HC Deb 08 March 1933 vol 275 cc1249-306

7.40 p.m.


I beg to move, That this House welcomes the Government's declared intention to raise wholesale prices, gold prices if possible, but in any case sterling prices, and urges the Government, without waiting for the international consideration of gold prices, to give immediate effect to a definite and whole-hearted Policy of raising sterling prices. Unlike the Motion which has just been debated, this Motion does not lend itself to great emotion or flights of oratory. I listened to the greater part of the previous Debate, and I was struck by the practically unanimous feeling of disquiet which was evinced from every section of the Chamber in respect to the prevailing conditions. That feeling of disquiet affects us in different ways. There are some who think it their duty to suggest that the only way to get out of our trouble is by raising strong emotions and national discontent in the hope that something, which is more hidden than explained by the words "downfall of the capitalist system," will take place. There are others—and I count myself among the number—who believe that our present discontent requires very careful study, and some modification of our existing system will probably do much more good than any ill-considered step in the dark.

This Motion calls !for a, rise in wholesale prices. I would like at the outset to make clear what I mean by wholesale prices. I hope that in that explanation I shall remove a little misapprehension which appears to exist in the minds even of some Members of the House. There is a common view that the wholesale price level is the average level at which goods are sold in the wholesale market. As a matter of fact, the words "wholesale price level" have a much more restricted use in practice. The Board of Trade Index of wholesale prices includes basic commodities like metals, raw materials, and cereals, and also a `few semi-finished raw materials like iron bars and cotton yarn; but it does not include the bulk of manufactured articles. I make this point, because the natural predilection in the minds of people is that, if the wholesale price level goes up or down, there will be a considerable rise or fall in the retail price level and a proportionate effect on the cost of living. That view is not accurate. In the case of textiles such as cotton, silks and wool, the cost of raw material very seldom exceeds 25 per cent. of the total cost of production, so that if there was a rise of 50 per cent. in the wholesale price of the raw material, there would be a rise of only 10 per cent. in the cost of the finished goods. That argument must be carried a little further if you refer to the cost of living, because in the cost of living items are included—such as rent—which are immovable. One would say that a variation in the wholesale price level causes a smaller variation in the retail price level, and a smaller variation still in the cost of living.

In recent years we have experienced the results of a quick and rapid fall in wholesale prices, and we know that the retail prive level has been coming down much more slowly. That has frequently been a cause of complaint. I do not want to enter into the rights and wrongs of such complaints, but I do wish to say that arguments resting on the assumption that the rise and fall should be proportionate are to that extent ill-founded. It is clear that a rise or fall in the wholesale price level cannot be completely reflected in retail prices. A further point is that, provided there are no other factors to affect the situation, the higher the wholesale price level the less the spread between the two ranges of prices. I make these initial remarks to safeguard myself against a red herring being drawn across this discussion by anyone putting forward the view that a rise in the wholesale price level is not desirable because it would cause a corresponding increase in the cost of living. I do not deny that if there is a large increase in the cost of primary products there would be some reflection of it in retail prices, but I do assert that a rise in wholesale prices would, by increasing employment and providing profitable production, overwhelmingly outweigh any small disadvantages to the cost of living.

This Motion is in two parts. First of all, it congratulates the Government on its policy to raise wholesale prices. I do not think the House will expect me to supply any long argument to indicate why a rise in wholesale prices is necessary. It goes without saying that no individual or group of individuals can continue indefinitely to produce at a loss, that is, to sell the article they make at a figure which does not completely cover all the costs of production. I say "'all the costs of production," because if all those cost, depended on. the price level it would not matter very much at what the price level stood; but, as I have already indicated, there are factors in the costs of production which are not variable with the price level, factors such as rent, rates, taxes, cost of borrowing money, some which are controlled by contract and some which are determined by law. It follows automatically that unless all these costs of production, some of which do not decline with the fall in price level, can all be recovered in the selling price of the article, the time will come when the individual, firm or company will go bankrupt.

In 1924, when the wholesale price level was more than 60 per cent. higher than to-day, we had less than half our existing volume of unemployment. What satisfaction is it to the community to be able to buy articles at low prices, or to see articles on sale at low prices, if they have no money in their pockets with which to buy I When I walk about the streets and see, as I frequently do nowadays, articles on sale in shops at prices which I know are below the cost of production, it does not fill me with pleasure. To me it is a fore knowleldge of works closing down and of workpeople swelling the ranks of the unemployed. Nearly two years ago, in 1931, the Macmillan Committee reported: The recent increase in unemployment in every part of the world, accompanied by a decline in production, can in the main be attributed to the fall in the level of prices. The growth of unemployment is not the only result of a continuous decline in the price level. Such a decline automatically increases that share of the national wealth which is owned by those whose incomes are derived from fixed interest bearing securities. A fall in wholesale prices automatically redistributes the national wealth at the expense of the producer, at the expense of the active individual, at the expense of that section of the community to whom we must look for the future of the race. According to Mr. Joseph Kitchen in certain figures published in the "Economist" in 1924 26 per cent. of th3 national income was represented by those with fixed money obligations. To-day, provided the national income were the same—of course, it has decreased—and no other factors had redistributed the national income, the mere fall in the price level would have meant that that 26 per cent. had grown to 44 per cent. It is a mere arithmetical calculation, based on the fact that a fall in the price level advantages those whose section of the national income remains stationary while every other section is falling.


Has the hon. Gentleman taken into account the effect of the conversion schemes?


No. In making that calculation I said most definitely " providing no other factors had affected the redistribution of the national income." There are, of course, many other considerations, but I am simplifying my argument by pointing out that that one factor, if isolated, had by itself had this tremendous effect. Over a course of years, quietly, steadily, imperceptibly, almost in the night, as it were, forces have been at work which have been attempting to dispossess the producing classes of something like 18 per cent. of the national income, and when it is remembered that that proportion represents more than the total profits of all enterprise it may be realised what a divergence of interest is immediately set up between two producing sections, the wage earners and the employers, how a demand for wage reductions must arise and how the monotonous spectacle of company after company showing no profits has come about. To those members of the Labour party who are rather doubtful about the policy of raising wholesale prices I recommend these facts for careful consideration. Statistics, authority—I refer to the findings of every impartial and important committee in recent years—and experience re-echo the observations of the Macmillian Report, that a failure to redress the fall in prices will endanger the principles on which modern economic society is Founded.

I come now to the second part of my Motion, the more controversial part, that which urges the Government not to wait upon international co-operation but itself to take steps to redress this fall in prices in the area over which it has control. How can it be done? The accepted method of raising prices is to increase the quantity of money, to go in for an expansive monetary policy. We must have an expansive monetary policy. I do not doubt that there will be in the House some who are a little dubious as to whether monetary policy can have an effect upon prices. If there are any such, I would say that the Gold Standard system worked very effectively for scores of years before the War, and would probably have continued to work if all the other nations had known how to play the game of the Gold Standard. How does the Gold Standard system work? It works by varying the purchasing power of a currency in order that the purchasing power of various cur- rencies as expressed in gold is uniform. The purchasing power of a currency is, of course, a measure of prices.

How is that variation of the purchasing power of the currency brought about'? It is brought about by monetary policy, by making money dearer, or cheaper, through the Bank Rate, or by increasing or decreasing the quantity of money through the open market policy. Therefore, to deny that monetary policy can affect prices is to deny the existence of the Gold Standard, and whoever may put forward that argument certainly my hon. Friends the Members for East Edinburgh (Mr. D. Mason) and South Croydon (Mr. H. Williams) will not use it, because to do so would be foolish indeed. They would be advocating a return to the system whilst denying that the machinery exists to make that system work. But I agree that there is a difficulty and a great difficulty. It is not enough to know that monetary policy affects prices, it is not enough to press for an expansive monetary policy. In the present state of the world we are up against the fact that what affects prices is the quantity of money in actual use. Money which may be hoarded, or left on deposit, is useless in respect of its power to affect prices. Last year we had £260,000,000 increase in the deposits of the joint stock banks, and a decrease of £120,000,000 in their advances. In other words, there was an increased supply of money and a decreased use of it.

The practical problem before us is how the increased quantity of money which is available can be brought into active circulation. The first point we must realise is that we have to work through the existing monetary machine. We cannot force bankers to lend if they consider it unsafe to lend. We cannot force borrowers to borrow if they think they cannot find profitable use for additional funds. Yet additional money must pass into use. That is an absolute necessity. We may perhaps take a little lesson from what has happened recently in the United States of America. There it was realised that additional credit ought to Be brought into use. Additional credit was made, but none of it filtered through to the public. It was used, and very much more than was available could have been used, in an attempt to unfreeze the banks, and because such a large quantity of money was necessary to unfreeze the banks there arose the lack of confidence in the banks. Hoarding arose, and very much more money was going out of use than was being brought into circulation.

For our own situation, we have to realise that additional money must pass into use, and in order that it may pass into use, two conditions have to be satisfied. Lenders, that is the joint stock banks, have to appreciate that the money they lend is safe. Borrowers have to feel that there is a reasonable chance for a profitable investment. In connection with the first condition, that money must be safe, the country must note that, from the point of view of British banking practice, there is hardly a, basic trade in this country which is credit-worthy. Iron, steel, cotton, coal—you can go through the list —are not considered collateral and suitable industries to which the joint stock banking system can lend further assistance. On the contrary, most of those basic trades find the banks not giving them additional money but asking them to free their existing frozen position. They are being asked to see that their first job, having regard to the interests of their depositors and shareholders, is to make their position as liquid as possible. You find—I speak from personal knowledge of the trade with which I am associated, that in the majority of those basic trades there is not an increased lending but a decreased lending. The nation cannot afford to see those basic industries, which provide the bulk of employment for our people and are the foundation upon which our industrial greatness has been built, fall into decay.

There is thus a diversity of interest between prudent banking practice and national requirements. How can that diversity of interest be resolved? How can that gap be bridged? It can be, and it must be, bridged, if we are not, to sink to the level of a second-class Power. The production of the nation considered to be essential should be made creditworthy, from a banker's point of view, by some kind of Government guarantee, which involves some kind of Government control. Thus we are brought right up against the issue of nationalisation. There is a half-way course which would enable us to use the existing banking machine, and to retain the initiative of individual enterprise. In a sentence, it is a subsidy to selected exports. There must be some discrimination in respect of the subsidy, because it would probably do much more harm than good to subsidise all our industries. We have to subsidise those exports for which there is, practically speaking, an unlimited demand at the right price.

Take the textile trade. When we went off the Gold Standard there was, in the three months which followed that going off, an increase in exports of over 25 per cent., and that would have been furthered, had not that business been taken by Japan, who depreciated her currency by over two-thirds in 12 months. In the world market, we shall find that there is a large, unsatisfied need for cotton goods at the right price. Unlike many other commodities, the world-consumption of cotton is not going down, but is going up. Subsidies to definitely-known, particular lines of export in cotton goods would be a remunerative proposition, from the point of view that the goods could be sold and that there is no fear of their ceasing to be required. We should put into work many scores of thousands of workers in Lancashire and we should make at least a proportion of that industry credit-worthy. Money would flow into use, and in use would do its work to redress the fall in prices.

Not only would those subsidies put workers back to work in their own trades, but, through wages, would build up their purchasing power, the purchasing power of the people who must spend, and that would create a greater demand, not only for home goods but for imports. In that way, we should increase reciprocal world trade, rather than depend, as we are forced to depend at the present time, upon methods which have the effect of depreciating the value of the pound, which is a one-way traffic that tends to decrease world trade. This system would make for the increase of exports and the decrease of imports. As to how these exports should be selected is a question that I will leave to be considered by my hon. Friend the Member for Stockton-on-Tees (Mr. Macmillan). I hope that he will catch Mr. Speaker's eye, and I do not want to delay the House from hearing him.

The other method which I talked about of passing money into use is to induce reluctant credit-worthy borrowers to borrow. The only substantial credit- worthy borrower is the Government, and that brings us right into the question of schemes involving Government expenditure. I believe that subsidies to selected exports would be more efficacious than Government expenditure, but there is a place for both. Particularly, we have in mind an overriding consideration that we must have valve for money spent. I recapitulate: Subsidies to selected exports and reproductive work of national importance. Those are two methods of forcing idle money into use. The other method is the raising of the level of prices.

There are two additional courses which react in the same direction, both of which I commend to the Government for adoption. We have in recent Debates heard a great deal of the word "confidence." The word has been used in different applications, and some of these different applications have tended to confuse our counsel. Confidence in the ruling authority the Government have already given us. Confidence in business is still to come. If the Government, by their attitude, show that they have confidence in the future trade of this country, a great deal will be done. They could show that confidence by suspending the Sinking Fund and by a reduction of taxation, not in the expectation of a lower yield, but in the expectation of a higher ultimate yield.

Those methods, coupled with the Government's policy of seeing that the Bank of England continues to pump credit into the joint stock banks, would be a signal to the world that in sterling, at all events, prices are on the upward trend. By maintaining and by increasing the present pressure of cheap money and by providing the outlets that I have indicated, the Government could keep up sterling prices. The excuse that they are willing to do so, but unable, is not a valid excuse. We require boldness, courage and determination. I appeal to the Chancellor of the Exchequer, not on grounds of sentiment, but on grounds of reason. Confidence is the life blood of trade. The probability of higher prices, is confidence. The Government's policy was stated by the Chancellor of the Exchequer, in his speech on 16th February. It is set out in my Motion. I beg the House to accept that Motion, knowing that by so doing they will be pressing the Government to push on vigorously with its own policy, and knowing, moreover, that that policy, resolutely carried out, will lead us surely and certainly to better times.

8.11 p.m.


I beg to second the Motion.

My hon. Friend has invited the House to endorse the declaration given by the Chancellor of the Exchequer on 16th February, that it is the policy of this Government to raise wholesale prices—gold prices if possible, but at any rate sterling prices—and to urge upon the Government the desirability of giving immediate and whole-hearted effect to the policy embodied in that declaration. My hon. Friend in the earlier part of his speech dealt very lucidly with the economic effects of the fall in prices. I need not follow him closely in that aspect of the matter. What I should like to do is to concentrate upon the urgency and need for immediate, prompt and whole-hearted action by ourselves, without waiting for the possible outcome of the international Conference.

This question is not new. It is almost two years now since the Report of the Macmillan Committee was in the hands of the Government of the day. That Committee in its Report—the most authoritative Report of the sort that has ever appeared—regarded this whole question as one of extreme urgency and, in passages of almost impassioned foreboding, it pictured the whole world rushing headlong to ruin, and urged the need for effective and immediate measures to counteract a world-wide collapse.

Let me remind the House, as briefly as I may, what the cause of that calamity was, in the view of the Macmillan Committee. The Committee did not assign unemployment, and the depression and stagnation of trade, to some of those general causes which are so frequently quoted in speeches to-day—over-production, tariff barriers, or the breakdown of the capitalist system. They assigned the depression to a quite definite and specific cause, namely, the fall in prices resulting from monetary contraction and dislocation, which in its turn, was due to the interaction of a number of factors, both monetary and non-monetary—in other words, to the "failure of the monetary system to solve a problem of unprecedented difficulty set by a conjunction of highly intractable non-monetary phenomena." They pointed out that throughout history such a fall in prices has been the most serious cause of social discontent and political disruption. Some of the effects of such a change of prices on the condition of the country have been described to us this afternoon on an earlier Motion. The Report emphasised that it was essential to stop that downward process. The Committee urged, if I may quote the language of the Report, that To allow prices to be stabilised at approximately their present level would be a serious disaster to all countries of the world alike, and the avoidance of such an event should be the prime object of international statesmanship. Our objective should be, so far as it lies within the power of this country to influence the international price level, first of all to raise prices a long way above the present level, and then to maintain them at the level thus reached with such stability as can be managed. We recommend that this objective be accepted as the guiding aim of the monetary policy of this country. When the Committee reported, we were still on the Gold Standard. The possibility of our breaking away from it had not been seriously contemplated, and it was not contemplated by the Committee. The recommendation which I have just quoted was in favour of international action, so far as we could influence the international situation, though I might add that in a number of their recommendations the Committee pointed very definitely to action on national lines. For instance, they recommended a very fundamental change in our whole monetary system when they advised that we should get away from the idea of a currency based on gold with a fixed fiduciary issue, and should substitute a currency quantitatively adequate to the needs of the country, only based upon gold in so far as gold might happen to be in this country conveniently available for purposes of rectifying international exchange.

Indeed, their whole condemnation—drastic condemnation—of the policy by which we re-established ourselves on the Gold Standard, indicates that, in the entirely changed situation which arose after we broke away from the Gold Standard, the Committee would have made very different and more far-reaching recommendations than they did. Our breaking away from the Gold Standard altered the whole situation. It altered our whole outlook, because it revealed to us for the first time our immense strength. For the first time we realised that this country did not stand alone as a sterling country, that breaking away from the Gold Standard would not expose it to those violent changes in the prices of our imported necessities that had been so often predicted. We discovered that with us went a large part of the rest of the world—by far the greater part of the British Empire and a considerable number of other countries —which between them furnished our main sources of supply both of foodstuffs and of raw materials. The consequence was that, so far from being exposed to a period of violent fluctuations, we, under sterling, have enjoyed a far greater stability than the rest of the world.

Our price level has been practically constant. Its fluctuations have not extended more than some 4 per cent. one way or the other, whereas, since September, 1931, world prices have fallen by not far short of another 15 per cent. So great has been the combined power of our position as the greatest importing market and the strength of our sterling supplies, that sterling prices have governed imports from gold countries, instead of imports from gold countries governing prices in this country. I cannot imagine that under those conditions the Macmillan Committee, who laid such stress on the importance of a managed currency, and on the importance of managing it so as to reach the price level needed, would not have advocated a fearless use of our sterling position in order to secure for us and the rest of the sterling world a price level on which industry and agriculture could carry on, with the burden of overheads kept down to a reasonable proportion as compared with the prices at which goods could be sold. I admit that for the first few months Ministers were naturally absorbed in the business of a new Government, the balancing of the Budget, and the making of provision for a better balance in our foreign trade; but I must say frankly that I do not feel that nearly enough has been done since then to make use of the strength of our position and to restore our prosperity and, by doing so, to contribute to the restoration of the prosperity of the world. One important step, undoubtedly, was taken. That was the great conversion scheme which was inaugurated by the Chancellor of the Exchequer and carried through with such courage and skill, and which has given us, at any rate, one important factor in the restoration of a better price level, namely, a cheap money market. Beyond that, however, I confess it seems to me that the attitude of the Government has been a little uncertain and hesitating, that they have been far too much inclined to wait upon what others might do.

I think we missed a great opportunity at Ottawa to link up an Empire fiscal policy with an Empire monetary policy. Indeed, without the latter, fiscal policy is largely in the air, because the whole value of the preferences agreed upon can be undermined and frustrated by changes in the monetary value of the currency of the different countries. To take but one example, the fact that New Zealand was forced off her previous parity, owing to our not being able to bring sterling prices to a higher level in the Empire as a whole, has, in effect, undone the concessions which she gave to us at Ottawa. As far as the New Zealand manufacturer is concerned, he has at this moment an additional tariff of something like 12 per cent. in his favour above that which he enjoyed six months ago, and the taking off of the 5 per cent. New Zealand surtax has been undone at least twice over, while, on the other hand, the New Zealand producer enjoys a corresponding additional advantage over the British farmer, and over his other competitors in the Empire, as compared with the position in which he stood last August. I realise that the negative attitude which the British Government took up at the Conference was largely based on the feeling that this matter could only be settled internationally; and the Chancellor's declaration, while tentatively advocating a policy of increased prices, took the line that "the absence of a. rise in gold prices inevitably imposed limitations on what could be done for sterling." With that statement, I respectfully beg to disagree entirely.

An argument that I have occasionally heard advanced for the necessity of dealing with this matter internationally is that any action on our part to raise our sterling price would correspondingly push down gold prices outside and set up a new competition of yet lower prices and so frustrate the success of our policy. I do not believe that for a moment. I agree with what Mr. McKenna said not long ago, that "there is no foundation, either in logic or in the record of facts, for the assertion that our departure from gold was responsible for the downward movement of gold prices." The price level of Great Britain is of the first importance to the world, not as a matter of exchange but because of our predominance as an import market and, if we raise sterling prices throughout the Empire—throughout the sterling area—set industry and agriculture on its feet and create an increased demand, that is bound to exercise a hardening effect upon the price of commodities in the world outside. If you argue that a rise in gold prices makes it easier to raise sterling, prices, obviously a rise in sterling prices would equally make it easier to bring about a rise of gold prices outside.

I am glad to think that the Chancellor of the Exchequer is now taking a somewhat different line. At any rate, the statement that he made on 16th February was a very substantial advance on the declaration that he made at Ottawa. If he could have made it then, it would have been an immense encouragement to some of the other Governments of the Empire. But I hope to-night he will implement that statement by indicating the positive lines on which to carry it out, because on 16th February, after making that declaration, he proceeded to hark back in a rather curious fashion to the idea that this matter could only be solved at a World Conference. He is not alone among members of the Government in this perennially undiscourageable devotion to the idea that something will come of the World Conference, that Micawber-like faith that somehow, if we cannot do things for ourselves, if only we can meet a sufficient number of foreigners round a table, something fortunate will turn up.


Will the right hon. Gentleman recall that declaration to the House?


It is more or less verbally embodied in the Motion. My right hon. Friend then stated that the policy of the Government was to raise wholesale prices—" gold prices if you can, but, in any case, sterling prices." What is that we can really hope to secure from an international conference? It is certainly not the restoration of the Gold Standard as it existed before. That Gold Standard worked perfectly well as long as its control was vested in an internationally minded City of London. When that control passed into the hands of a great Power like the United States, pursuing an intensely national policy, the Gold Standard was bound to break down. Indeed, the disasters that have befallen the world are due to the misguided idea that in present world conditions you can restore a single so-called automatic international standard.

It is true that those who talk about the possibility of returning to that Standard are generally prudent enough to lay down certain conditions. They lay down among the conditions a satisfactory settlement of the Debt question. I admit that such a settlement is not only desirable in itself, but would ease the world monetary situation. But I think we ought to beware of exaggerating the importance that the international debt situation has played in bringing about the monetary disaster. Of the payments due to America, and responsible for the sucking of gold into that country, in 1930 only some 15 per cent. were governmental payments. The commercial debt due on American investments was 2½ times as great as the War Debt payments. The commercial debt due on the American balance of visible trade was more than three times as great. If there had been no inter-governmental debts, yet, with America's enormous economic preponderance and the nationalist policy that she was pursuing, the Gold Standard would have broken down just the same.

Another condition laid down by most of those who contemplate the restoration of an international standard is the correction of the present maldistribution of gold. The United States have been bitten pretty hard in their foreign investments in recent years. You are not going to get them to lend on a colossal scale. Nor are you going to get them, or any other great country inspired by a policy of economic nationalism, to allow such a free working of the Gold Standard as will lead to an influx of gold sending up prices, checking exports and encouraging imports. The countries of the world to-day are not prepared to accept these consequences of an automatic international system. Last of all, we are told to get rid of tariff barriers and exchange restrictions, to get rid, in fact, of economic nationalism. But how are you to do it? Does anyone think that the United States, with 12,000,000 unemployed, are going to throw open their doors to foreign competition and allow it to take such a hold upon their economic system as to redress the balance? They are the last people in the world to be prepared to submit to the temporary hardships which that would involve. Is Japan, our foremost industrial competitor, going to forgo the advantages of her present position in order to tie herself up to an international standard? Are Italy and Germany going to abandon their economic independence in order to re-establish economic internationalism? In the introduction to the agenda of the World Conference, not otherwise a very illuminating document, there is one phrase which caught my eye and which sums up the whole situation. It is impossible to maintain an international monetary system except on the basis of an international economic system, We are still a very long way from an international economic system and, therefore, we may assume that we are a very long way from an international monetary system. It will be a long time before the Humpty-Dumpty of the Gold Standard will be set up on his wall again. Meanwhile, I trust that no side issue, no concessions in respect of our Debt, for instance, will induce us again to put the noose of the Gold Standard round our necks and give the other end of the rope into the hands of the United States. I do not wish to say that some good may not come out of the international conference. It may be possible to get some agreement to get rid of the most-favoured-nation clause and so make the possibility for mutual negotiation among countries, and thus for some practicable extension of freer trade over large groups. It may be possible to come to some reasonable informal understanding among the great monetary Powers to pursue a policy of restoring the price level on parallel lines. That is all to the good, but we cannot wait for that. Indeed, the question itself is not going to wait. The situation in the United States, since we put down this Motion on the Paper, has taken charge. What is even more significant, President Roosevelt has taken charge of the situation. He proposes action in this matter, but American action, not international action. Let me quote what seems to me to be the most significant passage in his whole inaugural address: Our international trade relations, though vastly important, are in point of time and necessity secondary to the establishment of sound national economy. I favour, as a practical policy, the putting of first things first. And among those first things in that same Address he puts the provision of "adequate but sound currency." I think that the whole context shows that the stress is not only on the soundness but on the adequacy of the currency. I think that we can fairly assume that a very definite and bold attempt will be made by American action, for the American people and for the American market, to restore a more satisfactory price level than that which exists to-day. That is bound to have a most direct repercussion upon our situation. It may be that President Roosevelt's policy will fail and that we may have to face an even more disastrous situation in the United States than that which has prevailed there during the last few months. If the policy fails, and the dollar falls it will be a matter of vital importance to us to take measures to prevent sterling from being pushed up to a position to prejudice our trade. On the other hand—and I think that it is the more likely result—President Roosevelt may succeed in restoring confidence and setting the wheels of trade and industry in motion again in the vast American market. If so, then not only the hoarded gold, but all the currency the American Government and the banks have been pumping into the United States in the last 12 months will begin to come out. You will almost certainly then have a situation of rising prices and, to some extent, of inflation. That again will have its reaction upon the relationship of the pound and the dollar and will make it both more necessary and at the same time easier for us to pursue a policy of raising sterling prices. By that I mean not only in the exchange. Indeed, I doubt whether the Exchange Equalisation Fund, however much enlarged, will be capable of meeting the strain of such a situation. I mean rather by the internal measures which we can take.

If I am not detaining the House too long, I wish to say something about the lines which I would suggest that our action might follow. There is one line to which the Chancellor of the Exchequer has more than once alluded in his speeches and to which he attaches a good deal of importance, and that is the line of the restriction of production. I am prepared to admit that a restriction of imports, aiming, like a tariff, at the encouragement of domestic production at a sheltered price level, may be, and should be, a very useful concomitant and support of any policy aimed at raising the sterling price level. It is not for me on this occasion to go into the respective advantages of the tariff method or of restriction, but I readily admit that that may be a useful element in controlling the situation. But as a general policy for affecting world prices, I confess that I should look with the gravest misgiving upon the idea that a policy, not of raising prices by increasing the volume of money in circulation, but of restricting production could really achieve this end.

The whole supposition upon which such a policy could be based is that our disaster has been due to over-production. But there is no evidence of general overproduction. There may be in some commodities, but, broadly speaking, the total increase of output has not been very much above the steady average increase of 5 or 6 per cent. per year which has characterised the progress of the world for a long time past. Stocks have accumulated. Yes, but much more from under consumption than from over production. Indeed, I should be inclined on the whole to agree with the great economist Professor Marshall when he said that "the chief cause of the survival of the monstrous fallacy that there can be too much produced of everything is the want of a proper standard of purchasing power." The world is still far too full of those who have not enough to eat and not enough to wear and who would be only too glad to consume if the opportunities of production and of earning were given to them.

Let me turn to actual monetary policy. I entirely agree that the first and essential step there is the one which the Chancellor of the Exchequer has taken with such success—cheap money. I would only add in that field the suggestion that the time has now come when he ought to take the further step of making money not only cheap but free. By removing the restrictions which still stand in the way of the free investment of sterling he would help materially, I believe, by expanding sterling circulation, to increase sterling prices. If we are to be put in a position where the Exchange Equalisation Fund has continually to buy dollars to prevent the pound from being too high, why not let our own public individually buy dollars and dollar securities and collaborate in the effort to keep sterling at a reasonable figure? More than that, why should we not make use of the present opportunity of the negotiations which we are carrying on with the Scandinavian countries and with the Argentine to put our trade with them both on a stable currency level, and in a position where they can afford to buy from us, by advancing substantial sterling loans to those countries and using those loans as an instrument by which their currency can be definitely pegged to ours, as indeed we pegged our currency to the American currency during the War, and as the currency of a great part of the British Empire and of some countries outside the British Empire is pegged to ours to-day? Again, why could we not help Canada to liberate herself from her dollar obligations as far as possible and come more closely on to a sterling basis? So much for monetary policy. But monetary policy alone cannot help. The provision of cheap money, by itself is not everything. It is no good having your petrol tank full if your feed pipe is clogged and your carburettor is not working, and if you do not turn the crank-handle.

My hon. Friend has appealed to the Government to give a stimulus to enterprise. I should like to second the appeal. I am not asking the Chancellor of the Exchequer to splash money about on public works except upon those which are actually and definitely essential and reproductive. But the bringing about of private expenditure by a small differential expenditure on the part of the Government or by Government credit might just enable those things to become profitable or worth risking which individual business men are afraid of risking to-day. I am pleading for a policy of trade facilities, not only in the technical sense, but in the widest sense of the word; a policy of bold encouragement for every promising new industry with a chance of being justified if the general progress of the country goes on.

I should like to make an appeal not only for one but for two Cunarders. I should like to suggest that a Government guarantee would hasten the electrification of the railways, and that some form of Government help might bring about the development, on a business scale, of new means of utilising coal for the production of oil and motor spirit. Again, I should like to support the suggestion of the Mover of the Motion that the Government should give their serious consideration to the possibility of granting carefully selected export subsidies. British wheat, in its day the finest agricultural production in the world, was originally built up by an export bounty on wheat. Even more striking is the history of the cotton industry. In 1780 we exported £350,000 worth of cotton piece goods. In the following year or the year after we imposed an export bounty of ½d. per pound on cotton piece goods and the volume of our exports doubled themselves from year to year, until in 1812 it represented £16,500,000 worth; the direct result of giving encouragement to people to launch out boldly on a large scale.

There is one industry in that connection which I suggest deserves special consideration. In the world of to-day the motor industry is going to play the part that the railway industry in many ways played 70 or 80 years ago. Britain's prosperity in the Victorian era was largely due to the fact that we were the world's railway providers. I believe that, if we only have the courage, we have an opportunity of being the world's greatest suppliers of motor vehicles. At present we are hampered in every export market by the horse-power tax, which forbids our making the kind of car or vehicle that is of any use in the world outside. Why should we not recast our horse-power taxation? Why should we net, seeing that we have to impose heavier duties on heavy lorry traffic in the interests of fairness to the railway companies, compensate that traffic by some encouragement in the export trade, by a subsidy if you like, to enable them to win back outside what they may be losing at home? I would remind the Chancellor of the Exchequer that very valuable work has been done in the last few years by the Overseas Mechanical Transport Committee, a body for whose setting up I was responsible in 1927. They have worked out a form of transport for heavy goods, for 15 tons at a time, which can make use even of the most primitive earth road. Such an encouragement would involve perhaps only a few tens of thousands of pounds, certainly not more than £100,000, but it would make an immense difference to the export trade of this country.

I would add, lastly, a word for agriculture. There, we have a further field for encouraging production, encouraging the demand for money and developing circulation. There is much that still remains. to be done. I should like to endorse, without repeating the argument, the plea so admirably made last Wednesday by my hon. Friend the Member for Central Sheffield (Mr. Boulton) for lower taxation, for a bold policy of looking ahead for a period of years, frankly reducing taxation because that reduction is needed, without any particular regard to the luxury of having a Sinking Fund or to the immediate balancing of the Budget. The whole difficulty is that the business world lacks confidence. They look at each other and hesitate. If the Government could show in their measures that they have complete confidence in the future of this country, confidence in the early recovery of this country, the business world would be encouraged and would follow suit, but if they pursue a policy of sitting tight, of bringing in all their money, of being afraid to invest, afraid to speculate, then we cannot expect the business men of the nation to do other than follow suit.

I apologise for having detained the House, but I hope that the Chancellor of the Exchequer in his reply will give us some indication of a definite forward sterling policy all along the line, and that he will not suggest, as he was rather inclined to do on the 16th February, that our policy must wait upon the World Conference, or that we have been caught up in an entire breakdown of the system of production and distribution in the world which it will take years and years to set right. I believe that the present world situation, as the Macmillan Committee pointed out, is quite specifically and definitely due to an attempt to work a single international monetary standard when the conditions are not suitable. If we can get away from that and boldly go forward, shaping our own monetary policy in our own interests and those of the Empire, and of such other countries who may wish to join us, we shall speedily be able to restore our own prosperity and contribute to the prosperity of the world.

8.51 p.m.


On occasion I have noticed a tendency on the part of experts outside this House that I do not always see in the experts inside the House. I think with some of them that everybody cannot be in the parade but that someone must be standing on the pavement, especially those who do not stand on the pavement very often. Bad the Amendment to which my name is attached been before the House I would have drawn particular attention to the fear that exists amongst those I represent that the upward tendency in wholesale prices, however it may be effected, would not safeguard the common people of this country. The Resolution welcomes the declared intention of the Government. I may not have been paying sufficient attention, but I have not seen any definite declaration on this matter by the Government. I want something more tangible than mere declarations of intention, because the intentions expressed on previous occasions have not produced anything to verify the intention. What about the Government's position in regard to the gold standard I They came in to save the gold standard but their departure from it was applauded.

As regards public economy, we were told that it had to be rapidly applied in order to save the national credit. In my opinion our national credit has gone down considerably because this Government has made an attack upon education and the social services. In regard to public expenditure, I should have thought that the common sense idea during a period of depression, and in view of the importance of keeping wages in circulation, was that the Government should not indulge in a policy of preventing trade and restricting commerce. The great idea of civilised nations now seems to be to export more and import less. Such a policy cannot work now or at any time. The result, as far as we can tell, from the figures of imports and exports shows that since 1929 world imports have fallen by 41 per cent. and exports by 43 per cent. Restriction has been the order of the day. Every nation seems to be endeavouring to make a profit out of their neighbour, instead of trying to work together. I thought that the principle of the interdependence of the nations of the world was accepted by everyone, but I regret to see that it is not the case if we are to accept the Motion now before the House.

If we are to follow the idea of economic nationalism the difficulties which have attended nations in the past will be manifold in the future. Nor can there be any confidence among the nations so long as they are all intent on seeing how much they can get from each other and how little they can give. When I saw this Motion I wondered to what extent the hon. Member for Stockport (Mr. Hammersley) was a supporter of the Government, because in a speech which the Chancellor of the Exchequer delivered at the opening of the British Industries Fair he said: How are we going to restore that confidence which alone will enable international trade to resume its former channels? The Chancellor of the Exchequer, I believe, is as desirous as anyone to reach that desirable position. He went on to say: To my mind it is absolutely impossible to suppose that a single country can do that. If that is the Chancellor of the Exchequer's opinion then it is in direct conflict with the Motion and with the statements which have been made this evening in support of it. In the same speech he said: I have no objection to tariffs myself so long as they are reasonable ones, but excessive and prohibitive tariffs I complain of; and, in addition, to them we have what amounts to prohibitions or partial prohibitions in the way of quotas. The difficulty in regard to tariffs is that once you put on a small duty they ask for more. This has been demonstrated even in the short time the present Government have been in office. The right hon. Member for Sparkbrook has referred to monetary policy and to the World Economic Conference. May I quote from the Agenda of the World Economic Conference: We are therefore unanimous in affirming the necessity that action for the removal of the restrictions on international trade (prohibitions, quotas, exchange restrictions, etc.), should be taken as soon as possible and continued on progressively wider lines as the other causes of the present economic disorganisation are mitigated or removed. The fact must not be overlooked that the abolition of restrictions will, in its turn, exercise a very considerable influence on the situation and will effectively help to remove the other difficulties. If they can increase their exports, many countries will be enabled to purchase larger quantities of foreign products. The opening up of larger markets, apart from whatever action may be required in the financial sphere, will greatly ease the difficulties encountered by the debtor countries as regards their balance of payments. The tariff policy which has been followed by many countries in the past has been greatly aggravated in recent years. This tendency has contributed largely to the disorganisation of world conditions. In respect of tariff policy and treaty policy, as in the case of important restrictions, the conference must seek to modify existing practices and to secure the adoption of more liberal methods. Positive action in this direction is assured of important support. Countries compelled to dispose of a large proportion of their products, whether agricultural or industrial, on the world's markets are most deeply interested in checking the increase of tariff barriers and in securing their reduction. An improvement in the world economic situation would be facilitated if the debtor countries were enabled to pay their debts by the export of goods and services, and if the creditor countries framed their economic policy in such a way as to maintain the capacity of debtor countries to pay by these means. The hon. Member for Stockton-on-Tees (Mr. Macmillan) I know places great reliance on an increase in wholesale prices to bring about the result desired, but I notice that some qualifications were made by the Mover of the Motion. The hon. Member for Stockton-on-Tees recently said in a pamphlet: I do not doubt that a rise in prices taken by itself would have very great beneficial results. What I do assert is that in the absence of improvement in the economic system as a whole, those benefits would neither be conclusive nor permanent. Later on he writes: Obviously, if industrialists knew for a certainty that not only would prices rise but that they would be able to sell their goods at the higher level there would be no difficulty. So far as the proposal has yet been explained by its advocates there is no good reason to be certain on either of these points. After further consideration of the matter he says: The Board of Trade index figure shows a fall since 1928 from 140 to 104. We require therefore an increase of about 30 per cent. The full effects of this rise ought not to be reflected in retail prices as they have only fallen by about 10 per cent. in the same period. There would, however, be some effect unless it can be offset by improvements in production and in marketing. We want to know just how much it is going to affect the people in whom we believe. I agree with one very terse sentence here. The hon. Member advances the proposition that prosperity is conditioned on equilibrium in production. He says: If the forces of production are properly distributed in the production of consumption goods in the right quantities, and if the rate of saving is equalled by the rate of capital investment, then the total products will exchange against each other and prices and employment will be stable. That requires a conscious and concentrated effort, and an effort of a conscious character among the industrialists of this country is not in evidence to-day. Were it so, we might place some reliance on the possibility of wages in the future. But I regret to say that I see no departure from the tendency displayed in figures in, the Ministry of Labour Gazette. It says there that the net reduction in wages in 1931 was no less than £400,000 a week; in 1932 it was £248,000 a week. If that is going to continue, and the possibility is that it will, it is going to be a hardship on the common people. That we are not prepared to countenance. I wanted to give some details with regard to the tendencies in production, but time will not permit me to say much.

I have here a statement from the Board of Trade Journal of 1928, which shows a big change in the structure of labour engaged in production. It was at one time held that the producers, the men who did the dirty drab work of society, were the people who carried the whole burden, and it was a heavy burden. But I find that that has changed, because in a review of 68 industries the Board of Trade Journal states that as between 1907 and 1924 the mental workers had increased from 9 per cent. to 14 per cent. This is a structure that has been placed on the back of the increased productivity that machinery gives to the worker. But I cannot realise how it is that Members in this House and others outside seem to think that the only thing a machine can do is to produce goods. A machine can produce labour as well as goods, and we are going to do all we can to prevent that machinery being used in the manner it has been used up to now.

There is also the question of mass production. Let me say something as to the desire to depart from the economic nationalism as displayed in this country, to a more general but not sufficiently general policy to take in other countries. There is an idea that we can make a Dominion entity. We are therefore being changed over to the idea of making the Dominion self-supporting, a unit of its own. But that will still allow the same trouble to create itself. In the Federation of British Industries publication entitled, "Industry in the Empire," I notice some details which I accept as correct. One thing about an organisation like this is that in its publication it cannot indulge in propaganda. The men for whom it caters must know the facts. I notice that there is given a synopsis of the position with regard to the Colonies and their products, under the heading of "Agriculture." In Australia 65 per cent. of the production is agricultural production and 96 per cent. of their exports are agricultural. In Canada the figures are 45 and 39 per cent.; in New Zealand 70 and 98 per cent.; in South Africa 57 and 96 per cent.; and in the Irish Free State 73 and 86 per cent. The great idea is that there shall be an understanding between the various outlying sections of the Empire, and that they will be able to continue to indulge in the very desirable activity of feeding us and other parts of the world, and that in return for that there shall be a recognition that we shall be the people to supply them with those things that are industrial products. But they go on further in that part of the publication dealing with Empire economic cooperation and complementary industrial production, to express a desire for a conference with the captains of industry in our Dominions. They say: The purpose of a conference between the manufacturers in a particular industry in Great Britain and in a given Dominion would he to explore the feasibility of an arrangement whereby the production of certain goods should be recognised as being the province of the Dominion manufacturer, whereas others would be regarded as better left to the United Kingdom manufacturer.

Mr. DEPUTY - SPEAKER (Captain Bourne)

I find some difficulty in reconciling the hon. Member's arguments with the Motion, the subject of which is prices.


I respectfully suggest that the remarks I am endeavouring to make are intended to be strictly related to the question of preferences and tariffs.


The question of preferences and tariffs is in order only in so far as it deals with prices. It is not in order as a subject by itself.


I will endeavour to come to that point. The things that are contained in the proposals to which I have just referred would very quickly cancel themselves out, because there is a great desire for adequate price levels on the part of the producers of commodities in the Colonies as well as in this country. Tendencies that have been displayed in the industries of the Dominions, which are also desirous of having a proper wholesale price level in the Empire and the world, would quickly cancel themselves out, because the great desire of every country is to be a successful industrial nation. They are all striving might and main to measure their advancement by the erection of factory chimneys. Therefore I am not prepared to accept the view that even confinement in an Empire Dominion is going to give to the common people of this or Dominion countries the advantages that a conscious endeavour to meet their everyday requirements would have. That conscious endeavour is not present.

Self-containment may be a desirable thing, but it has not worked in America. America has been self-contained to a great extent. It has had all the gold that any country could require. To-day the experts have not made up their mind whether America is on or off the Gold Standard. I am of opinion that they are under the Gold Standard, and very far under it. With regard to the monetary machine, my only comment is that at the present time it is not directing commodities, as it ought to, towards the people who require them. An hon. Gentleman opposite on one occasion described gold as the rails upon which commodities run. Those rails are not under the control of the people who produce the commodities or the people who require the commodities and, as regards financial modifications, anyone will please me who gives to those engaged in production, a greater measure of control so far as money is concerned than they have at present. I suggest that the measures proposed by the Government, calculated to increase wholesale prices, if they do increase wholesale prices will not bring to the common people what is anticipated by the Mover of this Motion.

9.17 p.m.


As the speeches in this discussion have been rather long, I shall endeavour to be brief in my remarks. I agree entirely with the subject matter of the Motion. I am a wholehearted reflationist. It is almost universally admitted now that we must have a rise in the wholesale price level. It is clear that if you try to distribute an increased quantity of goods at too low a level of prices, the rigidity which is set up under the modern system, your nominal wages and your fixed charges will make that an entirely impracticable method of distributing your production. We are therefore all agreed that we must have this increase in prices and the Chancellor of the Exchequer has frequently asserted that to be the objective of the Government. The trouble is how it is to be achieved. It is true to-day there is available a quantity of money. The note issue is not all in circulation by any means. We have an increase in the note issue due to the recent purchases of gold by the Bank of England. It is automatically increased by all those purchases. Yet we find that it is extraordinarily difficult to get that money into circulation so as to exercise an actual effect on the price level. Everyone admits now that there is only one way in which to get that money into circulation, other than by purely psychological causes. Those causes have a great influence and if some event were to occur which would send a wave of confidence throughout the country, that undoubtedly would be the most potent of all factors for getting that money into circulation. But, in the meantime there can be no doubt that there are advantages in a Government stimulus, both in its immediate effect in getting more money into circulation, and also in its encouragement of that psychological wave of spending and confidence which is so essential.

I do not want to go into the details of the various suggestions which have been made. I certainly think that we ought not to hesitate at borrowing, in order to stimulate enterprise and create additional purchasing power in the country. With regard to the debatable point as to whether we can raise sterling prices without an increase in world gold prices, or, rather, whether an increase in sterling prices would have any influence on the gold price level, there is one fact brought out by the Chancellor of the Exchequer in a recent speech which is rather significant. It is that the general price level in this country, if it were in exact relation to the present rate of exchange, should be about 42 per cent. higher than the gold price level, because that is the percentage depreciation of our exchange. In fact, the general price level is not in this country 42 per cent. higher than the gold price level. That fact has been used I think quite legitimately to answer the objection, say, of Americans, that it is the depreciation in our exchange which has forced down the level of gold prices. That view would obviously be inconsistent with the fact that, notwithstanding the depreciation, our prices are not as high as they should be.

It cannot be that depreciation has caused the forcing down of the gold price level. The only explanation I can see is that we are the great market of the world, we are the largest producers of world commodities or rather of those commodities that enter into the world market for the quotation of gold prices; that the purchasing power of this country has been decreased through the necessary measures of economy which had to he instituted when the National Government was formed and that sterling prices are not rising because of this lack of purchasing power in the country. If we could get that to rise by the various methods suggested, I think there is no doubt it would influence world gold prices. One effect might be merely that our exchange would further depreciate with no consequent increase in the gold price level, but it seems clear that the main reason why the gold price level has been continuously falling is the lack of purchasing power in this country which is the great market of the world.

Whether that be so or not—I agree that we are on rather debatable ground there —what I rose chiefly to say is that although I am in favour of reflation or inflation, as an internal policy for this country, for which I think the time is now ripe, I think it particularly unfortunate that a good many advocates of reflation seem to have a violent anti-gold complex. The right hon. Gentleman the Member for Sparkbrook (Mr. Amery) seems almost to see red when gold is mentioned and we have many enthusiasts who have read a great deal on this difficult question of the theory of money and who attribute all our troubles to the Gold Standard and are determined that, whatever else happens, on no account must we ever go back to gold. I cannot help thinking that these prejudices are somewhat ill-informed and it is certainly very unfortunate if they are to dictate the future policy of the Government.

We know why the Gold Standard broke down and there is not the slightest doubt that the conditions which broke it down would have broken down any other international monetary standard. It is not sufficient merely to inveigh against the Gold Standard. What is the alternative to be put in its place? The main opponents of the Gold Standard seem to assume that being on gold is the same thing as being on gold at pre-War parity. There were a great many critics of the policy of the Government, and of the Bank of England in 1925, when we went on the Gold Standard at pre-War parity. I was one of those critics, for I think that was a great mistake. But that is no reason why one should object to gold as being an impossible standard under any conditions, and get violently hostile to it as a commodity or as a basis of money. We are bound to get an international monetary standard before there can be any restoration of world prosperity. There are people who say that on no account must we touch gold, and that we now have everything in our favour because we are off gold. They forget we are not entirely detached from gold. Within the last few weeks £56,000,000 worth of sterling in gold has been purchased by the Bank of England. The whole measure of sterling to-day can only be understood in terms of gold. It is quoted in terms of gold standard currency. I would like from the people who have these opinions a clear exposition of an alternative international monetary standard.


I certainly do not wish to attack gold in itself. My criticism was of any single, rigid, international monetary standard under present world conditions, because economic nationalism would be bound to break it down whatever parity it was on, or whatever it was. I have no objection to gold as an exchange element in our monetary system. I trust we may always find a use for it perhaps eventually at some rate varying with the commodity price of gold.


I hope the right hon. Gentleman does riot think that these are, necessarily, opinions I attribute to him. I think the most important point to-day is that we have got to have an international monetary standard restored unless we have a system to make this country entirely self-contained in itself, or with the assistance of the Empire. If we have a perfectly closed system we may have any monetary system we like, if we are not going to trade with anyone outside. We are a long way from achieving that. The United States of America are a much more self-contained area, and have potentialities of being more self-contained than any other country, yet the United States are suffering from world depression. A country could go back to the Gold Standard and indulge in inflation at the same time. Nobody has suggested that we shall go back to the Gold Standard on pre-War parity. I take it that we could get an international agreement for the restoration of the Gold Standard, with the various countries going on to the Gold Standard at such a ratio as they pleased. It may be that other countries will be influenced by the particular ratio on which this country goes back to the Gold Standard, but it is vitally essential that we should have an international monetary standard restored.

The only alternative international standard mentioned is a commodity one. I have not yet seen it formulated how this would work and produce one essential to a monetary standard, which is stability between the various exchanges. The objective of managed currency it is easy to understand. That objective should be to maintain an average price level. How a commodity standard would secure stability between the different foreign exchanges has never been explained, or I have never seen it although I have tried to read everything on this subject. It has never been formulated by any economist. It is mentioned as a possible alternative, as being theoretically possible, but no scheme has ever yet been put forward. Even if it were we would require to have an international agreement before it was adopted. There is not the slightest chance of getting an international monetary system restored which is not based on gold.

I do not think the Government can be criticised for saying that they will not go back to gold. I do slightly criticise the Government for the conditions they have made before they say they will entertain the possibility of going back to the Gold Standard. One of these conditions is a considerable lowering of tariffs. I do not see why that should be made a condition at all. It is true that America cannot maintain an export surplus without being prepared to lend and allow other countries to keep on the Gold Standard. We need not wait until other countries agree to a definite reduction of tariffs. We are now a tariff country ourselves. We have a weapon which would have enabled us to resist some. of the causes at the time we were driven off gold. I still assert that we can get inflation on gold. We can inflate gold prices while having an international monetary standard. We cannot do it by deflation. We can go back at the price we choose. America can deflate her dollar, and France the franc. The other method would be to carry out the recommendations of the Macmillan Report. It is the alteration of the ratio to gold reserves.

The various monetary credits now rest on gold. In some countries they are rigidly limited by legislative enactment. These should be modified, and we should use available reserves for building a much larger structure of credit. I do not think there will he the least difficulty in getting international agreement. World depression could largely be brought to an end by the adoption of three essential things, on none of which I think it is impossible to get agreement. The first is the restoration of an international monetary standard which will have to be based on gold at whatever parities different countries enact. The second is the restoration of foreign lending. You would get rid of the maldistribution of gold. Until America has got over the fear of foreign lending, because of unfortunate investments, the loans might be made through the Bank of International Settlements. That in itself would facilitate what we all desire. A restoration of the international monetary standard, loans, and the adoption of the Macmillan Report recommendations—those three things, if they were dealt with at the World Economic Conference, would go a very long way towards restoring world trade.

Before I finish—and I have already been too long—I want to say a word or two about the fallacy of the so-called sterling area and of the notion that we have now got a Sterling Standard and can be quite independent of the Gold Standard. A Sterling Standard, if it were adopted as an international standard, means that the rest of the world must agree to accept our monetary policy, whatever it is. If we inflate, they will have to inflate with us; if we deflate, the rest of the world will have to deflate with us. It might be that the rest of the world would be prepared to follow the present Chancellor of the Exchequer—they would certainly be very wise if they did—but it does not follow that they would be prepared to follow the Leader of the Opposition when he comes into office. The rest of the world certainly became very fearful of the future of this country during the tenure of office of the party which he now has the honour of leading. It is, therefore, ridiculous to talk of a Sterling Standard.

We talk of the sterling area as if we could be independent now of countries on the Gold Standard. We talk as if, because we are trading with countries within the sterling area, it does not matter what the price of sterling is in comparison with the dollar, and we are quite happy if we only negotiate and trade with those countries which are now linked to sterling. I wonder whether hon. Members who talk in that way have really any idea which countries in fact have not imposed any exchange restrictions or quotas on this country. They might be surprised to learn that almost all the countries in the so-called sterling area are now imposing the most severe restrictions on our trading with them. The only countries which have no trade restrictions are India, New Zealand, Mexico, South Africa and Australia, of the non-Gold Standard countries, and none of them of very great importance from a trading point of view. [HON. MEMBERS: "India?"] I meant, in magnitude of trade. India is very important to us, of course. I only meant relatively small in size. The Gold Standard countries which have not got any restrictions against us are the United States, Italy and Canada.

I only say that, to emphasise once more the importance of getting an international monetary standard restored. I hope the Government will not make the conditions for that restoration too rigid, and I am quite sure that, if we adopt a reasonable policy at the World Economic Conference, that standard can be restored. It is consistent with inflation in this country, it is consistent with inflation of gold prices, and until it is done and we are back on a standard, I cannot see any end to the world depression.

9.39 p.m.


With a great deal of what the last speaker has said, I am in agreement. I agree with the general principle of adherence to gold, but I cannot follow him when he refers to reflation. We hear a great deal about reflation, in the Press and elsewhere, but I have never yet been able to make out exactly what reflation means. As a general principle, I rejoice to find him so whole-hearted in his support of the necessity for having a basis for our currency, namely, gold. I was interested in his inability to find out what was the basis of ray right hon. Friend behind me, although he eventually came down on the side of gold and did not adhere to that of which he was formerly an enthusiastic supporter, namely, an index number as a basis for currency.

I should like to return to the actual Motion itself. The hon. Member who moved it and the right hon. Gentleman who seconded it based their main argument on what they called an expansive monetary policy. In other words, they adhere to inflation in currency. They believe that if you largely increase your quantity of money, that will lead to a rise in the price of commodities. It is very interesting to find that after the Napoleonic Wars we had a Debate on this subject in this House, and I would suggest to any hon. Members who are interested that nothing would give them greater satisfaction or reward than to take the trouble to read either the Debates which then took place or the works of many of the great authorities of that day. It is a curious fact that we find an almost exact analogy between what took place after the end of the Napoleonic Wars and what is taking place now. There was an over-production of goods then. The belief was that the Continent would absorb a great deal of our surplus after peace was declared, and there was a terrible reaction when they found that, as a result of the great Napoleonic Wars, the purchasing power of the people declined, just as we were disappointed in the same way after the end of the Great War.

Then there were the advocates of inflation, and there were resolutions passed. Hon. Members then, like the Mover of the Motion to-night, in almost similar terms moved resolutions to the effect that the only way to raise prices was by inflation. Tooke is perhaps recognised as one of the greatest authorities on prices, and he wrote at that time. I have read what he said on this subject, and I think it exactly meets the argument that has been submitted by the Mover of the Motion. This is what he says in Volume I, page 149, Section X:— How little coincidence there was in the preceding interval between the increase or decrease in the amount of Bank of England notes and that of private paper, and have moreover remarked that the most striking instances of a great rise of general prices occurred without any increase of Bank notes, while on the other hand the most memorable instances of a sudden fall took place contemporaneously with large additions to the Bank circulation. Quite the contrary.


The hon. Member has misinterpreted what I said. I said the quantity of money in actual use, and there is a great deal of difference between that and the amount of money which may be available or in circulation. It is important to make that distinction.


That is a very fair distinction, and I do not deny it. It shows that unless you have confidence the mere fact of an expansive monetary policy by increasing the circulation, which is generally described as inflation, will have no effect. It has been tried in America and was well described by Mr. Beckett, a great banker, the other day, and I submit that the whole history and experience of what took place after the Napoleonic Wars indicate that the idea that you will raise prices by monetary manipulation is not based upon experience and is likely to fail. There are other means which the Mover and Seconder referred to as likely to raise prices. There was the question of public works, and I agree with public works which are essential and productive, for they tend to increase demand. As the hon. Member in whose name the Opposition Amendment stands said, unless we get an increased demand or an increased purchasing power on the part of the working classes, there is not much gained by a rise in prices. We want the wherewithal to buy the commodities. We desire general expenditure of capital, and, while public works are good so far as they go, the difficulty is to find schemes. The Chancellor of the Exchequer and many Members of the Government have said that, if any Member can bring forward a scheme, the Government will be prepared to consider it, but the difficulty is in finding schemes that are suitable and of a sufficiently vast character to increase prices.

In the middle of the last century the expenditure of £150,000,000 on railways led to the greatest amount of prosperity in this country. Agriculture flourished because there was such a demand for the products of the soil. This vast expenditure of capital, such as we desire to see to-day, led to prosperity, and, if we can stimulate that again, the same results will follow. We cannot get that in this Island again, however. Where can we get it? I will make some suggestions on the lines of the Amendment which I have placed on the Paper, that is, a restoration of the Gold Standard whereby we can get a legitimate rise in prices brought about by a legitimate demand. I would ask the attention of the House to what I believe would improve our credit, would tend to bring about a legitimate rise in wholesale prices, and would lead to the scaling down of the debt due to America by this country; that is, the restoration of the Gold Standard. Many Members believe that the Gold Standard will eventually be restored in this country. The Chancellor of the Exchequer must feel very much complimented in that every section of opinion tries to claim him as a supporter of particular theories. I also have a quotation from him in which he says: There are some who seem to think that it is the policy of the Government to go back at some early date to the Gold Standard. It is difficult to get an idea into some peoples heads. I do not know to which section that refers— but I have repeatedly stated and I say again now that we cannot go back to the Gold Standard until we can be satisfied that the Gold Standard will work. That, I think, is a very fair statement and, if I can, I want to show the right hon. Gentleman that it can be worked and that it is his job to work it. There were various contributing factors why we went off the Gold Standard in 1931. The Government of the party opposite were perhaps a contributing factor. They were undoubtedly guilty of indulging in an orgy of profligate finance. They were running into debt at the rate of £1.000,000 a week, and they presented us with a deficit of £120,000,000. That state of finance was not calculated to enable any country to maintain the Gold Standard, but I am bound to say that there was a greater cause which has been in existence for many years, and which is the main reason why this country had great difficulty in maintaining itself on the Gold Standard. That was the excessive issue of notes in circulation. That was fixed tentatively by the banks —that is, the fiduciary issue—at £260,000,000. When the amounts were fixed it was stated to be tentative, because no bank or statesman was capable of knowing what ought to be the exact note issue. Our currency was depreciated, and that can be proved at any time. Anyone can test it by taking the Mint price for gold. The price of standard gold was £3 17s. 10½d. and of fine gold £4 4s. 11d. The way to prove that inflation exists is by comparing the Mint price with the market price. The difference between the two is the measure of the inflation.

For many years we had an unfavourable exchange. In former days, when our issue of notes was so delicately in poise with the trade of the country, an export of £1,000,000 or £2,000,000 affected the exchange, but in 1929 there was an export of £80,000,000 in gold bullion and the exchange remained unfavourable. That indicated that some other cause was at work. We have heard a great deal about frozen credits, war debts and other contributing factors, and they have their influence upon exchange, but in the main the excessive note issue is the main cause for the depreciated pound. It would have been thought that the Treasury and the Bank of England, realising that this was the main cause of the depreciation, would have tried to correct it. What did they do, however? In August, 1931, the Bank, instead of applying to the Treasury for leave to reduce the note issue, applied for an increase, and the fiduciary note issue was raised to £275,000,000. Their request was acceded to by Mr. Snowden, now Lord Snowden, and their action, combined with a loss of confidence abroad, led to continued exports and withdrawals of gold bullion from this country. Those withdrawals were not due to any sinister design on the part of France or America to get gold for hoarding purposes. If the exchange fell to a certain figure any bullion dealer or banker could go to the Bank of England when we were on the Gold Standard and get gold and ship it abroad at a profit. Therefore, if, as I wish and many bankers in the City wish, we could see London again restored to its old position as the world monetary centre, surely the first step is gradually to contract the note issue, not to use the Exchange Equalisation Fund to keep down the pound, as the Treasury are doing. I want the pound to rise to par again. An hon. Member laughs. What is there to laugh at?


What little prosperity there is in trade and industry in this country at the moment is entirely due to the depreciation of the pound, and if an hon. Member rises to ask us to appreciate the pound when we still have 3,000,000 unemployed it really is a just cause for merriment.


I hope I shall be able to demonstrate to the hon. and gallant Gentleman that the policy I am advocating will have the very effect which he desires, and if I can do so I hope he will—I have no doubt he will—have the manliness and courage and good humour to admit it. We hear on all sides that this depreciated exchange is the very thing we want. Then if it is such a wonderful thing why not depreciate the pound to 5s.? Why not inflate all round, and bring down the pound as they brought the mark down in Germany, until it became an almost worthless coin, and as they brought the franc down in France, until it fell to one-fifth its former value? If the policy is sound why not send the pound down to 1s. or 2s.? It must be remembered that a depreciated exchange penalises imports, and we are importers as well as exporters. We have to buy our raw cotton and many other things from abroad, and is it not better, when we are buying cotton, that the pound should buy 4.86 dollars in America rather than 3.40 dollars?

Hon. Members may ask: How will a restoration of the pound to par, a restoration of national credit and a restoration of London as the great monetary centre, bring about a rise in prices? If London again becomes the great monetary centre, if a bill on London is as good as gold, then we shall have more money coming to London. As a French banker told me about three weeks ago, the French bankers who used to send money to London are not going to do so if there is any doubt about their being able to withdraw it except at a heavy loss. I saw references the other day to "Bad money." How can there be bad money? Every bank is anxious to get money—depositors' money. Are we not also anxious to get money? If we could draw millions from the Continent and the United States, if we could resume our place as the leaders in finance and as the great banking and monetary centre, then more loans would be floated here. Borrowers from all parts of the world would come to London. When an Argentine railway comes to borrow £1,000,000 that money does not go to the Argentine in the form of cash; it goes out as steel rails or locomotives or other railway equipment. If more foreign loans were floated here it would help to bring about a rise in prices, a legitimate rise in prices, one produced by an increased demand. Hon. Members opposite who claim to represent the working classes, although I hope that we also, in a modest way, also represent them, should realise how this policy will widen the area of employment by stimulating trade in every direction.

The House may be a little weary of this technical lecture, but I suggest that this policy which I have supported whole-heartedly and consistently all my life may incidentally lead to a scaling down by the United States of America of our debt to them, and surely that would be a great blessing. I heard an hon. Member say, in his enthusiasm for keeping off the Gold Standard and maintaining a depreciated exchange, that he would protest against what he called "the swopping of our going back to gold for a reduction in our debt to America." But if, as I have been able to demonstrate, that policy is a sound one for this country, if it incidentally leads to the United States scaling clown the debt what a tremendous advantage that will be.

It might be asked, what effect will the position of affairs in America to-day have on the future of the pound and the dollar? There is some discussion as to whether America is off or on the Gold Standard. There is, of course, no question that America has gone off the Gold Standard. When you prohibit the export of gold and interfere with the convertibility of your note issue, you are off gold parity. It was well pointed out by the hon. Member for Bolton (Mr. Entwistle) that we still adhere to a belief in gold because we quote in regard to sterling exchanges in terms of a discount on gold. We cannot get away from it; behind our minds we still adhere to the principle upon which our finance has been based. I hope that I have said sufficient to appeal to the Chancellor of the Exchequer that he should move towards my section rather than towards the other section, and to convince him that to this country will in due time be restored what I believe has been one of the main sources of our greatness in the past.

10.7 p.m.


; I hope that the House will not think it discourteous of me if I do not follow in detail the arguments put before us by the hon. Member for East Edinburgh (Mr. D. Mason). He is something of a monetary Mr. Dick. His King Charles's head is always depreciation. I must, however, make a passing reference to a speech which was delivered by the hon. Member for St. Rollox (Mr. Leonard) who was kind enough, in his anxiety that I might not be able to make my speech, to devote the greater part of his to the reading of some observations of mine from a pamphlet which I had written a few months ago. I was deeply touched to feel that he should carry the pamphlet about with him as a kind of Bible. There are one or two points which he mentioned upon which I shall try to touch later. This discussion has ranged away from the original terms of the Motion, and in the few minutes that I have, before the Chancellor of the Exchequer replies, I would like to say a few words about the main subject, which was the purpose and the object of this Motion.

It seems to be generally agreed, with a few exceptions, that it is desirable that the level of wholesale prices should rise. It is agreed by the Chancellor of the Exchequer, by the official policy of the Labour party as published in August last year, by economists such as Mr. Keynes and Professor Pigou, and by a very large part of the Press. Everyone seems to be agreed upon that. The trouble is that, in spite of this encouraging chorus of agreement, prices have stubbornly refused to rise. I would like to devote a few moments to the question of how this can happen. The level of prices can only rise for one of two reasons. Either when there is a reduction in the volume of commodities while the volume and the velocity of money remain constant, or when there is an increased volume and velocity of money while the volume of commodities remain constant. That is to say, either when there is a smaller amount of things and the same amount of money, or with the same amount of things and more money. An example of the first method might be said to be the coal and meat quotas that we have introduced, in which there is the reduction of the volume of commodities, the volume of money remaining constant, which therefore leads to a rise in the price in those selected commodities. The difficulty about this method is that it cannot be applied, except to a small range of commodities. It is properly a crisis method, to be applied to a few selected commodities. It is a difficult method, and it envisages equilibrium upon a lower basis of consumption. If it were applied over the whole scale of production, it would inevitably lead to a fall of purchasing power and to a final equilibrium upon a lower general level.

We have, somehow, to concentrate upon the second method of leaving the volume of commodities constant and increasing the volume and velocity of money. Then prices will rise. The method of increasing demand and purchasing-power cannot, in my opinion, be brought about by mere transference of demand. That seems to be the policy of those who put all their weight into the idea of reduction of taxation. Reduction of taxation is merely the transference of purchasing-power from one class to another. It may be a good thing to do and it has a great psychological importance. I am not arguing against it, but whatever your views of the other reasons why you should reduce taxation or increase economies, the transference of purchasing-power from one class to another is not an increase in the total volume of purchasing-power. Maybe a few prefer to reduce the wages of policemen and teachers, in order to reduce the Income Tax. How you look upon that depends as to whether you happen to be a teacher, a policeman or an Income Tax payer. Alternatively, the idea that you may benefit and do any good by taking money from the rich and merely giving it to the poor is equally fallacious, because it does not increase the total volume of purchasing-power.

What we have somehow to do is to increase the volume of demand. That leads us to what Government policy can do in that direction. How can it do it? It is clear from the Debates that we have had that banking policy alone cannot bridge the gap. Banking policy has done everything possible to cheapen money and to increase the amount of credit that is available. The figures which the Chancellor of the Exchequer gave in a Vote of Censure Debate, figures which have been freely used by economists, show that bankers' deposits—that is the deposits of the clearing-house banks with the Bank of England—have risen by £50,000,000 in two years. In ordinary banking practice, that should have allowed the joint stock banks to increase their advances to their customers by something between £500,000,000 and £750,000,000, but during the last year their advances have fallen by over £120,000,000. It is therefore clear that a mere policy of making money cheap and of increasing the capacity of the banks to lend to their customers cannot bridge the gap in bad times. The entrepreneur is so depressed, and so uncertain of what will be the future of the price level, that he is unwilling or unable to use money which is made available for him.

It seems to me, therefore, that when you get to that depth of depression, the only technical method of forcing into circulation the fresh bank money which has been created by the open-market operations of the Bank of England is for the Government itself to use the money and force it into circulation—for them, as it were, if I may use Stock Exchange language, to carry out a short bull move, because the whole country has got into a bear position.

One might almost argue that under the modern capitalist system the technique of a Government should always be to operate in exactly the contrary direction to that in which individuals are operating. In a period of boom, individuals are investing freely, and even over-investing to a speculative extent. During that time, the Government should be "bear." It should save, it should pull in its horns. On the other hand, a period of depression, when individuals are unwilling to invest, is the time for capital investment on the part of the Government. The trouble is that the Government, being composed of individuals, is subject to the same psychological forces as individuals. At a period when the rate for money was 7 or 8 per cent., and houses cost £1,400 to build, we built hundreds of thousands of them, and raised a great burden of debt around us for ever afterwards. Now, in a period of depression, when we can borrow money cheaply and build houses cheaply, we are a little reluctant to invest capital sums from Government sources.

I should say that in this situation, while economy on income account is sound, the view to which one is led is that expenditure on capital account is the right method for the Government to adopt for the purpose of giving the stimulus that is required in order to lead to revival. I would support that argument with the following observations. If it be admitted that this Government stimulus is required on capital account, what should be the direction of that expenditure? Here we must distinguish broadly between capital goods and consumption goods. It seems to me that, if the Government were to spend for the purpose of increasing the quantity of consumption goods, that would merely increase the supply of consumption goods more rapidly than the demand, and since, in a period of depression, a certain amount of profits and interest will be saved and not invested, but added to the liquid pool of uninvested money, it is essential that this Government expenditure should be used for the production of capital goods—houses, bridges, harbours, agricultural development and the like—rather than for the production of consumption goods. In that case, since the people who are taken off the dole and put into work—taken off the £1 a week of the Poor Law or the dole and given, say, £2 or £2 10s. a week in wages—will become consumers of consumption goods without adding to the total volume of such goods, the price level of those goods will tend to rise. If the Government will employ people in making capital goods, taking them off the dole and giving them purchasing power, they will be following the second and healthier method by which prices can be made to rise, inasmuch as the amount of purchasing power will increase without an increase in the amount of consumption goods, and therefore, the price of consumption goods must tend to rise.

Against this view it has generally been argued that we have tried this before, and it has failed. I would like briefly to point out that that is not the ease. We have never tried this method under the same conditions. It is true that we had Government expenditure during the years of the late Government and the Government that preceded it, but let us consider what were the conditions at that time. In the first place, we had a. system of free imports, and, therefore, this Government expenditure was only a contribution to the world price level, instead of being concentrated largely upon a rise of the internal price level. So soon as you have some control of imports, your new expenditure will be a contribution to the raising of internal prices.

In the second place, we were attached to stability of exchange—we were attached to parity of the pound at 4.87 with absolute stability of exchange—and, therefore, during that period, although the Government might be inflating with the right hand upon work schemes and the like, the Bank of England was forced to deflate with the left hand to exactly the same extent in order to keep the pound at par. That is to say, it is impossible to achieve two things at once. You cannot raise the level of internal prices and at the same time hold on to absolute stability of exchange.

At that time, 18 months ago, there was grave risk in our financial situation. There was the danger of a flight from the pound, but since that time this danger has gone. This House has indeed voted £150,000,000 for the purpose of keeping down the value of the pound. The danger of Government expenditure such as I suggest, if it was on too large a scale, would be that it might unduly depress sterling. But the danger is not now a flight from the pound. The Governor of the Bank of England is being forced to buy foreign currencies and gold in order to reduce, and not to increase, the price of sterling. The hon. Member for St. Rollox reminded me—I fully stand by what I said—that I never thought this inflationary method was any use as a permanent cure. Of course, I do not think so. Of course, the real objection that can be raised against any such methods is that, although you will cure a lot of temporary difficulties, you will restore equity as between debtor and creditor; you will give back some hope to the producer, you will relieve eventually the burden of debts and services—But the argument is that ultimately you will fail, unless you are careful, and fall into fresh disequilibrium and another period of falling prices. That is true and, therefore, it is essential that we should do what I understand to be the policy of the Government that is, com- bine an attempt to raise the price level now by some such methods as I have described, with a definite determination to use and direct that capital expenditure in order to make a better equilibrium, or balance of production, in this country and the countries associated with it.

Therefore, I suggest that the first line upon which we should direct this capital expenditure should be agricultural production. We have an immense possibility there of re-directing the balance of production and getting away from the dangerous situation we are now in of lack of balance between agricultural and industrial production, and increasing the development of rural housing and drainage, the improvement of land and saving good land which is now being threatened. In that way, we have an immense possibility of providing productive capital expenditure which can help to restore equilibrium between the various producing forces. We could is the same way, through trade facilities, direct money into the reorganisation of those businesses which are capable of expansion and improving the competitive power of those industries where there may necessarily have to be some contraction in view of other world forces. There, at least, their competitive power can be increased by reorganisation with help of capital guaranteed by the Government. Finally, in spite of the hon. Member opposite, who says that in this island there is nothing more to be done to develop the estate—


I did not say that.


; The hon. Member said there was little more to be done—we have such splendid roads, and so on. Is anyone, satisfied with the condition in which the people live? Is there not £200,000,000 which can be spent upon the clearing of slums and the building of houses to be let to the working-class people at rents that they can afford to pay? There are tremendous fields for expenditure in this direction, expenditure which will combine two objects, first to raise the price level, and secondly to readapt the country with a view to a new production balance which would prevent us falling into a fresh disequilibrium after the prices had been raised. I am not advocating an irresponsible inflation, a sort of idea that you can inflate and trust to luck what happens. I think that perhaps the Government are unduly modest. Perhaps they have not realised how successful has been the first 18 months of salvage. We have got hold of the ship. It is under control. The fires have been put out, and we can now go out to sea. The whole object of the sacrifices which we have had to make during those 18 months and of the policy we have developed is that we may be able to exploit it. Now is the time to exploit it. It is the happy fortune of the present Government that they are able to combine what can be supported by arguments and reason with what also is desirable on humane and moral grounds. It is the happy feature of this policy that it can be supported both from the heart and from the head. The Government have, it seems to me, by the first stage of their policy, made England safe for spending. It is now possible to build upon the foundations which, partly by good fortune, it is true, and partly by good management, have now been laid. I think that they may also have the good fortune which is not always given to an administration, that if they will go forward boldly now the results may come in the lifetime of this Parliament and they may be able to do what it is not always given to Governments to do, to reap where they have sown.

10.28 p.m.

The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

The Debate has called out so many interesting speeches from different points of view that I should have wished that it had been possible to devote the whole day instead of only half a day to this question. I think that, as there is only a short time left, it will perhaps be in accordance with the desire of the House that I should make a few observations upon what we have heard. There is before us a Motion and on the Paper there are two Amendments which have, however, not been called. Nevertheless, we have had speeches from those who had intended to move those two Amendments and from those speeches we have been able to judge what was in their minds. Perhaps, therefore, it may be convenient if I say a few words upon the Amendments before I proceed to deal with the Motion of my hon. Friend. As to the speech of my hon. Friend the Member for East Edinburgh (Mr. D. Mason), I wondered whether he had purposely left out the date of the restoration of the Gold Standard to which he intends to devote his remaining years. But with his usual frankness he has not shirked that question, and he has made it clear that, in his opinion, the time has come when we should at once return to the Gold Standard whatever anybody else does. I think that my hon. Friend has not only the reputation of never being convinced by anybody but also of never convincing anybody else. He is probably the only Member in this House, and I am not sure whether he is not the only man in the country, who holds that view. He not only desires us to go back to the Gold Standard, but he wishes us to use all our resources to raise the exchange value of the R. It was not astonishing that my hon. and gallant Friend the Member for South Leicester (Captain Waterhouse) took objection to that view and intimated that it would be a disastrous thing for industry if the exchange value of the £ were again to rise. The hon. Member says: "If it is so good to keep the value of the £ down, why not bring the value down to 2s.?" When my hon. Friend goes to a doctor and the doctor prescribes for him one tablespoonful of medicine three times a day, does he say that if one tablespoonful is good, why not take three? Or does he drink the whole bottle at once? Does it not occur to him that there may be a point between the two extremities where the value of the £ may be such as it is possible to maintain without injury to our industry, and perhaps with some benefit to it 9 I submit that to him as a new idea, and perhaps that would be the best idea for him to follow.


It has not benefited industry.


My hon. Friend says that it has not benefited industry, but, if he will take the opinion of industrialists, and they ought to know, they will tell him that they have benefited very considerably, very definitely, from the fact that the £ has been depreciated in value. Some very interesting remarks were made by my hon. Friend the Member for Bolton (Mr. Entwistle) on the subject of the Gold Standard and also on the subject of the so-called sterling area. In that respect, I find myself very much in agreement with him. The observations that he made about the sterling area apply just as much to the Empire as they do to foreign countries. When my right hon. Friend the Member for Sparkbrook (Mr. Amery) said that we missed a great opportunity at Ottawa to devise and to establish an Imperial monetary system as well as an Imperial economic system, meaning the linking up of the currencies of the Dominions to sterling, I do not think he faced the immediate difficulty which, must arise in such an event when the Dominions would have to grant to us the power of fixing the rate of sterling, which they would have to accept without having any control over the rate. What would suit us at a particular moment would not necessarily suit the Dominions. Therefore, I assure my right hon. Friend that the suggestion he made, attractive though it might seem on paper, when it comes to a matter of practice is not within the range of practical politics.

I will devote a few moments to the other Amendment, which begins with the proposition that: This House is of opinion that any movement to raise wholesale prices cannot increase the effective demand by the working classes in this country. If the hon. Member who supports that Amendment had used the words "will not" increase the effective demand by the working classes in this country, that would have been an expression of opinion which would have been at least arguable, but when he says that it "cannot" increase the effective demand, he is holding out a proposition which is demonstrably untenable.


I intended to have introduced the two words "of itself" into that Amendment, after the word "cannot."


I am not sure that even then it is an arguable proposition; and for this reason. We have had from a number of hon. Members to-night illustrations of the effect of the fall in wholesale prices which has taken place. It has been catastrophic in character. Wholesale prices, since October, 1929, have diminished by about one-third, and in the case of raw materials the fall has been 50 per cent. or 60 per cent. That has practically destroyed the pur- chasing power of quite a number of countries. It has not only made it extremely difficult for debtors to meet their obligations and raised serious obstacles to the transfer of currency from one country to another, but it has made business unprofitable and thrown large numbers of people out of work. And the countries which produce primary products, foodstuffs and the like, have suffered the most, because a characteristic of the fall in prices is that it is accompanied by considerable dispersion; that is to say, that the fall has not been uniform, it has been much greater in primary products than the fall in manufactured articles, and the fall in wholesale prices has been much greater than the fall in retail prices.

What has been the effect on this country? The most direct effect is that countries have not been able to purchase the goods which this country produces and desires to sell to them. The result of a rise in prices to all the countries that produce these primary natural products would mean that their profits, their power of purchasing goods from other countries, would increase; there would be an increased demand for goods from this country which would increase employment and help wages to rise. The hon. Member for St. Rollox (Mr. Leonard) gave the net fall in wages in recent years in hundreds of thousands of pounds per week, very striking figures, although he would have been more illuminating if he had given us the percentage. But that has taken place during the period of a fall in prices. Has it occurred to the hon. Member that there may be some connection between the two? Has it not occurred to him that if you want to stop the fall in wages the way to do it is to enable business to be carried on at a profit. You cannot take more out of an industry than there is in it; and if the industry is producing and selling at a loss then, of course, it follows inevitably, sooner or later, that wages must come down.

Let me come to the Motion. It urges the Government, without waiting for an international consideration of gold prices, to give immediate effect to a definite and wholehearted policy of raising sterling prices. When I read the Motion I seemed to recollect that it was not the first time my hon. Friend had addressed himself to this subject. I seemed to recollect his having spoken upon it during the passage of the Finance Bill in May, 1932, and on looking up the OFFICIAL REPORT I found that that was so. I also found that my hon. Friend at that time asserted, as he has done to-day, that the great need is to raise wholesale prices; that it would never do to wait for an international conference but that this Government must take the measures which are in their power to raise sterling prices irrespective of gold prices. My hon. Friend at that time knew exactly how to do it. He told us. He said that we must provide abundant and cheap money and plentiful credit. "Will they raise prices?" he asked. "Yes, they will," he said. What has happened since? My hon. Friend has no doubt observed that the conditions for which he asked at that time have since been fulfilled but that prices have not gone up, and that is no doubt the explanation of his having come down to-day with a new proposal, different from that which he made previously.


If it was anticipated at that time that an increase in the volume of available credit would have the effect of a rise in prices it was on the assumption that trade would be given facilities, and that in fact the bank deposits would be used by the public. It is a fact, of course, that that expectation has not been fulfilled in practice, and that the money is lying idle in the banks, but I think it was a reasonable expectation at the time.


I do not want to criticise my hon. Friend. That may have been a qualification at the time, and I only draw attention to the facts because the hon. Member was certain at the time that his remedy was one which would effect the purpose. He was just a little critical of the Chancellor of the Exchequer who had said that you could not by monetary factors alone expect to raise prices. My hon. Friend agrees now, I think, that you cannot by monetary factors alone expect to get prices up. I have some figures here. I do not know whether it is worth while to give them to the House. Perhaps they are interesting to show what has happened since the day when my hon. Friend made his speech. At the time the Bank Rate was 3 per cent. Two days afterwards, no doubt in consequence of the observations of my hon. Friend, it was 2½ per cent., and on 30th June it came down to 2 per cent., at which it has remained ever since. The Treasury Bill rate was £1 17s. 2d. and it is now 11s. 4d., and of course the three months and day-to-day figures are reduced in proportion.

With regard to the exchange, the pound was then at 3.68 dollars or 93½ francs. At the moment we cannot say what it is in dollars, but it is worth about 88 francs. So that the exchange value of the pound has come down very considerably. Then my hon. Friend complained that we held to a deflationary policy, and that it had been shown by a reduction in the joint stock bank deposits. It is true that the average of those deposits during 1931 was £1,761 millions, and that on the date on which he spoke, or about then, they were £1,699 millions, a difference of £62,000,000. But they are now £1,982 millions. They have gone up by £283,000,000. Still they have not raised prices. Take another figure which is generally considered relevant. The bankers' deposits in the Bank of England at that time were £76,000,000, and they are now over £100,000,000. That all shows, of course, as I say, that you cannot expect by monetary factors alone to raise prices. But I think it would be a great mistake to suppose that the monetary factor has nothing to do with it.

As has been said by more than one hon. Member, wholesale sterling prices have remained remarkably steady, and that is the more striking if you compare them with what has been happening in those countries which are still on the Gold Standard. In the United States prices are down by about 20 per cent., in France, 12 per cent., in Italy, 12 per cent. and in Germany, over 16 per cent. Does not that show that here we are in the presence of world forces, forces not operating here only, but over all the world, and, that, by some means or other, and as I think largely by the monetary policy which we have pursued, we are countering the effect of these world forces so far as sterling prices are concerned? If we have not raised sterling prices we have at any rate prevented them falling. I was rather surprised to hear my right hon. Friend the Member for Sparkbrook (Mr. Amery) allude to a speech which I made on 16th February and observe that that speech was a tremendous advance on something which I had said at Ottawa and that if I had made that speech at Ottawa, it would have made all the difference there. I wonder whether he remembers what I did say at Ottawa. I have looked it up and it seems to me difficult to find any difference between what I said at Ottawa and what I said on 16th February. I said at Ottawa: His Majesty's Government desire to see wholesale sterling prices rise and the best condition for that would be a rise in gold prices. What I said on 16th February was: We must raise gold prices if we can and, in any case, we must raise sterling prices."—[OFFICIAL REPORT, 16th February, 1933; col. 1223, Vol. 274.] Frankly, I see no difference whatever between those two statements, and I cannot understand what my right hon. Friend reads into the second statement, which he describes as a great advance on the first one, and one which if it had been made at Ottawa would have changed the whole course of events.


In his statement at Ottawa after referring to gold prices, my right hon. Friend went on to say that that limited very definitely the possibility of anything being done in regard to sterling. The whole inclination of his statement then was, "We could do comparatively little with sterling unless gold prices were raised." On 16th February the inclination of his statement seemed to be quite definitely in the other sense. "Do what you can with gold prices, but in any case we are going ahead with sterling." It seems to me that there is a substantial difference and that it would have made a great deal of difference at Ottawa.


Can anyone join in this row?


My right hon. Friend will remember that what I did say was that the absence of a rise in gold prices obviously imposed a limitation on what could be done with sterling, but I did not say that unless gold prices rose you could do nothing with sterling. I said that there was a connection between the two and I think that view is accepted by a great number of authorities on the subject, including the right hon. Gentle- man the Member for Epping (Mr. Churchill), who laid great stress upon that in a speech which he made about the same time as the speech which I made. I think it will be agreed that there are other factors which have to be taken into consideration in thinking how we can raise sterling prices. I agree with those who have said that it is not enough to have plenty of money available at cheap rates—that you must, in addition, have confidence.

The Mover of the Motion was, I think, correct in saying that that confidence had to be double sided, that is, the borrower must have confidence that he can use the money profitably and the lender must have confidence that the security which he is given offers a reasonable propect. How is that confidence to be increased? There again, it seems to me, you cannot separate conditions in this country from the conditions in the world as a whole. As long as the world is in a disturbed condition when no one knows what political changes are likely to take place, or in what financial difficulties other countries may find themselves involved, you cannot expect that international trade is going to resume its former volume. We ought always to remember that in this country we have been, in the past, a great exporting nation. We have a large number of our people who earn their living by making goods and selling them to foreign countries. In the last few years our foreign trade has shrunk until it is half of what it was. The idea that we can replace what we have lost in foreign trade by any artificial stimulus, applied in this country, appears to me one doomed to disappointment.

It has been suggested that we could increase our export trade by subsidising selected industries. An hon. Member desired the particular trade he represented to be favoured. I dare say other hon. Members would be able to supplement his suggestions with other ideas. I believe one of my hon. Friends wanted to subsidise the motor trade. If you are to subsidise not only the old industries, but the new ones like the motor industry, I do not know where you are going to stop. Perhaps it would be sufficient if I said that if you are going to use the taxpayers' money in order to subsidise a selected industry, on the ground that there is unlimited demand for the product of that industry at the right price, can you be quite certain that other countries would accept the position without taking any action to counteract what you are doing? There is the question of the cotton and textile industry, in which our great competitor is Japan. Japan has depreciated her currency from 2s. to 1s. 2d., which is far greater than the depreciation in the pound. A very considerable subsidy would be needed to outweigh depreciation of that extent.

I think the matter would not be allowed to rest there. Other hon. Members, and particularly the hon. Member who last addressed the House, have said that the Government should now use their credit to start a new programme to stimulate industry, by the commencement of public work or the encouragement of private enterprise where this stimulus is needed to give the necessary start. That is the policy of the Government. That is the policy we have repeatedly described to the House as one which we were ourselves pursuing. But I do think it is necessary to say to the House very earnestly that hon. Members must not put too great reliance upon ideas of that kind. They must not imagine that the number of particular schemes which would come under their own description of schemes suitable for the purpose is unlimited, or that they are of such magnitude that they could be relied upon to raise prices or encourage the rest of industry to follow our example. What is the greatest national scheme that has been carried through in the last decade? I suppose anybody would say the establishment of the grid scheme. The grid scheme has cost £27,000,000 and is now approaching a conclusion. Can anybody say that it has had the effect of starting a general movement in industry. No. It has kept a number of factories in work which perhaps would not have been in work without it, and I believe that ultimately it will be a great asset to the country. But can anybody search round and show me half-a-dozen schemes which can compare in size, in volume, or in value with the establishment of the grid?

They all go round and round saying, "spend more money on housing, on slum clearance; spend money on the Cunarder, spend money on this, that, and the other." Everyone of these things is either being done or is being examined with a view to seeing whether it ought to be done by the Government, and if it comes within the description which everybody agrees should be applied to it, it will be done. But it would be a mistake to suppose that you can rely upon work of that kind, when you have gone through all your schemes, being of sufficient value to make a real, appreciable, and perceptible difference in this particular problem. No. It is a hard saying, but it is necessary to say again what I firmly believe in my own mind. You cannot expect that this country can attain prosperity while all the rest of the world is depressed.

Therefore, in spite of my right hon. Friend's objections to international conferences, we have got to have international conferences. We have got to try to persuade other countries to act with us in removing the obstacles to the restoration of international trade. I do not myself despair of obtaining a considerable measure of agreement, because I see that the more difficult the situation becomes, the more desperate the position of other countries grows, the more likely they are to be ready to consider any scheme which you may put up to them which will give some reasonable prospect of relief. The matters which are set out in the annotated agenda of the World Economic Conference cover, I think, most of the problems which have to be solved before we can expect to recover the prosperity of the world. There are some of them on which, no doubt, different countries have in the past held very different views, but I think I begin to see at least some approach to a greater approximation of views than has existed in the past, and until at any rate we get together, until we can exchange our observations and our views across the table, I think it is altogether too soon to despair and to say that these differences are so wide or so deep that it is inconceivable that they will be bridged.

To my mind, that would be throwing up the sponge a great deal sooner than it is necessary to do. While the Government will certainly spare no effort in doing all that it is in the power of the Government to do to stimulate trade and to raise sterling prices, yet at the same time we are not going to disguise from ourselves that the greater objective which lies before us is in the direction of international co-operation. For that purpose too we shall take every opportunity which presents itself to us to get into agreement with other nations.

Resolved, That this House welcomes the Government's declared intention to raise wholesale prices, gold prices if possible, but in any case sterling prices, and urges the Government, without waiting for the international consideration of gold prices, to give immediate effect to a definite and wholehearted policy of raising sterling prices.

Question put

The House divided: Ayes 128; Noes, 35.

Division No. 76.] AYES. [11.0 p.m.
Adams, Samuel Vyvyan T. (Leads, W.) Haslam, Sir John (Bolton) Ramsay, T. B. W. (Western Isles)
Baldwin, Fit. Hon. Stanley Hore-Bellsha, Leslie Ramsbotham, Herwald
Baldwin-Webb, Colonel J. Horsbrugh, Florence Ramsden, Sir Eugene
Barclay-Harvey, C. M. Hudson, Capt. A. U. M.(Hackney, N.) Reed, Arthur C. (Exeter)
Beaumont, Hon. R.E.B. (Portsm'th.C.) Hume, Sir George Hop wood Reid, James S. C. (Stirling)
Bird, Ernest Roy (Yorks., skipton) Hunter, Dr. Joseph (Dumfries) Ropner, Colonel L.
Boothby, Robert John Graham Jamleson, Douglas Rosbotham, Sir Samuel
Borodale, Viscount Joel, Dudley J. Barnato Ross, Ronald D.
Boulton, w. w. Kerr, Lieut.-Col. Charles (Montrose) Runge, Norah Cecil
Bowyer, Capt. Sir George E. W. Kerr, Hamilton W. Rutherford, John (Edmonton)
Broadbent, Colonel John Law, Sir Alfred Salt, Edward W.
Brown, Ernest (Leith) Law, Richard K. (Hull, S.W.I Sanderson, Sir Frank Barnard
Browne, Captain A. C. Leckle, J. A. Savery, Samuel Servington
Buchan-Hepburn, P. G. T. Lindsay, Noel Ker Shakespeare, Geoffrey H.
Burnett, John George Liewellin, Major John J. Shaw, Helen B. (Lanark, Bothwell)
Campbell, Vice-Admiral G. (Burnley) Lloyd, Geoffrey Skelton, Archibald Noel
Cazalet, Thelma (Islington, E.) Lockwood, John C. (Hackney, C.) Smith, Bracewell (Dulwich)
Cazalet, Capt. V. A. (Chippenham) Lyons, Abraham Montagu Sotheron-Estcourt, Captain T. E.
Chamberlain, Rt. Hon. N. (Edgbaston) Mabane, Will Ian- Southby, Commander Archibald R. J.
Chapman, Col. R. (Houghton-le-Spring) Mac Andrew, Lieut.-Col. C. G.(Partick) Stevenson, James
Clayton, Dr. George C. McKie, John Hamilton Stones, James
Collins, Rt. Hon. Sir Godfrey McLean, Dr. W. H. (Tradeston) Storey, Samuel
Colville. Lieut.-Colonel J. Macmillan, Maurice Harold Stourton, Hon. John J.
Conant, R. J. E. Makins, Brigadier-General Ernest Strauss, Edward A.
Cook, Thomas A. Margesson, Capt. Rt. Hon. H. D. R. Strickland, Captain W. F.
Cruddas, Lieut.-Colonel Bernard Martin, Thomas B. Stuart, Hon. J. (Moray and Nairn)
Culverwell, Cyril Tom Mayhew, Lieut.-Colonel John Sugden, Sir Wilfrid Hart
Davies, Maj. Geo. F.(Somerset. Yeovil) Merriman, Sir F. Boyd Thomas, James P. L. (Hereford)
Duncan, James A. L. (Kensington, N.) Mills, Major J. D. (New Forest) Thompson, Luke
Dunglass, Lord Mitchell, Harold P.(Br'tf'd & Chisw'k) Wallace, Captain D. E. (Hornsey)
Elmley, Viscount Mitcheson, G. G. Ward, Lt.-Col. Sir A. L. (Hull)
Entwistle, Cyril Fullard Moore, Lt.-Col. Thomas C. R. (Ayr) Wardlaw-Milne, Sir John S.
Erskine, Lord (Weston-super-Mare) Morris-Jones, Dr. J. H. (Denbigh) Warrender, Sir Victor A. G.
Ford, Sir Patrick J. Morrison, William Shepherd Waterhouse, Captain Charles
Fremantle, Sir Francis Nail-Cain, Han. Ronald Wedderburn, Henry James Scrymgeour-
Ganzonl, Sir John Nation, Brigadier-General J. J. H Whiteside, Borras Noel H.
Gower, Sir Robert Nicholson, Godfrey (Morpeth) Williams, Herbert G. (Croydon, S.)
Graham, Sir F. Fergus (C'mb'rl'd, N.) O'Donovan, Or. William James Wilson, Clyde T. (West Toxteth)
Graves, Marjorie Oman, Sir Charles William C. Windsor-Clive, Lieut.-Colonel George
Gunston, Captain D. W. Palmer, Francis Noel Wise, Alfred R.
Guy, J. C. Morrison Percy, Lord Eustace
Hacking, Rt. Hon. Douglas H. Peto, Geoffrey K.(W'verh'pt'n, Bilston) TELLERS FOR THE AYES.—
Hanley, Dennis A. Power, Sir John Cecil Mr. Amery and Mr. Hammersley.
Harvey, Major S. E. (Devon, Totnes) Procter, Major H[...]nry Adam
Adams, D. M. (Poplar, South) Hall, F. (York, W.R., Normanton) McGovern, John
Attlee, Clement Richard Hall, George H. (Merthyr Tydvll) McKeag, William
Batey, Joseph Hicks, Ernest George Maclean, Nell (Glasgow, Govan)
Cape, Thomas Hirst, George Henry Mason, David M. (Edinburgh, E.)
Cripps, Sir Stafford Jones, Henry Haydn (Merioneth) Maxton, James
Daggar, George Jones, J. J. (West Ham, Silvertown) Parkinson, John Allen
Davies, David L. (Pontypridd) Kirkwood, David Price, Gabriel
Davies, Rhys John (Westhoughton) Lansbury, Rt. Hon. George Williams, Edward John (Ogmora)
Edwards, Charles Lawson. John James Williams, Thomas (York, Don Valley)
Evans, David Owen (Cardigan) Leonard, William
Evans, R. T. (Carmarthen) Logan, David Gilbert TELLERS FOR THE NOES —
Grentell, David Rees (Glamorgan) Lunn, William Mr. Tinker and Mr. Groves.
Grundy, Thomas W. McEntee, Valentine L.