INTERNAL CURRENCY.

HC Deb 24 May 1922 vol 154 cc1311-54

Mr. HAILWOOD

I beg to move, That, in the opinion of this House, strikes, lock-outs, unemployment, distress, speculations, profiteering, bankruptcies, and stagnation of trade are caused by the fluctuating purchasing power of the Internal Currency being based on an article of no value like gold; that these evils, and their consequent cost to the State, can be almost eliminated by basing the Internal Currency on a commodity of constant, real and stable value like wheat, such Internal Currency to have a day-to-day exchange rate with our present External Currency based on gold for the purpose of foreign trade; and that the Government be asked to take steps to inquire into the best means of establishing such a currency at an early date. I do so with a feeling that I am asking the House to agree to a very big revolution in our monetary system, a revolution which will have far-reaching consequences in many aspects of political and social life. Yet I am convinced that this revolution will be brought about so gradually and in such a way that hardly anyone will notice that anything has happened. I am constrained to feel confident that the general body of the people would be only too glad to accept it. I wish to stabilise the currency of this country. I direct the attention of hon. Members particularly to the internal currency, as distinct from the external currency, which may be used for export and import trade. I believe that there are great benefits to be derived from stabilising our internal currency. I believe that nearly the whole of our industrial trouble arises from the fluctuating purchasing power of our internal currency, and that if we can stabilise that currency a lot of our trouble would vanish. It is within the memory of all of us how a rapid rise of prices, during or after the War, was the cause of innumerable strikes, when men were striving to keep their wages level with the ever increasing cost of living. We have only to look around to-day to see the appalling spectacle of 1½ million or 1¾ million or two millions of unemployed. I attribute the whole of this trouble to the fluctuating purchasing power of our internal currency.

This is a question which I find most people are somewhat frightened to discuss. It is looked upon as though it were a question of high finance, which must not be thought about for a moment except by those whose business it is to deal in high finance—as though it was something altogether outside the realm of ordinary individuals. I intend to speak in simple and direct language on this question, because it is the only language I know. I hope to show that this is a, question in which all of us ought to be deeply interested. From time to time we spend millions of money on various schemes to relieve unemployment, and we try all kinds of panaceas for settling wage disputes, when the essence of the whole thing is that the value of money has altered, and all the machinery is set in motion in order to bring about a levelling up of the purchasing power of the workmen's weekly wage.

I want to base our internal currency on wheat. I move this Resolution because I believe that wheat is of constant and stable value as distinct from any other article. It is the most valuable of all articles that have a price. It is by the providence of Almighty God that He has always made the most valuable article the cheapest. The most valuable thing we know is fresh air. A man could live for about seven minutes if be were deprived entirely of air. The next thing is water. A man might live for seven days without water. But he could not live without food for more than seven weeks. Bread forms the most important article of the lot. It is described as the staff of life, but it is something more. It has a stable and definite value, in so much that in a country like this there is a definite quantity consumed, no matter bow prosperous or how poor the people may be. If we refer to other articles, whether clothing, or hats, or jewellery, we find that the quantity consumed or purchased varies to a great extent with the affluence of the people who make the purchases. No such condition ever enters into the brain of those people who purchase bread. They purchase a definite amount to satisfy their requirements, and whether they be in work or out of work, whether they be enjoying high wages or low wages, practically the same amount of bread is consumed. Therefore 'bread has a definite value to the community with which no other article can compare.

I want to show how definite is the relationship between bread and wages. Let us go back to the period before the War, when wages were in the neighbour- hood of 30s. a week. In this country bread was then about 5d. for the 4-lb. loaf. If we take the period when wages reached their highest point, somewhere in the neighbourhood of £4 10s., we find that the price of bread was 1s. 3d. Bread trebled in price along with wages. To-day we can state roughly that wages are in the neighbourhood of £3, and the price of bread is 10d. If you divide 30s. by 5d., or £4 10s. by 1s. 3d., or £3 by 10d., you find that in each case you get 72 as the resultant figure. That is to say, it takes 72 4-lb. loaves to furnish an average week's wage for the community. In other words the real wage of the community remains fairly constant. Yet we have to go through all these interminable strikes and lock-outs and unemployment in order to adjust wages to this level, simply because the purchasing power of the currency has been fluctuating in the meantime. All of us are familiar with the Board of Trade index figure of the cost of living and we know the efforts that are made to put wages on a parity with the index figure. The hon. Member for the Stretford Division of Lancashire (Sir T. Robinson) was the first to introduce a sliding scale and to apply it to the workpeople under the Bradford dyers. That example was rapidly followed in branches of the cotton trade—bleaching, dying and finishing. In fact, most branches of the cotton trade have their wages regulated on the index figure of the cost of living. We all remember the railway strike in connection with which a settlement was reached on the basis, that the wages should be regulated by the Board of Trade index figure of the cost of living. I might mention many other trades which have established this custom of arriving at settlements with their workpeople.

The Board of Trade figure forms a very good index as to how wages should be regulated. I do not wish it to be inferred from anything I say that I wish either to press down wages or to raise wages. I am trying to look at the matter from an economic point of view, and these are considerations with which we must grapple. The difficulty in connection with the Board of Trade index figure is that it is several months behind the wheat market, and it is this period of several months which causes all the trouble in the matter of unemployment. I believe we have very little control over wages. We may have our well-organised trade unions, we may have our trade boards, we may have our Ministry of Labour, but all these have very little effect on the course of wages. Wages keep constant from one week to another, except that between one generation and another, as inventions are brought out, we find differences. We have coal, then steam engines, electricity, gas, up-to-date machinery, the better equipment of factories, better organisation, and so on, and all these things tend to the betterment of the conditions of the people, as between one generation and another. No one will contend for a single moment that people in the time of our fathers or grandfathers were as comfortable, or worked under such conditions, or enjoyed such wages as they do to-day. But no one would be stupid enough to contend that when wages rose from their pre-War level, in the neighbourhood of 30s. to their highest point which was £4 10s., that the working people were therefore three times better off. No one would be stupid enough today to say that the working people of this country, though their wages are twice what they were in pre-War times, are twice as well off. The real wage has remained constant throughout the whole period.

We cannot spur ourselves to the effort of bringing about brighter days better than by dwelling for a few moments on the miserable conditions of the past and present. I do not believe, as some people do, that we should fold our arms and say all this is due to the War, and in time everything will become right. There must be a cause for all this trouble in our land, and it behoves us to turn our attention to finding out that cause. It is quite a common thing among certain sections of the community to curse our present industrial system and to plead for a Socialistic era when Capitalism will be abolished. Although I am no Socialist, yet, if one stops to think, one must feel that there is a great deal in our present system of which we should feel ashamed. I believe our present system is right, generally speaking, but that in certain respects there is something radically wrong which should be adjusted in order that the difficulties under which we are groaning may be put right. Nor is it sufficient to say that it is because we have come through a war that we have all these troubles. I remember processions of unemployed long before the War. We had our periods of trade depression long before the War; in fact, when the Employment Exchanges were established, about 1910, we had a big percentage of unemployed, and the establishment of the Exchanges was one of the steps towards eradicating that evil. If this evil existed before the War, and if the Employment Exchanges and other attempted remedies have failed, I think it is time we set about getting at the root cause and endeavouring to eliminate it.

It is often said that the rise in wages caused the increase in the price of food. I wish to refute that entirely. The cost of food commenced to advance before any -movement in wages took place. Immediately after the murder at Sarajevo, several weeks before the War, the flour market began to rise, and it continued to rise, and eventually other things followed suit, and it was some time after before there was any movement to increase wages. In fact, employers of labour in the early days of the War, took rather the opposite course by dismissing numbers of their staffs and reducing expenses, thinking there would be no trade. We are all familiar with the ever-recurring strikes we witnessed in the course of the War in order that the people of the, country might wring from their employers something like an approximate wage compared with the ever-increasing cost of food. Like the swing of the pendulum, it is quite possible that the movement in this direction went too far. However, we know that at first the employers resisted these demands and strikes took place, but after a time the employers became so compliant that they granted demands for increased wages almost without any question, until the cost of production reached such heights that there was no market to purchase the goods. During all this period we had no such thing as -unemployment. The index figure of the cost of living was steadily rising. The wheat market was steadily rising. There was no unemployment, but we had strikes by means of which people endeavoured to keep wages up to the level of the cost of living.

I should like to point out another aspect of this question, namely, the terrible amount of valuable time wasted during the War in negotiating on, and trying to fix up, these wage disputes. People had to travel to London to attend Industrial Courts, and Conciliation Boards called together by the Ministry of Labour and the Board of Trade, and that must have entailed enormous expense both to the employers and to the employés. All this waste of time and money should be eliminated. The cost of wheat rose from 6s. 10d. a cental of 100 lbs. in 1914 to 16s. 3d. in June, 1917. After that, the Government stepped in and controlled the wheat and flour prices. It is very difficult to trace the progress of the wheat market until we come to June, 1921, when control may be regarded as having ceased. We do know that flour rose to the price of 86s. per sack, or something like 3¼ times its pre-War price. The index cost of living at the Armistice in November, 1918, was 120, but eventually it rose to 170 in October, 1920, and to 191, the highest point, in November, 1920. I want to impress this date particularly on the memory of hon. Members in this House—November, 1920—because it was the highest point in our cost of living, but it is memorable for something else. We passed an Unemployment Insurance Act in November, 1920, and we put 11,000,000 of people under the Act, as against something like 4,250,000 previously. We did this because it was foreshadowed that we were likely to have a very bad time in the industrial world, and that we were likely to have a very bad period of unemployment. Unemployment really commenced at that point. Just as the index cost of living had got to its highest figure, so unemployment on a big scale commenced from that particular date. The index cost of living fell from that time, and unemployment rose. In May, June, and July of 1920 the percentage of unemployed in this country was something like 2.6 or 2.7; in September it was 3.8; in November it was 3.7, but in December, immediately after the. Unemployment Act was passed, our unemployment rose to 5.8 per cent., and in January, 1921, it was 8.1 per cent. In February it was 9.5 per cent., in. March 11.3, and after that we entered on the period of the coal dispute, and I will leave out the figures for the intervening period and turn to September, when it had risen to 12.2 per cent., as compared with 11.3 in March. In October it was 12.8, in November 15.7, in December 16.2; in January, 1922, it was 16.2 again, and then it ceased to rise.

Now let us turn to wheat for something like the same period. In June, 1921, the cental of wheat on the Liverpool market cost 17s. 1d.; in August it had dropped to 14s. 7d., in September to 13s. 8d., in October to 10s. 7d., and in November to 10s. 2d. November, 1921, was the lowest point we have yet touched with regard to wheat since the War. As I pointed out earlier in my remarks, the cost of living figure is several months after the wheat market, and I will explain that as I go along. It takes at least two months before a fall in the price of wheat is really reflected in the index cost of living, and, as hon. Members know, the index cost of living forms the basis of wages in a good many industries. The index cost of living may not be published until the middle of the month, and an alteration in wages does not take place until the following month; consequently, there is another month gone before the figures reflected in the index cost of living affect wages. Again, it takes one, two, three, or four months to manufacture goods or a certain piece of machinery, and it is all these months more before the lower price of wages can be incorporated into a manufactured article that we are trying to sell. November, 1921, is just as interesting as November, 1920, insomuch as we touched the lowest point in wheat at that period, and after that it commenced to rise. Now it has fallen again, but even to-day it is higher than it was in November, 1921, so that we can regard November, 1921, as the steadying up of the heavy slump in wheat prices, and we might say that it corresponds with the increase of unemployment, because since the turn of the year the figures of unemployment have commenced to fall while the wheat market is tending to rise, and if we could eliminate the discrepancy of these few months between the price of manufactured articles and the price of imported wheat by altering our currency, I believe we should have solved the whole of this trouble. The cost of living figures commenced to decline after November, 1920, their highest point having been 191, and they have steadily fallen, except during the coal dispute, to January of this year, when the figure was 92, and to May, when it was 81, so that we can regard the index cost of living as having steadied up a few months after the steadying up of the wheat price, but, as I say, it takes two months before an alteration in the cost of wheat is reflected in foodstuffs, and another month before the cost of living is reflected in reduced wages, and the sliding scale Board of Trade index figure three months after the fall in wages.

When a merchant buys a cargo of wheat, he is buying nothing more nor less than a cargo of labour. Wheat comes from all the ends of the earth to such a port as Liverpool. We have wheat from Canada, from Australia, from Argentina, from Austria, from Hungary, and, in normal times, of course, from Russia, and we also have the home-produced wheat, so that really we get a test there of the price of labour from all parts of the earth in competition one with the other—the real test of what labour is worth at the moment—and it stands to sense that if a manufacturer or a shipper is trying to ship goods, and his costs are based on costs very much higher Which obtained for several months previously, he cannot sell his goods, and after all we import wheat into this country, we import foodstuffs, and we export manufactured goods, and the one eventually has to pay for the other. To my mind, it is because of this disparity between the two that we have this question of unemployment in our midst, and if we could so arrange that these two were always at a parity, I believe that trade would be far more regular and far steadier than it is to-day. We have various causes put forward as to why shippers cannot sell their goods, but I am quite convinced that the real reason is because to-day they are not of the right price, or, at any rate, they have not been in the months which have preceded. We are somewhat near the right price for selling. I was talking the other day to a merchant who told me he was nearly concluding very big transactions in the Eastern market, because his prices were very near the line of prices at which people could buy. I believe there is no such thing as the state of trade being in such a way that there is no market. I believe there is a market at all times at a price, and I believe that we ought to strive to have our goods constantly at the price at which we can export them.

The slump in wheat was arrested last November at 10s. 2d., and the cost of wheat now is 12s. 6d. If we compare the present cost with the pre-War cost, we shall find that to-day it is 81.7 higher than it was before the War, and that the index figure of the cost of living is a little over 81, so that the increase to-day in the price of wheat almost exactly corresponds with the index figure of the cost of living, and we must bear in mind that, perhaps, rent and some other things have not risen with the cost of living. But with these considerations, we might say the one thing exactly balances the other to-day, so that wheat does really form a true index eventually of the cost of living, only, as I say, it is two or three months in advance of the Board of Trade figures, and that is where all the trouble lies.

I may be criticised for wishing to alter the standard of our internal currency from gold to wheat, and no doubt a good many people do not know that gold has not always been the standard of our currency; in fact, I suppose that, prior to 1871, we were the only country in the world that had a gold standard, and it was not until after the Franco-German War, when the French peasants brought out the gold they had hoarded—and although the French Government did not pay it direct to Germany, but bought bills of exchange with the currency, and liquidated their debt to Germany—that Germany established her currency on a gold basis. Then France, and other nations in quick succession, followed, by establishing a gold basis. There is no doubt about it that when we were the only nation on the earth with a gold currency, we made very very rapid advance in our industrial life, and our trade boomed right up to 1871. It is very questionable, after gold became common in other countries, whether the advantages to be derived from the gold standard continued as they had done before, but I do not wish tonight to enter upon that question, because, after all, it really affects the external currency rather than the internal currency. The whole of my remarks have been diected to showing that it is the internal currency which is at fault, and I contend that we ought to arrange to have the internal currency based on wheat, and to leave the external currency based on gold as to-day, and to have a day-to-day rate of exchange between the two.

To some people it may seem somewhat appalling that we should establish another exchange in this way; but, so far as the ordinary people of this country are con- cerned, the people who draw wages and the people who do trade within the country, they would not know anything had happened. The currency would remain just as it is, and the people who conduct an export or an import trade are the only people who would have to take into account this day-to-day exchange. I think it quite possible to establish, we will say, the Treasury notes on wheat, and to leave the Bank of England notes based on gold, and to have a day-to-day exchange between the two, according to the rise or fall in the price of wheat as compared with gold. In this way we should stabilise the internal currency, and there is no reason on earth why the Government cannot substitute one article as well as another as a backing for their Treasury notes. As a matter of fact, of course, there is not the full value of gold in the Bank of England or at the Treasury against these notes. Before the War we had something like 52½ per cent. of gold against the notes that were issued by the Bank of England, and we know the tremendous rush when war was in the air to abstract this gold from the Bank of England. We know that it fell something like 14 points in the course of a week, and in the next few days it fell still further. Then our stock of gold was rapidly melting, and if it had not been for the Government taking the drastic step of declaring a succession of bank holidays, and issuing a big number of postal orders until we provided currency notes, it is quite certain there would have been no gold left in the Bank of England.

Fortunately for us, America in those days was a debtor country rather than a creditor country, or she would have abstracted the gold very quickly. Being a debtor, she was unable to do so. We successfully brought in currency notes, and no one ever doubted for a single moment the stability of those notes. No workman, when he is paid his wages in notes, has any doubt that a note is worth what it is stated to be worth on the face of the note. The only thing he knows is that all through the War he was able to buy less with those notes—that the purchasing power became smaller and smaller. But so far as confidence was concerned, no one for a single moment had any doubt about the stability of the Government, and of it being able to back up our Treasury notes. So that it is not a question of credit. It is not a question of confidence in the Government. It is question, after all, of what is behind the notes with regard to their real purchasing power. And it is just as easy if the Government at one time have gold behind the notes and at another time no gold, and nothing practically but credit. If they can do this, it is just as easy for them to put a definite article of value, like wheat behind the note and to say, "This note issued represents so many pounds of wheat." Sup posing this change were made when wheat was in the neighbourhood of 10s. a cental, it would be possible to issue a Treasury note to say that this should always represent a cental of wheat, and then a rental of wheat could always be purchased by a Treasury note and 1s. could always buy 10 lbs. of wheat. Did we care to introduce the decimal system, such as is recommended by Mr. Harry Allcock, of the Decimal Association, and divide 1s. into 10 instead of 12 pennies, and incorporate the two at the same time by making a pound of wheat represent one penny, it would simplify a lot of calculations throughout the land, it would simplify the arithmetic in our schools, and another step forward would be taken. This is, of course, apart altogether from the policy which I am advocating, and it need not be incorporated unless any Committee which inquired into the matter decided that it should be done at the same time. How is it that a Treasury note at one time buys a certain quantity of food and at another time buys something quite different?

I have here a golden sovereign in my hand. I suppose that before the War no one doubted for a single moment that it represented a sovereign, and contained something like a sovereign's worth of gold. If it had been legal to sell a sovereign it could have been sold for 19s. 6d. However, there is the sovereign, and it represents the labour employed in the mines in getting the gold out and other expenses of bringing it here and minting it. In other words, it represents right up to the hilt what it would cost to produce. If the Government had issued a Treasury Note or Treasury Notes corresponding to it, those Treasury Notes would have paid labour just as much as the sovereign did. How is it that things go wrong afterwards? While we offered a Treasury Note in 1913—supposing we had had them—and we could have got a man to get the gold out of the mine and this sovereign could have been exchanged for that Treasury Note, no one would contend that in November, 1920, when the cost of living reached such a high figure that the man would have worked to get the same amount of gold out of the ground for his Treasury Note! The reason is that gold may be produced at one time and may represent a coinage of five, six, eight or ten years later. Conditions may have wholly changed. Wheat is never hoarded during the whole length of that time, and wheat represents the immediate cost of labour at the time it is grown.

Suppose one hundred men produced wheat enough to fill a ship, and the cargo of wheat is bought for a certain amount of money in a certain year, say, in Liverpool. The following year there is something different in the harvest. If there is only half a shipload of wheat, these men have worked just as much as before, and you have to pay just as much for that half shipload as you have for a shipload. There has been the same amount of labour put into the matter in the half shipload as the year previous for the shipload. In other words, wheat always represents the labour that it has taken to produce it. Harvests may vary from one time to another, and in one part of the globe and another, but they have always got to be paid for, and the people who produce the wheat have to be paid for their labour irrespective of the quantity of wheat which may be produced. That is why it is wheat is a more stable article than gold. Gold, really, is of no value except its exchange value in the purchasing of commodities. Wheat is an article of real value. I think I have made out my case sufficiently well to impress its cogency upon hon. Members who have done me the honour of listening. At the end of my Resolution I ask that the Government should inquire further into this matter, in order to find the means of stabilising our currency by basing it on wheat. I quite see that this question will have to be inquired into by bankers, wheat brokers, millers, representatives of labour, and so on, in order that we should thoroughly understand the new system before it comes into operation. I have, I think, made out a case for inquiry.

9.0 P.M.

There is another aspect which I want' to put particularly before the Committee, and that has relation to our National Debt. To a great extent our National Debt was borrowed at a time when the cost of living was very high, when wages were very high, and when the currency was inflated more than it is to-day. Time goes on, and if the wheat market should come down to its pre.-War level, supposing wages fall to their pre-War level, we shall have a far more difficult job to pay off the National Debt than we have to-day. Say the Government borrowed money at 4½ per cent, or 5 per cent. and wages were in the neighbourhood of £4 10s., that would mean that a man would have to work a week in order to pay the interest on £100 of National War Loan. If wages fell back to 30s., to pre-War level, it would mean that a man would have to work three weeks in order to pay the same interest on the War Loan. I do not wish in any way to repudiate the National Debt, and I do not wish, and I would never advocate it, of reducing the interest on the National Debt. A bargain is a bargain. A contract a contract. They must be honoured. But if our currency had been based on wheat we could continue to pay the interest on the National Debt, and as the wheat market fell it would become easier and easier to pay that interest. The Government would gain on the transaction.

There is no reason why, if this policy he adopted, the Government should not refloat the National Debt when the new currency is established and refloat it on a new basis of paying off the National Debt with the new money so borrowed. The owners of bonds would be guaranteed their 4½ and 5 per cent. interest, as the case might be, and it would have a real stable value. They would always be able to purchase with that money the same quantity of foodstuffs or clothing, because all these things come into line. Again, let us look at the position of the Government in regard to taxation and the salaries that they have to pay to the Civil Service, the postal workers, and so on. The Government always manages to be several days behind the fair—if not several months! We know that when we have got through the boom, postal and telegraph rates, and so on, were put up at a time when the Government should have reduced those rates. We know the discussion we had last week with regard to the 5 per cent. off teachers' salaries. We know that civil servants' wages or salaries did not rise anything like as rapidly as labour outside. The labourer was the first man who was able to get his wages moving because he was on an hourly contract, he could move his labour and could take advantage of the rising market. There is no other Government that civil servants could be employed by and consequently they had to agitate, and it was not until after the War that they got anything like recognition, and for some years to come they will enjoy these higher salaries.

But if the Government base the currency on wheat as the wheat market fell so their costs would fall at the same time. Our exporters and manufacturers, although their costs would remain in terms of the internal currency just the same, they would pay the same wages and the same prices for raw material by the very fall in the exchange value of the internal currency on external, and they would be able to quote a lower price for shipment abroad, and automatically their costs would be reduced. To-day they have to call in the colliery proprietor, the trade union leaders and the various individuals from whom they buy raw material, and try to barter down the present-day prices in order to be able to export. Under this scheme their costs would be reduced while paying exactly the same for everything, and I believe it would tend to the abolition of strikes and to doing away with profiteering, because, after all, that is a sort of adventitious gain which comes through the difference in the value of money. It will do away with bankruptcy and heavy losses in business, because if this came about through the slump people cannot sell their goods, and I believe it would make us a far better country.

Just as we were the first to start a currency based on gold, I believe that if we based it on wheat we should make rapid strides because of the contentment of our people, and because our manufacturers would be able to quote more quickly up-to-date prices. Hon. and learned Members of this House who have had anything to do with deeds connected with land must have noticed from time to time how tithes are based on the cost of wheat, and how payments of certain kinds for land are based on the average cost of wheat for that year's harvest. Consequently this is no new thing, because people of old knew what real values were, and we have now departed from that, and this has brought on a lot of industrial trouble. I believe that this change could be effected with great benefit to the community, and for these reasons I commend it with great confidence to the House.

Mr. A. J. LAW

I beg to second the Motion.

Mr. W. GRAHAM

However much hon. Members may disagree with the principles put forward by my hon. Friend who introduced this Motion, I am sure we shall all join at once in paying the warmest tribute to the sincerity with which this Motion has been urged. Having paid that tribute, I am afraid that I must almost at once disagree with very nearly every argument which the hon. Gentleman has put forward. I want in a very few remarks to submit two considerations which appear to me to offer a final reply to his proposal. Before doing so, however, there is one remark made by the hon. Member which appears to me to represent a fallacy on which he based a very large part of his argument regarding the index number.

As I understood his case, he said that there had been a certain constancy in wages. If we take the period between 1801 and 1914, prior to the outbreak of War, and take the testimony of one of the highest authorities on the subject in this country, we have this result, that during that time there was practically a doubling of nominal income in actual money and there was also, roughly, a halving of prices. This means that in material things the people in 1914, prior to the outbreak of War, were four times as well off as they were in 1801, subject to this qualification, that during that long period of very nearly 115 years there had been practically no change in the proportions in which the total annual income of the people had been distributed amongst the various sections of the people. In regard to the case for the index number which the hon. Member made with great clearness in the early part of his speech, these facts go a long way to undermine his case.

The two points, however, on which we can reply with most effect to this pro- posal are these. In the first place my hon. Friend is under a misapprehension as regards the power and effect of the currency in this country or in any other. In the second place if we have to choose between a gold and a wheat basis, I think very few people would hesitate in deciding in favour of the gold standard. Let us take the first point which my hon. Friend made, namely, the power of the currency. If I understand my hon. Friend's argument it amounts to this, that currency for the time being becomes the master of the situation. The real truth is that in any healthy economic organisation the currency should be the servant and not the master, although I agree that conditions arise, and in point of fact did arise during the War, and exist even now, in which the amount of currency was so, increased as to lead to a certain degree of inflation and to a rise in prices, and perhaps to introduce an element of speculation and disease into the economic system of this country and others during the War period.

But normally that should not be the result. Currency should be issued in sufficient quantities to provide for the free exchange of the commodities, and, above all, it must have behind it some commodity which is recognised, and to which it may be related as a kind of standard. That is the presentation of the-golden sovereign for a note if we ask for it in the ordinary way. It is perfectly plain that a very large part of my hon. Friend's case rests upon a fundamental fallacy upon that point. Only temporarily and under the difficult conditions I have mentioned can you say that currency gets the upper hand and becomes a dangerous force, and those conditions would tend to be remedied when we fall, back on the well-known remedy for diseases of that kind—when we stop our Government borrowing, when we balance our Budgets, when we work hard, and when we all economise publicly and privately as far as it is possible. That is the one thing which in the last resource will enable the whole structure of the world currency to be put on a proper foundation.

I assure my hon. Friend that this, of all times, is not the proper time to embark on the character of enterprise he would have, us follow. In the second place, would my hon. Friend gain anything at all by the substitution of wheat for gold? Let me say at once that those of us who give an orthodox support to the gold standard are not like many of the defenders of that gold standard, committed to gold as a commodity. You must have come kind of basis which will respond to certain tests. Those tests are that you have sufficient quantities of the commodity, that it must be universally respected and recognised, and that probably from some points of view it must have a kind of value in itself, although in making that statement I do not put forward any case at all for intrinsic value. In gold you certainly have a commodity which is universally respected. Before the War there were, I think, only two countries in the world which were not on a gold basis, and since the South African and other mines have produced gold in large quantities, there has been such quantity as has led very largely to the disappearance of the controversy on bimetallism. Taking these considerations in favour of gold, let the hon. Member ask himself whether the same things can be said truly of wheat. For example, you must hold considerable reserves, and I would ask how are you going to do that with wheat? There is a question of the convenience of handling large quantities, and I should think it would take enormous warehouses, bigger than anything one can readily contemplate to store sufficient quantities of wheat to form the necessary reserve. But I do not rely on arguments of that kind, as my hon. Friend may have some other device. If we tie ourselves down to something which is in the phraseology of this Resolution a standard more or less permanent in value, then I think it is very difficult to say that we can apply that phrase to wheat. After all, recent writers have pointed out that there may shortly be a world revolution in wheat itself, due to the fact that certain Eastern countries which have not consumed wheat on any large scale in the past, are now starting to consume it in large quantities, and that will have an important bearing on this question.

The real reply, however, is that you can only effect that change with any degree of safety, and I do not think it possible, if it were built on a universal tendency in the same direction. I see no movement in that direction. On the whole, the gold standard, as the world standard, has been confirmed and established by that remarkable memorandum which has been issued by the Financial Commission at Genoa, and that is the clearest and plainest reply to my hon. Friend. With very great sincerity, and I think I can speak for many of my Labour colleagues on these Benches, I think we can agree that the general control of credit and currency in this and in other countries is a question which deserves to be very much better understood by the people of all countries. There is no doubt that in recent times vast changes have been brought about by the artificial conditions of war, and these have produced problems of international significance. I entirely agree with that part of my hon. Friend's criticism, although I do not think he has offered the House a remedy for it.

In conclusion, he in reality throws us back on a very important change that has come over the banking and financial system of this country. Years ago there was a comparatively large number of banks, and there was a certain amount of banking competition in the provision of credit and the rest. Everyone who knows anything of banking to-day is aware that the banks are very largely amalgamated and that there are now only five or six leading concerns, and, above all, in banking and in the provision of credit there is very largely a common programme which, practically speaking, does not admit of any competition at all. These are important points, and I venture to suggest it is only by a scheme for the control of credit in this country and, above all, for a greater democracy in our financial system and a better knowledge, that the remedy lies. I beg the hon. Member to believe that if we differ from him, we do so for this reason, that if he tries to proceed on wheat, he is simply pursuing a shadow while the substance lies in the line of the remedy I have inadequately summarised.

Mr. MALONE

I should like to congratulate the hon. Member who moved this Resolution on taking an advantage of the position he won in the Ballot to bring the question of currency before this House. It is a very important and very vital matter which, in fact, is now never discussed at all by this House, although it is at the root of a great many of our troubles, both national and international. I want to point out some of the bed-rock fallacies underlying the Motion we are discussing to-night. I can only agree with one point, and, but to some degree with that point, which is that various causes of distress, unemployment, and so on, are due to the exchanges and the fluctuating purchasing power. I shall develop that before I sit down. I should like to point out that wheat is no more stable than gold, and if it is introduced as a standard it will be found that it is not anything like as stable as gold. It may be thought that it is more stable, because people have in mind what happened during the War. During the War, when wheat was rationed and the prices of wheat and bread were fixed, it is possible that the wheat standard was stable, but normally wheat is one of the most sensitive productions. I should think that the hon. Member for the Ardwick Division (Mr. Hailwood), who moved the Resolution, knows, from his own personal knowledge, that the reason for that is that while the demand for wheat is steady and unelastic the supply varies with the harvest and the seasons, and varies from season to season. Under a wheat standard a good harvest would produce a rise in prices, and possibly a proportionately smaller rise in wages. A bad harvest would produce a fall in prices, and a greater fall in wages.

The reason why gold has been adopted as a standard is because the gold production of the whole world is steady and the total production of gold is small compared with the total amount of gold in circulation. If wheat were adopted as a standard the amount of wheat in circulation would be an enormous proportion of the total amount of wheat. As a matter of fact, much higher financial experts than hon. Members of this House have already thoroughly thrashed out the question of standards. Such high financial experts as Professor Gustav Cassel and the others who constituted the Second Commission at Genoa have definitely decided, in their fifth Resolution: That gold is the only common standard which all European countries could at present adopt. When these experts, who have written and spoken a great deal about it in the last two or three years, come to that con-elusion, I am sure there is something in it.

Mr. HAILWOOD

They were referring to the international market, and not to the internal market.

Mr. MALONE

Before I sit down I will try to show that you cannot have a different standard for an internal market and an external market. There have been many changes in currency. Years ago we used to have shells and bangles as our coinage. Now it is found more convenient to have small valuable articles called sovereigns, which you have in your pocket. Another difficulty with a wheat standard would be what would happen when the wheat was consumed. Perhaps I was rather dense in appreciating the point of the hon. Member who moved the Resolution, but I cannot understand what would happen when the wheat was consumed.

Another point, and probably one of 'the most vital, which occurs to me is the fact that this change would put great power into the hands of the landlords all over the world, who now own the wheat-producing districts in the different countries. It would tend to a corner in money, to a corner in our financial situation which would have a most disastrous effect on the country as a whole. The financial difficulties in the way of adopting the wheat standard are much greater, and the dangers to which the hon. Member for the Ardwick Division refers in his Motion—strikes, lock-outs, unemployment, distress, speculations, and so on—are not really due to this cause. If you want to know what really is the cause of all these things you have got to go far deeper than the question of whether gold or wheat is or is not to be the standard. I should like to quote an extract from a speech made by Mr. D. M. Mason, the Chairman of the Sound Currency Association, at a meeting held at the Cannon Street Hotel, on Tuesday, 25th January, 1921. He quoted from a paper written by Mr. Daniel Webster, in 1832, as follows: A disordered currency is one of the greatest political evils. It undermines the virtues necessary for the support of the social system, and encourages propensities destructive to its happiness. It wars against industry, frugality, and economy, and it fosters the evil spirits of extravagance and speculation. I would ask hon. Members to take notice of this— Of all the contrivances for cheating the labouring classes of mankind, none has been more effectual than that which deludes them with paper money. This is most effectual of inventions to fertilise the rich man's field by the sweat of the poor man's brow. If it was true in 1832, it is very much truer in 1922. The hon. Member has hit on that point, but I think he only grazed the outside edge of it by referring to the question of gold standards. I was interested in his figures regarding inflation in the last few years, and I shall read them in the OFFICIAL REPORT to-morrow. What always strikes one, however, is this. Whenever inflation goes on, and prices go up, wages lag behind; they never go up in the same ratio or equally as prices go up. When prices come down they are only a few months during which wages are at all compatible with prices, because they very soon decrease.

One of the real reasons for the present disorganisation of the currency system is the enormous inflation that has taken place in every country in Europe. There is not a single country in the whole of Europe, except Russia, which has a sound basis for the paper currency which is issued. Hon. Members may doubt that, but in Russia, I believe, a good many of the industries have been nationalised, and so, theoretically at any rate, there is a backing for the paper money that has been issued there. It is contended by some people that in this country we have a backing for all the money that has been issued, but that is a complete fallacy, because not only £325,000,000 worth of Treasury Notes, but the whole of the War Bond issues, are really fiduciary issues. Practically the whole of the £7,000,000,000 of War Stock issued has really nothing behind it at all. The backing is really the credit of a future Government, but there is no backing at all behind it any more than there is behind the enormous paper issues in Poland, Germany, Austria, or elsewhere. The issue of War Loan is really nothing more nor less than a book transaction which took place during the War. When the War munitioneer and other people were paid by the Government the bank made a book entry to the credit of their account, and in return a piece of paper was handed to them from the Government office. That is all that happened.

Another point on which I join issue with the Mover of the Resolution is in regard to his suggestion that you can have a different rate of exchange for internal or external currency. Anyone who has had anything to do with the City and banking knows that it is absolutely impossible to have different systems of exchange inside and outside the country. I do not know whether the hon. Member has ever been inside an office in the City where they deal with foreign exchanges, and has seen all the complicated machinery for communicating with offices, not only in the City, but in every capital in Europe and also in the United States, all the complicated machinery of arbitrage, and so on. If he had, he would realise how absolutely impossible it would be to have one system inside the country and another outside. In a pamphlet circulated to Members of the House the other day, all this very complicated question of exchanges was lucidly described. It was written by the hon. Member for Putney (Mr. Samuel Samuel), and is entitled "Currency and Exchange." I should like, if I may, to quote one or two sentences from it to show how complicated and highly skilled this matter is. The hon. Member for Putney is, as all hon. Members will admit, one of the greatest experts on these matters in this House. He said: Exchange is one of the most complicated, speculative, elusive and dangerous businesses. It requires the most experienced, cool-headed, constant attention to market conditions all over the world. You have to watch the price of silver and the price of gold; you must know the price of grain in America, in Australia, in Argentina, in Russia, Rumania, etc. You must know the price of cotton, and, in fact, of every staple commodity in different parts of the world. You must know the seasons for shipping them, so that you have your currency in such places as it is required at a given time. Exchange, in fact, is a fine art. Anyone who knows anything about exchanges will agree that you cannot possibly have separate systems of exchange inside the country and outside. The real solution of the problem, which the hon. Member is trying to solve, can, I am sure, be found, and I think that some Governments are—I have yet to learn that this Government is—trying to find a solution. The real solution would be to try to balance the Budget, to try to pay off the.War debt—which our Government is not doing and has definitely declared that it is not trying to do—and also to try either to fix the exchange or, in the case of countries where the exchange is very much depreciated, to try to raise it. I know that this is a very a abstruse matter, but, as far as I can see, from the quantities of literature and memoranda that have been issued by the great experts, more and more public opinion in the different countries is coming round to a definite policy in this matter, and that policy is, brat countries like ours, and neutral countries where the currency is not depreciated, should try to fix their exchanges at something reasonable, and that other countries, where the exchange is greatly depreciated, should try to raise it to some extent. It is, of course, rather difficult to restore the pre-War gold value, and I do not believe it to be at all necessary to return to absolutely the pre-War gold value. There are a good many bankers in England who still think it is, but I think that in another year or two, when they find it to be quite impossible, the majority will probably agree on some reasonable figure.

Then it is said that endeavours ought to be made to raise the level of the exchanges in order to improve the unearned incomes of people having capital and of small rentiers. There are certain points which we must consider in that regard. First of all it is not really so very necessary to increase these people's incomes from pre-War investments, because the pre-War investment market has been largely swamped by War investments in almost every country, and, if any attempt were made, in a country like France or Italy, to bring the franc and the lire up to the pre-War value, those countries would be faced with the alternative either of revolution or of the urgent necessity for a very drastic capital levy. I think that people generally in different countries are coming to see a solution in all these matters, and the Financial Conference at Genoa is a landmark on that road. The difficulty, however, in regard to which I should like the representative of the Government, if he takes part in this Debate, to give us some guidance, is as to how these resoluions are going to be put into practice. We have had these pious resolutions about finance, exchanges and credit ever since the Brussels Conference, if not earlier, but it is no use passing pious resolutions if no one is going to act upon them. I should, therefore, be glad if the representative of the Government, should he be able to find time to reply this evening, would give us some indication of what he looks to in the future.

Sir GODFREY COLLINS

The House appreciates the wide interest and deep knowledge of the subject possessed by the hon. Member who opened this Debate. Some hon. Members, no doubt, will differ profoundly from him in his conclusions, but I understand that one of his objects is, by the adoption of the principle which he sets forth, to stabilise the currency. He stated that the Bank of England note would be on a gold basis, while Treasury notes would be based on wheat prices. There would, therefore, be circulating in Great Britain these two currencies, each with a different basis of price to be fixed from day to day. I do not think that that would tend to stabilise the currency and create the confidence which the hon. Member is anxious to secure. He traces strikes, lock-outs, unemployment and other economic evils to the fluctuating purchasing power of the internal currency being based on an article of no value like gold. I wish our economic troubles could be so determined. To my mind there are two main factors—there are several others—which have caused, and are causing to-day, distress in our country. For several years the nation spent large sums of borrowed money and poured out the accumulated savings of the past. While, on the one hand, borrowed money was being poured out, production of goods was being decreased, and that was bound in the long run to increase prices. Therefore, it is owing to the increase in the price of goods that we have the strikes, lock-outs, unemployment and other evils referred to in the Resolution. Undoubtedly another main cause has been the wastage of war. These two main factors account to-day for the world-wide distress with which each country is faced.

The hon. Member also stated that Treasury notes were always worth their face value, but from time to time they depreciate, and have depreciated, heavily in value, and to-day their value, in comparison with the American exchange, has depreciated by about 15 per cent. They are, therefore, not a certain and fixed medium, but are dependent upon the day-to-day course of prices. The hon. Member went on to argue that the National Debt, which was borrowed at a time of inflation, would be decreased if his principle were adopted. He pointed out that he had no desire to repudiate the interest on the National Debt; but, as prices of commodities fall, and as the rate of interest falls, will not the rate of interest to be paid to the holders of the National Debt also fall when the loans fall due? War Loan will fall due in 1929. If the price of money at that date is lower than 5 per cent., the Government of that day will offer to the holders of that stock a lower rate of interest than 5 per cent. It may be that a higher rate will be necessary, in which case a higher rate will be paid.

No one will state that there may not be evolved in time a better basis than gold. No hon. Member in any quarter of the House desires to-day to change the basis from gold to wheat. A similar question excited great interest 100 years ago during the time of the Napoleonic Wars. We had the well-known Bullion Report of 1810, which advocated a return to the gold standard. For several years after the issue of that Report, Members of Parliament and leading merchants in the City questioned that basis, but in time the principle was established and about 1817 this country returned to a gold basis. It is in the interest of this country that we should return at the earliest possible moment to a gold standard. The hon. Member for Central Edinburgh (Mr. W. Graham) endeavoured to push on one side the effect of paper currency on prices. I rather differ from him. There have been tables published and circulated to Members of the House which clearly reveal that, as paper currency increased, prices rose in that proportion. In America, where the paper currency increased by 73 per cent., the price of food rose by 81 per cent. In Great Britain the paper currency increased by 144 per cent. and the price of food by 117 per cent. In Italy the paper currency increased by 340 per cent. and the price of food by 200 per cent. I quote the figures from the Command Paper of November, 1919. That clearly reveals that, as the curculation of paper money increased in each country, prices went up autom4otically. My plea is that we should return to the gold standard, that we should deflate our currency and seek to increase the purchasing power of the gold sovereign once again. It is vital for Great Britain, a great exporting country to follow steadily and surely the policy of deflation. That can only be secured by a real surplus of revenue over expenditure. The Government to-day appear to be violating that principle. There cannot be steady fall in prices unless the Government, return to the first principle of economic law, that a nation must live within its yearly income.

It is impossible to stabilise the exchanges while paper currencies are being increased and Budgets are not being balanced. If each nation will balance its own Budget it will be possible to stabilise the exchanges between one nation and another. My plea this evening, therefore, is the old doctrine of 100 years ago, the doctrine that a nation must live within its yearly income, and that at the earliest possible moment we should return to a gold standard and a convertible paper currency and by that means lower the price of food, which will be a great advantage to our industrial classes. Any policy of inflation is of great advantage to the holders of commodities all the world over. Those who suffer are the labouring classes. You may increase the supply of paper currency for your own satisfaction, but in the long run what the working classes desire is a plentiful supply of food at reasonable prices. Any tampering with the currency is only concealed taxation. I might point to Russia and Poland. Even France to-day is not balancing her Budget by many hundreds of millions a year, with the natural result that the prices of commodities are falling much more slowly than in Great Britain. Let us therefore lay hold of the doctrines which have made Britain great—the doctrines which have been handed down to us by Cobden, Bright, Gladstone and the statesmen of the past—of not violating in any degree economic laws and the principles laid down by Adam Smith and others and by that means secure to this country, which is dependent upon her export trade, the great advantage of being able to buy in the markets of the world such commodities as she desires at the lowest possible price.

Sir F. BANBURY

I do not propose to deliver a lecture either upon st[...]andardising the exchanges or upon the currency question. I propose to deal with the Resolution which is before the House. It divides itself into two parts. The first part says that in the opinion of this House strikes, lock-outs, unemployment, distress, speculations, profiteering, bankruptcies and stagnation of trade are caused by the fluctuating purchasing power of the internal currency being based on an article of no value like gold. First of all, they are not based upon an article like gold, and, secondly, I think if my hon. Friend who moved the Motion filled his pockets with gold he would get more for the contents of his pockets than if he filled them with wheat. Therefore, I come to the conclusion that there are two mis-statements in the first paragraph. First of all, the purchasing power of the internal currency is not based on gold, and, secondly, gold has a value, as anyone would say if he had any gold, and one of the great reasons why the purchasing power of the internal currency is not based on gold, is that gold is so valuable that we cannot get it. Therefore I think the first two statements of my hon. Friend are erroneous. Then he goes on to say that these evils and their consequent cost to the State can be almost eliminated by basing the internal currency on a commodity of constant, real and stable value like wheat. Is wheat an article of constant, real and stable value? I remember buying wheat in 1895 at 18s. a quarter. I remember selling wheat last year at 96s. a quarter.

Lieut.-Commander WILLIAMS

Profiteer!

Sir F. BANBURY

Oh, no. It was worth a great deal more. I remember selling wheat this year at 48s. a quarter.

Mr. HAILWOOD

That is the price and not the value; it is value I was referring to.

Sir F. BANBURY

I have always found that the value of an article is what I could get for it. I might say, "I have an article to sell. What I shall get in the market for it is five sovereigns, but the real value is 50," but I never found anyone who would give me 50. If I go to my hon. Friend next year and tell him I have 300 quarters of wheat to sell, and the real value is 100s. a quarter, he will not give me 100 shillings if he can buy them from another farmer for 50 shillings. He does not contradict me. Therefore, it is perfectly clear that what we have to consider is not real value or nominal value, but what the article will command in the open market. I have endeavoured to show that wheat has fluctuated during the last few years from 17s. a quarter in 1895 to 96s. a quarter, and that the honest farmer could have got much more if it had not been for the intervention of the Government. The price has now gone down to something like 48s. I sold my wheat last year at prices ranging from 48s. to 56s., or an average of 52s. Some people were not so fortunate. There is as much fluctuation in the price of wheat as in the price of any other article.

I should be glad to support my hon. Friend if I thought he was right. He says that if we base our internal currency upon wheat, we shall eliminate strikes, lock-outs, unemployment, distress, speculation, profiteering, bankruptcy and stagnation in trade. He would do away with the Prime Minister at once. What would be the use of the Prime Minister? Nobody could be more anxious to achieve that desirable result. We are asked to conclude that gold is of no value. Having concluded that gold is of no value, we are asked to conclude that wheat is of "constant, real, and stable value," and having come to these two conclusions, what is it proposed to do? We propose to base our foreign rate of exchange, which is most important, upon gold, which is of no value. For our foreign trade, which is the most important matter which concerns this small country, which depends upon foreign trade to a very great extent for its existence, we are going to base our exchange on something which we have previously said is of no value. I think it is unnecessary after the remarks I have made, that we should ask the Government to take steps to "inquire into the best means of establishing such a currency."

10.0 P.M.

The FINANCIAL SECRETARY to the TREASURY (Mr. Hilton Young)

On such a subject as this, and on this occasion it is not my intention to trouble the House for very long. I feel the more able to do so because it so happens that most of what it appeared to me ought to be said has already been said by the hon. Member for Central Edinburgh (Mr. W. Graham). In those speeches which he makes, which are of such value in our Debates, the further he proceeds into the region of pure reason, for which he is so well qualified, and the further he passes away from the troubled ground of practice, the more we on this side find that we are able to agree with him. The House will have appreciated not only the almost liturgical sonority of the terms of my hon. Friend's Motion, but the great wealth of argument with which he has developed it, and although the general expression of opinion has not, on the whole, moved in his direction, he will, nevertheless, have the satisfaction of knowing that he has raised a most interesting discussion. Into the actual criticisms of the theory of his Motion, I will not trouble the House by going any further at the present time, because I think they have been expressed, with far greater clarity than I can hope to express them, by other hon. Members. Indeed, they so amply covered the ground that it leaves very little to be said upon the pros and cons of the economic merits of this proposal.

We are all agreed as to the gravity of the evil, and we agree that the hon. Member who moved the Motion has put his thumb on one of the greatest difficulties of the times, namely, the fluctuation of the currency. We do not agree with him as to the remedy, but we agree with him as to the magnitude of the evil. We know that it is a matter which must occupy the attention of anybody who soberly desires to try to remedy some of the hardships, misfortunes and evils of the times. That any single Government, Parliament or nation can arrive at a solution is impossible. That fact has been brought out by other speakers. It is in the direction of international action, as is now so fully realised, that all effort must be made in order to find a remedy common to all Europe, which alone can make any very great alterations for the better. As to what the direction should be, I am in most cordial agreement with some hon. Members, and I think I may say that it is the opinion of His Majesty's Government that whatever attractive economic theories there may be, some are more attractive and some less, the common sense present position is this—unstable as currency and exchanges are, the practical thing to do is not for the present to trouble ourselves with utopian ideals, but to try to get back to that greater measure of practical stability of currencies and exchanges which was accorded us by the gold standard before the War. That is the direction in which to move. When you slip off a rock into the water, at any rate, get back on to the rock again before you begin to think of the path that you are going to follow in the future. With regard to the method by which that is to be done I have been asked what practical course can we suggest. The only practical steps which seem to, promise much, and which do promise greatly, are those steps which have been outlined by the recent Financial Commission which met at Genoa. I do not know whether the House is acquainted with the recommendations of that Commission. The very first of them shows that before that Commission of experts this question of the instability of currencies assumed first place. They report: That an essential requisite for the economic reconstruction of Europe is the achievement by each country of stability in the value of its currency, This very problem which has exercised us to-night was put in the forefront of the discussion as to the practical steps which are to be taken in order to secure stability. It is realised, and I am sure realised correctly, that measures in this matter can only be adequately designed and can only, probably, be efficiently carried out by the central banks of Europe. So the first step to be taken is to have a meeting of representatives of the central banks in order to devise what those methods should be. Various principles have already been agreed to and laid down as to the direction in which the central banks of Europe should move, in the effort towards stability. The first of them is the acceptance, in Resolution 5, of the principle that gold is the only common standard which all European countries can at present agree to adopt. Whatever we think of the theoretical basis of the gold standard that is the practical effect. It is probable that some countries are more advanced than others, but in general gold is the only acceptable measure of value throughout Europe. Further, the actual machinery by which it is hoped to carry out this movement in the direction of stability is based upon a return to the use of the gold standard. That must mean an International Currency Convention which must be designed to centralise and co-ordinate the demand for gold to avoid the fluctuations in value to which the hon. Member has referred

Mr. MALONE

Is this Convention going to be regulated entirely by the conference of bankers, or what, say, if any, will the Treasuries or Governments of the different countries have in controlling them?

Mr. YOUNG

Of course, the representatives of the central banks would simply act in their capacity of experts, with the normal relation of experts towards the effective authorities of the countries concerned. That is the programme of the compaign for that congress. I agree that that campaign should be left in the right hands, the hands which alone will be able to deal with the indications contained in this extremely important and valuable document giving an outline of what is the right way to take in going back towards the stability of the gold standard. We have to get back to that before we consider any fresh measures. Currency questions are all in that position. I must not discuss it any further except to add my word of confirmation to those opinions which have been expressed in the course of the Debate, that important and attractive, as all currency questions are at the bottom, you always get back to the same belief that currency difficulties are essentially a symptom, and the root evil of which they are a symptom, are that all over Europe, here and there national Budgets do not balance, all over Europe there is urgent necessity for the reconstruction of capital works in order to increase production, and all over Europe there is still urgent necessity for saving in order to husband our wealth for the reconstruction of the work.

Mr. GREENWOOD

I am sorry that I was not in the House to hear the whole of the speech of the hon. Member for the Ardwick Division of Manchester (Mr. Hailwood). I was anxious to find out what he had to say about two parts of the Resolution—one that in which he said that gold was of no value, and the other which stated that wheat was of constant value. But I think that the House should be grateful to the hon. Member for having raised this question, and given the House an opportunity to discuss what, in the minds of a great many Members, is a subject of very great importance. I am sorry that it does not evoke more interest among the general body of Members. I regret that the right hon. Baronet (Sir F. Banbury) should have disposed, as he thought, so easily of any arguments about the national danger such as were advanced by my hon. Friend. On the other hand, I would regret if we were to be in the position that it should never be assumed that any man should make any suggestion or bring forward any proposition, for two reasons; first, because of his youth, and second, because of the originality of his proposition. No one would say that a proposition with regard to currency brought forward by any hon. Member representing such an important constituency as the City of London should be considered as of no importance, and yet I would remind the House that, when we say that there is only one possible doctrine and that is the gold standard, I have heard an hon. Member who was a representative of the City of London put forward a suggestion which was almost as original, though it was not quite the same proposition, as that now put forward by the hon. Member for Ardwick.

I am not at all in agreement with those hon. Members who say that, because we have adopted that doctrine, therefore there is only one possible sound policy for this country to adopt, and that is to return at once to the gold standard, and that because we have been taught that as a creed therefore it is of necessity right. I was taught the creed when I was a child, and I was taught also other creeds about political economy and gold standards, but I am not so sure now that those lessons were so sound as I thought in those days. Since the War we have had in this country the opportunity of testing that particular doctrine which has been supported especially by the Member for Greenock (Sir G. Collins), who says that we must get back as quickly as possible to our pre-War standard of the value of gold. I am not so sure whether we have not been altogether too quick, after the devastating War which we have gone through, in trying to get back to that standard. In support of that argument I would refer to our position. The hon. Member for Central Edinburgh (Mr. W. Graham) assumed that paper money in this country can be exchanged for gold. That is not so—

Mr. W. GRAHAM

The point I was making was as to convertibility.

Mr. GREENWOOD

I think that the argument really was that the policy of bringing our paper issue nearer to the point at which it could be exchanged for gold would put us in a better position than the country which did not adopt that policy. What are the facts? The two countries whose paper issues is least in proportion to their gold reserve are the two countries where they have the greatest amount of unemployment. Take the United States of America. We have been told often that they have about 5,000,000 unemployed there. I have taken care to investigate the matter, and I am told that that is not so, and that the actual number of unemployed people in the United States of America at present out of a population of 100,000,000 is about 2,500,000. At any rate, their unemployment is nothing like as great as our own. But when we look on the other side of the Channel, to France and Germany, we find that the relation of their paper to their gold is much greater than the relation of paper to gold in this country. Yet they are in a considerably better position than ourselves with regard to unemployment. The proof of the pudding is in the eating. When people tell me that I am much better off, I would be inclined to believe it if I could see some positive proof of it. No one will suggest that the late Member for the City of London, the Earl of Balfour, who went to America and came back with such laurels, is a man whose opinion would be lightly held in this House. When he suggested a change in currency, many years ago, he was almost isolated in his views. I believe that if someone of great authority were to make a somewhat similar suggestion to-day it would be much better received than it was then.

Every new policy in its inception, or nearly every original proposal, is un- popular. It needs a man of great courage to preach any doctrine which has not been handed down from generation to generation. People are told that they should get back to the gold standard, the idea being that the supply of gold can be relied on, and that it is not likely to be so changeable as to cause violent fluctuations. If that is put forward as a sound argument why not carry it a bit further? Why not use something as a standard which is of greater value? Why not adopt diamonds? It may be said that it is an illusion to suggest that we could use wheat as a standard. There is, at any rate, something to be said for careful consideration being given to what is a question of paramount importance in the reconstruction of the world. The resolution declares that, if adopted, it would do away with many of the evils from which we are suffering. I should he very glad to support it if I thought it would. But I agree with the Financial Secretary to the Treasury that there is only one remedy. Fluctuating exchanges, I admit, are not a cause they are simply a symptom. The only remedy for our trouble is to be found in hard work and peace. We must have peace amongst the countries of the world before their currency can begin to be stable again. We must also have peace in our own industries. When so much work is stopped we lose a great deal of purchasing power for other industries. We must start at rock bottom if we are to get any decided improvement. I think we are making a grave mistake in assuming that there is only one way of remedying the evils connected with currency.

Could the Government not see their way to appoint a Committee to look into the matter carefully? They have appointed Committees to deal with questions of far less importance. When people are told they have a certain standard of currency, they would like, sometimes, to have a look at it. How many hon. Members here to-night could produce a sovereign? I question if there is a single one who has a sovereign in his pocket. [HON. MEMBERS: "Oh, yes!"] Then you are very lucky. I have not seen a sovereign for years, and I am very glad there is so much wealth on the Labour benches. I always thought hon. Members there were like myself, and seldom enjoyed the pleasure of seeing gold.

Surely, our standard ought to be something with which people are familiar. It is no use to say that gold is the standard in this country. It is not, but we see silver very often. The standard should be something of which the people have a real knowledge and which they can use as a commodity day by day in exchange for articles of everyday use. Our standard of measure is something everybody knows. No man needs to be told the abstract meaning of a "pint of fourpenny" or anything of that sort. There is something to be said for having a standard in currency which everybody knows and can use. I hope the Government will see their way to discuss once again the probabilities, the advantages, and, if you like, the disadvantages, of introducing a standard currency in silver along with gold. I believe if they did that it would help the flow of currency throughout the world. Remembering that the nation which did not subscribe to the proposals at Genoa—and these, we are told by the Financial Secretary, represent the last word—is the nation that has control of the greatest quantity of gold in the world, there is something to be said for giving the other nations of the world a chance to decide what their currencies shall be.

Major BARNES

However discouraged the Mover of the Resolution may be, by the fact that very few Members of the House will be found to agree with him, I think he will find a great deal of consolation in the thought that at all events the disagreement has been of the most courteous kind, and everybody has recognised the sincerity and ability with which he has advanced the theories embodied in his Resolution. I think he will find still greater consolation in the fact that in introducing this Resolution he has enabled us to have a very interesting and useful anticipatory Debate upon what happened at Genoa. The House is indebted, not only to him, but to the Financial Secretary for bringing that aspect of the matter so clearly before us. The Financial Secretary paid a tribute to the hon. Member by saying that, while he disagreed with the methods he proposed, yet in the Resolution he had put his finger upon a matter of the greatest moment at the present time. How true that statement is, one can see by comparing the Resolution of the hon. Member with what is reported in the papers relating to the International Economic Conference at Genoa with respect to this very question of currency. The Mover of the Resolution was, of course, more concerned with the domestic affairs of his own country, and very properly so. At Genoa, there met a body of men, concerned not with relieving their own particular countries of these distressing factors, set out so categorically and so strikingly in the Resolution, but who were concerned with the question of the whole economic reconstruction of Europe. While differing as to method from the hon. Member, they came to the same conclusion that he has come to,i.e., that this is only to be attained by the achievement in each country of stability in the value of its currency. If I read the first Resolution, hon. Members will see that it graphically expresses that. It says: The essential requisite for the economic reconstruction of Europe is the achievement by each country of stability in the value of its currency. Those words, "economic reconstruction," are dry and academic words, and they do not bring forward the situation in the picturesque and dramatic way in which the series of words that has been used by the hon. Member opposite does. He does not speak about "economic reconstruction," but of all the evils that befall a country that is in the position of needing such a reconstruction—" strikes, lock-outs, unemployment, distress, speculations," and the rest. The Mover of the Motion has more courage, and perhaps more imagination, than the bankers who met at Genoa, and he sets out in a very few lines what they felt it necessary to set out in some three or four pages, and one cannot but wish that he was right, and they were wrong, because he opens out to the House a very short and what seems, on the face of it, an easy road, whereas when one reads through these resolutions and realises the programme laid before the world by the Genoa experts, one feels that the happy day we all want to bring about is very considerably in the future. We were favoured by the Financial Secretary to the Treasury with one or two extracts from these Resolutions, and I think no disservice would be done to the House at this time by bringing more of them to its notice. Some of the most pertinent of them are those which were omitted and not those quoted by the Financial Secretary. Here is a Resolu- tion. I do not know whether the right hon. Baronet the Member for the City of London (Sir F. Banbury) has read it.

Sir F. BANBURY

I said nothing about Genoa. I thought it would have been out of order to have done so.

Major BARNES

I gather that in this case the thoughts of the right hon. Baronet in regard to the rules of order were not as accurate as they usually are. The first Resolution I have here will, I am sure, meet with the whole-hearted assent of the right hon. Baronet. It says: So long as there is deficiency in the annual Budget of the State which is met by the creation of fiduciary money or bank credits, no currency reform is possible and no approach to the establishment of the gold standard can be made. The most important reform of all must therefore be the balancing of the annual expenditure of the State without the creation of fresh credits unrepresented by new assets. The balancing of the Budget requires adequate taxation, but it Government expenditure is so high as to drive taxation to a point beyond what can be paid out of the income of the country, the taxation itself may still lead to inflation. Reduction of Government expenditure is the true remedy. The path marked out by this Resolution is a stoney one, and can only be trodden with very great difficulty indeed, for it involves what these gentlemen at Genoa tell us—a reduction of Government expenditure. In dealing with this question, we have an advantage, and it always is an advantage, which has never been more completely and properly recognised in this House than by the Financial Secretary to the Treasury to-night, when he referred to the speech made by my hon. Friend the Member for Central Edinburgh (Mr. W. Graham). In that speech, which, I think I may say, disposed pretty effectively of the ideas advanced, and the arguments employed, by my hon. Friend opposite, my hon. Friend the Member for Central Edinburgh referred to the very important part played by the banks of the country with regard to this matter of currency. In drawing attention to that fact, without having had the advantage of seeing the Resolutions that are embodied in this Report from Genoa, he was drawing attention to what these Resolutions have certainly very strikingly set out, and that is the enormous part which banks at present play with regard to this matter, and which, if these Resolutions be carried out, must be a much greater and more important part still. It is held out to us here that, so far from being able to achieve reform in our currency by merely changing our gold to wheat, we can only do it by very considerable extension of the present organisation existing amongst banks.

Somewhere, quite recently, I saw attention drawn to the fact of the great reduction in the number of private and competing banking houses in this country. At the present time, I believe not more than five or six really control, at all events, the internal banking transactions in the country. Under these Resolutions, it is suggested that we shall never really get any stability in exchange, any really constant relationship between the currency of one country and that of another, unless there be something in the direction of an international organization established, and that the great part which this organization is to play is in the direction of centralizing and co-ordinating the demand for gold. There has been recognised, what has been pointed out by my hon. Friend opposite in moving his Resolution, that there is fluctuation in the value or the price of gold, and that that fluctuation leads to results which it would be as well if we could avoid. Steps are evidently going to be taken to meet that, so far as possible. I do not know whether that means that there is to be a corner in gold, as there has been sometimes a corner, or attempted corner in other commodities; but if that be the real meaning of this, one can see that it would, of course, have the effect, as a successful corner must always have the effect, so long as it can be maintained, of maintaining prices at a regular level, and the result attained by this operation on the part of this international Convention supported by all these banks might be attained with regard to gold. Whether that will not carry with it some disadvantages as well as advantages remains to be seen, but I would like, before leaving this point, to draw attention to another statement which has been made, and in which, I think, there is a good deal of truth, and that is that fluctuations in prices are not conditioned solely by questions of currency. They are also affected by the expansion and contraction of credit which is in the power of the banks. Currency does not appear to me to be under any different law than commodities in this respect. The more commodities there are in a free market the cheaper they are. The more currency there is issued the cheaper it will be. But if you restrict your currencies and at the same time allow indefinite expansion of credit by the banks, I think it may very well be that you will still be exposed to these fluctuations in prices. That this is recognised will be seen by reference to the Eleventh Resolution of this Conference, which in paragraph 7 of the Resolution says: Credit will be regulated not only with the view of maintaining the currencies at par with one another, and also with a view to preventing undue fluctuations in the purchasing power of gold. It is not contemplated, however, that the discretion of the Central banks should be fettered by any definite rules framed for this purpose, but that their collaboration will have been assured in matters outside the province of the participating countries. I must confess I was a little surprised to find that with the hon. Member's knowledge of what took place in respect to tithe he still adhered to his position. I should have thought very little study of what had occurred with respect to tithe would have convinced him that his proposal is not one likely to achieve the end at which he aims. What was the condition—what is still to some extent the condition—in respect to tithe? Here was a class of people whose income was based on that condition in which the hon. Member opposite would like to see all our incomes based, and that is on wheat, not gold. The income did not fluctuate with the production of gold; it fluctuated with the production of wheat. If wheat prices rose or fell, their incomes rose and fell. They were in that happy state, and as a body they were in a position, one would suppose, to know what was best. I refer to the clergy. What did they do? Under the Tithe Commutation Act they endeavoured to put an end to the principle upon which their income was based, and to stabilise it by fixing on a certain year and saying that their income should be based on the income of that year. During the War what happened? The price of wheat, rising as it did, brought their incomes up to a very high level. What did this House do then? It was against—

Mr. SUGDEN

They patriotically accepted the decision of this House.

Major BARNES

I quite agree with what my hon. Friend has just said. I think the tithe owners accepted with trustworthy loyalty the decision of the House. It was accepted by them, although it was felt to be a hardship. The point I was making is that this section of the community had their incomes based on the principle laid down in this Resolution, and so far getting away from fluctuations you had fluctuations of so serious a character that on three occasions Parliament had to intervene and deal with them. For these reasons I regret that I am unable to give my support to this Motion.

Sir MARTIN CONWAY

It has been the attempt of mankind ever since the dawn of civilisation to find a method of measuring things, of measuring time, space, weight—measuring everything—and a wise man has described science as measurement. The attempt to measure value has been one of the most difficult problems mankind has had to face, and man is always endeavouring in every respect in relation to every category to get some system of absolute and accurate measurement. We have been under the impression that a two-foot rule was a fairly absolute basis of measurement of length until Einstein came along, and he has shown that a two-foot rule is only a relative and not an absolute basis of measurement.

We have tried to measure value in all kinds of ways. The simple herdsman, in the ancient world, took the ox as the unit of measurement, and I have read an interesting work by Professor Ridgeway, in which he endeavours to show, and I think has shown, that the original basis of coinage in the ancient Greek world was the value of an ox. That was the unit of value adopted by early civilisations. My hon. Friend is desirous of going back to something of the same kind as that on which the original basis of coinage was fixed, and instead of measuring by an ox, he is going to measure by a quarter of wheat. The African savage measures by cowries.

My hon. Friend, in introducing this question this evening, has been actuated by a very natural human desire, and that is to find something that will measure value, that will have less elasticity, less stretching power than any basis of value at the present time employed. If our two-foot rule was a piece of elastic, which could contract, it would seriously upset the survey of our fields, and that is the kind of thing that would happen when the value of our money changes so rapidly and so widely as it has done in recent years. If we were to substitute the new unit, the new measuring stick, as suggested by my hon. Friend, I gravely doubt whether it would have the effects he claims for it. However, I think we may be thankful to him for proposing the problem and leading us to consider and on the whole to reach broadly the general conclusion that no substance has yet been found which affords a more stable, though still a shifting, basis for the foundation of measurement than gold. All measures are relative. Whatever you use for your measuring stick, in a changing world, is itself a changing thing. The more rapidly the world about us changes, the more certainly will your measuring stick change. If you wish to have a stable system of measurement you must get into a stable world. Your system of measurement in this changing world will keep on altering its value. You are living in a world in which nothing is stable. If you are to have stability in measurement you must have stability in the things you measure. You can only reach that stability in a world by the exercise of old-fashioned virtues, hard work, saving, honesty, kindliness one to another, common co-operation for a common purpose, the sharing of work and the sharing justly of the results of labour; and in proportion as you exercise these virtues so in proportion will our world once more become stable and our instrument of value measurement will become stable with it.

Captain MOREING

The hon. Member who drafted this Resolution appears to have been labouring under a misapprehension in that he thinks our currency troubles are caused by having a gold standard, whereas they are caused by the fact that our paper currency is not linked up properly with our gold currency. If it were, the fluctuations would be well within the ordinary issues with which the trade of this country is capable of dealing. I would remind the House that all these attempts at restor- ing prosperity by monkeying with the currency have been tried by every nation after every war. The universal experience of the world has shown that you cannot re-establish the prosperity or stability of any country unless and until your currency is based upon an article of relative stability, such as gold. As the last speaker has very truly said, all measures of value are relative, and we cannot find any absolute standard.

In conclusion, I should like to ask the hon. Member for Ardwick (Mr. Hail-wood) one question. Does wheat fluctuate in terms of gold or does gold fluctuate in terms of wheat? If my hon. Friend can answer that we shall have got to the basis of the whole question.

Mr. MILLS

Practically every hon. Member will join in thanking the hon. Member for Ardwick (Mr. Hailwood) for bringing forward a Resolution of this character. We have drifted very far from the mentality of the immediate post-War period, and within the last few months hon. Gentlemen with a big reputation in the commercial world who have come to this House and have made suggestions for varying the standard of value from gold to silver. Now we have a Resolution suggesting some other standard of value by which we might approach something like stability. I was amused at the remarks of an hon. Member opposite for English Universities (Sir M. Conway), who concluded a very learned dissertation on the beginnings of values by dragging in by the scruff of the neck, if I may say so, the latest development of the theories of Professor Einstein. He wound up with a most inane disquisition—if I may say so without offence—as to some method by which world values might be stabilised. He is apparently of the opinion that international value might be stabilised if only there were international goodwill, regardless of the fact that even with international goodwill we might still have a standard of value which would yield profit to one race and not yield a subsistence value to the people of another race. It seemed to me, from these disquisitions, that the end of his speech was far from being of the quality of its earlier portions.

I think if we could devote a couple of evenings to a Resolution such as this, and have the views and opinions of some of those people who have secured high prominence in the councils of this and past Governments, it would be of great value. Equally we might have the views of an eminent hon. Member of this House, an eminent banker, who circulated to every hon. Member his opinion on currency and exchange. In the course of that pamphlet he says, I think, that one damned fool can sell and buy one hundred times more in one year than the finest salesman in the world can sell in 12 months. That may be perfectly true, but when we are attempting to secure some understanding of what it is the world is wanting, I think that to ask us to commit the House in a Resolution brought forward at 8.15, carrying with it, as it does, all its vast implications as regards this particular theory of values, is really requiring DS to do something more than we ought to be called upon to do. Although I am a layman in the matter of finance, I do not intend to perpetrate the old atrocity about knowing more about the need of finance than the art of finance, but I do say that it seems to those of us who come to this House with some real endeavour to understand exactly what it is that makes so much difference to the values of the world, and makes so much mischief in the relationships of the peoples of the world, that, if we could have some light thrown upon causes by those who move, not only among Governments, but among world bankers and world aggregations of labour, we might be able to move towards such an atmosphere of enlightenment that we could pass a Resolution which might commit us, not to something that would be suicidal, but to something that would ultimately lead us out of the morass in which we are at present. There is no doubt that we are in a morass. In one week of six days, in a city where I was last year, I saw the value of the coinage depreciate from 6,300 marks to the £ to 9,800, and by November of the same year it had depreciated to 26,000. In circumstances Mice that, it is obvious that there must be some discussion and some solution, if we are ever to get back to conditions in which one country can trade with another. At the present moment, if a British mechanic went to work for no wages at all, the employer could not compete with Eastern Europe, although many employers, taking, so to speak, the line of least resistance, without attempting to put pressure upon those who can control international currency, turn round and, by the process of starving and gradually reducing the standard of living of their own workmen, feel somehow, in some stumbling way, that they are doing something to come into line with the cost of production in other countries, where it is known that the war conditions have practically made chaos of the whole of the pre-War currencies, which worked, if one may say so, with incredible smoothness before the War. For these reasons, I do not feel that one can support this Resolution, with all its implications, although I welcome the opportunity of debating it, in the hope that at some time or other we may have the opportunity of adopting a Resolution which, after all, will lead us along that line of thought; and that, if it be stimulated in this House, will do every hon. Member a lot of good.

Question put, and negatived.