HC Deb 09 June 1932 vol 266 cc2247-58

I beg to move, in page 16, line 25, to leave out from the word "Account," to the word "assets," in line 32, and to insert instead thereof the words "or for the purposes of the note issue, gold or."

The object of the Amendment is to correct what seems to be an obvious anomaly in our present treatment of gold, both for the purpose of valuation and for the purpose of the note issue, as compared with all other securities. As things stand, every other security that is held in the Issue Department is valued at its real value, whether it is a Government security of this country, a foreign security or a foreign currency. Only in the case of gold is this value reckoned, not at its real value, but at a purely fictitious value which has no other than a historical or sentimental significnce today. If the Bank holds £1,000,000 of dollar notes, that holding is reckoned as £1.000,000. Even £1,000,000 worth of American gold eagles are reckoned at £1,000,000. If the Bank melts those eagles into the same weight of bar gold, they are at once to be reduced, for the purpose of valuation, to something like £750,000. There seems no conceivable practical reason or justification for such a policy.

When I brought this Amendment forward on the Committee stage, the hon. Member for Central Southwark (Mr. Horobin) suggested that the acceptance of my Amendment would mean that, whenever the exchange fluctuated, that fluctuation would be accentuated. That is to say, if sterling fell and gold rose, the amount of our note issue would be increased at the very moment when credit ought to be contracted in order to preserve sterling parity with gold. The Financial Secretary to the Treasury congratulated my hon. Friend the Member for Central Southwark for going to the very heart of the question and promptly went on to endorse that argument. If there were any force in that argument it would apply to gold currencies and gold securities, and not only to bar gold. If there were any force in it, then we ought to hold in the Issue Department all dollar notes and all foreign securities at the old par of exchange, and not merely bar gold. Every argument that the Financial Secretary used in regard to the Amendment would necessitate a revision of the Bill, in the sense that every foreign security should be held at the fictitious value of the old parity.

In any case, the argument used by my two hon. Friends is based upon two misconceptions, the first of which is that our main and predominant object is to maintain a gold parity. That is not our object to-day. If it were, we should simply be on the Gold Standard at a slightly different rate from the old Gold Standard, but we should still be on the Gold Standard, subject to all the disadvantages involved in the maintenance of that standard. The Chancellor of the Exchequer has himself laid down that the object of our policy is to raise the price level in terms of sterling. That object is entirely incompatible with the idea of maintaining gold parity. Gold at this moment is continuously increasing in value; gold prices are falling. To maintain gold parity is to drag our prices down, and not to raise the price level; so that there is no force in that argument at all. On the contrary, the acceptance of my Amendment would make it easier to get away from gold parity and to achieve the object of raising the price level.

The other misconception underlying the argument of my two hon. Friends is that the amount of gold held by the Bank is the only governing factor in the total note issue. That is not the case. It is true that the amount of gold governs the amount of notes held against the gold, but there is, in addition, the fiduciary issue, and there is no compulsion to raise the fiduciary issue to the maximum. The argument that my two hon. Friends have used is, if I may say so, exactly contrary. to the whole line of argument adopted by the Macmillan Committee. The Macmillan Committee pointed out that what we should aim at is a total maximum of currency suited to our needs, which they fixed provisionally at something like £400,000,000, and that, within that total, gold should be held as might be convenient, but that the total amount of currency should not be governed either way by the amount of gold held. If the gold was reduced, more securities would be held; if the gold was increased, less securities would be held. In other words, the argument of the Macmillan Committee was that the gold should be treated, for the purposes of our note issue, exactly like any other security on the market—as being convenient for the purpose of international exchange, but not as the basis of our domestic issue, and, therefore, not to held in any definite ratio to our domestic issue.

The clear implication of that argument is that gold should be held as a commodity, at commodity value, and for the usefulness which, it has for international exchange purposes. It seems to me that, if you accept the principle of the Macmillan Committee, you cannot hold gold at any other value than its teal value. At this moment, when we are suffering from a terrible financial crisis due to the sterilisation of gold, and when our object is to raise the price level, nothing could be more contrary to our professed policy than the fact that we are. holding some £160,000,000 or £170,000,000 worth of gold and calling it £130,000,000, thereby sterilising £25,000,000 or £30,000,000 which is doing nothing whatever. If our currency to- day is sufficient, so much less securities should be held against the fiduciary issue. If it is not sufficient, we are deliberately braking back the process of reasonable inflation and the reasonable raising of the price level which we ought to seek. It seems to me that there can be no real justification for the policy now adopted except just the idea, the hope, the belief, that the present phase is transitory, and that before long we are coming back to the old gold standard at £3 17s. l0½d. to the ounce Troy.

I wish that those who were responsible for giving advice in this matter were not, like Mrs. Gummidge, always thinking of the old un, but that they would try to get away from it and face the new position and our new monetary problems. What is being done now is a mistake from the point of view of the actual working of our currency policy, but I regard it as even more serious as an indication of a wrong state of mind. If we are to go to Ottawa to give a clear lead to the Empire on currency matters, I hold that we should not go trammelled with this kind of provision which definitely contracts our currency and sets up the old Gold Standard as the norm of our policy and the aim which we seek to achieve instead of the maintenance of a reasonable price level and of sterling stability at that price level.


I beg to second the Amendment.

The right hon. Gentleman who moved it has said that if it were accepted it would enable the Government to get away from the old gold parity more easily. I wonder whether, in spite of all their declarations, the Government really are as anxious as all that to get away from the old gold parity? We are to some extent at second hand upon the Gold Exchange Standard now, and what some of us are afraid of is that this Exchange Equalisation Account will be used to shackle us still further to gold. I am in entire agreement with the right hon. Gentleman who has just spoken in maintaining that we ought to shake off gold altogether and get as far away from it as we possibly can in facing the problem of the future. I believe the Government would accept the Amendment especially as they have accepted the Amendment moved in Committee by the hon. Member for Hudders- field (Mr. Mabane), were they not so preoccupied with maintaining the exchange value of the pound sterling as against the commodity value which, to many of us, seems to be of such far greater importance. The right hon. Gentleman proposes under this Bill that gold held in the Department shall be taken, on the winding up of the Department, to be of the value of £3 17s. 10½d. for every ounce troy. All I ask is, why? Why enter into this wholly artificial position? Why not treat gold as a commodity?

The hon. Member for Putney (Mr. S. Samuel) made a very interesting speech a little time back in which he proved quite conclusively that gold had its value as a commodity even though it was being cornered by the United States and France with disastrous results. I submit to the Chancellor of the Exchequer that if he could get away from that treatment of gold as a sort of specially sacred symbol and regard it, in dealing with the problems which confront him, as being in the light of a commodity pure and simple, there would be very much more hope of success at the conferences about to be held. I ask him very respectfully whether he can explain to the House why he proposes to fix this particular value for gold as against any other commodity?


This Amendment has certain attractions for me, but for reasons not quite the same as those which animated the right hon. Gentleman who moved it. The Clause as it stands will involve some strange book-keeping—not quite double entry, but two columns in any event. If paragraph (a) is left out and certain additional words inserted, the book-keeping will become a little more strange, because whenever a valuation is held there will be rather a shock to the system. A large number of notes will have to be inserted or taken out of the system. The reason I am attracted to the proposal is because it will lead to bringing about what I desire to see brought about—a suggestion which has not so far been made in any of the innumerable currency Debates during the discussion of the Finance Bill, in which the inflationists have had the best hunting they have had for many years. No one has any definite proposals which anyone else can under- stand. I have a proposal which I understand and which I believe the rest of the House can understand, which at least gives it some merit. I believe, though the Chancellor of the Exchequer has not apparently reached that stage yet, the right policy to adopt is to resume the Gold Standard forthwith at the present value. So far as I am aware, no one else has suggested that, but I am perfectly serious in it and there are very sound reasons behind it. Those who have studied the American exchange rate since the Equalisation Fund was announced and who presume to some extent that the Bank of England is acting in anticipation of powers which it may receive are convinced that so far we have been using our powers not for the purpose of sustaining the exchange value of sterling but in order to prevent it from rising. In other words, there is at this moment a tendency for foreign deposits to come into the country, but in the worst conceivable form, in the form of book entries occurring simultaneously in this country and in other countries with every kind of risk arising from it.

If we went back to the Gold Standard, the result would be an enormous influx of funds into the country in a metallic form. We should break the dreadful gold monopoly that has existed in France and the United States—break up the maldistribution of gold—and now is the moment for us to resume control of the situation, and we are the only fit people to resume control of it. Therefore, I advocate this very seriously as a device for binding us to the rest of the world, not with bonds of elastic which are useless, but with bonds that are much firmer. It is urged by some of my inflationist friends that what we want to do is to inflate the currency in order to raise commodity prices. It is a debatable subject. Someone said to me, "If you cannot sell at present prices, would it be easier to sell if they were dearer?" That wants a little explaining away. What is the effect if we inflate—a rise of commodity prices? I believe nothing of the kind. You would merely depress gold prices in the rest of the world. What has been the amazing phenomenon that we have seen since the crisis? Everyone of us predicted that going off the Gold Standard would raise commodity prices. We had an increase of 3 or 4 per cent. during October and November. Since then there has been a progressive decline in prices. We are now back, roughly speaking, to the wholesale commodity level at the time of the departure from the Gold Standard and our going off the Gold Standard has had the effect of depressing gold prices everywhere else and is one of the causes of continuing the world depression.

11.0 p.m.

If I am right in that, all the arguments that have been presented to the House on the subject of inflation by friends for whom I have the profoundest respect are wrong. If that is the case, I am putting forward a stage to which, in time, without doubt, the Chancellor of the Exchequer will come. His colleagues in the Bank of England are preserving our exchange rate at a certain level. Are we suddenly going to use our power to vary that enormously? It is doubtful; and within a period of time we shall come back to a new gold parity. There is a lot to be said for going back at once. One school of advocates say what we want to do is to lower the purchasing power of sterling, in other words to inflate commodity prices. There is another school of thought that says one of the most important things to do is to increase the purchasing power of silver. Those are two entirely diverse objects and we are told they will have desirable results in both cases. Either they believe in inflation or in deflation. It is strange to say it will benefit this country and the world if we inflate our currency, and, at the same time, say that it will improve the position of this country and of China and the rest of the world if we deflate the currency of China. I think that we ought to know where we are. The truth is that it is a matter of complete indifference at what level you return to the Gold Standard provided it is the level at which you are at the moment. [Interruption.] I am not in the least surprised that the hon. and learned Gentleman the Member for East Bristol (Sir S. Cripps) should laugh, because he does not understand these things.


I was only echoing the laughter of the Lord President of the Council.


But the hon. and learned Member is always behind the times. The Lord President of the Council was quite properly laughing at my previous remark. When I say that the parity at the moment is the right parity, I am serious. A large number of people think that because we are off sterling it acts as a tariff against imports and as a stimulus to exports. It is only transitory. When the whole exchange becomes more fixed, your commodity prices adjust themselves, and the tariff effect passes away. It is true to say, provided there is a state of confidence in our currency, that, whatever figure you have been at for a short period, is the appropriate figure at which to return to a metallic basis. I know that there is confidence in this country that this is the one place in which foreigners can invest their funds, but no one is going to do so unless he is certain that what he puts in at one rate of exchange he can take out at the same rate of exchange. Therefore, it is vital to get to a stable rate of exchange. Valuable as is the Equalisation Fund—it is a primary step to what I advocate—I believe that what I am advocating is better, and that the time is ripe for it.


I hope that the hon. Member for South Croydon (Mr. H. Williams) will not think that I am rude if I change the subject and talk about the Amendment. I was referred to by the right hon. Gentleman the Member for Sparkbrook (Mr. Amery), and therefore I make that my excuse for saying a few words. I do not pretend to be an expert upon these matters, but I have found some cause for disquiet in his speech, and in the speech of the hon. Gentleman who seconded the Amendment. Here, for the first time, we come to a matter which cannot be discussed in generalisations. It is a matter upon which certain definite technical knowledge is required, and I cannot help feeling that the real difficulties of a monetary policy arise after the stage at which we can all agree to be interminably rude to the Bank of England.

Upon this point I find myself in complete agreement with His Majesty's Government. It was first raised at a late hour some time ago, and I ventured to point out—and I was immediately supported in it by the Financial Secretary to the Treasury—that the right hon. Gentleman had made a complete misunder standing of the present law and its effect I was surprised that he had put his name to such an Amendment at that time. It is almost incredible and it fills me with great misgiving that, after having had several weeks to think about it, he who frequently addresses the House upon currency matters still, apparently, is not able to appreciate a point about which any thoughtful clerk in Threadneedle Street could put him right in five minutes. If we were re-writing the Gold Standard Acts—


Who is this talking behind me?


I cannot claim to have that vested interest in currency matters which is shared by the hon. Member who has just spoken, or other hon. Members for Scottish constituencies, but I have the pleasure of knowing that in this matter I have the support of the Chancellor of the Exchequer and the Financial Secretary to the Treasury. Therefore, possibly the hon. Member for one of the Clydeside divisions may be wrong and we may be right. If we were re-writing the Gold Standard Acts as well as setting afoot this Exchange Equalisation Account, the observations of my right hon. Friend, although I submit they would be still inaccurate, might be plausible, but so long as the Gold Standard Act is the law of the land it is absurd for him to say that there is no difference between gold and securities in the Issue Department. Since the Gold Standard Act is the law of the land an increase in gold has an entirely different effect in the bank returns from an increase in securities. It does not matter what those securities are, whether they are foreign exchange or Government securities. As long, therefore, as the law of the land remains as it is, his Amendment would mean that every time the sterling exchange was rising and the value of gold therefore falling, if we had to revalue the gold in the Issue Department, the Bank of England would have to innate when we ought to deflate and deflate when it ought to inflate. When the sterling exchange is falling then is the time, presumably, when we ought not to carry on an expansive policy, but he would do precisely the reverse.

I am sorry to labour so elementary a point. I do not claim any patent in these remarks. There is nothing new about them. They are 100 years old but, unfortunately, they have not come to the notice of my right hon. Friend the Member for Sparkbrook. If he had his way the Bank of England would, unfortunately, be in the position of always having to put up the Bank Rate when it ought to put it down and to put it down when it ought to put it up. So much for the temporary situation, but there are permanent situations. This has nothing to do with going back to the Gold Standard. Supposing we all agreed to make up our minds that we were never going back to the Gold Standard. My right hon. Friend's suggestion would be exactly what we ought not to do, because so long as any of the assets of the Bank are in gold and so long as the fiduciary issue is fixed, his proposal would have the effect that I have described. I am sorry to appear to be laying down the law, but I am sure that the Chancellor of the Exchequer or the Financial Secretary will, as on the previous occasion, add the enormous weight of his advocacy to my feeble advocacy. I am sorry that I cannot help telling the right hon. Gentleman that he is wrong, because he is wrong.


I feel a little uneasy in intervening in this Debate. I feel like the person in Glasgow, a returning reveller, who was found sitting in the middle of the street, and, when asked what he was doing there, said: "The city is spinning round quick, and I am just waiting until my own house comes past." It seems to me that some of my hon. Friends, if they will only wait in the same place, will not run any chance of missing the Chancellor of the Exchequer. It is not possible to accept the Amendment. The right hon. Member for Sparkbrook (Mr. and the hon. Member for East Aberdeen (Mr. Boothby) seem to spend more time in what I may call analysing the Chancellor of the Exchequer than in reading the terms of the Amendment. They seem to be suffering from a complex of gold. You have only to show them gold, and they get quite hot under the collar and excited about it. I would ask them to look at Sub-section (4) of this Clause which clearly indicates that: the amount by which the market value … of the gold then held in the Issue Department exceeds its fixed value shall be made good by the Department to the Account. That does not look as if we were hurrying in this matter, or intending to rush back to gold at the old par value. The right hon. Member for Sparkbrook has an Amendment to leave out Sub-section (1). I cannot understand why he wants to leave it out. There is no deflationary object in the Clause, or in these proposals. They do not permit the Government to return to the old par value; they do not take any steps towards it. In fact, we have chosen the value which is set down here, because it is a fixed value. The £3 17s. 10½d. per ounce is there. It is fixed. Why have we chosen that fixed value, as against the fluctuating value suggested by the right hon. Gentleman? Surely, if he thinks over his argument again, he will see that it is to help when sterling gets weaker and weaker. But suppose that sterling gets stronger and stronger. Suppose that a flight to the pound takes place and that it moves in the direction which would cause the right hon. Gentleman the most violent uneasiness, namely, steadily upwards. Suppose the value of sterling was forced up from 3.60 dollars to 4 dollars, and the Government might wish to revalue down again and expand the credit of the country. Under the Amendment, as the sterling value of gold in the Issue Department fell, the size of the note issue would fall by an equivalent amount, from £162,000,000 to £148,000,000. The effect of that would be to jam the exchange value of sterling up still higher and higher. That is the case, I have taken the best advice I could get, and it seems to me that it is self-evident.


The Fiduciary Note Issue cannot be increased.


I am taking the facts as they are now and the conditions under which we are working. The effect of the Amendment in the case of a flight to the pound, which is not an impossible contingency, would be to jam sterling higher and higher. That does seem to me a conclusive argument against accepting the Amendment, and I ask my right hon. Friend not to press it.

Amendment negatived.