only discussed a few of the questions of great importance to our finance, as this is, which have been discussed in this Debate, and which have been much discussed during the last few months. I do think that the policy of the Government has been rather obscure and uncertain. I do not in any way wish to make a party attack because I think that the main lines of Indian financial policy are agreed upon between the two parties however much we may disagree as to their application, but I think it is difficult to ascertain on what line of policy the Government do mean to proceed. I think this discussion has aroused a certain amount of interest in India, and the impression is being tried to be created there that we are exploiting India for our own benefit. That is a most undesirable impression to create, and it can best be met by the fullest possible discussion of these matters. Therefore I am extremely glad to think that the Prime Minister is going to set up a Royal Com- mission on which the whole financial policy of India may be thoroughly discussed and ventilated.

Mr. BRYCE

In his very interesting and able speech the hon. Gentleman who has just sat down has so completely and so crushingly answered the complaints of the conduct of the Indian Government finance which were made by the hon. Member for North Islington that I do not propose to discuss more than one or two points to which he did not allude. I endorse absolutely every statement which has been made with regard to the finance of the Government of India by the hon. Member who has just sat down. The only statement which I do not agree with was when he appeared to indicate that the present low price of gilt-edged securities was owing to the management of the present Chancellor of the Exchequer. That was probably a jeu d' esprit to which he did not mean to attach very much importance. At all events, this is not the time to enter into a discussion of that rather thorny question. The hon. Member said that, according to his idea, there was only the one possible method of the Government of India treating these balances, and that was to keep them here. But the idea which has caused so much discussion and so much complaint in India, is that it might be possible to employ the balances in India and not here. I entirely agree that the proper place to keep the balances is here; but in India there is an impression among a certain school that it is very much more for the benefit of the people of India that the balances should be employed there. At the same time it should have been remembered that the idea has not received any substantial support from any substantial body of responsible opinion in India. The Karachi Chamber of Commerce has been under the influence of a gentleman who displays great ability and ingenuity in maintaining a particular thesis, but that thesis has not found support in any other responsible body in India. The Karachi Chamber of Commerce asked the Chambers of Commerce of Bombay and Calcutta their opinion with regard to the views which it held, and both those bodies not only indicated no sympathy, but indicated positive opposition to the views which the Karachi Chamber of Commerce holds under the leadership of Mr. Webb.

I have absolutely no opinion in favour of the idea of keeping the balances there, and in India itself, discussions on the ques- tion with Indian merchants, and my own experience of India, which has extended over a number of years, teach me that it would be absolutely impossible for the Government of India to make as good a use of the balances in the interests of the people of India themselves as is the case if they are kept here. I notice that the hon. Member for North Islington did not seem to be quite consistent in different parts of his speech with regard to the possibility of employing these balances. At one time he seemed to indicate that it would be better to have them there in order to meet the trade requirements of India, and at another time he seemed to think it would be dangerous to have them there for that very purpose. I hold the view that it is not necessary for the trade purposes of India to keep the balances there at all. Those trade requirements are met with absolute satisfaction by the principle under which the Secretary of State meets the requirements for trade purposes, namely, the sale of Council Bills and telegraphic transfers. It he were to allow the adoption of other methods than those he now employs of furnishing the necessary funds, what recourse would the trade of India have. The only other possible method of getting the money necessary to move the crops at different seasons would be to import gold, but already the import of gold is an extremely serious danger for the world at large. If in addition to that we also added the maintenance of the gold standard in India, and if, in addition the money to move the crops had to be got in a form different from the present, the sale of Council Bills and telegraphic transfers, the amount of gold required annually by India would, instead of being something like one-third the gold supply, be something like two-thirds. Therefore, it is of the greatest possible importance that the Secretary of State should continue the methods which he at present employs.

There was rather an interesting illustration why certain parties favour the idea of employing the balances in India, and it is the fact which has not been mentioned so far in the House that the Indian Specie Bank actually used the money of the Government of India for the purpose of making these large purchases of silver, by means of which they drove up the price of silver against the Government of India. The Government of India had a large deposit with the Bank of Bombay, who lent money to the Indian Specie Bank, who used it to purchase silver, and so drove up the price of silver against the Government in India. There is no market in India in which money can be lent, save on securities, in a shape which it would be absolutely impossible for the Government to accept. The idea of employing the Government balances in India is an absurdity. If they did use them there the value of money which is at present on the average rather higher than the value in London, would fall below the level of the Money Market here, supposing the balances continued as they are at present. I noticed a case this morning of the violent fluctuations which take place in the money markets of India. The rate of the Bengal Bank was at 8 per cent., and today it is at 7 per cent., and money is really not lendable in India at over 5 per cent. The reason of that is due to the failure of the autumn rains in the Punjab, with the result that the supplies of wheat have been very small and exports from Karachi have in consequence ceased.

This may seem a small factor in the movements of a great market, but, it is a factor which effects the value of money in Calcutta and in Bombay to the extent of no less than 2 per cent. in the course of a short time. I want to particularly back up the suggestion made by the hon. Member for Uxbridge (Mr. Mills), namely, that the reference to the Royal Commission should include the whole question of the employment of gold in India and the coinage of gold in India, in addition to the subjects mentioned by the Prime Minister. It is important that the Commission should inquire carefully into these matters with a view to prevent a sudden drain of gold into India, which would be a very serious danger to the welfare of the whole world. The reference also should deal with the question of the possibility of minting gold for India. These may appear to be comparatively small points, but they are of surpassing importance. The Government of India may have been unduly cautious, but I remember regarding with the utmost anxiety the new start they made twenty years ago with regard to establishing a gold standard for the rupee. I thought it would inevitably break down, and at that time there was just the same cry against the Government that there is now as to the inalienable right of the people of India to have three coins of gold. I have been astonished at the manner in which the Government of India, in very difficult times, and on numerous occasions, have managed to steer their barque through the whirlpools with which they were surrounded. So far from there being any ground of complaint as to their conduct of the finance of India, all the monetary authorities of the world feel universal admiration for the way in which they have performed their task.

Mr. BIGLAND

I, for one, am exceedingly pleased that the Prime Minister has been willing to indicate that he would go further than the Member for Eastbourne (Mr. R. Gwynne) in his request that a Select Committee should investigate this subject of Indian finance. I feel that we are indebted to the Prime Minister for rightly apprehending the feeling of this House, and I believe the feeling of the country, that not only is it desirable to have a Select Committee, but that it is desirable to have a Royal Commission to look into the matters which have become not only vital to us as a commercial people, but also vital to the whole of the business world. I am not one of those who seek to criticise the Government with regard to the way they have conducted the purchases of silver if they consider for a moment that their first duty is to buy that silver at the lowest price. If I, as a manufacturer or consumer of raw product wished to obtain at any given moment a very large quantity of any raw material to use in my manufactory, then the policy that the Government have lately followed would be exactly the right policy. The question I wish to put to the hon. Gentleman opposite is, has he apprehended the wide view that ought to be taken with regard to these purchases, not to obtain that silver at the lowest price, but to have in his mind the effect of his action as the dominating factor to settle the exchange of millions of people all over the world. If I am right, the duty of the Government was not to think whether they could save £170,000 in the actual price they paid for a metal, because that is what silver has become, and it is treated to-day just as pig-iron or any other metal. I was one of those who thirty years ago, when the bimetallist matter was fought out, was absolutely against any talk of bimetallism. I believe in the idea of monometallism. One great banker in Liverpool—I refrain from mentioning his name, and he has passed over to the majority, who had also been a banker in China and in India, and had come home—said to me twenty-five years ago, "As sure as you find ninety-five to one hundred millions sterling of gold obtained out of the earth per annum, then the question will be for ever settled of the possibility of getting bimetallism to come back to settle the currency of the world."

I have watched that prophecy for a long time, and to-day the hundred millions that he foretold has come about, and there would be no possible need of us discussing this question of silver with regard to India if a certain thing had not happened. That certain thing was the action of the Indian Government in fixing the rupee value at is. 4d., and refusing the free coinage of silver. After the first famine, as I understand it, the position of India was this. That the natives brought in their silver bangles and ornaments to the silversmith and asked for them to be converted into rupees, but they were told that the action of the Government had prevented that. For generations prior to that Act being passed, it had been the habit of the natives in times of distress to bring their silver bangles and ornaments of all kinds to the silversmith and obtain rupees at a fixed value. That having ceased the native was told by the silversmith, "From now and for ever you must cease to hoard silver, and all your reserves must be gold." They never bank in India; they keep their savings in their homes; they hide them or put them on their wives, in bangles on the wrists, or on the ankles in the way of ornament. They were told by the silversmiths of India, "From now and for ever you must only hoard gold, because gold would never change in value, so that whenever the time of trouble comes you can bring your gold to us and we will give you cash equal to a fixed value." From that date there has been a tendency in India to discard the hoarding of silver and to begin to hoard gold. We who study these questions of the values of produce the world over, relative to their exchange value, have been horrified to find that these 300,000,000 of people, having been taught by their silversmiths, whenever they realise over their needs more than the actual needs of their family, leaving with them the difference which was their property, to put it into gold reserve in the form of either ornament or coin and hidden away, that that action taken by so many millions has resulted in the drawing out of the world, as the last speaker has said, of one-third to one-fourth of the total annual production of gold. We stand today in a state of nervous tremor as to whether that will go on and increase.

The production of the gold of the earth is roughly ninety-five millions per year. We estimate that thirty millions per year is used in the arts and sciences, which leaves sixty-five millions available for currency, but if India absorbs thirty millions out of the sixty-five millions then you have only thirty-five millions in gold to be distributed amongst all the great countries of the world to arrange for their increased volume of trade and to be the basis of their currency and their exchanges. This is a vital issue for all of us, and I sincerely trust that this Royal Commission which is about to be appointed will have the power given it to investigate the whole issue of this matter of exchange because, if I understand the position aright, the people of India's interest and the people of England's interest are absolutely antagonistic. It is to the interest of the people of India that the exchange should fall because then when they sell their linseed or cotton or wheat or whatever it may be, they, as it were, receive a better price for their product. When the Lancashire spinner tries to sell his calico goods in India, if the rate of exchange goes up, then the Lancashire man's interest is diametrically opposed to the agricultural interest of the farmer of India. It is for the Government to find the absolute stable position between both parties and to act fairly. To my mind the action of the Government was wrong in refraining from buying silver for five years, and after that period of five years to enter the market as an enormous purchaser. The result has been a very serious loss to many thousands of innocent traders. I have only to quote my own case. I am trading to-day in a commodity for Manchuria. I did not know a year ago that the Government of this country were going to start buying an enormous quantity of silver which would alter the whole rate of exchange with regard to the whole of the Eastern produce of the world coming to the Western markets.

I say that all the citizens of the Empire have a right to know what action the Government are going to take if it will affect the course of exchange. The Government, when they apprehended that there must of necessity be an increase in the coinage of India, should have come honestly into the market and said, "For the next twelve months we will require 8,000,000 ounces of silver per month, and we are prepared to receive tenders." Or they might have said that they had decided to buy so much silver per month, and allowed the market to take its natural course. In the first instance they would have lost money. But I know, as a large operator in the produce markets of the world, that if the largest buyer's requirements are less than the market expects, if he names a requirement for a price for twelve months, the market will anticipate a fall, break the market for him, and tender below the cash price to get the twelve months' contract. So that while for one twelve months the Government might lose money by exposing their hands, in the next twelve months it is quite possible that, with an increased production in silver, they would actually cause a break in the market by saying, "This year we will require only 5,000,000 ounces per month," whereas the year before they had asked for tenders for 8,000,000 ounces per month. Secrecy in the market where a nation is engaged is not the first item to be considered. Whatever happened, the Government had an enormous profit between the price they paid for the silver and the price at which they issued it as coinage to the people of India. They had a fabulous profit, and it did not matter much to the finances of India whether or not there was a penny per ounce difference.

I claim that it is up to the Government of this country so to act that every individual trader in the Empire can know and judge for himself whether the requirements of the Government will increase in such a way that in the contracts that he makes for the ensuing twelve months he must allow for an advance in the exchange of the world. Thousands of men in different parts of the world, in arranging their business, as they have to do, for months ahead of the actual day to day business, have to calculate this question of the price of silver. It is rather ironical to take up a paper written a short time ago to a former Member of this House, Mr. Morton Frewen, by one of the Senators of the American Parliament, on this very question of silver, before the present issue was at all before the country, and to find that this Senator seemed to have foreseen just what has happened. He says:— But that a great civilised Government should be making a profit as to-day of 50 per cent. by selling currency of unlimited legal tender to 300,000,000 of its citizens, that the currency of India should be manipulated as to-day by a few officials whose purchases or non-purchases of silver bullion elevate or depress all the world's exchange with China—this is so opposed to every theory of your own economists that I must not venture to press the point further. This Senator was on a Committee appointed to consider the possibility of America, England, and Germany uniting to find some possible way out of this difficulty with regard to silver exchange, and to bring about to some extent some balance or equivalent between the silver and gold exchanges. He was unsuccessful in his efforts, because it was found that the interests of the Government of India, acting for the people of India, who wish to ship their goods to these three great buying markets, were entirely at variance with the interests of the people of the United States, Germany, and England, who wish to ship goods to the Indian market. It is up to the Commission which has been proposed by the Prime Minister so to consider the conflicting interests of the people of India and of the people of these great trading nations that some way shall be found to prevent a 50 per cent. rise, such as the hon. Gentleman has told us took place in silver between 1902 and 1912. It is awful to think that the basis on which the exchange transactions for half the people of the world are taking place fluctuates 50 per cent. What should we think if the value of the sovereign fluctuated nearly 50 per cent.?

We have the admission of the representative of the Government that during ten years the value of the basis of exchange for half the people of the world fluctuated 50 per cent. Cruel injustice must have been done during these violent fluctuations, and it is for us, as the greatest trading Empire in the world, to endeavour to make it possible that this exchange shall remain steady, so that the people, both buyers and sellers, shall have some even basis of exchange. This Debate will have been of the utmost value not only to us in this country, but to the people of China, India, and all the trading communities of the world, if through the effort we have made there is appointed a Royal Commission which hears evidence and devises some way out of the difficulty, which threatens to be one of the most serious dangers that the trading community of the world has ever had to face. One cannot conceive What might happen if on the present basis of gold reserve the great trading people got nervous and asked for their gold. It would create such a panic in the world as we business men have never seen. It is to the vital interests of the trading community of this country that the Government have agreed to ap- point a Royal Commission in order that this question may be investigated and, I sincerely trust, solved.

Mr. COTTON

I would call your attention, Mr. Deputy-Speaker, to the fact that we have not got a House.

Mr. DEPUTY-SPEAKER

The House cannot be counted at this hour.

Sir GEORGE SCOTT ROBERTSON

I agree with the last speaker in the pleasure with which I heard the announcement of the Prime Minister that he intended to have a Committee, or more than that, a Royal Commission, thoroughly to examine many of these questions which are agitating the minds of people at the present moment. But I want, in a few minutes I shall speak, to put the point of view of the Indian taxpayer, the ryot. In the beginning of this Debate nobody referred at all to the Indian taxpayer, either directly or indirectly, until the Prime Minister made his speech, and since then, with one or two exceptions, no other references have been made to the people of India. The last speaker also was so overwhelmed with the importance to the world at large—and I admit it is of very serious importance—of this particular question of the gold absorption by India that he looked at it entirely from the Western point of view which causes so much agitation in India at the present time. That is what the Indian people accuse us of doing; of sacrificing their interests to the Western or other point of view, and not looking at the case from their point of view. Indian opinion at the present time is perhaps somewhat hard clearly to define. We know, for instance, that the Indian commercial community, the Anglo-Indians, are quite satisfied with the present condition of the cash balances.

There is one exception, and one which the hon. Member who has just sat down knows perfectly well, and that is the Karachi Chamber of Commerce. That chamber proposed to other Chambers of Commerce in India that there should be a joint protest against the amount of the cash balances which remained in this country, and all of them unanimously disagreed. They pointed out the convenience it was to the Indian trader. As to the absorption of gold in India, of course, the circumstances are peculiar at the present moment in the enormous exports from India compared with her imports. Gold, of course, goes to India, and the hon. Member, I think, imagines that it is all absorbed. Large quantities are, no doubt, but some part of that gold finds its way into the Treasury. Just, for instance, see how enormously the gold has increased in the paper currency reserve of the last two years. It now stands at £18,000,000. In the last returns of the currency department, we find that although over eleven crores of rupees in gold were absorbed, there was also an equal quantity of silver absorbed. The true inference from that is this: that the people of India in the last two or three years have increased very greatly in prosperity. That is the meaning of it. Gold is used very extensively in India at the present time. The Commissioner for one of the Punjab Divisions says that the gold paid out from the Treasury there is returned as land revenue by the people. We know that the Punjab wheat is moved very greatly by gold, and we know that in Bombay remittances are sent up country in gold. Gold is making way.

9.0 P.M.

The question of the absorption of gold will be one of those very interesting questions that will come before the Royal Commission. Anything one states now is, of course, of comparatively little value. It is a personal opinion. What one wants is an authoritative Royal Commission of experts who will take all the evidence, and from their standing and position in the political, scientific, and commercial world, will be able to give some sort of a decision which may be, we hope, authoritative. There is not the slightest doubt now that the Fowler Committee is altogether out of date. You will, of course, find that Mr. Webb, of the Karachi Chamber of Commerce, and his supporters, quote the Fowler Committee almost as if it was inspired doctrine. It is fourteen years old. It attacked problems experimentally. Obviously, conditions have changed very much. Now these questions should be thoroughly examined, especially from the point of view of the Indian people. They feel very strongly that their interests are being sacrificed to those of the Occidental world. It is important that they should be disabused of any feeling of that kind, and also taught, if possible, that the relation between the Eastern and the Western in trade is mutual, and that there can be no disaster, for instance, to the West with- out it eventually falling also on the East. The Gold Standard Reserve is another question which would be referred to this Committee for very careful examination. Expert evidence would be collected. I am not going over all these questions in detail. They have been so excellently and thoroughly dealt with that it is not necessary to do so. But I would just like to say a word or two about the opinion of India upon this silver question and the methods of the Secretary of State in dealing with the silver question. The "Times of India," which especially devotes itself to this question—and with great impartiality—has pointed out, very truly, how unimportant these, I had almost said, sordid squabbles between bullionist brokers are from the Indian point of view. They say, in effect: Supposing all that has been alleged (and which, by the way, has been withdrawn) had been true, what does it matter to us? We want the great questions settled. We want the question of the cash balances settled. We also want settled this Gold Standard Reserve, and all the great and important questions which bear specially and peculiarly upon the Indian taxpayer. These are the questions which have to be determined and desided upon.

The "Statesman" and, in fact, all, I think, of the Anglo-Indian newspapers, apart from the "Times of India," are agreed that there was an iniquitous conspiracy from one point of view, and a perfectly justifiable commercial combination from the other point of view, to corner silver. The "Statesman" waxes very sarcastic on this subject, and says: You want to proclaim, of course, on the housetops that you are going to buy silver so that a ring of gamblers may feather their nests at the expense of the English taxpayer. That is really what the Secretary of State, with the help of the Indian Government, set himself to prevent. I congratulate him very heartily upon his success. I do not agree at all with the remarks made which seem to imply that he failed. On the other hand I think the more carefully you examine the correspondence and the more you study the opinions of the experts, the more you will find that Lord Crewe's estimate is not very far wrong when he stated that hundreds of thousands of pounds sterling have been saved to the Indian taxpayer by these secret purchases. I will not refer to it any more. The whole question has been very thoroughly threshed out, and I merely say this, that, speaking from the point of view of the people of India, watching with wonder and some suspicion the curious controversy going on in this country, I am most glad and am extremely grateful to the Prime Minister that he is going to set up this authoritative Royal Commission so as to allow these people to know everything that can be said on the one side or the other.

Colonel YATE

I wish to say a ward or two upon one point and that is in connection with the India Office balances and with the management and administration by the India Office of these balances. The right hon. Gentleman the Prime Minister explained to us how largely these balances had increased during the years 1909, 1910, 1911, and he went on to tell us that the reason they had increased is explained in this White Paper. Everybody will be glad to think that the Royal Commission will give a very much more weighty and authoritative explanation than is to be found in this White Paper. These balances are raised—the words here "are supplied"—almost entirely from the proceeds of the sale of weekly Council Bills, and as the hon. Member for Uxbridge said these bills have been sold during the past three years practically without limit. Is that policy of selling Council Bills without limit to continue or not, or is it to be set aside? I called attention to it first of all in the Budget debate last year in this House, and I brought to the notice of this House how the cash balance in 1907, the year after the present Government came into power, was only £4,600,000, and that this had increased gradually to £7,000,000, £12,000,000, £16,000,000, and last year to £18,000,000. I pointed out that according to the Budget statement of the Secretary of State the amount required for India in England amounted to about £16,000,000 or £17,000,000 a year, and that the Secretary of State had been drawing for the last few years from £25,000,000 to £27,000,000 annually from India, and had apparently started banking on his own account with the balance in England. I said I did not think that was ever done before.

I asked the Under-Secretary to try and explain it, but he could not do so at that time. I followed this up on 3rd September last by asking a question of the hon. Gentleman representing the Secretary of State for India in this House as to whether the Secretary of State made these loans to banks and firms from balances through a full time paid official without the intervention of any person carrying on any form of financial business. I was told the answer was in the negative, and that loans were made by the Secretary of State's broker. I put further questions as to what was the percentage or commission of the Secretary of State's broker, and I was informed that the figure was fixed at 1 per cent. on deposits and on loans 2½ per cent. up to £5,000,000, and 1½ per cent. beyond that. Later on I found out from the Return issued that the percentage paid to this broker during 1908, the year after the Government came into office, was only £2,642, that in 1909 it was £6,300, and that in 1910 it was £12,700. That seems to me a very large amount to pay. And the question arises, what was the necessity for all these great payments to the broker? The Prime Minister told us that the Secretary of State in Council had to rely upon the advice of his expert advisers at the India Office on the Indian Council, and the Prime Minister gave us the names of the Finance Committee of the India Office Council, and the names he gave us were: General Sir Charles Egerton, Sir Theodore Morrison, and Mr. Krishna Gupta, in addition to Sir Felix Schuster and Mr. Lawrence Currie. I venture to ask, why is it that upon this Finance Committee of the India Office Council no advantage has been taken of the expert finance Ministers that India has possessed for many years passed.

We have had many eminent finance Ministers in India, and not a single one of those are on the Indian Council. We have Sir Charles Egerton, a famous general, who spent all his life in India, but who does not possibly know any more about finance than I do. We have Sir Theodore Morrison, who was a professor of a college in India, and who looks after Indian students in England, but I do not suppose he knows much about finance. We have Mr. Krishna Gupta, an eminent member of the Indian Civil Service, who, if I remember aright, wrote a very able treatise upon the fisheries of Bengal, but who has no knowledge of finance or banking business in England that I know of. I hope the present Royal Commission will go into the question as to the administration of the funds held by the Secretary of State. I should like to ask why is it that no finance Ministers who have returned from India at the end of their service are appointed to the Finance Committee of the India Office? These finance Ministers have had great experience. They come to England at a comparatively early age. Indian Civil servants retire at fifty-five, after thirty-five years' service A man goes out to India at twenty, and comes home at fifty-five. If he goes out at twenty-two or twenty-three years of age, he comes home at fifty-seven or fifty-eight. All these experienced finance men come here, and why is it that the Secretary of State never appoints any one of them to his Council. Instead of that he appoints upon the Finance Council an Army man, a schoolmaster and a Fisheries man. I say that is not financial business, and I trust that the matter may be raised before the Royal Commission, and that some better and more suitable arrangement may be made for the administration of its finances by the India Office.

Mr. MacCALLUM SCOTT

I would like to join in the expressions of regret that the Under-Secretary for India is not here. I am sure the House would have benefited very greatly from his assistance and intervention in the Debate. The ability and knowledge he has displayed in Indian matters, and, still more, the sympathy with Indian opinion that he has displayed on many occasions make him conspicuous among the list of those who have occupied office in respect to India in this House. I would like to assure him if he were here, on the part of those who have watched his career with a somewhat critical eye that with regard to the attacks that have been made upon him and his family he has our entire sympathy and confidence and respect. I have listened very carefully to this Debate with a view to gathering what are the main lines of attack and criticism upon the India Office. As far as I can see there are two main lines. First of all there is the attack presented by the hon. Member who moved the Motion now before the House which was purely personal; and in the second place there was the criticism based upon the very broad lines of financial policy which was voiced by the hon. Member for Islington and others, but which has been more largely voiced outside the House, the chief exponent being Mr. Webb, the Chairman of the Karachi Chamber of Commerce. This Motion is one which raises questions of a broad general policy, and it is one asking for the appointment of a Select Committee. In the speech of the hon. Member who moved it there was an entire absence of any criticism in regard to the broad financial policy of the India Office, and he concentrated his attack, which was entirely a pure personal one, upon one particular contract. He did not deal with the general financial policy either in India or in London, but he dealt entirely with this one contract, and the whole of his case was that this was a corrupt bargain between the officials of the India Office and this particular firm, and he charged this firm with not having acted in good faith and with having deceived the India Office as to the nature of the transaction. But the hon. Member did not make his charge definitely or openly, and he always withdrew when there was any suggestions as to the real nature of his charge. At the same time the hon. Member said he was not making any charge of corruption or undue influence, but his attitude was very much like that of the numerous critics who have recently collapsed in the Marconi Inquiry. Practically the charges were hinted and suggested in the same way by the hon. Member. Going outside I might refer to an article I have found in a paper which circulates in South Hackney. It is called "Our Flag," and contains an article by "Rupert Gwynne, M.P.," and in it I find the real gist of the charge which the hon. Member is making. He says:— From time to time it is necessary for the Secretary of State for India to buy silver for the Government for the coinage of rupees. Hitherto the practice has been for the Secretary of State to notify to the Bank of England the sum required. The Bank in return has instructed a firm of brokers to make the necessary purchases. This year the Secretary of State for India departed from this practice and instructed Messrs. Samuel Montagu and Company to make the purchases. The close relationship of the Under-Secretary for India and the Postmaster-General with this firm is shown by a glance at the genealogical table below. This article is illustrated with a genealogical table, showing the descent of the members of this family for many generations. A little lower down I find the following passage:— No one in the silver market would think that the Government would have the audacity to take the work away from the Bank of England and place it direct with the firm of Messrs. Samuel Montagu and Company. What is the meaning of this genealogical table inserted in this financial article like a table of statistics if it is not a charge of corruption? The hon. Member in his long speech dealt with no question of general financial policy, although there are many such questions which might have been raised. There is the question of the establishment of a mint in India, the gold currency reserve, the question of the balances which are retained by the India Office in London, the sale of Indian Bills, and telephone transfers in excess of the India Office requirements, and the issue of the balances in the way of loans. All these are important aspects raised by this Motion, but which were not glanced at in the speech of the hon. Member who moved it, and he confined himself entirely to this one contract and to the family relations of the firm, which was the principal in this contract. The speech might have been made by one absolutely ignorant of Indian financial problems, because it showed no knowledge and threw no light upon any of these questions. The hon. Member's financial lexicon seems to consist simply of Burke's Peerage, "Who's Who," and Dodd's Parliamentary Companion. The hon. Member was— 'Willing to wound and yet afraid to strike,' and his charges have found form outside this House. I will quote a passage from the "Pall Mall Gazette" for 31st October last:— It is quite evident now that the scandals of India Office finance going to be brought into the light of day. Only an Edmund Burke could do full justice to their magnitude. The venality of the Nabobs of an earlier era, the evils of Tammany Hall, the revelations of Radical rapacity in other directions in recent years, all became insignificant when compared with the vast and impudent perversities which have been organised in Whitehall in the last six or seven years. A little later on the article says:— Sometimes institutions and corporations have derived benefit, while the individuals really concerned are in the background. At other times the 'benefits' have been more directly individual. And the last sentence is:— We repeat, that this is going to be a very nasty business. That is, put in somewhat more lurid and highly coloured language, the charge suggested throughout the whole speech of the hon. Member who moved this Motion. What is the answer to these charges? I think it is both complete and satisfactory. An answer has been made from the Front Bench already, and I will not go into the question in detail. In the first place, the purchase of silver through this particular firm was a transaction which was for the direct benefit and advantage of the Indian taxpayer and Indian finance. It defeated a ring of speculators—I do not mean to cast any aspersion on them whatever, because they were engaged in a legitimate transaction—who were rigging the silver market against the Government. This transaction over the whole series of purchases has led to a saving of hundreds of thousands of pounds—at a minimum estimate £175,000—and possibly reaching to many times that sum. That is the first answer as regards the particular transactions. Now as regards the firm itself and the relationship of the Under-Secretary to that firm, there are two points to be noticed. First, the Under-Secretary is not himself a member of that firm and has no financial interest in it; and, in the second place he is not a member of the Financial Council at the India Office. He has no part in its deliberations, and had no share in and was not responsible in any degree for its decision to give this particular contract. I would like to quote the words of Lord Curzon in referring to the relationship of the Under-Secretary to the Financial Council. In the Debate in the House of Lords, on 14th November, he said:— We know from what we have heard to-night, that he is not even it member of the firm for which his brother has spoken, and I can state from my own experience of the India Office—I was Under-Secretary there myself—that the Under-Secretary has nothing to do, or next to nothing to do, with the Finance Committee. Leaving altogether apart the suggestion of corruption and malpractice and undue influence, we come to an aspect of the criticism which was mentioned by the right hon. Gentleman the Leader of the Opposition. I frankly recognise that he dealt with the whole subject in a thoroughly proper and unexceptionable spirit. I take no exception, and I think no one on this side of the House takes any exception, to the tone or nature of his criticism in any respect. He said: "It may be all very well in business to benefit your friends, to put something in the way of your friends, but it ought to be the opposite maxim which prevails in politics. If those who have political power and influence have got friends or relatives in business they ought resolutely to avoid having any financial dealings with firms with which their relatives are connected." I agree. That is a sound general maxim, and it ought always to be followed unless there is some good, definite, urgent reason to the contrary in the particular case, and in this particular case it is submitted there was an overwhelming reason to the contrary. The Government was faced with this ring of speculators in silver. The only way of defeating it was to find some firm not in touch with it which could act quite independently, and it so happened that out of the four firms which were available this particular firm was the only one which could enable the Government of India to break down this financial ring. In these circumstances, I think everyone who looks at the subject with an impartial and unbiassed mind will agree with the view Lord Crewe expressed in the House of Lords in the same Debate. He said:— The facts being as they are, I cannot think that we should have been right in obedience to a possible prejudice against the blood relationship of the Under-Secretary and the head of the firm, to have sacrificed this great benefit, although I entirely agree that in such matters appearances are important and cannot altogether be ignored.

Mr. CASSEL

Is the hon. Member in order in quoting from the speech of a Noble Lord in another place?

Mr. DEPUTY-SPEAKER

I think the hon. Member is not quoting the speech in the sense in which it is forbidden in this House, namely, to make an attack upon a speaker in the other House, who is not here to reply. The quotation did not appear to me to be of that nature at all.

Mr. MacCALLUM SCOTT

I am sorry if I have even seemed to be out of order. I will leave the purely personal aspect of the case, and come to the more substantial case which has been presented against the financial policy of the India Office. That case had been chiefly worked up and published through the activity of Mr. Webb, the chairman of the Karachi Chamber of Commerce. He may be said to be the only public man in India who has taken that view, and the local newspaper of his district has referred to him as carrying on his agitation single-handed. Then there was the series of articles in the "Times" of last November, which were said to be by an Indian correspondent. I think we may not be far wrong in tracing the inspiration of those articles to somewhere about the region of Karachi. What is the gist of that criticism? It is that the India Office has departed altogether from the principles laid down by the Currency Committee; that it has refused to establish an Indian Mint; that it has refused to take measures to promote the circulation of gold in India and the import of gold into India; that it has invested the Council Reserve in silver and securities instead of keeping it locked up in gold; that it has maintained cash balances to an inordinate degree in London; that it has sold bills and telegraphic transfers far beyond its requirements, and that it has been lending these cash balances in London at a small rate of interest, instead of using them in India. That is substantial criticism. There is a substantial case on which I frankly do not pretend to form a definite and conclusive opinion for myself. These are very highly technical matters on which no Member of this House has a right to speak without knowledge and very prolonged experience and study of these questions, and for my part, having Ministers on the Front Bench who enjoy the confidence of this House and who are advised by highly trained experts in Indian affairs, I am quite prepared to accept their assurance that the policy of the India Office on these matters is sound and in accordance with the best interests of India.

There are two aspects of these technical charges to which I think an ordinary lay Member may make some reference. The first is that this criticism of Mr. Webb, which took the form of a series of articles in the "Times," is not endorsed by the "Times" newspaper itself. The "Times" newspaper expressly dissociated itself from the view expressed in these articles. The criticism of the "Times" is of quite a different nature; it is more of the nature of that which was put forward just now by the hon. Member who preceded me. It is a criticism about the constitution and manning of the India Office; it is as to whether it is well manned. There is much to be said in support of the overhauling of the India Office, just as much as there is to be said in favour of the present overhauling of the Civil Services of this country and of India by Royal Commissions. I would have been very glad if the Prime Minister, when he made the announcement of a Commission of Inquiry to-day had made some announcement also that the India Office shall he subjected to the same process of rigid examination and criticism that other Civil Services are being subjected to. My next point is a different one. These articles purported to represent Anglo-Indian opinion, but it is obvious to anyone who has studied the Anglo-Indian newspapers that they completely misrepresent Anglo-Indian opinion. I will call attention to one of these articles published on 4th November to show that a claim was made that they represented Indian opinion:— But the Government's constituency extends far beyond the purlieus of India, and embraces the whole of India. There, wherever the financial question is understood, wherever large industrial and commercial interests are centred, there is deep indignation at the manner in which the resources of a poor country are diverted to feed the money interests of the wealthiest city in the world. And here is a second quotation:— The interests of these banks are bound up with cheap remittances to India; it is nothing to them if Indian interests suffer or if the Indian taxpayer pays. Small wonder is it, if, ground between the joint stock and the exchange bank Indian interests have been reduced to powder and she has been compelled to see her resources diverted to the bolstering up of depreciated securities, to financing the city and frequently to arresting the natural flow of bullion to her shores. There you have a direct claim that they represented practically a unanimous Indian opinion, and now I come from November to January, and here I have a "Times" article containing a review of Anglo-Indian opinion based upon an examination of the files of the Anglo-Indian newspapers for the three previous months. It is dated the 20th of January, and refers to the series of articles published in November last. It says:— Generally it may be said that careful examination of the tiles of the principal Anglo-Indian newspapers for the last two or three months shows that while the views of our Anglo-Indian correspondent have altogether failed to secure widespread support, our contention in connection with them that the whole problem of Indian financial management should be re-examined by an independent and representative commission, is supported in influential quarters and is not contested by any important organ of Anglo-Indian opinion. It is clear that this criticism, whatever it may be, represented the views only of a few isolated individuals in India, and did not represent views of the Indian commercial community to any appreciable extent. My last remark is this, that this criticism, the manner in which it has been presented, the charges and insinuations which have been mixed up with it, must have undoubtedly have a dangerous and perhaps disastrous effect in India. The hon. Member made charges of corruption. It would be a disaster to this country, a disaster to India, and a disaster to the Indian Government, if the people of India were ever in large numbers convinced that their Government was a corrupt Government, and that their resources were being squandered in the financial interests of the City of London, instead of the interests of the Indian taxpayers being the first consideration of the India Office. If the hon. Member who moved this Motion believed in those charges which he insinuated—

Mr. GWYNNE

I made no insinuations. I made direct charges in certain cases. made no charges of corruption.

Mr. MacCALLUM SCOTT

I think the hon. Member was absent when I examined the whole case which he made, and I think I showed successfully that he had insinuated charges of corruption, both against Ministers and Members of the Government. That was certainly the meaning that any unprejudiced person would make out of the speech. Why did he drag in the genealogical tree instead of a table of statistics, if he did not mean to insinuate charges of corruption? Why did he ransack "Burke's Peerage," "Who's Who," and "Dodd's Parliamentary Companion" if not for that purpose, if his object was purely financial. If he believed in those charges, he was thoroughly justified in making them whatever might be the consequences in India, because if there was any truth in them it was more desirable that they should be unmasked and put a stop to rather than continue unsuspected until a final calamity was reached. But if he did not believe in them, and was merely repeating rumours and fishing for information, and trying generally to discredit the Government, if that were all, then I can only say that in view of the terrible result which the dissemination of such rumours and scandals and beliefs might have in India, his conduct can only be described as infamous.

Mr. W. E. HARVEY

rose in his place, and claimed to move "That the Question be now put," but Mr. Deputy-Speaker withheld his assent, and declined then to put that Question. Debate resumed.

Mr. GWYNNE

In view of the statement which the Prime Minister made early in the afternoon that he intended to set up a Royal Commission to inquire into the larger question of the administration of the Financial Department of the India Office, I beg leave to withdraw the Motion standing in my name to set up a Select Committee, because I feel that Royal Commissions will cover a wider ground, and will carry more weight than a Select Committee would have done. But I must add that it is a matter of regret to me, and I think to many of my friends on this side of the House that the Prime Minister did not see his way clear to allow some committee of investigation to thoroughly inquire into the whole question of the purchase of silver by Messrs. Samuel Montagu and Company. One thing was perfectly clear that in their answers the Prime Minister and the Financial Secretary to the War Office never attempted in any way to defend the India Office in the thoroughly unbusinesslike way—

Mr. ROBERT HARCOURT

Is the hon. Member entitled to go into the general subject when asking the House for leave to withdraw his Motion?

Mr. DEPUTY-SPEAKER

The hon. Member moved a substantive Motion, and has the right to reply. In doing so, I understand he is asking leave to Withdraw the Motion.

Mr. GWYNNE

I have no intention of going into the whole question again, but merely wish to put on record that I think it is a matter for regret that the Prime Minister has not seen his way to have the question of the silver purchases more fully, or indeed at all, investigated at the present time. I think I am perfectly justified in making that statement when I ask the leave of the House to withdraw my Motion. I should like to say, in answer to the hon. Member for the Bridgeton Division (Mr. MacCallum Scott), that I made no insinuations either in this House or out of it. I made certain definite charges, which I am perfectly prepared to stand by. [HON. MEMBERS: "What are they?] If you wish it, I will enumerate them; but I do not think it will be in order for me to go into that again. One charge I made has not been touched upon, which is that this transaction, if it was to be given to Messrs. Samuel Montagu and Company to carry out, was, so far as the India Office was concerned, carried out in a most unbusinesslike way. That is a charge the Prime Minister should have dealt with when he was purporting to deal with my charges. No answer was made at all. I did make a very strong point that the India Office in this matter had not taken the ordinary precaution, which any business firm would have taken, to put on record their telephone messages, their interviews and their meetings with the firm, by which important matters of business were transacted. That being so, I think I am quite justified in commenting on it. If that is procedure which the Prime Minister thinks of no importance, we differ. I quite realise that in setting up a Royal Commission we may have the larger question dealt with, which, after all, is the most important matter, and one which all in this House will wish to see dealt with. I hope that so far as these transactions are concerned that the publicity given to them will deter the Government in future, or make them more careful in passing on these large contracts to their friends and relations—[HON. MEMBERS: "Oh, oh!"]—I stand by that—and from carrying them on in the very unbusinesslike way which they have done. I beg leave to withdraw the Motion. Leave to withdraw Motion withheld.

Sir JOHN JARDINE

I desire to express my complete satisfaction with the way in which the Financial Secretary to the War Office and the Prime Minister dealt with every part of the numerous charges, accusations, or insinuations which the hon. Member levelled in so large a number and with such great detail at the transaction of the Secretary of State for India with the firm of Messrs. Montagu and Company. Every point worthy of notice was wholly answered. The conclusion I arrive at is that the Secretary of State for India, from the beginning to the end, carefully, cautiously, and succesfully managed the negotiations with the firm for the buying of silver in the interests of India, and in such a way as in all probability to save a large sum of money. As to the slight matter of not recording a word or two in conversation, or everything said over the telephone, I should doubt if that is the practice of business men in the city. A great deal of business is done without any registration of the bargains they make there. When we come to the question of lending money to banks and financial institutions, it has been said to-day that questions were not properly answered, as if there had been a desire. to conceal facts, even when hon. Members. put plain questions. I do not in the least concur with that view. The first question on the subject was one I put down a few months ago, when I wanted to know something about the handling of these large balances, what they were, and what was the security for getting them back. A very definite statistical answer was given, and is on the records of the House, and I did not think it my duty to put any further question because the answer was so full, and the effect was generally to satisfy the public mind with definite information, which is more than suspicions, rumours, or insinuations, or any kind of gossip.

As regards the lending of money on securities or on deposit, I am satisfied with the promise made by the Prime Minister that he will appoint some Select Committee or Royal Commission to inquire into the matter, not because anything has arisen in the course of this Debate to promote suspicion. Because the amounts are so large, and the question is connected with that of exchange, gold currency, relation between the exchange and the India Office, and the Presidency Banks in India; because the interests are so large and depend so much on the experience of the past, especially the year 1838 and more recent years, and because there is a good deal of division of opinion among financial and currency experts on this question, I think it is a good thing that the public should be informed that that is the Prime Minister's intention. I entirely concur with the warning given by my hon. Friend of the Bridgeton Division (Mr. MacCallum Scott), as to the dangerous nature of Motions which are brought forward, and supported, in the way this one has been brought forward. Anyone acquainted with the old saying, that every man has his price, will feel that this kind of talk will fall on fertile soil. It has been said in one of the superior Courts here, that public men have a high interest and property in their character, and that those characters are not to be lightly assailed. That is the reason why the Courts refuse to admit to their records petitions and documents which contain libels, insinuations, or charges against persons of dignity, or those who hold great offices under the Crown. I feel sure that a speech containing numerous insinuations—so we all regard them on this side—is likely, if published in India, to do a good deal of damage, not only to the belief of the Indians in the purity of official life here in the House of Commons even, and in the India Office certainly, but the officials out there will be looked upon with the same kind of suspicion, and that is a very dangerous thing for the Government of India and a very great hardship and shame to which to expose such men as are doing the work of the Government out there. I would, therefore, join in the exhortation that the hon. Member (Mr. Dundas White) made on that important part of the speech. I think a Motion like this, so supported, deserves to be withdrawn, and I am glad the hon. Member has taken that resolution, late though it be.

Mr. HOGGE

rose in his place, and claimed to move "That the Question be now put," but Mr. Speaker withheld his assent and declined then to put that Question. Debate resumed.

Lord HUGH CECIL

I am not surprised that hon. Members are rather uneasy under this discussion. I should certainly vote for the Motion if it was pressed to a division, but as the Prime Minister has promised an inquiry into a large part of a subject that alters the case. If it were a Motion directly censuring the conduct of the India Office I should vote for it without the smallest hesitation. This is really a matter of very great gravity, and not to be put aside by the tone which the hon. Member thinks it right to assume. I do not intend to speak with authority—it would be presumptuous and impertinent for me to do so—on the details of the silver market or the technicalities of finance, but I have been familiar ever since I have been very young with the traditions of public life, and the manner in which these matters are, and have been in the past, commonly treated by Parliament, and both the speakers from the Government Bench—although the Prime Minister treated the matter more gravely and in a better spirit—and other speakers seemed to me very imperfectly to realise how serious a breach, I do not say of public honesty or of public purity, but of public delicacy, has been committed by this contract and the manner in which it has been handled. Let me make quite clear the distinction. I do not think for a moment that what was done was in any sense corrupt. I think what has been done is very grossly indelicate, and that public money has been most indelicately dealt with and the traditions of public life have sustained serious injury. I think my hon. Friend has done a great public service in calling attention to the matter, and I am convinced that though the Government, naturally enough, according to the ordinary customs, defend what is done, such a thing will not again be done after what has been said here to-night and outside.

10.0 P.M.

Assume all that the Government say to be well founded and sound argument about the necessity of what was done; suppose it to be perfectly true that they were driven to do this, and that the necessities of the public service imperatively required it; even so, they are greatly to blame for the manner in which it was done. I do not think their speeches show, or that the House generally seems to appreciate sufficiently gravely what a serious departure from all ordinary official rules it is to give a lucrative contract, at the solicitation of the firm who received it, to a near relative of a Member of the Government in the very Department that granted that contract. That is a most unseemly thing. It may have been necessary in the public interests to do it, but it was, on the face of it, a most unseemly and indelicate thing to do. It is quite contrary to all the traditions of public life, and it is perfectly absurd to represent it as an ordinary transaction. When I first heard of it, I felt that such a thing has never been heard of in the ordinary practice of official life in the past. I am not able quite to agree with the right hon. Gentleman (Mr. Bonar Law) when he says there is no danger in this matter of corruption growing up, because Ministers have, if there was no other reason to consider, the motive of self-interest to prevent them indulging in anything of the kind. We must remember that though in our country we believe corruption is still impossible, we are very unusual in that respect. It would not be seemly to mention particular countries, but I doubt whether there is any other great country, at any rate there are not very many, among whom gross personal corruption of Ministers of the Crown is not known to exist. It is therefore a very real danger, and the objection to what I call an indelicate transaction is just this, that though there is no real harm done it makes a precedent for a transaction which really is corrupt, and this transaction might easily be made a precedent for a transaction which was really corrupt, and which really was a sacrifice of the public interests to private advantage. I do not for a moment think this was, I have not the least doubt it was not, but I think it was done in a manner which shows the importance of dealing with these matters with the most scrupulous care, and which covers the Government and the India Office with discredit.

If this strange condition of the silver market prevailed and it was really necessary to do it, the first thing that ought to have been done was to enter a Minute in the India Council noting how very exceptional the transaction was, noting how very much open to criticism it was, and pointing these things out in order that it might never be drawn into a precedent. Then, when the matter was carried through and the silver had been obtained, the Government should not have lost a moment in taking Parliament fully into their confidence, and explaining the very exceptional circumstances which induced them to do what they have recognised to be an irregularity. If that had been done, no reasonable criticism could have been made, except in so far as the particular circumstances called for it—no criticism I mean on the seemliness of what had been done—but as it has been done, it has been done with every circumstance which might naturally aggravate suspicion and induce it. No satisfactory answer has yet been given by the Members of the Government to the question why the Bank of England was not taken into confidence in the whole matter, why it was not consulted, and why the matter was not carried through in accordance with its advice. There is no real reason why the Bank of England should not have been consulted. No reason has been given for the secrecy in respect to the Bank of England. How is it possible to give the Government the credit for a real sense of the danger they were incurring and of the suspicions they were exciting when they would not take that obvious course of first of all approaching the Bank of England before they went into any separate bargain with Samuel Montagu or anyone else? That was the natural and the obvious course, but from the beginning of the transaction to the end, they, as it were, assumed the garments of guilt. They did everything in their power to suggest that there was something wrong in the transaction in which they were engaged. I quite believe there was nothing wrong, but I think there was a consciousness that these imputations might be made, and that consciousness made them uneasy, and made them, as anxieties are apt to do, lose their head in the matter, and not see that frankness and openness were the very things they ought to study when engaged upon a business of this kind.

I greatly regret that the matter has been treated by hon. Members behind the Government, and to some extent by the Financial Secretary—I do not say by the Prime Minister—as though this were not a matter which properly engaged the attention of the House of Commons. [An HON. MEMBER: "No."] The hon. Member really does not appreciate what is the real danger. It is that corruption should grow up. I greatly regret that hon. Members behind the Government have shown no sign of their sense of the gravity of the issue. I am quite sure that every party in this country stands to lose unless we are scrupulous in insisting that the Government shall not merely avoid corruption, but shall give no occasion for suspicion of corruption. It is quite impossible to say that the Government have done that in this case. They have given that suspicion, and I think it is profoundly to be regretted that no protest has come from their own side against conduct which tends to lower the traditions of public life. [Interruption.] I do not know what the hon. Member means. Whenever the Government transgress, we shall certainly point out that there has been a gross failure to observe the traditions of public life. [An HON. MEMBER: "Divide."] You are only prolonging discussion by interrupting. I greatly regret that the Government have so treated this subject. I am satisfied that the stain which has been left on the reputation of those concerned is a real one—not the stain of corruption, but the stain of want of discretion and delicacy. I am sure they have lowered the traditions of public life in dealing with this matter in the way they have done. If they had dealt with it in a franker way, they would have removed whatever elements of suspicion there are in the matter. [An HON. MEMBER: "Divide."] I am not going to be put down by the hon. Member. If he does not feel as I do, that this is a serious matter, I can only say he is less acquainted with the traditions of public life than he ought to be, and, above all, most unsuited to be a democratic Member, because of all the dangers which threaten democracy corruption is the greatest. Unless you maintain the tradition of scrupulous delicacy in dealing with public money, then assuredly you are opening the door to corruption. I hope the Government will lay this lesson to heart and take care that their reputation is not again stained as it has been by the transaction which we have been discussing to-night.

Motion put, and negatived.