HC Deb 22 February 1915 vol 70 cc150-60

Motion made, and Question proposed, "That this House do now adjourn."—[Mr. Gulland.]

Mr. DAVID MASON

I wish to refer to a reply which the Chancellor of the Exchequer gave me to-day as to whether Treasury notes which are now outstanding are going to be called in. The Chancellor of the Exchequer in his reply said that it was in his opinion contrary to public policy to exercise the powers conferred by the particular Section to which I referred at the present time. That seems to me to be quite contradictory to the original purpose, when these Treasury notes were originally issued on 6th August when this emergency was met. I raise the question now, because there is a prospect, I understand, of a loan or credit being established in New York which is of vital importance to the City of London as affecting the New York exchange on London, and also as it involves this particular question of the issue of Treasury notes. Those notes were issued in August, and under special powers. I put to the Chancellor of the Exchequer this question:— Is there any provision for the eventual retirement of these notes? The Chancellor of the Exchequer in reply said:— There is provision for the retirement of the notes, but it depends far more on the arrangements made with the banks. It must be to the interest of the banks to retire when the occasion has passed. I said:— The Chancellor of the Exchequer will understand my point. If there is an unlimited issue of these currency notes, and no provision for their retirement, the effect will be to accentuate the hoarding of gold and the export of gold. The point which I wish to emphasise is that the Chancellor of the Exchequer then stated and indicated to this House that this issue was more or less of an emergency character, and that when the occasion had passed, we might reasonably dispense with these notes, which now total something like £37,000,000, and they will be gradually retired. But from the answer which I received to-day—and it is the reason, of course, why I am raising this question—there is apparently, from motives of public policy, no intention to retire this issue. That involves a question of extreme importance to the country, to the bankers, and to a number of classes. When we were debating the question of food prices, I gave a number of figures, and took particular pains to show how the enormous inflation of paper money now being issued all over the world is directly affecting the question of the rise in food prices. I did not at that time give many authorities for that statement, but I think I gave conclusive evidence to show that the figures were of a most staggering character. There has been an enormous issue of paper money issued in Germany, in France, and in Russia; in France I think it has risen from something like 5,000 to 10,000 millions, and there has also been a large issue in America and in this country. Dealing more particularly with our own country, perhaps I may be allowed to recall the figures which I then gave. A year ago the Bank of England outstanding notes amounted to £38,500,000. With the Bank of England outstanding notes and with Treasury Notes the outstanding total to-day is something over 70 millions. I should like to emphasise the very direct effect this has on the prices of food which, of course, press very materially upon the poorer classes. I certainly believe that one of the main contributing causes to the extreme rise in prices which has recently taken place, results from the issue of this paper money. In proof of that, let me read one or two authorities—one well known to those who give any study to this question—the eminent French economist, M. Bastiat. He says:— If you multiply the franc without multiplying the useful things the only result will be that more francs will be required for each exchange. Another authority, the late Mr. Goschen, in his book on foreign exchange, said:— Sometimes Governments, simply for their own purposes, issue a quantity of paper money; the natural consequence will be over importation; prices will rise in consequence of the increase in circulation, and accordingly attract commodities from other markets, while the export, having risen also, will be less easy of sale abroad. Or, over importation takes place in the first instance, and Governments, in order to remedy artificially and apparently what can only actually be remedied by the cessation of the real primary cause, commit the fatal error of increasing the circulation by an issue of paper money. They think thus to increase the means of paying the debt which is being incurred; but the only effect is still further to increase the evil: for importation, instead of being checked, is fostered by such a plan, when, during a period of apprehension caused by a large efflux of gold from England to America,"— That is the very thing that is being threatened now— views were expressed in Manchester and Liverpool that a much larger issue of bank notes ought to be permitted, this opinion tended manifestly to a depreciation of our currency. But, as a consequence of the depreciation of the currency in any country is to offer inducement for further importations, by creating an appearance of high prices, and at the same time to increase the difficulty of paying for such importation, how is the final balance to be paid? The efflux of specie shows that the balance of trade is against that country for the time; the equilibrium must be restored when the specie is exhausted by slacking importation and consumption. I hope I have not wearied the House with too long a quotation, but it is really worth while to look into this question if only for the sake of ascertaining its direct effect upon food prices. I cannot too emphatically impress upon the House that it has a direct influence upon the price of commodities, which price presses heavily upon the poorer people; and, secondly, protest against the artificial method which is adopted by the Government to restore the New York Exchange in London. The New York Exchange in London in the last few days has been as low as 4.79, which has never been known in this generation. Of course, that is due to the fact of excessive exportation from America and the shrinkage of our exports, and also to the excessive number of bills coming forward in New York, bills on London, which are attempted to be sold by the exporters in America. Of course, there are only two or three methods by which that situation can be met. Either we must pay for these excessive imports by exports which have already shown a falling away very considerably or else we must export further securities to America. But, as the authorities point out, to incur a fresh debt does not meet a debt; it merely gains time, because, in view of the establishment of credit in America, it will have to be met, and it would simply emphasise and accentuate the evil later on. It may be said, How does this inflation of expenditure affect prices and bring about this extraordinary position with regard to exchange? I hope I have shown that, by excessive issues of paper, you raise prices, and, of course, when the rise of prices is abnormal, you give an enormous incentive to importation. The grain owner and other people in America, finding prices rising and an enormous demand, particularly in this country, flooded the market with vast exports from that country. The only remedy, it must be evident, is to do what we can to check those abnormal imports. That, I believe, can be brought about by the gradual withdrawal of this excess currency. It ought to be gradual, to avoid any panic or any sudden upset or disturbance of business. Another well-known effect which comes from excessive currency is to create redundancy. The evil is in its infancy, and I submit it is much better to raise one's voice at such a time than when a panic is on.

I do hope that the Government will really consider the urgent importance of giving their attention to this evil. Any banker or trader will inform them of the abnormal situation which exists. I understand that the Chancellor of the Exchequer has unavoidably been prevented from being present. I regret that fact, not that I in any way desire to reflect on the Financial Secretary to the Treasury, whom I congratulate on his succession to that office. I mention the matter because the Chancellor of the Exchequer is head of the Treasury, and I think anything he had to say would be of interest to the House. We all congratulate the right hon. Gentleman on the measures which he took at the beginning and which prevented a greater evil, but now that money is almost unlendable, which is a proof that there is a superabundance of credit, I think the time has come to consider the whole question. I have raised it with every wish not to be embarrassing at all to the Government, but with every desire to support them. I fail, however, to see what the policy can be which would excuse the non-withdrawal of this emergency circulation. It might be argued that it creates a cheaper money market, and that if the Treasury wish to borrow on Treasury Bills that it might be an advantage to do so. That, I contend, is most unsound finance, and leads to that other evil of which I have spoken. If a policy of gradual withdrawal of this emergency issue were carried out, that would tend to bring the foreign exchanges in our favour and would enable the Bank of England to increase the rate of discount, which would attract capital to this country. It would help also to give the Bank of England control of the market and, indirectly, control of the Exchanges. Under the present system you have the dual control of the Bank of England and the Treasury, with the Treasury Notes lying like so much dead weight on the market. This House was responsible for the creation of the Treasury Notes, and I think it is only right that we should express our views with regard to that matter. We all recognise the gallantry of our troops, of our Army and our Navy, and we feel it would be a very grave position indeed if their operations should be in any way hampered by any unsound measures upon the financial side. Therefore, I hope that the Government will give this matter their consideration.

The FINANCIAL SECRETARY to the TREASURY (Mr. Acland)

I have been interested, as I am sure the House has been interested, in the statement of the case that my hon. Friend has made, but I really think, that in his quotation from Mr. Goschen, he was quoting from a passage where that eminent, authority was describing a situation which has not in the very least arisen in this country. He was describing what occurs, and what must occur, when there is depreciation of currency owing to excessive issue of paper. Nobody who is really in any way up-to-date in his financial knowledge dreams of suggesting that that circumstance has arisen yet in this country, or is likely to arise. There is no depreciation of currency.

Mr. HOGGE

Surely the sovereign does not purchase as much now?

Mr. ACLAND

Of certain articles. Many war causes have contributed to the increase in the cost of certain articles. The fact that a considerable number of articles have risen in price because of the increased difficulty of obtaining them, does not prove that there has been any depreciation of currency. The hon. Member's phrase was that there has been in this country a depreciation of currency, and that that has been due to excessive issues of paper. To say that is so because articles have gone up in price is really, it seems to me, not in any way any proof of the statement that the hon. Member made. For instance, the fact that in America the exchange has begun to go against us is quite inevitable, and the natural effect of the fact that we have been buying more in America lately than we usually buy and have been sending less to America than we generally send. I cannot see that the fact of that tendency of the rate of exchange in America is in any way caused by the fact that we have outstanding something like £36,000,000 worth of currency notes.

Mr. MASON

May I ask, does the hon. Gentleman suggest that this vast addition, from twenty-eight to seventy-one millions of paper money has no effect on the currency?

Mr. ACLAND

I say that it has no bearing that I can see on the fact that during the last few days the Exchanges have tended to go against us in America, which was the point the hon. Member was making. The issue of these notes has stood fairly steady now at about £36,000,000 for the last two months. If the amount of outstanding notes had really had an effect on the American Exchanges it would have had it two months ago and not only in the last few days. It seems to me that the natural cause, that when you have to buy a great deal more in a country than you are selling to that country the exchange is bound to go against you, is quite sufficient to account for what has recently been happening in America, and it cannot be connected with the excessive issue of bills, as my hon. Friend puts it. I, too, am sorry that the Chancellor of the Exchequer is not here to go fully into this matter. One of the results of the War is, I suppose, that persons who are really responsible, as he is, for actual policy, have to take opportunities which seem to them best, rather than opportunities which seem best to hon. Members, for making full statements; and this is not considered to be an occasion when, with all due deference to my hon. Friend's desire, a full statement of national policy in regard to currency can be made.

But even I may be allowed to point out that there are outstanding something like £36,000,000 of these notes, that that amount has stood pretty steady for the last two months, and that steadily during that time, and previously, a reserve of gold against those notes has been accumulating at the rate of about £1,000,000 a week, so that we now have £25,000,000 in gold, an amount which will, with variations, tend steadily to increase. No one can say that that is in any way really a dangerous position for this country to be in. I may suggest further that it is reasonable, on the whole, at the present time, particularly considering how very good that reserve is and how steadily it has been increasing, to be content to leave things in that position, bearing in mind that, although the great crisis which existed at the beginning of the War has passed, we still do not know what crisis may arise in this or other countries, or what uses we may desire to put our gold to, and that it is surely useful that we should be able to centralise our gold reserve, to keep it mobilised, and so have it ready to make the very best use of for our own assistance or the assistance of our Allies in the War. That is really the main reason why, having, as we have, the complete confidence of everyone in these notes, they having the power to get gold for them to-morrow if they chose to take them to the Bank of England—

Mr. MASON

That is not the point.

Mr. ACLAND

My hon. Friend has referred to many points, and I am trying to reply to them.

Mr. MASON

I did not dispute the convertibility of the paper money into gold. The point I was making was that the very fact that you have this redundancy of paper is in itself an evil, and that point my hon. Friend does not meet.

10.0 P.M.

Mr. ACLAND

We can only recall these notes by paying gold for them. It is surely exactly to the point to show that there are many reasons of national policy for keeping our gold at the present time, in view of the continuance of the state of war—particularly seeing that everybody seems to be perfectly satisfied with these notes—so that we may have mobilised and centralised a reasonably large gold reserve for future use if necessary. If we have a fiduciary issue it is easier to regulate the financial affairs of the War by keeping it in existence than by withdrawing it, when you might be again faced with a situation in which you would have to take the same steps again. That is really all I can say. I do not think that any relation of cause and effect can be established between the issue of these notes and the increase in the price of commodities. Just as there is a natural reason for the American exchange tending to go against us, which has no connection with the issue of these notes, so there is a natural reason for the increase in the cost of certain commodities, which again has no connection with the issue of these notes, paticularly considering the very ample supply and reserve of gold which we are keeping to meet these and other outstanding liabilities.

Mr. HOGGE

The Financial Secretary to the Treasury referred to Lord Goschen's comment on the theory of modern exchanges, and as Lord Goschen once sat for the constituency I now represent, it is obvious that I ought to pay some tribute to his economic memory. I find that the quotation made by my hon. Friend is divided into two parts, and the second, apparently, the Financial Secretary has not read. It states:— or over importation takes place in the first, instance, and Governments, in order to remedy artificially and apparently what can only actually be limited by the cessation of the real primary cause, commit the fatal error of increasing the circulation by an issue of paper money. Thus, in one sentence, Lord Goschen demolishes the Financial Secretary to the Treasury. I can understand the defence of the Financial Secretary on the ground of national policy.

Mr. ACLAND

The excessive issue of paper money?

Mr. HOGGE

Yes, the Government committed a fatal error by increasing the circulation by the issue of paper money; and that applies to the issue of all alternative currency of that nature. Here is, incidentally, a point that occurred to me in listening to this Debate: The Government during the crisis made postal orders legal currency. A week or a fortnight ago they began to recall them, but nobody from the Front Bench—certainly not the Chancellor of the Exchequer—has ever intimated to the House or to the country the amount of currency that those postal orders represented; so that even the figures which my hon. Friend gives in regard to Bills require to have added to them the amount represented by the postal orders which were in currency during that period. I can understand the defence from the national point of view. I can understand the science of the Treasury Bench on that subject. But I do feel that my hon. Friend is entitled to raise this point because of the recent Debates in this House on food prices. I am perfectly certain that nobody from the Government Bench would deny the value of the argument from my point of view of the address by my hon. Friend. There can be no doubt from the historical instances that can be produced that right from the beginning of the nineteenth century down to the present day, wherever a similar set of circumstances has taken place, there has been this over-importation, and this depreciation in the value of gold. The Chancellor of the Exchequer said the other day in outlining the financial entente which he is to describe to us this week, that one of the things that had been arranged was that in the event of necessity the banks of France and Russia were to supply bullion to this country. That simply means that owing to the fact that we are over imported—from obvious and necessary causes—we shall probably have to pay some countries in bullion if we cannot pay in exports. I do not suppose my hon. Friend wants to insist that this is the only cause, and the real and dominating cause. What he does want to point out, and what he is fully entitled to draw attention to, is the fact that it has been overlooked as the cause in the rise of prices. It is an extremely important cause—if it is true. If it is not true, all the economists are wrong, and I do not think that even the Financial Secretary to the Treasury will stand up and wipe out all the economists that are lecturing to-day in our chairs of political economy. They are wrong if he is right. But the point that appeals to me more is that when the corrective comes to be applied and the House will recognise it—that that corrective can only be applied by contracting our imports. When we begin to contract our imports to restore the equilibrium in this country, which may not be until after the War, the only way we can do it will mean the decrease of employment. My hon. Friend is quite right in drawing the attention of the Financial Secretary to that point. I hope really that between now and the next time the hon. Gentleman intervenes in Debate he will have read Lord Goschen on "The Theory of Foreign Exchanges" from beginning to end.

Question put, and agreed to.

Adjourned accordingly at Nine minutes after Ten o'clock.