HC Deb 04 May 1933 vol 277 cc1035-94

Considered in Committee under Standing Order No. 71A.

[Sir DENNIS HERBERT in the Chair.]

Motion made, and Question proposed, That it is expedient to increase from one hundred and fifty million pounds to three hundred and fifty million pounds the aggregate amount which may be issued to the Exchange Equalisation Account out of the Consolidated Fund."—(King's Recommendation signified.)—[Mr. Chamberlain.]

4.23 p.m.

The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

The Resolution which I am submitting to the Committee this afternoon is in pursuance of the intention which I announced in my Budget speech last week, when I said that I proposed to ask the Committee to pass a Resolution sanctioning an increase in the resources of the Exchange Equalisation Account. I did not then mention the amount of the increase which I should propose, and in the course of the Debate which followed practically no comment was made upon my statement, with the exception of what was said by the right hon. Gentleman the Member for Darwen (Sir H. Samuel) to whose observations I shall presently return. I assume, therefore, not without reason, that what I had expressed my intention of doing did not create any great amount of apprehension. The only new fact, apart from the information which is already in the possession of the Committee, is that to-day the Committee learn from the terms of the Resolution that the amount of the proposed increase is £200,000,000; in other words it is rather more than the sum which was authorised by Sub-section (4) of Section 24 of the Finance Act last year, namely, £150,000,000, together with the assets of the old Exchange Fund amounting to another £25,000,000 which were also transferred to the account.

I take it, therefore, that what the Committee desire me particularly to put before them this afternoon is the reasons why I have fixed upon this particular sum. I should like, in the first place, to repeat what I said last week, namely, that the amount of this increase, and the fact that I am asking for an increase at all, have nothing whatever to do with the circumstance that America has gone off gold. I was sorry to see that, in spite of my emphatic statement last week, some American journals have represented this addition to the Exchange Equalisation Account as being in some way directed against their country. I do not know whether what I said on that subject, by disclaimer or anticipation of that charge, was transmitted across the Atlantic together with the statement about the intention itself. If not, I can only say that I regard it as extremely unfortunate that partial and mutilated accounts of important statements of this kind should be transmitted, and then become the foundation for misunderstanding between two great and friendly nations.

Whether my fortune will be better on this occasion than it was on the last I do not know, but, whatever happens over there, I feel sure that I can convince the Committee of the literal truth of that statement, because, in fact, this addition to the account, which we require for quite another purpose, is not one which could be used for the purpose with which I am being charged by certain American journals, namely, of forcing down the value of the £ relative to that of the dollar. The real fact is, of course, that the purpose of the fund is not at all directed to any permanent alteration in the relative exchange value of the £. The need for the increase arises out of our actual experience of the working of the account since last June. The right hon. Gentleman the Member for Darwen said in the Debate on the Budget statement on 26th April: The idea was that this was to be in the nature of a revolving Fund. It was not to be locked up, but was to be used when required in the purchase, and afterwards restored by the sale, of foreign currencies, or it might be of gold, with a view to levelling out the minor fluctuations of exchange, although never did it from the beginning pretend to secure complete stability irrespective of the economic forces which pull sterling this way and that."—[OFFICIAL REPORT, 26th April, 1933; col. 122, Vol. 277.] I think that that is a very goad and accurate description of the purpose of the fund.

Let me remind the Committee of the principal forces which do pull sterling this way and that. In the first place, there are the seasonal fluctuations. Owing to a variety of causes, mostly connected with trading transactions, we find that the £ is strong in the spring and weak in the autumn, and, if those fluctuations were left entirely to themselves, we should have a sort of see-saw in the value of the £, which, undoubtedly, would be disturbing and embarrassing to traders generally. But those fluctuations, which have gone on for a great many years—I do not mean fluctuations in the £, but the forces which tend to cause those fluctuations —are now considerably reinforced by the action of speculators, who watch for these rises and falls, who know about the time when they are coming, and who operate for the purpose of making a profit, but whose operations naturally amplify, if I may use that term, the ordinary variations which are due to these seasonal causes; so that, by reason of the operations of speculators, we find that the tendency of the £ to be strong is accentuated in the spring, and, similarly, these forces tend to pull the £ down still more in the autumn. Accordingly, it seems only a natural and reasonable and common-sense precaution to build up resources in the spring in order that we may, if possible, stem a too rapid fall in the autumn.

If that were all that we had to deal with, I think that probably the £150,000,000 with which we started would have, been ample for our purpose—the purpose, that is, of evening out these seasonal variations in the value of the £. But, as I explained to the Committee last week, we have, since we started the Account, been faced with a new phenomen, something which we had not anticipated at all, something quite unexpected, something which I might perhaps describe as the presence of refugee capital—capital which has come here because the owners of it had got alarmed about conditions in their own countries, and had come to the conclusion that, for the time at any rate, their capital was safer in London than in any other place. If that were a, permanent settlement here, we should not require additions to the Exchange Account; we could probably deal with it. Again I want to say that it is not our intention to use this fund to try to alter the permanent level of the exchange, either up or down. For one thing, I do not think we could; cer- tainly we could not be sure of being able to do it, even if we tried; but, in the case of this particular phenomenon which I have called the flight of refugee capital to London, we must recognise that its habitation here is of an entirely temporary character. It arises out of a sort of minor panic, and, when that panic has come to an end, when confidence has been restored, it is quite likely that this capital will go back to the places from which it came, and it certainly will be encouraged to do so if the owners of it think that by so transferring it they have an opportunity of making a profit out of their own currency.


Can the right hon. Gentleman tell us how much there is of it?


No, I cannot tell how much there is of it. It varies at different times, and I do not think it would be in the public interest to give figures in this matter, because the hon. Member will appreciate that the figures which I might give would not be confined to hon. Members in this House; they would be made public to all the world, and all the speculators in the world would have additional information, which is exactly what they want for the purpose of their operations. I say, therefore, that what we have to consider is that this flight of capital which has come to this country under these special circumstances is something which we cannot count on remaining here. It may go at any time, and, when it goes, unless we have some special means of dealing with the situation, it may have very disturbing effects upon the exchange. It is because this new phenomenon, which, of course, occurred long before America went off gold, did result in our resources being reduced to a level which was distinctly uncomfortable at times during the last 12 months—it was on that account that long ago, last year or at the beginning of this year, I made up my mind that, when the Budget came round again, I should have to ask the Committee to increase the resources at our disposal if we were to operate successfully.

I repeat once more that we want the Exchange Account for smoothing out the variations in exchange caused by three sets of phenomena—first, the seasonal fluctuations; secondly, the operations of speculators, which increase those seasonal fluctuations, and other fluctuations, too; and, thirdly, this special flight of capital from other countries for the sake of finding a safer place to stop in for a time. I think the Committee will probably agree that our objects in trying to counteract these movements are praiseworthy. I think they will probably agree, also, that, so far as we have gone, the Work of the Exchange Account has been beneficial to the traders of this country in preserving a reasonable stability in the exchange. I think they will very likely accept my word for it that, in order to operate this Account satisfactorily, we ought to have some further addition to our resources; but I think they may well ask why I am asking for such a large addition—why we want to double them, and rather more than double them.

Referring again to the words of the right hon. Gentleman the Member for Darwen, I assume that, when he talked about this being a revolving account, he had some idea in his mind that, if it were a revolving fund, there was not, on the face of it, any reason for very much increasing it. Of course, he is quite right in saying that it is a revolving fund, but the interval required for a. revolution may be a considerable one, and, in the meantime, the movements which we have to counteract are, I fancy, of a very much greater extent than, perhaps, the right hon. Gentleman has fully appreciated. As I said before, I do not want to give figures, but I ask the Committee to believe that they are very considerable. Perhaps I might remind the Committee that, in a recent report of the Bank for International Settlements, it was estimated that the amount of short-term capital available at the beginning of 1931 had reached the large total of £22,000,000,000.


All over the world.


Of course, although the right hon. Gentleman says, "All over the world," I am sure he appreciates that it moves from one part of the world to another. I do not want the Committee to suppose that I think there is that amount of international short-term capital about now all over the world. No doubt those were exceptionally large figures, and I only mention them to show the order of the quantity of short-term capital which has been available in the past; but I can tell the Committee that I am quite sure it is still very large indeed.

I want to be perfectly frank with the Committee about the figure that I am asking them to sanction. I think it is impossible to state with any confidence that any given figure will put us in a position to be absolutely sure that we can deal with the situations that may arise. We are living in such extraordinarily unique and abnormal times. Things happen to-day which never happened before; things may happen tomorrow which we have not thought would be likely to happen to-day; and one cannot be absolutely certain that, even now, we have got to the end of the unexpected movements which may happen, in this disturbed condition of the world, to cause the exchange rate of the to move up or down in this temporary fashion.

I gave long consideration to the question of how much I ought to ask for as an addition. My thoughts ranged from an addition of £100,000,000 on one side to £250,000,000 on the other. I came to the conclusion that £100,000,000 was definitely too little. On the other hand, £250,000,000 seemed to me unnecessarily large, so far as one could foresee the future or think of any possible circumstances that might arise. I can assure the Committee that I have not wanted to ask for unnecessarily large figures, for I realise that, the larger the figure, the more likely are suspicions to be aroused that in fact there is some other motive behind these requests than that which is given. Therefore, I had no intention of putting the figure unnecessarily high. Then I fluctuated between £150,000,000 and £200,000,000. On the whole, I came to the conclusion that £150,000,000 would be fairly safe. For some time I thought I could confine myself to £150,000,000. But there was one consideration which occurred to me which finally brought me to the other conclusion. I cannot keep on returning to Parliament and asking the House to sanction another and another addition to the resources of the fund. When we established this fund last year, we had no experience at all to guide us; we had to make a pure guess at what amount would be necessary for our operations. I must say I do not think it was a bad guess. It has carried us through the year, and, if it had not been for these new circumstances which I have described, I think we might have stood upon that.

But, if I confined myself now to £150,000,000, and if something else arose which showed me that we had not enough, and that another £50,000,000 would have put us safe, of course that would have meant, either that I must give up the idea of the working of the fund, or that I must come back a third time to the House of Commons and ask the Committee to sanction another addition. I felt that to be a very undesirable proceeding. On the whole, therefore, that was the conclusion to which I came, that rather than take that risk I would go to the higher figure and ask the Committee to sanction it. While, naturally, I cannot definitely give a pledge that I shall never come here again, to the best of my knowledge and belief this £200,000,000 gives us an adequate margin for all that we shall want to do, and I have no expectation that I shall have to come to the Committee and ask for any further sum.

There is only one other thing about which I want to say a word, and that is the question of profit or loss. The right hon. Gentleman the Member for Darwen asked me some question about that during the Budget statement and the right hon. and gallant Gentleman the Member for Newcastle-under-Lyme (Colonel Wedgwood) spent some time in his comments last week in speculating about what profit or loss had been made by the fund. I was filled with admiration at the confidence with which he told the Committee what had been the result of the transactions of the Exchange Equalisation Account. Of course, the Committee realises that there is no profit or loss in fact until the fund is finally wound up. You can make a valuation at any moment or say that, if we were to wind it up, we should have made this profit or that loss, but a final account cannot be struck until the fund comes to an end. As a matter of fact, as I thought it was desirable that the Committee should not be under any apprehension which was not well-founded, I had a valuation made and the Financial Secretary was able to tell the Committee that two days before he was speaking there had not been any loss on the account at all, but that the balance was on the right side.


Subject to realisation.


Entirely. That, I think, shows that the operations of the Account have been conducted with great skill. But do not let us fall into the error made by the right hon. and gallant Gentleman the Member for Newcastle-under-Lyme that the one thing that those who are operating the Account keep in their mind all the time is, Are we making a profit or a loss?. I do not mean to say that they exclude from their mind the possibility that the result of the transactions might in certain circumstances result in a loss or a profit, but that is not the thing that is in their mind as they are operating from day to day. What they are thinking of is the purpose of the Fund, namely, to prevent the exchange moving rapidly up and down. If hon. Members will keep that in mind and at the same time bear in mind that, as a matter of fact, all these operations have been carried on throughout the year without landing the Exchequer in any ultimate loss subject to realisation, I think they will have a certain confidence that we can be trusted to deal with even the larger sum for which I am asking sanction.

4.51 p.m.


The right hon. Gentleman suggested that during the Budget Debate there were no objections to this course, except by the right hon. Gentleman the Member for Darwen (Sir H. Samuel), but we rather left it to be discussed on this occasion, which seems a more appropriate one to go into a matter of this kind. I should like to start by congratulating the right hon. Gentleman on his conversion to Socialism. He has at last discovered that the proper way of using money of this sort is not for making profits, which is the usual manner in which it is used by bankers and other people, but to use it in the general interest of the country, whether there be a profit or a loss, and we certainly desire to commend him very highly for that very right and proper point of view when dealing with a Fund of this sort. It shows, perhaps, that it is a good thing that the Fund should be in the hands of the Central Government and under their control, rather than in the hands of any private corporation to undertake speculation in exchange in such a way as they desire. But, of course, this addition of £200,000,000 is a very large one and is setting up an enormous Fund, to which is attached a very large risk because, whatever the results may be, obviously when the Fund is wound up it will depend upon many features and many factors as to whether the right hon. Gentleman has a very nice nest-egg to dispose of or whether he finds an extremely bare nest, which is a loss of capital. [Interruption.] He thinks he may not be there. That depends upon when he winds it up, of course. The temptation to a Chancellor of the Exchequer to wind up a fund of this sort, in which he might find enough to give two or three shillings off the Income Tax, or something of that sort, would be enormous.

The Fund, as I understand it now, is being increased for the purpose of counteracting the movements of this floating fund which has been going about the world ever since the currencies went off gold trying to find the place where it can make the greatest profit on short time transactions and where it inconveniences national currencies to the maximum extent. It is a fund which has been rumoured and reported to be somewhere between £250,000,000 and £500,000,000, and which in its turn has inconvenienced most of the capitals of Europe, and America, too. Surely, the right hon. Gentleman, when he is looking around for something to tax, might consider taxing the import of such a fund as this which is highly undesirable. No one wants it. It is such a danger that we have to raise a. loan, or issue Treasury Bills, to the extent of £200,000,000 in order to combat it. Could not the right hon. Gentleman devise some scheme by which he could keep it out by taxation, and then we should get over all this great contingent liability, and, if any portion of it did come in here, he would at least be able to get a nice little bit for the Exchequer out of it. Everyone admits that a fund of this sort is undesirable. It is not useful money in the sense of being money that is useful for industry or for industrial capitalisation or for short-term loans to industries. It is money that is put here in the financial centre and is merely used for financial purposes which are not only not a benefit but are a real danger to the whole financial system.

When this scheme came forward last year, we took the view that it was desirable, if there was going to be exchange control, that it should be in the hands of the Government. Therefore, we welcomed to that extent the setting up of this fund, but we stated at the same time that we thought much fuller information should be given to the House as to how the fund was operated and the purposes to which it was being put. Of course, we accept what the right hon. Gentleman has said, that it is to be used only for these three purposes, but there are a great many incidents to its use in that way which cannot be avoided. One of them, apparently, in the last few months has been the accumulation of large quantities of gold. Some £60,000,000 extra of gold has been accumulated, apparently through the operations of this fund. The exact purpose which that accumulation of gold is to serve at the present time it is very difficult to see and, although it may not be in any way connected, it is liable to offer a great temptation to the people who want to see us back on the Gold Standard. The fact that we have large reserves of gold obviously makes it a very much closer and more proximate contemplation for those people who have for some time now been hankering after a return to the Gold Standard, whether on the original basis or on some lower basis of sterling, and we feel that, if this £200,000,000 is going to be used in the continued accumulation of gold, as it has been during the last few months, it is bound to have considerable weight in determining the question whether we return to the Gold Standard or not.

There is another matter which seems to us to be almost inevitable in the use of this fund for the purchase of gold. The right hon. Gentleman said it was not intended to utilise this fund in any way to alter the value of the £ in terms of long periods of time. It was only intended to iron out the day-to-day fluctuations. But, if we are going to accumulate large quantities of gold, at whatever price that gold happens to be purchased by the Bank of England, it must inevitably have an effect on the general trend of our exchange values, and during the last few months, certainly, the opinion has been expressed that the Exchequer value of the £ in this country has been kept down by the operation of the Exchange Equalisation Account—I do not say consciously kept down, but it is very hard to tell what is a day-to-day fluctuation and, if you have a little fall one day and iron it out, and a little fall the next day and iron it out, you may be ironing out the initial stages of a general tendency and, of course, should a general tendency happen, which ex hypothesi it cannot if you always iron out its beginnings, it is impossible to tell at the time what is happening.

But, if one looks back at the operations of the last few months, I should have thought that it was fairly certain that this exchange fund had in fact affected something more than the mere day-to-day fluctuations, that it had succeeded in keeping the value of the £ down when there was a danger of its rising owing to various outside circumstances which, but for the Exchange Fund, would have caused the £ to rise. I am not criticising that operation. What I am pointing out is that, however much the right hon. Gentleman may determine to keep this merely to day-to-day fluctuations, he is bound to associate with the ironing out of day-to-day fluctuations some policy as regards the general trend of the exchange because, unless he has some policy in his mind, something that he is aiming at, it will be impossible for him to tell how the exchange should be allowed to react over periods of time.

We have always felt that to try to anchor sterling to gold, either directly or indirectly, was a bad thing, and that, once we got rid of the Gold Standard, it was extremely undesirable, whether through some foreign exchange or directly, that we should get back again to gold on any parity, not because of the particular value of sterling and gold at any time, but because of the incidence of the Gold Standard itself and the fluctuations in terms of the commodity value of gold. On the last occasion we pressed the right hon. Gentleman to consider whether it would not be much wiser to try and anchor sterling to wholesale com- modity prices rather than to continue to try to anchor it either on some particular exchange, on the dollar exchange till that went off gold, and now, I suppose, to the franc exchange or some other exchange, or to come back directly to gold itself.

We feel that it is quite a hopeless proposition, if we are aiming at any reasonable currency stability in the present circumstances of the world, to be anchored to any metal—or to any mixture of metals, for the matter of that. The hopelessness of it is shown by the recent use of gold which has been made in the world. The old idea, as I understand it, of the Gold Standard was to have sonic permanent means of measuring your different currencies, and also to have a means of paying international differences. When one country's balance is a credit balance from another country, then the difference should be paid in gold, but now that idea has apparently completely vanished. The United States of America, with an enormous gold stock, first of all goes off the Gold Standard and now announces that gold bonds from the United States will in future be paid in paper currency; a thing which seems to be contrary to every possible criterion of honesty, and also contrary to every possible way of using the Gold Standard. When we went off the Gold Standard we continued to pay our American debts, but nobody now will seriously contemplate, after the recent action of the United States of America, that we shall ever do it again. The United States have given us what seems to be a lead in the way in which, when you get into financial difficulties, you can get out of them.

The French, of course, did that long ago. They cut down their foreign debts to one-fifth by means of paying in paper francs. Now America, with this vast hoard of gold at her back, is going to take the same steps. It seems a perfectly hopeless proposition that anyone should contemplate going back to a system which was primarily intended to make it easy to evaluate international debts and to pay international debts by the transference of the metal, but which has now merely become a question of hoarding in different countries. There is £800,000,000, or whatever it is, in America, an enormous sum in France, and I suppose now, under the operation that has been going on in the last two weeks—the Exchange Equalisation Fund —as soon as the gold is dug up in South Africa we shall put it down in the cellars here. Would it not be much cheaper to leave it there instead of taking all the trouble to transfer it over here and bury it again? We feel that there will be a very serious risk indeed in our getting back, either directly or indirectly, on to a Gold Standard which has entirely ceased to operate in the normal way—or, indeed, in any way at all. We fear that risk for this large sum of extra money which the right hon. Gentleman proposes to ask the Committee to allow him to raise.

Then there is the question of the effect on the bad money market here. As I understand it, this money will be raised by the issue of Treasury Bills, as was the last £150,000,000 during the last year. How quickly the right hon. Gentleman proposes to raise it, whether from time to time as he requires it, or whether almost immediately, I do not know. He has not told us when he expects to raise the whole sum. But the effect of raising that money will presumably be to increase the deposits at the banks, just as the last issue of £150,000,000 increased the deposits at the banks by almost exactly the same amount. We shall get to some extent a financial inflation, but not an expansion in industry; exactly as during last year, with the extra £211,000,000 of floating debt that was issued, we had a financial expansion but did not get any utilisation of that money in the industrial world at all. The available credit based on that money was left unused.

If we are to increase the floating debt by £200,000,000, would it be better to use it as a counter-speculation fund against the international capitalists who have got this bad money floating about, or to use it for an industrial expansionist policy? I should have thought that this Committee would have no doubt on that point. It we are to raise £200,000,000—whether that is wise or not we need not discuss—why should it not be used for what the-right hon. Gentleman the Prime Minister and Mr. Roosevelt decided was advisable; namely, to pump the money into industrial circulation by wise Government measures—by big public works, by housing programmes, or by all the other means which have been so often discussed?

We feel that if this large sum of money is available, as it is available, and if it can be borrowed on very cheap terms, as it can be borrowed at the present time, there is an admirable opportunity, having got this £200,000,000, to make some provision by which this bad money is kept out of the country—taxation, prohibition, or anything else you like; to take a firmer control over the foreign exchanges of the country, so that we can in fact deal with this money and use the £200,000,000 for a really useful purpose which will do something and effect something with regard to the position of the country, and which will not merely be a game of speculation between the international financiers which may or may not come off well, but will not affect by one iota the question of employment in this country.

I quite appreciate that the part of the fund which is ironing out day-to-day fluctuation, and which is operating satisfactorily at the present time, is a useful part of the export trade. But so far as this other portion is concerned, which we are asked to raise for the special purpose of protecting us from this bad money, we do not think that it is wise to have this very large sum of £350,000,000, and we do not think that we can support the raising of available money for that purpose, especially as it shows conclusively that that large sum of money is available to be borrowed at cheap prices and that, if the Government wish, they could use it for something which would have a very definite and decisive effect at the present time upon the employment of the people.


Before the hon. and learned Gentleman sits down, would he kindly explain how he proposes to do the one thing without the other: to iron out the fluctuations in export trade, and to prevent bad money from coming into the country?


One must take some steps, by having a much firmer control over foreign exchanges, to prevent people sending bad money here.


That is what it is for.

5.9 p.m.


I wonder what this country could do with this £200,000,000 if it were borrowed for industry or housing as suggested by the last speaker. In the first place, there is no scheme—as I understand from a reply given to me in the House by the. responsible Minister—yet put forward by a municipality or a public body, to which, if it is a justifiable one to borrow on, the Minister is not willing to agree. If houses are to be built, the money is available and the permission by the Government is available. The right hon. and learned Gentleman talked about industry. He has had very little to do with industry personally, as far as I know. I have had to do with production, and with selling goods for export. It is no good giving us more money with which to manufacture; it will not enable us to export more goods; we cannot sell them. The export trade has been very gravely injured, as we know, and any attempt at inflation here would injure it further. When people talk about putting up the value of wholesale goods, they forget that the only wholesale primary commodity produced here is coal, besides manufactured or secondary goods, and if the prices of coal and manufactured goods are put up, God help the people who produce both! We cannot even now sell them either here or in the markets abroad.

But I will not pursue the points raised by the right hon. and learned Gentleman, because I fear that he has to tread very gingerly upon a matter on which he is not very much informed, and that he has to bring in by its finger-tips some reference to Socialism. I wonder whether, when he applauds that this money is invested in exchange for the benefit of the State, he thinks of applying the principle to himself? I wonder how he would like to see the money he had saved, as a result of his own work, invested for the benefit of the State; to have to hand over his capital to be put down for the reduction of the National Debt?

Let me turn to one or two observations made by the right hon. Gentleman the Chancellor of the Exchequer. I did not think that he was quite happy when dealing with the original £150,000,000. That matter came up on a previous occasion. But he referred to this additional demand as if it arose from an unforeseen phenomenon; he referred to refugee capital coming in. Is that so? Was it unforeseen? Does it accord with a warning speech made on 11th March, 1932? May I weary the House by reading one or two extracts? These two sets of circumstances in the United States and in France may result in a flight from the dollar in America to the pound sterling, and if there is a flight from the dollar to sterling in America I will go as far as to say that that will be reflected to France by a flight from the franc to sterling. France and America will take shelter behind the ramparts of sterling and something will occur which we have barely foreseen."—[OFFICIAL REPORT, 11th March, 1932; col. 2144, Vol. 262.]


That is your speech.


Yes. I do not think that the right hon. Gentleman is justified in saying that this is a new phenomenon. He was warned. He went on further to say, in replying to me Mr. CHAMBERLAIN: I think my hon. Friend is mistaken in the view that there is any probability of the United States being forced off the Gold Standard."—[OFFICIAL REPORT, 11th March, 1932; col. 2154, Vol. 262.] He did not take my view. I am bound to say that with the knowledge which we had, I should have thought that that position with which we are now to be confronted was regarded as inevitable And when he now says that he would not like, later on, to come again and ask for more than £200,000,000, I hope to Heaven he will not. But if there is a Niagara of panic gold or other gold currency from France or America, we shall be swamped by that Niagara coming here, and his £200,000,000 will not be worth very much to stem the tide.

Two hundred million pounds, when I was a youngster, was the amount of the Budget, the total expenditure of the whole country. To-day hon. Members come gaily down to the House on this sunny Thursday afternoon quite willing to vote £200,000,000 of the taxpayers' money, content with the idea that it is to go into a blind-hookey pool! It was said by the Financial Secretary the other day, and repeated by my right hon. Friend the Chancellor, that no loss has been made. It is very lucky that there has been no loss; it does not follow that there will not he one later on.

But where are we? Where are we going? I myself am voyaging through an uncharted sea, and I do not know whether it is not also true to say the same in regard to a great many other hon. Members of this House. They are equally in the dark. I need to get my bearings. We are told very little about what is to be done except "to keep the exchange from violent movements." How are exchanges to be kept from violent movements? The American and French exchanges are terrified out of their lives of their own shadows. We have also to face this: that the United States went off gold without any warning. No one was more surprised, perhaps, than the right hon. Gentleman when the United States went off gold and smashed the whole of the world's exchanges.


Except yourself!


No, I did not expect it at the moment. I hoped that it would not happen. I regret it. It is no satisfaction to me to say, "I told you so." I took the view of ordinary precaution of a man who has been in trade and does not wish to see the measure of values by which he buys and sells his goods made into a piece of elastic. That is all it is now. It is an elastic ribbon. We buy and sell and we do not know at what we buy and sell. The United States went off gold without the slightest warning. I was sorry and surprised when they went off gold. The United States will take further currency steps without any warning, perhaps to revalue, or to devalue the number of grains of gold in the dollar. Without the slightest warning, they will act again. I am bound to speak about the United States, and I hope that I may not be thought to be trespassing beyond good taste in speaking about another and friendly nation. if the United States, without warning, revalues or devalues the dollar; puts a different volume of gold grains into the dollar than were formerly supposed to be in it, what will the franc do 7 You will have the franc in a maelstrom. We shall not be able to look for any stability in the franc. It will be up and down. What will an Exchange Fund of even £350,000,000 do if France also goes off gold?

The Chancellor of the Exchequer referred to a matter upon which I agree. He told us about public opinion in the United States being misled. There is no doubt that public opinion there is being wrongly led to believe that we went off gold and that we are working the Exchange Fund with the object of injuring the United States and the trade of the United States, and that we are doing it from revenge and malice. Nothing is further from the truth, and everyone in this House should say a word of protest against such an interpretation being put upon our action. We are the most unselfish of nations in our international financial arrangements because we are world spread with a world-wide trade. If for no other reason, it is to our commercial interest to see that our customers all over the world are not injured in currency matters and that we do all we can to help them. The United States Government, with the view being held by some of their nationals that we are endeavouring to injure them, may find it necessary to placate them by taking some quick action, and letting it be implied that it was to revenge themselves upon us, as they thought that we took the step of going off the Gold Standard a year and a-half ago in order to injure the United States and capture their trade. It is not so. We were forced off the Gold Standard; we could not help ourselves. What is more, we struggled, and were willing, and actually sacrificed £130,000,000 sterling to keep ourselves on the Gold Standard.

That is what we should tell the people of the United States. They, however, have not risked a shilling or a cent to keep themselves on the Gold Standard. We are in a queer position. We are told we must level out exchange. Here is the United States with £900,000,000 worth of gold and we have to vote £200,000,000 on the top of £150,000,000 for the purpose of helping to prevent the United States dollar from collapsing. The hon. and learned Gentleman said quite rightly that the United States was defaulting on her Liberty Bonds with interest payable in gold, by her own contract, signed and sealed; she is defaulting on bonds, in not paying the interest in gold to those who lent her their money. Yet she asks us to pay gold for our war debt. The thing is preposterous. I am very thankful to think that, acting on the advice of the right hon. Gentleman, we did our duty like honest men. We did not default. We played the game. For years during the War and after the War the financial people of the United States hoped and thought they were going to capture from Great Britain the financial hegemony of the world. No one will look to New York again for leadership in economics or finance after its default on Liberty Bond gold interest and the muddle they have made in their national money matters.

In face of what we are doing, the United States may take some steps to nullify our Exchange Equalisation Fund action and do the very opposite to that to which the Chancellor of the Exchequer is to-day addressing himself. He is trying to keep level the value of dollars in terms of sterling. He wishes to level out the value of dollars in terms of sterling and prevent violent changes in rise or fall. The United States may take the opposite step. They may produce a Stabilisation Fund for the purpose of keeping down the value of dollars in terms of sterling; they may wish to reduce the valuation of their dollars for purposes of inflation. Why? The United States needs to put up the price of her commodities and her Wall Street securities. Why? Because at present the quotations of commodities, upon which are based the value of Wall Street securities, are so low that the commercial banks, the savings banks, the life assurance companies and the trust companies in America are barely solvent at all. They hold these securities either as investments, or they have lent money on the securities. If these frozen securities had now to be sold so little value would appear in the balance sheets of many financial institutions that the assets would not balance the liabilties. Unless they are to be put higher many financial institutions will be unable to remain solvent. It is to the advantage of the United States to bring about inflation for the purpose of putting up Wall Street securities in order to protect the whole of their financial system from collapsing.

What a queer position. France has £400,000,000 of gold, and yet we have now to come along and use more of the taxpayers' money in order to protect the franc. Why? Here again they have been meddling and tampering with currency, and manipulating monetary systems. It is only another form of dishonesty and always comes back upon the heads of those who practice it. The ordinary citizen of France, with four-fifths of his franc savings gone by recent devaluation will not lend the French Government any more money. What is the next step? France, with £400,000,000 of gold, must, in order to protect the franc, come over here and borrow £30,000,000 of our banks. We live in a currency bedlam.

If America establishes a dollar stabilisation fund we shall have to embark upon a campaign or battle of currency depreciation in a scrambling melee straining to see who can keep up currency or keep it clown. We shall have a clash of currency aims between the United States and ourselves if they put up a fund on the same lines as this fund. I believe they will. Is it not madness for us to begin such a campaign? We ought to know, and the Chancellor of the Exchequer can of course take steps to find out if he thinks proper or, at any rate, obtain some sort of information as to whether the United States are about to put up an exchange stabilisation fund or not. Cannot the United States, France and Great Britain corm to some currency or standard agreement? Perhaps when the United States see, as they will for the first time to-day—because we ourselves knew nothing about it until this morning—that we are determined to put a couple of hundred millions more into a pool to iron out fluctuations in their own dollar, it will set them thinking in order to see whether it will not be better to come to some agreement with us rather than have a currency fight.

We, at least, know what we want and how we intend to attain our aim. Notwithstanding what the hon. and learned Gentleman said about gold, I think that in the long run the world will find that we must, under proper conditions and safeguards, in time come back to gold as our standard. I cannot see how we can do anything else. We intend to act in the general interests of the world because we are interested in world trade. We shall not be doing anything selfish, wrong or economically foolish when we come back eventually to gold. When we decide what the gold content of the £ shall be, we shall be doing something which will commend itself to the general interest of the world. The French Government also know what they want. They know how to obtain it. But they are selfish. They will smother whatever they do with polite insincerities, but they will do everything they may wish to do without the slightest regard for the convenience of anyone else. They have not, in any great degree, a world trade. It is not so much to their interest to see other nations prosper, because world-trade prosperity does not touch them as it touches us.

The United States are mere children in these exchange matters. They are 100 years behind us and the rest of the world in economic philosophy. They do not even know what they want. They have made an awful mess of their finances. We were told that God's own country is to teach the world how to live and behave itself. Here they are on their backs and floundering recently with barely a bank solvent, and some of their life assurance companies probably unable to balance their assets and their liabilities. They are not in a position to give us any lessons. But I sympathise with them. I wish they knew what they want, and knew even how to understand what they want. Neither does the United States know how to try and attain any vital economic aim she may decide upon.


Has the hon. Member forgotten that the Prime Minister has been advising them?


This is not a matter about which to be funny; it is a very serious matter. The employment and fortunes of a large number of people depend upon the smooth working of the tramlines upon which trade runs. We therefore ought to ask, in all friendship the United States what she is aiming at, and say that we are willing, as long as her needs do not injure us, to make some sacrifices, and that we will come in and help her to understand her own problems. Otherwise we shall "pull devil, pull baker" be trying, with the aid of our Exchange Fund, to keep the dollar up, and they, with their fund, will be trying to keep the dollar down.


I must protest against my hon. Friend who has submitted many times the exact contrary of what I said in my opening statement. He keeps on saying that the object of the fund is to support the dollar. I ex- plained very carefully and most emphatically, and I hope that my remarks and not those of the hon. Member will go across to America to show that it is quite wrong. This fund has no intention or purpose of supporting the dollar.


I understand. I accept the correction. I used the wrong words. What I meant was that the fund was used to iron out the inequalities of the dollar exchange. Will the Chancellor of the Exchequer let me put it in that way? We do not want the dollar to go either up or down. We would rather see the dollar round about 3.40 than at 4.40. On the other hand, the Americans would, I assume, rather see the dollar at 4.40 than at 3.40 to the £. It would help their export trade. If we have a "pull devil, pull baker" attempt made by the various operations of two opposing funds, it will be disastrous, whether the right hon. Gentleman the Chancellor of the Exchequer wishes it or not. It may develop into a tariff war. No man can control exchanges permanently. The law of supply and demand will beat him every time. As you can dam up a river for a time you can dam up an exchange from time to time. But sooner or later the dam bursts and the law of supply and demand will overwhelm you. The right hon. Gentleman will be quite powerless with the fund just as powerless as he would be in face of such a catastrophe as an earthquake or a tidal wave, if we have an inrush of panic currency coming either from the United States or France if the flight from the dollar and the franc reaches large totals.

The United States must realise, although her pride may be hurt, that her banking system has failed, that her tariff system has failed, that her war debt policy has wrecked her trade, and now we have to find this sum of £200,000,000 in order to save the tramlines on which international trade runs. We are groping in this matter, and we hear a great deal of talk—windbaggery I call it. Some people talk about the virtues of counter deflation, or loan expansion for non-reproductive objects, we are lectured by theorists hourly on the magic remedy of inflation. We have our Sir Jeremiah Slumps, our Professor Seamews, and our Mr. Baynes always patting their chests and telling us what we should do, creating from their imagination an ideal world from non-existing conditions and risking national credit, to put their imaginary worlds right.

We are face to face with conditions which I do not believe can be dealt with by any Economic Conference until and unless we know what the United States is aiming at and is prepared to do. We ought to try to work with the United States to fix the exchanges at a figure which suits both the United States and ourselves, and which will enable the Gold Standard to work, if properly administered. I do not think that we should talk in the World Economic Conference of 60 nations about exchanges, prior to some arrangement with the United States about exchange, and unless there is some agreed settlement about war debts, some lowering of the United States tariff wall, some undertaking by the United States and France to act in such a way as will ensure that the Gold Standard works properly. In that way we can put international exchange currency right and do away with the necessity for voting this sum of £200,000,000. We can in that way get the world out of the tangle which has been caused by the world's currency systems going wrong. We can put straight the tramway upon which currencies work backwards and forwards between nations. At the present time the tramway line is blocked and warped and because of that we and other nations cannot trade in various parts of the world. We can smooth out the currency-standard problems of the world if we can come to some amicable arrangement between the United States, France and this country. Lately we have armed ourselves with a new weapon. We have the weapon of Protection, and if we cannot by agreements get our export trade going along the exchange tramline, by the use of rehabilitated currencies and free-working exchanges, we have the power to shut our ports to foreign goods.

5.34 p.m.


With much of what the hon. Member for Farnham (Sir A. M. Samuel) has said I agree, and in general I agree with the views expressed by the hon. and learned Member for East Bristol (Sir S. Cripps) for a declaration of Government policy. We are all desirous of knowing what is the Government's policy. We may differ as to our views on currency problems, but when the Chancellor of the Exchequer comes to the House and asks for the large sum of £200,000,000 we are entitled to know more than vas given to us in the statement that he made in regard to the disposal of the £150,000,000, which was meagre in the extreme. The hon. Member for Caerphilly (Mr. Morgan Jones), who is Comptroller and Auditor-General of the Public Accounts Com-mittee—


I am only the Chairman of the Public Accounts Committee.


I am sorry if I put too great an honour upon the hon. Member. Under the Finance Act of 1932, Section 7, it is provided that: This account shall In every year until it is wound up be examined by the Comptroller and Auditor-General in such manner as he in his discretion thinks proper, with a view to ascertaining whether the operations of and in connection with the account have been in accordance with the provisions of this part of this Act. Has the account been examined? If so, we are entitled, as we have voted £150,000,000, to see that account. Sums of £150,000,000 and £200,000,000 are very large, and the taxpayers, through their representatives, are entitled to know how that money has been disposed of. The Chancellor of the Exchequer seemed to think that by ironing out the exchange he would prevent fluctuations in the exchange. He said that the scheme had worked very well during the past year, at a cost of £150,000,000. Now he comes for another 2200,000,000.


He did not say that it had cost £150,000,000.


It involved a liability of £150,000,000, and he is now asking for a further £200,000,000. One cannot tell what it will cost if he gets back eventually to the old parity. If he takes out his balance to-day it might show a small profit, but we are only temporarily off the Gold Standard. Even the Chancellor of the Exchequer will agree that that is the case. I want to know, seeing that we have voted £150,000,000 and we are how asked for another £200,000,000, what is the policy of the right hon. Gentleman. Does he intend eventually to get back to the old parity? If he does, then on the present rate of from £5 10s. to £6 10s. to the fine ounce, this country will be involved in a loss of something like £26,000,000 to £30,000,000.


Is not that a good reason for not going back to it?


I will deal with one thing at a time. I am trying to show that if the right hon. Gentleman would tell us what his policy is we should be able to estimate whether it is wise or the reverse to give him power to incur a further expenditure of £200,000,000. We shall lose a large part of that £200,000,000, which is to be used for purchasing gold bullion. If he intends to get back to parity and we are purchasing gold bullion at over £6 to the fine ounce, we can estimate how much that will cost the taxpayer, if we go back to the gold standard at the old parity. We are entitled to ask the right hon. Gentleman to state more specifically what is the policy of the Government. It is an amazing thing, on the meagre statement that we have just heard, to ask that this country should blindly give him a blank cheque for £200,000,000. It is a monstrous thing. It assumes that we are bereft of our senses.

The hon. Member for Farnham told us that £50,000,000 was a large sum in his young days, and he is staggered at this liability for something like £350,000,000. The late Financial Secretary to the Treasury gave us a pledge in regard to this Fund, of which I should like to remind hon. Members. I am quoting from the OFFICIAL REPORT of the 9th June, 1932. We were pressing then, as we are doing now and as hon. Members are entitled to do and intend to do irrespective of the party to which they belong, that we should be told what is going to be done with the money when we have to vote hundreds of millions of pounds. When we asked what was going to be done with the £150,000,000, the Financial Secretary to the Treasury said: To meet that point I am perfectly willing to give a pledge to the House and to the hon. Member for Caerphilly (Mr. M. Jones), the Chairman of the Public Accounts Committee. First of all, the account will be made up on the 31st March next. The question of the publication of the year's result cannot arise until after that date. Secondly, there is adequate statutory authority for enabling it to be published with a report by the Comptroller and Auditor-General without making any amendment in the existing Bill. If we find when the time comes that the accounts can be published, without detriment to the public interest, the Government undertake that they will certainly publish it, but if it seems necessary to them to withhold it from publication, they will before reaching a decision upon it consult with the hon. Member for Caerphilly, or whoever is at that time Chairman of the Public Accounts Committee, before the introduction of the Finance Bill, or at an early stage of its passage through the House.—[OFFICIAL REPORT, 9th June, 1932, col. 2235, Vol. 266.] I would ask the hon. Member for Caerphilly if they consulted him in regard to this account. Will he at a later stage inform us what is the state of the account, what have they been doing in regard to it and what is the policy of the Government? How do they iron out the account? The Chancellor of the Exchequer took umbrage at criticisms because he said that the fund was not being used to depreciate the £. He taunted me in regard to a speech that I delivered on the question of raising prices when I said that this policy of depreciating the £ was a bad one for trade. He told me to ask any industrialist. Therefore, lie supported that policy. It is absurd to say that it is not being used for that purpose.

When the right hon. Gentleman uses the term "ironing out," what does he mean? He means ironing out the exchange at about the previous existing level. The effect of the United States going off the Gold Standard and depreciating the dollar, advanced the £, and therefore the fund is rendered useless. It is childish for the Chancellor of the Exchequer to try to delude us with the idea that with this fund, even if he increased it to £1,000,000,000, he could control the forces of nature. He is following a wild will o' the wisp. It is ludicrous for him to say that this fund is not intended to depreciate the £. He told me that I would use the resources of this country to support the £. I would do nothing of the sort. What he is asking us to do is to use the resources of the country to depreciate the X. That is his policy and that has been his policy. I do not want to do anything to affect the £ in an artificial way. I desire to see the £ restored. I desire to pay 20s. to the £. The £ is at a discount and this fund is to keep it at a discount, and he thinks that it will help the industrialists.

The Financial Secretary to the Treasury is another financial genius. He came down to this House and told us in that complacent manner of his that £2,000,000 had been taken off the Exchange market. He was 'speaking with reference to the imports from the United States, we were preventing certain imports coming into this country, and he boasted that he had taken £2,000,000 off the Exchange market. Does he know how trade is conducted 1 I will tell him; it may serve a useful purpose. I was staggered at the complacency of the Financial Secretary in saying that he had taken £2,000,000 off the Exchange market. When the United States exporter sends his goods to this country they are paid for by bills, and these bills are the remittances which the American importer uses to pay for Bradford and Manchester goods. When we import goods from the United States we are providing the currency for the American importer to buy goods from us and, therefore, the more goods we buy from them the more they are able to buy from us. When there is a large supply of these bills the price goes down. The Financial Secretary boasted that he had taken £2,000,000 off the Exchange market. What he really did was to curtail the facilities of the American importer to buy Bradford and Manchester goods. That applies to all our trade. By these kind of restrictions, by this kind of interference, you are curtailing trade generally, and the Financial Secretary who appeared to be proud of the fact that he had taken £2,000,000 off the Exchange was in reality interfering with and attacking the general trade of the country. The proof of that is that the general trade of the country has gone down.

What is the policy of the Chancellor of the Exchequer? What does it amount to? It is a sort of dole, a supplement, to the general trade of the country. In order to keep the exchange low and stimulate exports he is continually borrowing. If he would allow the exchange to come back to its natural level, if he would allow the £ to come back to parity, there would be a great development of trade, both in exports and imports, which would please the Tariff Reformer and the Free Trader as well. Because he has failed in one direction, he tries to supplement it by tinkering and tampering with the exchange. I can only express the hope that hon. Members will oppose this Resolution. If I can get anyone to go into the Lobby with me I shall certainly oppose it. It is most unsound, a most dangerous principle, which will involve this country ultimately in loss. The Chancellor of the Exchequer is not, at all sure of his ground. Even after 12 months he is not able to assure us that he has had any success. What is his object? Is it to restore the £? His object, I say it deliberately, is to please certain industrialists, and he does so at the expense of the wage-earners of the country and the creditors of the State. By using the £ in order to get parity round about three-quarters he penalises every wage-earner in the country by 5s. in the £, and prevents the natural return to creditors of the State from their contracts.

The Prime Minister at the last election held before the eyes of the public a thousand million mark which was worthless, and said that he was going to restore and maintain the £. Hon. Members were elected to this House in order to restore and maintain the £ because their predecessors were incompetent and extravagant. I attacked them for running into debt. We came in to restore the £ and to maintain it. The Chancellor of the Exchequer is asking the House of Commons this afternoon to give him a further credit of £200,000,000. He says that it is not for the purpose of depreciating the £. If not, in heaven's name, what is it for? What is his policy? What is his object? It is monstrous to come here and ask hon. Members who are engaged in industry and banking, who know something about it, to agree to this Resolution. It is an insult to the intelligence of hon. Members that we should be treated like children who know nothing about it. [Interruption.] Hon. Members seem to think that it is a joke. I am speaking fervently but sincerely, and I submit that this is really a serious matter which should be regarded seriously.

I am sorry to have dealt so much with these technical matters of finance. I have attacked the Government in a somewhat extreme manner and I may be asked, what remedy do you suggest, what do you suggest as a means of stabilising the Exchange? That is a fair question to put to anyone who attacks the Govern- ment. I have made a considerable study of this problem and of the remedies proposed by Mr. Keynes and Sir Walter Layton, and I confess, like many other hon. Members, that there is no alternative but to link the currency of the countries of the world to gold. I can see no other method which will give us that stability of the Exchange which is the object of the Chancellor of the Exchequer. This can be obtained without using the resources of this country at all. It can be obtained by pursuing the ordinary methods of sound finance, not by wild-cat finance of this character, not by trying to reverse economic laws. It can be attained only by bringing your policy into accordance with economic laws. I offer that suggestion to the Government.

The Bullion Report of 1810 was the result of the deliberations of some of the most eminent and distinguished bankers and financiers. It has been the foundation of the currency system of this country for the best part of the last century. We were going through at that time almost the same experiences we are going through to-day. We had the inflationists and the deflationists in 1810, and all the various other alternatives which have been submitted to this House. There were many Debates on the question, but no remedy was found to be successful until the Bullion Report of 1810 was published. There is a passage in that report which I venture to read to the House, because it puts the whole question in a nutshell: When the currency consists entirely of the precious metals or of paper convertible at will into the precious metals, the natural process of commerce, by establishing exchanges among all the different countries of the world, adjust, in every particular country, the proportion of circulating medium to its actual occasions, according to that supply of the precious metals which the mines furnish to the general market of the world. The proportion which is thus adjusted and maintained by the natural operation of commerce cannot be adjusted by any human wisdom or skill. If the natural system of currency and circulation be abandoned and a discretionary issue of paper money substituted in its stead, it is vain to think that any rules can be devised for the exact exercise of such discretion; though some cautions may be pointed out to check and control its consequences; such as are indicated by the effect of an excessive issue upon exchanges and the price of gold. That is the basis of a sound currency system for this country and for the world. It was drawn up by most eminent men and it has never been undermined as a sound financial policy. Hon. Members will see how it may be applied to-day. If our currency is convertible sooner or later into gold at will, the natural process of commerce by establishing exchanges in different countries of the world will adjust in every particular country the proportion of the circulating medium to its actual occasions. That means that the exchanges will be governed according to the trade and commerce of each nation. If you are on the Gold Standard, if you get that as a common denominator among all nations, it will do what the right hon. Gentleman is asking us to give him £200,000,000 to do; and it will do it automatically and naturally. That is the best way. It is the way advocated in that famous report, which is the foundation of this country's currency and trade. The largest foreign trade in the history of the world was built up on the principles of the Bullion Report of 1810.

We all desire to restore our currency and our trade. I am not pedantic in this matter. I am perfectly willing to listen, and if the Chancellor of the Exchequer proves to be a new genius in the world of finance and has discovered some method which will make water run up hill, some method of controlling the exchanges, I hope I shall have the candour to admit it and pay him my humble tribute. But I honestly believe that it is impossible, it is a waste of time, and, therefore, my last word is to ask him not to make this contribution to the World Economic Conference. Great Britain which has led the world in finance, and I hope will continue to give the world a lead in finance. I hope we shall lead other nations of the world to adopt a gold standard. The immortal Pitt once said that England had saved herself by her exertions and would save Europe by her example.

We ought to show the Economic Conference and the world, that we adhere to these sound principles and are not to be drawn into a competitive race with the United States in the matter of depreciated currency. We ought to show that we are not going in for a policy of continuous borrowing for the purpose of trying to control exchanges; that we have learned something from history and that we believe that the policy which made this country great in the past, will add still further to its triumphs in the future.

6.1 p.m.


I propose to confine my remarks as far as possible to the direct proposal to increase this fund which the Government call an Exchange Equalisation Fund, although, as far as I can see, its operations up to the present have had nothing whatever to do with the equalisation of the exchanges. I think I am justified in claiming that the prediction which I made when I opposed the establishment of this fund last year has been fully justified. I then pointed out that it was utterly impossible for this nation, with a miserable £150,000,000, to control the exchanges of the world. I then pointed out and I wish to point out again that the United States has a fund of between £900,000,000 and £1,000,000,000 with which to operate and while individual capitalists—those to whom hon. Members opposite so much object—may risk their own money in exchange speculations, there is no body or group of people who could command such vast sums as those at the disposal of the United States and France. It is absurd to think that the comparatively small transactions in which these so-called speculators are engaged could have any effect as against enormous accumulations of capital like those controlled by the United States and France.

The House must bear in mind the origin of this fund. We were heavily indebted to the United States. We had a very serious financial crisis in this country. I do not say it viciously, but there is no doubt that this country being in this position, the United States thought they could make capital and profit out of the situation by buying up exchange against this country and also against France. The result was that you had a throat-cutting policy in operation between the United States and France. Both aimed at the control of the gold of the world, and each tried to injure the other. No doubt in those circumstances there were small speculators who ventured, perhaps £2,000,000 or £3,000,000 operating in gold and exchanges, but it had no effect whatever upon operations of vast magnitude taking place in various parts of the world.

The exchange business is a very peculiar one. It is done from hand to mouth. I have no wish to lecture the House, but what I say has a bearing on the whole present position. The exchange business is a legitimate business, but it is done from day to day and from hour to hour. Those engaged in it communicate with different parts of the world and find out what currencies they have to sell and what currencies they want to buy. It is possible over the telephone at almost any moment to find out the position in Madrid or Amsterdam or in nearly any part of the world. The real exchange houses, the respectable houses are not speculating houses, and every night they make up how they stand in regard to pounds, dollars, francs, marks, and so forth, find out what they have to look for, and, when they have ascertained their position they close their books and round off their accounts and cover themselves so as to make both ends meet. Every night they can close their books and see if there is any profit on their transactions, however infinitesimal. That is how exchange business is carried on in the world. It controls and helps transactions in commodities, and if you interfere with the fixing of the exchanges, you will certainly interfere with the free operations of commercial enterprise.

This business as I have described it has been going on for years and it is only within the last year or two that the political element has been introduced into its operations as well as into commerce and everywhere else. I only touch upon these matters in order to show how utterly impossible it is for this country to control exchange. I suggest that it is not control at all but pure speculation. I am not opposing this additional £200,000,000. I am only warning the Government. I am not going to vote against the Resolution hut I want the Government to study the position and to realise the further risks which they are going to take. The Government have got the idea and I suppose others have the same idea that gigantic speculation has been going on. If that; were the case they would have been right in what they did but the speculation of individuals is so infinitesimal that it has no bearing at all upon international exchanges. A great many people when they talk about the stabilisation of exchanges think only of the United States and France but why not stabilisation of the exchange at the Egyptian or the Italian or the Turkish parity? Every one of these nations has its exchange differences and these exchanges mostly go through London. The whole of this exchange business is carried on by communication between one country and another to meet the requirements of all those countries which have regular commercial interests to be served.

As I say, the Government last year took it into their heads that gigantic speculation was going on and that they were going to cure this for the entire world by raising this fund of £150,000,000 which I have described as a miserable sum because it is miserable when compared with the extent of the transactions of the whole world. With this sum they were going to compete with the United States Government which was trying to monopolise gold and by monopolising gold trying to injure the foreign trade of this country. France had some grudge against America and wanted to compete with America and to see if they could not get some of the gold from America. But the whole of the theory upon which this fund is established falls to the ground and as I pointed out last year when this question was before the House the result must be what it has been in every transaction of the kind in my long business experience. You had years ago the case of the Comptoir d'Escompte de Paris one of the biggest banks in the world. They had a friend, a M. Secretain, a large metal merchant who went in for copper speculation. He succeeded in buying up a great deal of copper and cornering the market at the moment, but when he tried to sell the copper, although he had the bank behind him the result was that they went into liquidation and bankruptcy and many people were ruined.

We have seen the same thing in other cases such as nitrate. No nation or no individual can corner any article except by buying everything that comes forward. However, our Government apparently thought that it would be a very easy thing to stabilise the £ and to control the exchanges of the world. They started by buying gold when it was fairly cheap and, no doubt, if they had realised after a, few months they would have had a considerable profit on their operations but it was not big enough for them and they have kept on speculating in gold and in currency, because they have not confined themselves to gold but have bought dollars and francs and at one time even marks. The consequence is that they have driven the price of gold up from 90s. to 123s. and they have stimulated gross gambling in mining shares. A lot of people who had some inner knowledge bought up mining shares, some in mines that were not even working and then, all of a sudden, we had the enormous advance in gold which put up the price of mining shares to three, four and five times what people had given for them some time before and in some cases they were put up to more than double the original value.

That has been one of the ill effects of Government control and yet they have never done anything to affect the exchanges. I do not accuse the Government themselves but I say that their advisers have done that, because they have had this insane idea that they could control this exchange business by gambling. I have not any knowledge of what operations have taken place. We are not informed and we do not know the extent of the gamble but I think we are justified in saying that transactions of the kind that I have indicated have now been going on for over 12 months. It is rather like the case of the ostrich which sticks its head in the sand and imagines that it cannot be seen because we are told that one of the transactions of the Government only a couple of weeks ago was that they bought dollars just at the time when the United States went off the Gold Standard. They have now it appears been engaging in vast transactions unknown to anybody but themselves.

There is no crime in my stating, what is reported in the City of London, that they have over £60,000,000 in gold to the credit of this Fund in the Bank in London. We know that a large amount of dollars were bought by an unknown person in the United States of America, amounting to between £25,000,000 and £35,000,000, and in addition to that some dollars bought in France, besides French, Dutch and other currencies. We know that at the present time, and the Govern- ment know it or ought to know it, there is a prohibition against the shipment of gold from the United States. I wish to ask the Government one or two questions. The Chancellor of the Exchequer told us that out of the £150,000,000 of credit which this House had voted for the Equalisation of Exchange Fund they had uninvested or unemployed about £25,000,000. There is the £35,000,000 gold earmarked in the United States, but I wonder if the Government realise that if they want to ship gold to England or some other country they might not be allowed because there is this prohibition of the shipment of gold from the United States. We might find ourselves stuck with this gold. We do not know what sort of a game the Americans will play or what arrangements they have got for working, but it is quite possible we might have to leave this £30,000,000 of gold in the United States. The political position there is very precarious, and although the United States have this vast sum of nearly £1,000,000,000 at their disposal, they might say, "We are very sorry, but we have passed a law prohibiting the export of gold, and therefore you must keep it here until such time as it pleases us to release that gold."

We have the same sort of thing in France, with extraordinary commercial transactions going on. Although they are on the gold currency, there is no such thing as free gold there. They have a stock of between £600,000,000 and £700,000,000—rather nearer £600,000,000, I think—of gold, and therefore you are in the position that you may have to keep your francs in Paris. We have seen this before. In Germany you have a country on the Gold Standard, and the ridiculous part of it is that they have very little gold, but they manage to get along very well. If you send a pound note to Germany you might think you were lucky, with the credit of Germany, if you got 14 marks paper, but all you get in Germany to-day, if you want exchange for your £1, is 14 paper marks, which under no circumstances will they convert into gold, although they are on the Gold Standard. Therefore, you get locked up with 14 pieces of paper of a mark each, which you cannot use except by a miracle.

That shows how impossible it is for this country or any other country to control the exchanges of the world. We know very well that the currency of the world is bound to be gold. We cannot get away from it. Gold is required only for international currency, and when it is melted down to real business, the only gold you require is for settling the differences at the end of the transaction. We realise perfectly, and I think everybody who has experience in foreign trade knows, that at the end whatever transactions we carry out honestly will have to be settled up on a gold basis. In the olden days, until the advent of the present gambling propensities, there was an immense amount of credit, and it was owing to the honesty of this country, it was owing to the fairness of her industrialists and merchants, that Great Britain had an enormous credit throughout the world. The £ sterling, even in those days, was available and was useful in any part of the world. We lived upon our credit.

There is to-day some talk about international monetary alterations, about making a sort of international money. I implore the Government not to listen to any of these quack proposals. The £ sterling, whatever may be the nominal exchange, is recognised throughout the world as 123 grains of pure gold, and that sovereign is, I will not say legal tender, but is valid tender in any part of the world. It is the only payment of money that commands respect anywhere, because anybody, anywhere, in China, Japan, or wherever you may go will always take a £ sterling as 123 grains of pure gold. In China they have the tael, which is not a silver coin, but a silver weight, and the consequence is that in China you have to weigh out your money when you are paying a debt or buying goods. You weigh out your taels, and in every district they have a different value. It will be the same thing with us if we play the fool with our mintage and our currency. We shall have it by and by that if they are going to change the currency we shall have the ultimate settlement of international debts by weight. You will never be able, because of the differences of currencies in the different countries, to settle upon any international token for the settlement of balances of debts.

I pray the Government not to listen to any proposal for lowering the standard of the £ sterling. The £ sterling is current money throughout the world.

What I want to insist upon is this: I am not opposing this £200,000,000 for the Exchange Equalisation Fund, but I warn the Government, as I did last year, that you may have £200,000,000, and you may run up the price of gold to 130, 140, or 150; you may be able to keep the price up, and to send it up, but you will never be able to maintain the price, even of gold. You can pay too dear for gold. You can control the price of gold in one way, and in one way only, and that is by buying everything that comes into the market, and you can make any price for it you like. To-day it is at a fictitious price entirely. It is easy enough to maintain it at its present price, but the day you want to realise your assets, what you have in gold or exchanges, if you stop buying, the price will go down. If you attempt to sell, there will be a regular rot in prices, and you will not be able to calculate what your loss has been.

Therefore you can go on controlling the market, and you can have a firm price, but eventually you will be in difficulties, and I will ask the Chancellor of the Exchequer, although I do not suppose he will answer me, What is he going to do when that time comes? There is too much gold in the world. There are no buyers of gold to-day, except the British Government, for any large quantity of gold, and the time must come when people will say to themselves, "The United States of America have £1,000,000,000 in gold, and France has about £600,000,000 or more. Are you going to continue buying gold? Are you going to bury it?" The consequence will be that the whole of your assets will be buried in the vaults of the Bank of England.

6.27 p.m.


I am sure the Committee will feel indebted to the hon. Member for Putney (Mr. S. Samuel) for having given us so entrancing a speech. Whatever the truth may be about the opinions he expressed, I am sure we shall all of us be amply repaid by reading the speech in the OFFICIAL REPORT to-morrow. I have risen, not to discuss the more technical side of this subject, but in order to bring before the Committee an aspect of the matter which the hon. Member for East Edinburgh (Mr. D. Mason) brought before us. Last year we had several somewhat prolonged discussions upon this matter of the Exchange Equalisation Fund, and in particular the subject was raised as to how far the House should be kept informed by the Government as to the state of the fund. Various Amendments were moved on the Committee and Report stages, and those Amendments were supported by Members belonging to all parties in the House. Therefore, this is not a party matter but a real House of Commons matter. In the course of that discussion, I ventured, in common with many of my fellow-Members on the Public Accounts Committee, to try to advance to the Chancellor of the Exchequer some of our difficulties as members of that Committee in trying to function, as we are called upon to function, on behalf of the House of Commons itself. The hon. Member for East Edinburgh has recalled to the Committee this afternoon the nature of the undertaking which the then Financial Secretary to the Treasury offered to the House on the Report stage of the Finance Bill last year. I am afraid I shall have to make a little tax upon the patience of the Committee in reading a very long passage from the speech of the then Financial Secretary on that occasion. He said: Are we taking any risk and doing any damage to the traditions of this House or the control of this House by awaiting the results of nine months' work, until we see how we get on with the Exchange Equalisation Account, between now and the. 31st March, 1933, at which time the account will be made up? I think we are not, and I think it is unwise for the House to press for a greater disclosure than is provided for in this instrument. These are the important words to which I wish to direct the attention of the Committee: Another opportunity will occur at a stage before any practical disclosure will have taken place, namely, the introduction of the next Finance Bill, that is, this year's— when all these matters will be brought under review. At that time"— that is, during the discussion of the Finance Billwe can discuss the matter with the advantage of the knowledge of nine months' working of the Exchange Equalisation Account, which will be open to all of us, not in a scrutiny of the books of the account but in the working of the exchange from day to day. That will be the occasion on which we can review the working of the account in the light of experience. In a subsequent passage, the then Financial Secretary delivered the passage which the hon. Member for East Edinburgh read, and at the risk of duplicating the quotations, I will read it once more: To meet that point I am perfectly willing to give a pledge to the House and to the hon. Member for Caerphilly, the Chairman of the Public Accounts Committee. First of all, the account will be made up on the 31st March next"— that is, this year— The question of the publication of the year's result cannot arise until after that date. Secondly, there is adequate statutory authority for enabling it to be published with a report by the Comptroller and Auditor-General without making any Amendment in the o. existin Bill. If we find when the time comes that the accounts can be published, without detriment to the public interest, the Government undertake that they will certainly publish it, but if it seems necessary to them to withhold it from publication, they will before reaching a decision upon it consult with the hon. Member for Caerphilly, or whoever is at that time Chairman of the Public Accounts Committee, before the introduction of the Finance Bill, or at an early stage of its passage through the House."—[OFFICIAL REPORt, 9th June, 1932; cols. 2234–5, Vol. 266.1 Let me be perfectly clear with the Chancellor of the Exchequer. I in no way attribute to him any failure to carry out this obligation, because I think that he will be entitled to argue that, since that offer, which was made in response to arguments advanced in support of an Amendment which we then put before the Committee, was declined by us, he might quite understandably be presumed to withdraw his offer. Therefore, if that was his view, I cannot, obviously, attribute to him any failure to implement his promise. But an important issue arises from this matter. The position remains not merely the same as it was last year, but clearly more intensified. When the right hon. Gentleman appeared before the House last year he asked for permission to establish a fund of £150,000,000. Clearly, from the quotation which I have made, if there were nothing deleterious to the public interest, that account would have been published after 31st March of this year. Whether it will be published in full in the Public Accounts in due time I have no reason to know either one way or the other, but clearly we are in a more intensified position for this reason: without any knowledge of the actual state of the account at all beyond the assur- ance that the Financial Secretary gave us last week, we do not know where we stand in regard to the matter, and in that position of absence of knowledge the Committee is now asked to add another £200,000,000, to take a bigger leap in the dark, in a way, than we were invited to take, and did in fact take, last year.

The hon. Gentleman the Member for East Edinburgh asked a specific question of me, and he will see that the obvious answer must be that I do not know. He asked me whether I could give him the assurance that the Auditor-General, who is the financial officer of the House of Commons, had in fact examined these accounts. We as a Public Accounts Committee will not be called upon to examine the Auditor-General on the year's accounts ending on 31st March, until some time in January next. year. There fore nine months will have alapsed before the Committee will formally approach the accounts which have just closed. Therefore, I cannot give an affirmative answer. The answer must obviously be that I do not know, but I assume that the Auditor-General would know from time to time as an officer of the House of Commons the state of the Equalisation Fund. The second point which the hon. Gentleman asked me was whether I, in accordance with the passage which I have quoted, had been taken into the confidence of the Chancellor of the Exchequer. I take it that the Chancellor, in view of the fact that his offer last year was not accepted by us, did not feel bound by the offer, and therefore did not feel called upon to speak to me as Chairman of the Public Accounts Committee.

I repeat with all possible emphasis that with an account like this growing at its present rate—and though the Chancellor may not contemplate coming to us next year, and we hope that he will not; for all he knows, circumstances may compel him to—it cannot surely, from the House of Commons point of view, be a desirable thing that his finance committee should, in respect of this fund alone, have no sort of right to exercise the closest scrutiny such as it exercises in regard to other expenditure or funds operated by public departments. I, therefore plead with the right hon. Gentleman once again, not as a party man, but as a Member of the House of Commons, that the House of Commons shall be taken, if the right hon. Gentleman can devise some ways of doing it, more closely into the confidence of the Treasury through the Public Accounts Committee than can be possible under the present state of the law. The fact remains that this year, if this account is carried to £350,000,000, the accounts in respect of that money can only be certified by the Auditor-General to the Public Accounts Committee in the broadest possible way without any particularity whatever except to say that the account has been conducted in accordance with the provisions of the Act of Parliament. He cannot answer questions about it or disclose details. That surely cannot be satisfactory in view of the tremendous risks which an account like this undergoes, even if we accept the speech of the hon. Member for Putney as a guide. In view of those tremendous risks, it cannot be satisfactory that the appropriate Finance Committee of the House of Commons has no right—not privilege, but right—to examine this account in the name and on behalf of the House of Commons.

6.40 p.m.


The Chancellor of the Exchequer ought to realise that the House of Commons as a whole, although I do not think that there will be a Division on it, does consider that he is making a very large request. Some of us thought that it was a large request last year. It is so large this year as almost to become dangerous, and the Committee was deeply impressed by the speech of warning which was delivered by the hon. Gentleman the Member for Putney (Mr. S. Samuel). The hon. Gentleman the Member for Caerphilly (Mr. Morgan Jones) asked for greater information to be given to the House of Commons through the Public Accounts Committee with regard to the state of this fund, but I am bound to say that I cannot see how anybody can ever be properly informed as to the state or the condition of the fund at any given day from time to time, because nobody can know whether the fund is solvent or insolvent at any given moment from day to day. Nobody will know, as far as I know, the exact position of the fund until it is wound up.


We should be satisfied from the House of Commons point of view if at the end of the year we could see what the operations of the year had been.


I am all in favour of the hon. Gentleman finding out what he can, but it is going to be a very difficult business for the Government to say with any degree of accuracy what the state of the fund is even at the end of the year. I doubt if it is a practical possibility. That is one of the inherent dangers of the situation. There is another reason, I think, for apprehension on the part of the Committee with regard to the operation of this fund. Surely the experience of the last six months or even the year has proved to everybody that whatever other form of international economic war may work, an exchange war will never work. The other side will beat you every time. We are not going to do ourselves or any country any good by manipulating the exchanges or, as the hon. Gentleman said, by Government speculation in order to manage the exchange value of sterling. Take what happened before the United States of America went off gold. The Financial Secretary to the Treasury knows very well, and everybody in the City knew, that what has become known as "the Control" was constantly in operation to keep down the exchange value of sterling. Sterling made repeated attempts to rise in relation to the dollar and this Control came in and bought large quantities of dollars and particularly of gold.

What was the final result of that? It has done no good whatever so far as our export trade is concerned, because when the United States went off the Gold Standard the Control had not the courage of its convictions. It had only the £150,000,000, and, in any case, it would have been too big a gamble. So that all that effort of the purchase of gold went for naught and the dollar stands at 390 to-day. Public opinion in America was to some extent exacerbated and aggravated during those weeks by the operation of the Equalisation Fund. Americans in New York and Washington have written to me that they got the opinion over there that we were using the fund to peg the £ at an artificially low level in relation to the dollar. I do not say that that in the end induced the United States to go off the Gold Standard. I believe the internal pressure from the Middle West was so great that that step would have been probable in any case, but considering that we gained nothing out of the whole of the operations I do hope that it will not be repeated in the months that lie ahead. What has happened? All that has happened as the result of these operations of the Control is that we have failed to keep the 2 down in relation to sterling, and we have landed ourselves with a great deal of gold, and the hon. Member for Putney has asked with great force and point what we are going to do with that gold, and particularly the gold we bold in the United States, which the United States at present refuses to allow us to export. I am all in favour of a reserve fund of this kind being at the disposal of the Government.


Is it true that the United States have refused to allow us to export the gold?


The point I made was that under the law of the United States the export of gold is prohibited, and I wished to know whether, if our Government wanted to ship that gold to England, and put it in the Bank of England, the American Government would allow that to be done.


I did not make myself quite clear. What I meant was that the United States had imposed an embargo upon the export of ordinary gold at the moment, but if we wished to bring back any large quantity of gold they might perfectly well say in the future—because, after all, they have refused to pay their external bond in gold—that acting in conformity with their general plan and owing to the conditions existing, they were unable to let us have that gold at any given moment. I think that is the point the hon. Gentleman wanted to make.

All that I want to say to my hon. Friend the Financial Secretary, if he is going to reply to this Debate, is that I think a great many hon. Members feel that while it is desirable that the Government should have at their disposal some large reserve secret fund to use in cases of grave emergency, it is not desirable that they should speculate in the exchange markets of the world with money voted by us. That will be particularly desirable during the few weeks that must elapse between now and the summoning of the World Economic Conference. I think it is quite possible, even probable, that the United States will embark in the course of next few days upon a, policy of pounced inflation. They may quite easily devalue the dollar by reducing its gold content, or embark on a large loan policy, and if that is the case it is by no means inconceivable that the dollar may fall sharply in relation to the pound sterling during the next three or four weeks. I think any hon. Member will view with great concern action by the Government to chase the dollar with the pound, using the Exchange Equalisation Fund for that purpose. Similarly, I do not think any hon. Member would wish to see the Exchange Equalisation Fund used for the purpose of keeping up the French franc under existing conditions, and maintaining the premium on gold which, as the hon. Member lightly said, I think, is at an artificially high level at the present moment.

I only put these points because I think the House ought to have some reassurance that in the very critical weeks that lie between now and the World Economic Conference the Exchange Equalisation Fund will not be used for keeping down sterling or bolstering up the franc, for example, because we might then get so involved that it would practically prove impossible ever to realise the assets of this fund, ever to wind it up at all. I come to this ultimate conclusion. The right hon. Gentleman will be well advised to leave the foreign exchanges alone unless and until he can get some international agreement at the World Economic Conference to try to achieve currency stability. In these arguments we are always driven in the end to the Genoa Resolutions. I have always maintained that one of the great tragedies of the world was that we did not wait until we could get some international agreement along the lines of the Genoa Conference in 1922 before we ourselves went back to the Gold Standard. The essence of those Resolutions was that before we went back to the Gold Standard we should obtain international co-operation and agreement, by means of central bank action, to keep the value of gold as steady as possible in teams of com- modities, thereby relating all currencies to gold by means of commodities, and by international action keeping currencies more or less stable.

That sort of solution is theoretically possible. I believe it is much more important than any tariff agreement or any debt agreement at the World Economic Conference, I believe it takes priority; and if the Chancellor of the Exchequer will devote all his attention to getting some international agreement along the lines laid down at the Genoa Conference he will have done more for the revival of world prosperity than anything else could; but until and unless we get that form of agreement I believe be will be well advised not to pursue the will-of-the-wisp of gambling in foreign exchanges in order to keep sterling at an artificially low level. He should give the House some assurance, before we let him have the money, that whatever else he does he does not propose to peg sterling down in relation to the dollar in the next few weeks or bolster up the franc at an internationally high level.

6.51 p.m.


Unlike the hon. Member for East Aberdeen (Mr. Boothby) I will not venture to offer advice to the Chancellor of the Exchequer, but I share his view that we ought to have more information on this matter, when we are asked to trust the Chancellor of the Exchequer and the Exchange Equalisation Fund with an additiOnal £200,000,000. The fact that the total of the fund is £350,000,000 does not worry me very much. My apprehension arises over the procedure which we shall be following for 12 months. One can understand the feelings of the hon. Baronet the Member for Farnham (Sir A. M. Samuel), who said, in rather poetic language, that we were sailing an uncharted sea, and asked pathetically where we were going. The average Member of the House or the average man in the street does not know exactly where we are driving and I doubt whether the experts know. This is a very difficult problem, and I venture to approach it simply because I am an ordinary person. Indeed, I do not think the ordinary person is in any more danger, or in as much danger, of finding himself on some rocky outpost because it is an uncharted sea. As the Chancellor of the Exchequer truly said, things happen quickly in these days, and he would be a bold man who would prophesy what would happen (lays ahead or weeks ahead, let alone 12 months ahead.

While I admire the confidence of the Chancellor in believing that he can see straight ahead of him on the road on which he invites us to travel, and believing he can see the end of the journey, I do not share that confidence, and after the experiences of the last 12 months I do not think the Chancellor is justified in asking us to share his faith. Twelve months ago he asked for a total of £150,000,000, and I remember asking whether that £150,000,000 was to be raised as an immediate loan to be set aside and to be employed fully in the business for which this fund was established. The reply I had then was that the £150,000,000 was not to be spent in that way, but that the power to borrow £150,000,000 was then to be taken, and that as the business of managing exchange, of buying and selling, went on, the £150,000,000 would be drawn upon as necessity required. We are not told that the £150,000,000 has been fully thrown into the business.

I would not interpret what has been said as meaning that the £150,000,000 has been lost, certainly not, for there may be a profit, but the £150,000,000 is no longer available. The sum is not sufficient for the purposes of to-day, and so the Chancellor of the Exchequer says "Twelve months ago I came to you confidently, and appealed for £150,000,000, and now I ask you to add £200,000,000 to that £150,000,000." He has not told the House—it may be difficult, or, indeed, dangerous, to tell the House—but the House would be in a much better position to agree with the Chancellor of the Exchequer if it were told how this £150,000,000 has been employed. I think he has said that it has been almost entirely expended—or used up; it has been converted into something else which does not quite represent the original form in which the loan was made. We have not been told how much gold has been bought, for example. We have not been told how much gold has been retained. We quite understood 12 months ago that foreign exchange might be bought and sold freely, and that this £150,000,000 might change hands in the processes described so well by the hon. Member for Putney (Mr. S. Samuel). It may have been turned over 100 times in the last 12 months.

We have not been told what is the net effect of these innumerable large-scale transactions in London, in the United States of America, in Canada, and on the Continent, carried out by the agents of this fund in order that the object of the fund should be fulfilled. We are not told how much gold has been bought or how much remains in hand, but we do know in a general way. I confess that I am unduly ignorant on this subject, and I hope the Financial Secretary will deal gently with me when he comes to reply. I would ask, Does the gold that is bought find its way to the gold reserve of the Bank of England, and is this gold which has been bought by this Exchange Equalisation Fund now represented in an additional reserve—a reserve which now stands higher than it has stood at any time since the War? It stands at a figure of £190,000,000. The gold reserve has been raised since the House gave authority to use this £150,000,000 by no less than £65,000,000 or £70,000,000. Is that in large part a result of the operations of this fund? I may say, in reply to the hon. Member who has interjected a reference to assets, that I will come to an examination of the value of the assets. There is no doubt that gold bought and set aside during the last 12 months has appreciated in value almost every day, and from that standpoint it has been a good business. If £60,000,000 sterling has been spent on buying gold at a price varying from £5 to £5 10s. or £5 15s. an ounce, then with gold now standing at £6 3s. 6d. or £6 4s. an ounce, it_shows a handsome profit. For the moment that gold is standing at a high price, and it is the largest measure of gold we have ever had in reserve. Gold is still appreciating in price, and there is no immediate danger in the fact that we have bought this gold. But what purpose does this gold really serve, and what advantage is there to us in adding to our reserve The Chancellor of the Exchequer hints that the times immediately upon us may be more difficult than those of last year. For the consolation of the Committee, he gives the impression that he sees beyond that brighter times when we have weathered the storm.

What purpose is this gold to play? Why are we adding to the large accumulation we have, and why are we still buying more and more gold at higher prices in order to lock it up? Are we buying it for the immediate purpose of putting it in the Bank of England—in as inaccessible a position as if it had never been mined in South Africa, Kenya, or some other place? We ought to know the broad policy of the Government with regard to gold, the function of gold and the purposes to which it may be put. We have reached a dangerous position. Can the Chancellor of the Exchequer tell me what is the effect of all this buying of gold on the price of sterling? I would imagine that this offering of sterling for gold must entail a depreciation of the value of sterling, and appreciate the value of gold. Can the right hon. Gentleman give us an assurance that there is no danger to the world's finance from this sort of action? I am not satisfied that we can continually maintain an artificial value of currency.

There is grave danger in the buying and extracting of gold which has taken place in the last 12 months. As hon. Members have stated, companies have been floated and shares and stocks have been manipulated. There has been speculation and gambling. New mines have been opened, and a considerable stimulus to gold production has taken place, simply because of the artificial and, I believe, unnatural demand introduced from this country. We buy up large quantities of gold, almost the whole product of the South African mines. We buy large quantities of gold from India, and we find that more and more gold is brought into the gold markets, ostensibly for currency purposes but simply to be transferred from private persons all over the world to be hoarded up by Government. The United States, France and ourselves have been scraping up the gold of the world. With that gold buying, at enormous prices, I fear that this attempt to maintain stability of currency will result in the greatest danger to the real value of sterling. It is flying in face of what this House professes to do, and the World Economic Conference proposes to do.

If gold is bought at high prices, commodity prices must correspondingly fall. This evil, from which the world has been suffering, prevents any prospect of world recovery as long as this process goes on. The Minister of Agriculture, who was then the Financial Secretary to the Treasury, said 12 months ago that the object of this fund was to lay down rails upon which the trade and industry of this country might run smoothly. I do not think that these rails have been well and truly laid, or that we did a good thing for trade and industry when we embarked on this sort of currency legislation. Acting in rivalry with people who are doing the same thing, this is going to be detrimental to world trade and will diminish it. We are, I am afraid, doing the wrong thing. How is this gold accummulation now affecting commodity prices, and what prospect does a further accumulation of gold afford with regard to restoring world prices?

In Debates in this House the Government are always faced with a dilemma of one kind or another. There is the dilemma of their tariff policy; and the dilemma of their desire to expand world trade, and get more trade between ourselves and other countries. This Exchange Equalisation Fund is to be increased at the moment the Government are trying to come to voluntary agreements with countries for the increase of our trade. The Government must choose a plan, and not these three factors which are now in operation. The acknowledged effect of the tariff policy is a reduction of world trade, and the diminution of our trade with all parts of the world. Then the Government seek to reduce the deterrent defect of the tariff by special agreements with countries for the exchange of goods.

Finally comes this incalculable thing. Can the Chancellor of the Exchequer see the results of the operation of this fund, and that his confidence is fully warranted? I would like to believe that he does, and also that a reasonable proportion of hon. Members share his confidence and his belief that it is working to a definite advantage of this country; that it is indispensable to the maintenance of our trade, and that it does not vitiate the efforts of those working for the restoration of world trade. There are still some people who believe in the efficacy of gold. I do not think we shall see in our time a return to a real Gold Standard. It has not operated since the War. It has been stated that those who wish to buy gold are the United States, France and ourselves. We are buying more and more of this gold, scratching the earth and dispossessing people from their homes to get more of this thing. I cannot see any real purpose for all this.

I should like to believe that the Chancellor of the Exchequer can satisfy the Committee as to this plan for the stabilisation of our currency. In a wider settlement it would be an advantage for us if our £ did measure against commodities approximately equally day by day. It would be a mistake if we embarked upon a financial duel between ourselves and America, and took advantage of America by depreciating the £ as compared with the dollar. That would be a terrible mistake. France, America and ourselves are almost in the same position. We do not blame each other, because it is no use blaming people for their conduct in the last few years. The Chancellor of the Exchequer is not choosing his way, or he would have asked for £350,000,000 last year. He is now being driven to ask for £200,000,000, and he is not sure whether he will not be asking next year for still more money. I ask the House and the country not to be impatient with the difficulties of other countries, and to try to tackle our own problem so that we can join in, as soon as possible, with those suffering from the same difficulties. I hope we shall not pin our faith to gold, which must fail, but to international regulation and stabilisation of currency, which will relate currency to the volume of goods in the world and the markets of the world. In that way I think we can obviate the need for making application for an additional £200,000,000, which may well be lost to us.

7.12 p.m.


There are in the Bible two Books of Samuel. In this Debate there will be three, but that which I shall contribute will contain fewer chapters and verses than those valuable contributions given to the Committee already by my two hon, namesakes. The Chancellor of the Exchequer, at the outset, desired the Committee particularly to note his Budget declaration that this additional sum which is desired has no relation to the departure of the United States from the Gold Standard. I think that fact should be noted, should be emphasised and should be made widely known to the country in general. It is of great importance that in all these matters this country should not "get across the United States. I regret that one or two of the expressions used in the discussion this afternoon suggested that the action taken by the American Government, and Congress, has some unfriendly intention, and even may have had some sinister purpose. I agree entirely with the Member for East Aberdeen (Mr. Boothby) that it is not necessary to seek any such cause for that action.

America has had ample reason for the course she has taken in her own domestic situation, and I feel that she has been thinking more of the need, from her own point of view, of raising the prices of agricultural produce in dollars, for the sake not only of the agricultural community but the banks, mortgage and other financial institutions, than she has been thinking of the relative parity of the £ and the dollar. It would be indeed, as the hon. Member has just said, a profound misfortune if we should add fresh currency conflicts to the tariff wars which have done enough to upset commerce, and the quota wars which are worse still, but if, on top of both of those, we had currency wars, that would be the worst of all. It is bad enough for goods to be sold below the cost of production from one country to another, if such indeed occurs, but it is just as bad, or even worse, for currency below legal parity to be sent from one country to another, in an effort to secure advantages in the world's trade. I would draw the attention of the Committee to a paragraph in a recent article in the "Economist" on this subject, and I would ask the Chancellor of the Exchequer whether he has this particular point in mind, as I am sure he has. The "Economist" says: In any operations upon the New York exchange we would stress the need, that is, in connection with this Exchange Equalisation Account, for continual and close co-operation with the American authorities, who will most likely desire to exercise control from their side. Nothing would he more futile or disastrous than for there to be two exchange I accounts in existence, one in sterling and the other in dollars, which were continually pulling against each other, so that each bought up all the exchange which the other offered. Such a reductio ad absurdum must he avoided, but no doubt the authorities in New York and London have this danger in mind. I think that the necessity of avoiding any such pulling in opposite directions is fully present to the Chancellor's mind, in view of the statement that he made to-day and the statement that he made in the Budget speech.

The second point which emerges very clearly from the Chancellor of the Exchequer's speech is that this is not a Measure to endeavour in any degree to control the major movements in the prices of sterling. As one or two hon. Members have said, if it were the object, that object would be defeated, because you cannot control those movements, either by a sum of £150,000,000 or by a sum of £350,000,000. I agree in general and whole-heartedly with what was said by the hon. Member for East Edinburgh (Mr. D. Mason) as to the importance of maintaining a sound, stable, honest currency, but I am bound to say that I do not agree with him when he suspects the Chancellor of being determined to keep the £ permanently below the value at which the free movement of economic forces would put it. In fact, the Chancellor himself said that he realises that if he were to attempt it, his attempts would be defeated. You may peg the £ against the small movements, but the great economic forces would tear out your pegs just as they were torn out in 1931.

There is only one other point to which I would refer. The Chancellor mentioned a new matter. He said that the only reason why he wants to increase the amount at the disposal of this Account from £150,000,000 to £350,000,000 is in order that he might safeguard London against the effects of withdrawal on a large scale and in a short time of short-term capital. We all have very much in mind the fact that we were forced off the Gold Standard just by that, far more than by any adverse balance of trade, except in so far as the adverse balance of trade may have contributed in any degree to weakened confidence: but the immediate cause was that, while the movement of trade might be adverse to the extent of £1,000,000 or 22,000,000 a week, the movement of capital affected the London money mar- ket to the extent of £5,000,000. £6,000,000 or £8,000,000 of money in a day. It was that which brought the Gold Standard down. The right hon. Gentleman says that the real reason why he wishes this larger sum is to safeguard us against the risks that are involved in a large accumulation in London of short-time money from abroad.

The effects of Government action are often shown by experience to be very different from the purpose which prompted that action. Again and again, Governments and Parliaments do a thing with a certain object and find, much to their surprise, that the outcome is very much the opposite. I feel some little doubt whether the action now being taken by the Chancellor will not attract more and more short-term money to London. The right hon. Gentleman's whole purpose is to make it secure against shocks. The more security—in fact this money comes here for the sake of security because it gets more security here than elsewhere—you give the foreign holders of this money, the more they will be induced to send their money to London and the greater becomes the mass which you will be endeavouring to control. In fact, it might in time reach uncontrollable proportions.

The hon. and learned Member for East Bristol (Sir S. Cripps), realising this danger, said that the Government ought to endeavour to cope with it, but in a different way, and he suggested that a tax should be devised for that purpose. It is very difficult to conceive any form of taxation which would achieve that object. I am bound to say that the hon. and learned Member and his friends are doing their very best to achieve the purpose that he has in view, namely, to keep away from London any money which might be deposited here for security. I have no doubt that if he and his friends succeeded in their political ambitions and in carrying out the financial policy and the schemes of taxation that they have in view, no one in any part of the world would dream of sending any capital to this country with any degree of security. It is the result of having a stable system of commerce and a reliable system of finance that you attract money to this country, and in so far as the right hon. Gentleman is taking steps to secure that stability and security, I think that it is inevitable that he will find that he will be attracting more money here. Still, so long as the security is maintained, that does not matter so very much, and the money, I dare say, can be put to good use.

We have to bear the penalty of relative stability. It is much better to have relative stability, with its penalties, than to have instability and insecurity. If the right hon. Gentleman's advisers think that, on the whole and in the main, it is wise to do this, in the general interest of the British financial and commercial system, Members of the House of Commons would be very diffident in taking another view. For my own part, in all these matters of international monetary considerations, I feel that the only thing that is certain is that nothing is certain, and that the only thing it is safe to prophesy is that every prophecy is likely to prove unsafe. I should be disposed to trust the Chancellor of the Exchequer and his advisers that the course that he is proposing to Parliament is one that it is in the interests of the country to adopt.

I only hope, feeling somewhat sceptical, as I do, of all transactions of this sort, that the facilities will not be used more freely than the occasion requires. Having this large sum of money, the Chancellor and his advisers should not think it necessary always to be using it in this way and that, in order to keep it continually employed. There is a risk, during catastrophic movements of world trade and finance, that at some time or other there may come a moment in which the assets of the fund may be very seriously depreciated, and some Chancellor of the Exchequer may have to come to the House of Commons and say that he is very sorry but, owing to unforeseen and wholly uncontrollable circumstances, the money that we had voted, or a large part of it, has unfortunately been lost. I hope that that will never occur, and that the World Economic Conference will take measures that will contribute to the establishment of a more permanent system of financial stability.

The monetary side of that Conference will be at least as important as the economic side dealing with tariffs and trade restrictions. To free international trade will conduce to monetary stability, but will not necessarily ensure it, and the monetary side is at least as important as the other. I hope that after the Conference has been held and the Chancellor comes to the House of Commons again next year, he will be able to say that the international position with regard to currency is so stable, that the pound is so secure and that fluctuations have been brought to so low a point, that it is unnecessary to continue this account. I hope that conditions will allow it to be wound up in the not very distant future, and perhaps we may express the desire, though possibly not the expectation, that when the Fund is wound up, there will be a sum of £50,000,000 or 260,000,000 in hand to be used for the reduction of the National Debt.

7.26 p.m.


I have listened to the whole Debate this afternoon with very great interest. What impressed me was that, although the Chancellor of the Exchequer asked us for another £200,000,000, in addition to the £150,000,000 he bas already, he did not actually tell us what had happened to the £150,000,000 which he has had up to the present time. That was left to the hon. Member for Putney (Mr. S. Samuel), who seemed to be able to tell us what had happened to the Equalisation Fund. He told us that £60,000,000 worth of gold had been purchased, and about £35,000,000 of dollars and that there was about £25,000,000 left in the fund. A sum of £25,000,000 is not of very much use when you are trying to iron out exchanges, and consequently I agree with the Chancellor of the Exchequer that it is necessary that we should have more money in the Equalisation Fund. This fund has been very useful in the past, and I feel great confidence in the Chancellor and his advisers that they will not use it for gambling purposes, but purely for trying to keep the exchanges as near stable as possible, and that there is no attempt, as he told us quite distinctly, by himself or his advisers to keep the £ below the dollar in any way. This fund is to be used in just the same way as it was used before, and that is to try to keep the exchanges as level as possible, so that the export trade of this country can continue to be as large as possible.

There is one danger in this. My right hon. Friend told the Committee that this fund had not made a loss, but he did not say that it had made a profit. That is quite all right, as long as it is not liquidated. The difficulty of these big transactions is the question of liquidation. I would impress upon my right hon. Friend the importance of liquidating this fund as early as possible. There is no doubt a danger that things in the future may be even more complicated than they are at the present time. During the Economic Conference the Prime Minister told us to-day, the debt question was not going to be discussed. That might disturb the exchanges very much indeed. I trust the Chancellor implicitly. He has got an extra £200,000,000 in his fund, and I hope that he will not be tempted to try to keep the £ more stable than he is able to do with that limited amount of the extra £200,000,000. I think we may have complete confidence in him and his advisers. For myself, I propose to support the: Government, but I want to utter this word of warning, that there is a chance that possibly one day, if things did no', go quite right, the Chancellor might have to come to the House and say, "Unfortunately, things have not gone very well with the Exchange Equalisation Fund, and, as a result, we have to come and ask the country to pay more taxes." I hope that that will not happen, and I do not think it will, but I must utter that word of warning.

7.31 p.m.


I do not think it is necessary for sue to say very much by way of reply to the discussion on the Resolution which I have submitted to the Committee, because, while there have been some very interesting speeches, and certain warnings have been addressed to the Government, there has not been anything in the nature of what I might call determined opposition to the proposal which I have made. I would, however, emphasise once again that we are not proposing to utilise this fund for any other purpose than that which has been so often stated, namely, for removing undue fluctuations in the exdhange value of the £.

The right hon. Gentleman the Member for Darwen (Sir H. Samuel), while giving general support to my proposal, uttered a word of warning as to the danger that we might actually, by our proposals, increase the flow of short-term capital into this country, by reason of the fact that we were creating greater stability, and, therefore, making this country a more desirable resting place for that capital. Of course it is perfectly true that, the greater the stability here, the greater the attraction, and I think it is possible that in many cases some of this capital which I have described as refugee capital will like its quarters so much that it will stop here more or less permanently. I agree with the right hon. Gentleman that, if confidence is increased by the measures we are taking here, it may very well be that more of that capital will stop here. But, even then, it must be recollected that that money is moved, not so much on account of conditions here, as on account of conditions in the places from which it has been moved, and whether it stops here or goes back is really much more closely related to the conditions of its place of origin than to the conditions here. Therefore, while I do not deny the logic of the right hon. Gentleman's suggestion, I do not think we have anything to fear on that account.

A good many hon. Members, while generally accepting my statement of our intentions as to the use of this fund, have expressed the hope that I shall not be tempted into more speculative courses from time to time. As far as I have been able to make out, I have not earned a reputation for daring adventures and gambles of one kind or another; I thought I had rather been reproached with too little imagination in financial realms; and I do not think that there is any danger, at any rate so long as I am here, that we shall try to control the exchanges of the world, or that we shall, on the other hand, endeavour to make some colossal coup which would wipe off the National Debt, or something of that kind, by the operation of this fund.

My hon. Friend the Member for Putney (Mr. S. Samuel) gave us a disquisition which very much interested the Committee, and which enabled many of us, perhaps, to see a little more closely into the operations which we are discussing here in general than we had previously visualised; but perhaps I may say to my hon. Friend that part of his speech, so far as it was in the nature of criticism of the Government, was really founded on a misapprehension as to what we are proposing to do. His argument that we had tried to control the exchanges really would have no value unless it were supposed that that had been our object; but, when he accused us of being responsible for the boom in mining shares and speculations on the Stock Exchange in gold shares, I really was rather surprised, because I should have thought that a man so familiar with these matters as he is would have had in mind the fact, which is well known to all of us, that it was when South Africa went off the Gold Standard that these things occurred, and they really cannot be laid at the door of this Government or of any result of the working of the Exchange Equalisation Account.

I do not think I am called upon to answer my hon. Friend the Member for East Aberdeen (Mr. Boothby), who popped in in the course of the afternoon, not having heard my speech, and delivered a series of warnings to me which I am sure he would not have troubled himself to deliver if he had been present earlier and had done me the honour of listening to my speech. I may, perhaps, express the hope that he would have been impressed by my speech, as well as by that of my hon. Friend the Member for Putney, but he did not have the good fortune to listen to either of those speeches.


I certainly did not hear the whole of the right hon. Gentleman's speech, but I took particular care to ask two of my lion. Friends who had heard the whole of it, and who gave me a verbatim and, I think, very accurate report.


I will leave that matter to those who were here. I want also to say one or two words about the question of publicity, which was raised by the hon. Member for Caerphilly (Mr. Morgan Jones), who, I understand, has had to leave the Committee for another engagement. As he truly admitted, an offer was made last year to consult the Chairman of the Public Accounts Committee on the question of publicity, but that offer was not accepted, and, as it was not accepted, I considered that it was withdrawn, and that we were under no obligation to fulfil it. But, although the matter has not been pressed this alter- noon, I think the Committee is entitled to hear a word from me upon this question of publication. Here is, as has been said, a vast sum of money, hundreds of millions, entrusted to the care of the Government and to be operated on in private, with results which are not disclosed to the Committee as they go along; and it is represented by the Chairman of the Public Accounts Committee that it was an anomaly that, in this one case alone, the Comptroller and Auditor-General, who is obliged by the Finance Act to certify whether the operations of the account have been carried on in accordance with the Statute, is not called upon to come before the Public Accounts Committee and answer questions addressed to him by its members on this subject.

What are the sort of questions that they might address to him? They have been clearly suggested by the hon. Member for Caerphilly. He would want to ask, "What has been done with this sum of money? In what form has it been held from time to time? What were the resources on such-and-such a date? What was done when certain circumstances arose? What action was taken, and what was the result of that action?" These would be reasonable questions to ask and answer if they could be safely answered to the Public Accounts Committee, or even to. Members of the House, without giving the same answers to the whole world; but, 'as I pointed out earlier, that is really the difficulty in which we are. As far as we are concerned, we would gladly disclose all these matters to the Public Accounts Committee if the matter could stop there, but the trouble is that our principal object in the operation of this fund is to counteract the operations of speculators, and, by publishing what was the condition of our account at different times and in different circumstances, we should be furnishing to them just exactly the information that they would wish to have. When the amount of the Fund has been altered by so large a sum as that which we are discussing this afternoon, there would not be quite the same difficulty about disclosing what had happened when the fund was in a very different condition, because, obviously, it would be of no use to speculators now to know what was happening when the resources of the fund were much less than they are to-day. But we cannot tell whether that will continue to be so in the future. While we should be safe from any danger in this year, in another year we might find ourselves seriously embarrassed. I hope very much that, for the reasons which I have given to the Committee, we shall not be pressed to go further than we have gone into the details of the account. There will be further opportunities of discussing this matter when I move the Second Reading of the Bill in the House, and I hope that the Committee will now be able to see their way to let us have the Resolution.

Resolution to be reported To-morrow.