HC Deb 17 December 1919 vol 123 cc459-85

I do not apologise for opening for discussion in this House the questions Of finance, currency, and exchange, for I say without hesitancy or uncertainty that the supreme sacrifices that have been made in the field by the men and women of this country and of this Empire will be jeopardised, traduced, prostituted, and annulled unless we. are assured that these great sciences will be applied in such a manner and fashion as will result in the great development which is vital and essential for our industries. I suggest that, although we may to a certain extent have culled some lessons from the great campaigns of the previous centuries, all the great economic strata upon which at the commencement of the War we built for the purpose of financing our country has to a great extent been proved inequitable and has certainly not been considered efficient for the duty and purpose which has been placedupon it. I will bring to the knowledge of the right hon. Gentleman on the Treasury Bench the fact that there were no bodies of financial or banking experts called in to diagnose the situation arid who correctly forecasted the proper means whereby we might face the cataclysm which fell upon us when the War broke out. But I do suggest that the great science of exchange and currency has not advanced to any great extent since those days. I well remember there came an occasion when the question of raising Loans in this country had to be considered, and the Leader of the House, under whose banner many of us are honoured to march, sought the collective judgment of all the financial magnates of the country. who suggested a policy which might have been sufficient in those older times. He alone countered their opinion, and obtained his Loan at a lesser price than the bankers collectively said was at all possible. But, with very great respect, I think that the interim and final reports which have been presented to deal with finance, exchange and currency and the national credit, make suggestions which are totally inadequate to deal with the policy of industry—the bread-and-butter policy—which is equally necessitous and equally heroic, although prosaic, as the great days through which we passed and upon which we now look hack with great pride and pleasure.

Let us see what the intervening days have taught us in regard to finance. There was a tremendous spur to inventive and industrial progress at the conclusion of the Napoleonic Wars We find that Watts brought forward his machinery discovery, with the result that exports, particularly of cotton, rose from £355,000 in 1780 to £19,000,000 in 1815. Our woollen exports. which are in these days of vital importance to us, were doubled in twenty years. Iron production in 1780 amounted to 68,000 tons, but in 1820 it rose to 400,000 tons. The national income in 1784 was £150,000,000. In 1815 it rose to £350,000,000. Our national debt in 1815 was £900,000,000, but. as a result of this great industrial movement in 1829, it had been reduced to £769,000,000. I suggest to this House that if now we were prepared to utilise every known effort in the great science of exchange. if we were prepared to utilise, in a full and efficient manner, the great industrial forward movement which is the new portion of our life, our great electrical undertakings now to be collectively and economically applied to industry, all the modern transport arrangement of air, road, canal, river and coast, all the new usages of oil in industry, together with standardisation of output, as Watts led the boom in England, so these new forces, plus a proper standard of comfort for labour, will send our land ahead leading the world in progress. But it must also be by a sufficient and exact consideration of the utilisation of the immense and wonderful fundamental strength of the Empire in regard to its finance, credit and loans, we could make a great lead forward, a great campaign in this direction. I repeat there would be a Tar greater advance than we in this country have ever had at any time in our history.

To-day we are faced with a National Debt of roughly £8,000,000,000, and the cost of living, we have been told by the Board of Trade, had in September last increased 80 per cent. above the pre-war level. Although we have a vast national debt, I do suggest that our country and Empire would bound forward in a way such as the world has never seen, if once and for all we correctly apply all our knowledge of the science of exchange. Therefore it is vital and essential we should have knowledge of the way in which the Treasury intend to deal with these great problems. The science of currency and exchange supremely affect firstly, the production of sufficient commodities and services to feed, clothe, and house our population on a considerably higher standard than that which obtained before 1914. In the second place, the raising of the standard of wages in terms of money by at least 50 per cent. over that prevailing before the War and in some cases double. Thirdly, the supply of employment for all workpeople, and fourthly, the maintenance of our pre-war position in relation to international trade and finance. The sciences of currency and exchange further clearly faced the economic problem which confronts the people of the world, and demands first, a reduction of the amount of money in circulation, or a recognition of a new valuation of money; secondly, an attempt to force commodity prices down to a pre-war level, and with infinite suffering and strife to get back to the pre-war economic standard of wages, prices, production and consumption, or rather to maintain wages and commodity prices at a high level and increase national production up to a point which would justify the raising of the standard of living to a much higher level. The first course, I believe, to be practically impossible, and I suggest if we were foolish enough to attempt it nothing but destitution and a chaotic condition, such as obtains now in Russia, would result to this country. I urge, therefore, that we ought to follow the second course, and by production—extreme and entire production—we might make ourselves efficient to face the problem which lies before us.

What is the value of the British sovereign in these later days. Why has it fallen to a discount of 14 per cent., and that in the face of the fact that our British assets are enormous, as also our foreign and Colonial securities, even when allowance is made for the sums we have borrowed from America and other countries, still so valuable and still showing huge overplus. We find that even under these conditions we have a credit balance of some £3,000,000,000 in foreign and Colonial countries. Moreover, if one examines the country's trade balance it is found that we are still paying our way, or nearly so, and when it is suggested that the raising of the Bank rate to 6 per cent. would attract gold and credit (returns show that it has not so done) to this country even with high prices we should be able to retain our position. I want to press upon the Government the suggestion, very tentatively be it said, which was made by the Prime Minister that he would consider an international Loan, a Loan into which might come all the great industrial chiefs, all the great industrial leaders of each and every country, and we could thereby not only raise production to an efficient level in this country but there would also be some means whereby foreign countries, who come penniless to us for food and who we are supplying, shall thereby receive an equipoise of exchange which should make it possible to lift the standard up so that we may find it possible not only to trade but also to fund our own loans and our own debt both abroad and at home. It should be possible for us, although many of us have painful knowledge of what Germany and Austria did in regard to the great world-war, although we may not be prepared to give them any kudos or status or any but limited trade opportunities, we feel that we must be prepared to take some action to admit them into some channels of trade with us, because otherwise it would be impossible to obtain the indemnity which we demand and say is essentially necessary if we are to face the future and if our country is to gain its full stature and strength.

The right hon. Gentleman on the Front Bench, therefore, should give us some exact delineation of the proportion which each of the Allies is to contribute to this International Central Fund, and when we remember the way in which such great people as the United States of America, the Southern States of America, and others made a great amount of money and great profits from us before and during the War, and how at the present time, we as a country are sending and selling to the people of Europe—the poor people of Europe—and are obliged to pledge our credit because we are selling without receiving any payment for the goods, and thus making our exchange lower and the price of our sovereign lower, I do suggest that the right hon. Gentleman should put pressure on Spain, on the United States of America, and on the Southern States of America, so that they, at any rate, may accept some responsibility. They are pledged to us in regard to their support of the great national policy of the League of Nations. We are carrying, as we did in war-time as the great martial power, great financial responsibilities for every nation. The one solution of this great international problem is to be found in that direction. Hon. Members must never forget that even though some of the financial power of the world is going to New York, yet to-day this country is the centre of the money market of the world. But America in her own interests, in the interests of Europe, in the interests of all nations, and in the interests of civilisation, must take a predominant part in promoting that international loan. I want more particularly this afternoon to draw attention to the bearing which the restriction of imports has upon this question, and not for a single moment am I prepared to permit dumping or the underselling of our labour, but the whole gamut of imports, exports, trade licences, and controls requires reviewing if our exchanges are to get normal. In passing, the vast cotton, woollen, and iron interests of the nation are supremely helpfully affected by a broad, wise business policy, or adversely by a narrow, academic, professional treatment. If these matters were considered and dealt with in the fashion which the Chancellor of the Exchequer must deal with them, he would call in question not only the coal control, but the food control and other controls which have a bearing on our exports and imports. He might take some little part with regard to the question of shipping. Let him remember that in pre-war days our assets, both visible and invisible, were largely comprised not merely of foreign securities, but of our shipping. The major part of that shipping is now being used against us, through the Shipping Controller, by Japan, America, and other great nations, and I suggest that the great Council of Versailles might by its action strengthen our power, and enable us to utilise our great assets, and thus guide the policy of the nations of the world to a higher standard and to a nobler, purer idealism.


I wish to say a few words on the subject of the Report on Currency and Finance. It would ill become me to speak slightingly of the work done by the distinguished Committee which has dealt with this subject, but I do suggest that the final Report is nothing more than an Essay on the Obvious. The Treasury must have arrived at the same conclusion as the Committee long before the Report was published. The question of currency and exchange is indeed most difficult. It is one which I have followed closely, for I know that the whole economic fabric of our trade is bound up in the policy of currency and trend of exchange between this country and the world. I find myself at variance with several of the observations that appear in this Report on currency and foreign exchanges. It appears to me in at least two cases that Report has put the cart before the horse. In the second paragraph it says a sound currency system would in itself secure equilibrium in the foreign exchanges, hut I think that equilibrium in the foreign exchanges would be sooner likely to bring us to a sound system of currency than the other way about, and the advice given reminds one very much of the observation that a surgeon would address to a lame man if he said that he would walk all right when his leg was mended. What would have to be done would be to mend the leg first. The remedy in the fourth paragraph is not only increased production, which is a self-evident proposition and a counsel of perfection, but a free market of gold. What would it mean if currency notes and bank credits were based on a free market of gold? A free market in gold, with United States exchanges at 3.75, would soon drain every ounce out of Britain, and our bloated bank credit balances would intensify the liability of outflow.

Here I would like to make a reference to the term "inflation of currency" I think a misunderstanding has taken place in this country on the words "the inflation of currency." We are not suffering from an inflation of currency so much as from an inflation of credit. At the present moment the uncovered currency notes, which I suppose is what some mean when they speak of inflation of currency, amount to £300,000,000. Before the War we had a currency of gold and Bank of England notes, which are as good as gold, and fiduciary notes of the Bank of England amounting to, say, £160,000,000. The consequence is we have at present a currency amounting to no more than £140,000,000 more than it was before the War. If people are going to tell me that an increase of £4 per head on our 45,003,000 people, in currency, has brought us to much of the economic trouble we are now enduring, I say I do not believe it, and if I understood correctly what Lord d'Abernon said in another place about the inflation of currency notes bringing about the increase of prices, all I can say is that I cannot follow his argument. In recent months there has been an increase in the index number of prices of commodities at a time when there has been no corresponding increase in the amount of our currency notes, but the main point on which I base my argument, and which I would like to impress upon the House, is that the currency, amounting to £300,000,000, is only £140,000,090 more than it was before the War, and to assume that an increase of under £4 per head on a population of 45,000,000 has brought us to our present troubles is not a proposition that will be supported by any economist.

That currency which has really become inflated in these war-times, and which is only defined very slightly in this Report, is the cheque currency, because the currency of this country is a cheque currency. What we are really suffering from is an inflation of credit, and not an inflation of currency. The credit—i.e., deposits—in the banks at present amount to no less than between £1,750,000,000 and £2,000,000,000, as compared with a sum probably under £1,000,000,000 before the War. That is the weak spot, that is the inflation which is putting up the price of living and degrading sterling in the eyes of the exchange brokers of the Western world. We have to address ourselves to that question of inflation of credit in the banks, and if it cannot be redressed by a great increase in the existence of goods, so that for every pound's worth of credit you have you may have a pound's worth of goods, other means will have to be found. At present, for every pound's worth of credit you have not in volume more than ten shillings' worth of goods. You have twice as much credit to buy with as there are goods, consequently up goes the price of the goods. Therefore the most desirable form of redressing the inflated credit is to produce an extra amount of goods so as to represent the amount of credit now at the command of the public. Or we must reduce the bank credit by other means. If you reduce it, by so much will you reduce the expansion of credit and limit the power of the public to put up prices against itself in not only the markets of England, but in the markets of the world.

I do not think extra taxation is of very much use to reduce that large bank credit balance; for, after all, what can you get by extra taxes? A matter of £100,000,000 will not go very far in the process of the reduction, and we know that this country has reached the limits of endurance in taxation. and extra taxation will now do more injury than good, on balance. The Excess Profits Duty is doing more harm than good, for example, and is probably hindering the expansion of trade, although some say we are not taxed enough. We know we have to pay for the War either by Loan or by taxation, but I do not think that further taxation is the remedy, whereas I do think that the ability of the public to use these balances should be limited and that the Chancellor of the Exchequer, in view of the fact that he has had to raise £300,000,000 temporarily to balance his Budget for the present year, should again turn on, to use a vulgar expression, the tap of National War Bonds. If these National War Bonds are again put on tap, we shall get a certain amount out of the bank balances, which will reduce the purchasing power of the people and moreover reduce the necessity for 'Ways and Means advances and Treasury Bills. I am against adding to our debt, but I would like to borrow to reduce the floating debt incurred to balance the current year.

But there is another form of raising money which I do not think has been tried in this country, and which I suggest to the right hon. Gentleman in all humility. There are many middle-aged men, myself among them, who might regard the purchase of terminable annuities with thirty years to run with some favour. The principle has been tried in the purchase of the Government railways of India. Thirty years is a generation. You cannot expect to raise any money much under 5½ or 6 per cent. The British Government 5 per cents. to-day are worth 91, and therefore we shall have to give slightly better terms to raise a similar loan to-day. I think a thirty years' terminable annuity, a form of security which a middle-aged man can buy from the Government to cease at the end of thirty years, yielding him, say 7½ per cent., might attract people in this country. It would give him a good income at least for the investor's lifetime, if it did not exceed the thirty years from date of purchase. It is not a new theory or an experiment, for when the Indian Government bought the Great Indian Peninsula Railway they bought it in forms of Annuities: A, which terminated absolutely, and Annuities B, which allowed the capital to be repaid at a definite date, yielding income meantime. Those are the two proposals that I make for the purpose of reducing the floating debt and the purchasing power of the inflated bank balances, which are the real form of inflation of credit, and which do cause the trouble from which we are suffering, and I would here say that I do not agree that the inflation of note currency, to which our attention has been so often directed, has any great effect upon our financial position.

I do not think people should be so impatient in regard to immediate repayment of the Treasury Bills and the Ways and Means advances. I know the continuation of Ways and Means advances is bad, and that it is a wrong system of finance, and I know it is not good to have overdrafts called Treasury Bills in normal, healthy times. But we have been through a time such as we wish never to have to go through again, and to think we can get our finances quite straight in a few months or in a few years after the War is not only asking too much of the Chancellor of the Exchequer, but is asking too much of the country. There is too much impatience about getting our finances straight. We must wait and work, and I was glad to gather from the representative of the Board of Trade, answering a question of mine the other day on invisible exports, that for this month our financial position with regard to imports and exports is of such a kind that the excess of imports over exports this month will probably be balanced by the average amount of £40,000,000 of invisible exports for this month. That means that, notwithstanding all the trouble we have gone through and all our anxiety about our Ways and Means advances and Treasury Bills, we are now getting pretty well on an even keel. For, notwithstanding the bad United States exchange, the nation as a whole has reached an equilibrium in its balance-sheet, though individuals may be hurt in their individual capacity as traders.

The other part of the Report I have in my hand deals with Exchange. As I said, so far as the real cure, increased production will not put exchange right, we have to look for other means, and there is an ambiguity, I think, in the Report on this question. It deals with exchanges, and does not differentiate between the Eastern exchanges, which are now playing a great part advantageously in our trade, and other exchanges. I presume it refers to exchange with America, that is to say, a disadvantageous exchange, and it says nothing of the exchange with Germany or with Central Europe. I must, therefore, address myself to the point of view taken by the Report so far as it, I suppose, concerns America. Why do we want the American exchange to rise in favour of the sterling? Because we require to pay as little as we may for our foods and raw materials and our debt interest to America, and I would here make a point which, I think, must nave already occurred to the Chancellor of the Exchequer with regard to the credits which we are now putting up for France. I think credits for foreign nations raised in this country, and particularly with regard to France, have been misused in a way that has done us harm. If you put up a public or private credit for France she uses that credit—I have no proof of it, but my intuition and instinct tell me it is so—for paying her debts in-New York. Suppose France borrows money here next week for £50,000,000. There is no obligation on her part to spend it here. She owes money for food and materials in America, and she wants more of the same things; she gets the credit here, and, quite legitimately, of course, the first thing she does is to pay with it for the things she wants in America, with the result that she aggravates at our expense, although we help her with the loan, our trouble of an adverse United States exchange against this country. If Britain lends money now to France, it should be understood that she is not to use up our credit to pay her debts to the United States or spend our money there. I have taken some trouble to extract the type of goods we are buying from America, and have tried to deduce from the list how it is that our exchange is so unfavourable, and so far as I can. see, putting our imports from America at £500,000,000 in the year, a half of that is for food, a third for raw materials, and a quarter for manufactures: The troubles we are going through ought to make us reconsider the countries in which we might buy, and what we buy, especially in America. It does not matter what we pay for cotton. I do not fear the bad exchange in the case of cotton. What- ever we pay for cotton at the present time, and for some time to come, we can get a profit on. The whole world is clamouring for Manchester goods, and it does not for the present matter whether the exchange is two dollars or five; whatever the price Manchester people decide to pay for cotton now they can get a profit on. But against trade slackening we ought to look round the world to see where we can supplement in His Majesty's Dominions the supply of cotton, to be paid for in sterling. Nyasaland is gradually increasing its supply of cotton, and there is no reason why the Government should not, I do not like to speak of subsidies, give some encouragement to growers of cotton in Nyasaland; I am sure it would pay us in the long run by freeing us of the low sterling value of our £ when buying American cotton. Egypt, too, has 1,000,000 more acres available for cotton, and that would assist us materially. That extra area can be put under cotton. Why is it not done? And tobacco. I had the privilege of serving on the Raw Materials Committee of the Imperial Institute, and 1 am certainly under the impression that a large quantity of tobacco produced in Nyasaland and Central and West Africa could be substituted for American tobacco. There is no reason why the public, by means of propaganda, should not have their attention drawn to tobacco grown in His Majesty's Dominions, so as to divert, if possible, our payments from America to places where payments can be made in sterling. All this will tend to reduce the pull of all-one-way on the American exchange. With regard to other raw materials, such as copper, I do not think we need bother about that, because on whatever we pay for it we can get a profit.

Take the list of manufactured articles coming from America as showing how the price of foods which we buy from America is being increased by our purchasing in America things we ought to be able to do without, and, if se cannot do without, we ought to make here, and, if we cannot make here, we ought to buy from some of our Allies, such as France, Italy, or Belgium, so that we could get back, at any rate, our money which they owe us and, incidentally, to restore the exchanges between ourselves and those Allied Powers in Europe. I take the types of goods which have come in within the last fortnight in ships from the United States. There were im- ported into Glasgow by the steamship "Vendelia," from New York, on the 4th of this month, things we ought to buy from places other than America, if we cannot produce them here. For example, that ship brought 18 barrels of whisky, 13 crates of baking powder, 66 cases of trunks. and suit cases, 2 cases of printing ink, 68 cases of curtain poles, 52 barrels of motor tyres, one case of golf balls—this trivial item is a very good instance of how we are aggravating our troubles by importing things of amusement which could just as well be made in this country as not—200cases of soap, 22 cases of gentlemen's. underwear, 116 boxes of saucepans. On the steamship "Wauconda," last Saturday, came 8 boxes of penholders, 63 cases of corset materials, 51 cases of shoes, Then there is an item—1,499 boxes of clothes' pegs, 4 cases of chocolate, 34 cases of toys, 6 cases of knives. On the "S. W. Miller" came 2,100 boxes of wire nails. I remember the trouble we had on the import Committee of the Board of Trade about nails, which could just as well be made in this country. Then there are twenty-five model motors, 133 cases of churns, sixty-nine packages of office cabinets, nineteen boxes of office indexes. On the "Haverford," 1,875 cases of choeolates and three cases of pianos. That is how we are wasting our money in buying things abroad which we ought to be able to make or, at any rate, buy from other markets than America. I use these facts as arguments about exchanges and not about trade policy.

Now that freights are falling on the east Asiatic side—the China, trade—especially as we have more ships going into the water, the Government ought to take steps to get a good portion of its food from Australasia and cease, if possible, buying in America meat, wheat, butter and every kind of food, and perhaps tobacco. Australasia owes us money, and, to use a House of Commons expression, the buying of these things in Australasia would count two on a division, because what we pay Australasia for her wheat coming here would be a set-off against the credit she owes, and relieve the necessity for us to, buy United States exchange. The conclusions I have come to are these: that we must dismiss from our minds that our troubles are caused by the inflation of the currency and realise that they are brought about by the inflation of bank credit. This inflation of bank credit, I think, could be reduced by the reopening of the issue of War Bonds, and probably by an attempt to obtain from the public subscriptions to what I have termed thirty-year annuities. 'The money so raised to be used to reduce floating debt. If increased production does not in the meantime meet the difficulties, we and the Government must do what we can to cease our purchases from America, and buy the goods, if we cannot produce them at home, in places where there is not a high dollar exchange; or an exchange which is not only against us but one which operates against us as a reward to us for being a customer.


I am afraid -the condition of the House at this moment is fairly indicative of the popular interest taken in this very important question, and the fact that attention was going to he called to the currency question has apparently driven a very large number of Members into the country. I do not for a moment approach this question as a pundit of finance. I do not pose as a pundit of finance, but I am exceedingly interested both in the industrial stability of the country, and also in the social happiness of the people at large. It is from the latter point of view that I want to call attention to this matter this afternoon, and I exceedingly regret to see the entire emptiness of the benches opposite, for if there is one question in which people who pose as the friends of labour in this country ought to be interested, it is the condition of the currency. I am afraid that in the months which are immediately ahead of us we are likely to hoar a good deal of discussion as to the causes of industrial unrest, and I am quite certain that we shall be told that among those causes there is none more potent than the prevailing high prices at the present time. I think that is probably true. Then I am certain we shall be further told that those prices are to be attributed, in the first place, to general profiteering. I want to say, in passing, just one word on this point. I would be the very last person in the world to underestimate the evil social results of what is very loosely called profiteering. But even if I were able to find, as I have never been able to do, a- reasonably accurate definition of the term, I should still say that, as a factor in the problem of universally high prices, profiteering has now been proved to be relatively insignificant, I do not say absolutely, but relatively insignificant.

There is another point. We shall be told that, if it is not due to profiteering, it is due to the low productivity which is at present prevailing. [HON MEMBERS: Hear, hear!] I am very glad to hear that cheer, because I think it is. I am quite certain that we are not working at the present moment anything like as hard as we might work, but may I suggest that there is a good deal of excuse for that? After all, the great burden of the War, from which we have just emerged fell upon the people of this country in one way or another. It fell upon them industrially. It fell upon them in sacrifice of life. It fell exceptionally heavily upon the people of this country, and as a people we are to-day tired. I do not think that ought to be forgotten when these accusations of lack of productivity are bandied, as they are, to and fro. I have no doubt in my own mind that a large increase in the output would tend, perhaps more than anything else which is reasonably within our reach, to bring down prices, certainly a great deal more than any artificial limitation of profits—a great deal more. But when I am asked to attribute to under-production the whole result of high prices, I cannot refrain from asking the House to look at that very important Return which was issued two or three weeks ago, and which, as far as I know, has never publicly received attention in this House. I am referring to Command Paper 434—Statements of Production, Price Movements and Currency Expansion—in various countries. I am not certain, but my impression is that this White Paper has not so far been publicly noticed in this House. When I am asked to attribute the prevailing high prices to lack of production, I cannot help turning to this White Paper. The first tables there deal with this question of production, and they deal with the year 1919 in comparison with the five years' average before the War —that is to say, the years 1910 to 1914. Let us take the commodities as they are set forth in the White Paper, and I think the House will be surprised to learn how nearly the production of to-day approximates to the production of the five years previous to the War. In some cases it exceeds it. Take, in the first place, wheat. I am bound to say that the figures only refer to the countries for which particulars are available for the present year 1919. The average for the five years—this is in metric quintals—to 1914 was something over 540,000,000; for 1918 it was 586,000,000, and for 1919 it is 537,000,000. In other words, the production for the year 1919 is 99.3 per cent. of the production for the average of the five years previous to the War.

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I go on from wheat to rye. Again the figure refers only to the countries for which the figures are available for 1919. I find that the production for the present year, so far from being less than the quinquennial average before the War, exceeds it by about 23 per cent—123.6, as compared with the unit of 100. Take barley. This again is above the average—104. Oats are rather under—97.1. Maize is rather above—104.8. Linseed is very much down, for obvious reasons—53.1. Tobacco, which is United States production—128.9; and so on. Taking these figures of production as set forth in the Return which the Government were good enough to give us a few weeks ago, I am forced to the conclusion that one must look further than to mere underproduction for the causes of the prevailing prices to-day. If I go on from the first of these heads to that which immediately follows it, "Prices Movements," I am driven irresistibly to another and different conclusion. I suggest that the conclusion to be drawn from the figures which I am about to quote now is almost irresistible. That conclusion is that there is not only a connection between prices and currency, but a causal connection between the two. These figures are very remarkable. They have not in this House, so far at any rate, received the attention they deserve.

These figures are for the summer of 1919. I will not go into the months; some relate to May, some to June, some July, some August; but they all refer to the summer of 1919. The expansion of the currency in the United States is only 173.0, as compared with the year 1913. Taking 1913 as a normal year, represented by 100, in the United States the currency of to-day stands at 173. Wholesale prices in the United States, again, compared with 1913, stand at '206; retail prices of food at 181. To pass from the United States—I omit many others—to the United Kingdom, I quote figures for August, 1919. The currency in August, 1919, as compared with 1913, is represented by 244 as against 100; wholesale prices are represented by 257.2 as against 100, and the retail prices of food by 217 as against 100. The House will observe that the increase in the currency, as compared with the United States, is in almost precisely the same ratio as the increase both in the wholesale and retail prices of food. In the Netherlands the expansion of the currency is greater than our own. It stands at 270. There the retail prices of food stand at 203. In Sweden the expansion of the currency is 275, wholesale prices 339, and the retail prices of feed. 336. In France the expansion of the currency is 365, wholesale prices 330. In. Italy—the worst of all, of course—the expansion of the currency is represented by the figure 440, wholesale prices by 329, and retail prices of food by 281.

I submit that these figures—for they are difficult to follow except on the White Paper—suggest, at any rate they do to my mind, a conclusion which is irresistible— namely, that there is a precise, or almost precise, ratio between the expansion of the currency and the general level of prices. One naturally asks, under these circumstances—and this is the question which I hope the Chancellor of the Exchequer will answer for us—what can. be done to remedy a state of things which is undoubtedly socially dangerous? In the first place, what has been done? There has been a definite increase, which one is very glad to recognise, in gold and the Bank of England note reserve against the currency Treasury notes. I am glad to sea from the papers of this morning that the Chancellor of the Exchequer is proposing for the next year to set a definite limit—I think in deference to the Report of Lord Cunliffe's Committee—upon the Treasury note issue. I am very glad to see that. What I want the Chancellor of the Exchequer to be good enough to tell us, if he is going to reply, is, if it is possible to-day to set this definite limit to the Treasury; note issue, why was it not possible to do it before? We have been told again and again—it has been given in evidence to me sitting upstairs in Select Committee, certainly by the previous Chancellor of the Exchequer— that it was impossible to set this limit. We were told the reason. This was because the note issue of this country is not a forced currency. We have been told over and over again across the floor of this House that, as a matter of fact, these Treasury notes were issued only in deference to the demand from the bankers; that they were not forced upon the country, but merely issued in deference to a demand. We learn now that what we have again and again been told was an impossible transaction is actually going to be effected and a definite limit is for the year 1920 to be placed upon the Treasury note issue. We are told that for the coming year the note issue is going to be limited to the maximum of the fiduciary note issue for the present year. The House understands perfectly well that what is meant by that is an issue which is not covered by gold reserve or Bank of England notes reserve.

I find that this maximum fiduciary note issue for the present year, 1919—and I am indebted for the figure to a very admirable article—one of many—which appears in the Money column of the "Times," which has always, so far as my own observation goes, proved itself singularly accurate and well-informed in regard to this very difficult and intricate problem. I find, according to that article, the maximum for the present year is something over £320,500,000. The exact figures are £320,608,298 10s. That is the maximum fiduciary note issue for the present year. As a matter of fact, on 10th December, Last week, I find that the total outstanding note issue was £343,295,645. You may deduct from that £28,500,000 for the gold reserve, and a further £3,100,000 for Bank of England note reserve, making a total to be deducted of £31,600,000. Deduct that from the total of the outstanding issue, and you get an outstanding issue to-day—or on 10th December—a fiduciary note issue of £311,692,645. In other words, you are going to take as your legal maximum for 1920 an amount which is about £9,000,000 in excess of the issue as it stands to-day. I respectfully put the point to the Chancellor of the Exchequer whether, at any rate, at the very lowest, it would not have been possible for him, instead of taking the maximum fiduciary issue, to have taken the minimum fiduciary issue, and to have said that for 1920 the maximum should not exceed the minimum of the present year? That seems to me, and to others interested in what I may call a sound and sane currency, to be a very modest request. I think we might have asked for a good deal more. I would like to know why we ought not, at any rate, to do that, I do not want to weary the House by a subject which is exceedingly intricate. I want to conclude by very earnestly assuring the House that this question, which I venture to bring before hon Members briefly this afternoon—the relation between currency and prices—is not, as many people suppose, merely an academic issue, but is an issue of vital im- portance to our industrial and commercial future; and what, for the moment., I am even more concerned about, an issue of vital importance to industrial peace and social contentment at home.

Lieut.-Commander HILTON YOUNG

It was said by Walter Bagehot that nobody would shed tears at the funeral of an economist. If that is so, the funeral of a student of currency problems must be an occasion of positive hilarity I wish, however, to escape from that category lay, making a few observations for the purpose of showing that it is possible to lay a great deal too much stress upon the question of currency in connection with our financial troubles. I do not go so far as the hon. Member behind me in belittling the importance of these matters, but I suggest that currency difficulties are a branch of a much larger difficulty, that of credit. I believe there is a tendency in the mind of even the most instructed inquirer to think that it is possible to arrive at mitigation or remedy for our economic troubles by tinkering with the currency. I believe that quite the reverse is the truth of the case. You will find the idea I refer to in many different places. You will even find it in that most valuable Report, the Cunliffe Report. Matters there are approached from the point of view of the banker, which the Committee naturally took—from the point of view of the currency rather than from that of credit. As the hon. Member behind me (Mr. A. M. Samuel) so well put it, the currency question must be envisaged as a secondary consequence of the great credit question.

By our war finance we have forced up credit and we have thereby forced up currency. To see that this is so, it is necessary only to consider the way in which Bradburys get out on to the market. There is now only one way. Bradburys go to the Joint Stock Banks through the Bank of England. Within the limits of its deposits at the Bank of England any Joint Stock Bank can obtain thence any amount of Bradburys, by paying for them with a cheque drawn against its deposit there. Why do the Joint Stock Banks go there for Bradburys? To have more currency in order to deal with two things, rising prices and what follows them, rising wages. It is the need for currency for circulation that causes the outflow of paper money. What is it that causes the rise in prices and wages? What else but the increase in bank deposits, which owing to our cheque system is also the increase in the purchasing power of the country. By those two steps the inflation of paper currency is the inevitable consequence of the increase in bankers' deposits, which is the inflation of credit. There is another circumstance which may be mentioned in this connection. As bankers' deposits increase, bankers naturally desire a larger amount of cash in hand on their premises. I know this is a matter they do not want to lay too much emphasis upon, because it relates to some of the more delicate circumstances of banking which are kept by bankers in the background. The increase and outflow of paper money is thus the natural and inevitable consequence of the inflation of credit. It is not only inevitable but it is expedient. If there is a great increase in credit you must have an increase of currency, and what follows from that? I think it is quite clear that it follows that, if the cause of inflation of currency is inflation of credit, the only way to deflate currency is to deflate credit, and I will go farther and say that to try and deflate credit by a swift and arbitrary deflation of currency would be disastrous. You could do it, no doubt. By an immediate reduction of currency effected by some such expedient as the imposition of a high standard of reserve undoubtedly you could deflate credit, but the process must necessarily be spasmodic and even catastrophic. The first immediate effect of doing so would be that you would produce a dangerous discrepancy between the credit of tire country and the proportion of reserves, and it is to be feared that that would effect the reduction of credit by widespread failures and insolvency. It does not necessarily follow that immediate efforts to limiting the further output of paper currency are unwholesome or disadvantageous. Although it may be wrong to try and reduce currency swiftly or by direct action below the necessary proportion in relation to our inflated credit, yet on the contrary it may be, and indeed obviously is, perfectly Tight to take such measures as will prevent the inflation of the currency further in excess of what is required by our inflated credit.

The recent adoption of the admirable provision by which further issues of Bradburys are covered by Bank of England notes, and so indirectly by gold, is obviously sound and must commend itself to practical men. Whether the new limitation of confining this year's legal maximum to last year's actual maximum of currency notes is advantageous is more open to doubt, because is it not the experience of everybody that by stating a maximum the tendency is to encourage those affected to look upon that maximum as something which they are always entitled to attain. The hon. Member for Farnham (Mr. A. M. Samuel) led us through what seemed to me the right course about the currency argument up to the last fence. But the last fence he did not take in such a courageous style as he approached it, because he made a suggestion which economists must always hear with certain qualms, a suggestion of new forms of borrowing. The remedy for the evils of inflation is the cessation of Government borrowings.


I meant that the money should be raised by such methods as commended themselves to the right hon. Gentleman. I do not want to increase the amount of borrowings. It is a dangerous thing to increase the Debt, and I am totally against it.

Lieut.-Commander YOUNG

I accept the hon. Member's correction. But if it is necessary to stop a flow, it is, perhaps, incautious to open new channels while you are engaged in stopping the old. A deflation of currency may be expected to follow by natural and normal steps a reduction of the inflation of credit. The measures required for the deflation of credit are well known. There is only one way, and that is to stop and reverse those processes by which it was inflated. Raise revenue until it covers more of the gap between income and expenditure, stop borrowing as soon as may be, and in particular stop those measures of borrowing by the creation of a floating debt which most directly tend to bring into existence fresh credit which is not to be represented by any real increase of wealth. Those are the well-known remedies, and there is none other, for the evils of inflated currency or credit.

The CHANCELLOR of the EXCHEQUER (Mr. A. Chamberlain)

Those Members of the House who heard the speech of my hon. and gallant Friend on the Third Reading of the Finance Bill, and again to-day, will recognise that in him we have a real acquisition and a real assistance in the consideration of the very grave and definite financial problems with which we are confronted. I find myself in such happy agreement with the hon. and gallant Gentleman in the larger portion of the ground he covered that I should almost be content to leave the defence of the Government and the Chancellor of the Exchequer in his hands, and, were such a thing possible, riot to have intervened in this Debate. With regard to the earlier speech, I could not express as complete agreement in so far as I understood it, which perhaps was not entirely. I could not help feeling how difficult it is for simple men like myself to agree when the doctors disagree. I am constantly adjured to take into consultation real experts, and they say, "Why not have a committee of city men to advise you?" Here we have a Committee of bankers and business men, with a trained economist, and at once the doctors explain that they differ from the recommendations of the Report. The hon. Member for Farnham found a good deal of fault with the Committee's Report, I am not sure altogether justly. I agree with the argument of the hon. and gallant Member who spoke last that in the main the currency inflation is but the result of credit inflation, and you must effectively deal with currency inflation. The hon. Member for Farnham said he thought the Committee and Members of the House were much too anxious about the Ways and Means advances and Treasury Bills.


I did not mean that. I said that I thought we were too impatient about repaying this floating debt in a hurry, and that I saw great danger in the large amount of the Ways and Means advances and Treasury Bills. We feel that much harm can be done by unduly hastening the repayment of them, although they must be repaid as soon as possible.


The moment you recognise that the root difficulty is in credit, that cannot be dealt with by any abrupt method or violent deflation of credit. A violent deduction of credit would produce disastrous consequences, not merely to the State, in the balance of revenue and expenditure, but to the general economic structure of the society in which we live. It would produce a sudden fall in wages, and unbalance the Budget at the very moment when we hope to arrive at a proper balance of it. The process must be gradual. Assuming that it is in our power to go as far as we wish, it must be governed by circumstances as they develop, and must be subject to revision from time to time as we proceed, and see the effects that are poduced by the different steps that we take. My hon. Friend the Member for Oxford was surprised that the Government should now have taken a step in accordance with the recommendations contained in the Financial Report of the Currency Committee. I think it would have been quite unsafe at an earlier period of this issue to fix a maximum issue for the currency notes in another year. I think now and the Currency Committee thought that the time has come when such a limit might reasonably and safely be fixed. My hon. and gallant Friend suggested that there is great danger in fixing the maximum, lest it should become the minimum, but I hope it will not be so. At any rate, as far as I am concerned, I shall treat it not as a figure which we must go to as nearly as we can, but as a figure which we will keep as much below as we can.

The hon. and gallant Member will realise that to attempt to forecast what the course of events will be next year, or to fix more definitely than I have done our course of action, would be highly rash on my part. Recognising that credit inflation is the real problem with which we have to deal, let me say in passing that I cannot follow my hon. Friend the Member for Oxford in the views which lie and others have drawn from the Command Paper which embodies figures that were asked for by Lord d'Abernon in another place. So I think my hon. Friend attaches too much importance to figures which do not represent the world, but only a portion of the world. What is the good of figures for cereal production which take no account of the deficiency of Germany and of Austria-Hungary or of the absence of Russia as a source of supply?


Those figures only related to the other countries.


Certainly; my hon. Friend expressly stated that, but I was afraid that, although he saw the danger, he had not avoided it. That is a matter the exact importance of which I do not know, but about which it is almost certainly possible to argue ad infinitum. After studying that paper carefully, I came to the conclusion that, as far as I was concerned, I should not like to base any conclusion whatever on statistical tables of that kind.


I only instanced those figures in support of conclusions which I derived from other facts.


With the matter of world prices, shortage of production has more to do than my hon. Friend supposes. A very small shortage is sufficient to account for a very large increase in price, especially in a market which is rising from other causes—from increased cost of labour and of production throughout. I think it would be very rash to suppose, even if, by a wave of the magician's wand, we could bring ourselves back to prewar conditions of currency, that we should find pre-war conditions prevailing in other respects. I do not think that is possible, and I do not think it is desirable. If you are to have the general rise in the conditions of living among the manual workers of the world which everyone desires to see, you will not get back to the old prices unless new methods of production compensate for the increased cost of the labour employed. There are two remedies which we can apply for the present condition of things, and which we ought to apply as largely as we can. One is undoubtedly increased production, and without that no other remedy will suffice. That may be helped or may be hindered by the Government, and you will say the Government helps or hinders it according as you are disposed to support the Government or not. On the other hand, the conditions will no doubt be acted upon directly if we cease to borrow. To cease to borrow in order to balance the income and expenditure of the year is the first duty that I set before me. Having ceased to borrow new money for that purpose, I then want, as soon as possible, to make a beginning with the repayment of old debt—the repayment in the first place, up to a reasonable amount, of the floating debt. [An HON. MEMBER: "Convert it !"] What I am dealing with now is repayment. Conversion would come in the main after repayment has been begun, at any rate when new borrowing has been stopped. By conversion my hon. Friend, of course, means the funding of short-dated securities, or at any rate the con version of those short-dated securities into securities with a much longer period to run. It is most desirable to bring the Ways and Means advances back, as the Currency Committee recommend, to their own purpose, and- merely to tide over a few weeks' difference between revenue and expenditure; and also to reduce the very large amount of Treasury Bills which will be outstanding by the close of this ear. The amount outstanding is already large and it may increase in the next few months. To do those two things is very desirable, and it is desirable to do them in both ways—both by paying off debt altogether and by funding as much as we can of that which remains. I do not think it would be a wise financial operation, as circumstances are at present, for me to attempt a funding loan. I do not think the money for a funding loan would be forthcoming until this House, by co-operation, has shown that we are in a position to pay our way, that borrowing to balance revenue and expenditure has ceased, and that we are really going to begin the actual repayment of debt, I do not know that I can add more on our insular position. The hon. Member who opened the Debate roamed over a wide field, and 1 have a little difficulty in following his purpose and his recommendations. He invited me to become a super-Controller of Coal and a super-Minister of Shipping. My hon. Friend the Member for Oxford (Mr. Marriott) observed that he was quite confident that none of us were working anything like as hard as we could. I hope he will except the Minister from that generalisation.


And Members of the House of Commons.


I am quite ready to except Members of the House of Commons, provided that they will allow that, at any rate, Ministers are working about as hard as they can. I am not anxious, in addition to my own office, to take over the control of coal and the duties of the Minister of Shipping, nor did I exactly understand for what purpose I was to do it. I think my hon. Friend was under the impression that shipping was not now returning us a sufficient sum in invisible exports. If that sum can be still further increased, all of us would be gratified, but at least let my hon. Friend realise that the invisible exports provided by shipping at the present time are probably bigger than at any time in our past history. Then, not content with asking me to take over the duties of two other Departments, he invited me to undertake the duties of Finance Minister to the United States of America, the Republics of Southern America, and most of the neutral Powers of Europe. In so far as he meant thereby to imply that the larger world problem of which he spoke is one which cannot be grappled with or solved by any individual nation, I am heartily in agreement with him. In so far as he meant to imply that the remedy for the condition of that large portion of Europe in which for the time being credit is non-existent, and the supplies, whether of food or of raw material, which are necessary for the sustenance of the people or for the restarting of industry are riot obtainable—in so far as he meant to imply that the remedy for that state of things is an international remedy, I agree. This country, with its limited resources, strained as they have been by the immense financial sacrifices that we have made—not on our own account hut largely on account of our Allies—cannot by itself sustain the provision of that remedy, nor can it be sustained alone by any one of the Entente or Associated Powers.

It is a world problem. It is to the interest of the commercial nations of the world to help in securing a settlement, and if it is to be successfully dealt with it can only be by international effort on a scale in which the largest share must necessarily be taken by those who have the largest means. They are not to be found among the nations who have fought from the first day of the War to the end. They must be looked for in America and among the neutral Powers who have suffered much less than those who were belligerents throughout. When the hon. Member suggested it was my duty to lecture or coerce the Finance Ministers of foreign Governments, I really think he hardly appreciated the delicacy of international negotiation. He did not realise that if I followed his advice it would not be likely to promote a happy settlement of a very difficult question. We are the creditors of some Powers, and we are the debtors of others, but I fear that his proposal on this subject would not be calculated to result satisfactorily. The policy of the Government in respect of this subject is that we are quite ready to join with America and our Allies in any settlement of inter-Allied indebtedness on general principles applicable to all; we are willing to co-operate with them irk working for the restoraton of credit, and therefore for the restoration of the commercial and economic life not of Austria alone but of Europe, and if such a scheme can be de vised, and I think it can, then we will cooperate with them each according to their means.

I hope I have dealt with the various questions which have been raised in the course of the Debate. It may be complained by hon. Members that I have not added to the knowledge that they possess. But I do not think that anything could be added to our knowledge. We have to repeat things which are commonplace until we really can act upon them. There are no sudden changes to be made, no expedients of which the world has never heard which will set this state of things right. A long, continuous, and steady course of action can alone repair the damages of five years of war. We can look back to the past, perhaps, and draw comfort from it. Oar burdens seem to us very heavy, and some people are inclined to ask how we are to bear them. But are they heavier than the burdens which fell upon our ancestors at the close of the Napoleonic Wars? Of course, great sacrifices are always demanded from the generation that immediately follows a war, but I believe that in this case, as in previous cases, as we grapple with our difficulties they will be found to grow less, and the real remedy will be not by wild expedients in taxation, not by sudden and ill-considered measures to cure all our difficulties in an instant, but by that growth of production and expansion of wealth which in other times and in similar circumstances in the past has rendered a burden that seemed almost intolerable at the time light and easy to bear.


The close of the right hon. Gentleman's speech, if I may venture respectfully to say so, was encouraging to this country. At the same time, I am not quite sure whether he was accurate when he said that there was the same general rise in the cost of living at the end of the Napoleonic Wars as now. There was, of course, a considerable rise in the cost of living, but I am not quite sure that it was to the same extent as now. However, I am not going to enter into the currency question. To my mind, the essential thing is that the people of this country should know what to expect. If it be really true that there is little to anticipate, from the point of view of lower prices, from any change in our currency, let us face that fact and say so to the country. Let us tell the people that prices will remain substantially as they are. If it be true, let us have it stated plainly. I know there are people who think the prices may be brought down by an increase of production. I have the greatest doubt whether that can be done when you have a general rise in the level of prices. No doubt, in reference to a particular article, you may bring prices down by an increased output, but where there is a general rise of prices involving an increase in the cost of production I doubt very much whether an increased production will materially lower prices. However, I may be wrong as to that.