HC Deb 17 May 1928 vol 217 cc1243-65

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. PETHICK-LAWRENCE

As this is the operative Clause which creates the Bank of England the note issuing authority, it will probably be for the convenience of the Committee if I make a brief preliminary statement as to the lines which my hon. Friends and I propose to take on the Committee stage of this Measure. Before I come to that, may I say a word of protest against the unnecessary celerity with which this Bill is being carried. It is a Bill of very great importance, and it has very far-reaching effects, and it would be reasonable for a longer time than has been allowed to elapse between the Second Reading and the Committee stage. In this connection, I hope that the Government will give very careful consideration, on their merits, to any Amendments that we put forward, and I hope they will not take their large majority on the Second Reading as an indication of the real feeling in this House or outside. I know that there is very good reason to believe that a very considerable number of Members in this House, while voting with the Government, have very grave misgivings as to the effect of this Bill upon trade and industry, and it is of supreme importance that anything that can be done to improve the Bill should be carefully weighed and considered and that the Government should meet us as far as they can in dealing with it.

Our Amendments have been put down to improve the Bill and not to destroy it or to recast it. My hon. Friends and I have recognised that it is not practicable to recast the Bill along the lines which we should wish, and that, even if it had been possible within the scope of the Measure to take such a course, it would not have been a practical way of handling the Committee stage. Our Amendments, therefore, are by way of being what we might call plasters to make some little improvement in the text of the Bill as it stands. In particular, the Amendments that we have put down do not attempt to alter what is one of the fundamental provisions of the Bill, which is that it leaves the initiative with the Bank of England. That is why this first Clause assumes considerable significance, because, if this Clause be carried, the Bank of England will become again, in theory, at any rate, the sole initiator of the policy both as to credit and currency of this country, and to a very great extent the sole arbiter of the industrial destinies of this country.

In the course of the Second Reading of this Measure the Secretary of State for War endeavoured, if I may say so, to score a point off me by quoting an extract from what I had written a good many years ago on the question of finance, and banking in particular. I am quite impenitent as to what I wrote then, and I have had the opportunity between Monday and to-day of what the right hon. Gentleman called going as a student to my own classes and reading what I wrote. I confess that, though I was then a private individual and had not entered this House, I am amazed at the great restraint and moderation with which I expressed myself on this subject. As a matter of fact, what I there proposed, so far from being the wild impossible scheme which the right hon. Gentleman represented it to be, is in fact very little in advance of what is the actual practice of this country. Perhaps I had better quote the actual words as the right hon. Gentleman quoted them. What I said on that occasion was this: One of the early actions of the Socialist Government would be, therefore, to secure that all decisions of the Bank of England which are of vital national concern, notably alterations in the Bank Rate, shall be subject to consultation with and control by the Treasury. Anyone who is acquainted with the actual practice of what goes on, knows that even to-day the Bank of England does, in fact, consult the Treasury when it is proposing to take any important step with regard to any matters, and particularly with regard to changes in the Bank Rate. Whether it can be said to be actually under the control of the Treasury in the matter would be, perhaps, putting it, at the present time, a little far, but does the right hon. Gentleman himself say that, even to-day if the Treasury and the Chancellor of the Exchequer had a very decisive and definite view with regard to the Bank Rate, the Bank would disregard that opinion and take an entirely opposite course? Even this very Bill shows that in the minds of the promoters themselves it is of the utmost importance that, in a great proportion of the doings of the Bank of England, they should be guided, and in a large measure controlled, by the Treasury. Therefore, what I suggested when I wrote that, was not very far different from the actual practice at the present time, but the point I was trying to make and which I still make, and which I hold to be of supreme importance is this, that in a matter affecting the whole destinies of industry, such as the currency and credit policy of this country, it is anomalous that the sole discretion should rest with a body which is, in theory at any rate, a private corporation. I yield to none in my appreciation of the integrity of the personnel of the Bank of England, its Governor and Directors. I doubt whether any similar private organisation in any other part of the world would have a record of disinterestedness as clean as the record of the Bank of England, but that does not mean that its decisions are always right or wise, or even that they are always free from bias.

It is quite a common thing for Members in this House and outside to talk of the two factors which are responsible for industry—the employers and the employed. Sometimes my hon. Friends behind me class the financial interest with the employers and put them on one side and the employed on the other. That division is entirely inadequate. There are really three factors which control industry at the present time—the employers on the one hand, the employés in the second place, and the financial interests in the third. Sometimes the financiers and the employers are on one side in a particular quarrel, and the employés are on the other; sometimes the financiers side with the men; and then there are the third cases, where the financiers take one view and the interests of the employers and the employés are on the other side. It is not a question merely of consulting their own interests. It is a question of the bias which any particular body of men necessarily have of putting first the things which they see biggest, and putting further away the things which are least in their immediate ken, and giving to those things les importance. In my view, the Bank of England have never fully appreciated the grave injury to industries, and to both employers and employés, which was brought about by the deflation policy which they have constantly pursued for many years. It is very easy for the Bank to cause deflation, and very easy for those who are doing it to see the considerable advantages, not merely to themselves, but in the realm of finance, which deflation brings; and it is quite easy when grave results upon industry follow, for the financiers to attribute these results to entirely different causes.

The CHAIRMAN

I am not going to say that the hon. Gentleman's argument is irrelevant, but surely it is a very large argument on a Clause for giving the Bank of England power to issue small notes. All that the Clause does is to give to the Bank, rather than the Treasury, the power to issue notes.

Mr. PETHICK-LAWRENCE

I had practically finished the preliminary survey, and was coming to the point. What we are considering in this Clause is adding the note-issuing power to the Bank of England's credit-deciding power, and in consequence of that double power, the Bank will, if this Clause goes through as part of the Bill, have an authority and a power over the lives of the people and the furtherance of industry, that it has not had before. I was pointing out the great control which the Bank of England exerted, and the danger which resulted from deflation. The British lion roars very loud when he is attacked by a foreign foe, but the British lion, in the shape of British industry, allows its tail to be twisted by the Bank of England almost with impunity. Another point with regard to the Bank of England, to which I take exception, is their failure to call the conference which was adumbrated at Genoa.

The CHAIRMAN

That may be very relevant to the Second Reading, but it is not relevant to this Clause.

Mr. PETHICK-LAWRENCE

I will not pursue that point any further if you take that view. Because of the view which I hold, I feel that we ought not to be prepared to hand over these powers, as will be done by Clause 1, to the Bank of England, at any rate until we know more of what the policy of the Bank of England is going to be if this Bill be passed into law. Do they propose to continue the deflation policy which they have carried out up to now? Do they propose, on the other hand, to use the elasticity, which is provided by the later Clause in the Bill, to the full extent which some people hope? I would also like to ask this question of the Government. In the Debate on Monday, the Amendment which was moved from this side asked that before this Bill was carried, an inquiry should be held into the powers and constitution of the Bank of England. The Government resisted that Amendment, and the Under-Secretary of State for Scotland definitely said that, if an inquiry were necessary, it could be held as well after this Bill is passed as before. If this Bill be carried, do the Government propose afterwards to hold that inquiry? Failing satisfactory answers on these three points, it is my intention to ask my hon. Friends, and any of those who are willing to support me, to go into the Lobby against this Clause.

Lieut.-Commander KENWORTHY

I did not intervene in the Debate on the Second Reading. That was not because I was satisfied with the speeches of the Financial Secretary, or of the Secretary of State for War, and I do not propose now to make the speech I intended to make on the Second Reading, but I will give briefly my reasons for supporting my hon. Friend in resisting Clause 1. This is the crucial part of the Bill, and it gives to the Bank of England the absolute monopoly south of the Tweed of issuing bank notes. This is a power that is greater than was held in the past by any absolute monarch, or by any feudal lord in the days of standing feudal armies. It puts into the hands of half-a-dozen men a power which was impossible up to 50 or 60 years ago, and these men, through this power, can affect the lives of a greater number of the community than was possible in a less complicated and more primitive society. The Financial Secretary read out some remarks of Sir Robert Peel in 1844, in which he expressed great confidence in the Governors and the governing body of the Bank of England, and he said that he had similar confidence in the Bank to-day. I share it with him. The present governing body of the Bank of England is, no doubt, fit to be given the powers asked for in Clause 1 on their personality; but they are only men, and the Governor and directors may change, and the fact remains that this governing body represents the essence of the City of London. As surely as the hon. Gentleman sitting on the Back Bench represents the City of London in this House, they represent the views of the financial interests of the City of London. They are not responsible to this House, as far as I can gather—

The CHAIRMAN

The Bank of England, I understand, has powers, subject to their present Acts, to issue notes for £1,000, £100 and £5. This proposal is to give them power to issue notes for £1 and 10s. The difference between these powers seems hardly to warrant the general disquisition of the hon. and gallant Member.

Lieut.-Commander KENWORTHY

I was going on to say that that power to issue Treasury notes has been a power held by the Treasury, and now we are surrendering this valuable right to this independently appointed body. That is not democracy, and this Clause should be resisted in the interests of democracy. This view is not held solely in the ranks of the party to which I belong; it is viewed with alarm by many business men of no party, and of the party of hon. Members opposite. This power is not even held in like degree in any other country. It may be in future abused; I do not say that it will be, but it may be, and it will be possible for the Bank of England, at some future date, to put pressure to bear on the Executive of the day. That temptation is too great to be left with this body of estimable men. I consider that this Bill should be resisted, and as this Clause is the most important of the Bill, we must begin our resistance now. This country fought a civil war in order that Parlia- ment should be supreme in great matters affecting the lives of the people, and in resisting this proposal to surrender a power, which the Treasury has, to the Bank of England, we are carrying on a struggle, through the elected representatives of the people, which we thought had been won in the great battles of the Civil War. It is impossible to exaggerate the importance of the step which the House is invited to take by passing Clause 1. I look upon the powers now being given to the Bank of England as really reinforcing the citadel, the Kremlin of our financial and capitalistic system. I still believe in democracy, and I shall go into the Lobby to resist giving powers to the Bank of England which are greater than those possessed by Mussolini.

Mr. RUNCIMAN

I listened with great interest. to the speeches of my two hon. Friends, and particularly to the speech delivered by my hon. and gallant Friend the Member for Central Hull (Lieut.-Commander Kenworthy), who ends up with an analogy with Russia, which I hope the Committee will not pursue. My hon. and gallant Friend seems to think that the only way to manage currency on the basis of democracy, is to have it managed by the largest possible number of people. He objects, and I think the hon. Gentleman the Member for West Leicester (Mr. Pethick-Lawrence) objected, to the currency of this country being under the control of, I think he said, six persons. There is a very good reason why the number should not be more than six, because I doubt whether there are more than six people in the country who understand currency. Suppose we managed it on the broadest possible basis, with a complete appeal to democracy, what would we be bound to do? We would be bound to put ourselves under the advice of the best experts we could find. The whole question in this Clause is whether we are to take the line of using what we believe to be the best machinery for the purpose. There are alternatives, I know. We might follow the example of America. America is passing through a stage of very violent and dangerous speculation at the present time, which the Central Bank has found itself incapable of controlling. In London, we can nut some check on speculation. We might follow the example of France. In France, the governor of the Bank of France is nominated by the Government of the day. The late governor was a man of great capacity; but they got themselves into such a mess in France as I hope we shall never attempt to emulate in this country, and it is only now that, with the greatest trouble, they are struggling to get out of it. It is possible, as a matter of pure theory, to devise a scheme which might accord much more nearly with the doctrines of democracy which my hon. and gallant Friend breaks down so terribly in his devotion to tradition, a devotion which is not shared by all his colleagues.

The CHAIRMAN

It is not in order for the right hon. Gentleman to go into the whole history of currency in this country on the question as to the difference between £5 and £1 notes.

Mr. RUNCIMAN

The only reason I have attempted to do so is that the whole basis of the argument is that those who support it do not approve of the system of managing the finances of this country through the Bank of England, or a central bank. If you think it unnecessary for me to stray over the white line and come into conflict with you, I shall certainly do what I can to keep within the limits o the question. What does the Amendment do?

Mr. PETHICK-LAWRENCE

There is no Amendment at all.

Mr. RUNCIMAN

The argument, then, is on the whole of Clause 1, so therefore I hope that you, Sir, will allow me greater freedom than I would have anticipated receiving under a mere Amendment changing "shall" into "may."

The CHAIRMAN

On Clause 1, I have had no Amendment. It will not be in order for the hon. Member to go into the question of the whole relations between the Bank of England and the Government and the powers of the Bank of England. It will be in order to show cause whether or not this general power of issuing small notes shall be included within the powers of the bank.

Mr. RUNCIMAN

I defer quite strictly to your ruling in this matter, and I would urge this one simple and, as I think, fundamental point, namely, that the issue of £1 and 10s. notes in unlimited quantity is detrimental to the best interests of industry and particularly to the interests of the wage-earning class in this country. It seems not to be generally recognised that inflation of the currency injures the wage-earning class and the salary-earning class more than any other class. It is an absolutely certain way of reducing the real value of wages without making any change in the nominal value of wages. If on no other ground than that, I should have hoped that every effort would have been made to avoid any danger of undue inflation. What does this Bill do, and what is stated in Clause 1?

Lieut.-Commander KENWORTHY

I am not an inflationist.

Mr. RUNCIMAN

How comes my hon. and gallant Friend to make such a fundamental error? What does this proposal really amount to? It is to hand over to a combination, if you like, of the Treasury and the Bank of England, this portion of our currency, the £1 and the 10s. note issue. Whether the amount which fixed in the Bill is or is not the right amount, is not for me to discuss now. At all events, we regularise it. It is open to the Treasury, under the Statutes as they stand at the present time, to have an almost unlimited currency; it is only because they have, by Treasury Minute, decided to follow the recommendations of the Cunliffe Committee, that there has been a gradual diminution in the currency. That deflation has gone on gradually—painfully it may be in some quarters, but it has gone on gradually—and has brought us into our present position. If this arrangement between the Government and the Bank of England were to fall down altogether, the effect would be to leave the matter to the decision of the Government of the day; because that is what it really comes to.

When you talk about leaving these matters to the decision of Parliament, you really mean that you leave them to the decision of the Executive, which receives the support of the majority of Parliament. That is what it really amounts to; and it would mean that you would be swaying to and fro, as majorities changed after a General Election, in your policy with regard to currency, to the great detriment of the very interests which we are sent here to represent. That swaying to and fro is one of the most dangerous things possible, not only to internal industry but also to foreign trade. We have reached a state of stability in our foreign exchanges, of which we are not yet reaping the advantage. We shall reap that advantage from now onwards, and, as time goes on, we shall find that the possession of the advantage of a currency which is limited in amount and which cannot he permanently altered without the consent of Parliament is one of the essential safeguards, not only of foreign trade, but of internal industry as well.

What objection can there be to handing over this power to the Bank of England? It is not the constitution of the Bank; because, although that is illogical, it has worked well, and experience has justified it. ft is not that there is any suggestion that those who are on the Bank Court, or those who are responsible for its administration in a permanent capacity, have ever abused their power or are likely to abuse their power. The only thing that one can see, as one watches the changes in personnel, is that you might quite conceivably have a Governor of the Bank who was more of an inflationist than the present Governor. There have been Governors in the past who were not so afraid of inflation as the present Governor is; and that change in personnel is a matter of very great importance. It might affect the attitude of the Bank in its recommendations to the Treasury with regard to the extension of this issue of £1 and 10s. notes. The safeguard against that is that the concurrence of the Treasury must be obtained. In effect that means that there must be the consent of this House, such as it may be.

The machinery by which you reach the laving of your Minute, the other steps which are taken to obtain the concurrence of Parliament—all those are various safeguards. I can imagine even better safeguards than are provided for in this Bill. I am not quite sure that, for instance, the two years' interval provided for in a later Clause of the Bill does not give rather a wide margin of time. A good deal of harm and damage might be done within two years; and I should like to see the direct control of this House brought to bear upon the Bank of England and the Treasury within narrower limits than two years; but that is a different point from the point raised in this Clause. If this Clause were to be thrown out it would mean that the whole arrangement, which has been outlined in the Second Reading and on the Budget, would fall through; it would mean that the issue of these two denominations, £1 and 10s. notes, would remain under the control of the Treasury; and when my hon. Friend says that there are many people in the country, and in this House, who are apprehensive about the proposed changes, I would tell him that there are a thousand times more people who would be apprehensive about leaving the control of the currency entirely in the hands of the Government of the day. The initiative, coining from the Bank of England, is one of the securities which the business community, and those who act in positions of trust for vast numbers of employés and workpeople all over the country, regard it as of the first importance. That the initiative should come from the Bank, if there is to be any increase in the currency beyond the limits set out in this Bill, seems to us to be of the first importance. In those circumstances, I think the plan of the Bill is a sound one.

Lieut.-Commander KENWORTHY

Might I ask the right hon. Member for West Swansea (Mr. Runciman) a question? On his argument, why not hand over the Mint also to the Bank, and give them the power of minting coins, and take it away from the Crown?

Mr. RUNCIMAN

I can see no advantage in handing over the Mint to the Bank of England. The Mint is very well managed at present. Whatever profit is made out of the Mint appears in the miscellaneous revenue of the State, and whatever profits may be made out of these issues will appear also in the miscellaneous revenues of the State. It does not seem to me that anything is gained by handing over the management of the Mint to the Bank of England. The Mint is, after all, a purely manufacturing concern, turning bullion into coin. This is a matter for dealing with the whole volume of currency, a much more difficult and much more delicate matter. I conclude by saying that this scheme, as it is at present devised, is based upon the history of the past; it has borne the test of very strenuous times; and if we were to abandon it now and simply revert to the position which has obtained from 1914 up to the present time, we should run all the danger of political fluctuations and controversies arising from time to time with regard to the currency. I take it that the object of this Bill is to remove that subject altogether from the sphere of public and political controversy; and when that is done, we shall certainly have taken a great step forward in the stabilisation of our industry and commerce.

Lord HUGH CECIL

I have studied this Clause, and as I understood it, it maintains a principle already adopted in the Gold Standard Act, namely, that these currency notes are not to be exchangeable for gold; that is to say, they are in the nature of inconvertible currency. The Bank of England is authorised, in place of the Treasury, to issue the notes, but their existing character of inconvertibility is maintained. I would suggest that in that respect the Clause is defective. The right hon. Gentleman who has just spoken (Mr. Runcirnan) has adverted—and it is a view which the Government themselves strongly hold—to the danger of making this power of issuing notes susceptible to political pressure, and for that reason they prefer that the power of issuing notes shall be in the hands of the Bank of England rather than in the hands of the Treasury. But it is obvious that the safeguard of which the right hon. Gentleman spoke with so much emphasis, is after all not a very great safeguard. The Bank of England is a body of human beings, just like the Treasury, and is subject to the common frailty of our human nature, and, like the Treasury, it might be induced for some reason connected with some social or political question, to use this great power in a way which might not be desirable. The great advantage of having notes exchangeable at sight for gold, is that you cannot manipulate the currency. You have, that is to say, an independently fixed standard of value to which your notes must conform. It has been pointed out by economists that gold itself is not an unchangeable standard, but it has the great merit that it is a commodity like other commodities, and that its exchangeable value, therefore, is not determined and cannot be determined by the authority, whether it be the Treasury or the Bank, which issues the notes.

The CHAIRMAN

Is this argument valid as regards £1 notes and not equally valid as regards £5 or £100 notes?

Lord H. CECIL

My point really is that the Clause is a defective Clause, and should be struck out, because it does not carry out the currency reform in the right shape. If the currency reform were to be made in what I conceive to be the truly scientific manner, it would go a little further. The Bill actually provides that a £5 note is in future to be cashed by the payment of £1 or 10s. notes. Paragraph (b) says: The holders of banknotes for £5 and upwards shall be entitled, oil a demand made at any time during office hours at the head office of the Bank or, in the case of notes payable at a branch of the Bank, either at the head office or at that branch, to require in exchange for the said banknotes for £5 and upwards banknotes for £1 or 10s. 5.0 p.m.

I say that it ought to be, not £1 or 10s. notes but gold. The Government are, I think, the victims of a very dangerous mental error. They suppose that the value of gold will indefinitely maintain itself if you do not continue the demand for gold for its use for currency entirely. I do not believe that that is true. The whole of their fabric rests on the value of gold; the whole of their currency policy, quite rightly as I conceive, rests on it but if people do not use gold, then the value of gold, just as would be the case with anything else, will disappear or diminish. By not allowing gold to be used in ordinary currency, you take away what is really the main factor in maintaining the value of gold, namely, the demand for gold for use as currency. I need not say that value depends entirely on demand. There is no such thing as a value inherent in objects; it depends entirely on the taste which resides in the human mind, and not in the least in the material object; and if you destroy the taste of the people for using gold coins, the bottom will drop out of your currency system altogether. My hon. Friend opposite—I was not able to be present during the Debate. But read his very interesting speech—said that we were the schoolmaster of Europe in these matters; and that is largely true. If we return to the ordinary use of gold other people will, bit by bit, also return to the ordinary use of gold, and we shall maintain the demand for gold which is at the bottom of our currency system—maintain the demand for gold and, consequently, maintain the value of gold. Of course it will be necessary to provide that when a note is cashed for gold that note shall not form part of the permitted fiduciary circulation, but that it shall be put aside; that is to say, when a gold coin has gone out. and a note has come in in exchange, that note shall be treated as though it were a gold coin, so that the total note circulation shall not be increased. That, of course, would be necessary in order to carry through the principle of the Bill and the object which the Government have in view, but, subject to that, I cannot imagine why you should not allow notes to be cashed in the ordinary way, to which people were accustomed to before the War, in exchange for gold which would be circulated by those who desire to use gold. Doubtless there would be a slight loss of gold through the rubbing of the coins as they pass from hand to hand, but that would not be a very considerable amount per year and it might well be afforded for this purpose, which really is of economic importance.

It is the greatest possible delusion to suppose that if you allow people all over the world to get into the habit of not using gold for currency you will permanently maintain the value of gold, and if you do not permanently maintain the value of gold, then the whole foundation of our currency system disappears. Therefore, I venture to urge on the Government that they should change their policy in that. respect, that they should set the example to Europe of resuming the use of gold coin in the ordinary transactions of life, with a view to maintaining that demand which, in respect to gold as in respect to every commodity, is the foundation and the essence of its value.

Mr. W. BAKER

The right hon. Gentleman who represents Oxford University (Lord H. Cecil) appears to have put his finger on one of the difficulties in regard to this Bill, but, having found that flaw, I think he has taken up a position which is quite untenable. I believe it is generally accepted to-day that the world supply of gold is altogether insufficient for modern needs, and that it will require extraordinary wisdom on the part of civilised nations if the small stock of gold is to be put to the best available use. I did not expect there would be any opportunity to speak to the House on what I feared was too elementary a point, but, having regard to the interest which the right hon. Gentleman has displayed in the subject, perhaps I may be allowed to call attention to the very serious position in which the world finds itself in relation to any proposal to return to gold.

On the Second Reading of this Bill the Financial Secretary to the Treasury ventured to quote from a speech by Sir Robert Peel delivered in 1844. It may be that the Financial Secretary was well justified in choosing those memorable words which had struck his imagination. The words did not strike me, and I do not know how they struck the rest of the House. But one thing is absolutely certain, that it is quite futile to go back to Sir Robert Peel or any other celebrity who spoke in 1844 in order to find a sound financial policy for this country in the year 1928. The world to-day has not the slightest resemblance to the world in which Sir Robert Peel lived. In 1844 there had been no discovery of the Californian and Australian goldfields, those discoveries having taken place in 1848 and 1851. Prior to 1848 the world's average annual production of gold did not exceed £5,000,000. As a result of those two discoveries, the average annual production had increased by 1853 to £30,700,000. From that point the average annual production began to fall away, until it reached the figure of £19,000,000 in 1S82. Then our fortune stood us in good stead once more. The Transvaal goldfield were found in 1886. [Interruption]. I do not know whether Mr. Hope is in the Chair, or someone else, but I object to anyone else suggesting that I am out of order.

The SECRETARY of STATE for WAR (Sir Laming Worthington-Evans)

I submit that this argument is entirely out of order. Clause 2 does deal with the cover of notes by gold, but Clause 1, with which we are dealing now, does nothing of the sort.

Lieut.-Commander KENWORTHY

May I submit, with great respect, that by this Clause we are altering Section 6 of the Bank Act, and taking away the right of the subject to receive gold in exchange for Bank of England notes, and that every word of the argument of my hon. Friend the Member for East Bristol (Mr. Baker) is most relevant, as was that of the Noble Lord the Member for Oxford University (Lord H. Cecil)? An understanding of this question is essential to the Committee before we vote.

Sir L. WORTHINGTON-EVANS

The hon. and gallant Member is wrong when he states that this Clause takes away the right of the subject to receive gold coin in exchange for Bank of England notes. That right was taken away by the Gold Standard Act, 1925, and it is not affected by this Bill.

Mr. JAMES HUDSON

Is it not the case that in Sub-section (5) of this Clause we are discussing this very right, whether it has been taken away or not Should it not be in the power of those who are debating this matter to deal with Sub-section (5) which, if it does not take away any right, provides that the workman shall not have a right to have his wages paid in gold?

The CHAIRMAN

I do not think that point arises at this moment. Undoubtedly under Sub-section (3,a) the fact of these small notes being made legal tender for any amount does, as it appears to me, following the line of argument of the Noble Lord the Member for Oxford University (Lord H. Cecil), raise the question of the gold circulation. How far it will be possible to pursue that question I can only judge when the Debate has further developed.

Sir L. WORTHINGTON-EVANS

I do not wish to interfere with the Committee, and I have not intervened before, although we have been having a Second Reading Debate. [HON. MEMBERS: "No!".] All this Clause says is that £1 notes shall be legal tender to any amount, and that five £1 notes may be paid in exchange for a £5 note. But £1 notes are not now exchangeable for gold coin nor are £5 notes, and so my submission is that this very interesting review of the gold production of the world during the last century is not really in order.

Mr. PETHICK-LAWRENCE

May I submit that the Noble Lord's argument was that it would keep up the value of the currency, with which this Clause deals, if we did not have gold coins withdrawn? I submit that my hon. Friend the Member for East Bristol (Mr. W. Baker) is perfectly entitled, in answer to that, to show that the gold supplies of the world are falling off, and that the danger is in the other direction.

The CHAIRMAN

As we have a Clause which multiplies small currency and makes it legal tender, I do not see how we can debate it without reference to the ultimate basis of gold.

Mr. W. BAKER

I am greatly obliged to you, Mr. Chairman, for your ruling. I was endeavouring to show that it was only the good fortune of the discovery of the Transvaal goldfields in 1886 which enabled the gold supply to expand in any reasonable relation to the world's need. We have to remember that that fortunate discovery was coupled with the invention of the cheque system at an earlier date, to which reference was made on the Second Reading. In these circumstances I would respectfully submit to the right hon. Gentleman the Member for Oxford University that it is quite impossible ever to contemplate a return to gold coinage in this country. That is not my difficulty regarding this Bill—my difficulty is quite a different one—but on that point I believe that every authority of any importance is in absolute agreement that such a return is quite impossible. As a matter of fact the annual production of gold has fallen at the moment to a figure which is approximately £70,000,000—at least, that is the last figure which I could obtain, and that was for the year 1920. It is probable that the figure to-day is worse and not better. The world's surface has been pretty thoroughly explored, and it is highly improbable, to put it no higher, that we shall have any gold discoveries of equal importance to those of the past.

In these circumstances, I believe—and this is my point with regard to this Bill—that the right hon. Gentleman the Secretary of State for War was an extremely enlightened individual when he was at the Conference at Genoa and was presenting a report which has been referred to twice already during the Second Reading Debate. Reference has been made to the right hon. Gentleman's statement regarding the Justinian Code. I do not want to say anything with regard to that part of his statement, but there are other points in his remarks which are well worthy of the attention of the Committee. May I interpolate here the remark that I am certain the Committee are extremely sorry the Chancellor of the Exchequer is not able to be present? It is no part of my business to flatter the right hon. Gentleman the Secretary of State for War, but when I heard that he was likely to be in charge of this Bill in Committee, I felt, in view of his pronouncements at Genoa, that it might be to the national advantage that the one enlightened member of the Government on financial questions should be in charge of this Bill. I think the right hon. Gentleman when he is reminded of the things he said at Genoa will stand by them. He said: 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. Regulation of prices in this sense means the 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.

The CHAIRMAN

Is it a part of the hon. Member's argument that the multiplication of currency notes of small denominations, which will he legal tender and not exchangeable for gold, was dealt with by the right hon. Gentleman in his observations at Genoa?

Mr. BAKER

I venture to submit that the Clause we are considering proposes to amend the powers of the Bank of England in relation to the issue of certain bank notes, and the case I am endeavouring to support, in an imperfect way, is that this step is premature until the necessary inquiry has taken place into the form of central banks, and until we have had the promised thorough investigation into the present powers of the Bank of England.

The CHAIRMAN

I think that may arise on the Clause dealing with the date of operation, but I have already ruled, in relation to the observations of the hon. Member for West Leicester (Mr. Pethick-Lawrence) that the question of the central banks cannot really arise here.

Mr. BAKER

With all respect I would submit that in this Clause we are en- deavouring, to use the words in the margin of the Clause, to amend the powers of the Bank of England to issue bank notes. Surely it is in order to give reasons why those powers should not be granted to the Bank of England for certain specific reasons which I propose to submit to the Committee.

The CHAIRMAN

The hon. Member is really making a Second Reading speech. This Clause deals with the power to issue small notes and their legality of tender. The question of the central banks cannot possibly arise on this Motion. It might be argued that on Clause 13 the date ought to be put off in this connection, but I do not think that question is relevant here.

Mr. BAKER

I will endeavour to obey your ruling, Mr. Chairman. The point am anxious to deal with is that the Bank of England, as at present constituted, is not a proper and suitable body to have the power of issuing pound notes and ten shilling notes up to the maximum sum laid down, in the Bill. During the Second Reading Debate a great many bouquets were thrown at the Bank of England and the Directors of that Bank by hon. Members who claim a personal acquaintance with those distinguished persons. On this question I can speak from the outside because I have no knowledge of the Directors of the Bank of England in any shape or form. I submit that the Bank of England at the moment is altogether unsatisfactory as a machine to control our national finance.

The CHAIRMAN

That is exactly what I have just ruled out of order. The whole position of the Bank of England could not arise on this Motion. The Bank of England has very large powers, and this is a proposal to add something to those powers, but the whole question of their present powers cannot be discussed on this Motion.

Mr. BAKER

I was proposing to deal with the powers which this Bill confers, and I submit that the Bank of England should not be entrusted with the task of issuing this fiduciary issue. I would like to know if that would be in order.

The CHAIRMAN

The hon. Member was arguing that the Bank of England was not properly constituted to control the finances of the country, and that is exactly what I have ruled to be out of order.

Mr. J. HUDSON

May I submit that until this Bill becomes law the Treasury has power with regard to the number of currency notes to be issued, and as long as the Treasury has that power surely the absolute power of the Bank of England is limited. What we are discussing in connection with this Clause is a proposal to convert the limit of the powers now existing in the Bank -of England into an absolute power given to the Treasury, and that is an extremely dangerous thing to do.

The CHAIRMAN

That is not the case. The hon. Member must show that this particular grant of power will produce some evil that the present powers do not produce.

Mr. BAKER

I thought I was doing that. I think I can quote an authority on this point which will be accepted in support of my point of view that the Bank of England should not be entrusted with the power to issue the fiduciary issue. The Midland Bank Monthly Review for March-April, 1928, contends that: Our financial machinery is out of date having regard to modern requirements and that it will become increasingly so if modern productive capacity is to be developed to its fullest extent. I submit that the views of Mr. Reginald McKenna should be heard with very great respect, and his views should be very carefully considered in relation to this problem. I believe that the Bank of England and our method of controlling central finance is in urgent need of review and investigation.

The CHAIRMAN

The hon. Member is arguing directly contrary to my Ruling. I think I-have given the hon. Member a good deal of latitude, and I desire to point out to him what he is now dealing with involves the whole financial relations of the Treasury and the Bank, and that is out of order.

Mr. BAKER

I wish to comply with your ruling Mr. Chairman, and I was doing my best to do so.

The CHAIRMAN

I quite appreciate what the hon. Member says, and perhaps there will be an opportunity at a later stage for him to deal with the point which he wishes to raise.

Sir HILTON YOUNG

It appears to me that the observations of the Noble Lord the Member for Oxford University (Lord H. Cecil) need a direct reply. The Noble Lord argued that the powers of issuing small notes under the first Clause of this Bill should not be extended unless at the same time the notes were convertible into gold. I am sure that neither the Noble Lord nor the Secretary of State for War desire it to go out that our currency is an inconvertible currency, or that we have at the present time a paper currency which is inconvertible. That is not so. Our currency at the present time is based on a sound bullion standard, and that stabilises the value of the paper currency in relation to gold. As I understand it, the Noble Lord desires to see gold back in circulation. It appears to me and to higher authorities than myself, that the arguments against that course are overwhelming. In the first place, it is very expensive. You lose the interest of the gold in circulation at a cost perhaps of between £7,000,000 and R10,000,000 a year; no small matter. In the second place, the gold in circulation would not be fulfilling its essential purpose in the banking system. When it is in circulation it is not available for the essential purposes for which you want it.

There are two essential purposes. The first is for the gold to be used as an internal reserve in time of crisis; and the second is for the purposes of international payments. For purposes of supplying confidence in internal crises it is no good when in circulation because when the crisis arises it disappears into hoards. Secondly, when in circulation it is less readily available for international payments. There is a final and overwhelming reason against a return to the gold circulation at the

Division No. 128.] AYES. [5.23 p.m.
Acland-Troyte, Lieut.-Colonel Balfour, George (Hampstead) Birchall, Major J. Dearman
Albery, Irving James Balniel, Lord Blundell, F. N.
Alexander, E. E. (Leyton) Barclay-Harvey, C. M. Boothby, R. J. G.
Allen, J. Sandeman (L'pool, W. Derby) Barnett, Major Sir Richard Bourne, Captain Robert Croft
Amery, Rt. Hon. Leopold C. M. s. Beckett. Sir Gervase (Leeds, N.) Bowater, Col. Sir T. Vansittart
Applin, Colonel R. V. K. Benn, Sir A. S. (Plymouth, Drake) Bowyer, Capt. G. E. W.
Apsley, Lord Bennett, A. J. Brass, Captain W.
Ashley, Lt.-Col. Rt. Hon. Wilfrid W. Bentinck, Lord Henry Cavendish- Briant, Frank
Astbury, Lieut.-Commander F. W. Berry, Sir George Bridgeman, Rt. Hon. William Clive
Atholl, Duchess of Bethel, A. Brooke, Brigadier-General C. R. I.
Baldwin, Rt. Hon. Stanley Betterton, Henry B. Broun-Lindsay, Major H.

present time, and it is that if it were to be put about that this country at the present time was going to adopt a gold circulation instead of a paper circulation or if any other great country were to allow it to be put about that they desired to do so, I believe it would create a financial panic all through the civilised world, because of the threat to the gold supply and the incident threat to prices which that would bring. There is no certainty about the future of the gold supply. But all the available evidence goes to show that the supply will not be equal to the demand in the future. So far from those dangers which have been mentioned of gold losing its value as an article in demand, the contrary threat is more imminent that gold will rise in value, and that we nay be in for a long period of falling prices. That is what led the authorities t Genoa in particular to come to the conclusion that every possible means should be taken to husband our gold supply.

May I invite the attention of the Noble Lord the Member for Oxford University to the evidence given before a recent inquiry into the currency system in India? Evidence was given by the leading authorities of Germany, France, the United States and this country to the effect that what the world needed today was to husband its gold supply. It was considered that the threat of gold going into circulation in India might lead to a financial panic, and a period of falling prices, disastrous to trade. It is for these reasons that at the present time the great hulk of the evidence is against the argument which has been put forward by the Noble Lord.

Question put, "That the Clause stand part of the Bill."

The Committee divided: Ayes, 239; Noes, 109.

Brown, Brig.-Gen. H.C.(Berks, Newb'y) Hennessy, Major Sir G. R. J. Rees, Sir Beddoe
Brown, Ernest (Leith) Hills, Major John Waller Reid, D. D. (County Down)
Buckingham, Sir H. Hilton, Cecil Remnant, Sir James
Burman, J. B. Hoare, Lt.-Col. Rt. Hon. Sir S. J. G. Rentoul, G. S.
Butler, Sir Geoffrey Holbrook, Sir Arthur Richard Rhys, Hon. C. A. U.
Cadogan, Major Hon. Edward Hope, Capt. A. o. J. (Warw'k, Nun.) Rice, Sir Frederick
Carver, Major W. H. Hopkins, J. W. W. Richardson, Sir P. W. (Sury, Ch'ts'y)
Cautley, Sir Henry S. Howard-Bury, Colonel C. K. Rodd, Rt. Hon. Sir James Rennell
Cayzer, Sir C. (Chester, City) Hudson, Capt. A. u. M.(Hackney, N.) Ropner, Major L.
Cayzer, Maj. Sir Herbt. R. (Prtsmth. s.) Hudson, R. S. (Cumberl'nd. Whiteh'n) Ruggles-Brise, Lieut.-Colonel E. A.
Cecil, Rt. Hon. Sir Evelyn (Aston) Hurd, Percy A. Runciman, Hilda (Cornwall, St. Ives)
Cecil, Rt. Hon. Lord H. (Ox. Univ.) Hutchison, Sir Robert (Montrose) Runciman, Rt. Hon. Walter
Chamberlain, Rt. Hon. N. (Ladywood) Iveagh, Countess of Samuel, A. M. (Surrey, Farnhamt
Charteris, Brigadier-General J. James, Lieut.-Colonel Hon. Cuthbert Sandeman, N. Stewart
Christie, J. A. Jephcott, A. R. Sanders, Sir Robert A.
Churchman, Sir Arthur C. Kennedy, A. R. (Preston). Sanderson, Sir Frank
Cobb, Sir Cyril Kindersley, Major G. M. Sassoon, Sir Philip Albert Gustave D.
Cochrane, Commander Hon. A, G. King, Commodore Henry Douglas Savery, S. S.
Colfox, Major Wm. Phillips Kinloch-Cooke, Sir Clement Sheffield, Sir Berkeley
Cooper, A, Duff Knox, Sir Alfred Simms, Dr. John M. (Co. Down)
Cope, Major William Lamb, J. Q. Simon, Rt. Hon. Sir John
Couper, J. B. Lane Fox, Col. Rt. Hon. George R. Skelton, A. N.
Courthope, Colonel Sir G. L. Lloyd, Cyril E. (Dudley) Smith, R. W. (Aberd'n & Kinc'dine.C.)
Cowan, D. M. (Scottish Universities) Locker-Lampson, G. (Wood Green) Smith-Carington, Neville W.
Craig, Sir Ernest (Chester, Crewe) Loder, J. de V. Smithers. Waldron
Croft, Brigadier-General Sir H. Looker, Herbert William Somervllie, A. A, (Windsor)
Curzon, Captain Viscount Lucas-Tooth, Sir Hugh Vere Spender-Clay, Colonel H.
Dalkeith, Earl of Luce, Maj.-Gen. Sir Richard Harman Stanley, Lieut.-Colonel Rt. Hon. G. F.
Davies, Maj. Geo. F. (Somerset, Yeovil) Llmley, L. R. Stanley, Lord (Fylde)
Davies, Sir Thomas (Cirencester) Lynn, Sir R. J. Stanley, Hon. O. F. G. (Westm'eland)
Davies, Dr. Vernon MacAndrew, Major Charles Glen Steel, Major Samuel Strang
Dean, Arthur Wellesley Maclntyre, I. Streatfeild, Captain S. R.
Drewe. C. McLean, Major A. Stuart, Crichton, Lord C.
Eden, Captain Anthony Macmillan, Captain H. Stuart, Hon. J. (Moray and Nairn)
Edwards, J. Hugh (Accrington) Macnaghten, Hon. Sir Malcolm Sugden, Sir Wilfrid
Elliot, Major Walter E. Macpherson, Rt. Hon. James 1. Tasker, R. Inigo.
Ellis, R. G. MacRobert, Alexander M. Templeton, W. P.
Fanshawe, Captain G. D. Maitland, A. (Kent, Faversham) Thorn, Lt.-Col. J. G. (Dumbarton)
Fielden, E. B. Makins, Brigadier-General E. Thomas, Sir Robert John (Anglesey)
Forestier-Walker, Sir L, Malone, Major P. B. Thompson, Luke (Sunderland)
Foster, Sir Harry S. Manningham-Buller, Sir Mervyn Thomson, F. C. (Aberdeen, South)
Fraser, Captain Ian Margesson, Captain D, Thomson, Rt. Hon. Sir W. Mitchell-
Gadie, Lieut.-Col. Anthony Marriott, Sir J. A. R. Tinne, J. A.
Gaibraith, J. F. VI. Mason, Colonel Glyn K. Tomlinson, R. P.
Gates, Percy Meller, R. J. Turton, Sir Edmund Russborough
Gilmour, Lt.-Col. Rt. Hon. Sir John Merriman, Sir F. Boyd Ward, Lt.-Col. A. L. (Kingston-on-Hull)
Goff, Sir Park Meyer, Sir Frank Warner, Brigadier-General W. W.
Graham, Fergus (Cumberland, N.) Milne. J. S. Wardlaw- Warrender, Sir Victor
Grenfell. Edward C. (City of London) Mitchell, S. (Lanark, Lanark) Waterhouse, Captain Charles
Griffith, F. Kingsley Mitchell, W. Foot (Saffron Walden) Watson, Rt. Hon. W. (Carlisle)
Grotrlan, H. Brent Morrison, H. (Wilts, Salisbury) Wells, S. R.
Guinness, Rt. Hon. Walter E. Murchison, Sir Kenneth White, Lieut.-Col. Sir G. Dalrymple-
Gunston, Captain D. W. Nelson, Sir Frank Williams, A. M. (Cornwall, Northern)
Hacking, Douglas H. Newman, Sir R. H. S. D. L. (Exeter) Williams, Com. C. (Devon, Torquay)
Hall, Capt. W. D'A. (Brecon & Rad.) Meld, Rt. Hon. Sir Herbert Williams, Herbert G. (Reading)
Hamilton, Sir George Oakley, T. Winby, Colonel L. P.
Hamilton, Sir R. (Orkney & Shetland) Owen, Major G. Windsor-Clive, Lieut.-Colonel George
Hammersley, S. S. Pennefather, Sir John Withers, John James
Hanbury, C. Penny, Frederick George Wolmer, Viscount
Hannon, Patrick Joseph Henry Percy, Lord Eustace (Hastings) Womersfey, W. J.
Harland, A. Perkins, Colonel E. K. wood, B. C. (Somerset, Bridgwater)
Harney, E. A. Peto, Sir Basil E. (Devon, Barnstaple) Wood, E. (Chest'r, Stalyb'ge & Hyde)
Harrison, G. J. C. Peto, G. (Somerset, Frome) Wood, Rt. Hon. Sir Kingsley
Hartington. Marquess of Pilcher, G. Woodcock. Colonel H. C.
Harvey, Major S. E. (Devon, Totnes) Pilditch, Sir Philip Worthington-Evans, Rt. Hon. Sir L.
Haslam, Henry C. Pownall, Sir Assheton Young. Rt. Hon. Sir Hilton (Norwich)
Headiam, Lieut.-Colonel C. M. Preston, William
Henderson, Capt. R. R. (Oxf'd, Henley) Price. Major C. W. M. TELLERS FOR THE AYES.—
Heneage, Lieut.-Col. Arthur P. Raine, Sir Walter Major The Marquess of Titchfield
Henn, Sir Sydney H. Ramsden, E. and Captain Wallace.
NOES.
Adamson, Rt. Hon. W. (Fife, West) Broad, F. A. Edwards, C. (Monmouth, Bedwellty)
Adamson, W. M. (Staff., Cannock) Brown, James (Ayr and Bute) Gibbins, Joseph
Alexander, A. V. (Sheffield, Hillsbro') Buchanan, G. Gillett, George M.
Ammon, Charles George Cape, Thomas Graham, D. M. (Lanark, Hamilton)
Attlee, Clement Richard Charleton, H. C. Greenwood, A. (Nelson and Colne)
Baker, J. (Wolverhampton, Bilston) Connolly, M, Grenfell, D. R. (Glamorgan)
Baker, Walter Cove, W. G. Griffiths, T. (Monmouth, Pontypool)
Barker, G. (Monmouth, Abertillery) Dalton, Hugh Groves, T.
Barnes, A. Davies, Rhys John (Westhoughton) Grundy, T. W.
Barr, J. Day, Harry Hall, F. (York, W. R., Normanton)
Batey, Joseph Dennison, R. Hall, G. H. (Merthyr Tydvil)
Hardie, George D. Mitchell, E. Rosslyn (Paisley) Stamford, T. W.
Hartshorn, Rt. Hon. Vernon Montague, Frederick Stephen, Campbell
Henderson, Right Hon. A. (Burnley) Morrison, R. C. (Tottenham, N.) Stewart, J. (St. Rollox)
Henderson, T. [Glasgow) Murnin, H. Sullivan, Joseph
Hirst, G. H. Oliver, George Harold Sutton, J. E.
Hirst, W. (Bradford, South) palin, John Henry Thurtle, Ernest
Hollins, A. Paling, W. Tinker, John Joseph
Hudson, J. H. (Huddertfield) Pethick-Lawrence, F. W. Trevelyan, Rt. Hon. C. P.
Jenkins, W. (Glamorgan, Neath) Ponsonby, Arthur Varley, Frank B.
John, William (Rhondda, West) Potts, John S. Viant, S. P.
Johnston, Thomas (Dundee) Purcell, A. A. Wallhead, Richard C.
Jones, Morgan (Caerphilly) Richardson, R. (Houghton-le-Spring) Watson, W. M. (Dunfermline)
Jones, T. I. Mardy (Pontypridd) Ritson, J. Watts-Morgan, Lt.-Col. D. (Rhondda)
Kelly, W. T. Saklatvaia, Shapurji Wedgwood, Rt. Hon. Josiah
Kennedy, T. Salter, Or. Alfred Wellock, Wilfred
Kenworthy, Lt.-Com. Hon. Joseph M. Scrymgeour, E. Wheatley, Rt. Hon. J.
Kirkwood, D. Scurr, John Whiteley. W.
Lawson, John James Sexton, James Williams, Dr. J. H. (Lianelly)
Lee. F, Shiels, Dr. Drummond Williams, T. (York, Don Valley)
Lindley, F. W. Shinwell, E. Wilson, R. J. (Jarrow)
Lowth, T. Short, Alfred (Wednesbury) Wright, w.
Lunn, William Smillie, Robert Young, Robert (Lancaster, Newton)
Maekinder. W. Smith, Ben (Bermondsey, Rotherhlthe)
MacLaren, Andrew Smith, H. B. Lees (Keighley) TELLERS FOR THE NOES.—
Malone, C. L'Estrange (N'thampton) Smith, Rennie (Penistone) Mr. Allen Parkinson and Mr. Hayes.
March, S. Snell, Harry
Maxton, James Snowden, Rt. Hon. Philip