CONSOLIDATED FUND (APPROPRIATION) BILL.

HC Deb 12 July 1932 vol 268 cc1169-252

Question again proposed, "That the Bill be now read the Third time."

Mr. LLOYD GEORGE

I apologise to the House for continuing my observations, but there are a few more things that I would like to say. I was just pointing out that what happened was quite inevitable sooner or later. It was only our great strength that enabled us to go on with a pound which was considerably above its real value, and, when the great crisis came, it precipitated the fall. Then there was a panic, and hon. and right hon. Gentlemen certainly took full advantage of it. We had the election which I call the election of the billion mark. The sovereign is down by 25 per cent., and we are in a state of constant apprehension lest it should go up. We have a fund of £150,000,000, nominally to keep it steady, really to prevent it from being forced up. We had a 20-shilling sovereign, we had a Government coming into existence to keep it there, and we have the same Government taking special measures to keep it at 15s. because it is better for us. So much for the wisdom of pundits and penguins; and they are still advising us.

There is a great deal of discussion about inflation and reflation. I am sorry that the right hon. Gentleman the Member for Hillhead (Sir R. Horne) is not here, because he has taken a very leading part in it. I hope we shall observe due caution before we commit ourselves to that policy. These great currency problems are above the average intelligence, among which I include my own, and there is more nonsense talked about currency than about anything except theology. But I am a great believer in the saying of Goethe, I think it was, that there is a point of view beyond the sphere of philosophy, namely, that of common sense. I am hoping that the common sense of the nation will prevail against these ideas that we are going, to recover world trade, or our own trade, by merely juggling with currency. In a report by a very able Italian financier, all the nations are warned against imagining that trade recovery is going to be established by what he calls mere monetary witchcraft. I think that that is an essentially wise observation, and I have every reason to believe, from the speeches that I have read from the Lord President of the Council and the Chancellor of the Exchequer, that they have not yet been captured by this iridescent heresy.

No doubt the tyres of commerce are down, and gentlemen naturally say, "Inflate them; that is the way to do it; pump a little air into them"; and I think the right hon. Gentleman the Member for Hillhead wants a few silver studs on the tyres to prevent them from skidding. But I hope we shall be a little careful. The tyres are worn out. They are jagged and torn by travelling along roads littered with the jagged debris of war, and you will have to repair them before you inflate them. You may need new tyres. If you wait too long, you may find that you will need a new machine. Therefore, I was delighted to hear the statement which the Chancellor of the Exchequer made, in reply to the very important question addressed to him by my right hon. Friend, as to what appears in the Press to-day about the Governor of the Bank of England having expressed an opinion in favour of the restoration of the Gold Standard.

Mr. CHAMBERLAIN

The Bank for International Settlements.

Mr. LLOYD GEORGE

I understood that he was there, and that he expressed the opinion. I know that he led us into this wilderness before, and I sincerely hope that he will be regarded with due and salutary suspicion when he gives any further advice on this subject. I think it is far better to speak quite plainly on this matter. I am delighted to hear the very emphatic statement of the Chancellor of the Exchequer that the Government have no intention of committing themselves. I also agree with him that perhaps it is premature to decide definitely the basis for our currency. I always thought that the wisest thing that M. Poinearé did was when, on being invited to stabilise the franc, he decided to bide his time. As to whether he fixed it at the right amount I express no opinion, but I think the Government are wise in not being in too great a hurry. Time lost there is time gained, and I think that we ought to look round very carefully, especially in view of the great Conference at Ottawa, where, I understand, the whole of this problem is to be discussed. We are holding our own quite well as far as sterling is concerned and, therefore, I am delighted to find that the Government take that attitude.

6.30 p.m.

I should like to say a word about the restoration of international trade. I agree with the very eloquent words used by the right hon. Gentleman the Member for Epping. We are more dependent on international trade than any other country and, therefore, its restoration is a much more important matter to us. Before the War, 40 per cent. of our production was exported across the seas and, since the War, I think something like 30 per cent. On the whole, I think we have maintained Our proportion. I do not know whether the figures of the Chancellor of the Exchequer the other day would claim that they were higher. If they do, I have no reason to challenge them. Our shipping before the War was pretty nearly half the international shipping of the world. We carried about half of the trade of the Seas. Since the War, I think we have carried something like 30 per cent. Our international trade to-day and our international shipping to-day are the greatest in the world, and it is vital that we should keep them, because we cannot keep a population like this, the most densely populated industrial country in the whole world, merely by depending upon our own resources. We have to depend upon what we sell and what we carry abroad.

The Government claim that our trade has fallen in recent months less than the trade of any other country. That is only a half of the truth. I think the Chancellor of the Exchequer will recognise it when I tell him what I mean. Up to 1929 the international trade of the world had gone up in comparison with pre-War to 127 per cent., France had gone up to 147 per cent. compared with her pre-War foreign trade—but then you must take Alsace into account there—Italy had gone up to 148 per cent. and the United States of America had gone up to 169 per cent. But our foreign trade compared with pre-War has gone down, if you take the peak figure, to 87 per cent. Still, it is the greatest international trade in the world, and we have, therefore, the greatest interest in restoring world trade. There have been endless commissions and committees here and at Geneva to deal with the problem of the restoration of world trade. I am not complaining of the number at all, and I am glad that there is going to be one more. There were differences of opinion at many of them about questions like currency. The last report of a committee composed of the greatest currency experts was split up into six or seven different and contradictory reports. All these committees and commissions agreed without reservation, and without the protest of minorities, that the first essential to the restoration of world trade is the removal of restrictions and barriers preventing intercourse between nations. I will quote a sentence from the last report: It may truly be said that international trade is being gradually strangled to death. If the process continues, millions of people in this economically interlocked world must inevitably die of starvation and it is, indeed, doubtful whether our present civilisation can survive. That is written by great currency experts. I do not propose to inflict upon the House a belated speech upon Free Trade. I leave that to my Friend the Home Secretary. I had never any doubt at all what would happen the moment there was an election fought in those conditions. I said so at the time. But the Lord President of the Council invites us to suspend judgment on the success or failure of tariffs. I think he did so in my constituency and, in that invigorating air, he made a very reasonable and sensible speech. I have heard him repeat the same sentiments in the House in a speech which I enjoyed very much, in fact much more than did the people behind him. He said, "Suspend judgment. These tariffs have only been in operation for two or three months." Very well. If he wants to postpone the inquest on Free Trade—and he is in a position of authority—I am quite prepared to postpone my testimony on the subject. But what I have observed is that there is not the same radiant confidence about tariffs that there was. Hon. Members are beginning to discover, in the words of Robert Louis Stevenson, that it is better to travel hopefully than to arrive. One thing that strikes me is that, when you get manufacturers and traders coming together to discuss world tariffs, they are all agreed as to the disastrous effect of these barriers on international trade. They may disagree about currency, but deflationists, inflationists and reflationists all agree that there is no doubt that high tariffs are strangling world trade.

That is not a recent discovery. There was a great conference at Geneva in 1927. You had there representatives of the great trading interests of the world. I think 30 or 34 countries were represented there—our traders were represented by the President of the Board of Trade—and they came to the conclusion that the greatest obstacle to the recovery of world trade was these high tariffs, and one recommendation on which they all agreed was, that the sooner the nations first of all reduced them and then took steps to eliminate them, the better for the world. The right hon. Gentleman the President of the Board of Trade came here and delivered a most eloquent speech expounding this theory. He then foresaw dangers into which he has since himself plunged headlong with a splash. There is nothing, so reckless as the stern and unbending doctrinaire once he breaks loose. I remember his speech on that occasion. I heard it. In fact I have heard many of his speeches on the subject and I have read some of them since and, when I used to read them or hear them, stating the pure doctrine, I felt my own shortcomings and I said, "cannot come up to that standard." I look at him now just as one looks at the skeleton of a departed Free Trader, and I say "Alas, poor Yorick. We knew him well, and still do." But, in spite of all those opinions, tariffs have gone higher and higher, and exchange restrictions and quotas have been added on, and the result is that international trade is dwindling, and our way to remove world restrictions is first of all to tie ourselves up in exactly the same knot as our neighbours.

I attach great importance to the speeches of the Lord President of the Council, and I read them all with very great interest because they are so fresh. He is alive to the trading importance of removing these restrictions abroad, and he is equally alive to the political importance of retaining them at home. Now you have got your tariffs and the other day the right hon. Gentleman in a letter, which is good in parts, a letter to what I have no doubt is a very important magazine, though it is the first time that I have had the pleasure of making its acquaintance, called "The Popular View," said: We have taken the necessary steps to protect our home markets and to strengthen the position of our producers and manufacturers. He does not stop there. But we shall not reap the full reward of our policy until we have removed the obstacles that are handicapping the export trade of the whole world. That is what I call making the best of both worlds. His colleagues have not dwelt quite so much upon the second part. They believe, like Horace Greeley, in the motto, "One world at a time." There is nothing unsophisticated about the right hon. Gentleman, not even in the cloak of simplicity which he so artfully wears. I want to know when the process is going to begin. I am only saying this with a view to the point I am going to make now. The one argument for tariffs which always made an impression, if you followed it in the most powerful assembly, was that you are defenceless as long as you are a Free Trader. You have no weapon. That was the argument which carried great audiences who, on the whole, were in favour of Free Trade. I was never convinced myself on examination that it was true, but hon. Members opposite did believe it. When are you going to prove that it is true?

Mr. MACQUISTEN

Wait and see!

Mr. LLOYD GEORGE

Yes, but how long are you going to wait That is exactly the question I am going to put. Wait and see is not a very good policy when you have a great crisis like this. When is the process going to begin? If you can use this weapon—and it is in your hands—you have a Parliament which will last, in the ordinary course, from four and a-half to five years. Nobody can alter tariffs, remove them or reduce them except the Parliament that imposed them. The whole situation is entirely in your hands. There need not be any illusions about that. Whatever meetings you addressed in this country would not change your opinion. I am now asking, When are you going to use the weapon in which you believe for the purpose you have always indicated as one of the essentials of the imposition of tariffs? If you succeed, I shall be very glad to go on the penitent form myself. I will promise you that if I go on the penitent form I shall not ask, like some of my colleagues on this bench, that it be specially cushioned. I say now, at once, if you can do it, God speed to you! But do it; do not wait and see. There is really no time. There is a real danger that we are just like people with a chronic invalid to whom they are getting accustomed. They do not notice his growing weakness. They do not get alarmed, and they forget the possible end. That is what is happening with the nations of the world to-day. They are gradually getting weaker.

I hope that the Government will take the initiative, and take it quickly. The longer you delay, the greater you will need the weapon. Why you will be beaten by the very weight of the armour of which you yourselves have complained. More than that, the vested interests which are growing up will restrain your arm. There was a little skirmish on the Floor of the House the other day between the Conservative Member for one of the Durham Divisions and the hon. Member for Macclesfield (Mr. Remer) as to the using of the tariff to reduce the Silk Duties in order to obtain better terms for coal. Civil war between coal and silk stockings! That is the kind of thing which will happen if you go on too long. You have now got the initiative of three countries in Northern Europe, with that very statesmanlike document issued by the King of the Belgians.

I hope that the Government will take the opportunity they will have in the voyage which they are starting to-morrow to Ottawa. I listened with intense interest to the document which was read by the Dominions Secretary, and I was very glad to hear the answer he gave that world trade would be discussed. If you get the Empire behind you, the position will, of course, be more formidable, but I hope that you will, without loss of time, make full use of such powers as you have for the purpose of beating out the barriers which are strangling the trade of the world. "Let Britain lead the way" I have heard it said. Britain cannot lead the way unless the Government lead Britain. The Government were not elected specially for the purpose of initiating a Protectionist regime. I am not charging breach of faith. [HON. MEMBERS: "Hear, hear."] No, I am not, and I have never done so. On the contrary, I read the speeches delivered by the Lord President of the Council and by the Chancellor of the Exchequer during the election. They made statements which were intended, I have no doubt, to safeguard themselves from any charge of that kind being levelled against them. That is not the charge which I make. All I say is that that is not the purpose for which you were expressly called into being. It was in order to deal with the world emergency which is rapidly approaching a catastrophe and to take such steps as you will be advised to take and can recommend to Parliament for the purpose of dealing with the situation. I beg of you to deal with it, and to deal with it in time.

You are going to Ottawa. I am not expecting great results from Ottawa. I think that the cotton deputation and what happened there is not propitious, but, personally, I should be very relieved to see the delegates come home without having committed us to anything which will deprive us of the initiative in dealing with the whole problem of world trade. From that point of view, I think that the speeches of the Lord President of the Council have been very encouraging, and I was especially delighted to hear what he said about the quota. I am not going to discuss the quota here. I think that it was a mistake; that it was not, from your point of view, the best method of approach. I think it would have been better if you had dealt with the matter in a far more practical manner. From your point of view you would be in a far better position to deal with the Dominions. If you give a quota to the Dominions, it handicaps you for business with other countries. If you have to do anything at all, preferential tariffs, in my judgment, are infinitely better than quotas.

The question of Disarmament has been dealt with very effectively by my right hon. Friend, and therefore I will not touch upon it, but I should like to say a few words on the question of what is known as economy. I am all for cutting down wasteful expenditure, and I am quite convinced that there is a good deal of it in every branch of the public service, national and municipal. But by wasteful expenditure, I mean expenditure for which you do not get value. I do not include judicious expenditure for productive purposes. You lose far more money by not spending wisely in time than you gain by what you save. You save more money by spending in time than you do by hoarding it in bankers' stocks. I am all for cheese-paring. I do not object to that, but that is not what is done. You have practically 3,000,000 unemployed who are deteriorating. You have, in addition, your land deteriorating. Anyone who lives in the country can see that for himself. You have, I think, £1,700,00,000 of deposits in the banks which you cannot use, and there is practically no interest upon it. Cheese-paring is all right, but it is a very different thing to allow the cheese to moulder in your cupboard while you are living on dry bread. That is what is happening.

7.0 p.m.

I saw the other day what is happening with agriculture. I am a little bit of a farmer myself, so I take an interest in it. I was staggered with what is happening. In the last three years, while trade is going down in this country, you find an increase in the imports of all the food products which you can produce in this country as well as, and even better than, any other country. Listen to this. Do you know that since 1929, with trade tumbling down—I am giving you quantities and not values, which have gone down everywhere—our mutton imports have gone up by 27 per cent., bacon by 26 per cent., poultry by 36 per cent., live animals for food by 15 per cent., butter by 31.8 per cent., eggs, not in shell, by 14.7 per cent., apples—we can grow the most beautiful apples in the world—up by 25 per cent., milk, condensed and unsweetened, up by 13.4 per cent., and miscellaneous vegetables up by 8.2 per cent.? You think that you can do it merely by Protection. All I can say is that all that you have clone at the present moment is to put up all the prices of the things we have to buy. [HON. MEMBERS: "No!"] I know that prices have gone up. But the prices of all the things you sell are down. [Interruption.] I will show my hon. Friend in a minute. You are not going to deal with it merely by Protection. No country in the world has done it by Protection alone. Just see what you have done. Many of you read that White Paper issued in August last. Listen to this: The provision for 1932 for agriculture will be reduced by £580,000. What for? This will involve the discontinuance of grants to landowners for field drainage and water supply schemes; a reduction in the sums available for the assistance of Drainage Authorities and Catchment Boards; the postponement of new developments in agricultural research… Then you are going to postpone allotments and small holdings; you are going to cut off another sum for Scotland, £478,000 for forestry—why? This Government is the most abject picture I have ever seen of statesmanship in a funk! To cut clown research at this moment, when agriculture is fighting for its life, is a lunatic policy. I ask the Government—it is too early yet to put the whole point before them, but I do ask them—to consider very carefully whether they cannot utilise the resources of this country for the purpose of re-equipment and development during this period when the world is not coming to us? You are not going to get your conferences restoring world trade in a hurry. Every country is fighting for its own hand. Look at Lausanne. You have made a very small advance there; I am not expecting very much more from your big Conference. Every country wants to succeed at the expense of a sacrifice by others, and the result is that we are making no headway. But let us meanwhile do something for our country, and not always be looking forward to something happening just round the corner. Do not let this country be like that Pompeian slave just discovered in Italy who was found among the ruins clutching the leather bag of his savings. Utilise them! The land of this country was reclaimed in the Middle Ages by people who were consecrated to service. Let us revive the ages of faith, and instead of Britain standing for ever at the doors of Employment Exchanges, Foreign Offices and conferences expecting something to happen, let it exert its great strength in the spirit of faith. And if we do it boldly, fearlessly, in these trying days, then when the trouble is over you will have a country which has not been dilapidated and deteriorated by these years of crisis, but is a stronger, mightier, richer and more contented land.

Mr. CHAMBERLAIN

In ordinary circumstances I should never have thought of intervening at this stage in the Debate, especially when more than three hours have already been consumed by speeches from the Front Benches; but I am afraid that the exhaustive survey to which we have just listened, ranging from commentaries upon the monetary system of the world to the imports of miscellaneous vegetables, may possibly have driven out of the recollection of the House the fact that the right hon. Gentleman has made two speeches to us. The first of those speeches was an attack upon the proceedings at Lausanne, which gave—or suggested—such a distorted picture, that I hope the House will forgive me if I rise to spend a few moments in giving what, I think, is a truer account of what took place there. We must remember that speeches in this House, especially when they concern foreign affairs, are not confined to those who listen to them; the whole immediate future happiness, even perhaps the livelihood, of millions of people throughout Europe, and even beyond Europe, will turn on whether, in fact, what has been done at Lausanne is going to open a new chapter or not.

The first essential is that confidence should be restored. I should not desire for one moment to try to establish a confidence which I thought was likely to be destroyed in a brief period of time; but, on the other hand, it is equally necessary that confidence which is well based should not be diminished by any inaccurate view of the real circumstances of the case, and although criticism of what took place at Lausanne may perhaps give some satisfaction to people who do not wish to see credit given to this Government, after all there are bigger things at issue here than any personal reputation of statesmen. The right hon. Gentleman rebuked me for having reproached my right hon. Friend the Member for Epping (Mr. Churchill) yesterday for something which he said. I do not reproach the right hon. Gentleman for having to-day, after having heard my right hon. Friend the Prime Minister, made criticisms which I think it will be quite easy to answer, and which I hope in the end may have the effect of clarifying the situation. The right hon. Member for Epping, if I may say so, came here without having got the information that was to be given to-day, set up a number of hypotheses, each one of which was damaging to the prestige of the Government, and then proceeded to criticise us successively on the basis of these various hypotheses.

Let me return to the attack of the right hon. Gentleman. He approved, he said, the original policy of the Govern- ment, the policy of cancellation all round, and said that he wished that we had never abandoned it, and that he—who was not there—was quite sure that if we had stuck by our guns we could have carried it through the Conference. Well, were we to pay no attention to America in what we did at Lausanne? Were we to agree to a cancellation all round irrespective of what might happen between ourselves and America afterwards, or was the cancelling at Lausanne to be dependent upon the cancelling by America afterwards? If it was, then the right hon. Gentleman's settlement would be no more final, no more complete than that which we are able to put before the House. If it was not that that he was going to do, then he would have us adopt for this country the very policy which he denounces as being impossible even to think of, namely, that we should cancel all debts owing to us and leave nothing settled as to the debts we owed to other people. The right hon. Gentleman said: "Ah, but we could have gone to America and said, 'We have cancelled everything, we come with clean hands.'" "He who comes to equity," he said, "must come with clean hands." Does he suggest that we are not coming with clean hands to-day? Did he not hear the Prime Minister say that we had declared to all the Powers at Lausanne that we would not retain for ourselves one penny of the reparations which we obtained from Germany?

How, then, can he suggest that we are not going, when we go to America later on, with clean hands? If America should decide, either when we go to her or at any future time, to cancel all debts owing to her, our offer is still open, still remains good; we are still ready to cancel all debts owing to us. America, I take it, has open to her various possibilities or alternatives. I am not suggesting that America will take any one of them; she has a perfect right to decide for herself what she will do. But suppose that she said, "Very well, I will accept the settlement you have made with Germany as a basis for your settlement with me, and I am not going to ask of the debtors in Europe any more than is at their disposal from the final payment now substituted for reparations"; again I say that our intention of cancelling the debts due to us would hold good, because it would be in line with the general declaration which my right hon. Friend repeated again this this afternoon: that it is not the intention of the British Government to retain one penny for ourselves of any of the reparations which we may obtain.

But the situation may be different from that. It may be that, when we go to America, America may say to us, "Well, you have done what we asked you to do; you have agreed among yourselves. So far as you are concerned, you have made a definite arrangement of a certain kind. We approve of your general mode of action, but we feel that we must ask you to pay something more than you have received." In that case we must consider what we are going to do, but if you ask me to suggest, for instance, that before we go, America is going to propose to us that we should consent to cancel debts from our European allies to ourselves, that would be an altogether unreasonable suggestion. Therefore, when the right hon. Gentleman asks, in a voice which seems to suggest that there is something mysterious and sinister behind that is being concealed from the House of Commons and to inquire, "What is the real arrangement made with France and Italy?" does he suggest that the arrangement might be that we have agreed to cancel their debts irrespective of what America says to us?

Mr. LLOYD GEORGE

It is in the power of the right hon. Gentleman to give the answer. If he would publish the paper, that would be the best answer. There is a written document, according to the French 'story, between this country and Italy, and another between this country and France. Will he publish those papers, so that we may be able to judge for ourselves and it will not depend upon any argument in this House?

Mr. CHAMBERLAIN

I have not the slightest objection to publishing those papers if the other Governments agree. Of course we cannot publish them without their agreement. I have just told the House what the arrangement is. There is no mystery about it; our position is perfectly plain and simple. If the cancellation all round can be achieved, we cancel; if, on the other hand, cancellation all round is not possible, then we must wait and see what America may propose to us before we decide what we are going to do. He spoke about a so-called Gentlemen's Agreement.

Mr. LLOYD GEORGE

The French are using that term.

Mr. CHAMBERLAIN

The French are using that term. I never thought the right hon. Gentleman had invented it. What is the so-called "Gentlemen's Agreement"? It is simply an agreed summary of conversations which took place between the creditor Powers. It was absolutely necessary that the creditor Powers should have among, themselves an understanding on what was going to take place over the main agreement with Germany. If America had been a participant in our discussions at Lausanne, no Gentlemen's Agreement would have been necessary, because we could have got a complete and final settlement on the subject; but America was not there and in the absence of America it was impossible for us to come to a final settlement. What we had to do was to see whether we could come to a settlement among ourselves. That is the great value of the Lausanne Conference. If we had gone away without showing that we had been able to come to an agreement among ourselves that would have undermined confidence and have written Lausanne down as a failure. That we were able to do what only a few months ago everyone would have thought a fantastic suggestion, that we could get the European Powers to agree to an arrangement such as that which was described this afternoon by my right hon. Friend the Prime Minister, constitutes the success of Lausanne.

What was this arrangement? The Treaty with Germany does not itself say what is going to happen about ratification. It merely says that the agreement does not finally come into force until it is ratified. That is not a new feature of a Treaty of this kind. You find that in all Treaties, The Hague Treaty and the rest of them. To have put into the main agreement arrangements which really concern only the creditor Powers would have been inappropriate, because the Treaty was a Treaty with Germany, which was the debtor Power. Germany, as my right hon. Friend has stated, has always taken up the view that reparations and War debts were two entirely separate things. Therefore, the Treaty itself only contains the provision that it must be ratified before it becomes finally operative. What are the circumstances in which the ratification should take place? There is no mystery about it, there is nothing sinister about it, there is nothing that we desire to withhold from this House, from this country or from the world in the arrangement, which was natural, necessary and, indeed, only common sense.

As we could not at that moment make an arrangement with America, we had to postpone ratification until we knew what it was possible to do with that country. Therefore, the first thing that we had to put into the agreed summary of our conversations was that the Treaty would not operate until after ratification, and, secondly, that ratification would not be possible until we had seen that we could fit our Treaty into a world settlement. If the world settlement is one which is agreeable to the European creditor Powers, well and good, they ratify, and the Treaty at once comes into operation, but, of course, you must consider—whether you think it probable or improbable—you must consider what is going to happen supposing ratification is not found possible, because no satisfactory agreement can be made by one or other of the Powers. What is to be done in that case? Obviously, we had to consider that, and it appeared to us that in that case a new situation would arise altogether; the agreement which we had made at Lausanne would be of no effect, it would become null, and the legal position would automatically revert to what it was be fore the Hoover moratorium. Then, my right hon. Friend said anybody who really thought that we could go back to that situation, ought to have medical attention. This is only the question of the legal situation, and it will be necessary that the Powers should come together and have another conference to decide what they would do in the face of this very unfortunate circumstance.

Let me make it perfectly clear that, although it was absolutely necessary that we should contemplate the possibility of that situation, we are not expecting, and I think I might say that none of the Powers are expecting, that that is going to he the outcome. On the contrary, we are confident that, having followed the advice that was given to us by the United States in having shown that we can harmonise our differences and that we can come to an arrangement which as far as we are concerned is one of general agreement, America is never going to refuse to play her part in a world settlement which must benefit her, and that we can count upon her willing and ready co-operation when the proper moment arrives.

The right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) at the beginning of the second part of his speech dwelt gravely upon the seriousness of the world situation. I entirely agree with him that the situation is not only serious, but in many respects critical. He asked what the Government are doing and what they have done to deal with that serious situation. I say that Lausanne is the answer to that question. It is no use to come along the moment the Government tackle one problem and ask why they have not tackled another. We have to tackle the problems one by one, not forgetting their inter-relation but tackling them as it is possible, one by one, and in tackling this problem of reparations we have succesfully shown what can be done. Let the House make no mistake, the influence of the British delegation and the prestige which this country carries to-day was one of the main factors in the settlement which was arrived at, and, in using that influence at Lausanne to get a settlement of this vexed problem of reparations, if we have not got at the root of the evil we have got very near to the root of it, and we have solved a great problem, temporarily, it is true, subject to the cooperation of the United States at a later stage, and have made a long step forward towards the restoration of that confidence which, as I began by saying, is the one essential need of the world to-clay.

Mr. CHURCHILL

I shall not delay the House more than a few moments, but I should like to ask my right hon. Friend whether I understood from him that the documents asked for by the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) will in due course be made public with the other documents upon this subject. I gathered that that was the answer he gave, that it was in the affirmative, and that, there was no objection to the publication of these documents. Is that not. so? [HON. MEMBERS: "He said so."] I am asking the Government. Is that so? There is no objection to the publication of these documents? of course, if other parties to an agree- ment of this character object, I agree that you are not entitled to act independently, but is it understood that these documents will be published if the other Powers agree?

The PRIME MINISTER

We have no objection. As a matter of fact, the documents are announced and the gist has been put on public record. That is why there is no occasion to publish them.

Mr. CHURCHILL

I think the Government would act very wisely in making it clear that they have no objection whatever to the publication of these documents, because the mere fact that they had not been published would undoubtedly lead to all kinds of comments in many countries upon the subject. [HON. MEMBERS: "Why?"] Because these are matters of great consequence to many countries, because these subsidiary agreements are the essence of the whole controversy and because they entirely alter the whole effect of the Act of Lausanne, as published. All these matters will be pressed for. [HON. MEMBERS: "No!"] I am going to put my point of view, and it will not take very long. If these documents are withheld or if one is withheld, and as long as they are withheld, undoubtedly it will cause difficulty in the United States, and it will arouse a worse thing which I want to avoid, and for which there is no justification, namely, suspicion. I cannot believe that there is anything in these documents which is in any way improper if put in a full and clear manner as expressed in the simple terms which the Chancellor of the Exchequer has used. It will be a disaster to make an unnecessary mystery about them. It only means that either they will leak out from some quarter or another in fragments and that the worst construction will be put upon perfectly innocent things, or it means that the enemies of debt revision in other countries will assert, very often in the most unscrupulous manner, that these documents contain all kinds of provisions which never entered into the heads of the negotiators Therefore I press most earnestly the head of the Government and the Chancellor of the Exchequer to endeavour to lay this matter simply and plainly and in its integrity before the countries concerned, now that matters have reached this point.

I think I have had a special rebuke from the Chancellor of the Exchequer. He singled me out for victimisation over the head of the right hon. Member for Carnarvon Boroughs because, apparently, I had spoken before the Prime Minister had made his statement. If I had spoken after it and had had an opportunity of coming into this Debate I could hardly have altered one single word of the argument that I employed yesterday. I have listened to everything that has passed, and I have meditated most carefully on what I said yesterday, and I cannot see that the account that I then endeavoured to give to the House has been in any way upset or altered by what we have been told to-day. There was this great act of Lausanne, and then it appears that there was a subsequent agreement, a separate agreement, which makes the act of Lausanne contingent upon the settlement of debts with the United States. That is a fact and there is nothing improper or dishonourable about it. On the contrary, I consider that if the Government had not inserted a provision of that kind it would have been neglectful of British interests. If that is so, then I do say that much too much has been made about the importance of this settlement at Lausanne. If it is contingent upon negotiations of which the crux has not yet been reached; if it is contingent upon events which no man can foresee, control or measure, then I consider that a far more moderate, modest and restrained presentment of the achievement at Lausanne would have been more in conformity with the general interests of the Government and with the policy which they are no doubt anxious to pursue.

7.30 p.m.

Sir ALFRED BEIT

I am grateful to the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) for having brought the Debate back from the Swiss atmosphere of conference to that of national economy, because, although this subject was dealt with yesterday, I wish to address myself to it to-day. The public mind is bewildered by the vast figures of millions of money involved in our public services. We have heard from the Chancellor of the Exchequer that a sum of £122,000,000 is involved in old age and widows' pensions, and health and unemployment insurance; education £50,000,000 and housing £15,000,000. I have set myself out to show how this expenditure is reflected in the life of the individual, and for this purpose I have taken an average working man, whom I have imaginatively called "John Smith." He will be seen to be highly adept at delving into the Government pocket; indeed, he is a composite character, for, while no real man has ever mulcted the country of so much money, it must be borne in mind that all the claims which I am going to attribute to him are actually being made by someone to-day. Also, his long life of 80 years must be presumed to cover the period when existing statutes governing the national purse are in force. His birth, then, will cost the nation £4—I am assuming that 60 per cent. of the 760,000 babies born in 1929 will have shared in the £1,770,000 provided in that year by the Ministry of Health for maternity and child welfare services. As his father died shortly before John was born a pension of 7s. 6d. per week is payable on his behalf until he is 16 years of age. That will cost £312. His elementary education starts at the age of three years and continues until he is 10. The education report in 1931 shows that 118 children under the age of three were registered at elementary schools. The most expensive elementary education is that provided by the London County Council, which averages £18 12s. per annum, so that seven years' education will cost £130. From the age of 10 until the age of 18 he receives a secondary education, which, as given by the London County Council, costs £36 a year. Therefore, in eight years he will have got £288.

I confess that I am taking an extreme case, for after so long and excellent an education my hero will undoubtedly be worthy of a finer future that I have in store for him. At the age of 18 he works for 30 weeks and qualifies for unemployment benefit. Thereafter he can re-qualify for unemployment benefit as soon as he has worked 10 weeks and paid 10 contributions. Thus till the age of 21 he can work in 82 weeks of dole at 12s. 6d. per week, which, after subtracting his own and his employer's contributions, will cost £45. At the age of 21 he marries, and works for periods of 10 weeks, followed by unemployment benefit for six months. He pursues this practice until he is 30 years of age, that is, for nine years, which will cost £382, after deducting his own and his employer's contributions. At this time he spends six months at a Government training centre as a waiter. In 1931 the average cost of this was £35. He proves unsuccessful, and turns to a smallholding, under the Agricultural Land Utilisation Act, 1930, now temporarily in abeyance. Under this Act it was estimated that the capital cost of his holding will be £640, workers' capital £275, training £70, and maintenance for the first year £40, a total of £1,025. He occupies this smallholding for three years, fails, and is sold out, the loss to the Government being £500. From the age of 34 up to the age of 65 he reverts to his previous procedure of drawing unemployment benefit for himself and his wife for six months' periods after a 10 weeks period of work. The cost of this for 30 years at 23s. 3d. per week, less 1s. 8d. per week contribution, is £1,273. It would be absurd in my opinion to classify assistance such as this as an insurable risk and to obscure its charitable basis under the cloak of rights, which rapidly become vested.

At the age of 35 Smith rents an Addison house, built under the Act of 1919, which he occupies for the remaining 45 years of his life. In a recent reply, the Minister of Health stated that the average cost of these houses was 13s. per week, up to 1980. For 45 years this means £1,521. When he is 65 years of age his wife dies, and he enjoys the old age pension of £26 per year for 15 years, when he dies at 80 years of age. This costs £390. Being found without any means when he dies, he is provided with a pauper's funeral, the average cost of which to the London County Council is £5. The sum total of all this is £4,886. Nor is that the end, for at the age of 75 John Smith marries a second wife, aged 20, not an impossible supposition, who survives his death for 50 years, and draws a pension of 10s. a week since she does not re-marry. Thus John Smith, who has been most generously provided for during his life, leaves as a legacy to the nation a, burden of £1,300, making a grand total of £6,186. Expenditure such as this is gnawing at the very vitals of the nation. Why? Because, apart from the expenditure on education, it is utterly unproductive. Further, it destroys initiative, which is so essential a factor in the building up and the formation of character.

I have heard Socialism described as inertia in production and activity in consumption, and I think that the narrative I have given is an eloquent illustration of this definition. Indeed, the whole crux of my criticism is directed not so much against the volume of this expenditure, although it represents too great a proportion of the much reduced national income, as against its character. This is where I differ from the average economy monger. The problem of the nation's surplus man-power is one for constructive policy, not for mere subsidies. From this narrative hon. Members would probably think that I am an advocate of ruthless retrenchment. I welcome the economy committee, and I think lit is time that the estimates of the Departments were inspected by a Parliamentary body of this nature. But the attitude of mind of this Committee is disastrously deflationary. It will be seen that I am no great friend of social subsidies and that I advocate a realignment of national expenditure. If economies are realised, deflation can only be avoided by at, equivalent, if not a more than equivalent reduction of taxation. Some of us are a little nervous of the attitude of the Chancellor of the Exchequer who, analysing the social expenditure of the nation on the Third Reading of the Finance Bill, said: Here are items which in the aggregate form a great part of our national expenditure bill. I do not say that in no circumstances should any of those things be touched, but I do say that he want to be very sure that changes are necessary before we undertake them. And again he said: I ask hon. Members to remember that a substantial rise in wholesale prices, which has been recognised as desirable in all quarters of the House, might materially change the whole situation."—[OFFICIAL REPORT., 10th June, 1932; col. 23415, Vol. 266.] The logical sequence to this argument is disquieting in the extreme; a hesitation to readjust the burden of social expenditure, since the time may come when that burden is more easy to bear than it is to-day. But what harm will be done by leaving the money in the taxpayers' pocket? How else can money be found for capital development, which is the crying need of the country to-day. Further, if a host of artificial restrictions throughout the world—and I am happy to think that their death knell has been sounded—has brought the capitalist machine to a standstill, it is the duty of the Government to set it going again. I do not wish to be construed as meaning that the Government should protract the dying agony of a superannuated system. On the contrary, I wish to pay a tribute to the resilience which that system has shown in conditions of unprecedented strain, and in the crisis of to-day our people are more prepared than ever before to support a Government which will give a lead to productive enterprise.

I think I have made it clear that in criticising the volume of social expenditure and in urging a reduction in taxation, many of us are willing now, where we were not before, to see the Government inaugurate the contruction of revenue-producing works, for the twofold purpose of oiling the wheels of the capitalist machine, and of making better use of the country's surplus man power. Are there not thousands of improvements which need to be effected, improvements which, for the most part, will enrich the nation and which will produce revenue? Italy has raised herself from a second rate to a first rate power by the constructive use of her labour. Yet in Great Britain little of this nature with the exception of the electricity grid system, has been achieved. In a recent letter to the "Times," the members of the Economic Faculties of Oxford and Cambridge Universities say: The Government should speed up expenditure on sound schemes of construction and development. The Government should obtain funds for these purposes from the banks, which will thus be assisted in their efforts to put fresh money into circulation. Retrenchment and reconstruction are not self-contradictory terms. If further deflation is to be avoided economy must go forward hand in hand with progress. Since the beginning of this year the Government have achieved much. They have prepared the country to take advantage of better times; they have gone far in the work of destroying the barriers which have prevented their arrival. Now they must lead towards reconstruction.

Miss GRAVES

In addressing the House for the first time I take courage in the knowledge that I am begging for that indulgence which I have seen so kindly granted to others who have gone through this difficult task before. My reason for venturing to interfere in this great De- bate on foreign affairs is because through force of circumstances I have for a long time been very interested in the relations between Great Britain and the United States and Europe. I took a part in an official capacity in the Paris Peace Conference which perhaps is title enough to express repentence to-day. I listened yesterday and to-day to the candid friends of the Government. Much that has been said by them has been pure destruction disguised as criticism. listened yesterday to a paraphrase of the old story of Red Riding Hood and the wolf, the wolf who did not deign to emerge from his lair unless he is hungering to destroy. This afternoon we have had an exhibition, I can only call it that, of the exuberance which is the result of memories. I also have memories of the Paris Conference and of a very different attitude towards Germany than that which have been expressed. I was sent to this House as a Member of the National Government and it is my duty, as I conceive it to examine such proposals as may be presented to us for consideration by the National Government with at least an open mind.

There are a great many things in this imperfect world which we would like otherwise. But what Haegel and Sir Basil Blackett, would call the "Altogetherness of Everything" is the dominant factor, and is that aspect which is in operation now and which must necessarily govern our considerations in the future. We have had the conference at Lausanne. We have an attitude on the part of the United States which to my mind is very properly not revealed until After the conference has been brought to a successful issue. What business man or woman would consider dealing with a debtor who was engaged in dealing with several sub-debtors unless that debtor had come to some arrangement with his sub-debtors. The United States are perfectly within their rights in refusing to re-open the question of debts until Europe has presented a united front on the matter. That united front has been attained at Lausanne. Germany has been made an honest woman. That is what it amounts to. If for that alone I count the Lausanne Conference certainly not the failure that was suggested this afternoon, but the foundation stone of a good edifice to come.

We have heard a good deal to-day about Germany. One must hold a balance in these things. We have heard nothing at all about France, except some reference to war guilt from the Leader of the Opposition. I would like to put the French point of view. Possibly because I lived there for five years I have a somewhat harsh view of her, but at the same time I know a little about the French point of view. Their view is that they have given up in this cause of world recovery a phrase which is quite as dear to them as any phrase can be and often is to a nation which is intensely national. They have given up any insistence on the term Reparations. They have washed away the word "Reparations." They have in substance possibly, at any rate they have tacitly abrogated certain clauses of the Treaty of Versailles which were so injurious to the peace of Europe. France has done something else. She has receded from the position which she held so strongly at the beginning of the Geneva Conference. I think that mention should be made of this action on the part of France because in her giving she has been, within her limits, as generous as this country is prepared to be in certain circumstances.

I mentioned Geneva just now. We heard this afternoon that at all costs the British Navy should be reduced. It was not said in those words, but that is near enough. I am deliberately avoiding a reference to my family tradition in regard to the Navy. I would like to go back further and recall a small Navy that looked after the interests of traders in Elizabeth's day. Following from that I shall venture to ask the Foreign Secretary for some assurance that when, in the course of these negotiations and the drafting for which he is justly celebrated, he is adjusting the difficulties of different points of view regarding disarmament proposals, he shall consider that what I will call the vanishing point, the irreducible minimum in regard to the 'police work of the Navy, has been reached. The day after to-morrow there will be an opportunity to see the strength of the Navy, which is some 40 odd ships. I venture to ask for an assurance that at Geneva consideration shall be given to what we have given up, and that the work of protection which the Navy is now called on to do shall not be lessened. It is not only because the coastline of the British people is the most vulnerable or the longest in the world, it is not only because the trade routes are the arteries of this country, although those considerations count mightily. It is to my mind because there are many places on the globe where the presence of a British gunboat or cruiser within hail constitutes a safeguard for the wives and children of the settlers in those places. There have been many incidents—I can recall about five—where the presence of a gunboat or a cruiser has not only constituted that safeguard, but has maintained peace in that neighbourhood. I hope that the Foreign Secretary may not consider it impertinence on my part if I should beg him to reflect upon that particular safeguard for which I am pleading.

There is the future. Perhaps because we have been broker in this business of reparations and debts, a broker who is not taking the brokerage and is going to lose on the general transaction, our foreign policy has been an ad hoc one. I have some recollection over the last years of a perpetual balance of policy, balancing to suit Germany and France, balancing in regard to Russia, according to which point of view prevailed. I am going to ask for a new consideration about British foreign policy. This Chamber has echoed to many great enunciations of British foreign policy in the past. In those days—I believe they have come to an end—the balance of power was the consideration. Palmerston is policy has been described as a ruthless attack, only to withdraw at the last moment. That was because of the age in which he lived. The policy of Palmerston belonged to his age. The spirit of Palmerston is the spirit which should inspire British foreign policy at this hour.

We have Great Britain to-day the only country in the world which can attempt to convert War Loan at 3½ per cent. That alone, and a balanced Budget, would seem to authorise her position as a strong chairman of Europe. In these days we do not consider the balance of power. In these days we are bent on reconstruction. Europe is crying out for a strong chairman. I do not consider that it would be wise at this moment to approach America single-handed. I have had some acquaintance with America. Let the conference system go on until such time as the business of reparations and, as we all pray, war debts, may be safely finished; but then may we hope for an enunciation of British foreign policy that is going to carry us over the next 25 years? I am not going to think any longer in terms of years, but in terms of quarter and half centuries. Given the position of chairman of Europe, Great Britain would be above reproach. At this moment the world knows that she is not out for herself. But I plead for a British foreign policy in future. Geneva and Lausanne are rightly linked to-day because the signature of the Lausanne Conference seems to me to unite two troubled streams into a mighty navigable river. The navigation is difficult, and must often be dangerous, but given the pilot and steersmen that we know, I do not feel that anyone here, with the will to success, can draw back. As I see it, we are afloat on a wide waterway which can bring us to world peace and economic recovery.

Colonel WEDGWOOD

I have heard a great many maiden speeches, but never before a maiden speech of a lady Member, and I must say that the speech to which we have just listened is a speech for which the House has been waiting for 25 years. I am not alluding to the part dealing with the Navy and to her traditional spirit of the Navy, but I am alluding to the hon. Member's demand for the Palmerstonian touch about the conduct of our foreign affairs. How often have I prayed for Palmerston. Now I have an ally. The Secretary of State for Foreign Affairs may perhaps now listen to that old Liberal principle of doing justice and making Britain act for justice whatever the risks that may be involved. I hope that we shall hear more of the hon. Lady in this House, and that she will not confine herself to a maiden speech, but will lead more the benches from which she speaks on foreign affairs. I only hope that she may agree with the speech which I am going to deliver on the Lausanne Conference.

I welcome, as I think everyone must, not only the end of reparations, but the position that has been taken up by the British Prime Minister in bringing about this agreement. We have ended reparations, but we have not cancelled debts, and I am a little nervous because of what the French Press tells us. It appears that, all unknown to the White Paper, there has come into being at Lausanne a "united front." A united front against whom? A united front of what Powers? A united front presupposes someone against whom that front is to be used. I do not wish to have any allies, however excellent, in dealing with America. Our debt to America is not merely one of cash. I know enough of America to say that she is more likely to deal with a situation such as she is faced with to-day as we should have dealt with it had we been in the same position. Yielding to threats and coercion is not part of American philosophy, any more than it is ours. I dread to see a united front used not by England but used by the other partners to the front.

8.0 p.m.

We owe America a good deal, and not only money. I ask the House to observe that the money we owe to America is not an ordinary debt but a debt of honour. It is a debt which cannot be claimed by legal process. America cannot send her fleet over here to blockade our ports and impound our Customs. We can, if we like, refuse to pay the next instalment of that debt quite safely. Nothing would happen if we did except that we should earn our own contempt and the contempt of other people. Why a united front? So that the other nations may say, "Well England did it, so why should not we?" I do not want that said about England. This House is a new House of Commons. I wish I could transport hon. Members back in memory to that House of responsibility which fought the great War and show them the straits through which we passed then. I remember how we pledged our credit to America, how we took every dollar security we had and pledged it to the Americans. Then America came into the War and they asked no more security. Conditions before they came in had come to such a pass that I remember suggesting that we should pledge with them the ground rents of London. There was nothing further that could be offered in the spring of 1917. Then they came into the War and they took our word. It is true that much of the money lent to us and Much of the stores bought upon our credit went to our Allies, but it is no defence to a debt of honour to plead that the money which you borrowed, you spent upon your friends. In that House we were very thankful when America came in. I think there have been only two occasions in my life when I have gone down on my knees and thanked God—a God in whose personality I cannot believe—once, when Bulgaria collapsed and I knew that the end had come, and once when America came into the War and I knew that we were saved. Do not let us in these days forget or descend to huckstering in alien company when to our own flesh and blood we owe so much.

That old House has gone. Some names are inscribed up there of those Members who have gone for good. None of them wanted to go. They were not professional soldiers. They were all horribly afraid as everyone who has been under fire knows. They went without any advertisement, and they died without a word of recognition here. Why did they go? Just on a little point of honour, just to set the right. Example—"Ad majorem Dei gioriam"—for the greater glory of the House of Commons. Not many Members of that House are here to-day. I have survived, and I am almost ashamed that I have survived. I have survived to tell this House that if they would do their duty by those who formed this House in the great days, who helped to shape the policy of this country and the world, there is one thing that they must support at all costs, and that is the honour of the House of Commons. What does it matter to us how "the lesser breeds without the law" deal with problems such as these? It is so easy when you are hard pressed to ally yourself with other debtors and compound. I had sooner sell the National Gallery, sell the British Museum. I had sooner sell our incomparable British fleet, aye, sell up England, lock stock and barrel, than default on the debt that we owe to America. If there is anything that must be said about a situation such as this, it is that the first hint of remission must come from America and not from us.

I am glad that the Senator for Oklahoma did make a suggestion the other day indicating at any rate the possibility of some other way of meeting the debt than in gold. He suggested that we should hand over or transfer the West Indies to America. The West Indies are not ours to transfer. The West Indies are self-governing Colonies, populated by coloured people and they are I fear the one section of the British Empire which would resent and resist most bitterly annexation to the United States where coloured people are not so happy. The West Indies are, perhaps, the only countries in the world where coloured people are proud of their British citizenship. We cannot say that of the coloured people in Africa.

The proposal to which I refer went further than that. The Senator suggested that the mandated territories which we administer might be transferred to America. I should welcome that proposal. At any rate the natives in the mandated territories would be looked after by America quite as well as by us and the natives in South-West Africa a good deal better. The natives in Tanganyika would be looked after quite as well and I am certain that Palestine Would welcome the change. Possibilities he in that direction and if we are faced with the question of the future career of the British Empire, a career which I think the hon. Lady and myself agree consists only too largely in carrying the black man's burden until the black man is able to carry it himself, I could wish for no better partners than the American people. I have even contemplated the possibility that we might offer them half India—not a physical half but half control with alternate Viceroys and recruitment of the Indian Civil Service in America. I look forward to the union of the Anglo-Saxon race and I think that union could not start better than by a willing honourable conclusion of the debt; coupled with co-operation in the gigantic task which the British Empire has before it.

However that may be, there must be some way out beside repudiation, besides going pathetically to those who lent and saying: "We cannot pay you; do let us off." We can pay them in goods, if we cannot pay them in gold, we can pay them in Cunarders, yes, and we can pay them in crockery. Once the Americans recognise that in some way or other we intend to meet that debt we shall find people there who wish to meet us on friendly terms. We shall find people there who will say that in Europe there remains one nation which understands an honourable bargain, not based upon force. We are here, the rank and file of the Commons of England, for a few years only. We do not find our way into Westminster Abbey or into the Dictionary of National Biography. We are soon forgotten but we are part of an institution which is 700 years old and we are in our time the governors of this country.

This House is as we shape it. British policy is as we shape it. We have had ups and downs in the past, but we are proud, on the whole, of the part Parliament has played. We are the torchbearers. The torch through the ages has blazed and flickered from age to age. It is our duty in the short time that we are here to see that the torch of honour that we took from our predecessors is passed on to the next generation burning as brightly as ever. Those men who sat in this House in the past, who sat on these benches here, on those benches there, have gone and are almost forgotten. But they all did their part and I do beg of the Government now to see that the English Parliament is not let down and that they do theirs. I do not know what the Prime Minister means to do. I do not suppose anybody else does, but we have this guarantee. The right hon. Gentleman the Member for Bewdley (Mr. Baldwin) has made his proofs. He paid £100,000 for his country. He is no longer a rich man, but I think that he would resign out of this Government before he would go back upon the honourable settlement which he signed. He has been abused by all the irresponsible Press; he has been abused on every platform in this country for doing the right thing. It is very rarely that anyone does the right thing and gets credit for it. He did not bargain, he could not bargain, and the Government of which he is a member had better not try bargaining when British honour is at stake.

Mr. BOOTHBY

We have listened to a very interesting and a very moving speech from the right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood), who has just sat down. I wish that I could find it in my heart, as one who has the possibility of having to face the future for some considerable number of years, to agree with him about the American debt settlement. I shall come to it in a minute. But I have always quite sincerely believed that although it was entered into by the present Lord President of the Council with the very best intentions, it has proved a most disastrous step, and was in fact the most fatal blunder of all the many blunders which have been made by the statesmen of the world since 1918.

We have heard a lot to-day about the Lausanne Agreement. I am one of those who have admired deeply, and for a few days at close quarters, the heroic efforts of the Prime Minister to achieve a settlement at Lausanne; and I believe that without him, and without his efforts, a settlement could not have been achieved. I think that he does deserve the very greatest credit for what has been a great service rendered, not only to this country, but to Europe. I do not take the view that the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) and my right hon. Friend the Member for Epping (Mr. Churchill) were being mischievous or damaging in pressing the Government to give the fullest information about what has become known as the subsidiary "Gentlemen's" Agreement.

I think the right hon. Member for Carnarvon Boroughs and my right hon. Friend the Member for Epping rendered also a service, not only to this country, but to the world, in pressing the Government not to allow any sort of mystery to enshroud the results of the Conference at Lausanne. Because nothing could be more calculated to engender suspicion in the United States of America and to jeopardise the chances of an ultimate satisfactory settlement of the debt problem than any idea entertained at Washington that there was some backstairs agreement between the creditor countries of Europe to form a united front against them. I believe that nothing more fatal than that could possibly happen. Surely we had our lesson in the ill-starred secret Naval Agreement with France. We saw the effect of that upon opinion in the United States of America; and I think the right hon. Gentleman the Secretary of State for Foreign Affairs or the Under-Secretary of State, whichever is going to reply to-night, would do no harm if he emphasised once again, on behalf of the Government, what has already been emphasised by the Chancellor of the Exchequer, that there is no mystery, that there is no secrecy, or secret document which we are trying to conceal in any way, either from the United States of America, or from any country in the world.

No one who examines the results achieved at Lausanne, nobody who looks at the White Paper, can have any doubt that that Treaty provides no solution for the world economic problem with which we are confronted at the present time. But I think it does one good thing. The world at the moment is in bondage to the past. It is being strangled by debts. Any step taken to wipe out or reduce any debt at the present time is a step in the right direction; and that, at any rate, has been done at Lausanne. The second thing that I think my right hon. Friend the Member for Epping was a little inclined to forget when he made his speech yesterday was the psychological effect upon Europe of a breakdown of the Lausanne Conference. That is what you have to bear in mind. It is no good claiming that you have solved the world problem by reaching a settlement at Lausanne; but look for one moment at what would have happened if you had failed to reach any agreement at all at Lausanne. I do not think it is any exaggeration to say that you would have had an economic collapse throughout Central Europe; and once that had happened nobody could tell in what difficulties and dangers not only Central Europe but this country and the whole of the world would have become involved. This has been averted temporarily. I think the most you ought to claim for Lausanne is that it is, first of all, a step in the right direction; and that it has avoided an immediate economic collapse in Europe. That is a good deal.

Now we have to proceed to the next stage in the solving of the most tremendous problem which has ever confronted statesmen in the history of the world. Without the United States of America, Lausanne means nothing, from the long-term point of view. I said just now that I believed that the American debt settlement on our part was a blunder. I say now that the other great blunder we made—and it was pointed out by the right hon. Member for Carnarvon Boroughs—was the restoration of sterling to gold at the pre-war parity of exchange in 1925. If my right hon. and gallant Friend the Member for Newcastle-under-Lyme were here at the moment, I am sure he would agree with me upon that point. And when we in this House are inclined, as we often are inclined, to abuse the French, let us remember that the French did resist, to the very best of their ability, the American debt settlement and that they certainly did not copy us in restoring the franc to the Gold Standard at the prewar parity of exchange; and when we are inclined to lay the blame, as we so often are, upon France for all our troubles and for the economic difficulties of the world, I sometimes think that if we had paid a little more attention to the very realistic economic policy pursued by France during the last 10 years, and had even attempted to copy it in some respects, our bankers might not have been compelled to go cap in hand to Paris at the supreme crisis last summer.

The right hon. Member for Carnarvon Boroughs, in the second part of his speech, made a most interesting survey of the general condition of the nation, and he dealt with almost every aspect of the economic life of this country. I would like in a very few minutes to deal with the economic problem, and the situation in which this country finds itself at the moment, because this is the last opportunity we shall have of making a general survey probably until October next; and I think we ought never to lose sight in this House of the fundamental problem. Productive capacity, not only here but all over the world, is greater than it has ever been. Demand also. Neither of those two things is disputed. Has either diminished since 1929? Has either productive capacity or potential demand gone down? No. Never before has there been so much want, so much scarcity, in the midst of so much plenty and of so much potential plenty.

We are still told over and over again that the remedy lies in what is rather loosely termed "economy." Reduce the standard of living. That was the amazing prescription given by my right hon. and Noble Friend the Member for Hastings (Lord E. Percy) in this House yesterday. Reduce the standard of living. Why? What justification is there for any reduction in the standard of living in the world at the present time, when the capacity to satisfy the requirements of mankind all over the world has never been so great? "Let the rich economise, and the poor starve." That is the maxim for the moment, despite the fact that productive plant the world over cannot market its output. I believe, when you look down into the very roots of this problem, that a policy which is based simply upon what is, as I say, loosely termed economy—a policy of reducing the standard of living all round—is a policy of stark insanity; and I believe that if it is continued, it will land us in far greater difficulties than those we are in to-day.

The problem is not like the problem of the last century, that of obtaining increased production. The problem which confronts the world and this country at the moment is generally admitted to be a problem of consumption. Increase your consumption, and production will look after itself. No one wants wasteful, unproductive expenditure. Everyone is agreed that there is still room for considerable savings in the expenditure of the public departments. But economies which involve a restriction of expenditure on goods and services must mean a further restriction of consumption; and that, in turn, must, from the long-term point of view, aggravate the fundamental problem with which we are faced. If you reduce consumption by reducing expenditure on goods and services, that is to say productive expenditure, it involves a diminution of trade; and an accumulation of goods in the factories, which cannot be marketed. It throws out the whole economic balance; and it cannot be denied that the effect of the kind of economy which is now being preached in this House, and which has had such a disastrous psychological effect outside the House, will be to decrease the purchasing power of the people at home. When we talk about nothing but economy and sacrifice and the necessity for reducing the standard of living, people outside take it as a hint that all forms of expenditure must be ruthlessly curtailed and cut down. That is what we are getting throughout the country among private individuals, municipalities, and companies of all kinds—a steady reduction of expenditure, coupled with a steady diminution of trade, and a restriction of consumption.

What is the avowed object of these economy-mongers They want, they say, to release more money, more savings for the private individual; but what is the private individual to do with his savings if they are released to him in a world that is frozen stiff from lack of confidence, as the world is at the present time He can hoard; that is deflation. He can invest in industries for the further stimu- lation of production, but that in turn must, under present conditions, only aggravate the problem. More and more goods would be accumulated in the factories, and they could not be marketed because there would be no purchasing power. We do not want more and greater investments in producing industries. We want more and greater consumption.

8.30 p.m.

I want to put two questions regarding first, foreign investments, and, second, foreign exports, both of which very interesting and important questions have been dealt with by the right hon. Gentleman the Member for Carnarvon Boroughs in his interesting speech. I believe that in the post-War decade foreign investments have been the cause of a good deal of the trouble with which we are now confronted. They have been the cause of the piling up of debts in many countries, which those countries could ill afford to bear, and which have now to be paid in a currency which is worth a great deal more than it was at the time the debts were contracted. The trouble with all the small debtor nations in the world as that they have been so heavily over-invested by us and the United States of America. It is also the trouble with Germany. In the years between 1924 and 1929 they were saddled with burdens that they have found it exceedingly difficult, if not impossible, to discharge. Excessive foreign investment has further been a cause of the over-production of those commodities of which over-production can be proved to have taken place. Take, for example, the case of coffee in Brazil. Why has Brazil produced so much excess of coffee that they have had to burn it? It is because there was an artificial and unhealthy stream of investment going into Brazil from 1924 to 1929 from this country and the United States, which caused the Brazilian coffee growers to grow far more than they could profit-ably market. Last, but by no means least, the interest that we have taken on these foreign investments during the last few years, in so far as we have taken it in goods, has paralysed our own domestic production to a great extent. At this critical juncture in the economic history of the world our main objective, so far as the foreign investments of this country are concerned, should be to create a balanced and self-sustaining economic unit within the British Empire. That is the safest and surest line of development so far as foreign trade is concerned in the immediate future. Overseas investment during the next decade will only be sound and profitable in countries where there is room for a great deal of expansion and capital development, and which can provide us with the raw materials which we must import. Overseas investment, on a heavy scale, in countries which produce manufactured goods in competition with our own will do us no good, and will increase and aggravate the debt problems of those countries.

I want also to deal with the question of foreign exports and foreign trade. Every country in the world to-day is striving for a favourable balance of trade. It cannot be achieved. The result is wholesale dumping in almost every market; and the dumping has to be checked by increasing tariff barriers. Some country has to make up its mind sooner or later to be content for some time with an unbalanced trade budget if the small struggling debtor countries are to have a chance of reviving their position and prosperity. It is manifest that every country in the world cannot enjoy a favourable balance of trade: and that is why, during the next few years at any rate, I should like to see the commercial and economic attention of this country diverted from foreign investments in manufacturing countries to investments within the Empire on the one hand; and from the development and expansion of trade with foreign manufacturing countries to the development and the expansion of our own country, not -only in the interest of our country, but in the interest of the ultimate revival of world trade.

There is another vital aspect of policy which has been briefly touched on to-day. Monetary policy is one of the vital factors. I am not going to bore the House any more with a dissertation on the Gold Standard. But I read with the greatest resentment and indignation a speech of Lord Snowden in another place in which he characterised all those who had ventured to draw attention to the monetary problem and the question of currency as qualifying for a lunatic asylum. When Lord Snowden sneers at those who raise this question, and lectures them and everybody else in the country from time to time, one is tempted to remind him that there are quite a number of people, amazing as he may consider it, who regard him as the principal architect of our misfortunes last year. It was the dishonest Budget which he introduced in the spring of last year that was the prime cause of the failure of world confidence in Great Britain for the first time for 100 years, which occurred last August when the true facts became known.

It was his own failure to grapple with the fundamental economic problem when he was Chancellor in the Labour Administration that led to the savage cuts which he himself had to propose last autumn, and which timely, judicious and wise action on his part would have rendered unnecessary. His policy was neither expansionist nor economical. During the actual critical weeks preceding the great crisis of August, 1931, the only solutions which Lord Snowden had to offer to the people of this country were Free Trade and the taxation of land values, both of which he has since abandoned. That is the record at a critical time of the man who now says that anybody who ventures to question the advisability of our monetary policy is qualifying for a lunatic asylum. I would only say that if in the future the Government are going to be guided by Lord Snowden in economic affairs I do not think they are likely to command the confidence of the country for Any considerable time. However, I am bound to say that I am not very anxious in the matter, because they certainly have not shown the slightest signs of being guided by him on any point up to date.

The only objective of all the people who have the interests of a sound monetary system at heart is to secure, somehow or another, for our currency a constant purchasing power. Look after the commodity value of gold—or of sterling or whatever the currency is—and the exchange value will look after itself. I base myself in this respect not so much on stock inflationist arguments as upon the observations of one of the directors of the Bank of England in a publication which ha issued recently. Sir Basil Blackett wrote: The only way to keep a national currency sound and stable is to make sure that its volume at any given moment is neither too great nor too little for the work it has to do. The volume of money should be increased or decreased according to the amount needed to keep prices stable. Prices should not be allowed to dance attendance on the unregulated supply of monetary gold. The amount of the gold reserve that a central bank requires has no direct relation to the amount of its notes in circulation. The measure of its gold reserve requirements is the maximum demand which it is reasonably likely to be called upon to meet for gold for export in the interval between the occurrence of the demand and the time when by taking the appropriate measures it can restore equilibrium and put a stop to the outflow of gold. No one would for a moment think of disputing these facts; and I was happy to hear the Chancellor of the Exchequer reassure the House this afternoon upon the question of an immediate or early return to the Gold Standard. I think the right hon. Member for Carnarvon Boroughs was perfectly right when he said that, whatever his merits may be, and we know them to be great, we must be very chary of being entirely influenced in this matter in the future by the Governor of the Bank of England; because he has not been uniformly right or successful in the past—perhaps no man could have been. At any rate, I am quite satisfied that no British House of Commons ought to permit a return to the Gold Standard unless and until some international action has been taken, and successfully taken, to stabilise the value of gold.

In conclusion, I would beg the Government, and the Government spokesmen, to direct their attention to Ottawa to the creation of a currency system within the Empire managed with the avowed objective of keeping the value of sterling stable in terms of commodities. So far from jeopardising the possibility of an international agreement over a wider field, with the United States of America brought in, if we can get a stable sterling area first it will facilitate the achievement of the wider agreement, which we all hope may come later. The second thing to which the Government ought to devote their attention is the development of a planned and complementary external trade within the Empire, and Ottawa again provides the opportunity. Finally, there is the restoration of industrial prosperity through expansion at home. The right hon. Member for Carnarvon Boroughs said that a revival of world trade would not come in a hurry. I agree. I do not believe world trade will revive in a hurry; but I believe that we have a tremendous chance to move ahead here at home within the course of the next two or three years, and I believe that this can now only be done by the Government.

I agree with the critics of the policy of inflation when they say, "You can pump credit, you can pump money into commerce, but you will do no good at the moment, because there is no confidence." Now that we have reached this particular stage, the only instrument by which confidence can be revived, and expansion inside this country restarted, is the Government itself. And here lies the danger of this loose talk about economy—economy in productive as well as unproductive expenditure. Here lies the danger of those circulars issued by the Chancellor of the Exchequer and the Ministry of Health to hold up the construction of schools, to hold up the construction of houses, to hold up development in all forms. If the last circular of the Ministry of Health to the municipal authorities means anything at all, it means "Retard; slow down; stop your schemes of development." I have never heard that there was a, shortage of bricks and mortar in this country. I have never heard that there was a shortage of any commodity or a shortage of productive capacity, and I do not believe there is. If we do not adopt this timid policy so far as productive expenditure is concerned, I believe there is an opportunity, and a great opportunity, for real expansion in this country; but if we are on the brink of another anti-waste campaign—cut wages, reduce your standard of living, stop unnecessary travel, close down your factories, reduce your railways to bankruptcy—I, for my part, cannot see any hope for a. revival of prosperity.

I would like to see housing developed, not held up. I would like to see slum clearance proceeded with. Nearly every large Continental city in the centre of Europe is miles ahead of us in the matter of slum clearance and the construction of great tenement houses for the workers, and that is what we ought to be doing. It is well known, also, that we are behind every country in Europe in the matter of the development of electricity; and the same observation applies to transport and, perhaps above all, to agriculture and to land settlement. We are letting this country go fallow at the very moment when we should be preparing ourselves for a great move forward. The deflationists have already reduced us to a pretty plight. Look at the plight of the world to-day. They have had their way so far. But if we are to continue economising in productive expenditure, if we are to continue to cut down salaries and wages and all expenditure of that kind, I shall certainly vote against it in the Division Lobby. I do not believe even yet that the deflationists have finished. They have already succeeded in putting such a burden on the heavy industries in the shape of debt that I believe the Government will now be forced to take some of that debt off the shoulders of at any rate the iron and steel industry and the cotton industry. I believe the whole policy of contraction in this country will only aggravate the fundamental economic problem with which we have to deal; but the situation, if thus aggravated, will undoubtedly go on developing until ultimately the Government will be compelled to take steps to give the necessary impetus to a revival of trade and industry by the development of an adequate home market for our own industries inside this country.

Mr. SMITHERS

We have listened to a most interesting speech, with part of which I agree and with part of which I do not. Many of the theories advanced by the hon. Member need the acid test of practice to prove them. One point on which I disagree with the hon. Gentleman is as to the two speeches made by the right hon. Member for Epping (Mr. Churchill) and the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George). I think anyone who has followed the policy of Lausanne might have asked quietly for Papers in the form of a question. To have had a full dress Debate on this subject was inopportune and mischievous. I wish the right hon. Gentleman the Member for Carnarvon Boroughs were here at this moment. He made the extraordinary statement that the £150,000,000 Stabilisation Fund is being used to keep the pound down. The Stabilisation Fund of £150,000,000—and some people seem to have forgotten what its function is meant to be, although, it has been explained by the Chancellor of the Exchequer on two occasions—is meant to iron out the day-to-day fluctuations in the exchange. If there were any big loss of confidence, or any big revival of confidence, in this country, which meant the transference of big sums of credit, £150,000,000 could not hold out.

The Leader of the Opposition took credit to himself when he said that his party had been right all through the piece because they had always advocated the policy of a clean slate. I have been sitting through the whole of this Debate to-day, and once only, and that just in a sentence, has the honoured name of Lord Balfour been mentioned. He it was in 1921 who, on behalf of the Government, then advanced his well-known policy of the clean slate. I will not attempt to go over the ground again, except to call attention to a speech made by the hon. and learned Member for East Bristol (Sir S. Cripps). He made two amazing statements which I, however humbly, shall attempt to answer. He said: The Government came into power…in the middle of what was undoubtedly the most serious industrial crisis in the history of the world. He also stated: The Government…have completely failed to take any constructive step to initiate any ideas or plans which will solve the difficulties in which this country finds itself."—[OFFICIAL REPORT, 11th July, 1932; col. 924, Vol. 268.] I suppose I ought not to be surprised, but when the hon. and learned Member, a leading light of the legal profession, makes a wild statement like that, it is someone's job to answer him. I am only going to give a catalogue, because I do not wish to go into details, and it is that we have taken steps to develop our trade, we have converted £2,000,000,000 of War loan and we have already achieved £60,000,000 of economies, as the Chancellor of the Exchequer says, by the emergency Budget of last year, and further steps are being taken.

Having mentioned the word "economy," I want to lay down one or two principles on which economy should be pursued. The first thing that the Government, or the committees who are looking into this question, should do, is to search for economy in those items in the national expenditure which have increased in the last seven years. I made a note of that before the Chancellor of the Exchequer made his speech, and I was rather gratified to notice that he also took his figures from the years 1924 to 1930. The next broad principle I want to lay down is: abolish the Road Fund and let all the contributions that come from the licences on cars go direct into the Treasury. Let them be under more Parliamentary control than they are to-day, and let the Treasury allocate to the roads every year in the Budget the amount that they can afford. The Noble Lord the Member for Hastings (Lord E. Percy) made a suggestion yesterday, of which I also made a note, and which I now wish to emphasise. It is that, if we are going to economise, our proposals must not be for one or two years, but must be permanent and progressive, on whatever lines of economy we settle. My suggestion is that the percentages of reduction should be small in the first year, and should grow up year by year to the sum that the Government think should be taken off each item of expenditure.

I wish to say a word about Disarmament. The right hon. Gentleman, the Chancellor of the Exchequer, laid down the principle yesterday that this country could not and would not disarm any further, unless others did likewise. The hon. Lady the Member for South Hackney (Miss Graves) referred to the work of the Navy and to its function as police. I want to point out that this country is responsible, not only for our own benefit, but for the benefit of the whole world, in policing the trade routes to the East, from England to Gibraltar, to Malta, to Egypt and, through the Suez Canal, to India., Ceylon, Singapore, Australia, Shanghai and the Yangtse. The great trade route to the East is being kept safe and secure, because, to put it in a commonplace way, we are manning it with a man and boy in each place. The mere presence, as the hon. Lady said, of a British cruiser or gunboat creates security. I submit to the Government the principle that the first necessity on the trade route must be cruisers. The second essential is infantry, because you want a man to stand with a rifle to keep order in the ports where our cruisers and our merchant ships call for coal and commerce. The third item is, safe ports. I would ask the Under-Secretary of State for Foreign Affairs to note these three words: "cruisers, infantry, safe ports." Those are the essentials which should underlie our policy.

The success at Lausanne, and the success at home in the increased credit of our country and the conversion of the War Loan, have been achieved because we have had a return of confidence, due to the existence of a National Government. The right hon. Gentleman the Leader of the Opposition yesterday made a remark in which he called the four right hon. Gentlemen who left their party and came over to this side, the "four chief lunatics." There was method in their madness. It is because they had the courage to put country before party and to come over here, that they gave a surge of confidence all over the world in the belief that, England was united, and that Socialism was swept off the face of the nation and out of the House of Commons. That enabled this country to go to Lausanne, and to use the great influence that we have heard to-day it was able to use to restore the credit of this country. I want to emphasise that. We have heard speeches to-day about monetary policy, finance and economics; the basis of it all, that must be considered first and foremost, is the restoration and the maintenance of confidence in England and in her Government.

I want to say a word about the Conversion Loan—the conversion of £2,000,000,000 of Five per cent. War Loan. I think its success is assured. The great principles of British finance were maintained right through. It is voluntary and the bargain—the bond—was not broken. But there is no need to make an appeal to the patriotism of people to convert their Five per cent. War Loan into the new 3½ per cent. security, because it is the best bit of business they can do. I would ask the House to envisage the position on the 1st December. Suppose that there are two or three millions of holders of Five per cent. War Loan who have demanded cash, and who, on the 1st December, instead of having £5,000, £10,000, or £20,000 in War Loan bonds in their boxes at the bank, will find themselves in possession of £5,000, £10,000 or £20,000 in cash to their credit at the bank. What are they going to do with it? I very much hope that some proportion of it will be spent, and thus flow into industry, but the bulk of it must go into the investment market.

The backbone of our investment market consists of the trustee and quasi-trustee funds. I am not here, as a member of the Stock Exchange, in any way to give advice; I have never done it in my life; but I can see no other course for the gilt-edged market, unless some great catastrophe happens in the meantime, than that, the sheer weight of investments of money realised must push that market up nearly to a 3 per cent. basis; and, if there were any word that I could say—I am not saying it in any way; it is not needed—to urge conversion, it would be that the best thing that the holders of Five per cent. War Loan can do is to go in for the new ½3 per cent. security, because, wherever they look, there is practically no other investment which will pay more than 3½ per cent. with the same security. What has made the impression on the world, to my mind, is not the size of the conversion, but the quiet, efficient way in which it was done—the way in which we carried it out without fuss, taking it in our stride. Enormous credit is due to the officials of the Treasury and the Bank of England for the fact that that enormous transaction was carried through without one word ever leaking out until it was announced officially.

I should also like to refer to the proposed London Economic Conference, and here I wish that my hon. Friend the Member for East Aberdeen (Mr. Boothby) were in his place. We put our house in order, as is shown by the record of the Government. We then went to Lausanne, and we are going to Ottawa to try to tell the rest of the world to do the same thing. We are then going to call a London Economic Conference in order to attempt to stabilise world prices. I wish that sufficient courage could be shown to attempt to raise them a bit, but still it is an attempt to stop the continued fall of commodity prices all over the world. All sorts of cures have been brought forward, but I venture to think that all the guns must be brought to bear—those of getting away from restrictions on trade, of monetary policy, of economic policy, of international agreement—all directed to trying to raise the commodity price level. There I am in entire agreement with the calling of the London Economic Conference; but—and this is not politics, but absolutely hard fact—before that conference is called, two things have to be settled. One is the payment of debts and reparations. Reparations are now out of the way, but the question of debts has still to be settled.

9.0 p.m

We can only pay America in three ways—in gold, in goods, or in services. We cannot send her any more gold, at any rate beyond one more instalment of £50,000,000, which we might send if we had to do so; we can only pay in goods and services. Under the Young Plan this year, if there were no Hoover moratorium, we should have sent to America £38,000,000 at par, or, with the depreciated pound, £52,000,000 or £54,000,00. We can only send that amount to America in goods or services, and the reception by America of those goods or services must have one result, and one only, namely, further to depress the commodity price level in America, and further to put out of employment 50,000,000 pound-man units of work in America. It must have that effect, because the payment of debts and reparations is a one-way traffic—it has no commercial basis. The right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) was quite right when he said that, if America demands payment, we must strain every nerve to pay; we must not break our tradition of never defaulting; and yet at the same time I believe, in view of the strength of the position at Lausanne, that, when the American elections are over, they will realise that it is in their own best interests not to allow this dumping of goods to go on and further to accentuate the present chaotic conditions in America. That is the first point to be settled before any attempt can be made to raise or stabilise the commodity price level.

There is another point that has also to be settled, and that is as to what attitude the world is going to take towards the economic policy of Soviet Russia. Soviet Russia sends goods into the world at a, price which bears no relation to the cost of production. I am not going to speak about the moral or human side of Russia; what I want to talk about is the purely economic side. If the Russian Soviet system is to continue, they must, if they are to live, secure foreign ex change and credits, and in this connection I am glad to see on the Front Bench my hon. Friend the Secretary of the Overseas Trade Department. The Socialist Government increased the facilities for credits to Russia. It is true that, since export credits to Russia have been in existence, they have not defaulted to the extent of one penny, but, owing to the expansion of credit given to them by the Socialist Government, they have put this country in a very difficult position, because, directly we do anything to tighten matters up or demand fairer and better terms, their only answer, I feel certain, will be that which they gave before on the question of the £1,000,000,000: "All right, we will keep it." That is the danger that any Government in this country has to face, and it is for that reason that no business man will take the risk himself, but has to come to the Government and ask for a Government guarantee in respect of Russian credits. My second point, then, is that the economic policy of Soviet Russia must continue to depress the commodity price level, for, if the London Economic Conference were a success, and it was decided that the commodity price level should be stabilised at x to-day, to-morrow morning the Soviet Government would be selling goods at x—5.

I am very surprised that no mention has been made in the Debate of silver as a basis of currency. I hope to send Members of all parties during the week a very carefully analysed pamphlet written by an expert and not by myself. The right hon. Gentleman the Member for Newcastle-under-Lyme paid a great tribute to the Lord President of the Council. It is not my job to say much about my leaders, but, whatever he or anyone else thinks of what I am going to say, I am going to say it, because I mean it from the bottom of my heart. Those who have been to Lausanne have been in the limelight. They have done a great piece of work for civilisation. But I think an equal amount of credit should be given to him who stopped at home and held the fort and carried on the business of the country.

Mr. MANDER

I congratulate the Government most warmly on two bold and successful strokes of policy which they have recently carried out, first of all the great Conversion Loan, which has had its happy effect not only throughout this country, but in every civilised country in the world and has helped to restore that feeling of confidence that we desired to see, and, secondly, the very great success that they have attained at the Conference at Lausanne in the one field where it is possible to do anything practical in these days, and in that way provide employment to the people of this country. However much you may do by your tariffs or Free Trade, you are not going to solve the problem unless you tackle it on international lines in co-operation with other countries. That is why I am so glad that the Government have tackled the international Conference at Lausanne in the admirable way that they have. It is a good example of what we can do when we stand as a united nation and attempt to lead the world. I am not referring to the National Government only. The Opposition were, as I understand it, entirely in favour of the policy pursued by the Government at Lausanne and the fact that we stood united, with certain exceptions, which always occur, was a very great help indeed. It is true that Lausanne is only the beginning, but it has done away with the uncertainty that existed. It has not altered the facts. There would in no case have been any payment, but it is agreed that no such payments can take place. To use the language of the frontiersman, it is only the beginning of a long, long trail that we shall have to follow up if we are to arrive finally at a satisfactory settlement of the troubled state of the world.

The next step lies in negotiations with the United States, and the success of those negotiations depends in a very large measure on the Disarmament Conference and what we are able to offer there and what agreement we can come to. The success of the Disarmament Conference is contingent, to a considerable extent, on the settlement of the state of affairs that has arisen in Manchuria. If it is to be allowed to go forth that naked force can get its way in spite of all the power and influence of the League of Nations, Governments are going to feel uncertain, insecure and unwilling to give up their armaments. That is why I hope that, when the Lytton Report comes out, on which all the future hinges, the Government will give it their whole-hearted support in the Council of the League and will do their best to persuade the other countries to press it with such force that neither China nor Japan can resist what will be the settled judgment of the whole world upon this problem.

I wish I could go on, having congratulated the Government on those two points, to congratulate them equally warmly on the Disarmament proposals that they have put forward, but I am afraid I cannot do so. I want to state quite clearly what I believe to be the view of a large number of people who are interested in this question. It is right that the Government should know it, whatever importance they may attach to these views. It is true that it is a definite step forward with the whole weight of the National Government and of the Admiralty behind it, but it is a very limited step. It is a long way behind the Hoover proposals, and I believe it is a long way behind what the public opinion of the country would like to see carried out. It is clear that, if we are to go to the United States and ask them to deal leniently in the matter of the debts that we owe them, unless we are able to say, "We in Europe have agreed on drastic cuts up to one-third in armaments," the United States will answer, "If you in Europe can go on spending hundreds of millions a year on armaments which you all agree you are never going to use, we are not going to let you off," and they will be perfectly right not to let us off. That is why it is so vitally important that at the next stage we should come out boldly and fearlessly in connection with disarmament proposals. The Prime Minister to-day said, "We want to cut at the root of the disease." This Disarmament policy of the Government is not cutting at the root of the disease, and I do not think it is going to cure the disease unless they move forward. If there is one thing that causes one to think furiously, it is that I believe the Government have the support, in their Disarmament policy, of the right hon. Gentleman the Member for Epping (Mr. Churchill).

May I turn in more detail to the different aspects of the Disarmament proposals of President Hoover and of the Government? I asked to-day whether information could be given as to the estimated savings to this country if the proposals of the Government were carried out unchanged, and I was told that no such calculations could be made. I have another question to-morrow asking for similar information about the Hoover proposals, and I assume that I shall get the same answer. It seems to me rather surprising and regrettable that it is not possible to make a rough calculation when the figures, after all, are fairly definite, but a calculation has been made by competent people who are used to dealing with figures of this kind in connection with this subject. The estimate that they make—the Government can refute it if they wish to do so—is that, under our proposals if carried out up to tam end of 1936, there would be a saving of £20,000,000 and, under the Hoover proposals, of £42,000,000. With regard to battleships, which are the most important of all in the whole sphere of Disarmament so far as we are concerned, the Hoover proposal is the immediate scrapping of five battleships. That would involve that we should save the upkeep of 150,000 tons a year, and that proposal foreshadows the ultimate abolition by non-replacement of the large battleship itself, so that when we come to 1937 I believe under the Hoover proposal it is highly probable that you would get no battleship built over 10,000 tons at all.

Vice-Admiral TAYLOR

Is the hon. Member stating that the Hoover proposal is an agreement for a reduction of the tonnage of the present heavy ship?

Mr. MANDER

I am stating what the Hoover proposal is with regard to large battleships. It is the immediate scrapping of five of those battleships.

Vice-Admiral TAYLOR

I thought that the hon. Member had said that it would mean the reduction of battleships to 10,000 tons.

Mr. MANDER

I was going to express the view, which may or may not be accurate, but I do not say it without some reason, that it would seem to foreshadow a very real possibility that in 1937, when the question of replacing those ships arises, no replacement in fact can take place over the limit of 10,000 tons. The proposal we put forward is that there shall be no scrapping and no financial saving of any kind with regard to battleships now, but that in 1937, when the question of replacement arises, we should do it on a smaller scale, and that, instead of 35,000 tons, it should be 22,000 tons. I am afraid that you would have in that the danger of starting a new race in battleships, because the view is held that if you keep to the size of 35,000 tons there will be some countries who will have no desire to build monster battleships. They would not face the expense, and therefore would not build battleships, but if you come down to a lower scale and make it 22,000 tons, it will be something within their power and scope, and they may start building. Indeed, at the present moment France has adopted a 23,000-ton battleship in reply to Germany's pocket battleship and is only holding it over, I understand, because of the Disarmament Conference. If France started building small battleships, Italy would, no doubt, be obliged to do the same, too. It is true, if we assume that there is going to be a replacement of battleships after 1937, that the reduction in size proposed by the Government is definitely a step forward. It means a decrease of one-third, and that is a very substantial difference. I hope that they are going to allow for the possibility of that replacement never taking place at Germany has made it clear, I understand, that she would be willing to give up her pocket battleships if we would meet her on a matter of this kind.

I have no doubt that all sorts of technical arguments could be brought forward as to the necessity of large battleships, but this did not weigh when the Treaty of Versailles was being brought about and its terms were imposed upon Germany. If they were good enough for Germany then, I suggest they might be applied to us now. If we showed to the world that we were now in favour of a policy of that kind, we should have behind us nearly all the Governments of the world, with the exception of Japan at the moment. Furthermore, it would be a sound application of the principle of qualitative disarmament on a large and important scale. It is the only thing making possible dealing with the abolition of, or a very large reduction in the size of submarines. The two must go together. Here our proposal is much better than that of the Americans. We propose a limit of 250 tons, and theirs is one of 1,200 tons. The last point I wish to make on the naval matter is that it affords the largest opportunity of saving money which we can find anywhere in connection with the services of the Crown.

I turn to land armaments, and the question of tanks. My right hon. Friend ably dealt with this subject this afternoon, and I should like to go over a few points on the same grounds. The Hoover proposal is that all tanks should be scrapped. Our proposal is that only tanks of over 20 tons should be scrapped, which, I imagine, means that we should retain practically all the tanks we have at the present time. When on 11th April, at Geneva the Foreign Secretary spoke on this subject, he agreed that it was desirable to abolish heavy tanks, and I am informed that the impression created at Geneva was that he had in mind tanks of from five to seven tons. Therefore, it is very surprising to find that these very large tanks are desired to be kept. Germany was prevented from having tanks, and I believe that it is only this country and France which are opposed to the abolition of tanks altogether.

On the subject of air bombing, the Hoover proposals would abolish bombers altogether. Our proposals would allow bombing to take place within certain areas, and never in the case of civilians. That is a perfectly ridiculous proposal. If you have a great war and a nation is fighting for its life it is going to use every weapon at its disposal. It is going to create the utmost havoc it can, and it is bound to bomb civilians as much as anybody else. Personally, I think that if we are going to have war in future it is right that everybody should be in it, that the civilians should be in it, and that there should exist the wholesale bombing of the civilian population in the area. If you have that horror and danger, you will make more certain than ever that the people of this country and the world will never tolerate such a thing taking place. We do not want to make it simply into a Gentlemen's Agreement to be applied according to certain rules. The best policy would be to abolish forces in the air altogether, or to inter-nationalise them. There would be strong opposition both from France and Germany to the one or the other of those proposals. I hope, therefore, that the Government will go as far as they can in supporting the Hoover proposal of abolishing all bombing planes.

The proposal of the United States is that the use of gas should be prohibited. We have thought so for many years, but everybody goes on spending large sums in producing poison gas for use of some kind. Not only should its use be prohibited, but the preparation of it in peacetime should be prohibited also. In the well-known words: How oft the sight of means to do ill deeds, Makes ill deeds done! If, when war takes place we have gas provided for defensive purposes, it is certain sooner or later to be used for all purposes. I am not clear as to the policy of the Government on the point. It may be that they are in agreement with the American proposals, and I hope that the Foreign Secretary will be able to deal with the point to-night. It is a matter of great importance as to whether we now propose that both the preparation as well as the use of poison gas should be prohibited. Lastly, I hope that the Government will do all they can to move boldly in the direction of the lead which was given to the Conference by President Hoover. That will lead us towards the equality which we must have sooner or later, or Germany will begin to rearm; to economy, because we want to get the largest financial saving we can, and to security for this country. What could be a greater contribution to the security of this country than to obtain the abolition of bombing aeroplanes and the abolition of submarines?

Vice-Admiral TAYLOR

The hon. Member mentioned the question of equality with regard to naval forces. Does he really mean to suggest that there should be absolute mathematical equality in forces between this country and other nations?

Mr. MANDER

No; I do not propose that, but I do say that unless there is a substantial step made towards equality—Germany is not asking for mathematical equality—Germany will take to herself the right of arming, because we shall have broken Article 8 of the League of Nations. This is a very definite policy of disarmament, although I think that it is an unduly modest one. I hope that the Government will go on with courage because any policy they bring as a united Government before this House will always go through without the slightest difficulty. They are the dictators of this country, as I believe, for the next four years. Their policy at the present time is a long way behind President Hoover's proposal and a long way behind the wishes of the people of this country, who desire to take this opportunity, by the joint action of all nations, to deal a smashing blow at the forces anywhere that tend, consciously or unconsciously, to lead us once again into the ways of war.

Mr. HAMILTON KERR

I should like to add one word of humble congratulation to the Government on the magnificent achievement of the Prime Minister at Lausanne. I think in this connection that the address with which he handled the situation almost outrivalled the nimbleness of wit of a certain Lord Stair, who was the British Ambassador at The Hague in the 18th century. At a banquet the French Ambassador rose and drank: "To my master, Louis XIV, the sun of European monarchs." The Austrian Ambassador rose and drank "To Queen Maria Theresa, the moon of European monarchs." Lord Stair then rose and drank "To my master King George, who, like Joshua, the son of Nun, made both the sun and the moon stand still." I think that the Prime Minister, by quelling these deep-seated animosities which have divided France and Germany for centuries, has held at bay the Amalekites and allowed the forces of construction to win the day. Dr. Nicholas Murray Butler, addressing the American 4th July celebrations in London, said: What the nations of the world need today is not so much a declaration of independence as a declaration of interdependence. I think that this new spirit of interdependence which has shown itself so clearly at Lausanne can find one more field for its activity; I refer to Shanghai. That city is indeed distant from Lausanne, but a spot where opportunity for disarmament arises from a successful settlement of the disputes now at stake between China and the Concessionary Powers. I need not outline to hon. Members the great trade which passes through that seaport. The city itself, containing in the concessional area alone a population twice the size of Manchester, serves an area of some 750,000 square miles, equal to more than four times the size of Germany; an area, likewise, supporting a population of no less than 180,000,000 souls, equal to the total population of Africa. This city is not only renowned for its factories and commercial enterprises, but also for its great banking establishments. Indeed, £16,000,000 worth of silver lies in the vaults of Shanghai banks and forms a credit structure of no less than £50,000,000 of silver which circulates throughout most of 'China. It is that spirit of security which has fostered trade and made the great prosperity of the Concession and the surrounding country. Along the Bund and along the Whangpoo wharves the value of land is no less than £400,000 an acre, while outside the Concession the value of land is 20 per cent. less.

9.30 p.m.

I shall not dwell on this problem. As hon. Members know, time is pressing, and I should like chiefly to point out that the prosperity of Shanghai has been achieved through what we might call the Western democratic system based on the rule of law. We need not treat at length the means by which the constitution evolved itself. In the early days of 1843 occurred the original settlement with the Taotai, or local Chinese official, whereby "three upright merchants" were appointed to administer the affairs of the Settlement. It is sufficient to understand that to-day the International Council of five Chinese, five British, two Americans and two Japanese run the affairs of the Settlement; they are responsible for law and order. Indeed, there are likewise 14 courts where the defendants of each nationality have cases heard against them. To stress the good work of the Council in the face of immense difficulties, I should like to say that Shanghai is the centre of the notorious opium traffic, and breeds gangs just as unscrupulous and cruel as their more famous confreres of Chicago and Detroit. Indeed, in spite of this fact Shanghai has been the one rock in the shifting quicksands of Chinese political life. It is for this reason that the demand of the Nanking Government for the surrender of extra-territoriality on 1st January this year is all the more serious. It is undeniable that China is passing through such a phase of political evolution; but the Kuomintang, established by Sun Yat Sen and Chiang Kai Shek, is but the descendant of the autocratic rule of 40 centuries of Chinese Emperors. With all the good will in the world, the Chinese Government is not yet fit to take over the vast resources and vast liabilities in Shanghai. As an example, I may say that the Chinese War Lords, or Tuchuns, have control of a great portion of the country outside the city, and, like Robert Louis Stevenson, seem to think that: The world is so full of a number of things, That I'm sure we should all he as happy as kings. They live by plunder and, as an example, have plundered the town of Iyang no less than 72 times during the recent civil war.

It is for this reason that the Council of Shanghai, with the full assent of the moderate Chinese opinion, asked Mr. Justice Feetham to make a careful survey of the situation. After 18 months he has presented his report. May I humbly appeal to the right hon. Gentleman the Secretary of State for Foreign Affairs to give to its perusal all the lucidity of mind and the grasp of detail which characterise him, and try to reach some decision on the lines laid down with the other Powers concerned? A state of great hesitancy prevails in Shanghai, and, so far from wishing to appear as imperialistic in the worst sense of the word, the Council wishes to give all reasonable Chinese aspiration its fullest play. This report lays down the principle that, whilst the rendition of Shanghai is the ultimate objective to be aimed at, a period of greater co-operation between the Chinese and the European elements in the city must intervene. The Feetham report proposes that the Chinese members of the Council shall outnumber the representatives of any one other single nation; and it likewise proposes that there shall be a meeting of the Chinese ratepayers as well as the already existing meeting of the European ratepayers. The decision of both will be binding, but where there is a difference of opinion a decision of the Council shall be binding. It is an important step in the political and constitutional development of China. For this reason I wish to say that enlightened opinion in the settlement is mindful of the old Chinese proverb, A lie travels round the world whilst the truth is putting on its boots. It would not wish the propagandist rumour to gain strength that the European community is adopting a recalcitrant and backward attitude.

Mr. D. GRENFELL

The hon. Member who has just spoken quoted the well-known saying of a diplomatist who made extravagant claims on behalf of his sovereign. Unfortunately, that kind of diplomacy still exists, and we find that on return from Lausanne equally extravagant claims have been made by diplomatists who have been addressing the House during the last few days. I think it is a great mistake to exaggerate the results of the Conference at Lausanne. The Prime Minister on his return was given a reception which has probably never been excelled in recent years. There were people—common people, ordinary people, people who were not in the House of Commons, people who had not got the details of diplomatic negotiations—who were allowed from time to time to believe that much had been achieved in Lausanne; that the world would never be quite the same after the Prime Minister returned as it had been before. Now to-day the gilt has been taken off, and the right hon. Gentleman here to-day will probably have something to say in regard to the statements made in the House this afternoon. I do not think that it is a good thing to encourage these excessive hopes, because when disillusionment comes and disappointment takes its place the pain is much more felt owing to the high hopes that have been entertained. While we readily admit that Lausanne is the beginning, perhaps a generous beginning, of the large task of world reconstruction, it would be a mistake to overrate its importance, having regard to the great work yet to be fulfilled. Even if the Lausanne agreement was a final settlement of reparations, which it is not, and if it was a final settlement of War debts, it would still be a very small part of the work that has to be done before the breakdown which is threatening the world is upon us.

This afternoon I had the advantage of going into the figures of the indebtedness of the Dominions. When we view the problem of indebtedness we have to remember that the world is suffering from mortgages and debts of all kinds, which are not confined to Germany, France, Britain, Italy and the United States. The debts of the Dominions are very serious. Astounding figures can be quoted to show how the problem of commercial and municipal debts, ordinary debts between the moneylender and borrower, are paralysing trade all over the world. Australia, a small country from the point of view of population, numbering only about 6,000,000, has a national debt of eleven hundred million pounds. Over £1,000,000,000 is owing by a small community of 6,000,000 people. To meet the interest on that debt Australia has to find year by year a total of £57,500,000 of which 232,000,000 comes to this country. When we think of Lausanne it is a tiny settlement, viewed in. its right perspective, compared with the whole problem of world indebtedness. Australia has to find £32,000,000 a year interest to this country under exceptional difficulties, because Australia produces primary products which have one by one fallen to less than half the value at which they stood only two years ago. Australia has to pay for interest and repayment of the debt to this country twice as much in wheat, in oats, in sugar and in all the commodities that she produces, compared with what she formerly paid.

When we come to Canada, South Africa and India we find the same state of things—an enormous fall in the value of primary products and huge burdens of debt which are maintained not at their past level, but are increasing day by clay in their incidence. When Australia pays us she has to convert Australian money into English money and, owing to the depreciated value of the Australian pound, the Australian people have to pay £130 to discharge a debt of £100. Therefore, instead of paying at the agreed rate of 5 per cent. she has to pay at a rate of 6½per cent. on the money that has been lent to her.

Compare that with the position in Italy. The Italian people are very grateful for our generous treatment of them, but even so Senor Grandi, in the Conference at Lausanne, was not satisfied with what has been done for Italy and wanted a guarantee that if Italy was to be deprived of reparation payments she should not be called upon to pay her debts to the creditor countries. Compare the treatment meted out to Australia, a country of our own family, a people with whom we have no quarrel, and the treatment of Italy. Italy pays not one penny piece of interest on the money lent to her by Britain during the War. She does not even repay the capital. She is let off by repaying one-third of the capital sum lent to her, but she has not to pay one penny of interest, while Australia, a member of our own family, striving at the opposite end of the world against grave economic difficulties, has to pay more than the pound of flesh to us. She has to pay 6½ per cent. in addition to repaying the capital sum.

I use these arguments to show that we have not settled the world problems or our own family problems when our Ministers come back from Lausanne, when the big drum is beaten, when record crowds greet the Prime Minister and extravagant speeches are made in this House. Nothing has been said by the Prime Minister about Australian, Canadian and.South African debts to this country. When we view the question of the debts owing by the Dominions or South America, where we have very large investments, we find that the large loans made to these countries from time to time remain as a crushing burden of debt. This problem of debts will not be fully settled until we have taken into consideration in our negotiations not only the cancellation of war debts and reparations but the cancellation of the excessive burden of commercial debts which we find all over the world. I would advise the Government and the Foreign Secretary, who is not apt to speak in extravagant terms, to put the soft pedal down on Lausanne and to reserve the heavy forti for something more substantial.

The Chancellor of the Exchequer has stated that the chief aim of this country should be the reduction of taxation. He said that that is the country's greatest need, and that the efforts of the Government should be to reduce taxation. He then examined the financial position and the possibility of economies in the Departments. He took an unwarranted pride in the fact that the staff in the Civil Service last year had been reduced by 2,600. He spoke as if by putting 2,600 civil servants out of employment the country had saved something. Where have those people gone? Where shall we meet them next? There are very large numbers of black-coated people out of employment who do not appear in the accounts of a Department of State. The Chancellor of the Exchequer says it is economy; that we are saving money. Some time or other these 2,600 persons will be poorer than they are to-day, and will have to be provided for by the nation. It, is an erroneous idea of economy.

Hon. Members are much confused on the question of economy. The Chancellor of the Exchequer has said that the State should imitate the individual. If the individual is hard up he spends less, he cuts down his expenditure. That is quite true, but it is a mistake to preach that policy in these days. What is forced on the individual may be a very improper thing when applied to the community, and in these days of plenty and super-abundance of all kinds of goods what a folly it is to advocate a reduction in expenditure. It is just as if a farmer who had a record crop of all kinds of cereals and fruits and vegetables were to say that he had got too much of everything and, therefore, he must eat less and wear less. Such a policy is the bankruptcy of political ideas. In regard to the question of disarmament the Lord President of the Council spoke the other day and I confess that we were disappointed with his speech. It was not generous enough. President Hoover has made a bold and far-reaching declaration and we expected that Great Britain, with her security, her unchallenged and unchallengable position, would be prepared to go equally as far as the United States. That is not the case. The Hoover Plan goes much further than the proposals of the British Government, and in that assertion I am supported by a statement I read in the "Manchester Guardian" the other day, which compared the results of the Hoover plan with those of the British proposals, and said that the British proposals would achieve much smaller results over the next five years. The statement said that: Taking battleships and cruisers over 10,000 tons the British proposals would make no change in five years' time, while the American plan would scrap one-third, five out of 15. As to aircraft carriers, the British scheme would not touch them, but Mr. Hoover's plan would scrap one ship of 14,000 tons not due for scrapping until 1938. Eight-inch gun cruisers would be affected by neither plan, but while the British proposals would leave light cruisers alone, the Hoover scheme would mean not building 84,750 tons, or say 12 ships of about 7,000 tons each.

Sir J. SIMON

Does the hon. Gentleman mean that the British plan would leave eight-inch cruisers alone?

Mr. GRENFELL

That is the statement of the "Manchester Guardian." It went on to say: Our plan would mean avoiding the building of 30,000 tons of destroyers and flotilla leaders provided submarines were abolished, while Mr. Hoover's plan would avoid building 78,800 tons. Thus the total saving on naval construction by the end of 1936 would be on the British plan 67,700 tons or about £20,000,000, conditionally on the abolition of submarines, while the adoption of the Hoover proposal would save altogether 139,930 tons or about £42,000,000. That is a comparison, showing the effect of the Hoover plan for the next five years as compared with the British plan. The conclusions are these: that the Hoover plan would mean a saving of £42,000,000 in naval construction and the British plan a saving of £20,000,000. I hope the right hon. Gentleman when he comes to deal with this question that he will give the House some encouragement to hope for a further reduction in armaments. The world is asking for such a reduction, but never have we received such scant encouragement. Petitions signed by millions of people have reached the right hon. Gentleman from those who want peace and who are praying for peace, but who so far have been grievously disappointed; and their mortification is all the more bitter because they see another country which has made more advanced proposals than our own Government. I hope the Foreign Secretary will assure us that the Lord President of the Council did not speak the last word for the Government the other day, and will give us some encouragement in our task of organising the peace mind in this country, in the hope that there will be a substantial reduction in armaments of all kinds in this and in every other country.

Mr. MACMILLAN

This Debate which has now ranged over two days has covered a wide field, and I hope the House will bear with me for the few moments I propose to occupy in dealing with one single topic, that is the subject of economy. It might have been more germane to the Debate of yesterday, but our calculations were a little upset by the right hon. Member for Epping (Mr. Churchill) who no doubt feeling that there was a strong team of guns to go out on the 12th thought he would have a little drive of his own on the 11th, but, I think, it entitles those of us who might otherwise have intervened yesterday in the Debate to say a few words on the subject to-day. The subject of economy is one on which it is difficult to speak without raising prejudices of one kind or another. It is one of those subjects on which we are all disposed to— Compound for sins we are inclined to, By damning those we have no mind to. Some hon. Members who advocate economies in public Departments the objective of which does not appeal to them are quite prepared to spend on those Departments which they think are salutary. Sometimes those who quite approve the great rise in the social services forget the comparatively small rise on armaments. At the same time those who speak of the great pressure of the social services and object to them, forget that even after conversion we shall be paying £270,000,000 a year on debt charges. Some friend brought to my notice the other day a passage in that delightful novel by Jane Austen, "Persuasion," where an impecunious baronet finds himself in temporary difficulties, and after full discussion of his affairs it is decided not to economise upon his horses or upon his table or upon his sport, but upon his charities. Some of us are a little prone to that. Those who are well acquainted with Miss Austen's works will remember that the name of that baronet by some divine chance was Sir Walter Elliot. Well, coming events may cast their shadows before them.

But at any rate this is a subject upon which there is clearly a very great deal to be said on both sides, and I do not think that the whole of the question has been really debated from a theoretical point of view, although very useful suggestions have been made from a practical point of view. One side, of course, says, "We must economise because we want to make a saving in taxation. Taxation is in itself a burden on industry, and obviously the first method to produce industrial recovery is to reduce the charges." The trouble of that is that, while it is the truth, it is not the whole truth. The other side, those who are against economy, say, "If you economise on national expenditure you will reduce purchasing power, you will still further increase the vicious circle of deflation. You will reduce further the profits of those businesses that sell their wares to the great mass of the people, you will have a falling revenue, and you will lose in the long run all you have gained." The trouble again is that, while that is largely true, it also is not the whole truth. The fact is that in these conditions the old watertight and easy theories do not apply

We have to take a much more balanced view of a very difficult situation, to weigh and balance one against the other, and to make the best choice that we can. It cannot be doubted that a very high rate of direct taxation, such as now exists, is in itself a discouragement of the entrepreneur. It tends to destroy the incentive and initiative of business. To that extent its removal at the present time would more than balance the evil results of a decreased Government expenditure. You have to choose between the beneficial market results of large Government expenditure and the beneficial psychological and subsequent economic results of a reduction of taxation. But when we come to the question of the reduction of taxation it is clear that what we are looking for is not a relief of the taxpayer which can be spent on consumption goods. The whole policy will fail unless the sums given to the taxpayer in relief are spent in capital goods. If the sums transferred and given back in relief to the taxpayer are spent on consumption goods, the only result is the transfer of a certain purchasing power from the poor to the rich. That may be good or it may be bad.

10.0 p.m.

On the other hand the real object behind any economy now—I know it is easy to deplore the paradox of the absurdity of economy at a time of depression— the only object of economy is to secure expenditure on capital goods. Expenditure on capital goods will have the result that men who draw wages to make the capital goods will spend those wages on consumption goods without adding to the total production of such goods. Therefore prices will rise. There is no better way of getting what we want, a rise in the price level, than the employment of men in production of capital goods. That is the whole object of the financial policy of economy. But there are grave difficulties. I do not think anyone who has studied the present economic situation would deny that one of the main troubles at the present time is the failure of the rate of investment, of new capital investments, to keep up with the rate of savings. If the only result of economy is to add to the liquid pool of unused and uninvested money none of these beneficial effects will come. We have to do two things. We have to add to the amount of money available for capital expendature, and we have also to drive into capital expenditure the present amount of liquid money which is kept liquid and not invested. How can we do that?

By far the most interesting part of the speech of the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) was that in which he made a powerful ease for capital development at this time. If I may say so, I think his was a far stronger case for capital development at a time when money rates are low than it was at the time when he presented it to the nation in 1929, when money rates were high and we were approaching the top of the boom, when money from day to day in New York paid 10 to 12 per cent., and we would have had to pay high rates for loans. There is a far stronger case for capital expenditure by direct national action when money rates are low. But I do not myself believe that it would be wise, and it is not necessary, now to embark upon direct Government investments. What we have to try to do is to get liquid capital back into investment. But is there any means of doing that other than by direct Government investment?

I think we are all agreed as to the difficulties of getting suitable plans, and the tendency to waste and unproductive expenditure which follows from ordinary Government work schemes. But I ask the Government to consider what really are the causes that are keeping money out of investment. Of course we know the ordinary causes. We know that there has been a tremendous fall in the price level. I do not propose to discuss all the questions that arise from that, deflation and the rest. We know of the ordinary causes, but there is another cause to which attention has been called in two of the most powerful reports presented by financiers and industrialists to the country—the Macmillan report and the recent report of the Federation of British Industries. That other cause is the memory of the last boom. The investor has not forgotten what happened then, and I do not think it is altogether the low price level, or the difficulties and the lack of confidence surrounding us to-day, but the memory of the last price boom which is causing the situation I have described. May I give the House a quotation from a very remarkable report on this matter by Sir Arthur Salter? He says: How discouraging to the investor has been the provision of his savings for new capital to industry is shown by some striking figures, published by the Macmillan Committee, for the year 1928. In that year the total amount subscribed for capital issues in Great Britain of shares and debentures of 284 companies was £117,000,000. On the 31st May, 1931, the total market value of these issues was only £66,000,000, a loss of 47 per cent.; and indeed, the loss was really greater, since many of the shares were sold by the promoters at a high premium. Moreover, of these 284 companies, 70 were already wound up, and the capital of 36 others had no ascertainable value, the issues of these 106 companies amounting to £20,000,000. I think it is clear from those figures that it is not wholly the financial and economic conditions of the present time that are responsible. It is what always happens after the folly of fantastic and in some cases even fraudulent flotations. The investor becomes thoroughly frightened: of the market. There is one other consideration. In the 19th century, which was a century of smaller family businesses and closer connection between ownership and management, the capital raised for the expansion of business was mainly raised from the private owners of businesses. It was not raised in the London money market. Sir Arthur Salter has produced another set of figures on that point. Of the £200,000,000 which were invested in home concerns in the year before the War, only £18,000,000 came from the London money market, but in recent years, instead of £18,000,000, about £170,000,000 out of the £200,000,000 were raised upon the money market, and only the remainder represented the investments of smaller owners—re-invested profits. That is partly due to high taxation and partly to the spread of ownership from the smaller type of family controlled business to the very large concerns. That makes it all the more important to restore the confidence of the investor.

I only wish to put this point before the Government. I believe that economies are justifiable. I believe that economies are now justified in order to reduce taxa- tion. But the object of reducing taxation can only be to create a further amount of capital investment. If it does not do that, we simply depress the level of the poor without doing any good and increase the circle of deflation. Ultimately, I would remind hon. Member s, it is by the results of the whole of our economic policy, that this Government and, perhaps, the capitalist system will be judged. Therefore let us take every step we can to ensure that the possible good results which we expect, will arise. This is not merely the suggestion of a private Member like myself or some faddist, but is a suggestion which has come from the greatest organisation of industries to-day namely the Federation of British Industries which has put forward definite proposals in this respect.

The main unanimous recommendation of the Macmillan Committee which was signed by economists, industrialists, bankers, representatives of the issuing houses and representatives of the Socialist party was that which recommended the creation of a structure which could link the operations of finance and industry, guide and influence investors, and give to investors that sense of security which I am sorry to say some of the results of the issues during the boom period have not given to them. It was proposed to have such a structure, not bureaucratically controlled, but directed by some organisation of industry and finance which would give confidence to the country and would guide back into capital investment all that present uninvested pool of liquid savings and also the additional savings that would arise from the reduction of taxation. If that can be done I believe we shall get good results and I do ask the Government to inquire into that aspect of the question.

Sir ARTHUR MICHAEL SAMUEL

May I interrupt my hon. Friend? I agree with every word he has said and his powerful argument is helpful to us who are in trade, but I hope that he will add this consideration. One of the reasons why it is difficult to get people to put money into industry to-day is due to the 1929 Companies Act. I believe that he would strengthen his argument—although it might imply new legislation—by drawing the attention of the Government to the fact that the 1929 Companies Act supplies one of the reasons why we cannot get money into industry. That Act is a shield for scamps and is not assisting honest investors.

Mr. MACMILLAN

I am much obliged to my hon. Friend for his assistance, but the particular point which he mentions is one which had not altogether escaped my notice. I only venture to add one other word on this suggestion of which I hope the Government will take notice. I recently put down a question to ask the Prime Minister whether the Government would take action in this direction on the lines of the reports of the Macmillan Committee and the Federation of British Industries. The Lord President of the Council in the absence of the Prime Minister said that while his right hon. Friend would welcome action taken by private initiative on the lines suggested by the Macmillan Report in these matters he did not think that those matters could properly be made the subject of direct Government action. I could make an easy retort to that. I could suggest that that is a rather strange doctrine for the Lord President of the Council to put into the mouth of a Socialist Prime Minister and that he need not be so much afraid of Government action in these matters.

There are, however, other methods besides direct action by the Government. A lead could be given by the Government, a suggestion could be made by the Government, a conference could be called by the Government. I am not asking for any kind of interference with industry which industry would resent. I am only asking for that interference for which every specialist on the Macmillan Committee has asked, which has been asked for by the best representatives of the banking and issuing houses and which within recent months, has received overwhelming support in the very remarkable document issued by the Federation of British Industries. If the Government went upon those lines I believe that they might expect the results which they seek from a policy of economy. If they do not, if we are simply to have economies which will depress the market, without effort to induce money to go into fresh capital production, then, I fear, we shall reach a situation even worse than that in which we now find ourselves.

Sir J. SIMON

The Debate on the Third Reading of the Consolidated Fund Bill always leads to a wide range of discussion, and in making some remarks from this bench at the latter end of the evening I cannot do more than touch on two or three of the many important questions which have been raised. My hon. Friend the Member for Stockton (Mr. Macmillan), who has just contributed so well informed and interesting a speech on a subject which he knows so well, will forgive me if I do not endeavour myself to deal with that particular topic.

There are two main questions which have been discussed, the Lausanne Agreement and the present position and prospects of the Disarmament Conference at Geneva, and I should like to say a few words about these. Of the first, the House has already heard from the Prime Minister and the Chancellor of the Exchequer, and naturally I do not desire to emulate them in going over the whole ground, but now that the Debate is reaching its conclusion, let us face the question which was put just now across the Table, very fairly, I thought, by the hon. Member for the Gower Division (Mr. D. Grenfell), who asked the question—and it is what everybody is asking—"After all, what is the result which is secured by the Lausanne Conference" He went on to answer the question in terms which showed that he was rather inclined to measure the results at something very minute; I think he called it a tiny result. Well, I agree that it is only a part of a much larger problem, but still, let me try, in three or four uncontroversial sentences, to put what the result may be said to be.

A month ago the Lausanne Conference had not yet begun. It began on the 16th June, and a month ago the position was that on reparations account Germany, as soon as the Hoover year was over, would come under a régime, the Young Plan, by which she would be bound, over her own signature, to make payments which would run on for more than 50 years and would only ultimately run out some time in the 1980's. That was the situation that existed before the Lausanne Conference met, and not only so, but, the Conference having met on the 16th June, those obligations would at once have attached themselves again to Germany as soon as the Hoover year was over. For that very reason, at the beginning of the Conference, purely as a matter of suspension, so as to give time to the discussion, which took three weeks, we began the Conference by an agreement, signed by the principal creditor Powers, by which they said, "We do not want the discussion embarrassed while it is going on by any question of whether the money is due to-day, to-morrow, or the next day, or whether it is Reparations or European debts from A to B or from B to C. Hold the whole thing up until we are able to sign a document."

That was the first step, and now as to the result. We have got this, that whereas only three weeks ago, after many attempts to revise reparations, Germany, as I have said, was under a plan which bound her to make provision, half-year by half-year, for more than half a century to come, to-day we at least have got a new arrangement, signed by all concerned, which puts an end to that whole system and substitutes what is really and truly a single payment, which is not in the name of reparations, but which is in the name of a contribution made once and for all, if Germany can do it, to assist the restoration of Europe. I do not want to exaggerate, I do not want to claim more for the Lausanne Agreement than is fair—history will judge—but that is in itself if not a great achievement, at any rate an achievement in which we are all entitled to take satisfaction.

Allow me, in the second place, to put this question: Let us suppose, because from this corner or from that there is some criticism, which is quite right and proper, that those criticisms had prevailed and we had come back here to this House to announce that after three weeks at Lausanne there was no agreement, that it was not possible to get everybody there to agree to the same scheme, and that therefore the whole thing had broken up in confusion. Where should we be then? That is the real test. If one wants to measure fairly what has been accomplished, one must ask oneself what the position would be to-day if we had had to come back and say that nothing had been accomplished. For the very nature of the agreement at Lausanne is this, that under a guidance and influence which I hope his colleagues will allow me to say is one of the most remarkable exhibitions of the Prime Minister's skill in these matters, day by day and night by night, never losing touch, always bringing together people who seemed to be breaking away, always fertile in suggestions, always good-tempered, always conciliatory, always ready to listen to the other man's point of view, suffering, as we all know he has been, throughout this time sometimes intense pain, and with the greatest difficulty in reading documents—it is that man, and that man alone, who has been able to come back here and say that, at the end of three weeks, we have got an agreement.

Now we come to the main criticism—and I am not complaining. I am not sure that everybody in the House has appreciated that the two principal critics, if the other critics will excuse me for calling them so, contradict themselves fundamentally at every point. The contradiction has been to some extent concealed because they spoke on different days. The right hon. Gentleman the Member for Epping (Mr. Churchill) used this language yesterday: Until this morning's newspapers we were led to believe that we had forgiven Europe all debts and reparations irrespective of our obligations to the United States. The right hon. Gentleman went on to say that he was very shocked at it. He said later: I am glad to know that the Young payments are in suspense. I feared that we had been left utterly defenceless."—[OFFICIAL REPORT, 11th July, 1932; cols. 945–6, Vol. 268.] To-day we have had one of the most remarkable exhibitions of the art of my right hon. Friend the Member for Carnarvon Boroughs (Mr. Lloyd George). He is singing exactly the opposite tune. He says that what he wishes above all things is that we had come back from Lausanne without any possible recourse to any European debtor in any circumstances, but that we had wiped one side of the slate entirely clean—the European side—without raising any question of what was going to happen on the other side. You may take your choice and pay your money, but it is obvious that these two points of view are contradictory. It is not perhaps surprising, when two statesmen of the calibre and knowledge of these two right hon. Gentlemen take absolutely opposite lines that what in fact has been done as the result of the negotiations for three weeks is something which partakes—as I agree it does—a little of the qualities of both.

Let me say a word to explain as clearly as I can the subject of ratification. The House will appreciate that when we draw up an international treaty of this sort it necessarily follows that there is the stage of signature, which may or may not be followed in the case of each signatory by the stage of ratification. When States enter into these treaties there are always those two stages. It must be so, because—at any rate, in some countries—it is necessary to get Parliamentary approval before the signatures of their foreign Ministers actually bind their countries. Technically that is not so in this country, although as a matter of fact in recent years Parliament has been given the opportunity of ratification. So there is nothing in the least abnormal or surprising in having a treaty at Lausanne which can be described as signed but not ratified.

The next point is this. Nothing that you can do at Lausanne or anywhere else can possibly secure by main force that any particular State will ratify. That necessarily remains to be decided by the State in question. It will be a very gross breach of international good faith if they do not do their best to ratify, but at the same time you must leave each State free to say, when the time comes, "Yes" or "No." The only reason why this supplementary arrangement has not been printed in the document is that the whole basis of our agreement is that everybody should ratify and that we mean to carry it through. I agree that there is the possibility of ratification not following.

Would the House follow me while I make this final point? A great many people think that German reparations are, so far as Germany is concerned, divided up, so that Germany promises to pay so much in the way of reparations to A, so much to B and so much to C. If that were true then, of course, creditor A might release Germany from the reparations due even though creditor B and creditor C refused to do so; but that is not the scheme of reparations. Germany is bound, or was bound until the Lausanne Agreement, to pay reparations in a global sum to a single recipient, the Bank of International Settlements, and what happened to that total when it was thus provided by Germany was not a matter with which Germany had any concern at all, but was an arrangement between the different creditor countries. In those circumstances it is obvious that to get an effective and final Lausanne Agreement you must have not ratification by one State but ratification by all the principal States concerned, because only in that way can you provide the relief. The House has been told by the Chancellor of the Exchequer that we are perfectly willing that the fullest information shall be given, and I have already caused a telegram to be sent to-night to ask the other foreign Governments whether they have any objection to publication.

All that was arranged—and it was entirely in the interests of Germany—was that instead of leaving an individual State to make trouble on its own, to boggle and refuse ratification, we said it would be much better if we, the principal creditors, agreed among ourselves that as regards ratification we would do our best to act together, and, if trouble arises, we would meet and discuss what we can do. That is no injury to Germany, not the least in the world. In the first place, a debtor who owes a sum which is going to be divided between a number of creditors has no reason or right to complain because those creditors agree that in certain events they will meet together, as is the right of all creditors; but, as a matter of fact, not only has Germany no reason to complain, but Germany does not complain. So far from its being a fact—as was suggested by the right hon. Member for Carnarvon Boroughs was a possibility—that this was done behind Germany's back, which would have been furtive and secretive, the day before the Lausanne Agreement was signed this very question was raised as between the German representatives and ourselves. We told the German representatives what we proposed to do. The German representatives not only made no objection, but have since then referred to it as an arrangement which they quite understood.

It is an error to suppose that there has been some tricky business in this connection. At the same time, I think everything is to be gained by removing every possible suspicion, by making known to the public, with the assent of the other Powers, any and every supplementary arrangement. In a thing like this there always are, necessarily, certain supplementary arrangements, and it is much better that people should know, in order that there should be no exaggeration or misunderstanding. That is all I desire to say about the Lausanne Agreement, and I trust the points I have made will put the value of that agreement in its proper light. An hon. Gentleman who just now asked the question, "Well, after all, what does it amount to?" will, I am sure, give fair weight to these considerations.

10.30 p.m.

The biggest consideration of all remains and it is this. We have been struggling for years to get outside the period of the post-War atmosphere. That is the big thing, to get free of this inheritance of war, with its moral effect upon the outlook of peoples which is one of the most dreadful things about it. We here, in all parts of this House, realise to the full. What have you had? On the political side, a great effort to get out of this post-War mentality was made at Locarno. There always remained this financial link with the past, in the shape of Reparations. As long as they were there, and as long as they were due and claimed, they were a perpetual turning back of the gaze of Europe on the road that had already been followed. There was a continual stretching back into the past. The real meaning of Lausanne, which the Prime Minister in his final speech put in language which I wish I could repeat, because it was immensely moving at the time, is that an effort is being made, in true comradeship, to turn the whole gaze of Europe to the future of Europe, and to turn our backs upon the past. That is the big thing, and if you can get rid, not only of the name of Reparations but of the whole idea that what is to be done in the future is to have reference to the quarrels of the past, and if you can start a new system in Europe by which you are going, for the future, to ask people to co-operate for the sake of the things that are to come, you have effected an enormous change in the psychological outlook of every population. I know that nobody will more heartily rejoice about that than the right hon. Gentleman who leads the Opposition. That is, I am convinced, the largest and most important result that is going to flow from Lausanne.

I will not detain the House at any length on the other sides and upon other subjects, but a, number of questions have been asked, and I wish to discharge my duty to my colleagues in all parts of the House as well as I can. Let me speak of Disarmament. May I be permitted, in the first place, to say that it would be a matter of regret if we were to devote ourselves exclusively to comparison, or even to contrast and opposition, between President Hoover's very striking proposals, and any other proposals or criticisms which have been put forward, because that is not the spirit in which, so far as the British Government are concerned, to advance any proposition. I was very glad to see that our friends in America perfectly understood the spirit in which we advanced our proposals. Mr. Stimson, the Secretary of State in Washington, after the statement made in this House by the Lord President of the Council, interpreted American opinion authoritatively by saying that he regarded Mr. Baldwin's speech as an indication of the momentum that is given to the Disarmament Conference since the announcement of the President's plan, and that he welcomed the British suggestion as an expression of the same spirit, that details would be studied with care and confidence that we"— that is America and ourselves— have a common purpose. While I quite recognise that it is just that we should have in this House, or outside, some criticism of what has been said by the British Government, do not let us try and deal with this terribly important matter as though we were endeavouring to outbid one another or to put one another in opposition. That is not the spirit. The spirit of it is that Disarmament, in general terms, is the desire of everybody. Disarmament in practical terms is one of the most difficult things to accomplish that can be imagined. What we have to do, and what I have tried my very best to do—whatever the measure of success I may have had—is to show the Americans that there is no question of showing oneself aggrieved or of opposing the principles, methods and drive of their plan. The point is rather this, that President Hoover has made a contribution of inestimable value. No one who has lived in the doldrums of Geneva will doubt that, but at the same time he has never suggested that the contribution is some cast-iron proposal which everybody must bow down to and worship, and that everybody who tries to modify it is a heretic or a backslider, Not at all. It is his contribution. We are entitled to say, in exactly the same spirit, that we want to make a contribution.

There is one other observation of a general kind. I beg the House to remember that nothing will be accomplished at all about Disarmament unless we reach agreement. What we are after is international Disarmament, and, therefore, though there may be a great deal of natural temptation to say, "Why don't you swallow the whole of this plan?" you have to remember that other people have to accept it too; and the work that we are really trying to do at Geneva is not to oppose or put difficulties in the way of what I have always admitted to be a most important and invaluable contribution, but to try, while fairly explaining our own position and our own difficulties, to make room for other people also to come in in the effort to get a general agreement.

I should like to say, next—there is no possible advantage in our burking this point—that, apart altogether from the overwhelming desire of the British people and the British Government to contribute substantially to Disarmament in all departments, which I here affirm, we are entitled to say that there are two things in the minds of our people which constantly are in our thoughts, which are not urged as reasons why we should not disarm further, but which must-be allowed for, which must be borne in mind, before we can reach a reasonable conclusion. The first is this: We are entitled to say, in no vainglorious spirit, that, after all, if we are trying to reach new levels, proper regard must be had to the reduction which Britain has made, single-handed, in advance of any general scheme of agreed Disarmament. Let me be entirely plain. If that argument were used as an excuse for not delimiting now, I would be the last man to put it forward, but I am quite convinced—and I say this to those who are keenest about Disarmament—that we are not going to carry this cause with the people of Britain behind it unless we show that we remember that fact.

Let us see what the facts actually are, because, really, they are well worth a moment of attention. They are set out in a perfectly unprovocative way in the statement which the Lord President made the other day. No one suggests that our land forces are bloated and swollen to an unreasonable extent, but the actual fact, of course, is that in contradistinction from most of the great countries of Europe, we have got rid of conscription altogether—and mightily glad I am of it; and, in addition to that, if we merely compare our Army situation before the War with the situation now, leaving out altogether those enormous masses of men that were raised during the War—if we compare the situation of the British Army in the year before the War with its situation now, the fact is that we have reduced it from 259,000 to 207,000. That has been effected by the disbandment of nine regiments of cavalry, 61 batteries and companies of artillery, 21 companies of Royal Engineers, 21 battalions of infantry, and six battalions of Colonial troops.

It is right that that should be borne in mind, and it is worth noticing that President Hoover's plan by which he tries to analyse the land armies of the world by dividing them into two, one portion which he regards as being necessary for keeping internal order and the balance which he calls the "defence contingent" which is regarded as necessary for the defence of the country—if you apply that analysis to the British Army, the actual result is to prove that we have a minus quantity, so that we have nothing to apologise for there, and it is very material that we should call the attention of others at Geneva to the fact that at any rate in that respect we have really been as good as other people's word.

But that is not enough. If Great Britain was to go to Geneva and say, "We will do nothing," we should be rightly open to the gravest admonition. What we have to do is to make an adequate contribution in the naval sphere, because it is essential that everyone should make an adequate contribution in the arm in which he is the strongest. That is quite right. At the same time, let us see how things really stand about the Navy. We all have in mind that the Navy before the War had for some years been developed and brought up to a point in view of a particular peril which has disappeared, but still the fact is that, if you take both the British Navy and the navies that are associated with us in the British Commonwealth, you will find, as compared with the year before the War, that capital ships have been reduced from 69 to 15, cruisers have been reduced from 108 to 52, destroyers have been reduced from 285 to 147, and submarines have been reduced from 74 to 52.

I again say that is not the slightest reason in the world why we should not be expected to make a substantial contribution at the Disarmament Conference, but it is not treating the situation reasonably if you do not call attention to the fact that that is our record up to date. I do not know of any great naval Power in the world that can point to such a record. If you take the Air Force, it is no good taking the year before the War, because fighting in the air was in its infancy, but when the War ended the British air arm was one of the two strongest Air Forces in the world. I remember very well calling attention in 1924 on the Estimates to the way in which we had cut that force, and to-day, instead of being the second force in the world, it is the seventh, and, if you take our first line aeroplanes, we have got rid of four out of five. I say again I do not in the least insist upon these points with any idea that this is an excuse for not doing very substantial things now, but I say that you cannot expect to get British opinion with you, and you cannot expect to get reasonable treatment from others, unless these facts are plainly, but without boasting, put before the world.

There is one other thought that is in the mind of everyone. No one would dream of disputing it. The responsibilities that attach to the British Navy, in the sense that they are spread over so many parts of the world, are something which really cannot be paralleled in their diversity with the responsibilities of other naval Powers. We make no reproach to them. We do not know any reason why we should be blamed. I do not know of a naval Power which has at one and the same time this complex of responsibility which attaches to us, not in the interest of war but in the interests of peace, as was very movingly pointed out in the admirable maiden speech of the hon. Member for South Hackney (Miss Graves). What I have pointed out shows the reason why in our case there is a real difficulty in consenting to a further reduction in units, because in units we have cut and cut and cut. I am not saying that nothing can be done, but it is very material to observe how we have cut down units. The proposals I confess are of great value and would certainly be an enormous relief if they were applied to the taxpayers, and, I think, a great reduction in the danger of war.

It is suggested that there should be a great reduction in tonnage, and here I have difficulty in following some of the criticisms. Apparently if you were to bring ships down from the present maximum size to 10,000 tons you would be doing a very good thing. I do not pose as a technical expert, but I imagine that the capital ship only means the biggest ship we have got. If there was no bigger ship, then the 10,000 ton ship would be the capital ship. Can you really think that you are not promoting Disarmament if you can secure a substantial and, as I should like to see, a progressive reduction in the size of those monsters. For a moment I thought that one hon. Gentleman was arguing that it was not only not a contribution to Disarmament but was actually calculated to encourage people to spend more money upon armaments on the ground that a 35,000 ton ship cost more than a 32,000 ton ship, and that if you brought the tonnage down to 22,000 you would only be encouraging people to arm more. I really do not think that that could be regarded as a serious argument at all. If you can bring down the whole scale substantially you are certainly doing one thing—and I think you are doing two things—beyond all possible question, you are reducing the financial burden enormously. My information is that you would reduce the burden in the case of capital ships by half. Not only that, but you are doing a second thing. At the same time you reduce the size of those fighting ships—it applies to cruisers as well as to capital ships—you are reducing the size of the guns they mount.

The hon. Gentleman opposite was mistaken—I am not blaming him—if he thought our proposal had nothing to do with naval guns. It has. I remember during the first Labour Government, when that Government proposed what at that time some of us sitting over there thought to be a great pity, namely, to establish a larger size cruiser of 10,000 tons, that I made a speech and I was looked at very coldly by members of the Government and regarded with indignation by most of the Conservative Members opposite. The time has now come when we are entitled to say that it would have been a good thing not to have started that race in armaments, and it is a good thing now to bring it down. Therefore, though I am the first to admit that the proposals which we have been able to put forward, do not, of course, strike the eye and produce the immediate results which President Hoover's plan, if it were applied to-morrow morning, might produce, I beg the House not to treat the proposals which have been put forward, and which involve an enormous sacrifice of the tradition which has obtained, for instance, among our Fighting Services, as though they were trumpery or ill-conceived.

The last point I want to mention has to do with bombing. Here, again, do not let there be any doubt as to the attitude which the British Government have taken up, are taking up, and will take up. I will read a sentence from the Lord President's declaration which puts it as well as I can put it: There is no aspect of international disarmament more vitally urgent than the adoption without delay of the most effective measures to preserve the civilian population from the fearful horrors of bombardment from the air. The Government of the United Kingdom would be prepared to go to any length, in agreement with other Powers, to achieve this object. It may be—I do not rule it out—that the method that is to be considered as the most practicable method is a very drastic method indeed, but I would ask hen, Gentlemen who feel, as we all do, very keenly on this subject, to observe one or two practical questions which arise. The last thing that I wish to do is to criticise the wording of President Hoover's document, but there is a passage in that document which seems almost to suggest—in fact, I think it says so—that if you could get rid of bombing aeroplanes you would get rid of all fear of bombing. That may be so in the United States, but at least we have to have regard to these two difficulties. I do not mention them, because I desire to use them as a shield to protect the British Government against criti- cism, but because they are there, and nothing is to be gained by not looking things in the face. One is this. It is not true, unfortunately, under modern conditions that the only military machine that can drop bombs is a bombing machine, and therefore you have to carry your plan further than appears at first sight. If not, then you run a grave risk by believing that you have got rid of this frightful new method of warfare, as I, for my part, most earnestly wish to do. You will, as a matter of fact, still have left the opportunity in various air forces to use other kinds of machines—machines which are not specially designed for bombing but for other purposes. There is a second difficulty which assails the minds of many people, and particularly of our friends in France, namely, that, apart from military aeroplanes, there are large civilian machines which are capable of lifting great weights into the air and carrying people in time of peace, which is a more suitable occupation, and which could be used for dropping bombs in time of war.

These are all perfectly manifest points and the reason I am making them is not in the least because I desire, having introduced them, to say that nothing can be done. On the contrary, my firm conviction is that there is nothing in the whole disarmament discussions which is more vital than that Great Britain should play its own full part in seeing that steps should be taken effectively to stop this abominable practice of indiscriminate bombing which is threatening the whole future of the world. I would point out to the hon. Member for East Wolver-hampton (Mr. Mander) who made, as usual, a well-informed speech, that in his enthusiasm for President Hoover's proposals he read rather more into them than I have myself been able to, for he told the House that President Hoover had proposed a treatment of such things as gas and bacteriological warfare which went far beyond and was much more effective than the proposals which were generally accepted at Geneva. I did not know that. Therefore, I sent for the document to see what President Hoover said. This is what he said: I propose the adoption of the presentation already made at Geneva for the abolition of all chemical warfare. I am not aware there is any difference at all between us. It may be asked what is going to be done now.

Mr. LANSBURY

Will the right hon. Gentleman deal with the question of preparations and continuing the work of inquiry.

Sir J. SIMON

I know that subject is in the mind of the Leader of the Opposition and of the hon. Member for East Wolverhampton. I have studied very closely the report of the Gas and Bacteriological Warfare Sub-Committee which has a scheme which is, I think, a very good one, and I quite agree that if there is anything which can be done to strengthen it on the lines of checking and preventing preparation it would enormously improve it. The right hon. Gentleman knows the difficulties in the matter and that a very large number of these chemicals are chemicals which are produced in themselves for a variety of purposes, and it is the use or misuse of the chemical and not the fact that it is produced in a chemical factory which is the practical thing you can tackle. On the other hand, there are preparations, bacteriological preparations, which are produced on a large scale and can only be intended for abominable uses in time of war. If you can get instances defined in which you can stop the preparation of gas which is intended only for warlike purposes, I can say on behalf of the British Government that we join most heartily in including that in the prohibition.

What is going to happen now? The Geneva Conference has been sitting for many months. Whereas the Lausanne Conference was only sitting for weeks, the Geneva Conference has lasted for months. It is fair to say, however, that the problem with which Geneva is dealing is on a much wider scale. It would be very unjust to Mr. Henderson to refer to the task which he has to discharge as being one which is in the same comparatively narrow compass, very important but narrow compass, of Lausanne. In the second place, at Geneva you have something like 50 to 60 States represented instead of the four or five creditor Powers who to a very large extent led the whole business of reparations at. Lausanne. Moreover, one met at Lausanne with the realisation that something must be done, while at Geneva you meet in the atmosphere that something ought to be done. That is a very important difference. Therefore, it is quite natural that Mr. Henderson should not have been able to drive his team any faster.

But a very important decision wan reached last week when I was at Geneva, and I trust to be able to help in carrying it through when I return with my colleagues to-morrow. It was decided that before the end of this month, possibly at the end of this week or the beginning of next week, we should have a comprehensive Resolution which would be so drawn as to cover all the points of the maximum amount of agreement which we have been able to attain up to now, and that it should be divided into three parts. One part would heartily welcome the Hoover scheme, and would affirm on behalf of the whole conference the Hoover principle that there must be substantial reductions in all three Arms, and that they were inter-connected. It would also affirm the Hoover principle that reduction should be carried out not only by broad general cuts in armaments, but by increasing the comparative power of defence and decreasing the power of attack. That is pure Hoover. The second part of the Resolution would affirm about a dozen propositions which, after a great deal of inquiry by my colleagues and myself, we believe we can get the whole conference to accept. They include the gas and bacteriological recommendations, as well as various points in connection with the other forces. No doubt the House would like to see a longer and more important list but so far as it goes it is something which is an actual contribution towards the desired object.

11.0 p.m.

In the third place it is proposed by the Resolution that, on the subject of effectives in Territorial Forces, a matter of particular importance to the countries with conscript Armies, or on the subject of the method of naval reduction, it is necessary to get together, without loss of time, the Powers that may be specially concerned, and appeal to them to reach agreement, if they can, and make a report to the conference. The conference would invite the Powers who were parties to the Naval Treaties of Washington and London, by which substantial measures of limitation and reduction of naval armaments have already been brought about, to confer together and report to the General Commission before resumption of its work as to any other measures of naval disarmament which may be possible as part of the general programme. No other method is possible. We cannot possibly secure that Japan is going to agree with America or ourselves between now and the end of next week, but you can, having got them together, say that as regards the broad object of naval disarmament we are all aiming at the same thing, we may not be agreed as to the best method; there must be give and take; no one can get everything his own way, therefore let us meet at once and report to the conference the view which the naval Powers take as to further reductions. I believe that that is thoroughly practicable, and if, as I hope, the Resolution is proposed in a few days time, and is adopted unanimously—it must be remembered that it can be upset by a single adverse vote—it will be a valuable—I do not desire to exaggerate the achievement—and a, substantial advance which will justify all the hard work that has been put into it.

My last word is this. Disarmament, reparations, economies, all these things are aspects of the same problem. The greatest mistake is to suppose that one can exercise its healing influence without the other. At Lausanne we tried to get the countries to look forward instead of behind. What we had particularly in mind, as the Prime Minister said to M. Herriot, is that in the future we do not want to see the policy of Europe diverted by secret conversations between a couple of Powers at the expense of a third. We want to deal with the whole problem of Europe in a spirit of candour and mutual assistance. The value of Lausanne is that it was done that way. The Germans put their case with the greatest firmness, everyone listened. The French did the same and the Italians did the same, and we did the same, and I trust that at Lausanne and at Geneva we may be able, under the leadership which beyond all doubt falls to this country at this moment, to set a new manner of life which will lead to the exercise of candour and kindness between all nations of the world.

Miss RATHBONE

I want to make a protest. Last Thursday we were told by the Lord President of the Council that a Debate on the disarmament proposals would take place to-day on the proceed ings at Lausanne and Geneva. The Debate has not taken place. We have had a long Debate on Lausanne. When I asked leave to speak on disarmament I was informed by Mr. Speaker and the Deputy-Speaker that no speeches would be taken on disarmament until everyone who wished to speak on Lausanne had done so. The hon. Member for East Wolverhampton (Mr. Mander) has managed to get away with it, probably because he did not announce beforehand the subject of his speech. I want to ask whether it is really carrying out the promise of the Government that there should be a Debate on both these conferences. The Lausanne Conference, memorable as it has been, is past and over. In the opinion of the majority of this House it has resulted in a substantial advance which cannot be affected by the Debate to-day. The Conference at Geneva is in full progress. As compared with the Conference at Lausanne the complicated issues raised at Geneva are as a game of chess compared with a game of football. Last Thursday proposals were put forward by the Government on the subject of disarmament of greater importance than anything that has been laid before the country for several years. Is it desirable that this House should be given absolutely no opportunity of discussing those proposals when it is about to adjourn for three months?

The Foreign Secretary has made a most interesting speech, and has repeated a good many interesting points with regard to Disarmament which were more or less contained in the speech of the Lord President of the Council on Thursday last; but he has not answered any one of the very pertinent questions about points of different interpretation which have been raised in the Press and the country during the few days that have intervened since the proposals were known. He has not told us, for example, on the question of capital ships, how exactly the relative proposals of President Hoover and the British Government would work out. Mr. Hoover proposes an immediate scrapping of one-third of capital ships. The British Government propose to replace the largest capital ships and the fixing of a new maximum which would not begin to be effective until the year 1941. Surely the House is entitled to know how these two pro- posals compare with each other. Then, again, Mr. Hoover's proposal is for the scrapping of all tanks. The British proposal is only to scrap all tanks over 20 tons. Are we not entitled to know what the relative sacrifices mean? How many existing tanks are over 20 tons? Mr. Hoover proposed the total prohibition of all bombing from the air. The British Government merely proposes that bombing should be prohibited except within limits agreed to by international convention, and that attacks on civilians should be entirely prohibited. The House is entitled to know how these proposals compare.

We have had six hours discussion today upon what is passed and gone at Lausanne, and I think we could very well spare another 10 minutes in order to settle a few of the difficult points that are puzzling many of us who care about Disarmament. I would remind the House that two men who are no small experts on Disarmament, Lord Cecil of Chelwood and Professor Gilbert Murray, in letters to the "Times" have expressed the most pessimistic view as to whether the proposals of the Government do in fact or do not represent any substantial contribution whatever to the problem of constructive, reciprocal Disarmament. Is it the case that the Government are only too well aware that they have nothing to lose by discussion of proceedings at Lausanne, but nothing whatever to gain in credit by a further and more meticulous examination of the proposals with regard to Disarmament, and by a comparison between their proposals and those of President Hoover? What is the use of agreeing with President Hoover's proposals in principle, if the Government proceed to disagree with the practical application of those proposals in nearly every particular?

Question put, and agreed to.

Bill read the Third time, and passed.