§ Again considered in Committee.
§ [Sir DENNIS HERBERT in the Chair.]
§ Question again proposed.
§ Sir S. CRIPPS
When we were interrupted I was pointing out that the second point for remark in the right hon. and gallant Gentleman's speech was his statement that he was in effect now adopting the programme for the mobilisation of foreign securities which we have always suggested. He made the rather curious statement that before you can mobilise soldiers you have to make them. He may appreciate that there existed last August in this country a vast quantity of foreign securities. The right hon. and gallant Gentleman shakes his head, but he cannot seriously deny the proposition that there were in the hands of a great number of individuals in this country a mass of foreign securities last August. The question of their mobilisation could have 66 been tackled in a number of different ways. It could have been done, as it was during the War, by the registration of these securities by the Treasury, or, as the right hon. Gentleman proposes to do it, by purchase from the holders of the securities. As I understand it, a certain portion of this fund will be used in the purchase from the holders in this country of foreign exchange assets, that is to say, foreign securities. By the purchase of these, a fund will be built up with which to operate upon the foreign exchange.
I certainly agree with the right hon. and gallant Gentleman that this Motion marks a new era in the financial control which this Committee will have over the general financial situation of the country in the future. We are at least waking up to the realities of post-War finance, and we are getting rid of what the right hon. and gallant Gentleman on a former occasion referred to as the fusty, musty ideas of the past century. We believe that this is the first step to be taken by the Treasury and the Government towards what the right hon. and gallant Gentleman called the greater degree of control over currency; this Measure alone will not, of course, give the Government control over the currency. This is, unless I have misunderstood the position, a means of controlling the foreign exchange, that is to say, a means of controlling the relationship which our currency bears to foreign currencies, but it is not in itself a means of controlling either the quantity of currency which is issued in this country or of the credit which can be created by the Bank of England in this country.
I want the right hon. and gallant Gentleman to explain one further thing about which we have some little difficulty. When the Bank of England, as I understand it has to do, controls on behalf of the Treasury, or operates, as the agent of the Treasury, this fund of £150,000,000, there will be a third department of the Bank. There will be the Banking Department, which is under the control solely of the Bank; there will be the Issue Department, which is under the control of the Bank, but in which transactions are done for the credit or debit of the Treasury account; and there will be this new department, the Foreign Exchange Department. These three will 67 be operating under the control of the Governor and the Court of the Bank of England. If the right hon. and gallant Gentleman desires to exercise currency control by means of this foreign Exchange Fund—for which he is going to take the complete and absolute responsibility and about which, I understand, we shall be able to ask questions in the House on the Chancellor of the Exchequer's salary or some other occasion —we do not understand how he is going to effect that control if there are other important factors of control left entirely with the Bank outside any power of the Treasury to control it. For instance, take the matter of the Bank Rate. The operation of the Bank Rate is used in order to encourage or discourage money coming to this country from abroad. That has, of course, a most material effect upon the Exchequer, and it has been one of the recognised methods of controlling exchange. That is a factor which, I understand, is to be left as heretofore entirely in the hands of the Bank of England without any control from the Treasury at all.
Side by side with that will be this new Exchange Fund which will be operating under the control of the Treasury and not of the Bank of England, which will merely act as agents for the Treasury to do what the Treasury directs. We find difficulty in appreciating how these various facets of currency control will be brought under some co-ordinated jurisdiction. Unless that is done, there will be a considerable danger; whichever side may take the right view, whether the Treasury or the Bank of England, there will inevitably be differences of view as to the exact way in which the exchange or the currency should be controlled by these various operations. Unless there is only one master in the house, there will be a very considerable difficulty. We agree entirely with the Treasury taking the control and the responsibility on behalf of this Committee of this foreign Exchange Fund, but we feel that that can only be the first step, and that very soon the Government will inevitably come up against the other step, which will be the taking over from the Bank of England of the whole of the responsibility for the control of the currency.
68 Perhaps the right hon. and gallant Gentleman will elucidate how this dual control over currency and foreign exchange will operate. That is our first criticism as regards this Motion, that is, that it does not go far enough; it starts in a desirable way by giving this Committee control over a very important function which has hitherto been carried out by the Bank of England, but it still leaves in the entire control of the Bank of England certain other ancillary functions which it seems to us must be exercised in association with this foreign Exchange Fund. We want to know from the right hon. and gallant Gentleman what his proposals are with regard to that matter.
A most important question arises—and it was raised by many speakers during the Budget Debate—as to how this fund is to be used, and what in fact is the goal which the right hon. and gallant Gentleman and his colleagues, the Lords of the Treasury, have in mind. He stated that the Treasury might not control this directly; one of their most important functions was to be able to select the right people to control a fund of this sort. The Treasury do not select the Governor or the Assistant Governor or the Court of the Bank of England. These people are selected by powers quite outside the control of the Treasury. Therefore, the right hon. Gentleman was not quite accurate in referring to the powers controlling the Bank of England being selected by the Treasury. At any given moment someone might be selected to hold that position whom the Treasury people might consider to be profoundly the wrong person in the circumstances. The right hon. and gallant Gentleman will not, I know, shut his eyes to what has been a very real criticism from all sides of those responsible for the policy of the Bank of England, namely, that they have taken far too little interest in the industrial position and far too much in the financial position, that they have, in fact, represented not what the right hon. and gallant Gentleman said was necessary and desirable, namely, the interests of trade and industry, but the interests of the international merchant bankers, the exchange houses and the big finance houses of London.
It is essential that those who advise the Treasury in the use of this foreign ex- 69 change fund and in the control of the currency should be people who are concerned with advising the Treasury upon the trade and industrial position and not upon the purely financial position. The right hon. Gentleman will be making a mistake if he hands over the control of this new fund, not to those responsible for trade and industry, but to those who have during the past 10 years been profoundly distrusted by trade and industry owing to the way they have managed the foreign exchange, currency and credit position in this country. We suggest that if this fund is to be farmed out to be managed by someone—perhaps it is a good thing that it should not be managed simply by Treasury officials—it should be managed by an advisory committee or a committee of persons who are truly representative of industrial interests of all classes, that is to say, not only the employer, the employed and the financier, but those who are interested in financing business, running business and working business. Unless some such body is set up under the control of the Treasury and responsible to the Treasury, the right hon. and gallant Gentleman will be making a grave mistake, and he will find that the fund will inevitably be used for financial as against industrial purposes.
There is another point about which we should like some elucidation from the right hon. and gallant Gentleman. The Chancellor of the Exchequer in his Budget speech stated very categorically that the Bank of England, so far as its own exchange transactions in the banking department were concerned, would of course continue to carry the loss or make the profit out of those transactions as purely banking transactions. Let me put this to the right hon. and gallant Gentleman. Supposing one court of directors is responsible for the Exchange Fund on ordinary foreign exchange transactions in the Bank of England, it being their duty to use the Exchange Fund to regulate the foreign exchange position, is it conceivable that on their foreign exchange transactions in the Bank there will ever be a loss, and that they will not bat on a certainty on every occasion? The loss they will make up out of the foreign Exchange Fund, as it will be their duty to do, because that is what it is for. I think the right hon. and gallant Gentleman will see 70 that this, again, brings out the difficulty of trying to isolate these different transactions. If we are to leave this solely in the control of the Bank of England as an operative control, apart from what the right hon. Gentleman referred to in Ms speech the other night as the ultimate control, we are putting at their disposal a sum of £150,000,000 which will always carry the losses on foreign exchange; but so far as they are concerned, they will be perfectly justified in making, and, in fact, they inevitably will make, profits on foreign exchange in their own Bank department, because that will be the purpose for which the fund is put at their disposal.
There was another point which the right hon. Gentleman stated which was a point of interest, and that is that the new account will be a capital account. I take it that refers to the £25,000,000 as well as to the £150,000,000, because, as I understand it, this fund will start life with the possibility of £175,000,000 in its till. The right hon. Gentleman emphasised the importance of that, and also emphasised how wrong it was of the right hon. Member for Epping (Mr. Churchill) to suggest paying out of a capital account something which was really only a revenue expenditure. I think he gave the instance of subsidising beer from this fund. Surely the right hon. Gentleman himself is paying out of that fund a sum of £8,000,000 which is an annual loss incurred this year upon exchange transactions. I think it hardly becomes him to be a purist on this matter when he has most artfully, if I may say it with great respect, concealed from his Budget statement a little loss of £8,000,000 which ought to have been paid in the current year and has transferred it as a first debt to this new capital fund which he is setting up, not to pay capital losses out of—
§ Major ELLIOT
The hon. and learned Member will realise that that proposal was put through by the Government of which he was so distinguished an ornament, and that we had the power to raid because he himself supported it in the Budget of last year. It is these temptations which I desire to see removed, both from his path and mine, and from that of my right hon. Friend, because we are all subject to temptations.
§ Sir S. CRIPPS
I am afraid the right hon. and gallant Gentleman cannot get away with that explanation, because he will appreciate that the £25,000,000 to which he refers was not a capital amount —he has already stated so this afternoon —but is now being turned by himself and the Chancellor of the Exchequer into a capital account. He is taking credit for turning it into a capital account, and the first thing he does, having turned it into a capital account, is to pay out of it £8,000,000 for a revenue expenditure last year.
§ Major ELLIOT
That is the second step. The first step was to minimise as far as possible the raid of last year, the next step was to close that transaction, and the third step is to put these assets into a capital fund which will not be raided by us or any other Government.
§ Sir S. CRIPPS
Then the position is this, is it? The new fund will not be £175,000,000, as I put it, and as I thought the right hon. and gallant Gentleman agreed, but will be £167,000,000.
§ Sir S. CRIPPS
And out of that I understand that the first thing to be repaid is the £8,000,000 in accordance with paragraph 5 (c) of the Resolution:For making good to the said Issue Department out of the said fund any loss not exceeding eight million pounds, sustained in connection with the credits raised by the Bank on the first day of August, nineteen hundred and thirty-one.I understand that that is the first charge on the new capital fund. If I am wrong, perhaps the right hon. and gallant Gentleman will correct me.
§ Major ELLIOT
I think there has been a slight confusion. I was considering Budget accounts, and the hon. and learned Member is considering the exchange accounts. It is quite accurate to say the first charge on the Equalisation Fund will be the loss made upon the raising of the Bank credits last August, but that charge, surely, falls reasonably into a capital fund when one is establishing a capital fund to deal with this problem.
§ Sir S. CRIPPS
It seems hardly reasonable that it should fall into a newly-established capital fund when it was a loss of last August. I have no objection to its falling on this fund. I think it is a very good device to save the Budget from a loss of £8,000,000. All I was pointing out was that it hardly becomes the right hon. and gallant Gentleman to be too much of a purist in this matter, because I think the ordinary expectation was that some debit item would occur in the Budget accounts in respect of this loss, which was known to have taken place and which everybody knew had to be paid off by the Government. Instead of that, by a very ingenious device, as I say, it has been transferred to this new capital account as a first debit.
There is another thing which I wish to ask. As I understand it there is at present an unascertained loss of £22,000,000. I am not quite sure how it is arrived at, but it is a potential loss, as I understand it, depending upon the value put upon the gold in the Issue Department. Under existing circumstances I understand that gold can only be valued at the legal price, and at no other price, and as matters stand at present a loss of £22,000,000 is shown. That again, as I understand it, is being put upon this fund, by the ingenious device of permitting this fund to exchange its securities across to the Issue Department—by allowing flexibility. If there as an excess in the Issue Department it goes into the fund, and if there is a debit in the Issue Department it is made up by the fund, and this £22,000,000 will, in fact, be made up, when the actual sum is ascertained, from this fund. Again, that is, it will be made up out of capital. Therefore, the fund starts with a potential charge of £30,000,000 against it, £8,000,000 actually ascertained repayable to the Bank of England and £22,000,000 potential loss in the Issue Department, which will be repayable at some future date if and when the amount is ascertained.
§ Major ELLIOT
That is not quite so. As I understand it, in the case of the money borrowed by the Bank, upon which the first loss was made—the loss with which we are dealing now—that loss fell upon the Issue Department, but that was because the money was borrowed by 73 the Bank. The second credits were obtained by the State, and the debit on them does not go against this account but goes against the National Debt, and does not come out of this Exchange Equalisation Account.
§ Colonel WEDGWOOD
I thought that loss of £22,000,000 was to be written off by the enhancement in the value of gold, and that therefore there was no loss to pass on to the Consolidated Fund? [Interruption.]
§ Sir S. CRIPPS
May I intervene for a moment in the Debate! This is a. matter upon which a great many people are interested, and upon which my mind is not clear, and upon which a great many people in the Committee are not clear. As I understood it, this £22,000,000 was represented by gold in the Issue Department of the Bank of England; it was a surplus value, in fact, over and above the legal value which had to be given to the gold under the Bank Currency Act, and therefore the loss had not been realised at the present time, but when it was realised, or if it was realised, depended upon the actual value of gold at the time when the account was drawn. It will fall upon the Issue Department, because that is where the gold is. Therefore the Issue Department, if it makes a loss on that gold, will have to make it up by drawing on this foreign exchange account.
§ Sir S. CRIPPS
I would rather have an answer from the right hon. and gallant Gentleman than from the hon. Member for East Edinburgh (Mr. D. Mason), because this is a matter with which the Treasury is dealing and I do not think his Department is.
§ Major ELLIOT
It is always a little difficult to deal with these matters by question and answer across the Floor of the House, particularly in the presence of the hon. Member for East Edinburgh (Mr. D. Mason), who is always irresistibly drawn to joining in such Debates. Certain national assets, namely, the gold in the Issue Department, have appreciated. They could not be realised unless the gold were cashed-in, and, therefore, while we would be entitled to write up the gold to that amount, yet we are not, 74 in fact, doing so; but we are entitled to say that we hold full assets against every penny of the money which we raised abroad, and could, if we so desired, settle that debt without any loss by the export of so much gold from this country. Therefore, we are reasonably entitled to say that against a loss we have an appreciated asset. But these are theoretical considerations which would not become actual unless, in fact, we were to carry out the transaction, which at present we do not intend to carry out, of sending abroad all that gold as a payment for the sums which we raised when this country was still on the Gold Standard.
§ Sir S. CRIPPS
Having had to pay it off in sterling and not gold we have, in fact, got a loss of £22,000,000, though if we could sell all the gold we should make that loss good. That is why I referred to a potential loss of £22,000,000, and, as I understand it, that potential loss is going to be carried on this Foreign Exchange Fund.
§ Major ELLIOT
That is the only point at which we are at variance. That potential loss having been made from the Consolidated Fund is now charged to the National Debt.
§ Sir S. CRIPPS
That sum of £22,000,000 has been capitalised and the sum of £8,000,000 is going to be capitalised, so that following last year's flutter on foreign exchange we have capitalised the whole of the losses, amounting to £30,000,000, instead of paying them off during the course of the year. Therefore, perhaps, I was not wrong in saying that the right hon. Gentleman must not be too much of a purist about not capitalising annual expenditure, because that is precisely what he has done to the tune of £30,000,000. I think it is most satisfactory that we have at last got the position clear.
One word about the aim, which the right hon. and gallant Gentleman says he cannot disclose to us, of the use of this fund when it comes into operation. How this fund is used is regarded by us as a matter of the most vital importance. It may be used to ruin the country, and it 75 may, similarly, be used to do a great deal to help trade and industry. For instance, if the right hon. Gentleman were to foe inoculated with the same virus as affected the right hon. Member for Epping in 1925 the country would, we think, be ruined by the operation of this Foreign Exchange Fund. [Interruption.] May I be allowed, on behalf of the Committee, to congratulate the President of the Board of Trade who has just returned to the House on feeing relieved of an enormous load of debt? If the right hon. Gentleman had control and so manipulated the fund as gradually to drive up exchange until we approached to the Gold Standard, we think it would be calamitous. I think he shares that view, and the Chancellor of the Exchequer has already told us that there is no immediate intention of doing that.
There is another thing which might be almost equally bad in our view, and that is that this fund should be used to tie us to some other gold standard, irrespective of the height of our exchange or the height of the foreign exchange at which pegging takes place. Once we again tie ourselves to any gold standard, the dollar, or the franc, or foreign exchange, we shall be making our exchange rigid, and to that extent we shall be seriously handicapping our position, and we shall not be doing the best that we can to extend the sterling group to which the right hon. Gentleman has referred. We believe that it is absolutely essential to fix exchange upon commodity prices upon a properly regulated national or international index if possible. With that assistance and the gradual rise of prices to the 1928–29 level we believe it will be possible to operate this fund to the great advantage of the trade and industry of this country. To take the fund to iron out all the casual differences in commodity values which arise and not to iron out our differences with other countries still on the Gold Standard, which really arise from a variation in the value of gold and not of commodities, would be a mistake. We believe that it is far more important that our sterling should be known to purchase a given amount of commodities than that it should be known that it would always purchase a given amount of gold, which seems a less important criterion of value than taking the wholesale index.
76 The question of how this fund is to be used is a fundamental one. The right hon. Gentleman has told us that he cannot disclose it, but by its operation he will be judged, and he very truly said that it will be for the Committee and the House to judge him and the Chancellor of the Exchequer upon their operation of the fund. We can only at present warn him that if it is used in order to try and link us permanently to a gold standard or force us back on to the old standard of gold on which we stood before September last, we on this side of the House will certainly call the right hon. Gentleman and the Chancellor of the Exchequer most rigorously to account.
§ Sir ROBERT HORNE
I have listened to the hon. and learned Gentleman the Member for East Bristol (Sir S. Cripps) with that admiration which always possesses my breast when he rises to speak in this House. There are some parts of his speech with which I agree, although I do not concur entirely in the precise way in which he stated his case. During the greater part of his speech I was wondering what would happen if the hon. and learned Gentleman really had a good case to present, because he is almost irresistible even when he has a thoroughly bad case. The hon. and learned Gentleman appeared to discover a very important fallacy in the proposals of my right hon. and gallant Friend, and he spent a long time in trying to find out to what extent the exchange fund was a capital fund which was being feloniously used for the purposes of the revenue of the year.
§ Sir S. CRIPPS
What I said was that I did not think it lay in the mouth of the Financial Secretary to take up the attitude of a financial purist and accuse other people of using capital funds for the purpose of meeting annual expenditure when he was doing the same thing himself.
§ Sir R. HORNE
That seems to me to be too subtle. What is the origin of this matter? There was in existence an Exchange Fund which a very active member of the Public Accounts Committee discovered in the course of his investigations, and this discovery was communicated to the last Chancellor of the Exchequer. It was an Exchange Fund 77 kept by the Treasury to be used as required to meet our obligations to the United States of America. The late Chancellor of the Exchequer, having discovered this nest-egg, used it to meet the ordinary obligations of the year to the extent of £22,000,000, and I did not hear any protest from the hon. and learned Gentleman the Member for East Bristol in the course of the discussion which took place upon that Budget, although I endeavoured to raise my plaintive voice against meeting current obligations out of capital assets.
Let the Committee keep in mind that it was an Exchange Fund. It is therefore quite proper to meet out of this fund the amount of any loss suffered through fall in the Exchange value of sterling, and I cannot understand how even a meticulous criticism could be advanced against this Government for so using it. It is now to be set aside in a new category in order that it should not be subject to any current obligations of the country at the present time.
There is one other matter in the hon. and learned Gentleman's speech to which I will refer. I do not propose to follow him in certain criticisms which he made which were rather an echo of the controversies of the last election. We all know the theories held by the Labour party with regard to putting the Bank of England in the charge of the Government. During the discussion the hon. and learned Gentleman has however suggested that this House has no control over currency. I confess that I could not follow him in that argument. We must remember that this House has sanctioned, and is required to sanction, the amount of the fiduciary issue which the Bank of England can put out. A few weeks ago we were asked to sanction an additional fiduciary issue of £15,000,000. Therefore it is erroneous to say that the issue of currency is outside the purview of this House, when, as a matter of fact, it has to have the sanction of this House behind it.
The hon. and learned Member for East Bristol made the suggestion that ideas were being taken up by the Government which had their origin in the party to which he belongs. The legislation which is now being proposed is possible only 78 because we have now a different Government from that which nearly brought the country to ruin, and this legislation would have been impossible in the circumstances of last August and September. The fact of the matter is that hon. Members opposite seem to have forgotten what happened last August, and what in the end brought about the decline of the pound. That result came about because the rest of the world had lost confidence in the management of our finances under the Labour Government and were no-longer content to keep their money here. Let me remind the Committee that this is the first time in modern history that any foreign capital has been shifted from this country under any feeling of apprehension.
I will now come immediately to the question of the Resolution before the Committee, and I do not propose to deal with it at any length. The Financial Secretary, in introducing the Resolution, said that there will be ample opportunity for discussing the principles which lie at its base. This is only, so to speak, a preliminary canter, and the Government are asking the House to allow them to put into the Finance Bill proposals which have been sketched out in the Resolution before the Committee. I think the Government must have felt gratified by the extent to which the course they propose to adopt in putting £150,000,000 at the disposal of the Issue Department of the Bank of England in order to steady the exchange has been approved, not merely in this country, but throughout the world. I have read many journals, and quotations from journals published in other parts of the world which have been telegraphed to this country, and universally the course the Government are taking has been approved by financial authorities as a means by which we can best secure not merely the welfare of this country, but help for the finances of other nations. In no foreign country have I found the slightest suggestion that we shall not be able to do what we are attempting, and it is only here that some doubt3 have been expressed that we shall not be strong enough to use this fund for the purposes for which it is intended. The fund will, as I take it, be used 79 for purchasing foreign currencies, and also, I hope, a certain amount of gold.
The effect of these purchases will be that you will have a fund which will enable you to stop, if it should come to be necessary, any flight from the pound; but, so far as I am concerned, I do not fear any such contingency. As the right hon. Gentleman has said, the whole tendency at the present time is for money to flow to Britain rather than to flow away from it, and, accordingly, I do not think the fund will require to be used for any purpose of that kind. On the other hand, we shall be enabled, by having so much money at our disposal, to sell sterling to the extent which it may be necessary, and, therefore, to keep its value at some such point in the market as will suit our trade and industry. Everyone, I think, agrees, including the Government, if I understand my right hon. Friend's speech aright, that that is a policy which we must pursue in this country at the present time.
The Government are not willing to disclose very precisely the policy which they mean to follow. I should have thought that it would be wise, in the interests of the very trade which they seek to help and serve, to make a greater disclosure than we have yet had. I said what I have to say upon that topic last Wednesday, and I do not want to weary the Committee by repeating anything that I then stated, but I have discovered since last week that I was only stating what had already been suggested very strongly by the Macmillan Committee. In dealing with the question of foreign balances and foreign liquid assets in sterling, they say this:For those who would stand high in the world's estimation, the greatest candour and readiness to submit to publicity are now required. Moreover, it is exceedingly desirable that the principal data on which the Bank of England bases its decisions should be generally known, for the natural action of the market is more likely in that case to march with the intentions of the Bank, and the decisions, being intelligible, will carry more weight.I believe that view to be entirely sound, and I think that it represents a policy which it would be wise to follow. It is not good to find, in the City to-day, everybody inquiring as to what is the 80 Bank's action, sometimes mistaking the action of those who are supposed to be the agents of the Bank for a considered policy, and wondering from hour to hour, and even from minute to minute, where we are going to stand. I do not think that the country ought to be asked to conduct its business in so much uncertainty, and, accordingly, I would venture to hope that a little more candour can be displayed. My right hon. Friend the President of the Board of Trade knows better than anyone the extent to which business is affected by such uncertainties as those which I have been describing, and I am certain that it would be conducive to the interests of everybody that we should know, not things that ought to be concealed, but as much as possible of the tendency of the Bank of England's policy, for interests such as those which my right hon. Friend described are intimately concerned in this matter.
He spoke of our Dominions. Take the situation of Australia to-day. A violent controversy is going on in that country as to the level of the Australian pound, and, to a certain extent at least, their position is made more difficult today by the rise in the value of the English pound. Again, I myself have had representations from both Sweden and Denmark as to the difficulties from which they are suffering by the increase in the value of the English pound, and I venture to suggest, to those who have the management of this very intricate and troublesome matter, that they may find their convoy being very seriously depleted. Those who have attached themselves to us will feel bound to draw off before very long unless we can do something to make our arrangements suit more harmoniously with theirs.
People talk about the fear of loss, which was one of the things to which my right hon. Friend referred; but I am glad that he asseverated very strongly that the chances of loss by failing to follow this policy would be much greater than by following it. I applaud the courage of that statement. Not only do I share my right hon. Friend's view, but I am sure that you will suffer less loss if you exhibit a determined attitude. It is firmness and lack of fumbling that are going to carry you through this trouble, and the world is looking to us to show a determined front towards all the difficulties which confront the nation. The more we 81 do that, the less chance of loss will there be. Again, it is said that, by purchasing large amounts of foreign currency, we may in the end find ourselves creating a greater difficulty than that with which we started. I may remind the Committee that M. Poincaré, when he set himself to put right the French exchange, succeeded in keeping the franc, which had been jumping up and down for a long period before, at a level between 122 francs and a fraction and 124 francs and a fraction to the pound; that is to say, over a period of 18 months, the value of the franc in relation to the pound did not oscillate by more than about two francs in 120. That shows what can be done if you have a determined policy and persist in carrying it out.
I admit that such circumstances are not in every way comparable with those in which we exist to-day, but it gives some indication of what is possible when you happen to be in control of funds to enable you to deal with your currency. At the end of that period—and this is the criticism which survives to-day against M. Poincaré—France was left with very large accumulations of foreign currency; she had, for example, very large amounts of our sterling; and that did create a position from some of the effects of which we are suffering to-day. But I do not believe that it will ever be necessary for us to acquire any such accumulations as France was compelled to take into the Bank of France, because I do not think that it will be 18 months before we come to a more settled position. The world is moving much faster at the present time than it was in 1926–27, and circumstances will demand a much quicker solution of some of these problems than people could afford to wait for in those earlier years. From that point of view, I feel no apprehensions whatsoever with regard to the amount of foreign currencies and. gold—I lay stress upon the accumulation of a certain amount of gold —that we shall have to acquire in order to carry out this policy.
It is necessary that we should have an adequate sum at our disposal for the events that are going to take place in the future. It is necessary for some country in the world to start lending again, in order that the commerce of the world may move once more, and there is only one country in the world which, by 82 its tradition, its experience and its skill, can do it. It has been proved in recent years—I do not say this vaingloriously— that Great Britain alone, through her long experience in financial policy, which has benefited the whole of humanity, can conduct this matter successfully. Other nations to-day are, I think, quite ready to acknowledge our pre-eminence in this respect. Recently an American banker said to me, "How can we compete with you in the management of our business? It takes five generations to create a bank clerk." You will find no grudge against you if you choose again to take the leadership of the world in this crisis; you will find other nations only too ready to follow. The provisions of this Resolution, which, ultimately, I hope, will be embodied in the Finance Act, will indicate that we are going to check the speculator who wishes to upset things, not merely for us, but for everybody else, and they indicate, to people who have money in other parts of the world, that they ought to support the finances of their own country first, because by that method alone will the world be redeemed from its present distresses. I look upon this Measure with the greatest possible hope. I have no sort of fear as to its result. I welcome the impressive and grave, but encouraging and inspiring tone in which my right hon. Friend introduced it, and I hope that, when the Finance Bill of the year comes to be enacted, the Clauses of this Resolution will be duly included in it.
§ Colonel WEDGWOOD
There are three things that can be done with the fund which we are setting up by this Resolution. It can be used to restore sterling to gold parity—that is to say, dollar parity; it can be used to peg the exchange at the present figure; or it can be used to send sterling lower. Everybody knows that this fund is to do one of these three things, and at present the uncertainty as to which use the Government are going to put this fund to is the greatest obstacle to the restoration of confidence. The right hon. Gentleman, in moving the Resolution, was very insistent that it would be dangerous to tell the House what use was going to be made of the fund. Speculation, corruption, and all the 83 other unfortunate incidents of that kind would follow any indication by the Chancellor of the Exchequer or by himself as to what use was going to be made of this fund. I join with the right hon. Gentleman the Member for Billhead (Sir R. Horne) in begging the Chancellor of the Exchequer or the right hon. Gentleman, before this Debate closes to make it a little more clear, not merely to this Chamber but to the world at large, than it has been made up to the present—I do not ask for any definite figures— whether this fund is really going to be used in the interests of trade and industry, and what the Government conceive the interests of trade and industry to be.
The interests of trade and industry and the interests of the Bank appear at first sight to be contradictory. The one is the money lender, and the other the money user. The action of the Bank in trying to retain dollar parity has led people generally to suppose that the object of the Bank is still to-day the restoration of dollar parity. I think, however, that there has been a complete change of mind in the last six months, and that the restoration of dollar parity is no longer the object of the Bank. It has been made clearer during the last six months that, if the interests of trade and industry are to be solely considered, this fund will be used to reflate to the 1928–29 wholesale price level, which means sending sterling down by about 10 per cent. I was not clear whether the Government are refusing to disclose what use they are going to make of this fund because they think it would be dangerous to do so, or because they have not made up their minds on the matter. I should like it to be made clear to the House of Commons and to the world that the Government realise that, in the interests of trade and industry, a pound sterling at $3.50 or $3.60 would be better for trade and industry in this country than a pound at $3.80, and certainly better than a pound at $4.80.
If we could have some enlightenment on that matter, it would help in the restoration of trade, and it would give security and stability which it is impossible to achieve in any other way, because it all depends now on the use of this fund and on the Government. It is 84 no longer a question so much of the balance of trade. It is a question of the Government. The only anxiety that I have as to the use of the fund is that it will still be more or less connected with the Bank and the banking interest, rather than with the interests of trade and industry. For instance, if I could be certain that the right hon. Gentleman the Member for Hillhead would be in charge of this fund, I should know where we were, I should know what we should get and that trade and industry would benefit by it. With the Bank I am not quite so certain and, if it is to be a choice between using the Treasury and using the Bank of England, I would say by all means use the Treasury and do not go out of the public service for the direction of the fund.
Then, conceive for a moment that it is the settled policy of the Government to reflate to 1928 prices—to send the pound down to 3.50. If that is the ultimate goal that they have in their mind, how are they going to do it? In two ways, says the right hon. Gentleman the Member for Hillhead, and it is obvious that they must use one of those two ways, either by the purchase of foreign currency by selling sterling to buy foreign bills of exchange, or else to buy gold. If you sell sterling, sterling falls, and whatever you buy rises. I enter this caveat about buying gold. If the Government, with the vast sum of £150,000,000, goes into the market to sell sterling and buy gold, it is inevitable, as the amount of gold in the world is limited, that you will push up the price of gold. In the last five years the purchase of gold by France and America, purchases which they were forced to make because they declined to take imported goods from the countries who owed them money, has sent up the price of gold relative to commodities. The price of gold appears to remain constant, but gold in relation to commodities has widened and widened, so that the fall in commodity values is largely due to the excessive demand for gold as an alternative to goods. If we are going into the market to buy gold, if we are going to join France and America in the scramble for gold instead of goods, that must have the effect of still further raising the price of gold or, in other words, depressing the price of raw materials and commodities.
85 Therefore, if this policy of trying to reflate to 1928 and 1929 values is indeed the policy of the Government and the use they intend to make of this £150,000,000, I beg them to reflect that, if they try to achieve that policy of forcing up the price of gold, they will deliberately destroy that which they set out to do. By sending up the price of gold they will still further depress the world price of commodities. I think that is clear. It is one of the main arguments for bringing silver or tin, or any other metal, into the ambit of your security. If you buy currency, you are faced with something of the same difficulty. If you sell sterling—and the principal idea of whoever is using this fund to depress the value of sterling must be to sell sterling—and if you are using the sterling that you sell to buy French or American bills of exchange, you are putting into the hands of the Government pieces of paper which will give you a call on the produce of those countries. You are acquiring a vast mass of manoeuvre to buy French and American goods. I think that is all right, but I do not understand it coming from this Government. The Government are doing their best to stop these goods coming in, and at the same time providing us with a largely increased supply of paper to pay for those goods. It is contradictory. But there is this to be said for it. As long as that paper remains locked up in the Treasury and is not used, you do not get the ill effects. But it is liquid. You liquidate it when the goods come in. You do not want the goods in, you put on tariffs and you invent quotas; you do everything to prevent the foreigner liquidating that piece of paper. Therefore, that piece of paper falls in value. It is no longer able to demand so much foreign goods, because the foreigner is prevented from sending those goods and, therefore, the value of that piece of paper to people in this country falls.
So that all those foreign bills of exchange which have accumulated here in exchange for the sterling that you sold —all that vast reserve, sinks in value. You have made a bad speculation. The foreign currency, of which you hold too much, will fall in value and the Equalisation Fund will make a loss. It would be exactly the same if you bought wool or did as the Brazilians did and bought 86 coffee instead of paper. If we accumulated here vast stocks of wool we should risk very big losses, because it would cost a terrific amount of money to hold raw materials off the market, and you would lose on the speculation. The issue department would have these capital losses, which we should deplore. If you take bills of exchange, and the currency of the country whose bills of exchange you are taking falls, you get a loss. It is exactly the same with gold. Gold, which used to be the safest of all, is to-day one of the most risky things to hoard. We have seen so many countries come off the Gold Standard, and we do not know where it may stop. We are certain that, directly the next country comes off gold, the world will come off gold, and then gold will have a value for earrings and wedding rings, but all those millions that you have bought will slump in value and the colossal loss made by the Equalisation Fund will be far greater than if you hoarded bills of exchange or wool, or anything else. We have to remember two things. It is not merely selling sterling. It is what you buy with the sterling that you sell, and the effect of that upon the trade and commerce and finance of the country that you have to consider. When the Government say, "We are going to form this fund, but we will not tell you what use we are going to make of it," it makes me think, in the first place, that they have not made up their minds definitely what they want to do with it, and, secondly, that they have not in the least thought out the further results of what action they may take and have not discussed it.
During the course of the Debates that we shall have on this matter, I hope we shall get a clearer indication from the Government as to the use to which they are going to put this money, and as to the methods they are going to use, and that they will make it clear that the use to which they are going to put it will not be for the benefit of any particular holders of raw materials. If you sell sterling and buy gold, you benefit France and America, because you are shoving up the price. If you link it with silver, it is all for the benefit of people who have hoarded silver in India and in China and the mines in Nevada, and those people will benefit. If you buy anything, up goes the price. Let us see if it is possible 87 for the Government, in carrying out this policy, to give the greatest amount of information to the public as to what the policy is and how they intend to carry it out, and you may he sure that whatever they state to be their policy will almost immediately become the actual fact. If they have not a policy, if they dare not confess to their own conscience what their policy is, they cannot be expected to tell you how they are going to carry it out and what the ultimate results of their action will be. For all these reasons, I hope the Government will not only make up their mind, but will make it clear to the House of Commons that they have made up their mind and what that mind is.
§ 6.0 p.m.
§ Mr. AMERY
There is, I think, a remarkable consensus of opinion in the Committee both as to the importance of the step that the Government are taking and as to its wisdom. We are all agreed that, in arming themselves with this instrument, this mass of manoeuvre, to counteract exchange fluctuation and speculation, the Government are putting themselves into a position to fix sterling, or, what is more important, to make sterling move in. the direction in which they wish it to move. There are, however, certain limitations to that policy to which it is worth while calling attention. The right hon. Gentleman who has just spoken has put his finger upon the most important limitation. He has pointed out, which is very true, that the power of this fund is confined to affecting the relative value of sterling in terms of the other currencies in which purchases are going to be made. As he points out, the general effect of buying gold or Gold Standard securities is to tend to accentuate the process, which has already been going on so disastrously in the last two years, of sending up the value of gold in the Gold Standard world, though I might, by way of qualification, say that that is only so if the gold they buy is part of the gold for which the world is scrambling. If they can extract some of the sterilised gold which is not in use, it will not create the same effect. Still, broadly speaking, the effect of buying Gold Standard securities or gold is to alter the relative position of sterling to 88 gold. It does not decide what is the actual price level which you establish in the sterling world. It depends a great deal upon the particular circumstances of the moment whether the main result of your action will be to raise prices in the sterling world or to depress them still further in the gold world.
There is, undoubtedly, a competitive advantage to this country in depressing sterling, as compared with gold, up to a certain point. That has its advantage as a measure of protection against competition from Gold Standard countries. It has also the advantage as giving an export bonus from the sterling area to the gold area. But it still remains relative. What we are concerned with is not only the relative position as between the sterling world and the Gold Standard world, but also the relative position of sterling to-day as against the sterling of last year and the year before. What we are aiming at, and what we ought to aim at, is to create, for the world if possible, and at any rate for the sterling area, a price level sufficiently approximating to the price level of 1928–29 to enable industry and agriculture to carry their overheads, their standing and customary charges, and to enable the wheels of consumption and production to move again. I am not sure that that essential need can be secured by any manipulation in buying gold for sterling, or even in buying silver for sterling, although there you do avoid the effect of causing a further fall in gold prices.
On that side of the question the remedy must be sought not in altering the relative value of gold to sterling, but in such action for the enlargement of credit and, in so far as it may be necessary, for the enlargement of the actual currency behind that credit, as is required in order to reach the level of prices which you wish to secure. When you come to that point, it is again obvious that you are not justified in issuing credit or currency unless there is a demand for it. You must create conditions under which there is a demand for credit. When those conditions arise, it is vital that you should not restrict that demand, and that you should encourage it in every way; but you must create that demand, and that depends upon the other aspects of your policy.
89 The whole object of the Measures which we are taking in fiscal policy and of the Measures which we hope to take at Ottawa, is to create that confidence as to production in this country and in the Empire as will lead to a demand for credit, and it is vital that our industrial policy should be considered together with our monetary policy. You cannot deal with this question in watertight compartments. If our policy is to aim at the restoration of a reasonable price level, we must not only make certain that our currency and credit policy contributes to that end, but we must also create the industrial conditions under which there will be a demand for credit. The first essential to that is confidence. I am not certain—and I do not wish to prosecute that part of my inquiry further—how far the measures which have been taken already, so essentially temporary and fluctuating, have really created the confidence which is required. I cannot help thinking, for instance, that an earlier, a more definite, more long-range policy for the great iron and steel industry would have created demands for credit for that industry and for other industries which depend upon it, a rise in the value of their securities, which would have created those very conditions of justifiable inflation or reflation, that is to say, reflation based upon a real recovery of industry, and which would have contributed towards the general raising of the price level.
I only hope that when we go to Ottawa that consideration will be foremost in the minds of our representatives, namely, that they go to Ottawa not merely to discuss mutual preference in one compartment and monetary policy in another compartment, but that those two things are simply two aspects of a single policy of Empire and national development and recovery. Towards that recovery I agree with my right hon. Friend the Member for Hillhead (Sir R. Horne) and the right hon. Gentleman the Member for New-castle-under-Lyme (Colonel Wedgwood) that it is essential that those who have to carry out the work in detail, business men, industrialists and, farmers of this country and of the Empire, should know the general policy of the Government. Clearly, we cannot ask for too much detail, although, as the Macmillan Committee has pointed out, the opera- 90 tions of the Issue Department of the Bank of England might be conducted somewhat more in the light of day than they are at present. But what we are entitled to know—and my right hon. and gallant Friend who introduced the discussion to-day in an extremely interesting and admirable speech did not tell us that—is whether, broadly speaking, in this matter of prices the policy of the Government is to try to follow the advice of the Macmillan Committee and get back towards the 1929 level of prices, or whether it is merely to prevent sterling from moving about too much vis-à-vis gold. The vital thing, as the hon. and learned Gentleman the Member for East Bristol (Sir S. Cripps) pointed out, is not the relation of sterling to gold, but the relation of sterling to commodities. While it is true, as the Financial Secretary said, that we should be governed by a consideration of the interests of the industries of this country, we must also consider the primary producers of this country, and with them the primary producers of the rest of the Empire and of such countries as Scandinavia and the Argentine who wish to associate themselves with us in our sterling policy.
I wish the Government would give us some clear indication of their objective. If we know the general direction, we can leave the actual day-by-day steps to their discretion. But if they give us no indication as to direction, and if we have, at any rate, a possible suspicion that they themselves have not made up their mind what the direction is, then, undoubtedly, uncertainty and despondency and the consequent lack of initiative will continue in industry, and our recovery will be delayed.
§ Sir ARTHUR MICHAEL SAMUEL
A point was made by the hon. and learned Gentleman the Member for East Bristol (Six S. Cripps) which we on this side of the Committee ought not to allow to go forward without contradicting and knocking the foundation from under it. He laid some flattering unction to his soul that we were now going to embark upon a policy which he and his hon. Friends had always advocated of mobilising foreign securities. It sounds all right. It has a nice ring about it. What does it mean? What foreign securities does he propose should be mobilised? When the 91 hon. and learned Gentleman says foreign securities can be mobilised, let us ask him to come down to realities and tell us all about it.
Of the foreign securities we formerly held here we sold during the War £1,000,000,000 worth, but those securities were only securities in the denomination of the dollar or in denominations such as the United States would accept. They would then accept Brazilian and Chilean; they would accept Argentine dollar securities. We parted with £1,000,000,000 worth of foreign securities. It is true that although we have re-accumulated £1,000,000,000 worth of foreign securities so alarmed were we after the War, with the catastrophic fall in the other currencies, that we demanded in nearly every case that the securities which we took again here should be expressed in terms of sterling. It was no use our mobilising securities in sterling for supporting sterling last Autumn. No foreigner would take them to support sterling. They wanted to sell sterling. We required other securities with which to buy and support sterling. There are no securities of the Argentine or Brazilian or Chilean type which have any value at all now for the purposes of exchange operations. I do not say this with any idea of being funny, but when the hon. and learned Gentleman the Member for East Bristol talks to us about mobilising foreign securities, even very few United States securities expressed in dollars to support exchange would have any great market value in America at all. Some facetious person has said that the American stock markets are really Woolworths—nothing above 100 dollars (£20). There are various securities in the United States of the highest reputation and of which we have an appreciable amount in England which would not now fetch 100 dollars. I never thought that I should live to see the depreciation of the stock of the Pennsylvania Railways, which is supposed to be the greatest institution in the world, except perhaps the Institution of Freemasonry. It is worth only 13 dollars. The premier railway security of America is worth only 13 dollars per $50 share. What is the good of the hon. and learned Gentleman the Member for East Bristol 92 telling us that we ought to mobilise foreign securities? What foreign securities? And how much of suitable securities could we get?
§ Sir S. CRIPPS
I did not use the term "mobilise." It was the right hon. Gentleman the Financial Secretary who used it. This fund, as I understand it, is to purchase foreign securities, and they will have to be purchased.
§ Sir A. M. SAMUEL
I agree, but the hon. and learned Gentleman will see in the OFFICIAL REPORT to-morrow—unless my ears deceived me—that what he said was, "We are now going to mobilise foreign securities." It is true that we shall have to mobilise foreign instruments of credit, but they will not be long-dated securities that will have to be sold on the stock markets. What we shall have to purchase will be gold exchange instruments payable at dates almost immediately in bills due to us from other countries. If we could find and bought a large amount of foreign investment securities, say, for £150,000,000 and tried to sell them in America we should not be able to sell them there. Sterling securities are not suitable. Dollar securities would be required. If, however, we did manage to sell them they would have to be sold at such a lowprice at the present American market rates that they would be practically worthless even in dollars—[Interruption.] To sell any large volume would be impossible. I do not know whether we could get them. In regard to the foreign securities that we have bought from America or the other foreign securities that we have been buying after the War, we have insisted on having them in sterling, but sterling is no good for America, securities for supporting sterling must be expressed in dollars or francs. Therefore when the hon. and learned Member uses the term "mobilising foreign securities" he is using an empty phrase and he must not take the flattering unction to himself that his advice and proposal would be any use to us; it is neither practicable nor applicable, nor even possible of being made effective for our needs.
There is no one who can take exception to the principle of the Resolution now before us. If I may say so without im- 93 pertinence, on 11th March, when we were discussing the Financial Emergency Enactments (Continuance) Act, I went so far as to say that a policy of this present kind was necessary lest we might be deluged with foreign buyers of sterling, not so much by France or America going off the Gold Standard, but because I was convinced that there would be a flight to sterling, that other nations would take refuge behind the ramparts of sterling and, aided by speculators, would push up the price of sterling much higher than was acceptable to us. I know nothing about the City, but as an old manufacturer I do know that it is as the very breath of our nostrils for us to have a measuring rod of steady value so that we can do our business overseas, and know what we have to pay and receive 90 days hence. I further pointed out that although we might get over the difficulty arising from a large influx of foreign money here, sheltering behind the ramparts of sterling, we had to face the phenomenon of a possibly immense amount of gold coming from India. With the value of gold ruling at 3.70, it pays India to send gold here. People have been foolish enough in the past to talk about a shortage of gold. The hon. Member for East Aberdeen (Mr. Boothby) still talks about the disastrous effect of the shortage of gold. There has been no shortage of gold. We have had more gold in the past year, from India and the mines of the world, than ever was available in 12 months before.
§ Mr. BOOTHBY
Then can the hon. Baronet explain why gold has steadily risen in value during the last eight years?
§ Sir A. M. SAMUEL
I must have notice of that question. It is very foolish for me to try, on the spur of the moment, to answer a question on a matter which is in the highest degree intricate. There has been a disequilibrium in gold, not a shortage. It is a subject much more fitted for the study than for the floor of a debating society; but, after five minutes, I might give the hon. Member a good answer to his question, though I prefer not to commit myself to an answer on the spur of the moment. I might mislead him. He asked me why gold has risen in price. I suppose he means a fall in the price- of raw materials.
§ Sir A. M. SAMUEL
And therefore a fall in the price of raw materials. I will give him a part answer. One of the reasons for the fall in the great basis of the purchasing power of the world, that is the produce of the fields and the mines, especially the fields, is not a shortage of gold. The fixation of nitrogen has done more to bring down the prices of raw agricultural products than any shortage of currency. Cheap nitrogen, for instance, has made cheap nitrate, and cheap nitrate has made cheap artificial manure, and cheap manure has led to a doubling of the produce per acre. This has pulled down the price of raw material more than any alleged shortage of gold. We know there has been no shortage; there has been abundance of gold mal-distributed. The hon. Member must recollect that machinery beat the handworker in the old days, and reduced prices, just as these artificial chemical manures are beating the former fertilisers of the earth. Therefore, inflation or deflation, or calling the pound 30s. or currency jugglery of that kind, will not attain their end any more than people attained their end when they tried to juggle with the prices of coffee, with rubber, with tin, and sugar and one or two other commodities which I have not in mind at the moment. They tried all manner of schemes to keep up the prices; they tried to interfere with the law of supply and demand, but they could not break it, and we cannot break it now. If you try to break the law of supply and demand it will do what it is doing now—it will break you, in coffee, rubber, tin and sugar. We have to deal with these matters of price levels on natural lines. You cannot depart from the axioms of economics and exist.
I have been diverted from my line of argument by an interruption with regard to the production of gold and I will now return to it. The hoard of gold in India is enormous. I remember that during the War someone said that £25,000,000 worth of gold had been poured into India every year even for the last 30 years. From 2,500 years ago India has always been a quicksand for gold. Within the next two, three or four years whether we wanted it or not we could have anything up to £500,000,000 of gold from India at 95 a price. If we had £100,000,000 coming into London from India during the next 12 months it would go far to defeat the objects of the policy which my right hon. Friend is now proposing, and which I support. We must not, therefore, lose sight of the fact that there may be trouble for us due to any pouring in of gold from India. Gold will come out of India while the Indian owner of gold can get a high sterling price for it owing to the sterling value of the pound falling to 3.70.
I should like to touch on a point that was dealt with by the right hon. and learned Member for Hillhead (Sir R. Home) and the right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood). Let us make it quite clear to the nation at what this exchange control policy is aiming. Let the nation know that there is not any mystery, no magic; no hint of powers that are too subtle for the average citizen to understand, in this proposal. It is easy to explain what we are doing and it is well that the country should understand. We are protecting a most vital part of our national armour against the speculations of unscrupulous persons who are willing, as I said the other day, to wreck a nation or anyone else if they can get one half of 1 per cent. for doing it. This scheme for exchange control will protect us against that class of people. It must be made clear to the public that we are not going to borrow any money from abroad. There will be no raising of foreign loans or foreign credits. If we require money, it will be raised among our own people, probably by Treasury bills here if and when required. Our people only need to be told what we are doing and they are then eager to help. Mystery is the thing that does harm. Let the country know that we are protecting a vital link in our armour, the British exchange. Let them know that if there is a loss in so doing we shall have to pay for it, and if there is a profit, the Treasury will get it and not the Bank of England. Let there be no air of conjuring or any mystification about what we are aiming to effect.
We must have a steady exchange for our manufacturers and we must not allow ill-disposed persons to play havoc with our 96 sterling exchange one way or the other. But there is no need—and it is here that I back up the Financial Secretary to the Treasury—there is no need to inform the world how our plans work, what we buy or sell, or what assets we hold. There is no need to let the world know, especially our enemies, the speculators, how we are working the Exchange Fund, what our assets are, what paper or gold we are buying and what we are selling. I am against that. But we should let the country know what this country is aiming at in principle. I am content to allow the Treasury and the Bank of England to work the scheme when the House has entrusted them with it, and I am sure that when we have told the country in general what the scheme is aiming at the people will not want to know all the inside details. It is, however, a dangerous policy to leave the country in the dark and leave them to expect events which do not happen and guess wrongly about things which do. If we do not tell the people what is the object of this scheme, then the hon. and learned Member for East Bristol will endeavour in the most courteous but subtle way to lay all our troubles upon our exchange; and those who support him politically in the country in their soapbox speeches, more extreme than himself, will give as the reasons for commercial chaos the wickedness of our merchants; and the hon. Member for East Aberdeen will add to the indictment by saying that it is the stupidity of the Bank of England.
The home-born demagogue—and here I address myself to the hon. and learned Member for East Bristol—must not be allowed to mislead the people into thinking that the power to make or unmake nations lies easily in the hands of credit creators and exchange controllers and that the reasons for defaults and the commercial chaos are engineered by bankers and by the wickedness of our merchants or the stupidity of the conscientious men who direct the Bank of England. I therefore urge that short of showing our assets and our future plans to foreigners, we should explain to the people the meaning of our exchange policy, how it operates and what we shall try to make it do. If foreigners try tricks with, sterling, they will be trapped and to their own loss; that is our intention. I cannot help 97 thinking of my old schooldays when I hear an expression of a kind which fell from the Financial Secretary to the Treasury. He, when speaking about the power of the purse in relation to the national position, reminded the Committee that the British people combined their politics with finance. Every great nation has done so. A Greek quotation is not often made in this House but it is not something of which one need be ashamed. This has stood the test of 2,500 years. I therefore venture to offer a Greek quotation which applies exactly to-day as it did in Pericles' days in the 5th Century B.C. Athens was then at the peak of her glory. Thucydides puts these words into the mouths of the envoys from Corinth:[...]—The power of Athens rested on finance rather than on native strength. It is on the power of our finance which will be helped by a Resolution such as we are going to accept that we shall be able to keep firm our credit and by it place our industries once more on a solid foundation.
§ 6.30 p.m.
§ Mr. BOOTHBY
I will not attempt to follow the hon. Member for Farnham (Sir A. M. Samuel) in his final flight, and indeed I cannot, because Greek is beyond me, and I cannot help wondering what the Official Reporter is going to do about that quotation. I congratulate the hon. Member not upon the subject matter of his speech but on having once more introduced the habit of classical quotation in this House, and I sincerely hope he will continue it. I only propose to deal with his remarks on the question of gold. He implied that there was plenty of gold in the world and had been for some years past. When I pointed out that the value of gold in terms of commodities had steadily risen for the last eight or 10 years, and that the price of commodities had as steadily fallen, the hon. Member said that the reason was overproduction due largely to the manufacture of nitrates from the air.
§ Mr. BOOTHBY
Cheaper production if you like. It is no good for the hon. 98 Member to say that there is too much production when millions of people are underfed and underclothed. If there is not enough, his argument must fall to the ground. As a matter of fact, the production of most basic commodities has remained steady over the last few years, and there can be no other cause or explanation of the rise in the value of gold and the fall in the price of commodities than the fact that there has been a shortage of gold. Indeed, that has been accepted by everyone who has considered the question. I was very disappointed by the speech of the hon. and learned Member for Bristol East (Sir S. Cripps). He complained bitterly and, I thought, at great length, because a capital loss on the exchange account should be charged to a fund which has been specially created in order to sustain that loss. And after that he went on to say that the flight from the pound last year was caused by the activities of speculators, foreign speculators in particular. It does not require a great flight of imagination to see perfectly well the cause of the flight from the pound last year and of the withdrawal of short term credits in this country. I suggest to the hon. and learned Member that one of the causes, perhaps the primary cause, of that situation was the fraudulent Budget introduced in April of last year, which was seen through by everyone.
It would be difficult to exaggerate the importance or the significance of the Motion we are discussing. The right hon. Member for Hillhead (Sir R. Horne) pointed out the other day, and again this afternoon, that this House is ultimately responsible for the management of currency in this country. It had to give statutory authority for the return to the Gold Standard; and statutory authority for the suspension of the Gold Standard. While we were actually linked to gold the responsibility was perhaps less direct, because the limits within which the Bank of England was authorised to act were definitely defined. The Bank had been directed to keep the pound at parity with gold so far as it was able to do so. But even then, in the management of currency, they were definitely acting as the agent of Parliament. Now that we have left gold it seems to me that this 99 House has to assume a greater and more immediate authority and responsibility in this matter; and I think everyone recognises that fact. It is right that it should be so, because monetary policy is vital. It overshadows and influences every aspect of economic policy, and indeed the whole national life.
This Resolution is a clear indication that the Government is fully alive to the situation; and we ought to welcome it on that account. In particular, the transfer of the profit and loss on currency management from the Issue Department of the Bank of England to the Treasury is a necessary and a very wise step to have taken, and I think the Government deserve to be heartily congratulated on having done it. But I am not sure that the new situation will not call in time for a somewhat clearer definition as to the exact relationship between the Treasury and the Bank of England than exists at the present time. It is nebulous, and therefore it is difficult for them, and certainly for Parliament, which has the ultimate responsibility for the activities of both, to know exactly where they stand in the matter of currency. The Financial Secretary is asking for authority for a loan of £150,000,000 in order to facilitate the management of currency. That is a large request. If there was any doubt before as to where responsibility lay, it was settled by his speech this afternoon. The final responsibility, whether the House likes it or not, lies here. And, therefore, there are three questions which have to be asked.
The first question is, how is the money to be found? That question has not been specifically asked yet. The second question is, who is to manage it? And the third question is for what purpose is it to be managed? With regard to the first question there are one or two specific points which I am very anxious the Financial Secretary should clear up if possible. How is this £150,000,000 to be raised? Is it to be raised by a Ways and Means advance? If so, no one can have any objection, because that would not be deflation. If it has any tendency at all it would be a tendency to inflation. Or is it, on the other hand, to be raised by the sale of Treasury Bills? And if so, is the Bank of England going to give the necessary cash resources to the other 100 banks in order to enable them to take up these Bills? I think a 10 per cent. advance would be necessary. If the Bank of England is not going to accord the other banks any resources with which to take up these bills, then it must mean a certain measure of further deflation, and will prevent for some time to come a rise in the price of long-dated gilt-edged securities, and thus jeopardise the prospects of the conversion operation which we are all anxious to see successfully carried through this year. Therefore we must ask for some information as to how actually it is proposed to raise this £150,000,000. It is a matter of real importance, and it bears directly on the whole question of monetary policy.
The second question is by whom is this fund to be managed; and here the Financial Secretary was quite explicit. It is to be managed by the Bank of England. It is quite right that the day to day transactions of the fund should be in the hands of the experts of the Bank of England, and also that they should be kept private. But, in my submission, it is wrong that the policy should be dictated solely by the Bank. This instrument of £150,000,000 is, as everyone must concede, an instrument of tremendous power so far as monetary policy is concerned. It can affect not only the exchange position, but also the credit position; and as the right hon. Member for Sparkbrook (Mr. Amery) has said, through the credit position and policy of this country, it can affect prices. I think we have a right to know a little more clearly than the Financial Secretary has pointed out what is the general monetary and credit policy of the Government. They are asking us to-night to hand over a powerful instrument, and as the final responsibility for the use of this instrument must rest with the House of Commons, we are entitled to know, in general terms, the main uses to which it will be put. I echo the request already made by several hon. Members that we should have more information. I think we should know, from time to time, the holdings of the fund in gold and foreign exchanges. That cannot do any harm. On the contrary, I believe it would do nothing but good if a statement was issued from time to time, say monthly, by the Bank of England of their holdings in gold and in foreign exchanges. There has 101 been in the matter of currency and monetary policy for the last 10 years a great deal too much secrecy and mystery.
In view of the fact that this credit is to be managed and used by the Bank of England, and that it can be used as an instrument of deflation as well as an instrument of inflation, there is one aspect of the question which ought to be raised on the Floor of this House, because it cannot be raised anywhere else, and it is an aspect which must not be shirked. The monetary policy of this country for the last 10 years has been controlled and directed by the Bank of England, to whom the Financial Secretary paid such a glowing and warm tribute in his opening speech. I believe that the policy of the Bank of England has been consistently wrong, and absolutely disastrous in its results. It may be summed up in a single word—the word "deflation." The Financial Secretary twitted me about the complaints I have always made of the monetary and currency policy of this country. In view of the fact that the Committee is now being asked to grant a loan of £150,000,000 the management of which is admittedly to be entrusted to the Bank of England, it is relevant and perhaps worth while to examine briefly the policy of the Bank of England in the past, especially as the direction of the Bank has not changed
Despite the break in 1921, when commodity prices dropped by 40 per cent., deflation was continued in this country in order to raise the pound sterling to pre-War parity with the dollar. Despite the warnings of the Genoa Conference— that an international Gold Standard could not work without co-operation between the central banks of the world to stabilise the value of gold in terms of commodities, we returned to the Gold Standard in 1925 without any guarantees or assurances of any kind that such co-operation would be forthcoming. The result was a deflation such as the world has perhaps never experienced. For my part I believe it to have been very largely responsible for the industrial upheaval of 1926, and beyond dispute responsible for the agricultural depression in this country. There was a report of a committee set up by the Minister of Agriculture on the Stabilisation of Agricultural Prices in 1925. It was a report of immense interest, and it pointed out that 102the three great depressions of the last century were due to falling prices having their origin in monetary causes; and the present depression is capable of an almost exclusively monetary interpretation.It is quite unnecessary for me to dilate upon the evils of deflation. As money appreciates and goods depreciate, the burdens on every producer, both primary and secondary, gradually become so intolerable that they are forced into the hands of the banks, or out of business altogether. The Financial Secretary pointed out with great weight and gravity that only those who had had experience in government could realise the great responsibilities of those who were entrusted with it; and he emphasised the dangers and disadvantages of taking any new step of any kind in any direction at all. I agree. The responsibilities are very heavy. But I submit that I and some of my friends are entitled to believe that nothing could possibly have been worse for this country than the years of deflation which we have been forced to go through. And I marvel that we have managed to survive. We were able to take no part in the world expansion which took place between 1924 and 1929, when we should have been reconstructing our industries, particularly the cotton industry and the iron and steel industry, and developing the limitless resources of the Crown Colonies. By this deflation we were prevented from doing either of these things. All we did during those years was to double the real weight of the National Debt. That was the sum total of our economic policy, due entirely to the monetary policy advised by the Bank, and pursued by the Government. Money which was denied to the industries of this country and to the Empire, was not stinted to European countries. Greece, Austria, Poland, Hungary had only to come to the City of London and ask for cash. It was poured out under the auspices of the Bank of England. Greek settlement schemes were set going very largely at the expense of the City of London, while it was with the greatest difficulty that we could raise any money during those years either for the reconstruction of British industry, or for the development of the Empire.
What I want to submit in this connection is this. A statesman is judged by results. If his policy fails he goes. It may be unfair, but there is a kind of 103 rough justice about it. Mr. Montagu Norman, on the other band, is never called upon to explain or to justify or to defend his policy, and it is his policy that has been carried out for the last 10 years. Governments may come and Governments may go, but the Governor of the Bank of England goes on for ever. He is a classic example of power without responsibility. I would point out that that power is great, and it remains great to-day. But the policy, judged by results, has failed. No one in this Committee would deny for one moment that the services which Mr. Norman has rendered to the country have been very great indeed, and that if any man could possibly have carried through a policy of deflation, he is the man who could have done it. It is not his fault that the policy has failed. It has failed because he was unable to obtain the economic co-operation of other nations, which he thought he could obtain. The point is that he has failed to obtain that co-operation. And, without international co-operation, the policy which he has been pursuing cannot succeed, and must in the long run bring this country to ruin.
I submit that if we are going to grant to the Government and to the Bank of England this £150,000,000, a most powerful instrument for good or bad, we are bound to ask, in the light of the events of the last 10 years, for some assurance that, in default of international co-operation, the policy of deflation shall be pursued no further. Unfortunately there is a good deal of evidence that even since we came off the Gold Standard, the policy of deflation has been continued, for between the date when we left the Gold Standard and last February, the deposits in the joint stock banks fell by £150,000,000. It is difficult not to trace the cause of this to the fact that the Bank Rate was maintained at 6 per cent. for such a long time; and for that Rate, in the light of events, there does not seem to have a very great deal of justification.
Our industrialists and our producers have suffered bitterly under this policy for 10 years, and they ought to suffer no longer. I feel bound to say this, because hitherto the quantity of money has, in practice, been controlled by the Bank of England and only by the Bank of 104 England, and that fact has been insufficiently realised by the public. Currency inflation—the word "inflation" has been foolishly bandied about—in future, looking well ahead, is not only inevitable, but necessary to keep pace with world production, which in normal times ought to expand at the rate of about 3 per cent. per annum. Therefore you must have a corresponding increase in the available supplies of credit and currency, if you are going to keep a stable price level.
Some of us have a natural anxiety about this Resolution in view of its terms. It is, apparently,for the purpose of strengthening the Currency and checking fluctuations in the exchange value of sterling.I would have been a little happier if it had been "for the purpose of restoring the price level, and thereafter of preserving the commodity value of sterling." The late Secretary of State for the Dominions stressed that aspect of the question, and I would like to join in support of what he said. The commodity value of sterling is of far greater importance than the exchange value, not only to this country, but to all that growing volume of countries which have now joined the sterling area. It is the duty of the Government to secure that the commodity value of sterling shall be kept steady as far as possible, and to declare that policy to the world as a whole. If this Resolution, on the other hand, is to be made an instrument of further deflation, as it can very easily be, the Committee ought to realise that it will inevitably wreck the whole tariff policy on which we have been engaged during the last few months.
The responsibility is on this House. The Financial Secretary made that clear. We have a right, and a duty, to ask the Government to let us know the main lines of their policy, and to keep us informed from time to time regarding its execution. I do not ask for details from the Government at the present time. I know that the Government cannot give details, or figures, or suggest a point at which they are aiming for the stabilisation of the pound. But I do ask, whoever is to reply on behalf of the Government, for some assurance that at any rate this money that we are being asked to vote will not be used to continue the policy of deflation, which, I submit, and which a grow- 105 ing body of opinion in the country believes, has caused such havoc in the country for the last 10 years.
Mr. WARD LAW-MILNE
I think the Committee will be surprised at the extent to which the question which we are discussing to-day has received attention since the Budget was introduced. It is, perhaps, not untrue to say that when the Chancellor spoke last week there were very few Members who at once appreciated the immense importance of the proposal which he then put forward to set up this fund of £150,000,000 for the purpose of checking undue fluctuations in exchange. But there are some of us, at any rate, who remember the very definite promise which was made by Lord Snowden, then Mr. Snowden, when last September he introduced a Measure which gave the Government power to deal with the fluctuations which he expected at that time, just as we left the Gold Standard. Lord Snowden then said:The Government will take such measures as may be possible to circumscribe the fluctuations of the exchange."—[OFFICIAL REPORT, 21st September, 1931; col. 1299, Vol. 256.]That was a very definite promise made to the House. My first point is this: I do not want to waste time in going into the detailed history of the past few months, but, whatever the cause may have been, that promise was not fulfilled; no measures were taken by the Government between September and the early part of this year to deal with fluctuations in exchange, and the losses which fell upon traders as a consequence of the absence of those measures have not yet been properly ascertained, or certainly not fully appreciated. I do not think it is putting it too strongly to say that there is probably not a single trader in the country who has not suffered as a consequence of the continuous fluctuations in the past few months. I go further and say definitely that those fluctuations need not have occurred. There was not and never has been any real flight from the pound. There was not and never has been any want of confidence in our currency in this country, and this in spite of the fact that the Government and the Bank of England did not take a clear and definite line from the beginning. I agree entirely with what has been said by the last speaker, that if in the period I have 106 referred to, last year, the Government had had a definite policy and had clearly enunciated it, we should have avoided a great many of the fluctuations from which we have suffered in the last few months.
To-day we are asked to approve of this Resolution, and, while I heartily welcome it and congratulate the Chancellor most sincerely upon the scheme, there are two or three points I desire to raise. Hon. Members in different parts of the Committee have asked to-day that the Government shall make clear what their policy is to be. While I agree with that request, I want to qualify it to some extent. I do not want to know to-day, and I do not ask the Government to declare, what their ultimate goal is, because I do not think that they or anyone else is in a position to define it now, and indeed it might be dangerous to do so. We do not know yet and we are unable to compute what the natural level of the pound is to be in commodity values in the future. But I do ask the Government to state what their short-term policy is. In declaring that I believe they will do immense good to the trade of the country. I do not think there is any difficulty whatever in the Government stating, not exactly what figures they will keep the exchange at, but in what way and with what immediate objects they intend to use the fund to control the exchange. That is not an unreasonable thing to ask them to do, and it is not a difficult thing for them to lay down. That request is a totally different thing in my view, from asking them to lay down now what the final policy is to be and what is to be the final goal in the way of stabilising sterling in relation to gold.
In the Resolution we are told that the details of the assets will not be published, but that they may take various forms, either gold or sterling securities or foreign exchange. Here, again, we want to know a little more than we have been told. If the Government are going to purchase foreign exchange or gold, I think there will be no likelihood of any serious loss in the transaction, except an accounting loss, to which I shall refer later. There is more likely to be a profit. But if they begin on the perilous path of buying sterling securities, if the Bank of England is to be allowed a free hand, 107 we may very easily find the result of this operation, far from benefiting trade and industry, will be what has been described as a continuance of the policy of deflation.
One of the greatest dangers in this country at the present time is the fear that people have of the word "inflation." I do not suggest that the fear of inflation is not usually a well founded one. There is no doubt that uncontrolled inflation is the most dangerous thing possible, and that to control inflation is extremely difficult; but there is all the difference between inflation over and above the normal requirements of trade plus increasing production, and keeping your currency at a figure which does not allow for that increased production at all. In the latter case you are certainly not inflating when you bring your currency up to the requirements of industry; you are only putting right previous deflation. It is because of these dangers that I hope the Government will find it possible to limit very strictly the action of the Bank of England so as to prevent any further deflationary measures, and, if possible, give us some kind of indication as to what their short-term policy is.
There was one point in regard to the possible equilibrium between gold and foreign securities, purchases and sales, which was not clear from the statement of the Chancellor of the Exchequer. I refer to that part in which he stated that the Issue Department is to hold gold at the old par value, while any foreign exchange they purchase is to be valued from day to day at the current rate of exchange, irrespective of the purchase price, and the deficiency, if any, made good, to make the account balance, from the Exchange Equalisation Account. At first sight it would appear, as these are both Treasury accounts, that it does not matter in the least at what price you take them into the books, but it may matter considerably in the appearance of the account if we keep gold in the books at the old par value while we keep foreign exchange at its value today. You may easily find that your Exchange Equalisation Account may 108 show a loss which does not exist. Theoretically, the gold and the foreign exchange would form a perfect balance if each were stated at its day to day value or alternatively both at par value. What we are doing may be prudent in the sense of putting the worst face upon the situation as it appears in the account, but it might well have the result of showing a loss which really does not exist.
I found myself in agreement with one remark of the hon. and learned Member for East Bristol (Sir S. Cripps) when he asked whether it was possible for the Bank of England to conduct foreign exchange operations in the Banking Department at a loss when another branch of the Bank was fully aware of the Government's policy in regard to the future of foreign exchange. I cannot help thinking that the Chancellor must have had his tongue in his cheek to some extent when he said that the Bank would continue to bear its own risks involved in any foreign exchange operations. I cannot imagine that there is any likelihood of any loss in transactions of that kind to the Bank of England under the arrangements which we are now proposing to set up.
I always find myself in considerable difficulty in this House in dealing with the management of these matters in the hands of the Bank of England. The difficulty is that any criticism in this House of the policy of the Bank of England in the past, however quietly phrased and however moderately stated, is immediately taken by the Opposition as indicating complete agreement with their view that the whole system should be nationalised. I only mention that to say that, in criticising the Bank of England, I do not associate myself in the slightest degree with any of their extreme ideas, which have remarkably little following in any business circles in the country. On the other hand, any person, who criticises, however humbly, the Bank of England, is faced with impenetrable silence from a solid block of opinion, which in this Conservatively-minded country holds the view, very decidedly, that the Bank of England in any circumstances can never do wrong. I do not hold that view. I look back to the fact that throughout the last 10 109 years we have been misled from beginning to end in our financial policy. I do not doubt, in saying this, the excellent intentions underlying these actions, but unfortunately we know where the best intentions lead us. If they are going to be judged by the results, there is not the smallest doubt that it is high time that the Bank of England were prepared to listen at any rate to those with other points of view.
§ Mr. BRACKEN
If the Bank of England is to be judged by results, so too should the politicians. In the last 10 years the politicians have done more than anyone else in this matter.
Mr. WARD LAW-MILNE
We must all be judged by results. The politicians put into force the recommendations of the Bank of England and others of their financial advisers. If the hon. Member will agree that they must have had that advice at the time that we went back to gold, without the necessary preparation, then I agree that politicians are equally to blame. But when we give them these new powers I only say that, although it is valueless to waste time surveying the past except for the purpose of teaching us in the future, it is not unfair to say that we have no evidence from past history to show that in the future the powers we are now giving to the Bank of England will be used in a way that will really be a benefit to trade and industry. The only thing that encourages me to think that they will be so used is that we learn from the speech of the Chancellor of the Exchequer that he intends to keep a. very careful watch over what happens, and I have great faith in his supervision. I shall, therefore, content myself with saying that, if these powers are to be granted, they should be limited to some extent in the character of the operations carried out directly and solely by the Bank and that this House, which both the Chancellor of the Exchequer and the Financial Secretary have said has the ultimate financial responsibility, should at least be in a position to discuss these measures from time to time and, if necessary, to express their views as to the policy of the future.
I trust that, as a result of this and other Debates which must take place on these matters, people will begin to realise that a new light is required on the cur- 110 rency question, and I hope that its importance will be increasingly appreciated throughout the country. If we can only get people to realise what an important part this currency question plays in their daily avocations, we should make a great deal of progress. One of the reasons why we have had difficulties in the past is that the average man has said that the question is too deep to understand and much too difficult for him, whereas it is really simpler than many of the problems with which he is dealing in his own business every day. It has been wrapped in mystery so that the average person says that only the experts can tell us what to do. I do not believe that, in a case of this kind, the experts are to be entirely relied upon. I do not mean that the basis of their experience is not good or that their knowledge is not of great value, but that the conditions are such as the world has never faced before and that because of that we must look upon these matters from a new angle.
It is not a question to-day of what we are going to do in the future, of whether we are going back to gold or on what basis we are going back to gold. The Government would be foolish to enter into any commitments as to what their ultimate goal may be, but there is nothing to prevent the Government making clear to the people to-day what their short-term policy is and in what way this fund is to be used. If that can, be done, it will be found that this question far outweighs in importance any other question raised by the Budget Resolutions. It far outweighs any question of tariffs, because, as it was extremely well put in the letter of Lord Bradbury a few weeks ago, a change of only a few points in the figures of the exchange values will wipe out the whole of our 10 per cent. duties. It is no use considering a tariff policy at all until you have decided your currency policy so far as it is possible to do so now. As it is impossible in my view to lay down a long-term currency policy immediately, all we can justly ask the Government to-day is to give a clear declaration of what they intend to do in the near future and to say that that policy will be continued unless world conditions entirely change.
§ Major HILLS
I should very much like to break a lance with the two last 111 speakers over the policy of the Bank of England, but, as I have risen to raise two points only, I shall only say that, if blame attaches to our currency policy then let us put the blame on the right shoulders. Both deflation and the return to the Gold Standard were the policy of the Government, and we are all responsible for both. The hon. Member for East Aberdeen (Mr. Boothby) knows very well that the Chancellor of the Exchequer himself was responsible for returning to gold in 1925. If I, like everybody else, may be allowed to be wise after the event, I would say—what I did not say at the time—that the real mistake in 1925 was not in returning to gold but in going back at parity or at 20s. to the pound. If we had valued our pound at something like the price at which our pound stands now, we should not have suffered a great many of the evils we have suffered since. I think we should have avoided the General Strike and the mining strike.
§ Mr. WARDLAW-MILNE
There is nothing between us on that point. Any reference to going back to gold would not have been made if it had been at a different parity.
§ Major HILLS
It is important that, if we have to blame anybody, we should ourselves accept our right share of that blame and not blame the wrong person. I agree with one statement of the hon. and learned Member for East Bristol (Sir S. Cripps), although I did not agree with a great deal of his speech. The hon. and learned Member pointed out the importance of the selection of those persons who are to manage our currency. It is a point of very great importance indeed, and he quite rightly pointed out that, in choosing those managers of our currency, we must include business interests and not rely entirely upon financial interests. I agree very heartily. That point has got this further bearing. I am among those who hope to see an Empire currency. I do not want, at present at any rate, to go back to gold. I believe that there is a great future for an Empire currency, which might be extended still further, and we might see a sterling league. Why, we have got a sterling league now. A large part of the world follows sterling. It is, therefore, of 112 enormous importance to what sort of management sterling is subjected. It is far more than a question that concerns us here; it concerns us and concerns the Empire, too. It also carries with it the whole future of London and the maintenance or perhaps the restoration of London as the money market of the world. All that turns on the course which the gentlemen who will have this very difficult task choose to follow.
My second point is this. I was rather alarmed when I read on the Order Paper that the object of this Reserve Fund is to check undue fluctuations in the exchange value of sterling. I admit that that statement was qualified by the Financial Secretary to a very large extent when he said that in regulating the price of sterling the interests of industry would also be considered. But I want to put this plainly to the Government. Anybody who manages a currency must fix some standard whereby the value of that currency is to be determined. You cannot say merely that you want to help industry. You have to say by what you propose to regulate the rise and fall in the value of sterling. As the hon. Member for East Aberdeen said, you can either attach your currency to gold and make gold your standard, or you can try to keep your currency stable in terms of commodities.
I am very pleased and much relieved to find a large body of opinion in this Committee in support of the latter principle. It is, I am sure, far more important to keep your currency at a certain level in terms of commodities, than to try to attach it to a fluctuating medium like gold. Our misfortunes are largely due to the fact that with all its excellent qualities gold has a value of its own and that value does not remain constant. I do not expect that the Financial Secretary or indeed anybody can answer what goal the Government have in view but what the world wants is a stable currency. Since the Macmillan Report we know it is not gold which gives their value to bank notes. Gold is important for quite different purposes and I believe that if we go forward with skill and courage the Empire will follow us and a large part of the world will follow us also.
§ Mr. HOROBIN
I should like to preface my observations by saying that 113 if, in embarking on this very difficult subject, I may appear at any stage of my remarks to be dogmatic, it is only in the interests of brevity, because one cannot to every other sentence add a qualification. That proviso is all the more necessary, because I believe that all those Members who have to endeavour to understand the Bank's Return will agree with me that there has never been a time when, with the best will in the world, it has been more difficult to interpret that weekly document which lies at the core of British financial affairs. I have heard it said actually within the sacred walls of the Bank of England that there are only two figures in that return which really mean what they appear to mean, those being the figures of bankers' deposits and the bank's capital. Without going as far as that I think all who have had to try to extricate from that document information on any of the tendencies of the British financial position will agree with me that, in comparison with it, the River Styx was brilliant and Cocytus was floodlit.
In view of some remarks which have been made by other hon. Members with regard to the policy of the Bank of England I wish to say that I should be very sorry if any of my remarks were construed as a serious criticism, from however humble a source, of the policy of the Bank. I go as far as to say that if the House of Commons had always in the past shown itself as reliable in handling other people's money as the banks, a good many of our troubles would not have arisen, I was also sorry that an hon. Member who spoke from the bench below me in his attack by name upon the present Governor of the Bank of England went so far as to mention the work which the Bank has done in recent years in connection with the reconstruction of the States of Europe. I think that criticism is very ill-founded because, if there is one chapter in the history of the financial administration of this country, whether as regards the Treasury, or as regards the Bank of England, of which the country has no reason to be other than proud, it is the part played in bringing order out of chaos since the War. When somebody has had to come forward disinterestedly to "carry the baby" the Bank of England has always done it.
114 There is, however, a more particularly germane reason for making these comments upon the Bank in connection with this Resolution. Surely it will be agreed in all parts of the Committee that, whether or not there may be circumstances in which it would be justifiable for the Government of the day to take over all the functions of the Bank, and insist upon its own policy and having its own way; and whether there may also, on the other hand, be circumstances in which the mere force of financial arithmetic would work the other way and bring to the ground the Government of the day, there must be one set of men, with one method, administering our financial affairs. Nobody out of Bedlam could support the idea of a state of affairs in which the Treasury was being encouraged to take one view in order to counteract another view which was considered to be the view of the Bank. That way madness lies, and I submit that we must carry on all our discussions of this matter on the assumption that there are not to be two policies—that there is only to be one policy.
Having said so much, I think it is also germane to suggest to those in charge of the Treasury wing, so to speak, that there is a clear case, not only or so much for information on the Bank's policy, but for information as to the whole position of our financial statistics. Let me give one point which I have particularly in mind and which is relevant to this Resolution. We had recently a very accurate, exact and important inquiry—the Macmillan inquiry—into certain aspects of the financial position. A figure was given there of £400,000,000 as representing the short-term indebtedness of the City. It is now known, as far as that figure can be revised up to date, that it would actualy have to be doubled, and that we were out 100 per cent. in the respect. I submit to whoever is in charge of the Treasury wing in the management of our finances that it is impossible to do anything in the nature of intelligent management if we cannot estimate a little more accurately than that.
To take another point, we are perpetually being told, particularly by hon. Members above the Gangway of the wonderful things that could be done by mobilising our foreign investments, and such figures as £3,000,000,000 and 115 £4,000,000,000 have been mentioned in that connection. It must be common knowledge to all those who have any dealings with these matters that that figure, as far as it is relevant at all to these discussions, is wholly wrong. I very much doubt whether our actual holdings in foreign securities in the sense of securities in foreign currencies amount to one-tenth of that figure. I think we should be hard put to it to find foreign investments of ours to the tune of £400,000,000 in dollars or other foreign currencies. I only mention that as a further instance of what is, I submit, an important truth. If we are to try to manage our exchange or currency, far more effort will have to be made both by the Treasury and the Bank of England and by the joint stock banks to discover the exact facts. It is impossible to carry out a policy if we are ignorant of the essential points upon which any policy must be based.
In joining my humble voice in cordial support of the general principles which I understand to underlie this step I do so in common with other Members who have spoken because I believe that an active policy in exchange and currency is a vital necessity and should be openly adopted. I also welcome this step because it removes, for the moment at any rate, a nightmare which has been hanging over many of us for some time—the nightmare of a premature stabilisation, or even a premature attempt to go back to the old parity. Also I think it removes any immediate suggestion that we might attempt to evade the real issue and make confusion worse confounded by any such devices as the monetisation of silver and so forth. I may be taken therefore, generally speaking, as acceding to the powerful position taken up by the right hon. Gentleman the Member for Hillhead (Sir R. Horne). But there are one or two minor points and one major point on which I think the right hon. Gentleman himself on consideration would agree that some criticism might be directed against his speech.
In the first place he raised a bogey which it is important to demolish before it becomes too powerful. He indicated his fear that if currency events in the United States culminated in a departure from the Gold Standard, it might gravely 116 embarrass this country. I agree with him that whatever may have been the case before the passing of the Glass-Steagan Act, it is exceedingly unlikely now that the United States will, in any circumstances, be forced to pass from gold. But if they did, that would in no sense make our position more difficult; in fact it would make it easier. Surely the right hon. Gentleman forgot that if the United States did depart from gold, it would be almost equivalent to that very rise in gold prices which we are all so anxious to bring about. For all practical purposes, all debts, not only War debts and inter-Allied Debts, and Reparations, on which we sometimes too much concentrate, but all ordinary commercial debts, if they are not in sterling are in dollars. If you take out the sterling debts and the dollar debts now weighing upon all nations, there is little left that matters. Therefore I submit that if in their own unfettered discretion the United States should follow such a course as we embarked upon, or if they should be led in the course of it to depart from gold, it need not be a matter for us to consider with concern.
There is another point on which it is necessary to be clear. A great many people have asked the Government to make known their policy, and it has been suggested that the Government ought to indicate that they will not allow the sterling-dollar exchange—to put it in a concrete form—to vary beyond certain limits. That is a very dangerous thing to ask, and I hope that the Government will not respond to it for this obvious reason. Hon. and right hon. Members are trying to get the best of both worlds, which is the beginning of nearly all evil. They are trying with one hand to ensure stable sterling prices, and they are trying to do that in a world in which gold is by no means showing any signs of stability. In the last fortnight, gold prices have fallen about 2 per cent., and that at a time when the sterling dollar exchange has actually gone up a few points. I therefore submit that it is not only unnecessary, but highly undesirable, that the Government should give any indication that they desire to keep the sterling exchange even reasonably stable in terms of dollars or gold.
I should like to come to another point on which it is important to clear our 117 minds. A great deal of the objection which is held by many people against the kind of doctrine which has been preached so persuasively by the right hon. Member for Hillhead and which, in my humbler way, I am endeavouring to support, is due to a false antithesis which is continually put before us. We have, on the one hand, hon. Members on the Opposition benches who, in so far as their remarks on this subject and other subjects are intelligible at all, indicate that they are exceedingly anxious for prices to rise and that we should not go back to gold, and who therefore consider themselves justified in saying that we must increase our purchasing power, that we must not have cuts or economies, and so on and so forth. On the other hand, we have people who say that we must economise, that we must reduce Government indebtedness, and that therefore we must not be led into anything that might savour of "reflation" or inflation.
That antithesis is based upon a complete and elementary monetary fallacy. We can and should both economise and reduce our indebtedness, and at the same time we can, if we so desire, expand the basis of the currency, and we can easily introduce an inflationary policy. It is true that in the absence of what one may call a normal revival of trade, beginning by a greater number of commercial bills being presented for discount, an expansion can be introduced by Government borrowings, but it is not in any sense necessary that there should in the result be a net increase in Government indebtedness; and I will follow that process briefly, but in a little detail, because it is vital.
If the Government in the use of this power begin by raising a Ways and Means advance and correspondingly increase their deposits at the Bank of England and use them in purchasing foreign exchange, it will naturally increase the bankers' deposits, and that will mean an expansion of the basis of credit, but as soon as it passes over the purchased foreign exchange to the Issue Department in substitution for some of the Government securities in the Issue Department, it may either allow the treasuries taken out of the Issue Department to run off or put them in the Banking Department as collateral, or it may sell them to the Bank and reduce the Ways and Means advances. In whatever 118 way it so handles the matter, there will be an increase in Government securities in the Banking Department, and corresponding to that an increased figure of bankers' deposits, and therefore an increase in the deposits of the joint stock banks, but there will be no net increase of Government indebtedness, because there will be a decrease of Government securities in the Issue Department. Therefore, it is vital to remember that it is not necessary for us to say, "We will stop this salutary process of economising, and of the reduction of debt," in order to make the fullest use of this new power to produce expansion in the basis of credit, which has to begin with bigger bank deposits in the Bank Return.
While it is true that if this fund is used, in the way I have just described, to produce an increase in the basis of credit by an increase in the figure of banking deposits at the Bank of England, it can equally well operate in an entirely different way. If all that happens from the use of this fund is that the Bank goes to the joint stock banks and takes off their hands the amounts of foreign exchange that they have as security for the deposits of short term money that comes to London, the joint stock banks will be in the position that both sides of their balance-sheets will have gone up, and their figure of "cash and at the Bank of England" remains constant. In view of the well-known reluctance of the banks to allow their ratio of cash to deposits to fall, the immediate result of that way of operating the fund will be that the joint stock banks will proceed to take money off the money market, and it is vital that the Committee should appreciate that. The mere putting at the disposal of the Bank and the Treasury of this large sum, while it may be used to increase the basis of credit, may, if it is not so used, actually lead to a strong deflationary movement on the part of the joint stock banks.
So much for the possible effects upon our monetary policy, which I may summarise in this way, that while this fund gives immensely greater power to the Bank and to the Treasury to carry out any monetary policy which they may desire to carry out, it does not in itself prejudge that issue in the least, and it is essential that this House and the Treasury, who are, so to speak, its 119 spokesman in these day-to-day negotiations which always have taken and must continue to take place between the Bank and the Treasury, should realise that a very great responsibility will rest upon those who carry out the use of this fund to see that the way in which borrowing is done does not lead to a contraction of the basis of credit, but to an increase in the figure of Bank deposits. I am glad to see, from a survey of the last few months of the Bank returns, that it is that latter way of dealing with the matter which appears to have won the day. It is not sufficiently realised that the figure of banking deposits at the Bank of England has increased by something like 20 per cent. over the last 12 months. In fact, "Other securities" in the Issue Department have greatly increased without anything like a corresponding fall in the Banking Department, and the basis of credit has been greatly increased in the last 12 months.
There is one further point on the assumption that the way of handling this fund will be by direct operations of the Bank and not merely by reducing the foreign holdings of the joint stock banks. The first thing is that from every point of view we have to gain by being bold. If we are going to operate in this way directly, we only stand to lose if we go into it half-heartedly; for example, when we buy dollars in order to avoid a rise in sterling, if we succeed in avoiding a rise, there is neither profit nor loss, but if we do not succeed, there is a loss due to the fact that we have bought an asset in New Work which has depreciated. Therefore, we have everything to gain by being bold. But there is something further to be said on that point. Not only should we be bold, but we should arm ourselves with the whole armoury at the disposal of those who operate in exchange. It has been suggested that we should be careful that this does not involve any foreign borrowing.
I submit that that is a dangerous thing to lay down at the outset. We are always, here and in other countries, trying to lock the stable door after the horse has been stolen, and there are very strong indications that just as for the last two or three months there has been a flood of money coming into London, that flood has begun to cease or may even be about 120 to subside. Therefore we must not assume that this Fund is always going to be used for counteracting changes one way. If we are going to manage a currency, if we are going to manage an exchange we have to assume that it may be necessary to manage it when it wants to go up, just as when it wants to go down. But the particular point, if I might have the attention of one or other of the distinguished representatives of the Government on the Front Bench—not necessarily both—on which I should like to be sure that we are arming ourselves is in regard to the possibility of operations on forward exchange. On a previous occasion when I addressed the House, on another subject, I drew attention to the lesson which might be drawn from the peculiar state of the foreign forward exchange market, and I ventured boldly, perhaps too boldly, to predict what subsequently took place in the course of sterling exchange in the opposite direction to that in regard to which we were being warned at that time by some rather distinguished people on that bench.
Far too much attention has been paid to the pure speculator in what has been happening. The speculator has come in largely because he distrusted the future of dollars and he sold forward dollars, because he thought he could buy them back later cheap. That dislocated the proper relation of forward to spot dollars, and that led to the situation in which, not speculators, not people taking up an open position in sterling, but perfectly genuine, normal possessors of short-term funds in New York and Paris were able to come to London and take a certain profit. They not only got even a higher deposit rate in London, but they also got a certain premium by buying spot sterling and selling forward, without any exchange risks at all. The effect of their buying spot sterling was further to depreciate spot dollars, which made the speculator think, "I am on a good thing; I was brought up on this; I will sell more forward dollars," which he did, and that still further widened the gap between forward and spot, which made it still more profitable for short-term money to come to London; and so the vicious circle went on.
Now these possessors of short-term money, who wanted to come to London, 121 were coming to take a certain profit, but the managers of this fund are going abroad; rather unwillingly, to take a probable loss. It does not require any very great prescience to predict that under these circumstances the people who come to London will win. If we have to be bold, it is vital to reduce the extent of the operations which will be necessary, and the conclusion of the whole matter is this, that I believe that those who are aware of what has been happening in the last few months will agree that every pound that might have been spent in operations in spot exchange would have had four or five times the effect if we had been dealing in forward exchange. I believe that that is essential to make sure that in the use of this fund we should concentrate upon closing that gap between foreign and spot, which has been a very large part of our difficulties. I apologise for being rather technical, but it is useless discussing a technical subject if one is to confine oneself to generalities.
I must apologise for taking up more time than I intended and I will conclude by saying one thing. I believe that at the present moment for the first time possibly for years all the indications upon which we ought to guide our monetary and exchange policy are pointing the same way. We are in a peculiarly happy position for the managers of this fund, the Treasury and the Bank between them. We want low deposit rates because we want to discourage money coming to London and because we want to force out the safety-first depositors and get them to take risks in using their money in industry. We want a low Bank Rate because we desire to encourage new issues; in order to unfreeze some of the collateral which is such an embarrassment to many joint stock banks; because we want to avoid the sale by the central bank and the joint stock banks of long-dated securities; and because we all agree that, whatever may be the case in future, at present a rapid rise in exchange is undesirable.
From whatever angle we look at our immediate currency policy, all the indications are that our policy should be what, roughly speaking, is summed up in the words an "expansionist" policy; and the responsibility of those who oppose it is to come to the House and explain in some detail their analysis of the monetary 122 position. It is up to those who would hold back the Treasury and the banks in any expansionist movement along the lines I have indicated to come to the House and explain in detail their analysis of our monetary position on which they base their views. I doubt whether it is possible to give any reasonable grounds upon which to controvert the arguments which have been put up by the right hon. Member for Hillhead and others that at this moment the one thing upon which all our energies should be concentrated is to increase the Bankers' deposits in the Return so that there can be such a credit expansion by the joint stock banks that trade and industry will have a chance of reviving.
§ Mr. J. JONES
I hope that it will not be taken that I am trying to interfere with the authority of the experts who have already spoken. I do not pretend to know a great deal about this subject, but perhaps the less I know the better I am able to speak about it. When I hear all this talk about inflation and deflation it makes me feel deflated. The situation with which we are face to face is not a matter of juggling with money. The problem with which we are faced is that production has outrun consumption. All the monetary arrangements are simply a matter of how to correlate consumption and production. Every country is faced with the same problem, and they have all failed. Germany, where they have just had a general election, are involved in. it as much as we are. One of the big problems which they have had to face is the relationship of their currency to their productive and distributive industries, and they find themselves in the same position in which we are. The bankers know about it. They have been entrusted with our financial arrangements ever since I can remember. Their predecessors came from abroad, and even now some of them sing "God Save the King" in broken English. They have dominated our finances, and now we have to come to their rescue. They have made such a muddle of our national finances that the Government have now to come to their assistance with £150,000,000 of the people's money in order to try and square things up. That is what it means, because the Government are not going to control this money. The Court of the Bank of Eng- 123 land will dominate the situation, and poor old Phil Garlick will pay once again.
I would ask the hon. Member who has just addressed the Committee how he can explain why, while we are talking so much about currency and inflation and deflation, the very people who are so anxious about our material welfare are holding this money against the people. I remember when I was a boy in Lancashire I went to hear the late Lord Balfour give a lecture on bimetallism. I heard him deliver a great lecture, but I knew nothing about it, and I knew less after I had heard him. A number of Labour leaders were there listening to the lecture on the necessity of having a double standard, gold and silver—silver in our dependencies where they were used to a silver currency, and gold in those parts of the Empire which were in the habit of dealing with gold. As long as men and women who produce wealth are without gold or silver, you will always have the same problem to face. You can play as much as you like with the financial arrangements, but as long as the people who have to do the work of the world have no control over currency, they will be slaves to the people who dominate their means of living. In the language of Shakespeare, he who owns the means whereby I live controls my life; and he who would take the means whereby I live would destroy my life.
All we have heard about currency is humbug. Talk about experts and bank directors—they could not direct a cat to a milkcan. They have directed us so much that they have directed us to bankruptcy, and now the nation has to come to their assistance and a loan has to be arranged. Who from? Who is to find the loan of £150,000,000? The people who have not got it. They will find the script; they will hand the money over to the State; but who will pay the interest on it? It will be another addition to the National Debt. We already owe £8,000,000,000, and I suppose that this means another £100,000,000 of debt by the time the interest is paid back. So everything in the garden is lovely for the financiers and bankers. What is the situation for the workers? When you have the financial arrangements and have got this through, as you can get anything through 124 the House, will you restore the coal trade, one of our most important industries? Will you by juggling with finance and currency be able to give the miners a hope that they will get back the trade which they used to have? Will you be able to give any of the exporting industries a chance? What hope is there for the workers when you get all this through? Nothing. They will still have to go to the docks every morning standing in a queue waiting for the chance of getting a job and often fighting for the chance. When the foreman comes out and holds up a ticket, young men and old men struggle against each other for the chance of picking the ticket up. These men have to go to the docks every morning and dinner-time, and sometimes at 5 o'clock in the evening on the off chance of getting half-a-day's work. What is this going to do for them?
Talk about restoration of the currency and investments—what about the dockers' investments? His own investment is his body and labour. What will this do to help him? It will only leave him where he is. This jiggery-pokery with finance makes us on these benches feel tired. When are the Government going to get down to the real problem? The whole world is in the same financial situation, but we are only playing about with the problem. The real problem is how are the people who produce the wealth of the world to get an opportunity of consuming it under decent conditions. Currency will have to be internationalised before the problem can be solved. Do what you like about gold or silver or copper. The class which I represent lives on coppers. We have no time for all this talk about high finance. It has led us where we are. The clever people have had control over it for too long. Now we are going to hand over this control to the Bank of England, which is not the Bank of England. It is a firm trading under false pretences, drawing long credits upon the security of the people. It is a bank guaranteed by the Government to a certain extent and allowed privileges which no other bank is allowed. Let us make it a real Bank of England, and let the nation take control of its financial arrangements and of its productive and distributive arrangements. Then we shall not have to argue here about technicalities such as we have been doing to-night.
§ 8.0 p.m.
§ Mr. D. MASON
I am afraid that I cannot follow the hon. Member for Silver-town (Mr. J. Jones). I have a considerable amount of sympathy with him in that it is difficult to follow the experts in their various contributions to this Debate. I do not profess to be an expert, but I am an ordinary Member of Parliament who has given a considerable amount of study to this problem. The Motion says that this procedure is for the purpose of strengthening the currency and checking undue fluctuations in the exchange value of sterling. Although I have given a considerable amount of study to this subject, I cannot follow how this procedure of borrowing £150,000,000 and handing over its control to the Bank of England in connection with the Treasury will strengthen the currency of the country. The hon. Member for Silvertown did not seem to think that currency had anything to do with working-class interests. A great American, Daniel Webster, said that he who tampers with the currency robs labour of its bread. The question of currency very directly concerns the working class. The labourer's wage is in the same position as the return of the rentier who lives upon interest and dividends. The interest of the working-class, perhaps, more than that of any other class, lies in the maintenance of a sound currency, so that the pound which a man gets in his weekly wage buys approximately the same amount of goods, though, of course, one cannot guarantee that it will always purchase exactly the same amount. I listened with great respect to the statement of the right hon. Member for Hill-head (Sir R. Horne) that he had received from all over the world expressions of support for the policy contemplated by the Government of going into the exchange business, but I cannot understand how he can support such a policy, which to my mind cannot, in any sense of the word, strengthen the currency. What does the currency itself depend upon? What caused us to go off the Gold Standard? There was no one cause; there were a number. I think it will be admitted by the Labour Members present —who were not responsible—that if we pursue an extravagant system of finance, run into debt at the rate of £1,000,000 a week, and present the country with a deficit of £120,000,000, no delicate mechanism such as the Gold Standard 126 will stand such a strain, if prolonged. But that was not the sole cause.
For the last few years we in this country have suffered from a depreciation of currency, from an excess of currency. When we came back to the Gold Standard in 1925 the fiduciary issue—the issue of currency against securities—was fixed at £260,000,000. It was fixed at that amount tentatively, because no one knew exactly how much currency the country could maintain at parity. It was hoped that £260,000,000 would fit the needs of commerce and trade. Many eminent bankers thought that amount was excessive. I quoted one the other day, Mr. F. C. Goodenough, the head of Barclays Bank, who made a speech to his shareholders stating that that was one of the contributory causes—that the fiduciary issue was too great and tended to create an unfavourable exchange. When there is an unfavourable exchange there is a continuous export of gold, and in one year—I think 1929—there was an export of no less than £80,000,000 of gold from this country, partly from South African supplies, and partly from the fact that the rate was unfavourable. When the rate went to a certain point any banker in Holland or France could draw gold bullion from the Bank of England and take it over to France, where the Bank of France was bound to receive it, or to the United States, where the Mint was bound to mint it at a certain price, and could make a profit.
The fact that £80,000,000 of gold bullion could be exported in one year without having the effect of turning the exchanges in our favour was proof that the fiduciary issue was too high. In pre-war times so delicate a poise was maintained that the export of £1,000,000 or £2,000,000 in gold was sufficient to turn the exchanges in our favour. The fact that this large export of gold did not have the effect of correcting the exchanges ought to have brought home to the authorities that there was something wrong with our monetary system. If we had been alive to that fact we might have corrected things. What did we do? The Bank of England, in August last, appealed to the Treasury, as they saw these exports of gold proceeding, for an increase in the fiduciary issue, and Lord Snowden, then Chancellor of the Exchequer, granted an increase of £15,000,000.
127 I protested to some of the authorities last August, before going to Canada and the United States, and I was told by them that it was just a temporary action on their part to facilitate gold exports. But we did not want to facilitate gold exports, we wanted to retard them. There was too much paper outstanding already, and instead of increasing the fiduciary issue we ought to have reduced it. I was told the Act provided either for an increase or a decrease, and I venture to suggest that they pulled the wrong lever, because the effect of adding still more to the number of paper pounds was to depreciate the paper pound. Hon. Members opposite must be interested in the value of paper money, because the wages of the working class are paid in paper, and if as the result of a mistaken currency policy we increase the number of notes we tend to bring down the value of money. It is the same as with any other commodity; if the supply increases the value of the commodity tends to come down.
The increase in the fiduciary issue in August turned the exchanges still further against this country, and that, coupled with the other causes to which I have referred, led to a loss of confidence. People abroad began to withdraw their balances, because they foresaw what that policy would lead to—that eventually the Bank of England would be unable to maintain the Gold Standard. Some attacks have been made upon Mr. Montagu Norman and the Bank of England, but we ought to be fair towards them. The dice were loaded against the Bank of England. It is true that they made a blunder in appealing for an increase, but even banks make mistakes, just as great traders make mistakes and as we all make mistakes. To expect that the Bank of England, with this enormous fiduciary note issue, would be able to turn the exchanges in our favour was to expect the impossible. It was a physical impossibility. Many people realised the position during the last few years have endeavoured, as I did in a humble way, to draw attention to the position. If we desire to maintain specie payments—
§ Mr. MASON
The right hon. Gentleman does not, but many people at that 128 time were anxious that London should still retain its position as the monetary centre of the world, because that is important for British industry and for the great interests which are associated with this country; but, as I say, it was impossible to do that under the circumstances. If we desire to restore London to its place as the monetary centre and to restore prosperity to this country there is no other way than by the policy which we formerly pursued. Many hon. Members, including the right hon. and gallant Gentleman who just interrupted, think it would handicap a return of prosperity and penalise industry. He thinks it best to maintain the present position and to continue with the devalued currency at existing levels, but that is partial repudiation—it is best to call things by their right names! It means offering to everyone, either to a working man or to a rentier, who has a wage or a dividend not 20s. in the pound but 15s. in the pound. It is partial repudiation, and there is no getting over it. The right hon. and gallant Gentleman thinks that is good for industry, and he has gone so far as to say, I think, that he does not mind if the pound falls to five shillings, because he thinks it would stimulate the export trade but it would destroy credit and also penalise imports. That policy might be an advantage to the exporter, but the importer of raw cotton or food would rather have a pound which was able to purchase 4.86 dollars' worth of cotton or food than one which would only purchase only 3.50 dollars' worth. Still, the main thing against that policy is that it is dishonest, that it is partial repudiation.
Some say that it is impossible to get back to the old parity, but I do not believe it. The pound to-day is worth about 15s. I do not think the great dangers and distresses referred to by the hon. Member for East Aberdeenshire (Mr. Boothby) would follow what he calls a deflationary policy. Apparently, he attributes all the evils and distresses of unemployment and everything else that has happened during the last 10 years to this policy. But I believe that view to be very much exaggerated. Any fair and impartial observer of what has been taking place in the last 10 years would agree that as a result of the enormous expenditure of capital entailed by the War there was a great impetus to every 129 form of production, and everyone was encouraged to be extravagant, and when national contraction followed there came a reaction and a fall in values. It was an enormous and terrible fall, and was very serious for producers, but it was not due to the efforts of this country to restore sound finance but to natural causes following on the enormous expenditure of capital resulting from the Great War, when the National Debt was increased from £700,000,000 or £800,000,000 to £7,000,000,000 or £8,000,000,000.
If we still desire to link our currency to gold, because we believe in giving stability to the pound, let us try to understand the effects likely to follow from adopting that policy. Let us look back to the very basis of the system which has prevailed in this country for the best part of 100 years. Let us go back to our experiences after the Napoleonic Wars. The same speeches were made then; there was the same desire to avoid facing the real facts of the situation, a desire to have a short cut to prosperity, and most extraordinary proposals were put forward. The right hon. Member for Epping (Mr. Churchill) advised new Members to study the history of events after the Napoleonic Wars. Let anyone read the speeches of Canning and others who took part in those Debates, and he will be amazed to find almost the same speeches as are made to-day. There are the same fallacies. But eventually the country came back to gold, and from 1821 up to 1915 we had a long period of development and prosperity.
I should like to refer the House to the Bullion Report of 1810 as the basis of our currency. Here is what Sumner, the historian, says of that report. The principlesmay be denied as the roundness of the earth was denied even five years ago, and as Newton's theory of the solar system was denied until within 25 years, but they have passed the stage where the scientific financier is bound to discuss them.Here is a summary of this excellent report which was applicable to somewhat similar conditions after the Napoleonic Wars, and applies equally to conditions to-day:The value of an inconvertible currency"—which we have now in this country—depends on its amount relatively to the needs of the country for circulating 130 medium (only to a very subordinate degree on the security on which it is based or the credit of the issuer). If gold is at a premium in paper the paper is redundant and depreciated. The premium measures the depreciation.That is exactly the position to-day. The mint price for an ounce of standard gold is £3 17s. 10½d. It has been stated in the "Times" that an ounce of fine gold was sold the other day for £5 10s. 6d. Standard gold which contains an alloy would be quoted at under £5 per ounce, and the difference between the market price for standard gold and the mint price is the measure of the depreciation and the redundant paper which exists to-day, which amounts to about 30 per cent. That is the measure of depreciation which we are suffering, and if we wish to restore the old parity all we have to do is to reduce gradually the number of notes outstanding, and there is no serious difficulty about doing it. We must gradually reduce the fiduciary issue and then the value of the pound will rise.
I believe that the inconvenience of adopting my suggestion would be very small. Some people ask what would be the advantages of such a course, and they depict an era of unemployment, depreciation, and so forth, for which there is no justification whatever when we know that the pound to-day is round about 15s., and all we have to do is to follow the policy of which we get the outlines very clearly in the Bullion Report. The same circumstances almost precisely exist to-day as existed after the Napoleonic wars. The same principle still exists, and the same economic laws. Our arithmetic is the same as during the Napoleonic wars, and all we have to do is to bring intelligence and common sense to bear on this question. If we desire to restore Great Britain as a great monetary centre, we must adopt the policy which I have suggested.
You may ask what advantages will accrue from that course? They are immense. If you restore London as the monetary centre of the world, instead of passing resolutions of this character giving powers to the Government to attempt to steady the exchange, a most colossal task for anyone to undertake, the Gold Standard affords a most stable system. I do not believe for a moment what the right hon. Gentleman the Mem- 131 ber for Hillhead has said that the proposals we are now considering have been accepted by the nations of the world. Under the system I am suggesting, your £2,000,000,000 of War Loan could be converted at 4 per cent., and that would save £20,000,000. If we were to restore the old parity in this country, you would at once save on your debt to the United States the sum of £20,000,000 per annum, you would improve your national credit, and you would facilitate the advantages of London as a monetary centre for floating loans.
It should be remembered that every loan floated in this country goes out in goods and services. If a foreign railway company borrows £1,000,000 or £2,000,000 in London, the loan does not go out in cash, but in the form of steel rails, locomotives and equipment. After the Napoleonic wars, the principles explained in the Bullion Report were regarded by all students of finance as something that could not be disputed. Surely it is better to go back to a system which has been proved to be sound and successful rather than go in for giving £150,000,000 to anybody who happens to be in control at the Bank of England or the Treasury, in order that they may try to stabilise, steady, and strengthen our exchange. I do not believe it is possible to accomplish that in the way which is suggested by this Resolution, which is almost certain to result in further loss. I have gone into the technicalities of this question somewhat closely, but my object has been to endeavour to make my meaning clear, and I hope that the views I have submitted will be received in the spirit in which they have been given.
§ Mr. HERBERT WILLIAMS
The inflationists have been in full cry to-day, and, therefore, I do not feel at all disappointed that the hon. Member for East Edinburgh (Mr. D. Mason) has spoken so freely and lucidly on those doctrines in which he believes. He has put very strongly the case, not for the Gold Standard, but for a gold standard—and there is rather a difference between the two points of view. He says that it is dishonest to inflate; but it is equally dishonest to deflate, and it is equally dishonest to stay where you are. Suppose that I borrowed a sovereign from him at a time when a soverign was worth 20 132 loaves of bread. Then, if, while the sovereign is still worth 20 loaves, I repay him 20 loaves, that is an honest transaction; but if I repay him 40 loaves, or if I repay him 10, it is dishonest either one way or the other. If the purchasing power of the amount borrowed has varied between the time when the loan is made and the time when it is repaid, either the one party or the other has been cheated, so that you are not entitled to say that inflation is dishonest and deflation is honest.
§ Mr. D. MASON
It is quite true that, when you come to repay a loan, values may have altered, but, if you have established a standard of value, then it is perfectly well known what the standard was when the money was borrowed. You have to take your chance of an alteration of values. When this country was off the Gold Standard during the War, the creditor suffered as a result of inflation, and that position is now, so to speak, being offset by the improvement to-day. You cannot guarantee that values will always remain alike.
§ Mr. WILLIAMS
The hon. Member speaks of establishing a standard of value, but we have never done anything of the kind. When you say that the gold in a sovereign is worth £3 17s. 10½d. an ounce, you are not establishing a standard of value; it is only a weights and measures operation. It measures the amount of metal that is put into the coin, but that is not the value of a golden sovereign. The value of a golden sovereign is its exchange value in other commodities. When I say that the price of gold is £3 17s. l0½d. an ounce, I am merely declaring the weight of gold in a golden sovereign; it is a measure of weight, and not of value. The hon. Member says that we have established a standard of value. I can remember when the loaf of bread was sold for 4d. That was about the year 1892, when prices reached their lowest level. We were on the Gold Standard then, and we remained on it until, I think, the 2nd August, 1914, but at that time the price of bread in London was 7d. or 8d. Throughout the whole of that period we were on the Gold Standard. Therefore, I would ask the hon. Member, with many of whose views I sympathise, not to overstate the case, and, by doing so, spoil it.
133 8.30 p.m.
The whole of this Debate has been a plea for a return to some measure of stability, to a standard. What standard? The majority of those who have taken part in the Debate want a managed standard, and there is a lot to be said for a managed standard if only you can get competent managers, by which I mean people who will not submit to any kind of political pressure. During the last year I have attended a great many discussions on this subject, and have almost invariably found myself speaking in opposition to the predominant view, because I find that, as has been the case here this afternoon, people state with the greatest certainty how a managed standard could be brought into being, and whenever they are inflationists they are cheered. I remember, however, that Charles I was executed, not for most of the reasons that you w6uld imagine, but mainly because a period of inflation had the effect of increasing his expenditure, while his income happened to be rather sticky and did not respond. Louis XVI also got into trouble because he was persuaded by a gentleman named Law that inflation was a good system. The people of Germany to-day are fighting the most dreadful battle, with the largest level of unemployment in the world, and with their backs to the wall, against a departure from the Gold Standard, because they remember the appalling horrors of inflation through which they have passed. Although I am not going to be rigid in this matter, like the hon. Member for East Edinburgh I do ask hon. Members on both sides not be led away by this easy talk about the wonderful things you can do by playing about with the currency. We have before us a very interesting proposal, to permit, if necessary, the Treasury to raise a sum of £150,000,000 for the purpose of doing many things which are a little difficult to understand. One of them, which must appeal to the hon. Member for East Edinburgh, is the strengthening of the currency, whatever that may mean. Most people who have taken part in the Debate have suggested that it really means diluting it a little. What it means for this purpose does not matter; we know that what it really means is to strengthen the control of the 134 Government for the time being over the currency, and that is, perhaps, one of the reasons why the proposal finds rather an undue measure of support on the benches opposite.
When we get back to a Gold Standard, as I am certain we shall, the whole world will be very glad, because, if you are going to have a managed currency, you will want more than one manager—you will want a manager in every country. We make a lot of progress at international conferences, but it will take a very long international conference to set up a successful international management of currency, and, if every country in the world is going to have a managed currency, in the working of which people are going to exercise their judgment and very often make grave mistakes, the situation will be worse than if we allowed the currency to manage itself. After all, a Gold Standard system is a rather simple matter. You do not base your currency on gold. We seem to think that we do, because the Currency Act says so. What we do is to link our currency with those of other countries, using gold as the link, as the measure of value. If the balance turns one way, automatically the exchange depreciates below the gold export point, and gold goes out. At another period, the balance may be in the other direction, the exchange rises above the gold import point, and gold comes in. The main function of those who are at the head of the central banks is to watch the movements of bullion, and, if they find that gold is going out, they obviously raise the Bank rate, or indulge in certain open-market operations which automatically check the causes which allowed gold to go out. If the game is played properly, the Gold Standard works more satisfactorily than any other standard, but that is not because the metal happens to be gold. If the whole world were on silver, or on any other satisfactory standard, it would work equally well.
For the moment we are off gold; we were forced off gold as a result of a panic. There were fears as to what might happen if we were forced off gold, and then, apparently, everyone rejoiced when we were forced off gold. There is no inconsistency in that. If, in the early stages of our being forced off gold, it had led, as it might well have done to an 135 internal currency panic, we should have had a much more serious situation that that which developed when we slipped rather gently off gold later on. Then the immediate effect was to provide a bounty on our exports and an automatic tariff on our imports. That is not a form of tariff that I like to see, as it is a form of tariff which compels you to buy dear and sell cheap, so that you do not get much out of it. The bulk of the industrial community, who at the moment are rather friendly to being off the Gold Standard, are always thinking in terms of a bounty on exports. But that bounty on exports will not continue; it is only a matter of time for the internal value of the currency to balance the external value, and then the whole bounty will vanish; but what will remain, if the price level be raised, will be the fact that, in the terms used by the hon. Member for East Edinburgh, some of the rentiers will have been robbed. Whether that is desirable or not is a debatable question, but at the moment the rentiers, and also a large number of wage-earners, are robbing the rest of the community. It is obvious that large numbers of people with fixed incomes, whether those fixed incomes are derived from Government securities or from wages or salaries which have not adjusted themselves, are being paid a larger reward, although their monetary figures are unaltered, than they were being paid three years ago.
Do not let us be blind to the facts. There are three classes of rentiers. There is the man who has a pension which is fixed in money terms; there is the man who has a wage or salary which does not alter; there is the man who is receiving, on Government securities, interest at a fiexd rate. All these are benefiting at the expense of the rest of the community whose incomes have altered. So far as manual workers are concerned, there has been a gigantic transfer of income from one set of manual workers to another. Among the remaining part of the community there has also been a large transfer from those in receipt of fixed dividends to those engaged in fluctuating businesses. This cuts both ways, and, if you inflate the currency, you will very definitely diminish the purchasing power of many sets of wage earners. On the other hand you will increase the pur- 136 chasing power of other classes of workpeople, who may benefit by the restoration of industrial prosperity.
It is as well that we should know where we are travelling and not indulge in these phrases about managed currencies and increasing purchasing power by providing new bank deposits. Some Members speak as if this was quite easy. There are plenty of banks which would be only too delighted if someone would borrow the money that they are in a position to lend. That is the case very often. The difficulty is to find enterprises that people are willing to enter into at the moment because of the uncertainty that prevails. To the extent that the use of this fund may limit that uncertainty during the period till we can find our way back to some satisfactory Gold Standard, I think the Government are justified in taking this step, though it is a novel step and there are certain risks.
A good many of those who have spoken to-inight have demanded that the Government should now tell them what their policy is. I hope the Government will do nothing of the kind. For the Government to declare war on the speculators before it has its own army would be the most stupid thing imaginable. I do not think they ought to give the slightest indication in what way they will use this fund until the Finance Act has become law. It would be the height of folly for a declaration of policy to be made now. I am amazed that right hon. Gentlemen with whom I have often associated in other causes, like my right hon. Friend the Member for Hillhead (Sir R. Horne) and the right hon. Member for Sparkbrook (Mr. Amery), should have asked the Government to commit the disastrous folly of telling all the world precisely what they are doing before they are armed to take part in the commercial and financial conflict that may ensue. So far as the Government want any support in resisting that, such support as I possess is at their disposal, and I am certain that applies to a large number of others, who realise to the full the folly of making any premature declaration of policy.
§ Mr. DAVID GRENFELL
The hon. Member has expressed great confidence in the Government and a willingness to subject his own will and opinion to whatever the Government desires, but, hav- 137 ing listened to his advocacy of a return to the Gold Standard, we on this side are strengthened in our opposition to the Government because of the ready agreement with which he expressed his confidence in them.
§ Mr. WILLIAMS
I have not the faintest idea what views the Government may have on a return to the Gold Standard. I was expressing my personal idea of what should be done.
§ Mr. GRENFELL
It is because we fear that the Government may have a common intention and desire with the hon. Member that we wish to submit a good many questions to the Minister. The two hon. Members who spoke last have expressed themselves as deflationists, both being in favour of a return to the Gold Standard and both being convinced that the Gold Standard is the only safe basis on which to measure the value of currency and, in consequence, the price of commodities. There are very few people to-day who stand in that position, and it is remarkable that in to-day's Debate there have been only two Members who have taken up that position. There has been a variety of views expressed, no enthusiasm for the Government's proposals but a good deal of acquiescence, because of confusion in the mind of hon. Members I feel sure as to what is the ultimate intention. The right hon. Gentleman the Member for Hillhead (Sir R. Horne) made a speech in his usual manner, pontifical in style and dogmatic in terms, and, having come and seen, and having been seen, he has departed, as is usual with him, without giving us an opportunity of replying to him. He said we had a different Government now from that which nearly brought the country to ruin. That is an unwarrantable attack upon a Government that was presided over by the present Prime Minister and which included the present Lord Privy Seal, one of the most trusted and most responsible Members of the present Government. When the right hon. Gentleman attacks the late Government he attacks the pillars of the present Government, and let him be careful that he does not bring down this Government by attacking the pillars that support it. He may get a little personal solace in the thought that there was a worse Government than the present, but in the depths of his heart he does not 138 feel that this is the perfect Government of his dreams. That is yet to come. He will not speak of it as one detached and remote from it, as he has done to-day.
He has mixed admonition with praise of his late colleagues and others who are found together on the Treasury Bench. He has offered warning and advice on the subject, but, on the whole, he has endeavoured to be pleasing and patronising. He referred to the events of last autumn, and he said he did not know of another occasion when capital had been withdrawn from this country. He only recalled the success with which he and his colleagues cried "Wolf!" They created a panic and are responsible for its effects. He now speaks in a subdued tone. There is uncertainty in regard to prices. There is a danger that the pound might soar too high, but it is nothing serious. A loan of £150,000,000 will put everything all right. And so says the Financial Secretary to the Treasury. The right hon. Gentleman has not examined the proposals too closely. We have a different Government. His friends are in it if he is not, so it is all right. He is constrained to leave the things to them. Let them attend to these circumstances that are destroying trade and industry, but, he said, do not trust too much to these results. This was not enough. There are urgent problems for which quick solutions must be found. Yet he was silent on his own proposals. He has seen the Budget balanced by the imposition of tariffs and by the lowering of the standards of life. He knows quite well that no juggling or speculation with currency will do what he and those on that side of the House promised to do, and that was to bring back prosperity and employment to the masses of the country.
The Financial Secretary, in a most lucid speech, told us what was intended by the Resolution. He said we should have greater control over the currency and should strengthen the currency. I think the intention is to control it and not to strengthen it. He said the means were, first of all, to borrow £150,000,000 —a mere trifle—then, having borrowed from Mr. Brown, Mr. Jones and Mr. Smith, to hand the money over to a body of people—I do not yet know who they are; possibly directors of the Bank of England, or some Treasury experts within the acquaintance of the right hon. 139 and gallant Gentleman—to buy foreign exchange securities of all kinds and use them for stabilising our currency and maintaining it at a stable value. He said that it was the Labour plan with a difference. We are glad that he knows the difference. The right hon. and gallant Gentleman has a good, clear head and knows the extent and character of the difference between his plan and the Labour plan. The right hon. and gallant Gentleman has a gift for stating the relevant factors so clearly that he almost convinces us that we know nothing at all about the problem and its solution. I listened with pleasure to his description of the Resolution this afternoon. His military simile was not quite convincing, but he left us still more at ease when he described the various Clauses as bulkheads dividing the empty hull of the ship of State upon which he serves as a second mate in charge of the watch.
The right hon. and gallant Gentleman spoke of the success of the Bank of England and of the skill of the Treasury experts, and the value of their advice. We remember something about that matter. Less than 12 months ago we had the advice of the Bank of England. Upon that advice a General Election was called, and, if he refers to the electioneering value and the possibilities of political exploitation of the advice of the Bank of England, then it was highly successful. But as a remedy for the economic problems of this country that advice had no value, and it has been shown to be utterly unreliable and erroneous in every particular. The Bank of England or the Treasury experts advised the Government of the day that, if certain changes were not brought into operation, we should be compelled to depart from the Gold Standard. We were assured, in the opinion of the experts of the Bank of England, that a departure from the Gold Standard would be a calamity for this country. We were told that the £l Treasury note would lose its value and become, like the German mark of a few years ago, not worth the paper upon which it was printed. Was not that the advice of the Bank of England and of the Treasury experts? If it was not, whose advice was it? Upon whose advice were those statements made by the late Prime Minister, and by the present Prime 140 Minister, during the election, and the period preceding the election? The advice was found to be wrong. Measures, subject to the advice of the Bank of England, were taken by a miscalled National Government. [Interruption.] I had almost forgotten that particular term; it would sound better, but not in this Assembly. Yet they found themselves off the Gold Standard, and having gone off the Gold Standard, the advice of the Bank of England and the Treasury experts was again found to be wrong. It was not attended by the dire consequences which had been foretold. It has been proved to be of benefit to the country, to trade and industry and to the ordinary business life of the nation.
There are one or two questions which I should like to put to the Financial Secretary in regard to the intentions of the Resolution. Is it proposed that we shall add to the foreign exchange reserves of the Bank of England? Is the £150,000,000 to be placed at the disposal of this body of experts, the Treasury officials and Bank of England and other people, in order to build up a large volume of foreign exchange, or is it intended to be kept in reserve until the occasion requires the purchase from time to time either of gold or of foreign exchange. Is it intended to pile up a large volume of foreign exchange in reserve? The next question which occurs to me is: Will the additional reserve in foreign exchanges be equivalent to an accumulation of gold? Taking into consideration the currencies of countries on the Gold Standard—the currencies of France and of the United States of America—will not an accumulation of those currencies or exchange values in this currency be equivalent to an accumulation of gold itself? What will be the effect of an accumulation of currency upon countries not on the Gold Standard and not more stable than our own country? Will it contribute to greater stability in our own country? I should like to know whether countries not on the Gold Standard are to have us trailing behind them, or are we to try and look after ourselves and build upon a solid foundation as an example to other countries which try to follow us? Is the foreign exchange in reserve in the Bank of England to be used against the Bank's liabilities? Will it be regarded as a fresh deposit in the Bank of 141 England, and enable it to increase the amount of its credits? What is going to be its relation to currency?
We have heard a great deal to-night about the fiduciary issue. The reserve at the Bank of England for currency purposes has been fixed at a maximum of £150,000,000. We know that on that reserve has been issued, in the form of currency, a further sum of £275,000,000. What is going to be the effect on currency of the borrowing of £150,000,000 which is to be converted to gold or to currency or to foreign securities and placed as a deposit in the Bank of England? Will it in effect reduce the measure of the fiduciary issue in our currency by increasing the actual gold reserve at the bank? What is the relation of the fund to the Bank of England and to the Treasury? Does the Treasury propose to keep the new fund separate from the Bank of England and from the longer loans for regulating exchanges? Who is to bear the loss, and who is to derive the profits from the possible exchange transactions? We have been told already that the existence of idle gold in this country has accounted for a loss of £8,000,000.
The right hon. Gentleman the Member for Hillhead said that we required the loan in order to buy a little more gold, though not too much. I do not know what the right hon. Gentleman means by a little more gold. Does he mean £20,000,000, £30,000,000, £40,000,000 or £50,000,000 worth of gold? That would be very little indeed having regard to the accumulation of gold in France and the United States. Are we deliberately to enter the world's market for gold and bring gold into this country, keep it idle and pay interest on the money winch enables us to buy the gold? Who is to bear any loan, and who is to receive any profits from exchange transactions, because there must be transactions if we are to stabilise currency in this way.
The next question is: Who are the Treasury and who are the Bank of England? I remember listening to a notability in the banking world—I have heard him on more than one occasion— at a meeting held in this House, and when asked to define the respective parts played by the Bank of England and the Treasury, the gentleman referred us to the two noted characters of Tweedledum 142 and Tweedledee. He said that the Treasury and the Bank of England were Tweedledum and Tweedledee, but he could not tell us which was which. It was not in our interests to know. What part is to be played by the Treasury and by the Bank of England? How are these two bodies going to work together, with the added responsibility for the regulation of national currency and the stabilisation and strengthening of our financial position? Is there to be a large inflow of foreign exchange? What is going to happen to our reserves of gold and our reserves of foreign exchange?
Some time ago I saw a report with regard to the fluctuations in the reserves of the central banks. I saw that the Bank of France in 1928 had gold reserves of $1,247,000,000. A year later, at the end of 1929, the Bank of France had increased its gold reserves to $1,637,000,000, an increase of $384,000,000 in 12 months. At the end of 1928 the Bank of France had a reserve of foreign exchanges valued at $1,287,000,000, and at the end of 1929 the reserve of foreign exchanges had been reduced to $1,021,000,000. Therefore, the gold reserves were increased by $384,000,000 while there was a diminution in the foreign exchange reserves of $266,000,000. Is that the kind of thing that is going to be possible under the new plan, by which an additional £150,000,000 lent by Tom, Dick and Harry in Great Britain is to be used to speculate in foreign exchanges and in gold to enable us to buy and sell in the markets of the world, so that we may get as much foreign securities into our possession as we can and get as much gold as we can, up to a limit of £150,000,000?
We have already lost by trying to stick too long to gold, and there is a danger that this scheme will bring us back again to gold. Almost inevitably the result of this scheme and the proceedings under it, as I see them and as I have heard them explained this afternoon, will take us back to gold. We should avoid being tied any longer to gold. Whether we are tied by a short string or a long string, tied we shall be. Whether we pass this Resolution or not, whether the Bill that is to give effect to it will obtain a passage or not, I hope the House will always take care against the tendencies expressed by certain representatives of large and 143 powerful interests, by which they seek to shape our financial policy at the expense of the mass of the people of this country.
§ 9.0 p.m.
§ Mr. MAXTON
I have not listened to the major portion of the speeches that have been made, and, therefore, I hesitate to intervene. I hesitate all the more to intervene on this very difficult question of finance, but the thing that emboldens me to offer a few observations is the fact that in all the speeches that I have heard there is a demand for an explanation of what the Government means. I conclude that in the opening speech on behalf of the Government it was not made clear what are the aims and the intentions of the Government in regard to the £150,000,000. Another reason why I intervene is that for a period of years we have been guided by the experts, and the experts have invariably been wrong. Therefore, if I, a common man, err, I do so in the good company of the experts. On reading the Chancellor of the Exchequer's speech, when he outlined this proposal in the Budget, on subsequent consideration of the topic and after reading newspaper articles, I have been led to believe that the Government have been unable to explain this matter clearly to the House and to the nation because the Government have not yet made up their mind what their intentions are.
I imagine that the motive is that we shall not be caught again as a nation in the humiliating position in which we found ourselves last autumn, and they assume that by this device they may save themselves from being dependent on powers outside our own frontiers. Therefore, they go to the Bank of England, which, as the hon. Member for Gower (Mr. D. Grenfell) said, quoting another hon. Member, is regarded as being Tweedledum and Tweedledee with the Treasury. I do not know whether it is right to assume that the interests of the Bank of England and the nation's interests, as represented by the Treasury, are exactly the same. I have had it very clearly in my mind that the Bank of England entered into Australia, a part of the British Empire, when Australia was in very considerable difficulties, to put Australian finances on a sound foundation, with the result that Australia's condition to-day, both poli- 144 tically and financially, is infinitely worse than it was before the Bank of England interfered through its representatives.
§ Major ELLIOT
The hon. Member must bear in mind that it was on the specific invitation of the Government of Australia that the Bank of England sent a representative, and it was again on the specific desire of that Government that the report of that representative was published. It is a little ungenerous to criticise the action of the Bank of England after they had acceded to a request.
§ Mr. MAXTON
I did not put it in that way, and I take it that whatever the Bank of England does in connection with this sum of £150,000,000 will always be done as a result of invitation from the Treasury. I hope that I did not use any awkward language, but the fact remains that, having got the expert advice of the Bank of England in regard to Australia's finance, Australian finance, Australian politics and the relations between State and State are more tangled than they were before the Bank of England went in to assist them.
§ Mr. MAXTON
I wonder if the hon. Member is not again mistaking the one swallow for a summer. I should like to hear Mr. Lang's view on the subject of the great improvement that has taken place in Australian affairs. I certainly know the mood of the workers in Australia. They do not think that they are better, off.
§ Mr. MAXTON
That is the sort of statement that gets my goat every time— the idea that there is some social state in which if finance is sound everything is all right, although the whole population may be in a state of starvation. I have no use at all for that sort of sound finance. A nation that can produce a fine balance-sheet with its people suffering the greatest privation is to me a nation which is absolutely unsound. I want to deal with one specific point. This is a loan of £150,000,000. Those who were in the last Parliament will remember that from this part of the House there came steadily on every Debate on 145 unemployment and trade depression a demand from the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) for the raising of a development loan of £250,000,000, which was going to be spent on great national developments. That was always resisted by the Government, not in toto but resisted; and it was always resisted by the Conservative opposition. It was resisted by the right hon. Member for Bewdley (Mr. Baldwin) and the hon. and gallant Member for Kelvin-grove (Major Elliot), on the ground that there was not £250,000,000 of money available to be borrowed for this purpose without starving the ordinary industrial and commercial life of the country. The Members of the Liberal party, however much they may have been demoralised by their activities in this Parliament and at the last election, will agree that that is a fair statement of the demand of the right hon. Member for Carnarvon Boroughs and a fair statement of the reply from Conservative and Treasury sources. You could not raise a loan of £250,000,000 for general national development purposes unless you starved the ordinary industrial and commercial development.
Things are infinitely worse now than they were then. Where is this £150,000,000 to come from? If £250,000,000 two years ago was going to starve ordinary industrial commercial life, although in the proposals of the light hon. Member for Carnarvon Boroughs it was to be put to productive purposes, where is this £150,000,000 coming from which is to be put to unproductive purposes? I want the Financial Secretary to explain this to me. If it is coming from somewhere, then it is somewhere. When the right hon. Member for Carnarvon Boroughs asserted that it was there to be borrowed, I always said that if it was there to be borrowed it was there to be taken; and if it is there just now to be borrowed then it is there to be raised through ordinary taxation methods. I do not believe that a borrowed loan of £150,000,000 is going to be a safeguard for the nation in its hour of need, in a period of crisis. I can understand a reserve of £150,000,000, which belongs to the nation, being a real safeguard, something to fall back upon. In the Budget Debates of last year I said that the mistake which this nation has 146 always made was that in budgeting it did so merely to get a balance, and that over the years of prosperity it ought to have budgeted to get a surplus.
§ Mr. MAXTON
I am talking in terms of business. I am trying to talk along the lines upon which the right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) conducts his personal interests, In his personal affairs, as far as I know, he is very much more prudent than his proposals in politics. I am saying that over the years this nation ought by extra taxation to have piled up during the prosperous years a reserve which would have made it independent of foreign sources of borrowing and independent of what has proved in experience to be an unreliable thing upon which to rest, the very doubtful patriotism of the individual lenders inside the borders of Great Britain. I do not see how this loan, raised by the lendings from a number of individuals, quoted in the market place, rising and falling and subject to all the day-to-day rumours on the Stock Exchange is going to be any safeguard for this nation in a time of need any more than the borrowings we had before the September crisis from the Bank' of France and the Federal Reserve Bank of America.
I repeat, that if you are going to save this nation from a further crisis, a crisis so deep that one might properly describe it as a catastrophe, you will have to cut very much more deeply into vested interests and vested powers in this land. You will have to get your wealthy citizens to give up a far bigger proportion of their personal resources, not on loan but into the actual possession of the State. You will have to get powerful organisations like the Bank of England to give up to the nation the powers which are by right the powers of the nation and which should never have been at any time vested in a private profit-making institution. However close the Bank of England and the Treasury may be in their day-to-day consultations about financial things, the interests of the two institutions, the State on the one hand and the Bank of England on the other, if both are doing their job properly, are diverse interests. The 147 interest of the Bank of England is to make a profit for its shareholders. The duty of the Treasury is to maintain a solvent nation, in which the masses of the population have an opportunity of supplying their material needs from day to day in proper quantities and with decent security. These two interests at this period in history, are conflicting interests. This attempt, so far as it is an attempt, to bridge over the conflict of interests, to establish national security on a basis of individual profit-making, seems to me to be as doomed to failure as the devices of the past that have been attempted for the same ends.
§ Major ELLIOT
I attempted during the earlier part of the hon. Member's interesting and forcible speech to deplore the fact that he had broken through what he claimed to be his invariable rule of listening to a Debate before summing it up, because in fact the proposals are not precisely as he describes them, nor would the effects be such as he has indicated to the Committee. The hon. Member spoke on his familiar thesis, that money should be taken from the rich and given to the State, which in his mind is the poor. That is the point of view which he habitually puts in this House. When we are dealing, as now, with a technical proposal which requires a good deal of consideration, it is a little hard to be asked to recapitulate the whole of the Debate at this stage of the proceedings. I know that the hon. Gentleman does not wish me to do that, but when he indicates, for instance, that somehow or other the Bank was to make profit out of these proposals, I ask him to note that these proposals concern the Exchange Equalisation Fund and the Issue Department, and that in both of these things the whole of the profit must by law go to the State.
We are discussing solely the question whether these transactions should or should not be managed by a certain group of persons. The hon. Member went on to say that his fundamental objection was that the same group of persons who managed the Bank of England should not be trusted to look after the affairs of the nation, because logically the Bank must strive for the maximum profit for its shareholders at all times, and thereby neglect the interests of the nation. That is exactly 148 the difference between the hon. Member and us. It is not true that private institutions at all times seek for the maximum of private profit, irrespective of any public outlook. It is just on that intangible point, the point at which a man allows public interest to override his immediate personal gain, that the continuance of the capital system is based; it is based on the fact that time and again a man does take a public point of view as against his private point of view. That is why such a thing as a State exists at all. Take as a simple illustration the order to a soldier to charge. His obvious personal and private point of view would make him run as hard as he could for the base, but time and again he goes over the top in complete contradiction of his own personal interests.
§ Mr. MAXTON
The right hon. Gentleman must not ignore one point in his argument. The soldier has definitely signed on for that particular purpose in a national organisation, the Army.
§ Major ELLIOT
When the time comes to go over the top one does not really begin a sort of sea-lawyer consideration as to whether one did or did not sign a certain contract, whether one was conscripted or a free man, or whether one's term of enlistment might or might not be running out, but whether one would let the country down or not. It is on that and not on any legal technical quibble that finally the determination of the mass of mankind is reached. I do not want to go further than that. I do not wish to make a point on any quibble that the hon. Member has not listened to the whole Debate. It would have made no difference whatever if he had listened to the whole Debate. On this particular point our two philosophies conflict. The fundamental thesis on this side is that at bottom one can trust to the decency of mankind, and the hon. Member's fundamental theory is that at bottom one cannot trust to the decency of mankind.
§ Major ELLIOT
I must apologise if I have misrepresented the hon. Member, for I had no intention of doing so. Time and again, with every opportunity for making profit, a man will ignore that 149 and take the public point of view. The hon. Member's thesis is that, given such opportunities, a man will not neglect the opportunities for personal profit, but will take them at whatever cost to his fellow creatures or to the State. I do not think that that is a misrepresentation of the hon. Member. The hon. Member's two points were these: Why should it be possible to raise a loan of £150,000,000 now, when earlier the State could not raise a loan of £250,000,000 when begged to do so by the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George). The answer to that has come out clearly in the Debate. This is not a loan for the expenditure on works of one kind or another such as the right hon. Member for Carnarvon Boroughs had in view, but it is in the nature of changing one's investments. When a man changes his investments from one kind of security to another it is no argument to say that previously he resisted the suggestion of a scapegrace nephew to sell out the whole of those investments and to give them to the nephew so that he could embark in a bucket shop out of which he hoped to make a great deal of profit. It is true to say that the loan which is to be raised under this Resolution is not borrowing in the ordinary sense of the word, but is for changing investment from one kind of security to another. That is the answer to the complaint which was raised, that we were acceding to this loan and that we refused the other loan which was to be put into a concern of very doubtful security.
§ Mr. MAXTON
I interrupt with all due humility. As I understood the proposal, the answer to the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) had no bearing on the kind of security into which the money was to be put. In that case, as in this, it is to be Government stock. The answer to the right hon. Member for Carnarvon Boroughs was simply that the money was not there. Now the Financial Secretary says that it is there, to buy foreign securities. It was not there to make roads and bridges, but it is there to buy foreign securities.
§ Major ELLIOT
It would be a very big Debate if, in addition to the Exchange Equalisation Account, we were also to debate the full plan included in "We can cure unemployment." Therefore, I 150 do not wish to embark upon that policy now or to make any criticism of it. All I say is that money which is available for investment is not always available for expenditure. Almost every one of us has had bitter experience of that in our lives, and still more in the lives of our parents when we have tried to persuade them that their funds ought to be used in that way.
§ Major ELLIOT
I beg the hon. Gentleman not to go further into that question, because I think he might have listened to the Debate before embarking upon criticisms of our proposals.
§ Major ELLIOT
Then those bits to which he did not listen were obviously the most important. That is not an unfair reply to the speech of the hon. Member for Bridgeton (Mr. Maxton) save for the point, which I admit delighted me more than I can say, namely, his grave reproof to the right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) for his wild-cat finance, which I never expected to hear in this House. The proposal that reserves should be set up during the period of prosperity to guard against periods of lean years is one on which those on this side of the Committee would agree with the hon. Member wholeheartedly, were it not that he considers that these reserves can be built up by higher and yet higher taxation, and put away in some stocking foot as reserves on which he can subsequently draw, whereas we on this side say that these reserves can be built up only by the remission of taxation and allowing the level of prosperity in the country to rise in that way, and not by withdrawing great sums from production in this country and salting them down in some unproductive form against the time that the hon. Member comes into power and is able to scatter them abroad in one glorious shower.
151 9.30 p.m.
The Debate has ranged over the very technical points of the proposals which we have ventured to put before the Committee, and these technical points have received close and, I think I may say, not unsympathetic attention from various parts of the Committee, including the Front Bench opposite. It is the desire of the Government as far as possible to co-operate with the House in this matter and I should hope that when we come to the Amendments—as I trust we shall now be able to do—we shall be able to accept one or two of them from hon. and right hon. Gentlemen opposite, and to give thereby an earnest of our intentions. The first criticism of the hon. and learned Member for East Bristol (Sir S. Cripps) was "Can you separate the activities of the Issue Department of the Bank of England and its interest in the management in this connection from the working of its own special business?" These things will, of course, need the closest co-operation and consultation, but given this and goodwill we believe it is not at all impossible that it could be done. We believe it has been possible in the past and that it will be possible in the future. It has been possible in the past, I do not say to the full acceptance of the hon. and learned Member for East Bristol, but is certainly has been done.
§ Major ELLIOT
No, but there has been the duality of which the hon. and learned Member complains, namely, that the Issue Department is managed by the Bank though for the profit of the community, and the banking department is managed by the Bank for the profit of the Bank, and it has been possible to work it in the past, and we consider it will be possible to work it in the future. Then the hon. and learned Gentleman complained that the Treasury does not select the Governors of the Bank. No, but it selects the bank as expert managers, and it could certainly select other expert managers if it desired. The money which we propose to raise for the purpose of the Exchange Equalisation Account is the property of the State, and is raised by the House of Commons. 152 It is exercised under the control and authority of officers of this House on the expert advice of certain advisers whom they choose. If they do not approve of the wisdom of the advice given, and if they know where better advice can be got, then they can go to that place, or, if they so desire, they can manage it for themselves. Then, to quote the right hon. Gentleman the Member for Hillhead (Sir It. Home), "God help us!"
The hon. and learned Member for East Bristol raised a point of the very greatest importance when he said, "Even so, this expert committee does not fully represent industry or labour interests. And there should be a committee representative of all those interests to whom the task of expert advice should be entrusted." I think he will agree that at present that is totally outside the range of practical politics. After all, the very fact that this account is immediately under the control of officers of this House should go far to meet the very objections he has in mind. This fund, which is closely connected with the House of Commons, is a fund about which the House will have a great deal more to say than it has had to say in the past regarding other things which were specifically removed from its purview by Statute, but if and when it becames possible to have a superior committee to the Governors of the Bank of England, then we shall all be very pleased to see it, but, as far as we can see at present, such a committee amounts to a miniature House of Commons, and I cannot conceive of anybody less fitted to give expert and impartial advice on a matter of such very great importance.
Then the hon. and learned Gentleman asked if this fund is to be used to tie us to some other exchange. No, that is specifically what the fund is not to be used for. The proposal that we are simply to tie ourselves again to the dollar or the franc is not the proposal which the Government are bringing before the House. The Government are bringing before the House a proposal to strengthen the currency and not to tie it by the neck to the chariot wheels of some other State or Power. We shall and must retain that liberty of action which alone would make it worth while to raise a fund of this description. The very plea which I am making for that liberty of action is the 153 plea which I must adduce as a counterargument to those who have repeatedly begged for a greater and more clear definition of our immediate policy. The speech of the hon. Member for Croydon (Mr. H. Williams), which came at the end of the Debate, and which was one of great lucidity and power, indicated quite clearly the view which, it seems to me, we should take upon that matter. He pointed out that it would be an act of great rashness to disclose one's plans to the enemy—and, mark you, it is against the hostile forces and not the friendly forces only that we may have to deal in the immediate future, as other countries have had to in the past.
Not merely would it be an act of great folly to disclose one's plans completely and openly to the whole world, but to disclose them at this moment before the Finance Bill has been framed and introduced, and even passed any of its stages, and when you have not even been able to gather together your mass of manoeuvre, and, still less, to mobilise it, would be an act of supreme madness. To have no power whatever to vary your plans, to have a period during which you would be unable to exercise any control whatever, would be to put the nation, not merely in the position of a hermit crab, which, having cast one shell, is in a hopeless state until it finds another, but, it would be to put the nation in the position of a hermit crab which, having cast its shell, climbed on to a rock and waved its shell-less nippers and called to the predatory beasts of the sea: "Here is good food, come and eat." We shall not do that. At this moment, particularly, I ask the Committee to believe that it would be impossible for the Government, however fully-framed its plans were, to disclose those plans weeks and even months before it was able to take any effective action to carry out its intentions.
The right hon. Gentleman the Member for Hillhead quoted the Macmillan Committee of which I will only say that it reported in circumstances very different from those in which we find ourselves today. The right hon. and gallant Gentleman the Member for Newcastle-under-Lyme said that as the fund must either raise sterling, or lower sterling, or hold sterling, it would sooner or later have to be explained what it is doing, and that might as well be done now. In great 154 movements and designs the value or otherwise of the policy of a Government, or for that matter, of an army or a fleet makes itself manifest in the success or failure of that policy. No general, no admiral, no banker would ask to be judged on the excellence of a plan which he disclosed to his colleagues or to the House of Commons. He would ask to be judged on the success or failure of that plan as it worked out in practice. That is the only test which we ask, and that is the only test by which it will be possible to judge of the soundness or otherwise of the plan of the Government. The hon. Member for Farnham (Sir A. M. Samuel) put the matter in a nutshell when he said that foreigners must learn that if they played any tricks with sterling they would be heavily dropped on, to their own loss. Put in homely and colloquial language that sums up very closely one, at least, of the purposes of the Government in bringing forward these proposals.
§ Major ELLIOT
The right hon. and gallant Gentleman having already been refused information by me, as to the wider sweep of the Government's proposals, will not succeed in getting that information out of me by these plaintive complaints which he makes so movingly across the Floor of the House. I will not go any further than I have gone and I ask him to take that, for the present at least, as an answer. The hon. Member for East Aberdeen (Mr. Boothby) asked how was the money to be found and pointed out that nobody before had asked that question. The finding of the money will be part of the general operations of the Exchequer. The Exchequer raises money every year by Treasury Bills, by Ways and Means borrowing, by bond issues, or by issues of stock. All these ways will be available to the Treasury and it may make use of any or all of the ways suggested.
The hon. Member for Gower (Mr. D. Grenfell) asked what Was the intention of the Government in relation to this borrowing. Did they mean, he asked, to borrow the whole £150,000,000 and to keep that by or to borrow only enough to purchase the foreign exchange securi- 155 ties which they required, and then keep that? The latter is the correct answer. It is not the Government's intention to go to the market and to raise the whole of this £150,000,000, but merely to use that borrowing power as an enabling power. It enables us from time to time to borrow through the Treasury and thereupon to reinvest, if I may use the word, the amount borrowed in foreign securities of one kind or another, and not to raise any more money upon the market of London than is actually required to carry out the operations in hand. As to the effects of the Account, the hon. Member asked if the money would enable the Bank to increase the amount of credits. The money will not do so because the money will not be in the Bank but in the Exchange Equalisation Account. He also asked what would be the effect on the currency of borrowing £150,000,000. I do not anticipate that there will be repercussions on the currency from the borrowing of the £150,000,000.
The hon. Member further asked as to the relation of the fund to the Bank. The fund is in the Exchange Equalisation Account and is entirely separate from the Bank save as far as the Bank acts as the agent of the Treasury, which is to say of the Government, in the actual day-to-day management and handling of these sums. He asked who is to bear the losses and who is to enjoy the profits. The taxpayer bears the losses and he enjoys the profits. He asks, are we to buy gold and keep it idle? I should hope not, but we must have the power to buy gold or anything else. Obviously, it may be desirable at one time or another to purchase gold, just as it may be desirable at one time or another to sell gold. It is certainly not our intention, however, to form one of those great stacks of gold which are an evil feature of the currency situation in some other countries. Finally, the hon. Member asked who were the Treasury and who were the Bank of England. Well, the Treasury is, at the end of it all, the Chancellor of the Exchequer and the Lords of the Treasury who are not merely officers of the House of Commons, because there are several Lords of the Treasury who are not actually Whips in the House of Commons; and if the hon. 156 Member does not know the difference between the Whips' Room, and the Court of the Bank of England, all I can say is that I am sorry that he has not had a full appreciation of his experiences in Parliament.
§ Sir S. CRIPPS
Is not the right hon. and gallant Gentleman leaving out one of the most important—the Financial Secretary to the Treasury?
§ Major ELLIOT
I am in fact not a Lord of the Treasury. The Chief Whip and I are mere secretaries to those much more important persons the Lords of the Treasury, and I assure the hon. and learned Member that the Chief Whip and I go in daily fear of the day upon which we may be carpeted by the hon. and gallant Member for North-West Hull (Sir A. Lambert Ward) or the hon. Member for Norwich (Mr. Shakespeare) and asked what we have been doing to earn our salaries and why we should not do a little more for the money?
§ Major ELLIOT
I always understood that the hon. Gentleman and his Friends were most heterodox, but I find they are just as orthodox as anybody else. The difficulty in which we are moving is the difficulty, of course, of new times, of experiment, and the fact that things that are done do not by any means work out as people suppose. The hon. Member for East Aberdeen attacked very bitterly the long-term policy of the Bank, the policy of deflation, but surely he knows as well as anyone in the House or in the country that the pound during the period of office of my right hon. Friend the Member for Hillhead, when he was Chancellor of the Exchequer, slowly kept on appreciating, moving gently upwards, because the whole world was full of sterling. The position in many cases gets out of hand, gets away from us—
§ Mr. BOOTHBY
The world was full of sterling at that time, but it was the declared policy of the Bank of England to go back to the Gold Standard at the pre-War parity of exchange.
§ Major ELLIOT
The declared policy of the Bank of England was certainly not to take steps which were injurious to British trade, and I have found in the 157 past, and I am sure I shall find again in the future, that these great long-term movements take place very often, not because, but in spite of declared policies, whether of institutions or of individuals. The step which we are now taking, I frankly say, may not succeed in its declared objects, which I have laid before the Committee on more than one occasion. It may be that the great tides of movement in the world will sweep right over them. I do not fully share the conviction of my right hon. Friend the Member for Hillhead that he can safely and easily guide and control the currency of this country exactly where we should desire. The movements of prices and of currency in this country, covering as they do, a quarter of the world's transactions, are beyond the control of any single small Committee, however enthusiastic, however great the power with which it is endued by this House. But still we believe that at any rate we shall have a great deal more power over currency affairs with the powers which we are asking for now than without them, and in that belief we ask the Committee to give us this Resolution.
There are other questions which have been asked during the Debate, to which I do not wish to give an answer now. The Amendments will clear up certain of the doubtful points. Other opportunities, both on the Report stage of this Resolution and later on the Clauses of the Finance Bill, both in Committee and on Report, will enable these points further to be thrashed out, but there has been a remarkable unanimity in the Committee to-night in favour of the Government obtaining these powers. There has also been a desire that these powers should be used for the benefit of industry and not merely to vindicate certain financial theories. With both of these, we fully agree. There has been a demand from many quarters of the House that we should here and now disclose the whole of the plans which we have formed and the whole of the policy which the Government intend to pursue in the immediate future with regard to sterling. With that demand it is not possible for us to accede, but on the case that has been made out, I would ask the Committee now to proceed to the Amendments and to give us to-night the Resolution for which we are asking.
§ Sir S. CRIPPS
I beg to move, in line 3, after the word "establishment," to insert the words:under the control of the Treasury.I imagine from what the right hon. and gallant Gentleman has told us that he will probably have no objection to the insertion of these words, which we desire in order to make it perfectly clear that this Fund is to be under the control of this Committee. I was rather interested in what the right hon. and gallant Gentleman said about the theory upon which capitalism was based, when he said that it was quite right that the Bank of England should continue to control certain Departments of the Bank because it was recognised that the Bank would act, not in its own interests, but in the interests of the State. It is rather odd perhaps that in this instance the right hon. and gallant Gentleman himself does not trust the Bank of England, but thinks it better that this matter should be put under the control of this House and under the direct control of the Government. We agree entirely with that point of view, and we think that the other departments of the national interest will have to follow into the same control. That point perhaps is not raised on this Amendment, and I should be out of order if I developed it, but it has already been very fully discussed, and I will conclude by asking the right hon. and gallant Gentleman if he will not be prepared to insert these words in order to make quite clear what his intention is.
§ Major ELLIOT
I do not think these words are truly necessary, but I am willing to accept them from the hon. and learned Member opposite. He twitted me with suggesting that this money should be under the control of this House instead of simply handing it all over to the Bank. There is such a thing as the control of one's own money by oneself, and this is the money of this House and cannot be handed over to the Bank. We raise it and must take the responsibility for it. This is Treasury money, and as the Chancellor of the Exchequer said:I ask the Committee to observe that both of these accounts are worked for the credit of the Exchequer, for the use of the Exchequer, and for the account of the Exchequer."—[OFFICIAL REPORT, 19th April, 1932; col. 1427, Vol. 264.]159 If the hon. and learned Member for East Bristol (Sir S. Cripps) thinks these facts would be more clearly brought out by inserting the words which he desires, I shall be prepared to recommend the Committee to accept them.
§ Amendment agreed to.
§ Colonel WEDGWOOD
I beg to move, in line 9, to leave out the words "or any of."
The third power that we give is:the transfer to the said fund of all or any of the assets of the Exchange Account,and our Amendment is to leave out the words "or any of," and to transfer to the fund the whole of the assets of the Exchange Account.
§ Colonel WEDGWOOD
Will the right hon. and gallant Gentleman explain to the Committee what those assets are? We have been told at present only of £25,000,000, the remains of the Dollar Exchange Account. Is that all, or are there other assets as well? In particular, I want to know whether one of the assets of this fund will be the gold at the Bank of England, which is the security for our credit at the present time. Is there anything besides this £25,000,000 dollar loan among the assets?
§ Mr. T. WILLIAMS
Will the right hon. and gallant Gentleman say if he is likely to accept this Amendment? If he is, it will obviate the necessity of a great oration.
§ Major ELLIOT
It is certainly the intention of the Government to transfer the whole of the assets of the Dollar Exchange Account to the new Exchange Equalisation Account. Therefore, we shall be perfectly ready to leave out the words "or any of," which will make the Motion mean that the whole of the assets of the Dollar Exchange Account are to be transferred to the new Exchange Fund. Of course, that does not include the gold in the Issue Department of the Bank of England, for that department has nothing whatever to do with the Exchange Equalisation Account. The £25,000,000 to be transferred is the amount of the various securities which are held by the Dollar Exchange Account, no more and no 160 less, but as it is our intention to make the whole of that fund into a capital fund, we desire to transfer the whole of the account to it. Therefore, I have pleasure in recommending the Committee to accept the Amendment.
§ Colonel WEDGWOOD
Will the right hon. and gallant Gentleman also accept the consequential Amendment in line 10, at the end to insert the words "amounting to pounds sterling," in order to make clear how much there is?
§ Major ELLIOT
I do not wish to have to come down to an exact valuation of the assets because these assets are not in pounds sterling. They are in foreign securities and in foreign exchange. The Dollar Exchange Account is not in pounds sterling, and therefore I do not wish to accept the defining words which the right hon. and gallant Gentleman wants to insert. I simply ask the Committee to accept the transfer of the whole of the assets of whatever kind, but not to give a definition of them, and certainly not to give a definition in terms of pounds sterling.
§ Colonel WEDGWOOD
Will the right hon. and gallant Gentleman say whether the approximate value of the Dollar Exchange Account is £25,000,000 sterling or gold? We have always had it talked of as £25,000,000 sterling, but I gather from the right hon. and gallant Gentleman that it was sterling used years ago for the purpose of the dollar exchange, and it may now be over £30,000,000 sterling.
§ Major ELLIOT
I am afraid that there is no windfall of that nature. The account is of the value of £25,000,000 sterling approximately, but it is not, of course, actually held in sterling. It is in foreign securities of one kind or another, but it is not more than equivalent to £25,000,000 sterling to-day.
When the word "assets" is used, does it mean assets at any particular date? Does the Motion bind the Committee to the assets as they are to-day, or as they may be at the end of the passage of the Finance Bill? I ask that because during the Debates on the Bill suggestions may be made to divert some part of the assets to some other purpose, and if the Committee passes this Motion in this form 161 now, does it mean that we cannot discuss these assets at a later stage of the Finance Bill?
§ Major ELLIOT
I should hesitate to give an opinion on that off-hand. I certainly think that it would be most unlikely that the Government would accede to any suggestion that this money, which is capital, should be withdrawn and applied to current expenditure, and I should hope that the whole Committee without any exception would back up the Government in that. I do not wish to be drawn into any hypothetical question as to what might happen if such a proposal were seriously made, or if the House desired to press on the Government such an unsound proposal. This capital account should be treated as a capital account and the whole of the assets should be transferred to the new account. I do not think that it is desirable to leave in the words "or any of," particularly in view of the suggestion which the hon. and gallant Member for Gainsborough (Captain Crookshank) has just brought up.
§ 10.0 p.m.
I see the point of the right hon. and gallant Gentleman, but at the same time, I am not sure that the Committee ought at this stage entirely to preclude itself from doing something which, even on the Report stage of the Resolution, might be found desirable. I submit, therefore, that there is not very much point in accepting this Amendment now. I quite see the object of the Government, but I also see that there are advantages, possibly not known to the right hon. and gallant Gentleman, in leaving this matter open a little longer. This new fund after all is not to be started to-morrow. We know how strict are the rules of finance in this House, and how the House is bound, in dealing with financial matters, by Resolutions passed in Committee. I therefore ask the right hon. and gallant-Gentleman to take advice before he accepts the Amendment.
§ Major ELLIOT
The more these arguments are brought forward, the more uneasy they make me, and I strongly recommend the Committee to accept the Amendment and withdraw from themselves any temptation, if there be any, 162 to carry through such a transaction as has been suggested.
§ Colonel WEDGWOOD
This sum of £25,000,000 may become £30,000,000 sterling in a year's time. It is in foreign exchange, and therefore, if it appreciates, the capital sum will appreciate in value, and the risk, if the hon. and gallant Member for Gainsborough (Captain Crookshank) had his way, is that the appreciation might be pinched for revenue purposes, and the fund would stand the risk, as other funds have, of being raided.
§ Major ELLIOT
I do not think that that can happen because once the fund is set up nothing can be withdrawn from it. It is advisable that the Committee should approve of the transfer of this Account to the Exchange Account at as early a date as possible so that it should not run the risk of being raided.
§ Amendment agreed to.
§ Mr. ATTLEE
I beg to move, in line 17, at the end, to insert the words:(5) the purchase by the said Fund of assets in foreign currency of such nature and such amounts as may be determined by the Treasury.The purpose of the Amendment is to make it quite clear that the purchase by the fund of assets in foreign currency are of such a nature and amount as may be determined by the Treasury. I do not see any specific reference elsewhere in the Motion stating that the assets in foreign currency should be of such a nature, and these words will make the intention clear.
§ Major ELLIOT
I do not think that these words are necessary, and therefore it would be inadvisable to insert them. The Treasury, I am advised, has full power to purchase foreign securities and foreign currency. These words might have a limiting effect since they might be held to mean that each individual transaction had to be sanctioned and put through by the Treasury. It would be inadvisable that the day to day transactions, amounting to perhaps more than 20 in the forenoon, should be kept under review by the Treasury. I should therefore be much obliged to the hon. Member if he did not press the Amendment on my assurance that the power is already in the hands of the Treasury.
§ Colonel WEDGWOOD
May I ask whether the right hon. and gallant Gentleman has considered the effect of the purchase by the Treasury of foreign currency and foreign bills of exchange? Suppose the Treasury go into the market and buy a number of French bills. Each of those French bills gives the right to the Government of this country to demand so many exports from France. It seems to me that is flying in the face of the whole Protectionist policy of the Government. If the Government want those imports to come in by all means buy foreign exchange; if they want to keep them out buying foreign exchange is the last thing they ought to do. Further, what are they proposing to do with this foreign exchange when they have bought it? They have the whole exchange of the world from which to buy. They can buy French exchange, or dollar exchange, or the exchange of Egypt or Greece or India —and the question of the rupee exchange is particularly important. This choice of an enormous number of exchanges will be a great bargaining power in connection with the business of quotas, restrictions on credit and restrictions on the importation of British goods. So long as the Government contemplate paying off the American debt they cannot go far wrong in buying dollar exchange, but is it possible that the Treasury may discriminate between countries whose exchanges it will buy—countries from which it will encourage importations—without taking into account the interests of our exporters? Do I make myself clear? This question of the purchase of foreign exchange is of enormous importance to the export trades. If the Government could use this power of buying foreign exchange to extract equivalent advantages for goods going from this country to that foreign country it would be a very effective adjunct to the Department for Overseas Trade and to the Board of Trade itself.
Take the German coal question. The Treasury will have it in their power to buy German exchange. The German people will welcome the purchase of German exchange, because it will encourage the importation of German goods into this country. Before they buy that exchange they might at least bargain with Germany to accept British coal on the old terms. That is only one illustration, but the same argument could be applied 164 to the quota system started in Holland, where they have reduced our imports to 75 per cent. of the 1930 level, and to Switzerland, where I believe they are going to do the same thing. The right hon. and gallant Gentleman also knows the difficulties of exporting anything to the Danubian States. Can we alleviate our difficulties by using this new opportunity of buying foreign exchange to benefit this country's trade and not to benefit those countries which will not trade with us?
§ Major ELLIOT
The remarks of the right hon. and gallant Gentleman open up a wide prospect which I think goes beyond this Amendment. It is quite clear that neither the acceptance nor the rejection of this Amendment would alter the position he has in mind. It is quite clear that the Treasury have discretion to buy or sell foreign exchange, through their expert committee. The use they make of that must be worked out in practice. I should hesitate to give any opinion on the proposals which the right hon. and gallant Gentleman has laid before us, except to say that they are characteristically ingenious, and show his well-known disregard for the susceptibilities of any other country than his own. Whether such operations as he describes would lead to the strengthening of the currency and check undue fluctuations in the exchange value of sterling I am not so sure. I will go into the matter with our advisers and ask their opinion. It is clear that the Treasury have the power to invest in the exchange of any country, so far as they think it is a good and commercially sound investment, and the power they have can neither be helped nor hindered by the acceptance or rejection of the Amendment.
§ Colonel WEDGWOOD
This is the only chance we have of raising this very important question, yet I gather from the answer of the right hon. and gallant Gentleman that the Department for which he speaks has not even thought of it. He speaks of it as an ingenious invention of my own. It must be obvious to anyone dealing in foreign exchanges that the purchase of foreign exchange would be of great advantage to the people from whom we buy it. If we buy gold the price goes up, if we buy silver the price goes up, and the people from whom 165 we buy stand to benefit. In the same way, if we buy foreign exchange it helps the imports of the country from which it is bought. I should be very much surprised if the right hon. and gallant Gentleman's advisers at the Treasury have not realised that, and certainly the Board of Trade will have done so, because this is a matter of every day affairs in the Board of Trade. Before we part from this question—not to-night, but on the Report stage—we really ought to know whether the Government have considered the advisability or otherwise of directing these purchases into channels which would stimulate the trade of this country.
§ Mr. de ROTHSCHILD
The right hon. and gallant Gentleman alluded only to the purchase of foreign exchange. What happens when there are sales of foreign exchange? Are we then to consult foreign nations as to the advantages we are going to give them?
§ The DEPUTY-CHAIRMAN (Captain Bourne)
Order. The Amendment deals with the question of purchase, and not sale.
§ Mr. de ROTHSCHILD
I wish to obey your Ruling. I was only pointing out that we cannot deal with the question of purchases only, not taking into account the question of sale as well.
§ The DEPUTY-CHAIRMAN
The hon. and gallant Gentleman is in error; it does not deal with the extent to which exchange can be sold.
§ Amendment, by leave, withdrawn.
§ Colonel WEDGWOOD
I beg to move, in line 24, at the end, to insert the words:and for the public notification from time to time of such losses or gains.If we buy dollar bills of exchange the variation in the pound in each month will affect the value of the bills of exchange or currency. What I am seeking in this Amendment is to include in paragraph (a), dealing with these transfers, words to ensure the public notification of such losses or gains. Normally we should have to wait a whole year to know the profits 166 or losses on transactions of this kind, and then they will be lumped in with a lot of other items. What I want to secure is that we should have a month to month record of whether we are making a profit or a loss on these transactions by the Treasury. It is not merely a question of keeping public control over what the banks do, but it is that we may record the constant rise in the profits of these transactions parallel with the fall in the value of the pound. If the pound rises, if we buy exchange and the pound rises there will be losses; if we buy exchange and the pound falls, there will be profits. Is that quite clear? I want to record these profits, and I want to be quite sure that they will be profits. I want to be assured of the currency moving in the right direction. We ought to have a record of these things. We are dealing with £150,000,000, and it may vary from month to month. Therefore, we should have a record of all these matters. I cannot see any objection to keeping that record, because it does not need to indicate in detail any of the purchases or sales which have been made. It should merely give the aggregate losses or gains, and the whole of the sums transferred from the Treasury to the banks.
§ Mr. MORGAN JONES
The hon. and gallant Gentleman the Member for New-castle-under-Lyme (Colonel Wedgwood) has raised the question of public control. Am I to take it that at the end of each financial year the Comptroller and Auditor-General, who is the financial officer responsible to this House, would automatically review these accounts and present the result to the House afterwards?
§ Mr. HOROBIN
Will there be any weekly return, corresponding to the Bank return, showing the state of these accounts in regard to the particular assets held? If there are no particulars of the borrowings it will make the Bank return meaningless, because no one will be able to make head or tail of the matter if there is no statement of acounts. Are we to understand that there will be no statement whatever issued?
§ Major ELLIOT
This raises a question of publicity, and I must stand on the answer which I have given before. We shall not disclose the progress of these transactions, because that would defeat the very object which we have in view, 167 which is to discourage the entry of speculators on to this market, and, in so far as we disclose our position or disclose the matters which are being got together, we are giving away our position to those who desire to operate against us. There will be no weekly statement, and there will not be a monthly statement.
The progress of this account will, of course, be examined by the Auditor-General and certified by him at the end of the year. The Auditor-General will not report on the subject to the House of Commons until this account is finally wound up one way or the other. I do not wish the House to be under a misapprehension in regard to this matter. The purpose of this fund is to check speculation, and the more we disclose the less we shall be able to carry out our object. On that assurance, I hope this matter will not be pressed any further.
§ Mr. T. WILLIAMS
When the right ton. and gallant Gentleman states that the accounts will be audited and reported upon by the Comptroller and Auditor-General, does he mean that it is only when the fund is finally wound up that such an audit will take place; or are we to infer that periodically, perhaps from year to year, the Comptroller and Auditor-General will have the accounts before him and will make a periodical report to the Public Accounts Committee? That point out to be made clear.
§ Major ELLIOT
The accounts will, of course, be periodically examined by the Comptroller and Auditor-General, and will be certified. I did not say that it would be reported upon—in fact, I specifically said that it would not be reported upon—to the Public Accounts Committee. Publication or disclosure of these accounts would have an effect contrary to that when the House desires.
§ Mr. BOOTHBY
I do not think that anyone suggests for a moment that the day-to-day transactions of this fund should be published. It would be disastrous if they were, and no one wants it. But there is, as I am sure the Financial Secretary will agree, a certain argument that it is rather desirable for this country, as well as other countries, to know how the balance of trade is going, and therefore, I would ask him to consider, before the Finance Bill, whether 168 it would not be desirable to arrange for the publication, perhaps quarterly, of the amount of foreign assets held at that particular period by the fund. That would have nothing to do with the day-to-day transactions, and would not help speculators, but would merely enable commercial and financial people in this country to know how the balance of payments is going. I quite understand his non-acceptance of this Amendment, but I would beg him to consider the possibility of such publication as I have suggested.
§ Colonel WEDGWOOD
How are we to tell how the balance of trade is going? At present it is possible to tell what it is by watching the amount of gold from one year to another, and seeing how much has gone out to balance imports and how much is coming in; but, if these figures are kept secret, we shall know nothing whatever as far as statistics relating to the balance of trade are concerned. More than that, at the present time the Bank rate is determined very largely by the gold reserves. Now we shall be adding to those gold reserves a vast amount of foreign securities, which will be equivalent to gold held by the Bank— the basis of credit. Just as gold is at the present time the basis of credit, so our enlarged credit in, foreign currency will be the basis for English credit here. At the present time, from week to week, the Bank publishes, for what they are worth, figures showing its gold holdings. From week to week the Bank determines what the Bank rate shall be. In the old days, when we were on gold, one could almost foretell, from the amount of gold in the reserves of the Bank, what the rate would be. The criticism of the financial papers, one way or another, all depended and was based on the figures of the weekly Bank return.
Now, as has been pointed out, that return will be useless, inasmuch as it will not represent any longer the assets held as the basis of our currency. We shall not be told what foreign currency we have, or how much we have bought; there will be absolutely nothing upon which criticism of the policy of the Bank can fasten; there will be nothing upon which people can base their ideas as to whether money is becoming cheap or whether it is going to be dear. 169 I think the right hon. Gentleman must see, on reflection, that it is impossible to keep all these transactions quiet for all time when they are of such fundamental importance to the finance of the country. Of course, we do not desire publication of these transactions from day to day; that would be fatal; but we must have some periodic statement of the security basis for our currency, and of the amount of that security, which automatically, in the old days, determined the Bank rate.
§ Mr. MORGAN JONES
May I press my point a little further? The right hon. and gallant Gentleman told the Committee that the Auditor-General would have access to these accounts and be able to certify them from time to time. I gathered, further, that, having had access to them, he will not be able to report to the Public Accounts Committee. In what capacity will the Auditor-General be entitled to examine them except as an officer of the House, and, if he is an officer of the House, surely the House is entitled to hear from him from time to time what the state of the fund is. I do not ask for any detailed account, but we ask that a statement should be made that at such a date the state of the fund was so and so.
§ Mr. HOROBIN
I am reluctant to press the Financial Secretary, but I think he can hardly have realised the seriousness of what he is doing. It is hardly exaggerating to say he is tearing up the Bank Act of 1844, on which we imagined our currency was settled. One of the major achievements of that Act was to ensure a weekly return. It was one of the great reforms which were felt even at that date to be necessary. I should have thought that everything that had happened in recent years had emphasized the importance of increased publicity, not that anyone wants to know whether the Bank at any moment is buying how much of this or that currency, but that there should be a weekly return as part of the proper Bank return. The proposal is a reactionary one and carries with it implications which might well receive the earnest consideration of the Front Bench. I am sorry if I appear to be pressing for a disclosure of information which is contrary to the public interest, but more is 170 at stake in this proposal than appears at first sight.
I wish to support the hon. Member for Caerphilly (Mr. Morgan Jones), who speaks with peculiar authority as Chairman of the Public Accounts Committee. Having served for several years on that body, it seems to me that the Financial Secretary rather misapprehends the position of the Comptroller and Auditor-General. He is an officer of the House and has nothing in the world to do with the Government, any more than you, Sir, or Mr. Speaker. If you asked him to audit your accounts, which I daresay as a matter of grace he would be prepared to do at any moment, he and the House would be entitled to say: "If our servant is going to audit your accounts, he must report to the House," because he would not be auditing them for the Government in the same sort of way as an outside firm of accountants might do it. You might get them to do it and pay them a fee and leave it at that. If you ask a servant of the House to do it, the natural corollary is that you are doing it in order that the House may be acquainted with the results, and you are not going to disclose any secrets at all in acquainting the House once a year with the state of the fund, which incidentally is done with almost every other fund that comes before the Public Accounts Committee. The National Debt Fund, the National Health Insurance Fund, and dozens of funds are regularly reported upon. For all that, there would be no disclosure of anything that was confidential or secret but it would be giving an annual record to those who follow finance from the point of view of the House of Commons.
§ 10.30 p.m.
§ Earl WINTERTON
I hope the Government will give way on this point. I think this is essentially one of those matters on which it is desirable that the House, and through the House the public, should have the fullest information. I am not blaming my hon. and gallant Friend, but this illustrates the difficulty in which we are placed in the absence of the Leader of the House or of any Cabinet Minister. I make no complaint of their absence, but a position has arisen here in regard to which it is obvious, from the expressions in all parts of the Committee, that there should be such a 171 Minister present. We all regret that the Chancellor of the Exchequer is unable to be present, and that seems to make it all the more necessary to have a Cabinet Minister on these occasions. It is unwise to have a case of the importance of the present one discussed without the Leader of the House or a Cabinet Minister present. Therefore, if the Movers of the Amendment go to a Division, and because I think the information ought to be given, I personally shall vote with them.
§ Major ELLIOT
I must say, in reply to my right hon. and Noble Friend the Mem-for for Horsham (Earl Winterton), that only three minutes ago the President of the Board of Trade left his place, but it is not unknown that the Financial Secretary to the Treasury takes a certain place in the discussions upon the Financial Resolutions. This is the first and not the last occasion which the House will have to consider this question. We are now only at the Committee stage of the Financial Resolution. No one knows better than my right hon. and Noble Friend that there is the Report stage. There is, further, the Second Reading of the Bill, the Committee stage when Clause by Clause the proposals are examined, and there is the Report stage when they once more come up for examination, and on all and any of those occasions the Committee or the House can press for information, and address Amendments to the Bill. They can address Amendments to the Bill without hon. or right hon. Gentleman jumping up in a truculent way and threatening that if the Opposition goes to a Division they will immediately proceed to vote with the Opposition against the Government of the day.
It would clearly be wrong for the Financial Secretary to the Treasury to give way on such a point, and, indeed, I think it would be of doubtful advantage for the Leader of the House, the Chancellor of the Exchequer or any Cabinet Minister to give way on a point at this stage of the proposals which, obviously, require the most meticulous consideration, as I am sure my right hon. Friend will admit, in every aspect and capacity before they are finally sworn to by the Government of the day. But the Government of the day have a responsibility in these matters, not merely to the House 172 of Commons but also to the great trade and industrial community of the country. I say, quite frankly, that I will certainly undertake to examine this case closely with the Chancellor of the Exchequer, and, if necessary, to ask the other Cabinet Ministers concerned also to go into it closely. But I am making no promises at all, and I have no wish to be charged with any breach of faith if on subsequent examination it is found impossible to carry out the request, which, I agree, has been most reasonably made from all sections of the Committee, for further information on the subject.
I only ask the Committee to remember that we are now moving to a new and untried field. It is true that it may make a breach in the Bank Act, 1844, but as the hon. Member for East Edinburgh (Mr. D. Mason) has proved to-night in one of his lucid speeches, we have departed a long way from the Bank Act, 1844. The point of publication is of great importance, and one which the Government will obviously need to review, and I shall certainly ask Ministers to consider the representations which have been made from all parts of the Committee for a review of those proposals to be published. The review by the Accountant-General is a review to prevent corruption, and not with the object of disclosing the details of transactions to the House. It will still be possible for the right hon. Member for Newcastle-under-Lyme (Colonel Wedgwood) to see the publication in the Board of Trade monthly returns and the estimates which the Board of Trade is able to make at the end of the year. The movements of private capital on a vast scale, to which the right hon. Gentleman referred will take place but it is very difficult to estimate their extent, but that removal of capital will not by any means form the determining factor. I hope that the Committee will not press this Amendment, after my assurance, given in all good faith, that we will examine the matter, although I make it clear that there is no pledge, so that there cannot be any charge of breach of faith later.
§ Colonel WEDGWOOD
I am much obliged to the right hon. Gentleman for the way in which he has met the Amendment, but I should like to make one point clear. There are two issues before the Committee—the yearly review of the 173 Accountant-General, and the weekly publication to supplement the Bank return. My impression is that a weekly publication to supplement the Bank return, giving an account of the gold and other equivalent currencies in this country, is of infinitely greater importance than the yearly survey of the Accountant-General. The whole question of credit, the facilities for credit and the Bank Rate come up in a weekly publication, where you can compare one week with another and, I hope that the right hon. Gentleman will make it clear to his colleagues, when he consults them, that in the view of the City and in the view of business that is of far greater importance than the annual review by the Accountant-General, however important that may be.
§ Mr. BRACKEN
The Financial Secretary to the Treasury has given us a copious Caledonian lecture on etiquette, but there are far greater principles at stake than the mere convenience either of the Treasury Bench or of this country alone. I have been rather perturbed by some of the remarks of the Financial Secretary as to the hostile forces that have been working against this country. He has worked up, or he has attempted to work up, a great agitation about international speculators doing their very best to bring this country down into ruin. This is a matter of very great importance on other grounds. Only a year or 18 months ago the Government set up the Macmillan Committee, the results of which were blessed by the late Chancellor of the Exchequer and, I think, by the preceding Chancellor of the Exchequer. That committee made it clear that it was of great importance to the financial unity of Europe and of the whole world that certain specific information should be given by the central banks.
We are doing to-night a thing which the Governor of the Bank of England has time after time protested against, and that is, we are shrouding the actions of the central bank in an air of mystery. We are doing everything contrary to the recommendations of the Royal Commission. We are adding to the general European desire to conceal things and we are undertaking a sort of financial and economic warfare. It is a very bad thing that any bank or any banker should 174 be placed in a position that they do not know what a central bank is doing. I agree that we do not want to publish day to day accounts, but it is absolutely ludicrous to suggest that you could not publish a quarterly statement which would provide the information that has been pressed for.
The Financial Secretary is the least bureaucratic Minister in this House. His heart is so warm for the private Member that he always gives us a spate of exposition, and I appeal to his kindly heart to accept the Amendment. I see that the Lord President of the Council is now on the Front Bench. He is one of the most potent figures in the present administration, and I am quite sure that if the Financial Secretary would humbly and respectfully ask leave to grant this concession that the Lord President of the Council would allow him to do so. It is a disgraceful thing that this country should join in a general financial and economic retrogression, by adopting the idea of concealing accounts and refusing to work with your neighbours. Every central bank in the world wants this information, in general. They want to know where England stands in this matter, in either monthly or quarterly statements, in order to know how her central bank is working. I ask the Financial Secretary to meet the general desire of the Committee and grant this information. If he does not himself feel able to do so then the right hon. Member for Bewdley (Mr. Baldwin), his master, who has denounced economic nationalism so vehemently, will I am sure grant him the permission.
§ Earl WINTERTON
I think the right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) will be well advised to withdraw the Amendment in view of the subsequent speech of the Financial Secretary, so very different in character from the first. He, I understand, is willing to look fully into the matter. I am much obliged to him for his rebuke, and may I say that if it is truculent to threaten to vote against the Government, how much more truculent it is not only to threaten to vote against the Government but to vote against the Government, as the Home Secretary is proposing to do next week.
§ Colonel WEDGWOOD
In view of what the Financial Secretary has said I ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Mr. ATTLEE
I beg to move, to leave out lines 30 to 33.
The Financial Secretary in replying to the hon. and gallant Member for Gainsborough (Captain Crookshank) referred to an outrage of rectitude. Clearly if that was the case there is a lack of virtue somewhere. The Financial Secretary said that he would not think of mixing up payments out of capital and payments out of income, but all the time he was conscious that he was trying to conceal the fact that £8,000,000 more would be paid out of the income which is being transferred to this new fund. I cannot understand why the right hon. Gentleman should do this in such a surreptitious way. This £8,000,000 can be made up out of revenue, which the Financial Secretary apparently would recommend as the height of financial rectitude, or it can be made up from the Dollar Exchange Account. He is starting the new fund with a liability of £8,000,000. I cannot understand why he is doing that. Why does he not say that he is going to transfer to this new fund the amount of the exchange account less £8,000,000? Is not that the more straightforward course? He has already said that Lord Snowden contemplated raiding the Dollar Exchange Account when he was Chancellor of the Exchequer, and that he proposed to take the whole of it, but that the present Chancellor of the Exchequer was more virtuous, had only taken half and that the remaining half is now to be transferred to this new fund. As a matter of fact, he knows that this £8,000,000 is a liability. Therefore he is not really as virtuous as he thinks. This £8,000,000 is to be paid out of a capital asset, the Dollar Exchange Account. I suggest that this provision in the Resolution should be left out, and that the amount to be transferred to the new fund should be the residue of the dollar exchange, less £8,000,000.
§ Major ELLIOT
As I understand it, the proposal of the hon. Gentleman is merely that as a matter of bookkeeping it would be more accurate—
§ Major ELLIOT
More straightforward and honest. I accept, as my Noble Friend did not accept, a rebuke. I stand reproached for lack of straightforwardness and honesty in the proposal which we bring forward. I think that as long as we accept the principle that this loss was made in the service of the State and at the instance of the State, and, secondly, that it is to be repaid by the department responsible, namely, the Issue Department, to the Bank—apparently that is universally accepted—the exact manner in which it is done is a matter of secondary importance. It is true that it might have been possible to take £8,000,000 to the Revenue Account out of the balance of the Exchange Account, to take a vote of £8,000,000 to replace the loss at the Bank. It seemed to us that that would have been grievously complicated. Our proposal will disclose a true and accurate picture of affairs, and if, as hon. Members opposite say, there was an attempt to mislead this House, it is at any rate a very amateur attempt, because it has not escaped the lynx-like eye of the hon. Member opposite. Having placed this transaction on record in the Journals of the House in all its dishonesty, perhaps the hon. Member will find it possible to withdraw the Amendment, and not press for the more complicated procedure which he thinks more suitable, but which I think not as suitable as the procedure we have adopted.
§ Sir S. CRIPPS
The Financial Secretary is very cavalier about the way in which this money is dealt with. Does he remember that his right hon. Friend the Chancellor of the Exchequer said in one of his Budget speeches:To-day, we have the satisfaction of recording that not only have my Noble Friend's anticipations been fulfilled, but that the small surplus of £364,000 which we actually show must be taken in addition to the fact that, instead of the £23,000,000 which it was proposed to take last April from the Dollar Exchange Fund, it was only necessary to take £12,750,000. If, therefore, we add to the £364,000 the £10,250,000 which is the difference between those two figures, we see that we are really to-day £9,000,000 better off than my Noble Friend anticipated last year."—[OFFICIAL REPORT, 19th April, 1932; cols. 1411 and 1412, Vol. 364.]The right hon. Gentleman said that this is only just a form of doing things, but does he agree that we are £9,000,000 better off or would it have been better 177 to have said that we were £1,000,000 better off? Should he not say, "Out of that £9,000,000 I am going to take the £8,000,000 which is owed to the Bank of England, which will therefore mean that I am not merely £9,000,000 better off, but £1,000,000 better off." It is because the Financial Secretary's statement seemed to us to be so very misleading to the country at large, and to imply that there was, in fact, a surplus of £8,000,000 more than one found when one examined the account, that we looked to see what had happened to the £8,000,000, and then we found this ingenious device by which the fund out of which it should have been paid, and which the Chancellor said had been saved, was being transferred to a new fund and the £8,000,000 was made a
§ charge on the new fund. The statement made by the Chancellor that it was only necessary to take £12,750,000 is quite inaccurate, because it is necessary to take £20,750,000 in order to balance the £8,000,000. It is a mere subterfuge to take the money from the Dollar Exchange Fund, to say it is a surplus and put it into the new fund and then deduct from it what is owed from it. We suggest that it really is sounder and better to do the thing in an honest and a straightforward way.
§ Question put, "That the words proposed to be left out stand part of the Question."
§ The Committee divided: Ayes, 283; Noes, 34.179
|Division No. 152.]||AYES.||[10.51 p.m.|
|Acland-Troyte. Lieut.-Colonel||Copeland, Ida||Harbord, Arthur|
|Adams, Samuel Vyvyan T. (Leeds, W.)||Cranborne, Viscount||Hartington, Marquess of|
|Agnew, Lieut.-Com. P. G.||Crooke, J. Smedley||Hartland, George A.|
|Albery, Irving James||Crookshank, Col.C.de Windt (Bootle)||Harvey, George (Lambeth, Kenningt'n)|
|Allen, Lt.-Col. J. Sandeman (B'k'nh'd)||Crookshank, Capt. H. C. (Gainsb'ro)||Harvey, Major S. E. (Devon, Totnes)|
|Amery Rt. Hon. Leopold C. M. S.||Cruddas, Lieut.-Colonel Bernard||Haslam, Sir John (Bolton)|
|Anstruther-Gray, W. J.||Culverwell, Cyril Tom||Headlam, Lieut.-Col. Cuthbert M.|
|Apsley, Lord||Curry, A. C.||Hellgers, Captain F. F. A.|
|Aske, Sir Robert William||Davies, Maj. Geo. F.(Somerset, Yeovil)||Henderson, Sir Vivian L. (Chelmsford)|
|Atkinson, Cyril||Dawson, Sir Philip||Heneage, Lieut-Colonel Arthur P.|
|Bailey, Eric Alfred George||Dickie, John P.||Hepworth, Joseph|
|Baldwin, Rt. Hon. Stanley||Donner, P. W.||Hills, Major Rt. Hon. John Waller|
|Balfour, George (Hampstead)||Dower, Captain A. V. G.||Holdsworth, Herbert|
|Balfour, Capt. Harold (I. of Thanet)||Duckworth, George A. V.||Hope, Sydney (Chester, Stalybridge)|
|Balniel, Lord||Duggan, Hubert John||Hore-Belisha, Leslie|
|Barclay-Harvey, C. M.||Duncan, James A. L.(Kensington, N.)||Hornby, Frank|
|Barrle, Sir Charles Coupar||Eastwood, John Francis||Horne, Rt. Hon. Sir Robert S.|
|Barton, Capt. Basil Kelsey||Edmondson, Major A. J.||Horobin, Ian M.|
|Beauchamp, Sir Brograve Campbell||Elliot, Major Rt. Hon. Walter E.||Howard, Tom Forrest|
|Beaumont, Hon. R.E.B. (Portsm'th, C.)||Ellis, Robert Geoffrey||Howitt, Dr. Alfred B.|
|Benn, Sir Arthur Shirley||Elliston, Captain George Sampson||Hudson, Capt. A. U. M. (Hackney, N.)|
|Bernays, Robert||Elmley, Viscount||Hudson, Robert Spear (Southport)|
|Bird Ernest Roy (Yorks., Skipton)||Emmott, Charles E. G. C.||Hume, Sir George Hopwood|
|Blindell, James||Emrys-Evans, P. V.||Hunter, Capt. M. J. (Brigg)|
|Boothby, Robert John Graham||Entwistle, Cyril Fullard||Inskip, Rt. Hon. Sir Thomas W. H.|
|Soulton, W. W.||Erskine-Bolst, Capt. C. C. (Blackpool)||James, Wing-Com. A. W. H.|
|Bowater, Col. Sir T. Vansittart||Evans, Capt. Ernest (Welsh Univ.)||Jamieson, Douglas|
|Bower, Lieut.-Com. Robert Tatton||Everard, W. Lindsay||Janner, Barnett|
|Bowyer Capt. Sir George E. W.||Ford, Sir Patrick J.||Jesson, Major Thomas E.|
|Boyce, H. Leslie||Fox, Sir Gifford||Joel, Dudley J. Barnato|
|Braithwaite, J. G. (Hillsborough)||Fremantle, Lieut.-Colonel Francis E.||Jones, Sir G. W. H. (Stoke New'gton)|
|Briant, Frank||Fuller, Captain A. G.||Jones, Lewis (Swansea, West)|
|Broadbent, Colonel John||Ganzoni, Sir John||Kerr, Hamilton W.|
|Brocklebank, C. E. R.||Gillett, Sir George Masterman||Kimball, Lawrence|
|Brown, Ernest (Leith)||Glossop, C. W. H.||Kirkpatrick, William M.|
|Brown, Brig.-Gen. H.C. (Berks., Newb'y)||Gluckstein, Louis Halle||Knatchbull, Captain Hon. M. H. R.|
|Buchan-Hepburn, P. G. T.||Goldle, Noel B.||Lamb, Sir Joseph Quinton|
|Burgin, Dr. Edward Leslie||Goodman, Colonel Albert W.||Latham, Sir Herbert Paul|
|Butt, Sir Alfred||Gower, Sir Robert||Law. Richard K. (Hull, S.W.)|
|Cadogan, Hon. Edward||Graham, Fergus (Cumberland, N.)||Leckie, J. A.|
|Campbell, Edward Taswell (Bromley)||Grattan-Doyle, Sir Nicholas||Leech, Dr. J. W.|
|Caporn, Arthur Cecil||Graves, Marjorie||Leighton, Major B. E. P.|
|Carver, Major William H.||Grenfell, E. C. (City of London)||Lennox-Boyd, A. T.|
|Castle Stewart, Earl||Griffith, F. Kingsley (Middlesbro', W,)||Levy, Thomas|
|Cautley, Sir Henry S.||Grimston, R. V.||Lindsay, Noel Ker|
|Cayzer, Sir Charles (Chester, City)||Guinness, Thomas L. E. B.||Little, Graham-, Sir Ernest|
|Chalmers, John Rutherford||Gunston, Captain D. W.||Liewellin, Major John J.|
|Clayton, Dr. George C.||Guy, J. C. Morrison||Lloyd, Geoffrey|
|Cochrane, Commander Hon. A. D.||Hales, Harold K.||Lockwood, Capt. J. H. (Shipley)|
|Colville, John||Hamilton, Sir George (llford)||Loder, Captain J. de Vere|
|Conant, R. J. E.||Hamilton, Sir R.W.(Orkney & Z'tl'nd)||Lumley, Captain Lawrence R.|
|Cook, Thomas A.||Hammersley, Samuel S.||Mabane, William|
|Cooke, Douglas||Hanley, Dennis A.||MacAndrew, Capt. J. O. (Ayr)|
|Cooper, A. Duff||Hannon, Patrick Joseph Henry||McCorquodale, M. S.|
|McKie, John Hamilton||Procter, Major Henry Adam||Somervell, Donald Bradley|
|Maclay, Hon. Joseph Paton||Purbrick, R.||Somerville, Annesley A. (Windsor)|
|McLean, Major Alan||Pybus, Percy John||Somerville, D. G. (Willesden, East)|
|McLean, Dr. W. H. (Tradeston)||Raikes, Henry V. A. M.||Sothoron-Estcourt, Captain T. E.|
|Macmillan, Maurice Harold||Ramsay, Capt. A. H. M. (Midlothian)||Southby, Commander Archibald R. J.|
|Macpherson, Rt. Hon. James I.||Ramsay, T. B. W. (Western Isles)||Spears, Brigadier-General Edward L.|
|Manningham-Buller, Lt.-Col. Sir M.||Ramsbotham, Herwald||Stanley, Lord (Lancaster, Fylde)|
|Margesson, Capt. Henry David R.||Ramsden, E.||Stanley, Hon. O. F. G. (Westmorland)|
|Marsden, Commander Arthur||Rankin, Robert||Steel-Maitland, Rt. Hon. Sir Arthur|
|Mason, David M. (Edinburgh, E.)||Rathbone, Eleanor||Stevenson, James|
|Mayhew, Lieut.-Colonel John||Ray, Sir William||Storey, Samuel|
|Mills, Sir Frederick (Leyton, E.)||Rea, Walter Russell||Stourton, Hon. John J.|
|Milne, Charles||Reed, Arthur C. (Exeter)||Strickland, Captain W. F.|
|Milne, John Sydney Wardlaw-||Reid, James S. C. (Stirling)||Sueter, Rear-Admiral Murray F.|
|Mitchell, Harold P. (Br'tfd & Chisw'k)||Reid, William Allan (Derby)||Sugden, Sir Wilfrid Hart|
|Mitcheson, G. G.||Remer, John R.||Taylor, Vice-Admiral E.A. (P'dd'gt'n, S.)|
|Molson, A. Hugh Elsdale||Renwick, Major Gustay A.||Templeton, William P.|
|Moore, Lt.-Col. Thomas C. R. (Ayr)||Rhys, Hon. Charles Arthur U.||Thomas, James P. L. (Hereford)|
|Moreing. Adrian C.||Roberts, Aled (Wrexham)||Thomson, Sir Frederick Charles|
|Morris, John Patrick (Salford, N.)||Robinson, John Roland||Titchfield, Major the Marquess of|
|Morris, Owen Temple (Cardiff, E.)||Ropner, Colonel L.||Touche, Gordon Cosmo|
|Morris, Rhys Hopkin (Cardigan)||Rosbotham, S. T.||Wallace, Captain D. E. (Hornsey)|
|Muirhead, Major A. J.||Ross, Ronald D.||Ward, Lt.-Col. Sir A. L. (Hull)|
|Munro, Patrick||Ross Taylor, Walter (Woodbridge)||Ward, Irene Mary Bewick (Wallsend)|
|Nail, Sir Joseph||Rothschild, James A. de||Ward, Sarah Adelaide (Cannock)|
|Nation, Brigadier-General J. J. H.||Runge, Norah Cecil||Watt, Captain George Steven H.|
|Nicholson, Godfrey (Morpeth)||Russell, Hamer Field (Sheffield, B'tside)||Wedderburn, Henry James Scrymgeour.|
|Nicholson, O. W. (Westminster)||Russell, Richard John (Eddisbury)||Weymouth, Viscount|
|Normand, Wilfrid Guild||Rutherford, Sir John Hugo||White, Henry Graham|
|North, Captain Edward T.||Salmon, Major Isldore||Whiteside, Borras Noel H.|
|Nunn, William||Salt, Edward W.||Williams, Herbert G. (Croydon, S.)|
|O'Donovan, Dr. William James||Samuel, Samuel (W'dsworth, Putney)||Wills, Wilfrid D.|
|O'Neill, Rt. Hon. Sir Hugh||Sandeman, Sir A. N. Stewart||Wilson, Clyde T. (West Toxteth)|
|Patrick, Colin M.||Sanderson, Sir Frank Barnard||Winterton, Rt. Hon. Earl|
|Pearson, William G.||Scone, Lord||Womersley, Walter James|
|Peat, Charles U.||Shakespeare, Geoffrey H.||Wood, Sir Murdoch McKenzie (Banff)|
|Percy, Lord Eustace||Shaw, Helen B. (Lanark, Bothwell)||Worthington, Dr. John V.|
|Perkins, Walter R. D.||Shepperson, Sir Ernest W.||Wragg, Herbert|
|Petherick, M.||Smiles, Lieut.-Col. Sir Walter D.|
|Pike, Cecil F.||Smith, Sir Jonah W. (Barrow-in-F.)||TELLERS FOR THE AYES. —|
|Powell, Lieut.-Col. Evelyn G. H.||Smith, Louis W. (Sheffield, Hallam)||Sir George Penny and Lord|
|Preston, Sir Walter Rueben||Smith-Carington, Neville W.||Erskine.|
|Adams, D. M. (Poplar, South)||Grundy, Thomas W.||Salter, Dr. Alfred|
|Attlee, Clement Richard||Hall, F. (York, W. R., Normanton)||Tinker, John Joseph|
|Batey, Joseph||Hall, George H. (Merthyr Tydvil)||Watts-Morgan, Lieut.-Col. David|
|Cape, Thomas||Hirst, George Henry||Wedgwood, Rt. Hon. Josiah|
|Cocks, Frederick Seymour||Jenkins, Sir William||Williams, David (Swansea, East)|
|Cripps, Sir Stafford||Jones, J. J. (West Ham, Silvertown)||Williams, Edward John (Ogmore)|
|Daggar, George||Jones, Morgan (Caerphilly)||Williams, Dr. John H. (Llanelly)|
|Davies, David L. (Pontypridd)||Lansbury, Rt. Hon. George||Williams, Thomas (York, Don Valley)|
|Davies, Rhys John (Westhoughton)||Lawson, John James|
|Duncan, Charles (Derby, Claycross)||Lunn, William||TELLERS FOR THE NOES.—|
|Greenwood, Rt. Hon. A.||Maclean, Neil (Glasgow, Govan)||Mr. Charles Edwards and Mr.|
|Grenfell, David Rees (Glamorgan)||Parkinson, John Allen||Duncan Graham.|
|Groves, Thomas E.||Price, Gabriel|
Bill read a Second time.
§ Mr. MORGAN JONES
I beg to move, in line 35, at the end, to insert the words "or in the said fund."
It is scarcely necessary to develop the case for this Amendment. I am not quite sure that I appreciate the necessity for paragraph (d) being in at all, but I think it is to ensure that the law should be made quite clear as to securities which may be held in the Issue Department. The purpose of the Amendment obviously is to ensure that whatever the law may be declared to be in regard to such securities, the same shall apply in regard to the fund.
§ Major ELLIOT
It is true that paragraph (d) is for the purpose of making 180 clear the law on the question of the interpretation of the term "securities," which in Section 3 of the Currency and Banknotes Act is raised. It says:The Bank shall from time to time hold in the Issue Department Securities.It may be desirable to invest in the Issue Department foreign exchange. It is true that counsel has issued the opinion that such exchange is covered by the term "securities," but it has been decided to put the question beyond doubt by this declaratory Clause. I am advised that the matter is already fully covered by the words:all such incidental and consequential matters as may be necessary or expedient in connection with the said fund.181 Therefore, the Amendment is not necessary, and it is for that reason only that I ask the hon. Member not press it.
§ Mr. MORGAN JONES
If the right hon. and gallant Gentleman assures me that the point is met, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ The CHAIRMAN
I am very chary about offering any knowledge of that sort, but I have no hesitation in saying that this Amendment is out of order because it might impose a charge.
§ Resolution to be reported To-morrow.