§ The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)
Another question closely connected with the floating debt is the continued expansion of the Currency Note issue. On 1st April, 1918, the amount of notes outstanding was £228,000,000. This figure had increased by the date of the Armistice to £291,000,000. On 31st March of this year it stood at £328,000,000 and on 23rd April it had risen to £349,000,000. The gold reserve remains stationary at £28,500,000, the balance being covered by Government securities. The Bank of England note issue has increased since 1st April, 1918, by £23,000,000. The aggregate amount of legal tender in the country, which is estimated to have amounted at the beginning of the War to about £214,000,000, is now more than £540,000,000. It is obvious that that expansion cannot be allowed to continue 185 indefinitely. But the remedy is not so simple as at first sight it seems. It must be remembered that never at any period during the War, or since, has there been anything in the nature of a forced issue. Currency notes have only been issued in response to the public demand for currency. If there were anything like a forced issue it could be stopped to-day, not only without disadvantage but with positive advantage to all concerned. But what would be the effect of such action under present circumstances? The refusal of the Treasury to issue any more currency notes would not lessen the demand of the manufacturer on his banker for legal tender for payment of wages, and the banker would be forced to meet that demand so long as his customer had a balance to his credit. After exhausting his own stock of notes he would go to the Bank of England. The Bank of England, unable to obtain currency notes, would have to meet the demand by the issue of their own notes or of sovereigns withdrawn from the reserve in the banking department. In order to protect that reserve from immediate exhaustion, a violent rise in money rates and drastic curtailment of credit would have to take place. This would not only have a most serious effect on the prices of securities, on wages, and on the rates charged on Government borrowing, but also on the revival of trade and industry at a critical moment when the revival of trade and industry is the most important object we have in hand. It is to be remembered, further, that the inflation of the currency is not a peculiarity of our system; it is not confined even to the belligerent countries. It is a phenomenon of world-wide extent. A new level of world prices must be established before we can say with anything like exactness what amount of currency is required. To act before that level is established might easily produce evil consequences by restriction beyond what is necessary or justified, without any compensating advantages in any other direction.
Lord Cunliffe's Committee went carefully into this question. The conclusion of that Committee, if it is to be criticised, will, I think, at any rate, not be criticised as erring on the side of heterodoxy. They recognised clearly that the restriction of inflation is impracticable until the conclusion of the period of demobilisation and the cessation of war borrowing. But 186 whilst a direct limitation of further currency issues is not, in my opinion, a step which is at the moment practicable, there is no reason why we should not, and there is every reason why we should, attack the underlying causes as quickly as possible. The first remedial measure is to reduce expenditure. The second is to meet that expenditure as early and as fully as we can out of revenue. The third is, when we are obliged to borrow, to borrow from real investors. The fourth is to repay Ways and Means advances. The fifth, and last, is to fund the immense volume of short-dated Treasury Bills. Measures like this can be rendered practicable only by the strictest national and individual economy.
I should like the Committee to consider for the moment what is the position. The hard, inexorable economic facts are obscured by a fictitious appearance of wealth. There are between two and three times as much legal tender money in circulation as there was before the War. The deposits of the joint stock banks have more than doubled. The position of those banks, judged by every approved criterion of sound banking, is stronger than ever it was before. Almost the whole of their additional deposits are covered by the best of all banking assets—short-dated British Government securities. But these securities, standing behind the deposits and standing behind the legal currency, represent to a large extent not existing wealth, but wealth consumed in the operations of war which it must be our business to replace out of the exertions of the present. Both are drafts on future labour and the future creation of wealth. Pending payment they are an immense reservoir of artificial purchasing power, out of relation to the actual wealth on which it operates, and therefore diminishing in effect with each new step in its increase. Look beyond the accounts for the year and you see a different picture. We have sold £1,000,000,000 of our foreign investments, losing an equivalent power to draw on the wealth created in foreign countries. We have incurred debt to the extent of £1,300,000,000. Against this we have claims on our Allies and on our Dominions, but the position of our foreign debtors forbids us to count on these claims for much large immediate relief. Ultimately and gradually that relief will, we hope, mature, but we 187 cannot count upon it for immediate purposes. For years to come a considerable part of our production must be devoted to paying our foreign creditors; a large part to make good the wastage and arrears of war. Our roads, our railways and, in a lesser degree, but in some degree, our machinery suffered from the absence during these past years of the ordinary upkeep and development. The supply of houses, which was short before the War, is now hopelessly in arrear. A large part of the production of the next few years—I do not know whether I ought to say few years—but a large part of the production of the coming years, both of the produce of labour and of capital, will be needed to make good these losses and to pay the new liabilities we have incurred. I beg the Committee, therefore, to be under no misapprehension as to the magnitude of the task which lies before us. I repeat that there is urgent need for national and individual economy. Nothing but a united effort of all classes, comparable to that which we have seen in the years of war, can enable us to face the years of difficulty which must follow on the conclusion of so great a struggle.
§ Mr. CHAMBERLAIN
Certainly, Government economy first and foremost. I do not like to leave this subject without expressing, on my own behalf and on behalf of the Government and nation, our grateful thanks to the National War Savings Committee for the immense and successful effort which it made during the War to bring home the need of economy and to secure for the State resources without which it could not have paid its way, and for the time and labour which the members of that body and associated bodies ungrudgingly gave to the public service. May I express the hope that they will lend to me, in the difficulties which still confront us, the same ready and generous assistance which they have offered to all my predecessors?