GOLD STANDARD BILL.

HC Deb 04 May 1925 vol 183 cc602-704

Order for Second Reading read.

The FINANCIAL SECRETARY to the TREASURY(Mr. Guinness)

I beg to move, "That the Bill be now read a Second time.".

To the large number of Members of the House who are familiar with the working of the exchanges, the need for a Gold Standard Bill—in view of the important statement made by the Chancellor of the Exchequer last Tuesday—needs very little explanation. But there may be other Members, like myself, who are not so familiar with its mysterious working, and whose lack of technical knowledge may benefit by a brief explanation of what it is this Bill sets out to do, and why its early passage is imperative in the interests of our exchange position. The House will remember that the free export of gold is forbidden under the Gold and Silver (Export Control, etc.) Act, 1920, until the end of the current year. The Bill which we are considering to-day does not re-establish that free export, but it makes the necessary provision for protecting our gold reserves and exchange position, in view of the new situation which is now being developed. The Currency Note Committee, whose Report was circulated a week ago, endorse the opinion of the Cunliffe Committee against the proposal for an early resumption of internal circulation of minted gold, and they say that. Any considerable flow of gold into domestic circulation would thus necessitate imports of the metal which would place an unnecessary burden on our foreign exchanges in a very difficult period. We are of opinion that the use of gold for domestic circulation is a luxury which can yell be dispensed with, and which we are, in fact, at any rate during the next few years, not likely to be able to afford. During the continuance of the embargo on gold exports, there was, of course, no object in taking notes to the Bank of England and claiming gold, because the gold had no greater value than notes for internal purposes, and it could not be turned to profit by exporting to take advantage of the exchanges. In present circumstances, we want to husband our gold reserves, and we cannot allow them to go into circulation.

4.0 P.M.

Clause 1 of the Bill lays down certain conditions in connection with the suspension of the issue of gold coins. The first two sub-paragraphs provide that neither Bank notes nor Treasury notes shall, pending the issue of a Royal Proclamation, be payable on demand in gold coin. Sub-section (1,c) suspends the present right of any person to go to the Mint and tender bullion to be coined. The present Sub-section proposes that during the period of the preceding Sub-section the Bank of England will be bound to sell gold in amounts not less than 400 ounces, fine, in bars. That is, they will not sell it in coinage, which is eleven-twelfths fine; they will sell it in bars of, approximately, the same size as the fine gold bars which now come from South Africa. As an ounce, troy, of gold is worth £4 4s. 11½d., the House will see that gold will be saleable by the Bank in units worth just on £1,700, and the size of the bars, quite apart from any other reasons, will prevent this proposal being used for bringing hack gold into general internal use, and no inconvenience is anticipated from such a limit, so far as export purposes are concerned.

The House may be interested to know that there is historical precedent for these particular proposals. From 1797 to 1821 the convertibility of Bank notes in this country was suspended, and the resumption was brought about by methods closely parallel to those contained in this Bill. The Act of 1819, which made arrangements for terminating the restrictions on the internal circulation of gold, provided for the sale of gold in 60 ounce bars of standard quality, and the prices were to fall in three stages. As a matter of fact, within a very few weeks of that Act passing the exchanges were again at par, and gold was quoted at the coinage price. The result was that out of the 1,000 bars which were prepared under this Act only 13 were actually sold. When this quick development took place, a further Act was passed, under which payment in coin was ante-dated two years from the original proposal, and took effect in May, 1822. Our problem today is, we believe, much easier, because we are not taking action until parity has already been virtually re-established.

The second Clause in the Bill gives power to the Treasury to borrow for exchange operations. The credits under this Clause are to be raised during not more than two years from the passage of the Bill, and any credits raised must be repaid within two years from the date of issue. Though the Clause widens the powers of borrowing money, it does not increase the total amount of money which may be borrowed. Any sums which are raised under these powers must come out of the usual provision for borrowing up to the total of the Supply Services for the year which appear year after year in the Appropriation Act. Under these arrangements, two credits have been already conditionally negotiated. First, there is a credit which has been arranged with the Federal Reserve Bank of New York, who have undertaken to give the Bank of England a revolving credit of 200,000,000 dollars for two years from the 10th May or the date of the British Government guarantee, whichever date is the latest. Then there is a second arrangement with a Syndicate headed by Messrs. J. P. Morgan. That is for a revolving credit of 100,000,000 dollars, also for two years, to His Majesty's Government direct. The interest in each of these cases is to be paid as and when the credit is drawn on at 1 per cent. above the Federal Reserve discount rate, with a minimum of 4 per cent. and a maximum of 6 per cent., or, if the Federal Reserve discount rate exceeds 6 per cent., then at the Federal Reserve discount rate. The House will therefore observe that if we do not use these credits no interest will be paid, and, in the case of the Morgan Loan open to the British Government, there will merely be a very small commission on the right of call on the money.

I do not think there is really any other point in the Bill Which needs any reference, and I hope the House will decide that, in view of the urgency, the Government must be given this Measure without any undue delay. It is really rather difficult to follow the mutually destructive arguments which have been advanced from the opposite side of the House on this subject. The right hon. Gentleman the Member for Shettleston (Mr. Wheatley) fears a return to the gold standard on the ground that it might lead to a higher Bank rate, and, in his opinion, a higher Bank rate would cause higher prices. We hope that there is no real danger of any such effect on the Bank rate, but, even if he were right, we believe that the result on prices would be the exact opposite from what the right hon. Gentleman has suggested, because it is both in accordance with all the accepted theories on the subject and also with the recent experience in this country and in the United States that a rise in the Bank rate is immediately followed by a fall in wholesale prices.

Mr. SNOWDEN

No, quite the opposite.

Mr. GUINNESS

As I say, it has been the experience just lately. I agree that not all the hon. and right hon. Gentlemen opposite endorse the views of the right hon. Member for Shettleston On the contrary, some of those who sit on the front Opposition Bench now fear that a return to the gold standard may aggravate unemployment and trade depression. There might be some argumentative ground for this view if any serious difference could be shown between the prices for our articles and for those in the United States. But, even so, the case would not be proved, because it might well be that the necessary adjustments in price levels might take place by a rise in United States prices instead of by a fall here. But I am assured by those who are experts in this matter of price levels that there is no real evidence of a difference in prices such as to justify these very serious fears of price readjustments in this country in response to price levels in the United States. I want to mention this matter, because only last week, in answer to a question by the hon. Member for West Leicester (Mr. Pethick-Lawrence), I gave the index figures of the British Board of Trade and of the United States Bureau of Labour.

Mr. PETHICK-LAWRENCE

No, the right hon. Gentleman did not give any figures; he left it to the President of the Board of Trade.

Mr. RUNCIMAN

The right hon. Gentleman gave us, I think, the "Economist" figures.

Mr. GUINNESS

I am sorry. It is quite true that on the basis of those figures there is a small discrepancy. But those figures have been steadily tending closer and closer together, and it is necessary to remind the House that they are not compiled on the same basis. The Board of Trade figures cover 150 commodities, whereas the United States figures cover 400 commodities, and the weighting of the components of these indices is very different. Allowing for these variations, we believe that the difference in price levels is so small, even if it exists at all, as to be consistent with the view that we have already reached the stage of purchasing power parity.

I only want to say one word more. It does seem to me that in this controversy there has been a false contrast drawn between the interest of the banker and the interest of the trader. I believe that taking the long view it will be found that the producer of this country has a greater amount to gain by getting back to the security of a gold standard than the banking interest itself. What the producer now needs, above all things, is confidence. Production is not affected merely by the actual falls in prices, but also by uncertainty on the part of producers lest prices may fall still further. Many manufacturers are concerned much less with the ills that they have than with the ills that they know not of, and we believe that there is really no reason to fear that as a result of this Bill there will be any serious move of prices either way from the present level. When, on the other hand, our currency is definitely related to gold, producers will get the inestimable boon of a greater stability in the exchange value of their currency without the trouble, the danger, and the expense of having to pay for the insurance of their exchange. We believe that they will then be able to make their contracts with the confidence which they lack so much at the present time, and that prices will not seriously diverge from the general and stable movements of,international gold prices throughout the world.

Mr. SNOWDEN

I beg to move to leave out from the word "That" to the end of the Question, and to add instead thereof the words this House cannot at present assent to the Second Reading of a Bill which, by providing for a return to the gold standard with undue precipitancy, may aggravate the existing grave condition of unemployment and trade depression. I do not count myself among the large number of Members of Parliament who know all about the theory and practice of foreign exchanges, and are familiar with the operations of the gold standard. On the contrary, I approach the consideration of this question with the utmost diffidence and the deepest humility. I think that those who know most about it are aware that it is an abstruse, difficult, and complex question, full of obscurity, and subject to the inter-play of conflicting elements. He would indeed be foolish who would dogmatise upon the subject, and I am certainly not without hope that I shall escape, in anything I say, a charge of that kind.

I wish to give the reasons which have actuated my hon. Friends and I in placing our Amendment upon the Order Paper. We do not, by this Amendment, oppose a return to the gold standard. Our contention is that the Government have acted with undue precipitancy. We realise, of course, that the action which the Government have taken is irrevocable, and that the House of Commons is not likely to upset the decision which the Government have made. The responsibility for that decision rests with the Government. By this Amendment, however, we register our protest against haste in the matter, and we altogether dissociate ourselves from any unfortunate or disastrous consequences which may result. I should like to make this further point: The right hon. Gentleman the Financial Secretary to the Treasury, in his speech, told the House that under the Gold (Export Control) Act the re-export of gold is prohibited. I am quite aware that there is a provision allowing the Bank of England to issue special licences, under exceptional circumstances, for the export of gold; but I think it will not be denied that the House of Commons, in passing that Bill, took to itself the right to say when the return to a free market for gold and the gold standard should again come into operation. I venture respectfully to submit that the Government in taking this irrevocable action have taken a decision which removes the question out of the hands of the House of Commons. In effect, therefore, the Bill to which we are now asked to give a Second Reading is an Indemnity Bill to protect the Chancellor of the Exchequer from the legal consequences of his unconstitutional action. The action which the Chancellor has taken is an accomplished fact.

I do not want to avoid any responsibility which I may have in this matter, for it is perfectly true that a return to the gold standard at the earliest possible moment has been the declared policy of successive Governments. More than once during last year, on behalf of the then Government, I made declarations to this House to that effect, and I stand by what I said. We are in favour of a return to the gold standard at the earliest possible moment, but we do not believe that this is the earliest possible moment that such a step should be taken, having in view the grave and serious consequences that may ensue. It is our opinion that this policy has been pursued with too great rapidity. The mischief was done before the beginning of last year.

Since the Report of the Cunliffe Committee the Government and the Bank of England have begun a policy of very rapid deflation, in the course of which, few people will dispute, there have been very serious consequences. It has ruined thousands of businesses, and it has greatly enriched those who were the holders of fixed interest bearing securities. It is in a large measure —certainly, I would not be so foolish as to say wholly—responsible for the grave trade depression and the wide spread unemployment that we have had during the last three or four years. We fear that this precipitate return to the gold standard may have similar consequences, though not, of course, to the same extent. A return to the gold standard was inevitable sooner or later. I give credit to the Government for having imposed almost every safeguard in order to strengthen the new situation and avoid serious consequences, but I should like to have an explanation on this point: The right hon. Gentleman, in explaining the Bill, drew the attention of the House to Sub-section (2) of Clause 1, which reads: So long as the preceding Sub-section remains in force, the Bank of England shall be bound to sell to any person who makes a demand in that behalf… and so on. That is to say, the Bank must buy unlimited bullion. But Section 4 of the Bank Act, 1844, compels the Bank of England to buy gold, and to buy it in unlimited quantities. There is no proposal in this Bill for a repeal or suspend- sion of that Section. Why that safeguard has not been taken by the Government I cannot understand, especially in view of the paragraph in the Report of the Committee on the Currency and Bank of England Note Issues. Paragraph 42 of this Report says: Any considerable flow of gold into domestic circulation would thus necessitate imports of the metal, which would place an unnecessary burden on our foreign exchanges in a very difficult period. If that paragraph means anything at all it means that for some time to come the flow of gold into this country will be disastrous or may have an injurious effect upon the maintenance of the exchange. I know there are a great many people who are in favour, in theory, and sometimes in practice, of a return to the gold standard, but who fear that, owing to the heavy reserves of gold in the United States, there is the possibility that this country may be flooded with American gold. The Committee, in writing this paragraph 42, appear to have had a danger of that sort in mind. There is nothing at all to prevent it taking place, provided the difference in gold points makes it profitable to do it. Therefore I cannot understand why the Government have not taken the further safeguard of suspending Section 4 of the Bank Act of 1844. The Chancellor of the Exchequer, in his speech the other day, mentioned with evident pride that the Treasury had been quietly, surreptitiously almost, buying dollars, and that already they had sufficient to pay the next two instalments of the interest on the American Debt. I really do not see why that should have been done. It shows a lack of confidence in the proposals the Government are now submitting to the House. Surely it would have been cheaper to buy the dollars when sterling was at par than to buy them when sterling was at a discount. The right hon. Gentleman suggested that this purchase of dollars had been made in order not to disturb exchange after this new plan had begun to operate.

The CHANCELLOR of the EXCHEQUER (Mr. Churchill)

Not to overburden.

Mr. SNOWDEN

Well, overburden. Surely the exchange in this country was burdened to just the same extent when those dollars were bought? Therefore, it seems to me, instead of this being an advantage to the Treasury, it is a disadvantage, and that we have lost very considerably by the transaction. I assume that certain safeguards which the Government have made are likely, to some extent, to lessen the danger, but I do not think they are likely to remove it altogether.

A return to the gold standard could have been made at any time during the last five or six years, provided we had been willing to pay the price. Therefore, the crux of the whole matter we are discussing this afternoon is this, has the time now come when it is worth while to run the risk and pay the price? If I may venture to express an opinion which is purely nay own, I would say this: I believe so strongly in the ultimate advantages to be derived by the establishment of stable exchanges that it might almost he worth while to run some little risk, even to incur some short, temporary disadvantage, provided we knew it were going to be temporary only, and small, in order to get the later compensations from the establishment of the stable exchanges.

It seems to me there are no means of maintaining parity of exchange except by establishing the gold level prices in this country at no higher level than in any ether country. It is at this point the danger lies. The right hon. Gentleman said that when you have taken, everything into consideration, probably there is not much difference, if any at all, between the gold level prices in this country and in the United States of America. I know it is a very difficult matter, because, as the right hon. Gentleman said, in one case a larger number of commodities enters into the index number, and there are various other factors which make it unwise to take the surface figures, or the surface differences, as representing the actual differences. These are constantly varying. They have varied considerably during the last 12 months.

If we take the index figures, disregarding for a moment the other factors, and reduce them to a gold basis, we find that a year ago last February prices were higher in the United States than they were in this country. They have varied considerably each month. The latest figures I have refer to February, though I believe later figures were given last week to an hon. Member for one of the Leicester constituencies. The figures for February, 1925, when converted to a gold basis, showed a difference of seven points between this country and the United States of America, prices being higher in this country. I am afraid, even making due allowance for the differences to which I have referred, that I cannot accept the statement made by the right hon. Gentleman that at the present time there is practically parity, on a gold basis, between the prices in this country and in the United States of America. I think it is much more likely there is a difference of something like 5 per cent. I know that what I am going to say may prejudice my case for this Amendment, but I was born with a faculty for seeing both sides of a question, and I have been accustomed to exercise it. I know that higher prices, that is higher internal prices, may be a disadvantage in certain conditions. Lower prices in America are, of course, an advantage to the importer in this country, and we import two commodities from the United States in huge volume—raw cotton and food. Food is just as much a raw material of manufacture, it enters into the cost of the manufacture, as is any other raw material. In so far as the export trade is one which has been built up upon imported raw materials, it may be said that what the exporter loses on the swings, he gains on the roundabouts.

Until the level of gold prices has been established, and the gold standard works automatically, some such devices or other as the Government proposes to take may have to be maintained. What do they propose? They propose to prohibit the circulation of gold coinage, and, apart from other considerations, I have not the least objection to make to that proposal. I have always agreed with Ricardo that the ideal form of currency is paper, with a sufficient gold backing. Their second proposal is to discourage foreign loans. There again, apart from the effect of foreign borrowings on the London market on the Exchange, I think there is much to be said at the present time in favour of the restriction of foreign borrowing in this country. During the last 12 months we have had very large foreign loans placed on the London markets at a most attractive figure, seven to eight per cent. What is the effect of that? To make borrowing for our own purposes dearer still. We are giving a benefit to the foreigner at our own expense. Therefore, I do not oppose, indeed I support, that part of the Government's proposal. In regard to the issue of foreign credits, the right hon. Gentleman explained what is embodied in the Government's proposal, but the actual figure is not mentioned in this Bill. There is no figure of any Bank of England loan or Government loan. I would like to draw attention to the fact that a Clause in this Bill and in the Financial Resolution to be submitted later gives to the Treasury the power of unlimited borrowing.

Mr. CHURCHILL

Up to the Appropriation Bill.

Mr. SNOWDEN

That is to say, you will have to come to Parliament. But I think, as this Bill is put forward, it would have been as well if the Government had stated the amount and limited the amount. However, that is a matter we must discuss when the Bill gets into Committee. By this device the Government admit the danger which we fear, and which we express in our Amendment, and it is a danger which is very widely felt indeed. At the annual meetings a few weeks ago the chairmen of all the great banks all devoted their speeches to this question of the return to the gold standard, and they expressed doubts about taking hasty or precipitate action in the matter. The Chairman of the National Provincial Bank said it might be necessary to protect our stock of gold by such high rates for money as would hamper our industry and militate against the proper development of our commercial interests both at home and abroad. And there are almost a dozen paragraphs in the report of this Currency Committee which express the same fear. May I call the attention of the House to one or two of them. Paragraph 13 says In these circumstances"— The preceding paragraph had been dealing with our visible and invisible exports— In these circumstances a free gold market could readily be established and maintained at the pre-War parity, provided that by control of credit we adjusted the internal purchasing power of the £ to its exchange parity, and restricted our foreign investments to our normal export surplus. The whole of the next page of the Report is dealing with the same point, expressing the same fear, hinting at the same danger, and saying that the same remedy may have to be applied, namely, an increase in the Bank rate. Of course, it may happen that American prices will rise, and by that means we may get a level of gold prices. For the sake of the success of the scheme on which the Government has now embarked, I hope that will take place, and then I think all danger will have passed. But it may be there will be a still wider disparity, to our disadvantage, between the gold prices of this country and the United States of America, and then the dangers we fear will certainly happen, and we shall have trade depression, a higher Bank rate, more unemployment—just that state of things expressed in the fears uttered by the chairman of the National Provincial Bank. We believe that it would have been better to wait just a little longer in the hope that the gold prices might have reached a state more consistent with the normal operations of trade. I know what the answer to that is, and I shall probably be told that the exchanges might slip back. What is mainly responsible for the variations in sterling during the last two or three years? There are a number of causes, and one is a belief that we were going to return to the gold standard some time. I do not believe, however, that anybody expected that the announcement would be made so soon, and, therefore, if the expectation to return to the gold standard at the earliest possible moment had been kept alive the same psychological influences would have continued, and they would have prevented the exchange slipping back.

I have already expressed my personal opinion as being strongly in favour of a return to the gold standard. It is quite true that the exchanges have during the last few months been maintained at rather a remarkable strength, but it has been more by accident. The difference between a managed paper currency and a gold standard is that in favourable circumstances a managed paper currency might act all right, but you have no assurance that it may not slip back, whereas the gold standard gives you a sure anchorage; it works automatically, and you can never get more than a slight variation between the gold point. I am not going to say that the gold standard is the last word on this question of the basis of exchanges at all. It may be that in the future, when men are much wiser than we are, some new standard will be devised, but there is nothing in going back to the gold standard which prejudices any further consideration of an alternative standard. As Mr. McKenna said in one of the speeches to which I have referred: One great argument in favour of the gold standard is, and will be for a long time to come, that nine people out of ten believe it is the best thing. May I quote a further sentence from Mr. McKenna's speech? He said: At the present time there is no single nation, so far as I know, which is now off the gold standard that does not regard a return to it as the most desirable of all financial measures. The only point between the Government and ourselves is as to whether the Government are acting wisely in taking this irrevocable step at the present moment. These proposals will need the co-operation of all nations an order to be successful, and perhaps when other nations see that it has been done in this country they will offer us their co-operation, and if that can be secured then the danger we fear may not arise. As I said at the beginning of my speech, there is a great deal of uncertainty and obscurity in this Measure. Of course, no one can say definitely what is going to happen, but, at any rate, after having pointed out the dangers, I will conclude by expressing the hope that our fears will not be realised, that a return to the gold standard will be a success, and that it will prove to be something which will tend to stimulate the trade and the commerce of this country.

Sir ROBERT HORNE

I confess that I approach this complicated, vexed and confused question with just as much tremulousness as the late Chancellor of the Exchequer said he approached it. I am perfectly certain that there is room for many different points of view in connection with it. The late Chancellor of the Exchequer stated in the course of his speech that he had always had the difficulty, since he was a child, that he saw both points of view with regard to most questions, but I think he has now acquired another habit which is one of expressing both points of view. Indeed, at the present time he is heroically and skilfully playing a double role at the same time because he is compelled to act the part of a responsible ex-Chancellor of the Exchequer who may again occupy that eminent post, and at the same time he has to adopt the role of a dashing leader to the financial criticisms of those who sit behind him.

The author of the document in which the nationalisation of the banks was strongly advocated has come down to this House on a Budget day and he congratulated my right hon. Friend upon the orthodoxy he has shown in dealing with financial questions. The same Chancellor of the Exchequer, who has commended so highly the result of paying off debt in the enhanced credit of the country to-day, has let himself loose upon the very policy which achieved these laudable results, and it is the same statesman who to-day deprecates the precipitancy of the action which is being taken, when only a few weeks ago he wrote an article in the "Observer" which undoubtedly seemed to all of us to enjoin the very course which the Government has taken.

Mr. SNOWDEN

I quite expected that that article might be brought up in judgment against me. I read that article very carefully this morning in order that there should not be one word of inconsistency between that article and what I have said to-day.

Sir R. HORNE

I do not know how the right hon. Gentleman is going to reconcile the views expressed in the terms of the Motion he was going to put before the House with the views expressed in the article to which I have referred, because here are some of the things stated in that article. He said: The maintenance of the gold standard may for a time present some difficulties. But they are small compared with the evils from which the world is suffering as a result of unstable and fluctuating currencies. I am sure everybody will regard that as a suggestion that the time was ripe amongst these unstable and fluctuating currencies to remove one of them. His point of view is made even plainer later on in the article, where he says: There are risks, but these risks must be run for the sake of the benefits which success would bring. It is urged in some quarters that we should wait until the adverse trade balance has been reduced. Of course, there is no doubt in effect that what militates against the adoption of the gold standard is an adverse trade balance. The right hon. Gentleman, however, goes on to say: It is uncertain whether our visible adverse trade balance is a real adverse balance. But, in any case, the stabilisation of the currencies need not wait for the ratification of a trade balance. On the contrary, a stable currency is one of the essentials of a healthy state of trade. The right hon. Gentleman winds up by saying that this is an important question for the working classes, and he says in his article: This question of the return to gold is, therefore, a very practical matter from the point of view of the welfare of the working classes. It will not altogether prevent fluctuation of prices, but it will control in a large measure the violent changes which are inseparable from unstable currencies." Finally, there was an article which showed that the time had come to bring about these results suggested in the phraseology which I have just quoted to the House. As the right hon. Gentleman has just stated, almost every Government which has been in power has taken up this question, and they have come to the conclusion that the gold standard was the only safe basis on which we could deal with the business of this country. In 1922 I had myself the privilege of presiding over a conference of representatives of all the nations in Europe held at Genoa. The Secretary of State for War was one of my colleagues, and we dealt with these difficult matters at that conference. There was, however, one conclusion which was arrived at unanimously on the part of all nations, and it was that Europe should get back as soon as possible to a uniform standard of exchange, that the only uniform standard of exchange was a gold standard, and that we should all take our part in endeavouring to remedy this difficulty by adopting the gold standard at the earliest possible moment.

5.0 P.M.

The only question left to be decided is when should we take this particular step. The late Chancellor of the Exchequer has stated that to-day it is precipitate to take such action, but I am certain that if the right hon. Gentleman had still been Chancellor of the Exchequer and not in the position of irresponsibility he is now, he would have adopted the very course that my right hon. Friend the Chancellor of the Exchequer has seen fit to adopt at the present time. There are very obvious advantages and disadvantages in the course which the Chancellor of the Exchequer has proposed. To make an adequate speech upon this subject would occupy so many hours that, even if I had the ability, I would not attempt it, but I should like to point out to the House one or two considerations on both sides which seem to me to go to the root of the problem. In the first place, there is an obvious advantage in returning to the gold standard for a country which has to buy such an enormous quantity of goods as we have to buy every year. We purchased, I think, last year, something like £1,300,000,000 worth of goods from outside, and, accordingly, everyone will realise that, the more our currency is appreciated, the more ease we have in making these purchases, and the cheaper is the cost to the country. I think that is perfectly obvious.

Mr. PETHICK-LAWRENCE

Why? You do not buy them in currency; you buy them by exchange of goods.

Sir R. HORNE

Yes, but the cost is measured, so far as external purposes are concerned, in terms of gold, and, if the hon. Gentleman has not appreciated that primary and elemental fact, he will find it very difficult to understand anything else I have to say. The second very important advantage that one readily recognises is that for a great trading country such as we are to have a uniform standard of exchange enormously facilitates the business of the world, and, therefore, greatly increases our chance of commerce with every part of the world. These are obvious advantages. On the other side there are certain obvious disadvantages of doing what we are proposing to do now. We are a great exporting country. We depend for our existence upon our ability to sell in the other markets of the world, and to export an adequate quantity of goods to pay for our purchases; and, the more our currency is appreciated, the more difficult it is for us to sell. That, obviously, is one disadvantage. Another important disadvantage is this: If it is difficult for us to sell, and our exports decline in amount, then the obvious result is that there would be a drain upon our gold. The only way in which that could be checked would be by increasing the rate of interest, and an increase in the rate of interest would adversely affect commercial transactions in this country.

It is possible for people to argue endlessly as to whether the advantages on the one side are better than the advantages on the other or no, but we have had a very expert Committee sitting upon this topic, which has come to certain much more definite conclusions than the right hon. Gentleman the late Chancellor of the Exchequer represented. Although they considered the pros and cons of this matter, as they were bound to do, and although there are many paragraphs which indicate, just as I have indicated, some of the disadvantages which come from taking this course, at the end of the page to which the right hon. Gentleman referred there is a summation, and the Committee say: In the present conditions, however, this argument against immediate action has not, in our opinion, great weight. For the adjustment of the price levels required to restore and maintain pre-War parity needs to be only some 1½ per cent. larger than that required to hold the exchange at its present rate. That is the considered conclusion to which they come, and they point out what is a very material element of the situation, namely, that, although in the actual exchange of visible goods there is indeed an adverse trade balance, that is more than compensated for by the invisible services which we render, and we are to-day in a position in which, without any lack of confidence, we ought to be able now to go on to the gold standard—the reason being that we are supplying the world with goods and services to an extent that is more than adequate to pay for all that we buy. So long as that situation can be maintained our position is, of course, one of great confidence.

The arrangements which my right hon. Friend has made for the purpose of easing the situation, and meeting any difficulties which are likely to arise, are, it seems to me, just such as we should rely upon to see us through any position of difficulty. I should not have been surprised had the late Chancellor of the Exchequer made some complaint about the purchase of the dollars required to pay for the American debt by anticipation, and at a price which undoubtedly must have been dearer to us than we should have had to pay to-day if we had waited for the appreciation of the currency. But the object of my right hon. Friend was clear; he meant to save us any loss that we might suffer by speculation. He made his announcement to the world that he had made those purchases so that no speculator should hereafter, by reason of thinking that the Government had still to buy those dollars, enter into transactions in exchange which would have the effect of creating uneasiness; and it seems to me that that was a very wise action to take. It was worth a good deal more than the few cents of difference upon each doller which he had to pay in order to make those purchases.

One knows, also, that it is to the advantage of the American nation that England should go back to the gold gold standard at the present time. There are many people who think that, because it is to the advantage of the United States, therefore it must be some disadvantage to us; but, the more I have seen of commerce and every sort of transactions, the more I have come to the conclusion that the best of all transactions are those in which both people are advantaged, and I am perfectly certain that, while it is good for America, it is also good for this country, and that., the better it is for America, the more easy and possible it will be for us to maintain the gold standard once we have adopted it. But there is one final reason which animates my mind at the present time, and which I should like to state to the House before I sit down. The conditions to-day are totally different from what they were before. When the Committee of Experts sat last year, they were dealing with a question which, while not purely academic, was certainly not so near the region of fact as it is now. It was suggested at that time that we should immediately go on to the gold standard. That proposal was solemnly put forward by one of the leading bankers in the City of London. At that time the pound sterling was worth much less than it is to-day, and, therefore, the situation would have been immensely more difficult if any attempt had been made at that time to get back to the gold standard. We are, however, faced now with some- thing with which we were not confronted before. My right hon. Friend the Chancellor of the Exchequer had got to come to a positive decision. The Act was expiring this year, and he had got to say, not whether in the main we wanted soon to get back to the gold standard, but he had to say whether he was prepared to do it now.

That was a judgment which was of vast importance to us in the eyes of the world. The world has been watching with admiration the steady progress which this country has made in its finance, and the way in which, at great sacrifice, it has built up its credit ever since the War. They have been acquiring reassurances as to our position during these years, with the result that London has been steadily assuming again the pre-eminent power in the world's money market which it used to hold. Foreign balances have come back here again in very great amounts, and with very great advantage to this country, because we do not allow those foreign balances to lie here and bring us no benefit. They are lent out again all over the world, sometimes even to the very people who have left them in London; and always we are taking what I believe commercial people call a "rake-off" on these transactions, greatly to the advantage of our revenue, and, what is not always realised, greatly to the advantage of our industries.

If we were to do anything to shake that confidence, by refusing to take the step which the Chancellor of the Exchequer has, as I think, wisely, decided to take, it would have a most adverse effect, not only upon the amount of money left here for us to deal with, but upon the value of our sterling in the exchanges of the world. When we find that Sweden has already been a year on the gold standard, that Germany is now linked to gold, that Austria is linked to gold, that Holland has taken the same action as we are taking and at the same time, and that all our great Dominions are taking the same action along with us, it surely would be an extraordinary confession of weakness if we, who regard ourselves as the centre of the world's financial system, were to declare that we were not ready to take this momentous step. I feel that that would do us more harm, certainly as a financial centre, than anything else could do. If I may press the point again upon the House, i should like to repeat that industry benefits enormously from the position which we occupy as the centre of the world's finance. These loans which London so often has to grant to other parts of the world have, in the past, as everyone knows, been the means by which British pre-eminence in industry has been built up. If we take, for instance, the great railways of the Argentine, built up upon capital lent by this country, and other great works all over the world, it will be seen how we have not only been advancing steadily in financial credit, but have gained the first place amongst the world's industrialists for many a long generation. If the financial fabric be now imperilled, it will equally be to the detriment of our industries, because it will take away the very means by which industry has been fostered, to the great benefit of the British people. Accordingly, whatever conflicting views there may be upon the one side or the other, looking to the safeguards which have been provided for by the wise action of the Chancellor of the Exchequer, I, for one, commend the course which he has taken in returning to the gold standard.

I only wish to say, before I sit down, that the situation is not by any means free from difficulty. On the contrary, it is surrounded and beset by difficulties, but they are difficulties which were and are a direct consequence of what has happened in the War. The struggles through which we have still to go are caused by the great events through which we have come, and we have to meet them sooner or later. It is no use deferring them. Other countries have preferred to defer the stress and strain which they would have to meet, but I am very glad to think that we have met our difficulties immediately after the War, and that we are now in a position to try and get rid of the last of them. But it imposes, as it seems to me, upon the whole country an obligation to work together with heart and soul in order to make perfectly certain that the amount of our production, and the price at which it is produced, will be sufficient to maintain us in the position which to-day we are adopting.

Mr. LEES-SMITH

I should like to make an attempt to answer some of the arguments which have been used by the right hon. Gentleman the Member for Hillhead (Sir R. Horne) and by the Financial Secretary. The Financial Secretary opened his argument on this subject by saying that we had now already so nearly reached the parity of the exchanges that it was worth while to take the further steps necessary in order to complete the process. We quite agree that we are, in appearance, very close to the parity of the exchanges, but I should like to call the attention of the Financial Secretary to a paragraph in the. Report of the Currency Committee which indicates what is the first reason for our anxiety on this subject. That paragraph is paragraph 26, and it states that The appreciation of sterling which has taken place since November, 1924, has been due partly to the belief that an effective gold standard will shortly be restored in this country, and only partly to a lessening of the difference between the purchasing power of sterling and of gold. A little later on, in paragraph 28, the Currency Committee state: To this unknown extent there may be a tendency, when parity has been reached, for realisation of the speculative position to throw a concentrated strain on the exchanges. The position that the late Chancellor of the Exchequer indicated was that, although the exchanges are at this moment near parity, we are in fact standing in an artificial situation, and the rise of the exchanges has largely been due to the fact of there being an anticipation of a forced return to the gold standard, a fact which will not continue to operate now that the step has been taken, with the result that we shall now return to the normal position of the exchanges due to various trade movements, and that the gap may then prove to be much wider in reality than it is at present. That is a serious point, and it is the point from which we begin our criticism. The general opinion among very great authorities—so great that they have been invited to address Members of the House in a Committee Room—is that in order to bridge this gap, which will grow wider, it will be necessary, perhaps by a rise in the Bank rate, perhaps by other processes, to bring about a deflation which will reduce prices by about 5 per cent. Suppose that is in fact the case. Then with what a situation are we confronted during the next few months? Look at the position in trade after trade which is already faced with the menace of industrial difficulties and disputes. If prices fall 5 per cent. employers will attempt to adjust the situation by reductions in wages, and I do not think it is difficult to predict what the effect of such attempted reductions will be.

That is one of the reasons for our legitimate anxiety. Take another. Suppose this deflation occurs, what does deflation mean? It means that every manufacturer is given notice that his stocks and his material will depreciate on his hands, and everyone who is proposing to buy in large quantities will find it best worth his while to wait until the fall of prices has taken place. That means unemployment. I am ready to agree that if we had been at this moment in a period of expanding trade, when employment was increasing, it might have been worth our while to suffer this disadvantage and, so to speak, take it in our stride. But that is not the case. The unpleasant fact of the present situation is that every week excepting one, from the beginning of the year, the number of unemployed registered at the Exchanges has been greater than in the corresponding week of last year. That means that this is an inopportune moment. It appears to us preposterous to say that this moment, when unemployment is increasing, is the appointed time for this fresh aggravation to he imposed upon us. The Financial Secretary said this position would he corrected if there were a rise in American prices. That may be so if there is a rise to-morrow, but suppose the rise takes place six months hence. Then we shall have had imposed upon us this unemployment and trade depression under circumstances which will be proved to have been unnecessary.

I do not think the right hon. Gentleman appreciates our argument. It is well within the bounds of possibility that before the end of the year there might be a rise in American prices. I believe the American banks are stuffed with deposits. I believe there are more bank deposits in America now than at any period in the history of that country, for more than public convenience requires, and it is quite possible that at any moment a movement may take place which will lead the depositors to spend their money or to invest it in some manner more profitable than keeping it on deposit. And that would bring about a rise in American prices. If that happens six months hence it will mean that by a purely automatic process, without any of the risks and dangers which we are now confronted with, we shall have secured that at which the right hon. Gentleman aims, by merely waiting in the ordinary way for the embargo Act to expire at the end of the year. The right hon. Gentleman took the main argument in the Report of the Currency Committee that if we do not take the opportunity now, the exchanges may recede to a position which would leave a wider gap than exists at present. That might be so, but if the forces which are to bring that about come into operation, what is our position now? If the trade movements are such as to lead to a recession of the exchanges, those facts will have to be faced still, and steps will have to be taken to correct the position, perhaps by raising the Bank rate or by some sort of deflation, which will lead to unemployment and increased trade depression, evils far greater than any we should suffer under present conditions by a mere fall in the exchange.

May I come to the argument used by the right hon. Gentleman the Member for Hillhead, the argument based upon the necessity, broadly, for the foreign trade of the country to maintain stable exchanges. The great conflict amongst those who write about such subjects now, the conflict which was waged in the Committee room, is broadly between those who give first place to the importance of that stability in the foreign exchanges and those who give first place to the importance of the control of our own internal prices. That has a direct bearing upon the reasoning that he has placed before the House. He dwelt on the necessity for the stability of the foreign exchanges in order to help our foreign merchants. But although our foreign trade is important, after all the home trade is of greater magnitude than foreign trade, and therefore the number of transactions which assume stability in the foreign exchanges is not so great, day by day and year by year, as the number of business transactions which assume stability of internal prices. There is this further point, that the foreign merchant can protect himself against a fall in the foreign exchanges by dealing on forward exchange, whereas the inland merchant can only protect himself against the possibility of a fall in prices by cur- tailing his business and throwing more of our people out of work.

The bearing of that on this question is this. By this scheme we shall undoubtedly secure the stability of the foreign exchanges but we shall lose our control over our own internal prices, and become satellites of the American price level. There are many disadvantages in being attached to the American price cycle. Fluctuations in America which are comparatively minor matters in a country of her industrial magnitude would be almost devastating in this country. The position has been rendered far more precarious and acute for us by the fact that we have sold, I think, £100,000,000 worth of American securities during the War, and we have interest on the American debt to pay every year. All these things make the situation worse, and there is one further minor but still substantial factor which has not been mentioned but which I think ought to he taken into account. America at present, owing to her position, is bottling up the gold of the world, and she has the privilege of having a monopoly of that task, which costs her somewhere between £50,000,000 and £100,000,000 a year. I take it for granted that under this plan we shall have to bear our share of that burden. I hope I have indicated what is the nature of our position. I can put it in a sentence. We object to this proposal being carried through now because by waiting until the end of the year it might have been done without any danger or sacrifice at all, and we say that by doing it now you are embarking upon the possibility of increased unemployment and trade depression, and you are doing it to attain an object which, when it is secured, is so full of its own disadvantages that it does not justify the sacrifices we are being asked to make.

Mr. PENNY

The important declaration of the Chancellor of the Exchequer, to return to the gold standard, was the most important of the Budget proposals, and is a matter which must be placed above all question of party politics. This, I feel, is being done from all sections of the House, and the criticisms made are with the object of helping the Chancellor in this vital decision, so that he can weigh the advantages as against the disadvantages. A critical study of the Report of the Currency Committee shows that the Chancellor has adopted the recommendations, practically, without alteration, and for this reason, I assume, he endorses to the full the opinion expressed in paragraphs 12 and 13, which seem to be the cardinal point and basis of the whole Report. The Currency Committee, no matter how well informed they may be, and although they have a mass of data which is not accessible to Members of this House—it must still remain the expression of an opinion, mingled with hope—have said that the net trade balance of this country, including our visible and invisible exports and imports, is on the right side; that is, there is a margin in our favour when we have paid the foreigner all that we have to pay him.

If we study the Board of Trade returns that were given in detail by the hon. Member for Ilford (Sir F. Wise) the other day, we are forced to the conclusion, due to the heavy adverse balance shown there, that the invisible exports and the interest on our foreign investments must reach the huge total of £350,000,000 per annum if we are to balance. Unless that is the case, the balance will be on the wrong side, and if continued year after year it would effectually prevent the maintenance of the gold standard. I sincerely hope, and, indeed, I expect, the Chancellor of the Exchequer has given this point his most careful consideration, for it is a matter that is not only vital to us, but vital to the expansion of the trade and industry of this country for 15 or 20 years ahead. During the War we borrowed £8,000,000,000, a great proportion of which was borrowed at a time of inflation, and on an average for every pound we only got in actual value some 15s. or 16s. As soon as we return to the gold standard, it means that we have to pay for the 15s. or 16s. £1. During that period of inflation, the lag between actual wages and the purchasing value of those wages was very considerable. Hence the demand for higher wages and also the great trouble we have had in industry, together with frequent strikes during that period. With the deflation period that lag largely disappears, and it is natural, I think, to suppose that employers will ask for reduction in wages. We know how that appeal has already been met by the sheltered trades in this country, namely, by a blank refusal.

. There is another point in the Report which indicates that it may he necessary to protect the outflow of gold, and that is the only legitimate means at the disposal of the Central Institution, namely, a rise in the bank rate and restriction of credit. This would have an extremely adverse effect upon the industries of this country. Our production costs would be considerably increased and with excessive wages and restriction of output would militate very strongly against our capacity to export. That would, of course, increase our visible adverse trade balance. We also know that the major proportion of wages is spent in purchasing food and that more than 60 per cent. of our food is imported from abroad. On a gold standard it may be somewhat cheaper per unit to buy our imported food, hut I do not think that any small saving we make in that direction would in any way counterbalance the increased consumption. With respect to the outflow of gold to India, where they have not so far contracted the banking habit, we know that most of the gold that goes there to the natives is hoarded and will not come back.

Nothing could be worse than having to use the credits provided in America to maintain the gold standard, because in the end the weight of circumstances may be too much to counterbalance even the bold policy advocated in the Report of the Currency Committee. The Financial Secretary to the Treasury referred to the credit, of 300,000,000 dollars, and mentioned there would be no interest if the money were not called, but only a small commission. I hope he will let us know what that commission amounts to and that it will be an inconsiderable sum.

We have heard a good deal about the United States, and not wishing to get into her clutches. I heartily endorse that view. She has welcomed this proposal. The right hon. Member for Hill-head (Sir B. Horne) has pointed out that in all business transactions it is well that both sides should benefit, but we have had previous dealings with America, and in the tilts we have had with her I think we have almost invariably come off second best. She is a nation which certainly puts the almighty dollar before everything, and like the proverbial cat always lands upon her feet. I hope we shall not place ourselves in the hands of America by our present action.

. I wish, as all business men do and as the nation generally wishes, to see the gold standard established, because it will give us greater stability but I want the Chancellor of the Exchequer to well weigh the few points which I have had the temerity to put to him, and as they occur to me as a business man, and one who has had experience of exchange broking in the past, for it is a question of vital interest and importance to this country.

Mr. GILLETT

The hon. Member who has just sat down very well represents the mind of the vast mass of business men in this country at the present time, because when he had finished I could hardly say whether his speech had been in favour of the action of the Chancellor of the Exchequer or whether it wars meant to be a speech, on the whole, condemning that action. I think his frame of mind indicates the uncertainty which all of us feel about the new move which the Chancellor of the Exchequer has made in the announcement regarding the return to the gold standard. When we speak about that announcement it seems to me that to a certain extent the real decision was made some time before and that the House to-day is placed in the position of having to discuss a matter which has already been decided, and decided not alone by the Chancellor of the Exchequer but by some other power even previous to the Chancellor.

We are justified in expressing our view on the whole of this problem, because as long as I have been in the House there has been no other occasion on which the policy of the Government in regard to a return to the gold standard has been fully debated. I am not surprised that the right hon. Member for Hillhead has supported the proposal. I think he was a member of the Coalition Government which decided this question when, in 1920, the policy of deflation was entered upon. I presume I am not mistaken in thinking that the very grave step then taken by the Bank of England in raising the Bank rate and the banks in curtailing credit was not done without consultation with the Chancellor of the Exchequer at that time. One matter that we have overlooked, and it is of vital importance to us at the present time, is, that we have forgotten that the question of the Debt was never dealt with before we began to deflate. That was the first and initial mistake that was carried out by the Coalition Government.

In 1920, our Debt had increased from the pre-War figure of about £700,000,000 to £7,800,000,000. Commodity prices were at their highest. At that moment we began the policy of deflation. The right hon. Member said that it had resulted in giving to the holders of war stock a very privileged position, because although a large amount of the war debt had not been raised in the depreciated currency of 3920, a very large sum of money was raised in 1918-olders of that stock, if they held on to it in 1920, benefited, because there was a very large rise in the gilt-edged market. That was the result of the policy of the Government and of the Bank of England in deciding to deflate. I mention that because to-day we see that out of a Budget of £800,000,000 we are spending £355,000,000 in the service of the Debt. That Debt has become the largest item of expenditure which we have at the present time. Had the problem of the Debt been grappled with in some measure in 1920, in the depreciated currency of that time, the taxpayers of to-day would not have been bearing such a heavy burden.

There were two courses before the Government in dealing with the problem which they had before them on the question of a return to the gold standard. One was the policy of deflation, and the other the policy of waiting for a time to see what was going to happen in the business world and recognising the position of our Allies. I would remind the House that apart from America we are the only nation taking an active part in the last War who are making an attempt to carry on and to meet the full burden of our debt. France is not doing it and Italy is not doing it. The German people have solved their problem by a large measure of inflation. France is doing the same at the present time, and so is Italy. It would be quite impossible for the French people to attempt to do what we are trying to do.

There would, therefore, be no harm, indeed it would have been a reasonable thing if we had waited for a time until this country was in a position to bear, shall I say, the financial operation that is involved in the policy of the Chancellor of the Exchequer. The country is in the position of a patient awaiting an operation. We agree that if something can be done, the wisest thing is to return to the gold standard. Very often when an operation is to be carried out the doctor advises that there shall be a postponement until the patient is in a better position to undergo the operation. That represents the position of this country at the present time, and a postponement of the operation is what we should press upon the House.

There is another policy, and that is the policy of waiting. The period of deflation resulted in a great deal of suffering to business men and in hundreds of thousands of men becoming unemployed. That has been condemned by many hon. Members who were present a few weeks ago in a Committee Room of this House and heard Mr. McKenna speak on the gold standard. Of course, it is always easy to speak after the event We find a man of Mr. McKenna's financial standing and authority saying that we should probably all agree, in the light of events that had taken place, that the policy of deflation had been too rapid and that it would have been wiser to have gone slower.

For a time this country did follow what might be termed the waiting policy. The gold of the world was pouring into the United States. They were faced with the difficulty, from which few of us have suffered in our lives, of having more gold than they wanted. Practically what was happening was that the gold was being buried in the vaults in order that it might not have an effect on trade and might not lead to the rise in prices that they feared. But after a time even the United States could hardly stand the financial loss which such a policy involved, the result was that they began to alter their policy. They began to check the inflation that was taking place. Then to my mind the decision which we are facing to-day was really made by whoever is really responsible. I do not pretend to know what takes place behind the veil which hides the relationship between the Bank of England and the Treasury, and to say who is actually responsible for the policy, and when it came into force. But the Bank of England met the move in New York by raising its rate about two months ago. What has happened is what usually takes place when the Bank rate is put up. The figures for the last month show a fall in prices, and the Chancellor of the Exchequer only a day or two ago was complaining in this House about the increase of unemployment, and trying to find some cause or some group of people who could be said to be responsible for this increase in unemployment. I would suggest to him that, whatever evidence he may have on the lines of which he spoke the other night in this House, at any rate when he is considering who is responsible for increased unemployment, he must consider the financial policy of the Government, and, if he gave his consent and approval to the Bank rate being raised by the Governor of the Bank of England, then he must also take his share of the responsibility for increasing unemployment.

There are people nowadays who say that putting the Bank rate up does not matter. These things were never disputed before. It was a recognised principle that if you took certain action, certain results would follow. But they say that that is not so now, and that things now are very different. I view with the gravest doubts the prospect as to whether the position is going to be quite so satisfactory as is suggested by those who say that the effect of raising the Bank rate will not be as disadvantageous as we maintain. The hon. Member for Kingston (Mr. Penny) will agree that if we are to have a higher Bank rate it will be very prejudicial to the country, and the frame of the money market to-day, and of the Stock Exchange certainly indicates the apprehensions which they feel as to what is going to happen, and the apprehensions as to whether the Bank rate is going to be higher. The Government two or three days ago were paying a higher rate for Treasury bills, and the market might be said to-day to be waiting with a great deal of apprehension to see what is going to, happen in regard to the future policy in reference to money, and wondering whether the policy which the Chancellor intends to carry out will justify the risks which have to be taken.

There is one other side of the question. I feel that Ole Government made a mistake in not giving fuller consideration to the matter before deciding to make the pronouncement which the Chancellor of the Exchequer made the other day. A reference has been made to the Genoa Conference. I would remind the House of the recommendation of that conference that, before a return to the gold standard, the Central Banks of Europe might be called together so that an attempt might be made to stabilise the value of gold. The House will remember that some time ago certain writers and others were suggesting that we should not go back to a gold standard yet, because they believed that it was possible to stabilise prices on a paper currency, and that it would be to the advantage of our country if that were considered. Many hon. Members like myself no doubt came to the conclusion that a return to the gold standard was the best course for this country because of the stability in regard to exchange risks and its effect on the settlement of trade. But it does seem to me that the problem of control of gold is one which the Government have not fully faced.

We have already had a reference to the fact that the United States have about £300,000,000 more gold than they want, and if the financial policy now proposed is followed it may result in the gold coming to this country. But there are other gold problems as to which other countries were willing to consult with us to see that no undue demand should be made on the gold of the world without the consent of the great central banks of the world. For instance we have not yet solved the question of war. We do not know what the future is going to be in this regard. Suppose that some European countries suddenly began to imagine that they would like to build up a war chest. We ourselves have recognised and are recognising in the very Bill before the House the importance of not making any further demand on the gold supplies by preventing a return to the use of gold currency in this country as in pre-War times. But there are other countries who might wish to do the same, and who are willing to join with us in these problems.

I think that it is a great pity that we have not had from the Government a definite statement respecting the problem of gold from the world standpoint, and as to whether and how far an understanding has been come to between the different nations on the question. The suggestion may be made that the United States is practically the only nation that counts in regard to the position of gold to-day. But I cannot help feeling, even if that be so, that, before we definitely link ourselves up with a gold standard, there ought to be some definite organisation between the nations stabilising, as far as possible, the price of gold in the world, and so helping to prevent the alterations in price levels which we saw in existence in the years preceding the War, when prices were constantly rising for a number of years owing to the increased supply of gold in the world. I regret, in connection with the policy of the Chancellor, that we should have taken this new step without having faced that problem.

I support the Motion moved by my right lion. Friend this afternoon because view the whole treatment of this question by the Government with very great concern, and I feel that it is not at all certain that it will not bring far greater difficulties upon the country, and that the question of unemployment is in far too serious a position for us to be able to afford to make a mistake in regard to a return to the gold standard. Therefore I cannot help thinking that the Chancellor has been hasty and precipitate in the announcement which he has made, and that it would have been far better to wait, allowing even the exchange to fall away once again, perhaps, and see gold flow to the United States until there was an opportunity for this change to come in of itself, rather than to have it brought about by the artificial means which have been used.

Everybody is aware that efforts have been made, and that the Bank rate was put up in order that the money might be brought from New York, but as Mr. McKenna has said, in referring to the artificial props of the exchange, some day these artificial props will have to be withdrawn, and I cannot help thinking that the Chancellor would have been much wiser if he had refused to listen to the advice which was given to him, and had waited until, in the natural course of events, the exchange rate had automatically come to the position which we desire. In view of the present position of trade and industry, with all the evils of unemployment which we have at present, it would have been better to do this than to take the risk which the Chancellor is taking to-day in making these recommendations.

Mr. ALBERY

I feel a great deal of diffidence in rising to address this House for the first time on such an important and complicated subject. I listened attentively to the speech of the right hon. Gentleman the Member for Colne Valley (Mr. Snowden), and I gathered from him that, while he approves of every possible step being taken for a return to the gold standard in this country, his serious objection appears to be the fact that we have taken that step before our exchange parity had more nearly approached that of the United States of America. I would like to say that we had already so nearly approached the New York figure that it would have been impossible for us to remain stationary, or even to advance the exchange, without the Government taking the step which it has decided to take. The first great milestone on the road of our economic recovery was the decision taken a few years back to arrange to make repayments of our debt to the United States of America. From that moment the credit of this country started definitely to improve, and it is from that moment that we have gradually eased, at any rate to some extent, the burden of our indebtedness by being able to effect certain conversions which have reduced our toted liability on that account. That undoubtedly was a step which was essential and which had to be taken in order to lead up to this other great step which the Government have now decided to take.

In listening to this Debate I have been greatly struck by the lack of enthusiasm on the part of Members generally for what is in itself a remarkable milestone on the road of our financial and economic recovery. I know from personal conversations with foreign bankers and foreign commercial men that they, at any rate, fully appreciate the value and importance of the step which we are taking, and that they are filled with admiration and envy for the advance which has been made in this country.

6.0 P.M.

With reference to the remark made by the right hon. Member for Colne Valley (Mr. Snowden), that we should have waited, I hold that we could not stand still. I was led from that point by reference to the first milestone—the repayment of our debt to America—because that led to the use of our currency again in an international sense. We had again what was a rising currency, therefore a currency that people were willing and anxious to use, because they believed that it was a profitable currency. Recently we arrived at the stage when there was no longer any reason for people to wish to use our currency on a large international scale, unless it was definitely and almost immediately going on to a gold standard, because only two things could happen—either it would remain stationary, in which case it is obvious that any business man would prefer to trade in dollars with no risk of depreciation, or it was likely to depreciate by waiting for a longer period, in which case no business man would wish to employ that currency. There was left only the third alternative, which was that the currency should be put upon a gold standard.

That the Government have decided to do, and I personally have been greatly impressed by the decision. I think that it is the greatest thing which has happened in this country commercially since the time when we decided to repay our debt to the United States. I am quite certain that even if—which I doubt—in the meantime we have to take a little more of that medicine which we have been taking in the last We or six years, it marks the end approximately of our post-War troubles, and that we shall now rapidly get back to a more prosperous time. This country has always been a great clearing house for international finance and international trade. We have not lived only on the exertions of our own people; we have not Eyed only on what was directly the result of our own production. We have thriven very largely as a traffic centre for the productions and the commercial activities of many other peoples who have worked all over the world. It seems to me that we are now again approaching that time when we can hope to reap the sort of financial benefits which we received in that direction in the past.

There are many other advantages which must come to us in the near future from this step. We are practically certain to have cheaper credit eventually, and before very long. You can borrow more cheaply on money which is based on gold than you can when it is based on paper. There will again come to this country the international deposits of former times. It is true that we have had big international deposits recently, but they have been of a very fluctuating nature, and have come principally to take advantage of the rise which was expected in our currency. In future they will come here as a financial centre and for financial and trade purposes. Cheaper trade, credit will again give better facilities for conversion of debt. It will also mean the possibility of borrowing at cheaper rates for industrial enterprises, and that, in turn, should enable us to some extent to lessen the cost of production. I do not want to mention names, because it is not desirable to do so, but I am sure many people in this House will realise to what firm or firms I am making allusion when I say that during the difficult period about the trade boom time in this country, many industrial concerns in this country—I am thinking of one in particular—had to borrow very large sums of money at very high rates of interest.

That sort of thing becomes a permanent handicap on the industry of this country. That is what we are suffering from in many directions to-day. I consider that this step has at last put us again on the clear road to commercial prosperity, and eventually to a reduction in overhead charges and a reduction in costs. Some people seem to be alarmed at the possibility that the United States might ship large quantities of gold to this country. That is a possibility with which we have to reckon. But even that would not be without its advantages. The United States probably has now more gold than it is able profitably to use, and I am sure that this country, even while having to pay the United States an adequate remuneration for the accommodation, could make use of such gold with profit to itself, in many directions which are not open to the United States.

This subject touches to some extent, I consider, the question of France. In a return to the gold standard it is desirable, and it should be one of our chief objects, to assist other nations in Europe to return also to the gold standard. I have little doubt that the United States will do everything in their power to facilitate that object. The most important commercial country, the country of most importance to us which will be still outside it and, unfortunately, a long way from it, is our Ally, France Without wishing to offer, what might seem to be impertinent, advice to another country, I would like to say on that subject that if anything would facilitate France's return to the gold standard, or help the French to come nearer to the time when they can do it, it is a settlement of their outstanding indebtedness to this country on some sort of basis. I feel certain that we on our part would offer them the greatest possible facilities, and do everything in our power to make it easy. If I might venture to throw out a suggestion, I think that possibly an equitable offer made to-day would be to say that if they would make a settlement of their debt with us, we would be willing to accept settlement at half the rate, interest and redemption, on the amount outstanding to us—at half the rate which we pay ourselves to the United States of America. Possibly that has, strictly speaking, nothing to do with this Bill, but it does to some extent touch on the gold standard. It touches on the object at which we all wish to aim, and that is the achievement of a gold standard again amongst all the chief commercial countries of the world.

I am not going to detain the House any longer. When I came into the House to-day the first thing I did was to look at the Amendment of the Labour party on the Order Paper, and I must say that it caused me a certain amount of surprise. There is probably nothing which is so much part of the capitalist system, nothing so much calculated to prop it up, as our return to the gold standard. I understand from the leaders of the Labour party that the gold standard is part of their policy. To some extent that surprises me, because at any rate the majority of Members on the back benches opposite are always claiming that they wish to see the capitalist system destroyed. If that is what they mean they can achieve it in no way better than by preventing, and permanently preventing, the return of this country to a gold standard. I, therefore, expected when I looked at the Order Paper, to find a much more definite Amendment put down by the Labour party, possibly something to the effect that in view of the failure of the capitalist system it was undesirable that this country should ever return to the gold standard.

Mr. PETHICK-LAWRENCE

I am sure that I am expressing the general feeling of the House in congratulating the hon. Member for Gravesend (Mr. Albery) upon his very excellent and very clear maiden speech. I am certain that when he speaks on other, and I hope an increasing number of, occasions, we shall all listen with interest to what he has to say. Apart from the technical complications of this question, there are two principal difficulties in dealing with it. The first is the question of time. It does not at all follow that a course which may be good at one time is necessarily good at another. The second is the conflict of interests within the country itself. Without in any way imputing improper motives to one set of interests in this country, it may well happen that the interests of finance may be for a time at any rate distinct from the interests of trade, and it may even be that within trade itself there are people, even the same people, who are torn in two directions by the pros and cons of this particular matter. It seems to me that there are four main points which we have to consider. In the first place, is the return to a gold standard desirable in itself at any time? In the second place, if that be true, to what kind of gold standard ought we to return? Next, is this the time for such a return to be made, and, if the answer to that is "Yes," are the steps that the Chancellor of the Exchequer has taken, is taking and intends to take, the best steps to fulfil these objects?.

Of course, on the large issue of the merits or demerits of the gold standard in itself, there is a very great deal that might be said. In detail it could not be confined within the legitimate limits of a speech in this Debate. But I would very briefly summarise the main points. There are certain advantages in a gold standard for this country. One of these, which has already been mentioned more than once, is a stable exchange. The second is that there can be no "monkey-ing" with the currency by the particular Government of the day and those of us who have lived through the War period realise that this is a distinct advantage.

The third is that a foreigner placing his money in sterling in this country, knows he is going to get his money back also in gold. That is not only an advan- tage in itself but it adds prestige to our currency and inclines foreigners, and for that matter our own people, to place money in our banks being assured that thereby they will not be cheated out of their resources as they have been in other countries. These advantages, however, have to be faced by certain arguments on the other side. There is first that of the varying price level. Before the War that was already a very serious question in itself, because every variation in the price level means the cheating either of the creditor or the debtor and, in addition, it leads, in the opinion of some of us, to those cycles of good and bad trade which have had such a serious effect upon employment. Therefore we have two sides to the question and we have to make up our minds which of these sides is the more important. My own feeling is that while I do not think gold will remain the main currency of the world for ever or even for a large number of years, nevertheless I think that probably during the time of most of us here gold will serve the purpose better than a managed currency as the basis of our system of finance in this country. That is the largest issue of all.

We come now to the further consideration that the gold standard as we had it before the War possessed certain defects, and that there are other defects which must be counted against our adoption of it to-day and which arise directly out of the circumstances of the War. The main consideration is that before the War we were the financial centre of the world and we managed the gold currency—because a gold currency is not an automatic currency, as some people seem to think, but is itself a managed currency—to our liking and by our methods, and therefore we were the masters of our own fate. But no one, not even the Chancellor of the Exchequer, will seriously suggest that this is absolutely true to-day. Owing to the enormous mass of gold in the United States and the debt which we owe to the United States, it is perfectly clear that the United States has a considerable, if not a predominant, voice as to what will happen in connection with the gold situation in the world. Therefore, we have to remember that in returning to a gold currency we are not in any case returning to the particular position which we occupied before the War. We are returning to an entirely different position in which we have to play second fiddle to the United States, or, at any rate, play an instrument in concert with that played by the United States.

The question next arises: To what kind of gold standard are we going to return? That is a question which 99 people out of 100 who talk on this subject neglect, but there are four or five important points to be considered in this connection. The first is at what value should we return to the gold standard? I think there is very little doubt that we should return to sterling at its pre-War par value. That was not at all obvious in the year 1920-1921 when the enormous inflation had taken place, and I think it is quite arguable that we made a mistake in 1921 in having the terrific deflation which followed, a mistake evident in the bad trade and terrible unemployment which we have seen in recent years, and which still continues. It is, I say, quite arguable that we made a mistake in having that great deflation, and that it would have been better for us to have gone back to the gold standard on a different valuation to that of to-day. My own view is that of the hon. Member for Finshury (Mr. Gillett), who pointed out that the mistake was made still earlier when we did not take steps to wipe out a considerable part of the debt before the deflation took place, in which case a great deal of our troubles might have been avoided. I think there can be no question that if this country is to go back to a gold standard it must do so on the par basis.

The next point is: Who is going to control? It is perfectly clear that to-day the Bank cannot take any important step without due consultation with the Treasury and the Chancellor of the Exchequer. I am not in a position to know, but I think the control exercised by the Treasury and the Chancellor is much greater than it was in the pre-War period, and I feel we cannot go back to the pre-War position in which the bank had greater independent control than it has at present.

A further point which is highly important is whether or not we are going back to the rigid system of currency that we had before the War or whether we are going to adopt a more elastic system of currency—in particular are we going back to a limited amount of fiduciary issue or are we going back to a proportionate issue which is the law in the United States? Further are we to go back to a system under which we are tied by a rigid bond to the currency, so that trade is jerked up or pushed on by every ounce of gold being used and not one ounce more being used than is actually available, or are we to have the elastic system which they have adopted in the United States of allowing a great deal of "slack" which can be taken in if necessary so that they never allow the reserve to fall below the fixed proportion but they are able to allow it to exceed the proportion. In that way one can manipulate the gold standard so as to allow for a much more steady price level than has ever existed in the case of this country.

Is the gold currency of this country to be confined to a national basis or are we to have some international control? Reference has been made to the Genoa Conference. I think the Genoa Resolution was of great importance. It was to the effect that the principal banks should get together—and the Bank of England was named as convener of the Conference—to discuss whether international control of currency should not be adopted with a view to eliminating changes in the price level.

Are we to go hack to a position in which the Bank is ordered both to buy and to sell gold at a certain price or is any limit to be placed on that operation? I agree with the right hon. Gentleman the Member for Colne Valley (Mr. Snowden) that it would have been better if while empowered to sell gold the bank had not been obliged to buy gold as it will he unless there is a repeal of Section 4 of the Bank Act, 1844. If that Section were repealed I understand there would be no obligation on the Bank to buy gold.

As to the question of time—whether this change could be made now or whether it should be made later on—personally I agree with those who think that the change which the Chancellor seeks to effect can be made. I do not believe the thing will break down, but I think it involves certain grave consequences. We cannot separate—and this is where the recent Currency Commission made an error of judgment—the action which it is Proposed to take to-day from the action which the Treasury and the Bank have been taking, shall I say, surreptitiously for the last six months. The result of that, in spite of what has been said by the Financial Secretary to the Treasury, is to affect purchasing power and to make the internal value of the £ less than the external value. The Financial Secretary to the Treasury said he gave me figures the other day. He did not give me anything of the kind. I got certain figures from the President of the Board of Trade and the Financial Secretary to the Treasury, without having anything to substantiate his statement, suggests that these figures are not really reliable. I should be glad to see any figures he produces on fixed data, but, until he does so, I prefer to take the figures which have been given rather than assume that if other things are taken into consideration some alteration may be found necessary in them.

As I pointed out the other day, if these facets be true, and if there be a difference in the purchasing power price, there is a grave danger that the effect of this change will be to create graver unemployment. It will affect this matter in one of two ways. Either the price level does not come down, and in that case we shall be unable to compete in the foreign markets of the world, or if our prices do come down we shall suffer from the same kind of deflation in a smaller degree as that which we suffered from previously, and unemployment and bad trade will be exaggerated thereby. The right hon. Gentleman the Member for Hillhead (Sir R. Horne) took exception to an interruption which I made in the course of his speech. He maintained it was in the interests of this country to have a high appreciated currency because of the large number of imports which come into this country. I suggest that has nothing to do with the case. We purchase our imports mainly by exports, and it makes no difference whatever whether our currency is appreciated or depreciated. The only connection in which this question can arise would be if we still have a balance abroad and had payments due to us from investments abroad. Even then the depression of sterling would only come into question where those investments were sterling investments, and, in so far as they were in other currencies, it would make no difference whether sterling appreciated or not.

I think there is danger of falling prices in this country or of failure to get into the markets of the world. There is danger of the Bank rate being put up and injuring our trade in other ways, and I think it would have been much better if the Chancellor had waited, not until he and the Bank had artificially put up a rate of exchange, through various means, but until the rate of exchange had of itself come up to a normal level and the purchasing power parity had at the same time been established. Then the change to the gold standard should have been made. The Currency Commission take that into account, and they say, "Yes, but if we waited for that, it might slip back again." My answer is that, if the price levels are such that it would slip back again, that is an added danger in trying to force the situation now, because it only means that we are trying to place upon industry a burden that it cannot bear.

Finally, I come to the question of whether, if we were to have this change now, the steps that the Chancellor has taken have been the right ones. First of all, instead of waiting till par had been reached to effect this, he effected it while there was a difference, even though small. It had several disadvantages. It resulted in a great deal of speculation, which was injurious in itself, and it resulted in the necessity for purchasing dollars at a considerable lóss. Further, there is this question of the re-imposition of the duty upon the Bank of England to buy gold That, again, I think, was a mistaken step. The next question, as to the nature of the fiduciary currency, apparently has not yet been decided. I hope very much that the Chancellor of the Exchequer will introduce a certain amount of elasticity into the new system. Unless he does that, I believe we shall go back to the dangers, which we had before the War, of the cycles of good trade and slumps, because the system of a fixed fiduciary issue is bound to result in a jerk being given to the commercial system, pulling it up at the moment it gets to a certain point in its expansion, and it is most important that, if we are to have a, gold standard. We should remember that there are means to he found of avoiding these cycles of trade which are so injurious to the industrial life.

I spoke just now of the Genoa Conference and I very much regret the answer which was given two or three days ago, by the Chancellor of the Exchequer or by the Financial Secretary to the Treasury, to the effect that they were not proposing to induce the Bank of England to summon that conference of central bankers which the Genoa Conference proposed. I think it would be a very good thing if they did that, with a view to stabilising prices and preventing these alternating cycles of good and bad trade which are so harmful to this country.

To sum up the points I have tried to make, I suggest that, though, looking over a very long period, the gold standard is not one that will be permanently in adoption, nevertheless, for a considerable time, the general consensus of opinion points to our adoption of the gold standard, but I suggest that in many respects the actual form of that gold standard may well be different from that which obtained before the War, and in some respects different from what I think the Chancellor of the Excehquer adumbrates. I feel that the present occasion, with our very grave unemployment, was not the one to try these further experiments in our financial system. I think it would have been better to have waited until the position had very much improved, and I think that, in some respects, mistakes have been made in the exact form in which this step, even if it had to be taken, was carried through.

Mr. CHURCHILL

I was greatly puzzled when I read the Order Paper at the form of the official Amendment of the Labour party, and now, having heard the whole of this Debate, I cannot say that my bewilderment has to any very great extent been removed. I have heard no case put forward of sufficient weight and sufficient breadth, supported by arguments of sufficient number and vehemence, to justify the very serious step which they have taken in placing this Amendment on the Order Paper. When the present Opposition formed a Government, they formally expressed themselves in favour of a return to a gold standard at the earliest opportunity. The Prime Minister of those days—I have the quotations here, but I shall not trouble the House with them—announced that policy of carrying out the recommendations of the Cunliffe Committee, and returning to the gold standard at the earliest possible moment and the then Chancellor of the Exchequer, the right hon. Member for Colne Valley (Mr. Snowden), went further and was even more explicit, not only in office but in opposition. He has repeatedly urged upon the Government that the right policy for this country is to return to the gold standard at the earliest possible moment. My right hon. Friend the Member for Hillhead (Sir R. Horne), in his most powerful and effective speech, a speech which might almost have relieved me of the duty of intervening at all in the Debate, dealt with the late Chancellor of the Exchequer, and quoted the article which he wrote, only two months ago, in the "Observer" newspaper, and he pointed out that not only had the right hon. Member for Colne Valley advocated a return to the gold standard, but he had pressed it as a matter of haste and urgency. He had pressed it as a matter so important that, to quote his words— Risks must be run for the sake of the benefits which success would bring. England could give a lead in this matter which would result in a general return to the gold standard. Well, Sir, we have taken the advice of the late Chancellor of the Exchequer, but we shall hardly be encouraged to repeat the experiment, having regard to the treatment we receive when we do fall in with his views. We have taken his advice, we are actually on the gold standard, and what does he do? Speaking with the full responsibility of the official spokesman of the Opposition in matters of finance, what is it he proposes that we should do? I quite recognise the moderation of his speech, the restraint and sobriety of all that he said on this subject, and on both sides of it. But what is the Course which he recommends to the House of Commons this afternoon? He proposes, now that we are on the gold standard, to deprive us of the precautionary measures and safeguards which, after long thought and patient preparation, we regard as vital to the success of the operation which he himself has counselled. Well, if you are looking for grounds of opposition, you can nearly always find some reasons, and so the blessed words "undue precipitancy" have been discovered to bridge the gap between the late Chancellor of the Exchequer's past and the views which some of his supporters in his party hold at the present time. Undue precipitancy! I understand the difficulties to which ex- Ministers and the leaders of a party in opposition are subjected. I wish to make every possible allowance for them, but I must say, speaking quite frankly, and, I hope, without offence, that this incident makes it difficult, not for the Government merely, but for the House, to place full reliance on the character of the advice given by responsible leaders of the Opposition in regard to grave and complicated matters of public policy. They advise a certain course publicly and repeatedly. We adopt the course, we take a decision in accordance with their advice, and then immediately they move an Amendment, not only to condemn us for what we have done, but to deprive us of those practical safeguards by which alone what we have done can be carried through successfully.

One may approve of the principle, one may even agree as to the urgency, and yet one may dislike the method. I heard nothing in the speech of the late Chancellor of the Exchequer which indicated any serious disapproval of the specific method we have adopted. It is a method which the highest experts have advocated. In carrying out the policy recommended by the late Chancellor of the Exchequer, we have taken every precaution which forethought, and patience, and long preparation could suggest. Undue precipitancy! Where is the undue precipitancy in acquiring discreetly, over a considerable period of time, the 166,000,000 dollars required to cover our payments to the United States for the whole of this year? Where is the undue precipitancy when we began these arrangements with the United States, upon which these trans-Atlantic operations were founded, before Christmas last year? There never has been any step of this character taken by any Government which, so far from being marked by undue precipitancy, has been more characterised by design, forethought, careful and laborious preparation.

Mr. B. SMITH

See the results.

Mr. CHURCHILL

The late Mr. Bonar Law once, in reply to an interjection of that kind, made a very pertinent quotation, and said: It is no use trying to argue with a prophet. One can only disbelieve him.

Mr. SMITH

I only said, Wait the results.

Mr. CHURCHILL

There is perhaps one ground on which we might have been accused of undue precipitancy. I was waiting to hear the right hon. Member for Colne Valley, whom I am glad to see in his place, perhaps say that he would have approved of all that we had done but for the fact that, instead of declaring last week that we would return to the gold standard on the 31st December, we had in fact returned to it at the moment of my declaration. It is, of course, a question which requires careful balancing —whether you should give a long notice in advance, or whether you should act instantaneously by giving a general licence to the Bank of England to resume gold exportation. I was advised that, if we had waited the eight months before the end of the year, before the expiry of the present Act, everyone would have had all that time to perfect arrangements for the export of bullion. Everyone during those months could under the existing law, have withdrawn and hoarded gold against the day when the free export of gold became lawful, and all this pent-up volume, which you could not measure, which might be very small, or might be very large, but, in any case, would have been uncertain, would have been awaiting the automatic cessation of the existing law, and would have fallen upon us on the 1st January, 1926. That is a season when the normal demand for dollars is high. a season usually unfavourable to our Exchequer, and at the unfavourable moment all this pent-up strain would have fallen upon our gold reserves. No one would have been able to predict what would have happened. Personally, I am not convinced that anything very serious would have happened, but there are many people who would have been alarmed, and these vague fears and uncertainties affecting the whole position of our trade and finance, would have been deeply detrimental to our material well-being.

If you are going to return to the gold standard, if that principle is to be carried into effect at all, now is, from every point of view, the moment which should be seized. This charge of undue precipitancy has enabled the right hon. Gentleman to present a consistent, or comparatively consistent, front, but his argument as to undue precipitancy runs counter to all the most solid reasons which the Government can produce. I must contrast the position of the right hon. Gentleman with the position of Mr. Keynes, who is, I suppose, by far the most distinguished and able exponent of the opposition to the return to gold. He is the great advocate of a managed currency, the most powerful and persuasive advocate. While the right hon. Gentleman opposite was writing in the "Observer" newspaper, articles demanding the return to gold—.

Mr. SNOWDEN

Not demanding.

Mr. CHURCHILL

Advising or suggesting. While the right hon. Gentleman was writing in the "Observer" articles which might easily have been interpreted to mean that he was ready to approve of a return to the gold standard, urging that risks should be run, and that no time should be lost, Mr. Keynes was writing in the "Nation" a series of searching and brilliant articles, formidable and instructive, in favour of a managed currency. You could not have had a greater difference than was exhibited between the writings of the right hon. Gentleman and the articles of Mr. Keynes What has happened in the event? The right hon. Gentleman, who advocated a return to the gold standard at the earliest moment, when we return to the gold standard attacks us. But Mr. Keynes says: If we are to return to gold, and in the face of general opinion that is inevitable, the Chancellor and the Treasury and the Bank have tried to do so along the most prudent and far-sighted lines which are open to them. That is the statement which was made by, I say, the most able, most powerful opponent of the return to gold. Here is the right hon. Gentleman, who is one of the strongest advocates of the return to gold, confronted with the same facts as Mr. Keynes, accusing the Government of undue precipitancy.

Mr. SNOWDEN

May I also quote this from Mr. Keynes: There remains, however, the objection, to which I have never ceased to attach importance, against the return to gold, in actual present conditions, in view of possible consequences and the state of trade.

Mr. CHURCHILL

Certainly, I say he is the most capable exponent of the opposite view, and absolutely disagrees with the right hon. Gentleman on the principle. And yet, so fairminded is he in judging this matter, that, apart from the principle, if you are going to do it, he says this is much the hest way. What is the explanation of the difference between the two? The explanation is that the right hon. Gentleman, unlike Mr. Keynes, has to consider party manœuvres and party exigencies, and it is not thought prudent, in regard to a matter of this kind, about which many people entertain conflicting views, that the official Opposition should take up any attitude which, if unsatisfactory results accrued in the future, would prevent them from being able to say, "I told you so." The right hon. Gentleman is really in an excellent position. He is, in sporting parlance, "standing on velvet." If everything goes successfully, and no evil consequences arise, not even temporarily; if there are no spasms of any kind, he will be able to say, "Ah! we were always in favour of the return to the gold standard; the Labour party in office declared itself strongly in favour of it." If, on the other hand, there should be, in some few months' time, some spasm or some stringency, and momentary agitation is raised in the Press, he will again be able to rise in his place, or write another article in the "Observer," saying that he had foretold it.

Let us see what would happen if the official Labour Amendment were carried. We should find ourselves deprived of every effective means of making the transition safe We should not be able to secure the credits in the United States which are intended to warn off speculators—in the excellent phrase Lord Oxford used last week, to "warn off the international banditti of finance "—from making attempts to overturn our gold standard. If we were left unprotected, and such attempts succeeded, we should have to make very heavy shipments of gold, and we should certainly have to raise the Bank rate. At the very time that we were exposed to this strain, we should, if the Amendment now before the House were carried, have to pay out sovereigns from the gold reserves to everyone who chose to ask for them, and, in order that there should be no risk of a shortage, the Mint would be under an obligation of minting into sovereigns all gold tendered to it. I can understand condemning the principle of a return to gold, but to approve the principle, and then to leave this country defenceless in a vital matter of this kind, when it is already committed, is a course which I am quite sure very few responsible Members in this House will care to support in the Lobby. I do not know whether there will be a Division or not on this issue. If there is, well and good, but if there should be no Division, on the whole, possibly, some national, apart from party, advantage would be gained thereby.

No doubt it is a serious matter for a Minister and a Government to have to take the responsibility for a Measure of this kind. I will tell the House quite simply on what authority I base myself, and what reasons have influenced me. I do not pose as a currency expert. It would be very absurd if I did; no one would believe me. I present myself here, not as a currency expert, but as a Member of Parliament with some experience in dealing with experts and weighing their arguments, as the Minister who has behind him what, I believe, is, and what, I daresay, the right hon. Gentleman believes is, upon the whole the finest expert opinion in financial matters, in Treasury matters, in the whole world. We have behind us the unbroken opinion of every Government while it was responsible We have every Prime Minister and every Chancellor of the Exchequer, except, with some recent modification, the right hon. Gentleman. We have every Committee and every Conference that has been held since the War We have the Currency Committtee's Report, which has been available for several clays in the Vote Office, and gives all our general reasons.

That is the basis and the foundation on which we rely, not only as regards the principle, but generally as regards the method. Apart from the principle, I had to rely on the best expert advice I could get as to method and time. The advocates of a managed currency say: "Why do you not continue to manage the currency? See how successful it has been. See how well it has been done. Why do you not continue a managed currency?" I agree that the experts at the Treasury and the Bank of England who have managed the currency during the past few years have been wonderfully successful. This is all the more remarkable, because those years have been years of violent political fluctuation and disturbance, in spite of which they have managed to steer a steady course, maintain a fairly stable financial policy, and promote and enhance British credit. That is a great achievement. But surely the experts, to whom this achievement belongs, must be very high authorities on the subject. Surely they are the people who ought to know most about it. Surely their opinion counts more than the clever arguments of academic theorists or the interested attitude of party politicians as Minister, and the Government take full responsibility. I am not setting our opinion up, but I am saying we are right to be guided by the statements of opinion we have received from them. Surely if you can rely upon a body of expert opinion which has actually conducted financially the affairs of this country with success, and tendered advice to their Ministers—a long and changing succession of Ministers—you are entitled to base yourself with real assurance upon the advice you receive from them. When the men who have managed the currency so well, according to the opponents of the present Bill, tell me that they can manage the currency no longer upon this basis, and tell me it would have been impossible to have managed it so far as they have unless they had always had the return to the gold standard as a goal to steer towards, and that if we were now to repudiate the gold standard, and introduce legislation for the purpose of prolonging the embargo, an immense injury would be done to the whole structure of British finance, surely their opinion should carry great weight. That is the advice upon which I have to rely, and to which I am bound to pay the greatest attention.

7.0 P.M.

I have endeavoured, of course, to the best of my ability to think out the problem for myself, and 1 will give the House a few non-technical reasons why I think we are bound to take this step and take it now and take it in this particular way. The first of these reasons is the position of this crowded island, which could not support its present population by the unaided exertions of its agriculture, its manufactures, or even its shipping, unless these exertions were supplemented by the worldwide interests of this country in finance and business. The great working-class population such as we have here requires, above all things, and our economic problem requires, above all things, close and con tinuous contact with reality. There is no country in the world that can less afford to see its policy diverge from economic facts than our own. If we tried, whatever Government was in power, to inflate our currency or credit in order to produce hectic expansion not warranted by underlying facts, the consequence of that action would be widespread misery among the population and probably lasting injury, perhaps even fatal injury to the structure of our trade. We are often told that the gold standard will shackle us to the United States. I will deal with that in a moment. I will tell you what it will shackle us to. It will shackle us to reality. For good or for ill, it will shackle us to reality. That is the only basis upon which we shall be standing, and I believe it to be the only basis Which offers any permanent security for our affairs. That is my first broad reason. The foundation of Great Britain's economic policy must be, as far as possible, based upon reality.

Now the second reason is one which I think the Labour party, the official Opposition, might consider. We are not a self-supporting country. We have this immense working-class population. We have a population twice as dense as that of France. These people are dependent mainly on overseas food and our industries are dependent on overseas raw material. What is one of their principal interests? It is surely stability of prices. When prices fluctuate violently, as in the year 1919, and when, as in 1920, there is a slump, the real wages of the work-people are continuously affected and almost every step in the wage movement either up or down is attended by industrial fighting. This fighting wastes an enormous quantity of wealth, and injures the whole community. On the whole, when there is inflation and undue expansion, I believe it to be true that wages follow with somewhat slower footsteps the swiftly rising scale of prices. Great disadvantage is caused in such circumstances by the decline in the value of money. Great strikes occur in the process of adjustment. Then when prices fall, another set of quarrels begins, and serious wage reductions are demanded which it is regarded as a point of honour to resist. There, again, you get friction, disturbance and sometimes the long arrest of production in important industries. Some fluctuations are perhaps inevitable, but we must reduce them to the minimum. We should endeavour to keep as steady a level of prices as possible, and we are far more likely to get that steady level if we are not drawn into over-trading and inflation, and we regulate our arrangements by one common standard of value. Therefore, I say that what is wanted in the general interest of the wage-earning classes of this country is a steady, trustworthy, honest, and, if possible, uniform standard of value.

What is my third reason? We are not only the financial centre of the world; we are also the centre of a wide Empire. If we detached ourselves from the great self-governing Dominions, which are nations in themselves— the unique glory of this country, the like of which no other nation has been able to show— if we detach ourselves from their movements, we run the great risk of becoming isolated and loosening those bonds, the continuance and the fortification of which are indispensable to our wellbeing.

Canada is already linked to the gold standard. South Africa, independently of us, was about to return to the gold standard. I received in the last few months frequent inquiries from Australia as to what is our position, and indicating what were their desires. If we had shown ourselves incapable of taking up any position at all, the self-governing Dominions of the British Empire might have gone on to the gold standard by themselves, and the Mother Country alone would have been left to pursue a different policy. They would all have traded together, and the inconvenience they suffered by reason of the conditions of exchange would have been swept away, as far as they themselves were concerned. Australia would have traded with South Africa and all the Dominions would have traded with the United States of America on a gold basis, and it would have been a, gold basis with the pound left out; it would have been gold on the basis of the dollar, not of the pound, and we should have been left on a different foundation. That would have been a condition of affairs disastrous from every point of view.

The same is true of foreign countries with which we deal. We have immense dealings with them, and we must have greater dealings with them if our prosperity is to revive. If the English pound sterling is not to be anchored to the standard which everyone knows and can trust, and which everyone in every country understands, and can rely upon, the business, not only of the British Empire, but of Europe as well, might easily have come to be transacted in dollars instead of in pounds sterling. I think that would be a great misfortune—a misfortune which, if once incurred, might continue. Those are the three great reasons, economic, social and Imperial, which convinced me that we should return without delay to an international gold standard.

We are told, in the first place, that the gold standard will be injurious to us, because America is in favour of it. It is quite true that the universal or widespread adoption of the gold standard will be of great advantage to the United States, but, as my right hon. Friend pointed out, it by no means follows that because it is an advantage to the United States it will not be an advantage to us. The great free trade economist Bastiat, in a celebrated sentence, declared that all legitimate interests were in harmony, and I see no reason why what benefits the United States should not perhaps benefit us in our special needs as much or even more. We are told that the gold standard will put us in subjection to the United States, that we shall be shackled to them, and that we shall be hound hand and foot, and forced to conform to the course of their affairs. We are reminded that the United States have 2800,000,000 of gold, half the supply of the whole world. They have at present, in the Federal Reserve Banks, £300,000,000 above their requirements. Naturally we are told that if she is to use this gold, her interest is to make it as available and potent as possible. Naturally she will help us to make it the dominant standard of value. I think that is a fair statement of the argument.

What is there to say on the other side? First of all, whether we go on the gold standard or not, our interests are profoundly and intimately involved in those of the United States, which is larger than we: in some respects she is richer than we are. The two great communities are woven together by a thousand ties of trade and finance. We pay every year our £35,000,000 of war debt to the United States, but that is a small part of our mutual transactions. We have to buy from the United States the greater part of our cotton, tobacco and a large proportion of our raw materials and wheat. We purchased last year £240,000,000 of goods from the United States. Whether on a gold standard or on a managed currency or on any other scheme which can be conceived, her fortunes are bound to sway and influence ours whenever she booms or slumps. Before the War or after the War, whatever we do, our prosperity was and is bound to be affected by conditions across the Atlantic Ocean Therefore it is not a question of whether the return to a gold standard makes us dependent on the United States, but whether it makes us more dependent or dependent in an unhealthy and a subservient manner.

I think that the answer to that question depends on another. Shall we ourselves be stronger on the gold standard or off it? If that great entity of the British Empire united on this gold standard will be stronger, then we shall be in a better position to hold our own in regard to the strong influences which will sweep across our affairs from the other side of the Atlantic. We are already very strong. In spite of all our war bur dens and the immense exertions we and the exhaustion that followed upon it, we have managed to maintain London as the financial centre of the world. We have the control of a vast amount of the world's business. We have a magnificent credit to which all parties in this House have contributed. We have still, it is calculated, £3,000,000,000 of foreign investments, the interest on which is calculated at about £220,000,000 a year. Even in gold reserves the position of the British Empire is impressive. We have £153,000,000 here and £107,000,000 is held by the Dominions.

Then, also, the British Empire is the main source of the world's gold supply. £60,000,000 of gold a year, or 70 per cent. of the whole supply of the world, comes from under the British flag. Britain and her Dominions, standing together united, are an enormous power, a power so great, so intricate, so comprehensive that it is strong enough to exist side by side in an amicable association with even a larger economic and financial Power, without being prejudicially affected in its own essential independence. In this way it is true, I think, to say that the interests of Britain are not dependent upon the United States, but that the interests of both countries are interdependent.

Let me deal with another of the elements of doubt which have arisen. We are told of the £300,000,000 of surplus gold that are lying in the vaults of the United States. No doubt that gold will not move physically to any large extent. But it is possible that, as a result of the wide adoption of the gold standard in this and other countries, that this gold, which is now inert, will gradually become active. This gold will gradually serve as the foundation of credit in many parts of the world. If that is so, there will ensue a slow, gradual, healthy and perfectly legitimate expansion of credit all over the world. We may enter upon a period similar to that which we passed through in the "nineties," when, without any violent fluctuations or improper inflation, there was a general broadening of credit due to the discovery of the gold-fields of South Africa. It makes no difference whether the gold is 4,000 feet below the surface of the Rand, or 40 feet below the surface in the vaults of the Federal Reserve Bank. It might well inaugurate a period of healthy expansion during which every one would be kept in check by continuous reference to the same standard of value. It is quite a different process to those processes of inflation caused by setting the printing press to work to multiply the paper currency, or by increasing the Floating Debt by selling Treasury Bills. It is a process founded on solid facts, and related at every stage. I do not care to prophesy whether such a change will take place or not. If it take place, it will certainly be accompanied by a gradual increase in the consuming power of every branch of the world's trade.

Then we are told that this gold may come here in large quantities. We may be "flooded with gold" as the right hon. Gentleman the Member for Colne Valley says. That is not precisely the problem that has most occupied the minds of my advisers during recent months. In his carefully balanced speech on both sides of the question, the right hon. Gentleman contrived to throw doubts on our policy, first of all by intimating how easily we might be thrown into inconvenience by a drain of gold, and, secondly, how easily we might be thrown into inconvenience by being flooded with gold. It is suggested that if gold became a plethora here, and is discharged upon us in quantities which we could not properly absorb, prices would be forced up, and we should have a serious economic situation. Such a situation, however fantastic, however unlikely to arise, would leave us perfectly cool. The right hon. Gentleman asked: Why have we not suspended the obligation of the Bank of England to buy unlimited gold at a fixed price? Ways? If you are to maintain stability, you must resist disturbing influences from both sides. Stability is equally deranged by a too high exchange as well as by a too low exchange. It is essential that the bank should operate as a balancing instrument both ways—to buy gold when it is tendered, to deliver gold when it is demanded, always at a fixed, known, and previously declared price. In this way alone can we create a financial pivot on which the whole process of stabilisation will revolve. We are in this country in a position, alone among the countries of the world, to have no need to fear a violent flooding with gold. By a judicious and far-seeing provision inserted in the American Debt Settlement—a settlement to which I think the right hon. Member for West Swansea (Mr. Runciman) referred earlier in the Session—we Lave a right to pay off the principal of our debt to the United States at any time in gold. If, therefore, gold made its appearance in this country in inconvenient quantities, and tended to drive prices up, all the Treasury would have to do would be to float an internal loan, purchase the gold, and remit it to the United States in cancellation of the War Debt. At every stage we should gain in this transaction. We should be paying off oar debt by the most advantageous method, and we should be substituting an internal debt for a vastly more burdensome overseas external debt.

I do not, however, think there is any chance of this sort of thing happening. That is the sort of thing that only happens in heaven. I think the facts I have stated will constitute an absolute answer to the particular set of nightmares which are usually felt by those who fear we shall be thrown into convulsions by American gold. We have inexpugnable means of defence if such a situation arose. But where will the gold, or the credit founded upon it, go if it be released from the United States in future years? It will go, as we believe, to European countries and other parts of the world, and in so far as it operates there, it will tend to set them on their legs again. They will, of course, be more intimately associated with the United States in consequence of their loans, but a general revival is what we have to base ourselves upon. A general revival of consuming power all over the world is the hope that this country must cherish. That growth of consuming power internationally is bound to react favourably upon us. We cannot live without exports to the markets of that world.

I must take one more point—if I am not detaining the House too long—the question of the index figures. We are told that there will be an immediate difficulty because the British index figures are five points, I think, different from the figures of the United States. My right hon. Friend the Financial Secretary very rightly pointed out that these index figures are not in themselves necessarily a complete guide. They are based on different foundations in each country-150 articles here, 400 commodities there. These figures are not an absolute guide. It does not at all follow that an absolute equation of prices is essential to avoid disturbance and adjustment when the gold standard is restored. There is a certain degree of tolerance, as it is called in engineering, which has existed in the past. It is not a clear-cut mathematical calculation. Those who found clear-cut mathematical calculations on these index figures are likely to strain the figures further than they are warranted, and to draw wrong conclusions.

We all lived through the year 1907. In that year the index figures of the United States and of the United Kingdom were on a certain basis, 116 and 106 respectively. We were on the gold standard then. No violent convulsion occurred. Matters adjusted themselves between the two countries. In 1913—which is often taken as a starting-point—the figures were on the same basis, 123.5 in the United States, and 116.5 for the United Kingdom—a difference of seven points. The difference to-day is less than five points. I do not see why there should be any violent readjustments or fluctuations at the present time on account of the difference in price levels of the two countries. Those price levels have been steadily approximating, and are now in a nearly harmonious condition for the introduction of such a change as the reversion to the gold standard.

We are told: "If you are wrong, if the strain is more than this country can bear, if there is a drain of gold, if we show undue weakness, there will be an increase in the Bank rate which will check enterprise and increase unemployment." I am not going to prophesy about the Bank rate, but I will say this: that I do not know of any immediate reason for an increase. Bank rates higher than 5 per cent. have been known before the War, in the autumn especially, when heavy purchases were being made in the United States by this country. I am not inclined to prophesy, but, certainly, nothing that has happened in the week that has passed since we took the momentous step of reverting to the gold standard brings the prospect of a rise in the Bank rate any nearer.

One thing that would bring about an immediate increase in the Bank rate would be the rejection of this Bill. It would prevent our credits in the United States. It would lead speculators to attack our parity. There might be an immediate demand for sovereigns for internal circulation. The only possible alternative to this Bill is a speedy and serious rise in the Bank rate. If we are to adopt the course recommended by the Labour party—which I am sorry to say they have persuaded the right hon. Gentleman the Member for Colne Valley on his responsible authority to father—if, I say, we were to adopt that course, there would be a sudden and an immediate rise in the Bank rate. I know that there is not the least chance of the House assenting to such an unwise proposal. At the same time, it is worth noting, in view of some of the criticism and attacks that have been made during this Session upon the rise in Bank rate, the probable reactions which would occur if the Bank rate were raised.

The first is that if prices have been rising unduly, if there has been over-trading or inflation, prices are prevented from rising further. That is the first reaction. Is that a bad thing for the wage-earning classes? Since when has an undue increase in the cost of living been a matter of indifference to the wage-earners? The second reaction is that speculation, as apart from legitimate business, is checked, rings are broken, bubbles are pricked. If food or raw materials are being held up in large quantities for a rise in price, speculators are forced to disgorge, and the commodities are thrown on the market at reduced prices. Anything like a corner is prevented. Is there anything in that contrary to the interest of the wage-earning classes?.

What is the third reaction? The value of gilt-edged securities, which varies to some extent inversely to interest rates, is somewhat reduced. The right hon. Gentleman the Member for Swansea (Mr. Runciman) spoke with much reprobation, the other night, against therentierclass. As the Rank rate rises, therentierclass, in so far as they are owners of gilt-edged securities, will find their invested capital priced somewhat lower. Is there any reason why that should arouse the wrath of the Labour party? We on this side of the House regard it as a misfortune, bat I should think it would make an appeal to many of their most deep-seated convictions. There is a fourth reaction which attends the rise in the Bank rate. I mean the improvement or maintenance of our exchanges, and particularly our exchange with the United States. Conceive the importance of a. stable exchange, a parity of exchange, with the United States. When sterling equals gold, or is on the same footing in relation to gold as is the dollar, we are able to purchase the £240,000,000 worth of goods that we have to buy from the United States on the most favourable terms. We are able to make our debt payment of £35,000,000 on the most favourable terms. The same argument applies to a large portion of the £220,000,000 of interest due to us from our £3,000,000,000 of foreign investments. That is largely payable in sterling, and when sterling is equal to gold we receive that interest on the most favourable terms. The same argument can apply to any payment that might be made to us in regard to inter-Allied debts.

In so far as sterling lags behind gold, there is on all these important accounts a heavy loss. If the pound dropped, to four dollars, as I am advised it might have done had we definitely announced the incapacity of this country to resume the gold standard, or as it might do now if the House rejected this Bill, let us see what we should lose—I do not say what we should lose indirectly, for that would be far greater, but what we should lose that is traceable and recognisable. My figures are very rough. We should have to pay nearly one-fifth more on our payments to the United States, whether for debt or raw materials and food. Similarly, we might lose one-fifth of our £220,000,000 of interests on foreign investments. That is, we might lose nearly £100,000,000 per annum on our external overseas trading account., or nearly three times the present debt we have to pay to the United States. It is considerations like these which have to be balanced against the many disadvantages which follow when a rise in the Bank rate takes place.

These are not matters of theory. These are all matters of recent experience. All these reactions took place when the Bank rate was raised in March. The exchanges were maintained and improved, the value of gilt-edged securities slightly diminished, the cost of living was slightly lower, real wages were slightly increased, enterprise was slightly chilled. Most remarkable of all was the effect upon speculation. The Federal Reserve Banks of the United States form a system which, like the Bank of England, is managed on the broad plane of public interest. When the Federal Reserve Board raised the American rediscount rate, it corrected and prevented unwholesome developments of speculation. An important feature in this speculation was an attempt to hold up the wheat supply. What was the result of raising the rate? Wheat prices dropped 30 cents in a few days. The Bank of England acted shortly after in harmony with the Federal Reserve Board, and in England the quartern loaf immediately fell in price. Surely that is a matter of some consequence to the Labour party. The right hon. Gentleman the Member for Shettleston (Mr. Wheatley) made a most serious attack upon the rise in the Bank rate. It was a most grave attack. He suggested that it would double the cost of building, and so add enormous burdens to the working classes. Does he really think that I, as Chancellor of the Exchequer, ought to have put pressure on the Governor of the Bank of England, quite unusual pressure, to prevent a diminution of excessive speculation, and a consequent reduction in price of the loaf of bread?.

Since I have been forced to deal at some length with this question of the Bank rate, let me repeat what I have already said, in order that there should be no misunderstanding, that I know of nothing that would justify an increase in the Bank rate in the immediate future. On the contrary, the situation is stable. All the evidence we have goes to show that the great transition to the gold standard has been effected so far—I am not going to prophesy about the future, not in the slightest degree—has been effected so far with ease and with success. I ask the House to pass this Bill, and to pass it with all despatch, as a matter of high public interest. The step we have taken of returning to the gold standard has, for good or ill, been taken upon the responsibility, which they do not shirk, of His Majesty's Government. We should be mad and criminal if, having taken that step, we deprived ourselves of any reasonable precautions which all authorities, even those opposed to the principle of the return to the gold standard, unite in regarding as indispensable.

As to the future, that must make its own proof. It is a decision and a policy which cannot be judged by the incidents of a few months, which cannot be finally judged even by the fluctuations of a few years. It may be that in two or three years material for forming a just provisional judgment will exist, and that the House will be able to say to the Government, "You did right" or "You did wrong." We have acted, however, with the utmost care and forethought, we have acted after full deliberation, we have acted with confidence, and we have certainly acted with decision. I am glad to think that we possess sufficient Parliamentary power to enable us to drive through any temporary squalls or storms towards our destination, and that we possess not only the power in this Parliament, but the time to follow long views to tangible conclusions.

Sir ALFRED MOND

The right hon. Gentleman made some declarations which, I think, perhaps require a little emphasising by one who, like myself, remains, in spite of the right hon. Gentleman's eloquence, still entirely unconverted to the wisdom of the step the Government have taken. The most important part of the right hon. Gentleman's statement was the emphasis with which he repeated that ho sees no reason why the Bank rate should be raised at the present time I am very glad he made that declaration, because, as he knows, considerable uncertainty, and I might add apprehension, has existed in financial circles in the City, since his policy was announced, as to what the result of the action of the Government would be. Therefore, his emphatic declaration will undoubtedly allay the present uncertainty at any rate, and from that point of view will do a great deal of good. When I heard the right hon. Gentleman dilate on the great advantages of the rising Bank rate, apparently accompanied by no disadvantages to trade or commerce, I was astonished he did not advocate a continual raising of the Bank rate. According to him, as the Bank rate went up, so everything was more beautiful in the garden all the time. What the right hon. Gentleman does not seem to apprehend is that dear money depresses industry, restricts credit and creates unemployment. I am not alone in this view. I have the authority of an expert quite as good as those of the right hon. Gentleman, Sir Josiah Stamp, one of the greatest financial experts of the day. He views with grave apprehension the step the right hon. Gentleman has taken. I am not supporting in the least the withdrawal of any precaution which the right hon. Gentleman has taken—it would be madness to take this step without taking all possible precaution—but what some of us still question is whether this is the right moment to take this step at all.

I must confess the right hon. Gentleman was not very convincing on this subject. We have never departed from the gold standard in this country. What we are returning to is not a gold standard, but free exportation of gold, two entirely different things. The £5 note and the note have been legally convertible. The right hon. Gentleman is, it is true, making our note issue unconvertible by his Bill, and I do not quarrel with him, but he cannot say he is returning to the gold standard. The right hon. Gentleman said the other day Germany has returned to the gold standard. It is true she has based her currency on gold, but does he contend that Germany is allowing or could possibly allow free export of gold for exchange purposes? These two matters ought not to be confused, though they seem to be largely confused both in the Press and in the Debates here. The whole question is whether or not we can release gold for exchange purposes without running a risk of such a serious dislocation of our monetary system as to increase the great depression existing to-day. If trade were good, if employment were constant, and commerce were showing an upward tendency, I should not have the slightest hesitation in agreeing to the step the right hon. Gentleman has taken; but exactly the reverse conditions are in existence; and while the right hon. Gentleman represents us as a great purchaser of goods, while he declares the population of this country must be able to buy goods cheap, to buy food cheap, and raw material cheap, can he not yet understand that what is the matter with the trade of this country is that we cannot export, not that we cannot purchase. If he would point out to any business man how the step he is taking would increase the exports of this country by one ton, he would not have the Federation of British Industries and other great groups of industrialists opposed to his policy.

Mr. CHURCHILL

They are not opposed.

Sir A. MOND

Yes, they are.

Mr. CHURCHILL

No they are not.

Sir A. MOND

If I had the time, I could give the right hon. Gentleman proof. I happen to be on the council of the Federation, whose views I know probably much better than the right hon. Gentleman. All his argument is based on the old idea of how much money you save by a better exchange with America, and not how much trade you lose with all countries which have a low exchange. I am not going into the whole argument of inflation and deflation, except to point out that the right hon. Gentleman apparently does not mind gold inflation; as long as your inflation is incurred on gold, it is all right. It is just as much inflation when it is based on notes. As long as the relations of currency are kept either system will work. But that is by the way. A discovery of a great new gold field would also lead to dislocation, and perhaps serious dislocation. Instead of a boom in industry we are suffering from a depression.

I have heard all these arguments about the mysterious way in which our volume of trade might be improved, but may I point out that all the time we are seriously occupied dealing with the problem of the unemployed. Why such a policy as this should be pursued in regard to this question, I fail to understand. The Chancellor of the Exchequer asked us to take a long view, and then he said we should be all right. I want to know what is to happen in the interval. Can we really afford to create and stimulate industrial unrest at such a moment as this? A great many people take a very serious view of our position at the present time. Nevertheless the Government have taken a position and all I wish to say on behalf of the Liberal party and myself is that we take no responsibility for that decision, although we sincerely hope and trust that the results we apprehend will not happen. There are a great many people who gravely and seriously doubt the wisdom at this moment of taking such a step as that which the Government have announced.

Mr. JOHN BAKER

I think the Chancellor of the Exchequer was rather unfortunate in his selection of the year 1907, when he said that we suffered from no convulsion in trade. If the right hon. Gentleman will look up the figures he will find that shipbuilding, engineering and the iron and steel trades were in a terrible state at that time. The Amalgamated Society of Engineers had 25 per cent, of its members idle, and fully 50 per cent were idle in the shipbuilding districts of this country. The boiler makers and the iron and steel and shipbuilders' societies had nearly 100 per cent. of their men idle in the shipbuilding centres. If that represents our normal trade condition, then I hope we shall not see it again. I do not think the right hon. Gentleman could have selected a worse year than 1907. I want to enter my protest, not against the gold standard hut against the attempt now being made to get back to pre-War parity too hastily because of its effect on certain industries of this country in which normally there are over 2,000,000 people employed in the iron and steel, shipbuilding, engineering and allied trades, and coal mining. It is now less than 12 months since the tin plate trade was enjoying a boom in trade, and at the present moment the technical Press are telling us that the tin plate trade is working about 45 per cent. of its full capacity. The Chancellor of the Exchequer says that during that period we have been making efforts to get back not to the gold standard, but to pre-War parity. The banks and the Government have been using their influence to get us hack to where they believe we ought to be, but if my theory is sound, what would happen under those circumstances is exactly what has happened.

After the raising of the Bank rate last year I took upon myself the role of a prophet and I went clown to Wales, and told the people there to get ready for bad trade, because it was coming. I had a friendly meeting and it was not an ordinary trade union organising meeting, because there were two or three employers there, and after the meeting an employer who is concerned with no fewer than half a dozen large works in Wales told me that my view of the situation was correct, and they were already experiencing a slackening off in trade. The right hon. Gentleman the Member for Hillhead (Sir R. Horne) told us perfectly straight that that is what we can expect, and he believes it is a good thing. He says that getting back to the gold standard will enable us to buy more cheaply in other countries. My view of that is that it will enable the people in Belgium, France and Germany to sell to us things more cheaply than we can make them here, and consequently our people will be thrown out of work by the action which the Government are taking in what they call their attempt to preserve industry.

Since the Bank rate was raised in March we have reports at our office of no fewer than three steel works having closed down. There are rumours about other places closing down, and I am pleased to say that one of those rumours has proved to be without foundation, because it was only a department and not the whole works that was closing down. In the iron and steel trades in December last there were 57,000 people out of work. How is going back to the gold standard going to bring those people back to work? After the slump in 1920, ship plates were £24 10s. per ton. Last week I got the result of the accountant's audit for four or five works making ship plates, and the average price was £9 5s. per ton. If merely reducing the price is going to bring trade, then all the plate mills ought to be working full time, but they are nearly all idle. As a matter of fact there is a majority of the plate mills lying idle now when prices are a little over one-third of what they were in 1920.

We are told that if the workmen would only accept a reduction in wages, that that would enable prices to be reduced, and we should get trade. The wages in the iron and steel trade are only 47 per cent. of what they were in 1920 or less than half. These are not fiddling tin-pot reductions, but they are drastic reductions. We have 60,000 people out of work in the iron and steel trades, and part of the reason for it is our endeavour during the past 18 months to get back to the geld standard. I have sense enough to realise that it may be in the interests of the country to go back to the gold standard, but do not tell me it is in the interests of the men who will be thrown out of work. It may be argued that the iron and steel trade is only a section of the interests of this country, and if it is necessary for them to suffer for the good of the whole, let them suffer; but do not tell me that this policy is a good thing for the thousands of iron and steel workers and colliers and shipbuilders who are out of work. Strangely enough, we had another set of figures in the Press this morning. We raised the Bank rate again in March to help to stabilise the position so that the pound can look the dollar in the face. This week the Press has been asserting that our exports are increasing, but I would like to point out that at the same time the number of unemployed is increasing.

Mr. WALLHEAD

The Chancellor of the Exchequer said that.

Mr. BAKER

I do not remember the Chancellor of the Exchequer saying it, but that is the effect one would expect from a return to the gold standard, and I have been arguing that in our trade journal ever since it was mooted about 18 months ago, and I have urged that the nearer we get to the gold standard the worse it is going to be for the iron and steel trades of this country. I wish the Chancellor of the Exchequer had not got his eyes so far from home, because he seems to get them glued to America, from which country he thinks we are going to get cheap food. All I would say on this point is that we shall not get cheap food from America if those on the Chicago Wheat Exchange read what the right hon. Gentleman has been saying. The right hon. Gentleman knows that we have not got a free market, and the price of wheat is more likely to be dictated by speculators on the Wheat Exchange in Chicago than anywhere else.

I wish the right hon. Gentleman had given some figures to indicate whether the bulk of our trade is being done with countries with appreciated currencies or depreciated currencies. The nearer we get to pre-War parity, the further we get away from the franc and the mark. Our competition in the iron and steel trade is not with America. I do not suppose America is sending anything in that line, except some special qualities of steel for high-grade tools, or material of that description. Belgium, however, is sending a large quantity of iron and steel, although Germany is not sending so much. As far as Germany is concerned, we can in this country make one brand of pig-iron more cheaply than they can, and the Germans can make another brand more cheaply than we can in this country, and consequently we are able to exchange with them ton for ton. With France and Belgium, however, it is different. In this House it was argued quite recently, merely because we had imported 1,000,000 tons more steel last year than in 1913, the workers in the iron and steel trades ought to suffer reductions in wages, notwithstanding the fact that they are at present only receiving about 48 per cent. of the wages they were receiving in 1920.

8.0 P.M.

By this measure we are taking a course of action that is going to help Belgium and France to undercut us in the future just as seriously as in the past, with the direct consequence that there will be more people unemployed in the iron and steel trades, the coal trade and the shipbuilding trades. This morning I saw in the Press a statement that 4,000 miners in the County of Durham have got notice to quit. I am prepared to say that that is a direct consequence of hurriedly getting back to pre-War parity, and that is one of the things that is helping to close the mines of this country. I sincerely trust that the arguments of the Chancellor of the Exchequer will turn out to be right, but nevertheless I am going to vote for the Amendment, and against the hurried attempt that is being made to get back to pre-War parity. The Chancellor says he has made splendid arrangements. Probably the purchase of the whole of that money in America is one of the reasons for the delay in getting back to the haven that he wanted to reach. The raising of the Bank rate was one of the consequences of buying that money, and it has created difficulties for employers in the iron and steel trades. Although I am a trade union officer, and we are supposed to be a vicious lot, ruined employers are of no use to me. I do not like to see our employers put in a difficult corner, and when I hear rumours of works closing down, and hints that they are closed down because of the raising of the Bank rate —I assume that that is, at least., one of the causes—it gives me no pleasure at all, because I remember that the men connected with those works on both sides, both the financial side and the manual labour side, are going to have to suffer for it, and I think it is regrettable.

Lieut.-Commander KENWORTHY

I should not have intervened at all in this Debate, had it not been that the only Liberal who has already spoken, namely, the right hon. Baronet the Member for Carmarthen (Sir A. Mond) does not speak for myself in this matter. I find myself in the unusual and somewhat embarrassing position of supporting the Chancellor of the Exchequer, at any rate in this portion of his Budget. In this portion, possibly alone. I find myself in agreement with him. I think the course of returning to the gold standard is absolutely right. I could answer the arguments of the hon. Member for Bilston (Mr J. Baker)—.

Mr. J. BAKER

I wish you would give us some work, and never mind the arguments.

Lieut.-Commander KENWORTHY

I can deal with that also, but at this stage the question is a financial one, and I should like to raise one or two points on the Bill itself. I am informed by a distinguished financial authority that this Bill is entirely unnecessary. We are on the gold standard now, and the Bill is not wanted. In any case, I should like to ask the representative of the Treasury why Sub-section (1, c) of Clause 1 is inserted in the Bill. Why is it not to be legal, after this Bill has received the Royal Assent, for a citizen of this country to exercise his rights under the Coinage Act, 1870, and take bullion to the Mint and have it valued and coined as heretofore? Is there any objection to that? Why should not gold bullion existing in the country in private hands—as it does, although I dare say there is not very much—be coined and put into circulation?.

The right hon. Gentleman prides himself on the prescience of his officials in having, some two months ago, arranged a credit for 166 million dollars in the United States. At that time the value of the dollar was 4.70 to the £. To-day it is 4.84. Therefore, if this step had not been taken, we could have purchased those 166 million dollars at a very much cheaper price, and there seems to have been a direct loss through unnecessary nervousness on the part of the Government and their Treasury advisers. Further, I am not sure, so far as I can ascertain, that this credit is necessary. Our position is strong enough to enable us to peg the exchanges as and when and if required, and it throws doubt on our whole financial stability that we should have had to establish this dollar credit in New York. I venture to say, from what I am advised, that a mistake has been made in doing so. I must mention, also, for I do not think that this point has yet been made in the Debate—though I have had to be away for a short time—that it must be brought home to people now to-day, when we are getting back to gold, what a terrible mistake was made in not having a capital levy, especially on War wealth, in 1915. The opportunity was lost; it cannot be done now, and it has cost the country very many hundreds, if not thousands, of millions of pounds. That would have been the time to get back to the gold standard, or very near it, and it is a great pity that it was not done.

There is one more question that I should like to ask. Do the Treasury expect, do the Government expect, that the gold sovereign will come into circulation gradually side by side with the paper money? I understand that the half-sovereign is not to be re-introduced, according to my reading of the Report of the Committee. It is, of course, a. fact that we have so much money in circulation in the country to-day that we could not possibly go on to gold currency immediately. That I accept, but is it expected that we shall do it in the future? I understand that the Bank of England will presently issue £1 and 10s. notes in place of Treasury notes. I presume that that recommendation of the Committee is to be carried out. I do not see any reason why the circulation of gold coinage which may exist in private hands or otherwise should not be encouraged. As the Committee point out, the gold coinage in circulation in a country is in the nature of a reserve, which in case of emergency can be called in, as was done during the War, and I do not see why our gold sovereigns should not be visible occasionally in the hands of Englishmen, and not only, as at present, in the hands of subsidised Arabs in Mesopotamia and other parts of the Middle East, who are the only people who have them at the present moment.

With regard to the question of employment for our people, I really think tin main cause, of these works closing down at the present time is that they are over-capitalised, and my remarks about the lost opportunity of 1919 are, I think, very apposite to that. But where this return to gold will help employment is by making it easier for us to trade with other countries, and that is my answer to the hon. Member for Bilston. Our export trade will he made easier. One of the countries at present on gold that has not been mentioned is Russia. Everyone is talking about Germany, Switzerland and Sweden being on gold, but two years ago the Russians, without any external help at all, by the action of one of the greatest financial geniuses in Europe, who was at the head of financial affairs in Russia at the time, got back to the gold standard, and at present the 10-rouble piece stands above the dollar and the pound. That is a most extraordinary thing. In these circumstances, and in view of the fact that our Dominions are going back to gold whether we like it or not—Canada is already on a gold standard, and South Africa is going to be—I think it would have done our trade a great deal of harm if we had not gone definitely and permanently, as I hope, on to the gold standard, as we have at the present time. If it may mean a fall in prices, that is not a terrible thing. If it may mean a little more deflation and a little unemployment temporarily, we have got to go through that stage, and we ought to have done it long ago, preferably in the way I have suggested. We are doing it now not a day too late, and I am prepared to support the Government for that reason. There are advantages and disadvantages, but the advantages are in favour of an export trading nation like this. I welcome the excellent Free Trade sentiments of the Chancellor of the Exchequer, and I hope he will remember them when we come to discuss other parts of the Budget later.

Captain MOREING

There are one or two observations that I should like to offer on the Second Reading of this Bill. The first point I wish to make is that I, for one, engaged, as I am, in industry in this country, welcome whole-heartedly the decision of the Government to return to the gold standard. I welcome it for a reason which has hardly been sufficiently developed in the Debate this afternoon. This country is confronted at the present moment by the decision of Parliament in 1920, when a time limit was placed upon the operation of the Gold and Silver (Export Control, etc.) Act, and we have now to decide whether we shall return to the gold standard or whether we shall prolong the operation of that Act. I am satisfied that a decision to prolong the operation of that Act would entail a fall in the exchange value of the pound sterling. For five years this country has been struggling with one object in view, namely, to return to the gold standard, and I am certain that the whole of the efforts we have made in that direction would have been thrown away if the Government had not taken the action which they have Taken. I am certain that, in deciding to return to the gold standard, they have acted in the best interests of the country as a whole.

It has been my privilege, in the years that have followed the War, to travel extensively in Europe, and I have seen the demoralising effect of an unstable currency. I was in Vienna just before and just after the Austrian currency was stabilised, and I was in Berlin just before and just after the German currency was stabilised; and the difference which the stabilisation of the currency made to those countries had to be seen to be believed. In questions of this kind sentiment is as important as, if not more important than, the actual hard economic facts of the case. A return to gold raises the national self-respect. We are conscious once again that the money which we handle is really good, hard money. The arguments that have been brought against the return to the gold standard at the present time are exactly those which I should have expected. They are the arguments of timidity. They are always excellent reasons for never doing anything. They are excellent reasons for waiting another month, or another six months, or another 12 months, and at the end of that time those arguments could be repeated in favour of a delay for another six or 12 months. What are, in effect, the arguments against the return to gold at the present time which are presumed to out weigh the decision which has been taken? They are two. One is that the time is not opportune, and the second is that it may involve us in a rise of the Bank rate. If we do not return to gold we shall be involved in a rise of the Bank rate, t being the declared policy of every Government since the armistice to return to the gold standard at the earliest possible moment. Does anyone suppose that if the Amendment were adopted and the reintroduction of the gold standard was delayed we, in this country, should be happy if we saw our exchange sliding down from 4.84 to 4 or perhaps below that figure. It would destroy our self-respect. It would have a very had effect, not only on our external relations, but on themoralof the people of the country. I believe the policy the Government have adopted is in this respect the correct one, and I am a little surprised to find that the Gentlemen on the Opposition benches, in their attempts to argue against the policy of the Government, have been forced back to the point of view that it is in the interest of the trade and industry of the country, and in the interest of the working classes, that prices should be maintained at an artifically high level. I cannot believe that that point meets with any general acceptance in the House or amongst informed opinion outside, and I am certain that the instinct of the people, which is undoubtedly in favour of a sound currency based on gold, is the right instinct, and that the policy we are pursuing to-night will be fully justified in the end.

Mr. BOOTHBY

I apologise for intervening so late in the Debate, but it is a very important subject, and I do not think we have really occupied too much time, in view of the fact that we are debating a question which is probably going to affect the fortunes, not only of people in this country, but of people all over the world for many years to come. In approaching the subject I am fortified by the reflection that where experts differ, especially to the extent they differ in this case, fools may tread with a greater possibility of success; and some of us on this side of the house view the action the Government has taken with a good deal of anxiety. I do not think the right hon. Baronet the Member for Carmarthen (Sir A. Mond) does any good by attacking the decision, because that decision has been taken. It is an accomplished fact, and we cannot improve the situation but by attacking the action the Government has taken. But I think it is worth while to look for a moment at the possible consequences of that action and at the course which the Government, having taken that action, ought not to pursue. The fear of those who criticise the return to the standard is a two-fold one. In the first place, we fear deflation as the result of this action, which would involve us in a rise of the Bank rate; and, in the second place, we genuinely fear that it may involve us in being under the economic control of the United States of America.

I should like to indicate the only method by which I believe those two fears may not be realised. As regards the first point, it is quite unnecessary to point out the evil either of inflation, which raises prices, or of deflation, which checks production, increases unemployment, and increases that distrust between the banking community and the industrial community which has been a feature of our economic life for the last two or three years, and the lack of which in Germany is, I believe, very largely responsible for the industrial success at present enjoyed by that country. I think the Chancellor of the Exchequer, when he sketched in such an alluring way the advantages to be gained by a rise in the Bank rate, was perhaps a little bit optimistic. I agree that in boom periods it is a very necessary and wise action to raise the Bank rate, but there is no doubt that in our present period of industrial depression, a rise in the Bank rate to 7, or even 6 per cent., would give thecoup de graceto many industries in the North and the Midlands which are at present just managing to keep their heads above water. No one knows what the result of this action is going to be; whether we are in for a period of moderate inflation, as the Chancellor of the Exchequer seems to hope, and as I think Mr. McKenna also hopes, or whether we shall have to deflate a little further; but I ask the Chancellor of the Exchequer to use every means in his power to avoid a rise in the Bank rate, which I believe in the next few critical months would be almost fatal, because I do not believe industry can stand it. What we want really is no further periods of violent inflation or deflation but stability of prices, and the success or failure of this return to the gold standard will be measured, undoubtedly, by the extent to which it achieves this end.

This brings me to the second point, which I think is a fundamental one. It is the underlying fear which exists both outside and inside the House that we are even now in the financial grip of America. The question we ask is whether the Federal Reserve Board of the United States is to be in future the arbiter of our economic destinies—what the right hon. Baronet the Member for Carmarthen pointed out the other day when he said, "Is a flurry in Wall Street to have the effect of causing a rise in the Bank rate, and a general instability of our price level?" That is what some of us are very anxious about, and we want to know whether by this step we have lost our power to control our own credit supply in relation to our own internal price level. Is our financial policy to bear no relation to our own internal price level? I think that is the real fear, and I think we have a right to be apprehensive on that point, and also on the point I made about deflation. But I believe both these fears need not be realised if the Government continue the policy they have taken up, in a certain direction. The position of the United States of America in relation to ourselves as compared with what it was before the War has been well pointed out by my hon. Friend the Member for Ilford (Sir F. Wise); but I believe by the international regulation of the value of gold in relation to commodities, we can avoid every single danger which might otherwise have accrued as the result of the step we have taken.

We here come for a moment to the Genoa Resolutions. My hon. Friend the Member for Ilford I think in his brilliant speech last week passed over this subject rather lightly. They are almost fundamental. I must quote one or two remarks which were made by the present Secretary of State for War at this conference. After observing that in his opinion the conference constituted a financial code not less important in the world to-day than was the civil code of Justinian—I hope his prediction proves to be a fact—he went on to say: In the resolutions which have been passed under the head of Currency, there is embodied the principle of preventing undue fluctuations in the purchasing power of gold, and therefore equally in the purchasing power of currencies based on gold. If this policy can be put successfully into operation, the price changes, which have paused so grave an unsettlement in trade both in America and in Western Europe, will become less frequent and less violent. The price changes to which I refer are changes in the general level of prices, changes which affect all commodities together. In recent years we have learnt to distinguish such changes from casual changes in individual commodities. Regulation of prices in this sense means regulation of credit. The experience both of the Bank of England and of the Federal Reserve Board in the United States since the War has demonstrated afresh the sensitiveness of prices to credit conditions. Thus the power to influence prices, and the responsibility for using that power belong to the great central Banks. As a result of the step the Government have taken we are now in a position to put into effect the Genoa Resolutions on currency, and that is a point which has not, I think, been sufficiently made in the House, and it is because I think it is of tremendous importance that I have risen in order to endeavour to make it. The essence of these resolutions is that European countries should now have recourse to devaluation, and stabilise the value of their own monetary units round a new gold parity, which we have now created. The mere existence of a currency system so formidable as the one which has been created during the last few days should make other countries willing to regulate their own monetary units by it. The point I am endeavouring to make is that the world value of gold, now that we have got back to parity, must not be allowed to be driven up, and we must so regulate the demand for gold that the value in commodities of the currency units of the world based on gold does not in the future vary substantially. For this there must be some control over the absorption of gold, and this can be attained by means of what has become known as the gold exchange standard.

. I must say one word about this gold exchange standard, though there are many experts in the Treasury who are very much better qualified than I to make a report upon this very difficult question, which was embodied in the Genoa Resolutions and which, it was admitted, could only be effective as the result of some such step such as we have taken, of restoring parity with the dollar. The object of the gold exchange standard is to maintain the aggregate uncovered paper issues as nearly as possible at a fixed amount; to provide for remittances between them on a gold exchange basis; and to control credit with a view to keeping the gold value of commodities approximately constant. To effect this, the principal bank of issue in each country which gives effect to the policy must be willing to offer credits, or paper money in exchange for credits, or paper money in any other, on terms just favourable enough to compete with gold, coupled with a direct limitation on the quantity of paper money. Thus the principle of the gold exchange standard is that the currency of each participating country, instead of being convertible into gold, may be convertible into the currencies of the other countries. To secure this convertibility the participating countries will hold reserves of "approved assets" in one another's currencies, certain of them, by establishing a free market in gold, becoming the gold centres for the maintenance of the proper gold reserves. There must be a proper regulation of the almost unlimited power which the central banks (the currency authorities) will have over the value of gold itself. Accordingly"— I am quoting from one of the Genoa Resolutions— credit will be regulated, not only with a view to maintaining the currencies at par with one another, but also with a view to preventing undue fluctuations in the purchasing power of gold. The importance of that Resolution cannot be over-emphasised. It is a recognition that we want to stabilise prices, and that for this the stabilisation of the value of gold is essential. Whatever factors affect the purchasing power of gold, one, the volume of trade borrowing, is undoubtedly susceptible to human control. Credit must not be regulated by the central banks after they have held the meeting which I hope and believe they will hold, simply with reference to reserve proportions. The central banks must watch the aberrations of the flow of purchasing power, and act early in order to check any severe tendencies one way or the other.

The broad effect of this policy will be not only to allow for an unlimited credit expansion without inflation, but also to aim at price stabilisation and, incidentally, at wage stabilisation, as, was so ably pointed out by the Chancellor of the Exchequer. The stabilisation of prices involves the stabilisation of wages, which is more important in this country than almost anything else. It depends on what the Chancellor of the Exchequer's motive is in having taken this step, whether the fear that some of us entertain about this return to the gold standard will be realised or not. Is his motive simply to return automatically to the pre-War gold standard, and that our credit policy should be influenced entirely in relation to the reserve of gold in the Bank of England? If that is the case, then I think we run a real danger, and I think he has taken a direct step back. But if, as I am perfectly certain is really the case after listening to his speech, he has taken this step in order to provide a basis for a new currency system, then I think we may say that by doing this he has laid the foundation stone of that new international economic structure which we must build up in the next 15 or 20 years in order to replace that which was smashed in 1914.

If this last assumption is true, and I devoutly hope that it is true, it opens up a wonderful vista for those of us who believe that it is useless to talk about European peace until we have established a firm and solid economic foundation in Europe, so that we may get some sort of real content among the nations. One could speculate almost indefinitely on the theme that if, as was recognised at Genoa, you can stabilise the value of gold, why not stabilise the value of every basic raw material? I realise that this argument is going far from the field of our present Debate. What I want to emphasise is, that we have really passed beyond the stage when one can recommend that there should be no control of economic forces, and that is why I hope we are not going back to a purely automatic gold standard. This fact was realised by hon. Members on this side of the House who advocated some form of Protection two years ago. I believe that the touching allegiance of hon. Members on the opposite side above the Gangway to the outworn and discredited doctrine of State Socialism is due to an instinctive feeling that we cannot allow economic forces in the present complicated and ultra-scientific age to have completely free play. The condition of the Liberal Benches is an ever present warning to this House of what happens to those who believe in the old Victorian Radical doctrine of laissez faire.

Mr. DEPUTY-SPEAKER (Mr. James Hope)

The hon. Member is getting far wide of the subject.

Mr. BOOTHBY

I agree; and I will conclude by saying that I hope the Chancellor of the Exchequer will pursue the policy of stabilisation of exchanges by means of an international conference, in the summoning of which our Government must take the lead, because responsibility for issuing the invitation was placed at Genoa upon the Bank of England. The Chancellor of the Exchequer can undoubtedly influence the Bank of England to a very great extent. If he does that, I believe that the step he has taken will prove to be abundantly justified, and that it will be the signal for a new and further period of prosperity for our country.

Sir GERALD STRICKLAND

I rise to support the appeal of the Chancellor of the Exchequer to my hon. Friends above the Gangway on this side of the House not to divide. That appeal was supported from the benches opposite by the right hon. Member for Hillhead (Sir R. Horne). This is an occasion when everybody who speaks should remove doubts and add arguments in support of the confidence which must be accorded by this country, the Empire, and the world, in this policy of the Chancellor of the Exchequer. My right hon. Friend the former Chancellor of the Exchequer concluded his speech by saying that nobody could say what was going to happen. That is a summary of 90 per cent. of the speeches from the Opposition side of the House. The appropriate reply has been suggested by the Financial Secretary to the Treasury when he said that illuminating arguments could be found by reference to history.

The principal point remaining unanswered in this Debate is whether the Chancellor of the Exchequer has or has not been precipitate in his action, and whether that action is necessary to place on the best foundation the trade of the country after recovery from a great war. History records the action of Napoleon in France, his proclamation of the gold standard was sudden and was made without any of the careful preparations so well planned as safeguards by the Chancellor of the Exchequer. Napoleon, by a despotic decree, made gold again the currency of France, after a period during which attempts had been made at a controlled paper currency. France had tried to control currency to such an extent that the penalty of death was enacted by law as a sanction against any who dealt at a discount in the currency established by the notes known as mandats.

The next period of importance in historical parallel to illustrate the regulation of currency after a great war was the recovery after the Franco-Prussian War. After that transition period, and when confidence was re-established, prices went down so low, and the Bank rate became so stable, that the conditions were prosperous and the food and clothing of the working men of this country attained a position of reasonable prices and solid stability never before experienced. I feel that by the restoration of the gold currency the Chancellor of the Exchequer will reduce the cost of living to the workers to an extent which will fully cover the contributions expected from them in the Budget towards the insur- ance which is contemplated in the Chancellor's great scheme of social reform. And from this point of view alone, the Chancellor of the Exchequer might take unto himself the credit of having eased the burden on the industrial classes by the initiative prudence and rapidity with which he has re-established the gold standard in this country.

The real reason why the gold standard will reduce prices in the interests of the workers is that it produces confidence in the currency and the justice of prices. A free gold currency improves the position not only of this country but of every part of Europe and of the world, and its definiteness is the reason why close exchange reduces prices. It has been said that the only way to prevent gold going out of the country is by putting up the Bank rate. There is another way. That is to raise the gold out of the ground within the Empire and, as the Chancellor of the Exchequer has pointed out how the British Empire is the principal source of gold supply throughout the world, and for that reason there is no danger to be apprehended of subservience to America at the present time, when America is not an important source of gold supply, by adopting the gold standard, and the nations of the British Empire, acting as they are together, are not likely in any way to suffer. The real danger is that the adequacy of the amount of gold being raised in the world, which may not be sufficient to meet demand in the all round adoption of the gold standard which so many countries are adopting to-day. We have had no figures given either by the Chancellor or any other authority as to whether, notwithstanding the use of gold in the arts, and its loss by the wear and tear of gold coins, the supply is keeping well in front of the gold requirements for purposes of exchange to the extent that would justify the adoption of the gold currency by a number of other countries. About 40 years ago, before the South African mines were developed, the amount of gold used in the arts was greater than the amount of gold which was being raised, and there was then a real danger from too widespread an adoption of gold currency. That is an important point which needs official elucidation.

The hon. Member who has just sat down has referred to the importance of gold as if it were really the medium of exchange and circulation, but the fact is that bills on London are nowadays the real currency of the world, and the application of the metal is fractional; it is the utility of gold for supporting the accepted circulation which is a matter of real importance in this Debate. From that point of view the apprehensions with regard to the bearing of this Bill on industries expressed on both sides of the House are not justified. I wish to press the point that the history of the financial expedients adopted by the leading countries of Europe, after each historical period after the Great War of modern history, fully supports the policy of the Chancellor of the Exchequer. These precedents furnish the standards by which this country should act to-day rather than by prophesying into the unknown fluctuations of day to day exchange, which are really the business of individual speculators and not the point of view of the situation as between nation and nation, against which the Chancellor of the Exchequer has wisely taken the most far-reaching and efficient precautions.

Mr. J. JONES

It is with a certain amount of trepidation that I have to offer a few remarks on this subject. MY knowledge of gold is very limited. Consequently I have to apologise for my ignorance. I have listened to some of the speeches which have been delivered with the object of showing that a return to the gold standard is supposed to be, in the direction of relieving unemployment in this country, and restoring the ecoomic prosperity of Europe. If I understand the argument, it amounts to this, that, almost automatically with the restoration of the gold standard, we shall have our people who are now out of employment getting an opportunity of resuming employment. Might I remind hon. Members who have dived into history that the historical parallel is not quite correct. At the time of the Napoleonic Wars, England was the workshop of the world. Practically speaking, we had a monopoly of the export trade of Europe, and to a large extent we were the masters of our own destinies in the production of goods, because, after all, all trade is the exchange of goods for goods. It is not a mere matter of juggling with currency, and when you have established your gold standard and other countries have got paper standards or silver standards you will find that the relative position, so far as the cost of production is concerned, will not be varied by the mere declaration of a gold standard.

How are the Germans and the Belgians able to compete with us? How are the iron ore mines of Alsace-Lorraine able practically to put you out of most of your European markets to-day? Is it because their credit is greater than yours or because of any standard of currency? No, it is because owing to the depreciated currency they are able to compete against us, and the people have got to work longer hours for lower wages. So far as the gold standard is concerned it does not help us there. What we are face to face with now is not the breakdown of the currency system, but the breakdown of the industrial system which is happening now in every country in the world. The people who used to be your customers have now become your competitors. By means of cheap labour and other conditions they are to-day masters of their own destinies in that particular respect.

The argument has been advanced that we are the largest suppliers of gold to the world, and naturally we want to monopolise that power. If gold is going to talk, as they say money talks, we would like by our gold to talk to the rest of the world, but other countries, if they have not got control of the gold supply, are going to adopt other alternative methods to protect their own economic and financial interests. I am no believer, and I am sorry that anyone should believe, in the theory that a mere juggling with the currency is going to solve the economic or industrial problems with which we are faced. The only way of solving these problems is by an organisation of all resources, industrial and otherwise, for the purpose of supplying the needs of the people on the basis of use and not of profit. Of course, profit comes first in this House, rent comes next and interest next—a kind of blessed Trinity, the Father, Son and Holy Ghost —but some of us on these benches know that the mere return to the gold standard will not do anything like what has been suggested. The collapse of the present system of industry is inevitable. Every year brings it nearer, because the countries of the world are becoming more self-supporting and more self-contained than they were. You talk about restoring the export trade, but you will not be able to restore it by mere talk of gold fine or superfine or paper notes.

The workers of the world are not getting enough to buy back the goods that they produce. That is the secret of industrial depression. Seventy-five per cent. of the population of Great Britain are not getting back enough in wages to enable them to buy the goods that they make. The result is inevitable glut. Other countries protect themselves against you by not allowing your goods to enter. Their people are not able to buy back the goods that they produce. So we have the inevitable international crisis. About 20 years ago such a crisis came about once in every seven years. Now it comes about once in every five years. Even the United States, with all its gold control, with more gold than any other country in the world, has to-day 2,000,000 people out of work. What, then, is the good of putting before the people this sticking plaster for a wooden leg, by telling them that if we only restore gold in the currency we shall have better times? It is merely feeding the people with plausibilities not possibilities. You can alter the arrangements, financial and otherwise, as much as you like, but there is one thing you must alter, and that is the very basis of the system under which we are living, so that the workers who produce the work shall control it.

Mr. GUINNESS

There is only one point on which information has been asked during the Debate. The hon. and gallant Member for Central Hull (Lieut.-Commander Kenworthy) asked why we needed Sub-section (1,c)of Clause 1, which brings to an end the present right of any person sending gold bullion to the Mint to have it assayed and coined. The answer is that we want all available gold of which people are possessed, and of which they wish to dispose, to be brought into our gold reserve, and, as we are not re-establishing the gold coinage, it is a waste of gold to mint it. The possessor of gold, if he will tender it to the Bank of England, will have it bought at a fixed rate, and in that way we shall reinforce our gold reserve.

Bill committed to a Committee of the Whole House for Tomorrow.— [Colonel Gibbs.]