HC Deb 04 July 1934 vol 291 cc1911-2012

Motion made, and Question proposed, That a sum, not exceeding £187,227, be granted to His Majesty, to complete the sum necessary to defray the Charge which will come in course of payment during the year ending on the 31st day of March, 1935, for the Salaries and other Expenses in the Department of His Majesty's Treasury and Subordinate Departments."—[NOTE.— £135,000 has been voted on account.]

3.23 p.m.


I wish at the outset to take this opportunity of congratulating the Financial Secretary to the Treasury on his first appearance in that capacity in a Debate. The object of putting down this Motion for discussion to-day was not to embarrass the Chancellor of the Exchequer or to move a reduction in his salary but simply with the intention of raising a discussion on the monetary policy of the Government. That is a matter of very deep importance which affects every branch of our national life. I often think it is insufficiently realised how a sound or unsound monetary policy may affect, for good or evil, the operations not only of merchants, industrialists and farmers, but of all those who work for wages, whether on the sea or on the land or under the land. It has also a definite bearing on the important problem of unemployment.

In the House of Commons considerable interest was aroused when an attempt was made to raise a discussion on this matter during the Debates on the Finance Bill. When an hon. Friend of mine put down an Amendment in order to draw attention to the subject, a large number of other hon. Members put down Amendments to that original Amendment, also with the object of drawing attention to the subject, though in a slightly different fashion. That must be not only our excuse but our reason for affording hon. Members this evening an opportunity for contributing their ideas on this subject to the general pool, and, what is more important, affording an opportunity to the Government of expressing their views and perhaps giving us an indication of their intentions in this matter.

As everybody knows there is a great diversity of views on monetary policy. Those differing views are held most tenaciously and are supported by the most plausible arguments. It does not seem to matter how contradictory two different sets of views may be, the supporters of a particular school are always confident that the salvation of the country lies in the adoption of the particular view which they favour. In modern political economic language we have the inflationists who believe that if their methods were adopted there would be such an upward turn in the business of the country as has never been seen before. Against them there are those who may be termed the rigid and puritanical deflationists and in between there is another school whose doctrines seem more difficult to understand and would I think be still more difficult to apply in practice. They call themselves reflationists within gold.

Then there are the people who want to go back at the earliest opportunity to the old Gold Standard. There are also those who want to return to gold but who think that we cannot return to it at present and who are doubtful whether it will be possible to return to the old standard and whether we ought not to return to gold at a new parity. Again there are those who take an altogether opposite view and who claim that the best method is that of a purely managed currency. On the outskirts of all these schools, whenever these questions are raised, we hear the voices of people who think that the great hope of salvation lies in what they call the proper use of silver. They point to the great opportunities of Far Eastern trade which would be opened up if silver were, as they put it, rehabilitated, and whether it is done by some system of symmetalism or some system of bimetallism in regard to the ratio between silver and gold. They are, anyhow, determined that a greater use should be made of silver.

In the midst of these numerous counsellors the plain man is apt to ask himself where wisdom lies. It has been said that "fools rush in where angels fear to tread." I do not pretend to be an authority on monetary policy, but what I think the country is looking for is some lead through this maze of different theories offered by these different schools of thought. The unique position in which our country is placed by her great international trade and by the fact that she has been for so many years the centre of the world's finance, places upon us a sort of obligation, not only in our own interest but in the interest of the world to bend all our energies to finding some solution of the problem presented to us to-day. The more we look at the difficulties in which this country particularly is placed to-day, the more we realise the international aspect of this question. With our trading throughout the world, we find the necessity of having some stable standard of measurement. One of the greatest difficulties of traders to-day is to know what prices will be when they have to pay for the goods they buy, and when that condition of affairs exists it is easy to see what a terrible handicap the absence of any stable standard is.

The present difficulties of the world are very great. The black cloud of Government debts has not yet cleared from the skies, and there are all sorts of restrictions in the way of trade put on by political action, some of them due to the influence of what is called economic nationalism, some of them possibly due to the panic induced by the idea of self-preservation, and there are restrictions put on by Governments in exchange, all of which make it extremely difficult at the present moment to hope for anything like a return to what we used to enjoy before the War in the way of an automatic working exchange based upon a currency of gold. But if we believe that the great object to attain is a stable standard, we are forced by experience to believe that that may be best found by the proper use of the gold measure. Therefore it is that at the present time, in spite of all these difficulties, I think we should endeavour to clear our minds of false ideas and hold as strongly as we can to those which experience has shown to be the truest and soundest methods.

We have been gaining a lot of experience in the last two or three years. The world has been undergoing very extraordinary new experiences. Look at our own experience since the War. We naturally, when the War came to an end, were anxious at the earliest possible moment to return to the Gold Standard. We did, but we did it under conditions which we now realise severely handicapped us, and a combination of circumstances which were too strong for us eventually forced us off gold. When we were forced off, we found as a result that there was an immediate benefit to our export trade. That was undoubted. Look at another country which, owing to the depreciation of her currency, has made inroads into markets which she was never able to enter before. I refer, of course, to Japan, and though it is partly due to Japan's energy and industry, largely and, I think, to the greatest extent, it is due to her depreciated currency that she has been able to make the progress that she has made in these new markets which she has been attacking. Those results have been watched by other countries, and there are countries which are saying, "Why should we not also take this immediate advantage, which we see is to be obtained by going off gold, or by depreciating our currency and getting the immediate advantage that follows?"

Such a prospect of a competition in debasement of currencies is sufficient to fill the soul of any sane man with alarm. In remaining on gold, of course, there are undoubted advantages. The country on gold can purchase its requirements and its raw materials at a price that the country with a depreciated currency is unable to do, and if matters were allowed to remain there, there is no doubt that, by the working of economic laws, in the course of a period of time a more or less corresponding balance would be arrived at between the country with a depreciated currency and the country that remained on gold. But those economic laws are not allowed to work, because political influences then come in, and as I said before, owing it may be to the ideas of economic nationalism or to the ideas of self-preservation, high tariffs, quotas, and restrictions are placed upon trade which still further block the channels and make exchanges more and more difficult, with the result that it becomes increasingly difficult for countries that remain on gold to enter the markets which they used to enter before; and the ultimate consequence, as far as can be seen—we are watching the struggle going on now in certain countries in Europe—is going to be that it will be very difficult for them to balance their budgets and meet the necessary reduction in wages that follows an attempt to remain on gold in the world as it is at the present time. In fact, the strains and stresses to which those countries will be inevitably subjected seem to point to their ultimately either being compelled to go off gold or, if they do not do that, they may see their very social structure crumble under the strains to which it will be subjected.

I should like to ask whether it is wise for us to wait till that time arrives, which may be a time of very great chaos, and a very much more difficult time even than it is to-day, or whether it would not be wiser to try to find a way out of the difficulty, and for us, with our great international relationships, to endeavour to give a lead to the rest of the world to prevent the possibility of such chaos arising. In the meanwhile we are buying gold. In fact, we have amassed a larger amount of that metal than, I believe, we have ever possessed before, even in the times when we had a convertible currency. We have now an unconvertible currency, but still we go on purchasing gold, and I should like to ask why. It is very difficult for some of us to understand why this country in present conditions goes on amassing such quantities of so-called precious metal.

It has been said that the hoarding and misuse of gold are very largely the cause of many of the world's troubles to-day. I do not know whether we are guilty or innocent in this matter. Are we adding to the world's troubles by piling up our gold, or are we piling up our gold with a view to some future action? This is a matter which again worries the plain man. It is difficult to understand the objective which we really set in front of us. When gold is hoarded and is not put to the uses to which it might be put, great strength is lent to the argument of those who plump for a purely managed currency. To my mind, a managed currency would be an ideal currency if we were living in Utopia, but we are living in a very imperfect world, and the experience of past years has taught us that the greatest stability is to be found, not in a managed currency in a civilised country which is well equipped with printing presses, but in some other method which is outside the influence of the printing presses, which could so easily be operated by a country with a managed currency.

In the difficult circumstances to which I have alluded we have made a very new and untried experiment. At the request of the Chancellor, this House has placed in his hands £350,000,000 for the purpose of an Exchange Equalisation Account—an absolutely unprecedented experiment. There are many of us who did that with considerable misgiving. I do not wish to suggest that the account is not managed with the greatest skill and acumen, but at the same time the account is managed in secrecy; it must be so in the nature of things. We are glad to know, as we have been told from time to time, that the account shows a profit, but no one knows better than the Chancellor what it is and we shall never know what the true balance is until the assets on paper come to be realised. I should like to ask the Chancellor whether he has in prospect the possibility of winding up this Equalisation Account or whether, on the other hand, he sees any likelihood of having to ask for any further appropriation for it. I think the House and the country have throughout realised that this fund, instituted as it was in order to secure stability in a very unstable world, has been managed with skill and care, but at the same time, we feel that we have divested ourselves, as the supreme financial authority in the country, of any control over it. It will be a great relief, not only to the House, but to the whole country, when the fund is closed.

It is certainly very gratifying to be able to recall the improvements that have taken place in our own financial conditions at home. We have balanced our Budget, we have converted the huge War Loan, we have seen a restoration of confidence, and we have seen a great improvement in the home market, the last-named largely because of the upward trend of events which have taken place during the last couple of years. Unfortunately, overseas trade remains in the doldrums. It seems now that a certain pause has come in that upward trend. Whether it be due to what might be called an approach to saturation of the home market, or whether it be a sort of taking breath before a further start forward, it is not very easy to say; but I suggest that the moment is not inappropriate for a general review of the whole position. It would be an advantage, I think, that opinion should be clarified now and that we should clearly see our objective instead of waiting perhaps until events take charge and when action might be rendered infinitely more difficult.

I should like to refer again to the variety of opinions that are being expressed in the country with regard to our system of banking. That, system has withstood the shock of a rocking world—a most remarkable fact. At the same time, there are a number of people who think that the system might be improved. They point out that there is a certain rigidity in our system which would be better removed, and that there might be a more intimate relationship between our banking and our business, and that were such more intimate relationship introduced it would certainly be to the benefit of our business. There are others who go further and believe that it would be for the ultimate benefit, not only of our business, but of the whole nation, that the banks should be nationalised. The hon. and learned Member for East Bristol (Sir S. Cripps) preaches unfalteringly that nationalisation of the banks would mean the regeneration of the country. There are people who honestly believe that it would be a benefit if the banks were nationalised, but unfortunately that honest belief which is expressed by some people may be and has been turned into a very dangerous form of political propaganda. The Open Sesame of nationalisation, if wrongly used, might not disclose the sort of Aladdin's cave which would be rich in wealth and open to all the world to make everyone richer and happier. On the other hand, it might disperse credit and confidence and make that wealth disappear in a tenuous mist in the clouds.

These opinions, both in regard to currency and banking, are held honestly and are honestly put forward. Some of them may be very unsound, and the object of my making these remarks to the Committee to-day is to suggest to the Chancellor that it would be to the advantage of the country that the sound should be sifted from the unsound and that we should know more clearly the objective that the country is setting before itself. I venture to suggest that if an authoritative committee were to be set up to inquire into these matters, to set out the true facts and the issues to be deduced from them, their report would be not only of assistance to the Government, but to the nation as a whole, and not only to the nation, but possibly to the world, and might point the way back to a return to greater prosperity on all hands. I venture to believe that the setting up of such a committee would commend itself not only to the Members of this House, but to many people in responsible quarters outside.

3.50 p.m.


I think the whole House will be very grateful to my hon. Friend the Member for Orkney and Shetland (Sir R. Hamilton) for having raised this vital topic. It is a topic in which I have always taken a deep interest, and I think hon. Members on all sides of the House take very great interest in it. I never think it is quite so complicated as some people make out. A lot of people are inclined to run away at the mention of the word "monetary" or "currency" or "gold" and run still harder when silver is mentioned; but certainly the story of the monetary policy of this country over the last decade is a very, very strange one indeed.

If hon. Members will cast their minds back for a moment to the year 1924 they will remember that, although a Labour Government was in office, this country was, in a sense, straining at the leash; and there was every indication in that year of a healthy trade expansion. There were signs of it on all sides. Even the export trade was improving in 1924. Then, in 1926, we returned to the Gold Standard at the pre-war parity of exchange. There were very few hon. Members at that time who expressed any doubts about the wisdom of that step, but those of us who did have surely been justified by events. I believe it was one of the most fatal steps, from an economic point of view, that we ever took, because it put costs completely out of relationship to prices. The only possible way for us to get through was by making wholesale reductions in wages, which under our somewhat rigid wage system was really not a practical possibility.


Was it not the case that in the four years following the restoration of the Gold Standard 750,000 people were absorbed into industry and industrial production increased by 10 per cent.?


I should say that the position hardly moved at all during those four years, and that we in this country scarcely shared in the undoubted revival which took place elsewhere—in America in particular and also in France—in those years. The unemployment figures were practically not reduced, or at any rate there was only a very small improvement in them, between 1924 and 1929, at a time when America, for example, was enjoying unparalleled prosperity. The immediate result of our return to the Gold Standard at that pre-war parity was, of course, the coal crisis, which had to be dealt with, and was temporarily met by a subsidy. The subsidy was not continued, and there followed the General Strike, and coal stoppage, which cost this country £800,000,000. I have never denied that I believe that our return to the Gold Standard at that parity, coupled with the rigidity of our wage system, was the direct cause of the industrial upheaval of 1926. I have never been able to understand—and this is germane to the question now before us—the ideas which animated those who directed the financial and economic policy of this country at that time. Really, inflation, Protection, subsidies, and public works programmes are all variations of the same theme. They are different methods of achieving the same end.

Though my right hon. Friend the Lord President of the Council was advocating Protection in 1923—and rightly, as I think, and I wish to goodness the country had accepted his views—he was not nearly so far away from the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George), who was at that time, or shortly afterwards, advocating a great policy of public expenditure, as he thought; because, as I say, they are really only variations of the same theme—a form of inflation. I think that periods come when we ought to apply one or other of them; and sometimes, especially if there be a great depression, it may be necessary to employ two or three simultaneously. Yet my right hon. Friend the Lord President of the Council advocated Protection in 1923, and in 1925 deflation, the exact opposite, which was bound to have the very effect that unrestricted Free Trade, which he opposed so much, also had. Throughout the period of 1925 to 1929, and even after that, right on up to the crash, the policy of deflation generally was pursued in this country, under the auspices of Lord Snowden, to the point of obsession. Stocks of monetary gold were piling up in the Federal Reserve Bank in New York and in the Bank of France; and in every other country in the world the basis of credit was steadily contracting. We lost gold the whole time. My hon. Friend the Member for South Croydon (Mr. H. Williams), may say "No," hut it is true. The basis of credit contracted, and we did lose gold. We lost gold steadily, until finally the point came when we had lost so much that we were driven off the Gold Standard. Very soon we had practically no credit left, except, of course, for the essential municipal reconstruction which we found it necessary to carry out in Germany and Austria. But apart from that the whole basis of trade was contracting all through that period.

When the Stock Exchange inflation in America was blown up in 1929, world prices began to fall more and more swiftly, and crisis became apparent. Still we held on grimly to the old gold course, resolved to go through to the bitter end, and a bitter end it was. The National Government was formed, largely at the instigation of Lord Snowden, who has never played anything but a disastrous part in the financial history of this country from start to finish, whenever he has touched it, in order to keep us on the Gold Standard at any cost. Mercifully, that did not succeed in keeping us on the Gold Standard, and I submit to the Committee that at the very hour that we were forced off that Gold Standard the tide of our industrial fortune turned, and it has not yet begun to ebb. I cannot forgive those who, as I firmly believed at the time, and have believed for 10 years, inflicted by this mistaken policy such unnecessary suffering upon the workers of this country, but I should be the last to deny that they and we have profited by our bitter experience.

Nobody, I think, can complain about our monetary policy in general during the last three years. If we sum up its objective in a sentence it would be, "Stable prices, and cheap and plentiful money," and we have been enabled to carry out that policy very largely as a result of the skilful conversion operation of my right hon. Friend the Chancellor of the Exchequer, which was brilliantly executed, as, indeed, our whole monetary policy has been brilliantly carried through, from a technical point of view, since we came off the Gold Standard. I submit that there is a great deal to be said for the contention that that change in monetary policy, which came late but not too late, is really the basis of the present recovery. There has been a slight deviation lately into deflationary bypaths which has been reflected in a definite reduction in bank deposits. I wonder whether that is not indirectly due to the ecessive reduction of the floating debt, which has reduced bills and forced the joint stock banks to contract. I ask my right hon. Friend when he replies to refer to that question, because, as he probably knows, there are a lot of people who are quite orthodox and not at all inflationary in their views, who think we have been going a little too far and a little too fast in the policy of reducing the floating debt.

Before I come to deal with the interesting question of future policy raised by my hon. Friend the Member for Orkney and Shetland, I would like to refer to another point he mentioned in connection with the industrial revival, and to utter one word of warning. Ninety per cent. of this industrial revival is an internal revival. It is not based upon an expansion of foreign trade to any appreciable extent. We all hope that we are going to see in the course of the next few years a very great expansion of Imperial trade, but I think it will take time to develop. In the meantime, between 80 and 90 per cent. of our industrial revival is internal, and of that about 40 per cent. is based upon activity in the building industry. In default of a revival of international trade, of which there is no immediate sign, the saturation point is likely to be reached within about 12 or 18 months at the outside, if we are to proceed only along present lines.

Therefore, I suggest to my right hon. Friend that the Government ought to be considering very earnestly indeed how they can give a direct stimulus to the building industry, the activity of which is at present largely confined to the speculative house builder and house contractor constructing houses for the middle and lower middle classes, and has not yet begun to extend, sufficiently at any rate, to the workers' houses and the slums. I ask whether it would not be possible during the next 12 months for the Government to devise some definite means to give a direct stimulus to the building industry when the saturation point is reached? For my part, I have no hesitation in saying that I believe the Government themselves will have to take in hand a vigorous policy involving considerable loan expenditure, to deal with the whole question of slum clearance and the construction of workers' flats on a very large scale.

With regard to the future, about which the hon. Member for Orkney and Shetland was so anxious, I have no doubt that our ultimate objective should be to return to a properly managed international gold exchange standard. There is not such a plethora of mutual confidence and trust between the nations in the world to-day that we can afford to dispense with a metallic basis for international transactions. I think that is the answer to my hon. Friend when he asked why the Bank of England were collecting gold. They are looking, not at the next field but the one ahead of it, when we may well find that a substantial amount of gold will be extremely useful. I do not think that we should ever allow our gold reserves again to sink as low as they were in the disastrous years 1930 and 1931. I have never found any disposition on the part of any responsible authorities in any country, including Soviet Russia, to abandon gold as the basis of credit and as a method of settling international transactions. I think that it is an essential condition of the revival of international trade that we should get back to a properly managed gold exchange standard. By this I do not mean for a moment that unregulated and uncontrolled Gold Standard, which functioned well enough before the War, under completely different conditions and in a completely different situation, and was run almost entirely by us, but which brought economic catastrophe after it.

I suggest that what we want now is both an international Gold Standard and a managed currency, and if my right hon. Friend asked me how it is to be achieved, I would remind him of some admirable resolutions, the only thing which came out of the Genoa Conference of 1932. I have referred to them before, and have no hesitation in doing so again. While joining in the congratulations to my hon. Friend who has just been appointed to the post of Financial Secretary to the Treasury—a well-deserved appointment, if I may say so—I would urge him at the start, and before they get at him, because they will pretty soon, to read the Genoa resolutions first. They really do repay study at the present time. They were described by Sir Laming Worthington-Evans — who, I always thought, was one of the best economists in this House, and of whom they did not make as much use as they might—as a financial code worthy to rank with the legal code of Justinian. I do not go so far as to say that they are entirely applicable to present conditions, but they are not altogether academic. They pointed out that if the nations of the world were to go back to the Gold Standard—and they laid it down as a desirable objective—it must be with the primary object of keeping world commodity prices steady by co-operation between the central banks to stabilise the value of gold in terms of commodities. In subsequent resolutions they laid down the methods by which this could be done. I will not weary the Committee this afternoon by going into this question in detail, but they believed that it could be done by co-operation by the central banks, and I believe that it can be done now by that co-operation. As a matter of fact, the Genoa Conference recommended that in order to achieve these objectives, a meeting of the central banks should be held at the earliest moment, to be summoned by the Bank of England, and before any nation committed itself to going back to the Gold Standard. The Genoa Conference was held in 1932, but that meeting of the central banks has never yet been held, though I still believe it could be, and ought to be, held as soon as it is found possible.

No one can blame the Government for having failed to get agreement upon these questions at the World Economic Conference. The United States were not ready. I think that they ought to have told us that they were not ready before coming over; but they will come to an agreement and, I think, perhaps, sooner rather than later. I hope so, because the first step in all this business must necessarily be agreement between ourselves and the United States; and then all the nations can base themselves upon the sterling-dollar exchange. This may take some time, but the figures of 140s. per ounce for gold and a dollar sterling rate of 5 are already beginning to take practical shape, and coming into practical politics. At any time now we might initiate negotiations with the United States on those lines. Any agreement to stabilise the value of gold and exchanges at reasonable figures would be worth 20 tariff agreements, for I believe the immediate effect of such an international agreement would be, almost imperceptibly, to lower tariff walls all over the world without it being seen too soon, or appearing too obvious.

I would like to close on an optimistic note. I do not think it necessary to be as gloomy and apprehensive as was my hon. Friend the Member for Orkney and Shetland. I think it is possible to look ahead with rather an optimistic eye. The rise in the price of gold has led, and must continue to lead, to a great increase in its production, corresponding in some degree to the discoveries of gold in the last century, each one of which was followed by a definite revival of prosperity all over the world. I believe that the rise in the price of gold and its increased production is bound to have a similar effect. Although not entirely analogous, they are sufficiently analogous to enable us to cherish hopes with some confidence. If and when we return to an international gold exchange standard, there should be, owing to this increase in production, enough gold available for monetary purposes to sustain a world expansion of at least 3 per cent. per annum. And this goes to the root of the problem. You really want to devise a currency and credit system which will enable you to sustain all over the world a steady advance of industrial activity of about 3 per cent. per annum, which, as every economist agrees, is the rate of progress at which, given reasonable conditions, the world ought to expand. If that takes place, we shall find that not only our own industrial revival will continue, but all our political difficulties, both internal and external, not even' excluding India and problems of that kind, will be enormously diminished in the years to come.

4.10 p.m.


In looking to the future I suggest to the Committee that we should consider whether we, desire to restore the two former props of our monetary policy, namely, to endeavour to retain a large favourable balance of trade, and, of course, an international gold scheme. I would congratulate His Majesty's Government upon maintaining the embargo on foreign investments. I realise that there must have been considerable pressure to remove it, but I believe that its maintenance has had a great deal to do with the satisfactory economic position in which we stand. After all, a large favourable balance of trade means that payments can only be made either in gold or in foreign investments. There is no other way, and I suggest that payment in foreign investments on a large scale has grave disadvantages both to this country and to the world as a whole. First, I would suggest that the only object of export, as I think is acknowledged, is in order to import for exchange. It is argued that our foreign investments are a system of deferred payments of imports. I suggest that that is not correct.

My first objection to large-scale foreign investment is the capital loss. My hon. Friend the Member for Farnham (Sir A. M. Samuel) stated very definitely that in, the 60 years before the War we lost in foreign investments at least £2,000,000,000. That is, of course, an immense capital sum. I believe that the total value of the buildings of all kind in this country is about £2,000,000,000. The loss of that sum in foreign investments represents wealth created in this country which was exported, and nothing was received in exchange. It might just as well have been sunk in the Atlantic. I have heard it stated in this House that it did not matter whether investment was made a home or abroad. I suggest that it does matter immensely. Suppose we invest money to re-house, for example, the people of Vienna, and owing to default we get nothing in return. Austria has the asset, and we have not; but if we use the money as an investment at home we have a national asset. Take, again, a harbour which might be a valuable national asset. It may not pay—it may be lost capital, but yet a valuable national asset. In the Argentine, however, it is a dead loss to this nation if the capital be lost.

My second objection is that foreign investments involve a lower national consumption. I might put it this way. In a normal year we receive, on our foreign investments, goods to the value of £250,000,000, and we generally invest about £100,000,000 or £150,000,000, receiving about £150,000,000 in goods. That means that we could import £100,000,000 a year additional goods for consumption by our people. This was very clearly stated by Sir Josiah Stamp in a speech he made on 16th July last year, when he said: Real wages have increased at too great a speed, so that purchasing power has been transferred from ordinary shareholders and institutions who might have used it for increasing investments abroad. It has got into the hands of millions with increased purchasing power who have enjoyed their newly-found command over foreign produce of all kinds. In this way it has become fatally easy to squeeze the favourable balance of trade into the standard of living. My third and most important objection is that foreign investment stimulates employment for the moment at a cost of permanent increase of unemployment. I will give my reasons for saying that. In the first place, every interest that we receive comes here in the form of goods unless it is re-invested. But these goods come as tribute, and not in trade. If they came in the course of trade they would demand exports, but coming as tribute they demand no export in manufactured goods. The heavy default on our foreign investments during the last two or three years has had the effect of stimulating our export trade, because the goods which hitherto came as tribute have now to be paid for by us exporting manufactured goods. Another reason why foreign investment causes unemployment is that debtor countries have to have high tariffs in order to find the large favourable balance of trade wherewith to meet their interest obligation. I will not weary the Committee with a long argument, but I would like to quote what was said by the present Prime Minister of Canada just after he took office in February, 1932, when he spoke as follows in the Canadian House of Commons: Canada has to meet a non-trading obligation of 1,000,000 dollars daily for interest payments to foreign countries. He had just been attacked by the Liberal opposition for raising the tariff barriers of Canada to an impossible height, and that was his defence. In other words, Canada had to export every day 1,000,000 dollars worth of goods as tribute before commencing to export goods for the payment of imports. I need not remind the Committee that the League of Nations Accounts Committee went to Austria and strongly advised her to restrict imports in order to create a favourable balance of trade to meet her League of Nations loan interest. In the same way Australia, immediately upon our stopping loans to that country in 1930, had to restrict our imports in order suddenly to find the immense favourable balance of trade wherewith to pay us.

A further reason why foreign investment causes unemployment at home is that, naturally enough, capital searching for profitable foreign investment must ultimately build factories abroad which directly compete with our English factories. Thus, British capital is helping to erect cotton mills in China and India, steel works in India, and so on. Foreign investment is a great temptation, as its immediate effect is to stimulate employment, but it is paid for by a permanent increase in unemployment. Another objection, as every economist has pointed out, is that every economic depression in the world has followed a period of excessive borrowing by debtor countries. The great depression of the seventies is described by Professor Bowley as directly due to excessive borrowing by debtor countries and over-lending by manufacturing countries. Sir George Paish describes the economic crisis of the nineties as being due to: the over-borrowing of the new countries in the eighties. The price of food fell to a level which reduced the farmers of all nations to poverty. Cotton, wool and other raw material became so cheap that those who produced them had scarcely enough to live upon. In the ten years preceding that crisis, the total amount of the capital lent to the debtor nations was certainly not more than £1,000,000,000. In the ten years preceding the crisis of 1929–1930, the total amount loaned by the United States and Great Britain was over £4,000,000,000. That surely is sufficient indication that excessive lending was a direct cause of the world economic crisis of three or four years ago. If a creditor country refuses to accept goods in the payment of the interest—America did, and as we did also to a limited extent when we placed a restriction on the receipt of goods—debtor countries are forced to scramble for gold, because the creditor nations have the alternatives either of taking payment in goods or in fresh bonds of indebtedness. It was the demand for payment in gold which caused the scramble for gold, forced up its price and forced down the price of everything else.

I will not deal in detail with the defence of this policy of immense foreign investment and immense favourable balance of trade, but I suggest to the Committee that those who say that the policy is necessary for the development of new countries should consider whether this easy borrowing on a gigantic scale does not force the development of the new countries into wrong channels. Take a country like Peru: the whole development of the country was forced into copper. When the copper price crashes the whole country crashes, and agriculture is neglected. Brazil was forced, in a similar way, into coffee. Take Australia: if Australia had not been able to borrow with ease colossal sums from this country for generations past, it would have had a more natural and healthy development, and two-thirds of the people would not be in cities and the rest of the continent open, lacking population and an object of envy to neighbouring States. I know it is said that productive foreign investments are right and that those international debts like War debts are in a different category. I suggest that in either case the problem of transfer is the same. Suppose that the United States invested £500,000,000 in this country to build factories, buying the property to return 6 per cent. We would have to transfer £30,000,000 a year in dividends and interest in the form of goods, to New York. However productive the investments were, we should be faced with the problem of transfer. Again, in Germany, steel works were equipped by the aid of American and British capital. Those factories are productive to an immense degree, but the problem of transfer connected with the capital invested in them remains unsolved.

Before leaving the question of the favourable balance of trade, I should like to refer to an observation made by the hon. and learned Member for East Bristol (Sir S. Cripps), who said in a Debate in this House a few weeks ago that be thought that all these international debts should be cancelled. I cannot understand that attitude, which would involve deliberately accepting a lower standard of life for our people. During several generations we have exported to the world £7,000,000,000 or £8,000,000,000 of wealth created by the people of this country. About £4,000,000,000 of that foreign investment still remains, and the hon. and learned Gentleman suggests that we should cancel it. Normally, a tribute of £250,000,000 a year comes to this country in goods, and in recent years it has been £150,000,000 or £160,000,000. Those goods have helped to feed and raise the standard of life of our people. I can only suggest that the hon. and learned Gentleman has fallen a victim to the current fallacy that the aim of economic activity is employment and not consumption. Surely it is not beyond the wit of man so to arrange our imports that they are received without damage to our own industries. The hon. and learned Gentleman also suggested that he could not imagine any system where imports and exports were controlled by Government except under a Socialist system. I suggest to him that within a very few months he will probably see in Germany a Government monopoly of all imports and exports, with the private property and the capitalistic system still in full being. The hon. Member for East Aberdeen (Mr. Boothby) referred to the Gold Standard. I suggest that that is impossible to-day, and that any restoration of the International Gold Standard will continue to be impossible—


In the absence of my hon. Friend the Member for East Aberdeen (Mr. Boothby), who has left the Committee, may I point out that what he said was that he favoured a return to a gold exchange standard, not the Gold Standard?


In recent years, money has not been convertible into gold. In former years, whenever a crisis came and people wished to convert into gold, the system had to be suspended. It was suspended five times in the last 100 years. It was, therefore, a fair weather system. When you did not want to convert money into gold you could, and when you wanted to convert you could not. The Government intervened and the national credit was used. I suggest that the use of national credit might perhaps not be reserved only for periods of emergency. As regards the use of gold as a regulator of international exchanges, the point that we have to bear in mind to-day is that, however gold is used, international exchanges are not regulated by international trade. The movements in the value of the pound to-day are not caused by international trade; they are caused by a vast mass of international capital which is floating about the world. If people in the United States get the least bit frightened about the future of their country, they buy pounds, and, in the same way, people in France buy pounds; or, if they get the least bit frightened about the future of this country, they buy francs. You have this vast block of international capital chasing round the money markets of the world, and that is what regulates the international prices of money.

I submit to the Committee that it is really rather an absurd system that the value of the pound in international markets should not be regulated by international trade, but should depend upon whether some prominent citizens either in Paris or in the United States are in a panic about their own Government or their own future—not ours. I suggest also that the classical theory of the working of the Gold Standard requires that a nation which acquires gold should inflate its currency, thus raising prices and enabling other nations to under-sell it in its own markets. Are any of the nations likely to do that? On the other hand, a nation that loses gold must contract its currency and force down prices, to the ruin of its industries.

I submit that there are three conditions all of which are necessary for the successful working of an international gold standard. In the first place, a country losing gold must be willing and able to make a general reduction of costs, including wages. Is any country in that position to-day? Secondly, it must have available markets for additional exports. Is that the position with any country today? Thirdly, a country receiving gold must let it flow out again when the conditions again demand it. I do not think that any country will allow that. Therefore, I suggest that an international gold standard is impracticable; and not only is it impracticable, but the use of a gold standard must involve periodical deflation, and deflation, as my hon. Friend the Member for East Aberdeen has said, involves immense loss and immense misery. Recurring depressions are absolutely necessary to the successful functioning of a gold standard, and I would remind the Committee that my right hon. Friend the Member for Tamworth (Sir A. Steel-Maitland) warned the House in very strong language, such as I dare not use, that, unless we iron out these depressions, unless we have a money system that will prevent another depression following another boom, the whole capitalistic system involving private property will be in danger. My right hon. Friend used stronger words than I dare use. I submit that the Gold Standard cannot be restored, and that we have to face the alternatives. Therefore, I plead with His Majesty's Government that we should have an inquiry, not only into monetary policy, but into the monetary system of this country and of the world. As regards the personnel of such an inquiry, it was well set out in a leading article in "The Times" in November, 1932. That article said: The problem which is now perplexing mankind is to discover by what flaw or flaws in our system it has come about that the world, never better equipped with knowledge and machinery to produce all its needs, is forced to see so much of that knowledge and machinery lying idle while millions of willing workers are unemployed and "in want. The professed authorities on these questions have expressed many conflicting opinions and have given such contradictory advice that the best hope of success seems, indeed, to lie in candid examination of the facts by men not professing to be experts, and consequently unhampered by preconceived theories. It goes on: The situation of the world to-day is a challenge to world statesmanship, a challenge which statesmen must take up for themselves. It is impossible to shift the responsibility upon the experts, who differ so fundamentally among themselves over both the diagnosis and the appropriate remedy for the world's economic sickness. That leading article is a strong and urgent plea for a monetary inquiry, and it points out the type of inquiry that is required. As regards the objective of such a policy, I would suggest that it was set forth in the words of a prominent individual some two years ago more clearly than in any other words that I have read. He said: The potential output of existing means of production is far greater than ever before. If all employable labour were employed for a reasonable number of hours per week, the world would have have at its disposal a volume of commodities and services that would enable the entire population to live on a higher level of comfort and well-being than has ever been contemplated in the rosiest dreams of the social reformer. The urgent task of the world is to bring consumption and production into proper relationship—not a simple, not an easy, but quite a possible task. The problem is one of distribution. Money must function as an efficient token, as a means for the exchange of goods and services. Another principle is that money should reflect the facts of production and distribution; and, above all, money must allow the full productive resources of a country to be used to supply potential demand.

There are many schemes before the world to-day. I have not time to go into them, and will not weary the Committee by doing so, but I suggest that they should all be inquired into, and particularly the very clear scheme put forward by the London Chamber of Commerce, on which lectures have been given upstairs. That scheme, which represents the official policy of the London Chamber of Commerce, involves the rejection of the Gold Standard. It involves the rejection of trading for debts and gold. It proposes that international exchanges should be stabilised, starting within the British Empire, including Scandinavia; that trading should be for goods; and that there should be a monopoly for each central bank of the purchase and sale of foreign currency. If we sell to any foreign country and get paid in foreign currency, that is a demand on that country for goods and services, and we have to utilise it. In the same way, if any foreign country buys from us and receives pounds, it has to receive payment in British goods and services. I suggest that that would do away with all the evils of international indebtedness and all the present fear of Japanese competition and the future fear of German competition.

There is also the remarkable report issued by the Southampton Chamber of Commerce, and there are the proposals which have been put forward by leading industrialists such as Lord Melchett and others; there is the Gessel Scheme, which has been tried in some places, and there are other schemes such as the Doulgas Scheme which is attracting increasing attention, not only in this country, but in our Dominions, in the United States, and in Japan. I believe that, if His Majesty's Government would announce in due course that they were prepared to set up an inquiry into the monetary system and into monetary policy, they would be astonished at the flame of enthusiasm that they would arouse throughout the country, especially among the younger people. They are not satisfied with world conditions as they are to-day; they are not satisfied with any policy of going back to 1924 or 1914; they feel that the productive capacity of the world is immense, but that it is not being utilised owing to the defects in the monetary system, which should facilitate the exchange of goods and services all over the world. The young people are demanding that this inquiry should be undertaken. I can assure the Committee that within the next year or two we shall hear that demand made to an increasing extent in every constituency, and, if it is not satisfied, many young people, in their despair, may turn to the crude policies of Fascism or Communism.

There are many of us who defend the institution of private property because we believe that it answers to some essential need in the soul of man. We believe that, were it abolished, you could not retain liberty, you could not have that variety, that individuality, which is essential to human progress. But we recognise that we are fighting in defence of private property on two fronts. On the one hand, there is the Socialist and Communist attack, and, on the other hand, we recognise that there are certain tendencies in finance to-day which are evil and which are destructive of property, and, above all, of the moderate property owner. We see the concentration of wealth and power in fewer and ever fewer hands. As we go round the countryside we see the parks which we have inherited from the past, and which should be the priceless heritage of our children, being driven by an undiscriminating system of taxation into the hands of the speculative builder. That is a national heritage which is being lost. Again we see in the countryside where 20 small towns were dependent upon one factory but where people connected with big business by threats or persuasion have forced the small factory into a large combine. This results in the factory being closed down, and we see the town to-day devastated and the surrounding countryside depressed.

We know the effect which, as my hon. Friend the Member for East Aberdeen has pointed out, deflation has had upon our people; and we know also that to-day the economic problem is linked with the political problem. In Yugoslavia you have revolutionary discontent. Why? There is deflation. In Italy under the surface there is revolutionary discontent, Why? Deflation. In France, riots and revolutionary discontent. Why? Deflation. What was that bloody business in Germany the other day caused by but the pressure of deflation constantly driving down the standard of living? That was the main cause. We see these tendencies. To us who defend private property it is almost immaterial whether the world of the future is governed by international Socialism or international finance, because to the vast mass of the people the result will be the same—a servile state, organised, regimented herds, the people devoid of all variety and individuality, with machine work and machine pleasures, a people incapable of progress but capable of regression into a kind of mechanised barbarism, a barbarism worse than any before, because it will be without faith and without hope and without the real joy and zest of life.

4.46 p.m.


The hon. Member's speech reminded me forcibly of the lines from Omar Khayyam: Ah, love, could you and I with fate conspire To grasp this sorry scheme of things entire And shatter it to bits; and then Remould it nearer to the heart's desire. To what extent would several Members who have spoken to-day as representatives of the capitalist system agree to smash it up? Not a single one of them would proceed very far along the lines of reconstruction or destruction at all. They are complaining to-day of partial aspects of the problem. One thinks it is a gold problem, another thinks it is something else, and always in connection with this most holy of all systems it is some interfering little aspect or other that is the cause of the trouble. I suggest to them in all sincerity that they should sit down and consider the system as a whole. There seems to be a peculiar idea concerning trade within the capitalist system which I have heard repeatedly expressed, that the only purpose of foreign trade is to export in order to pay for imports. A more staggering misunderstanding of the capitalist system could not be imagined.

What does the capitalist system of production involve? Ask any individual producer, whatever his branch of business may be. Is it not necessary for each of these people actually to sell more than he buys? Is it not true of the smallest even as it is of the greatest shopkeeper in the country? Is it not true of the smallest producer, as it is of the largest combine, that they must sell more than they buy? In other words, they must sell their products for more money than they have given for the materials employed in the process of production. Wages enter into this system of production only as one of the elements of production and wages, or in other words the price that the capitalist as an individual or the capitalist class as a whole pays to the working-class, can never purchase the product. It is an utter impossibility. One can never be two. The producing capitalist has to gather together into the process of production a number of elements, and he pays for them separately. He pays for the place in which the production is carried on—the factory or the mine. He pays for the machinery and the technique, the raw materials and the wages of the labour that he employs.


On a point of Order. Would it be in order to move to report Progress in view of the fact that no Liberal Member is present on a Supply Day?


The point, there-for, is that since in the variety of elements brought together in the process of production labour forms one only and is a part of the total expenditure to begin with, it can never be, as such, capable of purchasing the product. The problem, therefore, must exist for the individual employer and for the capitalist class as a whole; and they must find consumers for their products other than their own working-class. Where are they going to find them? The hon. Member who spoke last talked about some process of tinkering with the monetary system so as in some miraculous way to enable the working-class, still within the capitalist system, to consume the product. It is utterly fallacious from beginning to end. The capitalist system cannot be confined in England. It never has been. It has had to spread abroad. It has had to invest its surplus. It has had to get rid of its surplus abroad. Has anyone ever heard a more astounding suggestion than was contained in certain words of the hon. Member when he referred to the annual income returning to this country from our foreign investments, amounting to some £250,000,000 a year, and said the major portion came back in the form of goods?

After all, our foreign investments are not held by the nation. They are not held by the Government. The Chancellor of the Exchequer is not responsible personally for them. There are a large number of individuals and institutions who hold these investments. Do all these holders of foreign investments meet together and agree that they will accept the revenue due to them from, it may be, Canada or from a foreign country in the form of goods? Of course not. But the underlying assumption here is that in some miraculous way it is agreed by the body of investors to accept their revenue in terms of goods as to part and as to the remainder in terms of money. The suggestion is that in some mysterious way we are going to agree to receive all revenues due to us in the form of consumable goods and squeeze it into the system here; in other words that if, as capitalists, we are entitled to £100,000,000 from abroad, we agree to bring it back in goods and to give it to the working-classes to consume.


A good many of these investments are held by insurance companies and friendly societies, but the food that they purchase from abroad is consumed by everyone.


I have said that the investments are held by individuals and institutions. Can it be imagined that the Prudential, the largest owners of foreign investments, would agree to accept £10,000,000 due to them and give it to the working-classes? No individual capitalist or institution of capitalists would agree to such a foolhardy proposition. Hon. Members must realise that we are living under a capitalist system, and they must accept the logic of that system. If they want to change it, they must change it root and branch as we desire to do. There can be no tinkering about with a system of that kind on these lines, any more than it is possible within the capitalist system so to arrange matters that you will go on peacefully without any disturbance at all. The fact of the matter is that the final underlying cause of crisis or depression under capitalism is the poverty of the working-class. The working-class inside capitalism can never consume the products. They have not the purchasing power to do it. If you take it from the capitalists and abolish the element of profit, then you may distribute your final product to the whole community, but, until you do that, you may as well face the logic of the system and understand once and for all that you cannot get out of the contradictions of it.

The hon. Member for East Aberdeen (Mr. Boothby) argued that all that is needed is for the central banks of the nations of Europe and the world to agree to set up a gold exchange standard. There is no need for gold in internal currencies, but it may be very helpful to get an understanding to employ a gold exchange standard to cover your international relations, and then, if we go on producing the necessary 3 per cent. increased production of gold year by year so that there is a constantly expanding supply of money and credit, the system of capitalism will go on undisturbed and the rest of its days will all be summer days and you will not have a winter. How easy it would be if capitalism could be planned along those lines? What a happy world it would be.

Unfortunately, while we are in this world, we have to accept the material contradictions that are contained in it. While one man is compelled to work for wages, he will be compelled to produce a product greater than is represented by his wages, and his master must be faced with the necessity of disposing of the surplus products and will have to find a constantly expanding market outside. When those conditions fail, the system brings about a condition of depression and crisis throughout the world. All that is inevitable, It is folly to suggest that the Gold Standard or anything else is inherently responsible for this state of affairs. It is true that in the last century the Currency Acts of this country had to be suspended on several occasions. But is that the cause, or the effect, of the trouble? The real cause has been that the capitalist system has been shaken to its very foundations. In desperation, as a means of getting out of its difficulties, the Bank Act has been suspended, but only, at the first possible moment thereafter, to go back to the normal and orthodox system.

It is folly to talk of the Gold Standard as if it were an evil thing of itself and had brought all these evils. It is only by delving into this matter and getting the system as a whole into our minds that we are able to understand the difficulties and the things which have to be done to protect the people of the country, not merely to protect the capitalist investor or the great capitalist investing institutions of the land, but the people of England and of every nation. The problem will only be solved when we have grappled with the system as a whole and cancelled out its contradictions by removing the basic principles which govern our economic life. That is the position which we have to face. It is no good tinkering with the system. You will not change its nature by suggesting any means along those lines. It must pursue its eventful, fitful, and damnable course in its effect upon the suffering population of this country. There is no indication to-day, any more than there was 10 years ago, of our being able to get out of our difficulties. The same outlook is presented to the miners and other unemployed of the country. No tinkering with monetary policies or anything else will get us out of our difficulties. The system has to be grappled with as a whole and radically altered if we are to bring a greater measure of peace and contentment to the hearths and homes of the people of this country.

5.3 p.m.


I hope that the hon. Gentleman the Member for East Rhondda (Mr. Mainwaring) will pardon me if I do not attempt to deal fully with his arguments, but I should like to make an appeal to him and to his colleagues above the Gangway. He argued that the whole root of the trouble and evils from which we are suffering is to be found in the capitalist system. I would remind him of what a great American once said with reference to currency, namely, that he who tampered with the currency robbed labour of its bread. I am sure he will agree that we could not expect to abolish the capitalist system to-morrow. We have to deal with things as they are. There are two classes of society which are more interested in the valuation of the currency than any other class, namely, the rentier and the wage earner. I would remind the hon. Member and his colleagues without going into the wider question, that we are pressing upon the Chancellor of the Exchequer that the question of the value of the pound and of our currency affects the great mass of the workers, and the rentier and the trading classes. Whether you have a capitalist system or a socialist system, you must have a financial system which will, to a certain extent, guarantee the value of the pound. I think that the hon. Member will agree that the mere advent of a Socialist State would not guarantee that fact any more than is the case in a capitalist State. The causes lay far deeper. They are economic. I imagine that the Socialist subscribes to sound financial doctrines equally with the capitalist. Therefore, I hope that my hon. Friend and his colleagues above the Gangway will support those of us who to-day are pleading for an inquiry into the monetary policy of this country.

We have already had many admirable speeches in this Debate, and probably we shall have more, and the fact that they are so varied is eloquent proof of the necessity for an inquiry. We might continue to have a series of these Debates which would be very admirable, and we should, no doubt, hear excellent speeches and different points of view, but we should get no further. I believe that the history of this Parliament and of previous Parliaments, and indeed of this country, confirms the fact that only by proceeding by way of Committees from time to time, and crystallising opinion both inside and outside the House, can you make even a small advance, and it is with the object of making an advance that I am pleading for the consideration of the right hon. Gentleman in this matter. There have been many appeals in the past. There was the classical instance of 1810 when the subject was brought before the House of Commons by Mr. Francis Horner, who moved for a committee to inquire into the causes of the high price of bullion. The Ministers consented to the Motion, and the committee was appointed. The report was presented on the 8th June and it developed at great length the sound principle that bullion is the true regulator both of the value of a local currency, and of the rate of foreign exchanges; and that the free convertibility of paper currency into the precious metals, and the free exportation of those metals, place a limit to the fall of exchange, and not only check the exchanges from falling below the limit, but recover them by restoring the balance. It concluded by recommending that: Cash payments should be resumed at the end of two years, so as to give the bank time to prepare for the change. That report is a classic; it is unanswerable. It has never been confuted. It remains to-day unanswerable as a sound basis of a sound currency. There have been many instances indicating how the adoption of the principles embodied in that report;—they were adopted by Sir Robert Peel and later on developed under the financial policy of Mr. Gladstone—led to prosperity and to the development of foreign trade which has never been equalled in the history of the world. I do not wish to obtrude my views upon the Committee. I am a gold standard man, although it is now probably impossible to get back to the old parity. At the time of the agitation for the appointment of a Committee in 1810 the paper price of gold bullion was about £5 10s., and bankers and traders were alarmed. Yesterday in the City of London the paper price for gold bullion was £6 17s. 6d. per fine ounce, and people talk of it going up to £7 and possibly £8, such is the increase of inflation and the debasement and depreciation of our paper currency. An hon. Member asked why the Bank of England bought gold bullion to-day at this inflated price. It is their only way of obtaining it in order to make further expansions of credit. The result is that these expansions are dearer because of the inflation which exists. This can be proved by comparing the Mint price of £4 5s. per fine ounce with the present market price of £6 17s. 6d. The fact that you have to pay £6 17s. 6d. to-day for what formerly you were able to buy for £4 5s. indicates the fall in the value of the paper pound. That fact ought to appeal to my hon. Friends above the Gangway.


The hon. Member said that it indicates the fall in the value of the pound. The value has not fallen at all. The purchasing power of the pound sterling has remained constant.


I am discussing at present the inflation and debasement of the paper pound which can be proved at any moment by comparing the Mint price with the price you have to pay. That is the fact. That is the difference in the value of the paper currency. Your paper currency has so depreciated that you require more of it to purchase an ounce of fine gold. I do not take any exception to the interruption of my hon. Friend. He may say that you can still get things at a very low figure, and that there has not been the inflation, which, as we have been led to expect, results from the inflation and debasement of currency. I am prepared to admit that sterling prices have not fallen quite as much as gold prices, but it is gold prices which are the real test of our currency. The fact that we are off gold, and are working to an inconvertible gold policy, and no one is able to sell, has unquestionably led to a very serious fall in prices, but to-day there is a difference between the sterling and the paper price of the British pound on commodities, but I am referring entirely to the gold price. I say without fear of contradiction, that you can test the depreciation or debasement of our paper currency by comparing it with the Mint price. The fact that you pay more for an ounce of gold proves my statement. The reform which was carried in 1810 was referred to by the present Earl Buxton in 1888 in his "Finance and Politics," in which he says: One financial reform of great importance was, however, carried through during this period of darkness. It is rather interesting to see how complete is the analogy in many respects between that period of history after the Napoleonic Wars and the period through which we are now passing. Of course, there is the difference of time, and increases of population and so forth, but there were inflationists and deflationists, paper money men and bullion men just as there are now, and it is curious and interesting to find, if one will take the trouble to read up the Debates in this House, comments and statements made almost similar to those that are being made to-day. This is what the present Earl Buxton, then Sydney Buxton, said in his book nearly 50 years ago: One financial reform of great importance was, however, carried through during this period of darkness, a reform due chiefly to Peel and Huskisson, and not to Vansittart—the resumption of specie payment. This question, almost more than any other financial question, for years agitated the public mind. To some, it meant the monetary salvation of the country; to others, it was the cause of every pecuniary disaster, every discomforting fall, or every objectionable rise of price that took place. But for nearly 70 years the system has worked successfully, and no one is now found to question the great advantage that the resumption of specie payment has been to the country. I do not want to labour that point. There is a difference of opinion, and there is bound to be a difference of opinion, but I think there is a universal desire by men of whatever opinion, inside and outside the House, that a committee should be set up which would investigate the whole matter, a committee which would be inspired by a desire to arrive at something which is true and sound. If we could have such a committee it would be able to make recommendations to the Treasury, which the Treasury need not necessarily accept. The Chancellor of the Exchequer, the Financial Secretary to the Treasury—to whom I should like to tender my congratulations—and their colleagues would be perfectly at liberty to reject or accept the findings of such a committee. I submit that it would be of value to have such a committee in order that we might get rid of the artificial control of the Exchange.

Reference has been made to the fact that in the Exchange Equalisation Fund we have the huge sum of £350,000,000. The old system of open Exchange has more or less disappeared. Other countries have followed our example. Each country is watching the other, and hesitating whether they should enter upon a period of currency depreciation, with the object of advancing their export trade. If we could get rid of that system, if we could have a committee which would make recommendations which would help us to get rid of that system, what an immense advantage it would be. I came across a cutting the other day which seemed to confirm what I am saying. It was from the annual banking review of the "Financial News": Austria and the Argentine both decided upon decontrol at the end of 1932, and have now nearly reached their goal; Czechoslovakia followed in the autumn of 1933 and has also very much relaxed her restrictions. In Germany and the other States still practising foreign Exchange control, every single transaction indirectly or directly involving payments to foreign countries is now subject to governmental supervision. An ever increasing staff becomes ever more incapable of preventing the slowing up of trade and industry. That is an eloquent tribute to the disadvantages of interfering with and controlling your Exchanges. Your Exchanges are your best friends, not your enemies. They are like an indicator of the weather. They indicate the state of trade. But if the Government come along with an artificial mechanism, a capital sum of £350,000,000, with the object of interfering with the Exchanges, it is just as if you had some mechanism for keeping your weather glass set fair, quite independent and irrespective of the conditions of the temperature outside. How foolish that would be. Foolish in a like degree are the artificial interferences with the Exchange rates, which are the indications of trade. The trader to-day is at a loss to know what stock to hold. He has no means of knowing the state of the indebtedness of his country. This artificial, secret interference makes foreign trade more or less of a gamble, and reduces it to a minimum.

The Chancellor of the Exchequer the other day corrected me in regard to some remarks that I had made, but I think he agreed that he did not look for any great expansion in foreign trade. He thought that in 50 years we might make up our loss of foreign trade by trade with the Dominions, etc. If we could have a system evolved on the lines I have suggested I am confident that it would be of great advantage to the country. Surely it is not beyond the wit of man inside and outside of this House to create such a system. We had the system before and there is no reason why we should not restore it. If the Chancellor of the Exchequer is willing to set up a committee, drawn from Members of this House and form eminent and distinguished men outside, they would evolve such a system as would enable him to get rid of all these artificial measures. It is necessary to proceed by way of a committee. We may be told that we have had the Macmillan Committee and the May Committee and that no progress will be made by appointing another committee. Let me quote from Sir Robert Peel with regard to the period to which I have already referred: Then we come to the Act of 1844. I was then at the head of the Government; the Bank charter was about to expire, and it was necessary that some proposals should be made to the House with reference to it. It was certainly, then, competent for us to have relieved ourselves from direct and immediate responsibility, by proposing another inquiry. But I beg to remind the House that when, in the year 1844, I proposed a particular measure for its consideration, in five preceding years there had been five different committees, in 1836, 1837, 1838, 1840 and 1841.… In 1841 the questions and answers, then amounting to nearly 14,000, another committee was appointed, and that committee closed without any particular or specific recommendation. Mr. Tooke, Mr. Jones Loyd, Mr. Horsley Palmer and other eminent authorities, had been examined; and it appeared to the Government that the best course would be to submit a measure to the House of Commons for the regulation of the currency, preparatory to the termination of the Bank charter, and to invite the House to come at last to some specific decision. The House did come to a decision. I do not believe that there ever was a question carried by much larger majorities. I am sure that the right hon. Gentleman and the Government must have a policy. If the right hon. Gentleman has a scheme to submit, the House will welcome it. From all quarters, from the Opposition benches, from the Conservative benches, and from our benches we have pleaded for some declaration of policy, but we have not obtained it. If the right hon. Gentleman, as a result of all our pleadings, will stand up to-day and state to this Committee and to the world what is the policy of His Majesty's Government, I am sure that every Member of the Committee will rejoice, and there will be no necessity for the appointment of the committee. It is with the object of trying to advance that consummation that we make our proposition. There are many hon. Members who have made a study of this problem. My hon. Friend who introduced the question in so admirable a speech has made a study of the problem, and in my humble way I have given a lifetime's study to it. There are many hon. Members who have studied it. There is the right hon. and gallant Member for Ripon (Major Hills). He and I may not agree on this question but we have both studied it and we have our contributions to offer. We desire an inquiry. If we are able to convince the right hon. Gentleman that he will advance this subject by appointing men in this House who are willing to offer their services, for what they are worth, in order to help to elucidate this matter, then I think our suggestion ought not to be treated with scorn, and I am sure that it will not be so treated by the right hon. Gentleman. Let me quote again an admirable passage from Sir Robert Peel, in 1847: Her Majesty's Government have addressed themselves to the particular question of whether or no a committee shall be appointed to consider the causes of the recent commercial distress, including the laws which regulate banking. When a Government appeals to this House for the exercise of those powers of inquiry which peculiarly belong to it, I conceive, whatever opinions I as an individual may form as to the probable results of inquiry, that it is impossible to refuse that appeal. The functions of inquiry are our constitutional functions, and if the executive Government be of opinion that there are not grounds for legislation without inquiry then I say it is impossible to refuse their appeal. An Amendment has been moved on the Motion of the Noble Lord, restricting the inquiry specifically to banking. I have experience enough to know that, even if the Amendment were carried, it would be impossible to exclude other branches of inquiry. When the Committee of 1836 was appointed specifically to inquire into the laws regulating banks of issue, that committee sat during the whole of 1836, was reappointed in 1837, and did not furnish a report until August, 1838. When I state this, I think it will be admitted that it serves no practical object to limit the subjects for inquiry. I therefore shall vote for the proposal of the Government, because I think that if there is to be an inquiry, none of the causes of the present commercial distress ought to be excluded from it. I hope that I have added weight to the appeal by these somewhat lengthy quotations from these great authorities of the past. Sir Robert Peel was a great Conservative, and although my voice or my opinion may not be treated with any particular consideration hon. Members may listen to the voice of a great orator and a great Conservative.

We are seekers after truth. Whatever our party, we all desire to try and arrive at some system that will advance the happiness, the progress and the prosperity of the people of these islands. We seek no private ends. There is no man who desires to secure some party advantage. This is a non-party matter. We meet as a Council of State. We are trying to make our views prevail with the right hon. Gentleman. There is a wonderful quotation from Milton which I should like to use: Though all the winds of doctrine were let loose to play upon the earth, so truth be in the field, we do injuriously by licensing and prohibiting to misdoubt her strength. Let her and falsehood grapple; whoever knew truth put to the worse, in a free and open encounter? Her confuting is the best and surest suppressing. I make my appeal to the right hon. Gentleman to think of these great traditions of the past, and, if we are to learn anything from history, let us try to rival them in the future.

5.30 p.m.


The Committee must have been delighted with the speech of the hon. Member for Edinburgh, East (Mr. Mason). He represents, with skill and good humour, a point of view which does not find much support in this. House. When he was quoting report after report issued during the last century it occurred to me that it might be rather unkind if I reminded him of a much later report, the Macmillan Report, from which I propose to quote two passages with neither of which he will agree. I make the first statement on my own responsibility; that is that the £l sterling is not a debased currency. Its purchasing power is as great, or nearly as great, as it ever has been. The second assertion I make is drawn from the Macmillan Report, that a paper currency does not get its value from its gold basis. That is now generally accepted. The exact words in the report are: The sole practical use of a gold reserve is to serve as a medium of meeting a deficit in the balance of international payments. Therefore, the sole use of gold is not to give a value to the currency but to meet a deficit on international payments. That assertion the hon. Member will, I am sure, contradict. I want to put before the Committee the way in which, by Government action, I think we can get out of the financial and business difficulties in which the country finds itself now. What we want is continuity of value, a stable price in terms of money at home and stable exchange rates with foreign countries. Hon. Members know the cases which have occurred owing to a fall in value during the last few years. Take the unfortunate man who takes a farm with the rent fixed in money, which can be met by the sale of a certain number of quarters of wheat or a certain number of cwt. of beef. Then, suddenly, money falls in value and he has to produce twice as much in order to pay the rent. Take the manufacturer. He buys wool to turn into cloth, and during the time he is converting it into cloth there is a fall in values. The buyer of cloth knows that he has only to hold off because the man who has bought his wool later can produce cloth at much cheaper prices. You get, in one case, unmerited disaster, and in the other unmerited reward. What we all want is a continuity of value. How can we get this? Is it within the power of the Government? Let me quote again from the Macmillan Report: It should be our object to increase the power to exercise control over the price level. There is nothing inherently impracticable in this. Later on the report says that with knowledge and international co-operation the possibilities of effective control will increase. I want to confine myself to the action of the Government, and, incidentally, under the Government to the action of the Bank of England and the Joint Stock Banks. I say this without fear of contradiction, that if statesmen in 1929 had known what they know now, or if they had foreseen what was going to happen, we should have avoided a great deal of the distress through which we have passed. It is absurd to blame anybody. Everybody was wrong, politicians as well as economists. If the State can do anything it is worth seeing how far we can go. But here I must issue a word of caution. When you are talking about economics and you make a statement you always have to qualify it, because there are very few general truths which do not require qualification. Many of our difficulties are not due to monetary causes, they are due to the War, to Reparations, to the conduct of various countries, but I believe that we can do a great deal to secure continuity in value by Government action in the monetary field. In the first place, by means of banking operations, the bank rate, open market operations, whereby the Bank of England in times of slump will release money on the market by buying securities and in times of boom will draw money back from the market by selling securities. These methods are so well known that I will not dwell upon them.

Then I come to a third method, and here I touch a point upon which I do not think I shall get the agreement of the Chancellor of the Exchequer. I think we can do a great deal by Government expenditure, that is, Government expenditure financed by loans, not by taxes. There are many objects upon which we can profitably spend money although there is no immediate financial return. Take slum clearance. Good houses are a national asset, and the country will benefit in health, well-being and happiness. Take the new Cunarder? I do not know whether it will pay or not, but it is a wise expenditure as it puts money into circulation, it puts money into the pockets of the people and thus increases the purchasing power of the people. Each man who gets back into work increases the purchasing power of the nation. May I mention a subject like land drainage, which private enterprise has too long neglected? Altogether, I believe that the Government can do a great deal to secure continuity of value by spending money in times of slump and refrain from spending it in times of boom. The temptation, of course, is to spend in prosperous times when money is available, but I submit that the proper course for the Government is to act in a reverse manner to the private individual, and to spend in times of slump.

Next there comes Sinking Fund policy. There again I think that debt should be retired in times of prosperity and the Sinking Fund not put into force in times of distress. That carries with it the implication that taxation should be increased in times of prosperity. That might sound ridiculous, but I believe it is the true policy. It would, of course, be making a large demand on the common sense of the ordinary voter and taxpayer if he found that taxation was increased when the country was prosperous, but I believe that is the way to ease down a boom and relieve a slump. Next comes a far more difficult question—the control of investments. I am perfectly certain that we cannot go on in the haphazard way we are now and that pre-1914 methods are not applicable now. There must be some control over investments. I give this point to hon. Members opposite, that there must be some control over the Joint Stock Banks. I should like to see some control as to the proportion of their assets, that they should keep a higher proportion of liquid assets during prosperous times and release their liquid assets during a slump. That would assist us in keeping the boat on an even keel.

I also think in the present state of the world, that we ought to have a closer control by the Treasury over the Bank of England. The Exchange Equalisation Account was a sign of the times, and like so many other signs came without our notice. If that account had been set up 20 years ago the administration would have been given to the Bank of England, instead of which this House, which is often more right than its rulers, insisted on the control being given to the Treasury and the Government of the day. The Exchange Equalisation Account is much more than a means of flattening variations in exchange rates; and here let me pay the Chancellor of the Exchequer a well-deserved compliment, it has been worked with extraordinary skill and ability. The account is also a vehicle for meeting adverse balances of payments, and it is definitely a movement of the central Government into the field of credit. As such I welcome it.

Lastly, I do not advocate any depreciation of the currency in order to restore prices. That is a mistake. You simply invite foreign nations to depreciate against you, and you get a rush towards a very steep place. But if in the course of these operations sterling did fall, it would give me no cause for alarm. I have ventured to elaborate these various points, the Bank Rate, open market operations, State expenditure, Sinking Fund policy, taxation, control over investments, varying the proportion of banking assets, and increased control by the Treasury. With these I think we can get a currency stable in terms of commodities. I do not want to go into the difficult question as to what the standard should be, but I submit that you can elaborate a standard. I think the hon. Member for East Edinburgh (Mr. D. Mason) would agree. It need not be entirely on the value of commodities. You include the price of investments, the growth of new issues in the city, and you would get a formula that would enable you to equate your prices without penalising enterprise, without allowing profiteering, and of sufficient elasticity to meet a decrease in costs of production due to some new invention or great enterprise of manufacturers.

Is that standard to be gold? The great disadvantage of gold is that it has its own intrinsic value and that that value changes. It changes by human demand, by human endeavour, by digging gold out of the earth, and it changes by another sort of human endeavour, the burying of that gold in the vaults of the central banks of Paris or New York. But some part of the change in value is natural, and we cannot get out of it. Whatever we go back to, whether gold or not, it must be a managed standard. The old system worked and worked well because London was the money market of the world, and the whole world followed London willingly. We set the pace and all the world was content to accept our system. Now there are three countries which claim the right to control events—Great Britain and France and the United States. Probably gold will be for international purposes the standard. It has the merit of historic fashion and all those qualities that the Committee know so well. But above all it probably has the largest amount of support. Though I do not much like it I would accept it, as the price of unity. But for the time being we shall see three separate areas: a sterling area, Great Britain, the Scandinavian countries, some of the South American countries and the Dominions; a gold area France, Holland and the other gold countries; and a dollar area.

That system has worked perfectly well. Whether it will lead to some universal international system depends on the cooperation of the three great mercantile countries of the world, and it rests in their hands.

5.50 p.m.


I do not want another Committee. What could it do? It would be composed of the sort of people who have been addressing the Committee this afternoon. We should have a dash of Rhondda, Karl Marx and surplus value. It would be nicely watered down by a dash of Ripon, with control of foreign investments, and the true milk of the gospel of orthodox finance from the hon. Member for East Edinburgh (Mr. D. Mason); and we would get expenditure out of loans from the hon. Member for Eastern Aberdeen (Mr. Boothby). It would unite on one point only in the end. I am not sure that Rhondda would unite even on that. The great thing would be to get dollar parity based on a new gold content. That would be either the highest common multiple or the lowest common something else. It would be quoted for all time as the Jack Hills Report. Two centuries hence the honourable successor of that right hon. Member would read it solemnly to the House, as sanctified wisdom, and I hope it would carry more conviction then than now. That is all you would get by a committee.

What I want to address myself to is the speech of the hon. Member for East Rhondda (Mr. Mainwaring). What I want to know from him is what he would do if he were Chancellor of the Exchequer now. I heard that speech of his 25 years ago exactly from Philip Snowden. Then he got on the Treasury Bench. You know there what happens to surplus value. Treasury officials get them in their grip. Though we ask the Chancellor of the Exchequer or the hon. Member for East Rhondda to tell us what they think should be done, we know perfectly well that their masters, who are under the Gallery, will control the issue in the long run. Committees may report, and their report may be printed at Government expense, but nothing will be done. And the Treasury goes on for ever.

I want to put this to the Government: I have been thinking all these last six months, night after night, of the troubles of the Chancellor of the Exchequer. You see he has been faced with a real catastrophe. America went off gold and the dollar went into slump. He knew perfectly well all the time that if the pound went up in relation to the dollar, our export trade was done. The whole business mind of the country has been devoted to keeping the pound from bouncing up relative to the dollar. The more the pound rises the more the dollar falls, the more does our foreign trade vanish, and the less our debtors were prepared to pay. The question is, how has the right hon. Gentleman done it, and how is he going to keep the pound down? There is no man in the Committee who would be more delighted than the Chancellor of the Exchequer if he could now get dollar parity at 5 dollars to the pound, and the restoration of the Gold Standard on that basis. That would be the ideal of the Exchequer. The Chancellor of the Exchequer could then sing his Nunc dimittis and take up another job. We are all anxious to get that stable parity, but it is not in our power.

It is about time, when we are all hoping to get back to a new gold standard, to realise that it is no good doing it unless the same principles of finance govern each of the countries that are to come into the new pound parity. The right hon. Member for Ripon (Major Hills) talked about getting one form of sterling parity throughout the Empire. We cannot do it. We could start doing it, but how long could we retain it? Assume that Australia went on the principle that appears to sway the opinions of America now—that the best way to recover prosperity is to go in for large loans for public works, when the Budget is no longer to be balanced, because prosperity comes from spending money. If that principle were followed in Australia and the present Chancellor of the Exchequer remained here, you would not have parity between Australia and England very long. It could not be done. In the same way with America. If America is not only faced with a deficit but is welcoming that deficit, it will not be possible for America to remain on the new dollar sterling parity basis. Their gold would drain away, exactly as happened to us two years ago.

It is all very well to desire to have a new gold standard based on a devalued pound and dollar. You can carry it on for a year or so, but if the countries joined in that consortium carry on entirely different financial policies, some balancing their Budgets and some putting by large sums to pay off debts, and others incurring large additional debts— not merely the national Government but municipal Governments and business firms as well—in those circumstances a new gold standard must inevitably follow in the footsteps of its predecessors. At any time of crisis some country will go off it. The unfortunate fact is that it is only the first slip which counts. It is so tempting to slip. Three years ago those on the Front Bench saw themselves being driven off gold. It meant something inconceivable. They resisted up to the last moment, borrowing from France at an untold rate of interest. Then suddenly it was found not merely convenient but respectable. That has been found out once, and it can so easily be found out again. You may re-establish your gold standard.

It is no use talking grandiloquently about the advantages of going back to gold on a new gold content of sovereign and dollar, unless you can control the finance of those countries. Of what assistance would be a consortium of banks, what value would their advice be? It is the Chancellors of the Exchequer who would have to get together. The people who balance the Budgets are the people who can decide whether the currency goes up or down. I do not think it can be gainsaid that that is one really difficult point.

I come to the next difficult point. The Chancellor of the Exchequer, so far, has managed beautifully with the Exchange Equalisation Account. Goodness knows what the state of the balance sheet is now. His difficulty all along has been—at least so I am assuming—to prevent the pound from going up relative to the dollar. He is terrified because the price of gold to-day has fallen by 2½d That is pretty serious because a fall in the price of gold means that the pound is rising relative to the dollar. That is the constant source of trouble which faces even the best of Treasury officials, but that can always be met and if the hon. Member for Rhondda were Chancellor of the Exchequer I could tell him how he could meet that difficulty. All that he has to do is to sell sterling. One might think that that was a comparatively easy thing to do, but the difficulty which then arises is to know what to buy in exchange. If you took £5 notes out into the ocean and sank them, it would have the effect of keeping sterling down, but the Treasury with innate honesty dislikes sinking banknotes. It likes to get something for them and the trouble is what to get. [An HON. MEMBER: "Give them to America!"] If we paid the American debt that would be an infinitely better thing to do, of course, and that would also keep sterling down. Or, we could spend them on making more by-pass roads to kill children, or on slum clearance.


Or give it to the workers.


Yes, we could give every honest worker like my hon. Friend a £5 note every Saturday morning and that would keep sterling down, but somehow or other the Treasury do not tumble to these ideas. My hon. Friend the Member for Rhondda would probably wish to do it if he were Chancellor of the Exchequer but in due course the Treasury officials would even talk to him. That, however, is the problem—what to buy with sterling if you want to sell and keep it cheap. If you sell it, you must buy something in exchange, and what I want to know from the Chancellor of the Exchequer is what he has been buying in exchange, and what is now the value of the things which he has bought. We only know that £130,000,000 of gold has gradually collected in the Bank of England. It is not the Chancellor of the Exchequer's fault. It is not even Mr. Montagu Norman's fault. What else was the man to buy? Suppose he had bought dollars. Well, perhaps he did. On the gold he has made a handsome profit or at least I hope so. But how about buying dollar exchange or even worse francs exchange, or, even worse still, marks exchange. Suppose he bought foreign bonds.

If I buy foreign exchange—which I am not in the habit of doing—what is the precise result of my action? I am buying the right to call upon some manufacturer or some farmer in Germany or in America to supply me with a certain amount of foreign goods; and if there is one thing that the right hon. Gentleman loathes it is foreign goods. Therefore it was a case of gold or foreign goods. Gold is a bit risky because if France comes off gold there will not be many left on gold. Foreign money is worse still—it brings in no interest. If you buy foreign exchange you render nugatory, to that extent, your tariffs. You are trying to stop foreign goods from coming in with your tariffs, and you are trying to bring them in by buying foreign exchange. If you buy gold, you are piling up a gambling counter becoming with every month more risky. If you buy foreign bonds, the risks are even greater than in the case of exchanges or gold. The difficulty in connection with this Exchange Equalisation Account is really serious. If it were merely to iron out what are called "fluctuations"—though you can never tell when they are fluctuations and when they are tendencies—then your Exchange Equalisation Account need not be dipped into deeply. If, on the other hand, you are constantly struggling to prevent the dollar running away from the pound and to preserve parity between Great Britain and America, then your position becomes more and more difficult and your commitments become greater and greater.

I would conclude by saying this: It seems to me infinitely preferable if you want to keep the pound down that you should not go on selling sterling and buying foreign bonds or exchange or gold, but that you should change your budget so as to spend a little more, as America is spending* a little more, so that you should even waste your money as America may be wasting it. If you are anxious to keep dollar and sterling alongside, you must do as they do in Rome or Washington. If your object is to maintain parity the ideas of finance which you put into operation must be the same as those of the country with which you wish to retain parity. America seems to me to be infinitely the most important country with which to retain parity and America is going through a stage which I think we went into slightly a few years ago—the stage of spending more money than they have got, of running into debt, of failing to balance their budget. They are going into that stage and whether we like it or not, we shall have to do the same thing if we are going to retain parity. Therefore the real question at issue for the Government is: Are you going to continue the struggle to retain dollar parity and if so can you think of any other way of doing it than following that course in the nation's finances which they have followed in America. It is possible to avoid a great deal of the waste that has gone on there, if, when you do go in for spending sterling, you spend it in such a way that, while you get no financially remunerative investment you do at least get real permanent improvements in this country.

6.5 p.m.

The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

Earlier this afternoon, at Question Time, my hon. Friend the Financial Secretary to the Treasury was asked about the negotiations which have been taking place with the representatives of Germany in London, and he stated that he was not then able to say anything upon the subject. I am now able to make a statement about it, and it seems to me that the Committee would probably desire that I should make that statement at this point even though it should interrupt, for a few moments, the thread of this Debate. I am glad to be able to inform the House that an agreement about the German debt question was signed this afternoon. A White Paper containing its terms will be available in the Vote Office about 7 o'clock this evening. The Agreement covers a period of six months as from 1st July, 1934. It provides that during this period the German Government will provide sterling funds at the Bank of England for the purchase at the full nominal value of all coupon's of the Dawes and Young Loans which were in the beneficial ownership of "British holders" on 15th June, 1934. For this purpose of the Agreement "British holders" means (a) in the case of sterling issues, all residents in the United Kingdom and in addition all British subjects, belonging to any part of the British Empire, wherever resident; (b) in the case of non-sterling issues all residents in the United Kingdom.

As regards other medium and long-term debt, the agreement provides that the terms of the offer of the Reichsbank, embodied in the communique issued on 29th May, 1934, shall apply to all interest, etc., due in respect of investments which were on 15th June, 1934 in the beneficial ownership of "British holders"—as defined above—provided that if the German Government should conclude any agreement with another creditor country, under which more favourable terms are accorded to residents in that country in respect of non-Reich loans, it shall be open to the British holders to claim corresponding treatment in respect of the investments held by them on 15th June, 1934. Should such a claim be put forward, the question will be settled by agreement between the two Governments on the basis of non-discrimination, taking account of all the circumstances, including any advantages which Germany receives from such other creditor countries as compared with any advantages which Germany receives from the United Kingdom.

Finally the agreement provides that His Majesty's Government will not, during the period of the agreement, that is the next six months, exercise in respect of Germany the powers given to them by the Debts Clearing Offices and Import Restrictions Act, 1934. The agreement is, of course, without prejudice to the Standstill Agreement in regard to short-term debts. I should add that in the preamble to the agreement both Governments affirm the earnest desire that the trade and financial relations between the two countries should continue on a non-discriminatory and most friendly basis, and that the volume of mutual trade should be maintained and as far as possible increased. In pursuance of this principle, the German Government have informed us that they are prepared to negotiate with this country an exchange agreement for commercial payments similar to those which are or may be in force between Germany and other countries. This matter is dealt with in an exchange of letters, the terms of which will be given in the White Paper. It would, of course, have been more satisfactory if the German Government could have made arrangements with all its creditors on the lines of this agreement, but as the German Government is engaged in separate negotiations with different creditors, we have been forced to take the same line, and I think the Committee will agree with me that so far as this country is concerned this agreement is a satisfactory solution.

Reverting to the subject of the discussion this afternoon we have had expressed a variety of views. I always think that the subject of a monetary policy has a peculiar attraction for this House. It is like telling ghost stories. People always assert that they do not believe in ghosts but at the same time there is an agreeably tickling sensation caused by listening to narratives of ghosts. The proposal of the hon. Member who opened the discussion, a proposal which has been supported by one or two other hon. Members, though not very many, is that a committee should be set up to make a new inquiry into monetary policy. In the opinion of the right hon. and gallant Gentleman the Member for Newcastle-under-Lyme (Colonl Wedgwood) such a committee is quite unnecessary because he is always here to advise us. I am sure that it must have been refreshing to the hon. Member for East Edinburgh (Mr. D. Mason) to have been told the whole truth about this matter, just as it was gratifying for me to know that the right hon. and gallant Gentleman had been spending sleepless nights thinking over the troubles of the Chancellor of the Exchequer. There is only one disadvantage about this practice of worrying over things when you are in bed, and it is that it is apt sometimes to lead to bad dreams afterwards. I hope sometimes he suffers from bad dreams in which the Exchange Equalisation Account and its consequences play a part. I was relieved to hear that so far he thinks the Exchange Equalisation Account has been managed very well. Perhaps, after all, it may turn out that some of those gloomy anticipations of his about the Exchange Equalisation Account are without foundation. At any rate, I think the Committee as a whole is well satisfied that the setting up of that fund was a wise course, and that it has been of very great benefit to the traders of this country.

The request to set up a new committee to inquire into the monetary policy of this country implies, I think, some dissatisfaction with the policy of the Government as at present carried on, and, therefore, it may be of interest to consider what that policy is. It may be very shortly stated that the policy of His Majesty's Government is, as it has always been, to create, or to restore, if you like, conditions under which it is possible for trade and commerce to expand. My right hon. and gallant Friend the Member for Ripon (Major Hills) gave a short account of those conditions a little while ago; and on the reverse side of the picture one resists conditions under which certainly trade and industry will not expand. If you have, for example, constantly falling prices, as my right hon. Friend suggested, if you have mounting taxation, if you have dear money, if you have a constant interference by the Government in business, then you have all the conditions which are likely to make for an increase of unemployment and the contraction of trade, but if, on the other hand, prices are on an even keel or, indeed, rising, if you have a falling taxation, if you have cheap capital and plenty of it, and if you have a general sense of confidence that there are not going to be wild or revolutionary experiments carried on by the Government of the day, then I think we may expect that you may have conditions which will enable trade to be carried on with success and indeed to expand.


Trade is not expanding—foreign trade is not expanding.


The hon. Member has qualified his first statement. He began by saying that trade was not expanding, and then he said that foreign trade was not expanding. I did not say foreign trade; I said trade. But it would have been quite possible for this Government to have pursued an entirely different policy from that which in fact we have followed. We could have indulged in the expenditure of very large sums of public money, we could have indulged in violent and repeated depreciations of the currency, which no doubt would temporarily have given a stimulus to trade, we could have kept all the business men, on whom, after all, employment in the country mostly depends, in suspense, on tenterhooks the whole time by interesting but, at the same time, extremely disturbing experiments in currency or in monetary policy. But we have preferred to follow a policy perhaps less sensational, less spectacular, but, in my belief, safer for the country, and I think we may say that, so far as we can judge by the results, they are not such as to make us think that we have made any very serious mistakes or that we have brought about any state of affairs which calls now for fresh inquiry and fresh consideration. Both trade and employment have increased—without analysing whether it is foreign or home trade; they have increased steadily, they have increased over a very wide area of industry, and that increase has been continuous; and I would call attention to the fact that that increase has not been, and is not now, dependent upon the maintenance of a large amount of expenditure of public money.

We, of course, are not claiming that the whole of this expansion of trade is due to measures taken by the Government. It would be impossible for any Government to govern trade to that extent. What we have tried to do was, as I said at the beginning, to make the conditions in which this was possible, and that, I think, we may claim to have done. We have been criticised in the past because we have not spent huge sums upon housing, and I thought I heard in one or two of the speeches this afternoon a sort of echo of that criticism. I thought I heard that some huge national loan must be raised for the purpose of housing. Last year we built more houses in this country than ever before in the same time, and, as was mentioned by the Parliamentary Secretary to the Ministry of Health yesterday, unemployment in the building trade has gone down by a very considerable figure. Then the conversion operation has not only saved us a great deal of money in the shape of interest on the National Debt, but it has, as we anticipated, spread in other directions, and to a large extent now the higher rated debenture stocks of the principal industrial concerns have been converted to lower rates, thus, of course, effecting a saving on industry's fixed charges.

With regard to monetary policy, the Bank rate has been kept at 2 per cent. now for two years, which is the lowest it has ever been, and except, I believe, for a short period in the middle nineties of the last century, the longest it has ever been at that rate. I submit to the Committee that that policy, which has resulted in the ways that I have described, has been of greater benefit and of more solid value to trade and industry in this country than a policy of monetary alarums and excursions, which would have kept the whole business world in a continual condition of ferment. Let us remember that we have got 800,000 more people employed than we had in 1932, that we have got an increase in exports—and I would call the attention of the hon. Member for East Edinburgh to this fact—in the first five months of this year of 11 per cent. as compared with last year, and that the retail sales in May were 7.7 per cent. higher than they were in the corresponding month of last year. Why, in the fact of those facts, should we reopen the whole question of our monetary policy? It was only in 1931 that the Macmillan Committee reported. Its terms of reference directed them to inquire into the very subjects that hon. Members have been discussing. They made a full report, and I cannot understand what the hon. Member for East Edinburgh or the hon. Member for Orkney and Shetland (Sir E. Hamilton) thinks is going to be obtained from setting up a new Committee to go over the same ground as was gone over such a short time ago by a Committee of such tremendous authority as that which was known as the Macmillan Committee.

If you are to have a new monetary policy, it must mean one of two things. Either you have got to bring about a change in the operation of institutions and methods which remain the same, or else you have got to set aside those methods and those institutions and substitute new methods and institutions for them. As to the institutions, the Macmillan Committee, as hon. Members will no doubt recollect, found that they were deserving of every commendation, and that there was no reason why they should be superseded by anything different. With regard to alterations in their operations, no case has been made out for any alterations. Our banking system has stood the tremendous strains and stresses of the last few years better than any other banking system in the world. Our public finances have shown a greater improvement than those of any other country. What, then, is there to complain of? What is there to justify embarking now on some fresh inquiry? If we give it out to the world that we are going to set up a new inquiry which may result in recommendations embodying sweeping changes, what will be the effect upon business? Must it not inevitably mean that the improvement and the expansion of business will be held up, that business men will suspend their operations until, at any rate, they know what is going to come out of this new inquiry? That would be the very last thing, surely, that any of us would desire at this time. I noticed that the hon. Member for East Edinburgh said that he was pleading, as he had pleaded before, in vain, for a statement of the Government's policy, and the hon. Member who opened the discussion said they wanted a lead from the Government.


You might lead them back to the other Bide of the House.


Really, one almost despairs of making any impression upon hon. Members who put questions of that kind, because we have given a lead, we have stated our policy, over and over again, in the clearest and most specific terms. No longer ago than at the World Economic Conference in London last year I made a complete statement of monetary policy on behalf of the Government, and that policy still remains the policy of His Majesty's Government to-day. If the hon. Member has forgotten that statement, or did not read it, I can only give him the same answer to-day. The monetary policy which was declared then in London was the policy which had previously been declared at Ottawa. It was the policy which had received the approval of the whole of the Empire. One may very shortly summarise the conditions under which we contemplated an ultimate return to an international gold standard. We said that there must be a rise in commodity prices which would bring prices and costs more into equilibrium. We said that there must be a removal or a lowering of the barriers and obstacles to international trade that now exist. We said there must be a final settlement of War Debts, and, finally, that we must find some way to avoid the fluctuations in the purchasing power of gold arising from monetary causes.

It is no use talking as though a committee here could bring about changes in international practice. However authoritative the committee was, you could not expect that it would make any impression upon the minds of other countries where conditions are quite different, and whose ideas, indeed, may be very different from our own in this matter. Yet we cannot possibly hope to achieve these conditions without some sort of international agreement. It is not a question which can be decided by one country alone. These conditions have not yet been fulfilled. Some may think they never will be, but, at any rate, one may say that we have gone some distance in the direction in which we desire to see progress. We have managed for a considerable period to avoid violent fluctuations and dislocations of exchange, in spite of the alteration in policy of the United States. We have stopped the fall in prices, while the rise in wholesale prices of primary commodities, especially in sterling, has been very considerable. I am not sure that hon. Members realise how great that rise has been. If we take the index at the time the country went off gold in September, 1931, as being 100, the index had risen at the time of the Ottawa Conference to 100.5; at the beginning of the London Conference in June, 1933, it had risen to 126.7; and in June of this year it was 137.2. It is not surprising to find that that rise in wholesale prices of primary commodities has been followed by considerable improvements in the general conditions in various Empire countries and other countries with whom we have a specially close trade connection.

Then we have begun the process of breaking down the barriers to trade by the series of commercial agreements which we have been able to make with foreign countries. I have alluded to the expansion of our exports, and we are aware that home production is steadily increasing. My hon. Friend the Member for East Aberdeen (Mr. Boothby), in a very interesting and informative speech, pointed out that there was some tendency to a fluctuation of the curve of expansion. One cannot expect that the line will move absolutely straight and not curve at all. There must be fluctuations from time to time. I myself anticipate that, although there may be a temporary check in the rate of increase, that is only a passing phase, and that presently we shall find it will proceed as it has proceeded before.

I put it to the Committee that, in view of the conditions as we see them to-day, the policy set out by His Majesty's Government on many occasions, and the results that have followed that policy, it would be nothing less than folly to throw that policy again into the melting-pot in the hope that something fresh might come out. We have to base our policy on experience. We simply cannot afford to risk the gains that we have got already for the sake of expedients which have been entirely untried. We have restored conditions which make possible further improvements in the prosperity of the country. We have a sound banking system, and the banks have cash reserves to a greater extent than they have ever had before. We have also cheap capital, general confidence in the public finances and a stable exchange. In these circumstances, I am not prepared to set up a new inquiry for the purpose of investigating new experiments when we have pursued with so much success our policy of orderly development.

6.36 p.m.


I am sure we are grateful to the right hon. Gentleman for having intervened to tell the Committee of the agreement on the German debts question. We on this side are very glad that an agreement has been arrived at because, whatever the terms of an agreement in international matters, an agreement is always better than a disagreement. One cannot naturally comment on the terms which the right hon. Gentleman has read, because we have not had time to study them. So far as the question of setting up a committee is concerned, we do not see any particular reason for that at the present time. It seems to us that the demand for it really arises from a sort of uneasy feeling among hon. Members below the Gangway that something is wrong but that they do not know what it is; and they want to maintain their position on the fence and to have something to play with in the form of a committee on monetary reform, hoping, no doubt, that that committee may somehow or other be able to produce for them what they have not at the present time, namely, a policy.

It does not seem to be the function of the Chancellor of the Exchequer or the Government to perform what might be quite a useful thing for the Liberal party, but which is not essential to the nation. We do not believe that to get together a number of capitalists to argue upon what method of monetary policy or credit policy will suit the particular interests which they represent is really likely to produce any very useful results. The effect of all the measures which may be taken as regards the regulations of monetary policy is perfectly well known. It is only a question of who gets the benefit of the measures. Some of them will benefit the industrialists, some will benefit the finance capitalists, some will benefit the rentier and the landowner, and so on. The question is not what effect do the measures have, but who is going to get the benefit from the measures. That is really a political matter for discussion, and not for inquiry by a committee on monetary policy.

So far as the objectives that we have in view are concerned, namely, an abundant standard of life and security for the workers, we do not think that any monetary policy will make the slightest difference. It is true that by various devices, like temporary inflation and things of that sort, we might have a period of apparent prosperity, and that during that period the standard of life might go up, and indirectly, therefore, the workers might to some extent benefit. They always have to pay the bill afterwards, however, in the deflation that follows, or in whatever the particular operation may be, and when it is all over we come back again to the precise point from which we started. In the long run, indeed, it has become apparent, and has been apparent for many years, that the present system can only thrive on some measure of scarcity. You have to have either a real scarcity provided by nature which is a convenient thing sometimes, or an artificial one. If you have not a real scarcity, you have to create an artificial one. The present Government, following the best orthodox methods of capitalism, have been struggling during the last three years to create an artificial scarcity, and they have done it with some little success.

As long as that scarcity continues, you do not find that you get quite the same embarrassments for capitalism as you do when you are involved in periodical gluts. Indeed, you find then that you have in the hands of certain people in the State a considerable surplus of money, which represents commodities, with which they have got to do something. They have got to get rid of it somehow. They do not want it for their ordinary needs, for they have no means of expanding their insides in order to accommodate a greater amount of food and drink and other things in order to allow them to spend more money on the ordinary necessities of life. Therefore, they have to find some other way of getting rid of the surplus wealth which falls into their hands owing to the incidence of the economic system. If there is not a war on or a good armaments, race, which are two excellent ways of wasting money under the capitalist system, it has got to be used for something else. It is either employed for luxury consumption, and the price of yachts and racehorses perhaps goes up a little because the market is good; or it has to be used for capital investment.

When the luxuries that are wanted have all been used by those people who have these surpluses, they have to invest their surplus either at home or abroad. It is invested at home if the company promoters can make sufficiently attractive documents to draw it into their pockets, and, through their hands, into artificial silk factories or gramophone factories, or whatever the particular stunt of the moment may be. When that market has been fully exploited, the money has to go abroad because there is nowhere else for it to go. As a result, some wretched man in Brazil is persuaded that it is a good thing to move a mountain from one side of the Rio to another, which he does, and we are all satisfied because we have been able to export some of our surplus wealth to move a mountain in Brazil instead of doing a useful thing like building a house in London. That process goes on as long as we can get foreigners to accept these gifts, which they are fairly ready to do, and a good deal of it is pure waste. We never expect seriously to get it back. The man who makes the individual investment expects to get it back, but he forgets the other people who also want to get it back, and he is frequently disappointed.

Some of that surplus money is exchanged for commodities, which are useful commodities and come to this country to embarrass our manufacturers, and then we do our best to get them stopped. We get that incidence of one-sided trade which has proved so great an embarrassment to the Minister of Agriculture in his present efforts. One hon. Member who spoke seemed to think that all these commodities that come back in exchange for the goods that are exported were distributed among the workers. That, of course, is a fallacy. They do not come back in that form at all. They are imported to the account of the rentier, the man who has lent the money abroad, or of the merchant if they are in exchange for commodities. They have to be sold to the workers, and the workers in purchasing have to make up their minds notionally whether they are going to purchase these foreign goods or home goods according to their demand at the moment. They do not get them distributed free. The only way they can get any title to them is through employment under the existing system or through the Poor Law or unemployment benefit. Practically speaking, it is employment or the distribution of purchasing power which they get through employment, which enables them to buy foreign goods as well as home-produced goods.

But that does not in any way lead to a solution of the problem of increasing the purchasing power of the worker in relation to production in this country. The worker is no better off as a result of our having exported all that surplus, than if the surplus had been retained in this country; in fact, he is very much worse off than if the surplus had been distributed for his benefit in consumable commodities at the time when it was created. Then we have discussions such as arise in the case of the Argentine Agreement between the rentier in this country who insists, quite naturally, on having his pound of flesh in the form of beef and maize, and the agriculturist here who says, "You must keep out Argentine beef at all costs; I cannot sell my beef in competition with it." That is an obvious result which must arise from every capitalist system, every system which depends upon the exploitation of foreign markets. As the hon. Member for Lowestoft (Mr. Loftus) pointed out, we must always be hampered by the return of goods in payment of interest or repayment of capital—the latter, of course, very seldom occurring. He suggested that it was wrong to say that it would be a good thing to cancel foreign debts. He agrees that it is a bad thing to lend abroad, because of the embarrassment of the goods which return, but thinks it is a good thing to go on getting a return of the goods as the result of past lending. I really do not understand how he draws any distinction between the two. Under the existing system, the returns from past lendings are a real embarrassment in this sense, that the goods which are imported, not being in exchange for any manufactures, limit the area of employment. If instead of being paid to the account of the rentier they were paid to the account of the manufacturer in this country the manufacturer could, through employment, distribute more purchasing power. The rentier does not use them to distribute more purchasing power through manufacture—he may to a small extent, as regards his own personal needs—and may indeed, use them for reinvestment abroad, in which case they never benefit anyone in this country at all. To that extent I should have thought that even under the existing system, so far as the industrialist and manufacturer are concerned, it would have been an excellent thing to have cancelled foreign debts.


I apologise for interrupting the hon. and learned Gentleman, but may I put the point this way? Suppose that through some circumstance we were not in a position to pay by manufactures for all food and raw materials imported which we require. Would he refuse to accept interest from investments which, while credited to the rentier, are diffused among the mass of our people? May I put an actual case? In 1926, when there was the coal stoppage and general strike, we could not pay with sufficient exports for all the imports, necessary to feed our people, and we took the whole £280,000,000 of our foreign interest in the form, chiefly, of food.


If our productive energy in this country were not sufficient to supply the commodities which are required by the population, of course that argument might apply; but at present the trouble is that we cannot use the productive energy which we have got, and, as a result, we keep people out of work and without purchasing power. All I am suggesting is that, even under capitalism, we should have a better chance of distributing purchasing power if these goods, instead of coming in to the account of the rentier, came in to the account of the manufacturer, who would be able to put people to work to manufacture goods in exchange for them. I think the hon. Gentleman will agree that that is probably right under the existing state of affairs. As long as those surpluses go into the hands of those who own the means of production through the channels of profit it is quite impossible for the workers ever to get a sufficiently large purchasing power to purchase the great quantity of commodities which we are capable of making. Of course the commodities that are actually made are purchased, but the reason we have idle such an enormous quantity of plant and labour, and, indeed, to some extent, money, is that under the existing system there has never yet been devised any means by which purchasing power can be distributed to the people. Indeed, the system cannot and dare not allow any other method of distribution, because the moment distribution was so organised that security and a high standard of life were given to the workers, the present owners of economic power would entirely lose all control.

Under any system, once we give to the workers security and a high standard of life, they would refuse to continue to be controlled by any other set of persons. That became fairly obvious in the later stages of the War when, owing to the shortage of workers, who were fighting in France and other places, and to the high standards which existed owing to the vast inflationary expenditure, and so forth, the independence of the workers grew to such an extent that, as everybody knows, it was touch and go on more than one occasion whether the whole system might not fall in ruins because they insisted on asserting their power. Under any system, if they are given those conditions they will naturally not be content to continue as a subservient class. That is an additional reason why capitalism, even if it were capable of doing so, would not provide any solution of this problem. As a result, there are many people who are very discontented with the poverty which exists all over the country—one hears the phrase "Poverty in the midst of abundance"—and who turn, naturally, to the attractive get-rich-quick methods which are suggested by monetary reform, to the various schemes put forward as monetary panaceas by which people are going to get all the benefits without any of the difficulties. But I think one has to admit that, within capitalism, this Government is really doing very nicely. It is acting in an orthodox way according to the ordinary economic laws, and I think it is more honest to act in that way than to dangle these monetary panaceas before the eyes of the workers and pretend that by some jiggery-pokery, some "rabbit in a hat" sort of trick, one can produce prosperity. We must realise that there will have to be profound changes, economic and in society, before we can start to approach to the conditions in which these problems can be solved. We are putting these propositions before the people not as something easy, something to be secured without any trouble at all, but as something which has to be considered seriously and which, if it comes, will mean a very great change for a very great many people.

In examining questions of monetary policy one has also to remember the enormous variety of monetary policies which have been tried in the post-war world. Apart from some momentary jolt which they have given to the system, or apart from some really stupid action which has influenced the competitive power of a particular country in the international market, none of them has had more than the temporary effect to which the Chancellor referred. We always come back to the cycle of booms and slumps which are the feature of capitalism, and we still have the perpetual attempt of capitalism to waste its surpluses by one means or another, though there are, at the same time, great numbers of people unable to get the very necessities of life. In the laboratory of finance which has existed in the world, and especially in the post-war world, there have been numberless attempts to find some solution for this problem within capitalism, and I think everybody will agree that, so far, all of them have uniformly failed. We have had inflation and deflation, we have had lending abroad and the stopping of lending abroad, we have had enormous Government expenditure and rigid Government economy, we have had low taxation and high taxation, tariffs and Free Trade, quotas, exchange restrictions, subsidies, price regulation, wage regulation, the shortening of hours, and the lengthening of hours. All those things have been tried, separately and in combination, in different countries at different times, and none of them has been able to effect what is the desire of everyone, and that is to distribute the enormous potential abundance which exists. Every country comes back to the same slough and to the same difficulty, and yet we persist in this system and close our eyes to the possibility of going outside it and trying something new. Those who have the power and influence under the existing system, and naturally do not want to lose them, close their eyes to avenues outside the system while they walk round and leave no stone unturned and no avenue unexplored within the system. As if they were in the Hampton Court maze, they go on walking round and round exploring avenues.

Now the hon. Members below the Gangway want to start out on a fresh exploration of avenues which have been already covered many times. The right hon. and gallant Member for Ripon (Major Hills) who I hope will, in the course of a few months, become a convert to our party, suggests that the only way to remedy this state of affairs is to impose more Government control—control investment, control the joint stock banks, and control the Bank of England; and the Chancellor of the Exchequer, who spoke just after him, says that the one thing we have got to avoid is constant interference by the Government. Within this system the more controls there are the less does the system work. The economic laws which operate in a free and raw capitalism become more and more rigid as we impose more and more control, and when we are suffering from the rigidity which is caused by control we have more control and more rigidity.




No—rigidity. I venture to say that very few people in the capitalist system will agree with the right hon. and gallant Gentleman that we get flexibility by imposing Government control. I am sure the Treasury Bench will agree that we cannot get more flexibility by control, but that we get rigidity, and the more rigid capitalism becomes the less the free economic laws—which hon. Members below the Gangway would theoretically like to see operating—operate. That is why the idea of trying further to control an already too rigid structure within capitalism will never afford a solution of this problem. When one analyses and examines it, one is indubitably led to the conclusion that the system itself is at fault, and not the operation of the system. I believe that the present Government, and those who are responsible for the running of the system, do not for a moment desire to inflict hardship upon anyone. I think they are humane and intelligent, and I am prepared to accept the proposition that they are and have been running the present system in the best and most humane way they can. They would probably accept that statement as a true statement. As a result of accepting that statement, however, one is driven to the conclusion that it is not the individual who is to blame but the system that is wrong, and that therefore one must, in fairness to those who are at present trying to run this antiquated and rotten system, come to the conclusion that they ought to be saved from the consequences of their own heroic acts in trying to stand on the bridge until the ship sinks. They ought to be taken off the ship; the ship ought to be allowed to sink, and a better and more successful ship should be put in its place.

7.2 p.m.


I have often heard hon. Members say that they came to this House without any intention of taking part in the Debate. I have never thought that a good thing to do, and I have very seldom done it myself. But it is true on this occasion that I have felt myself bound to intervene in this Debate, although I was quite unprepared to do so. In the first place, I have been asked by a number of my hon. Friends to express to the Chancellor of the Exchequer our congratulations on his successful negotiations with the German Government. We, like the hon. and learned Member who has just sat down, will of course await the publication of the details of the agreement before expressing any opinion on it, but we are indeed glad to know that the Chancellor has been successful in carrying these negotiations to the point of an agreement, and we are grateful to him for his announcement, which has given additional importance to this Debate.

Even, however, apart from the Chancellor of the Exchequer's announcement, this Debate has a real importance, in spite of the caustic opening remarks in the speech of the hon. and learned Gentleman. I have commented before in this House on the fact that the leaders of the Labour party are like those people to whom reference is made in a certain Book that their right hands do not know what their left hands do. More than once leading Members of the Labour party have stood up at that Box and denounced the courses which their own supporters have just been advocating. On this occasion we are discussing a proposal which was first embodied in a new Clause to the Finance Bill by my hon. Friend the Member for East Edinburgh (Mr. D. Mason), who obtained the support of two Members of the party to which the hon. and learned Gentleman belongs, and a third hon. Member who sits on the Front Bench only refrained from attaching his name to the Clause on account of his official position. And now there has been in all parts of the House a desire for the discussion of this particular question.

Nor do I think that the supporters of the Chancellor of the Exchequer are quite satisfied with his indication that everything that can be said about the Government's policy was said at Ottawa or when the World Economic Conference met in London. It is not only my hon. Friend the Member for East Edinburgh who is mystified about the direction of the Government in monetary policy. Among those who attached their names to the Clause and to a slightly different Clause which was put down by an hon. Member whom I see opposite me, and who equally asked for inquiry—but, I think, a different form of inquiry—were a very large number of supporters of the Government who must be supposed to have read the document to which the Chancellor of the Exchequer has referred, but, like myself and others on this bench, were not satisfied with it. They included such authorities on finance as the hon. and gallant Member for Ripon (Major Hills), an ex-Financial Secretary to the Treasury, and such an authority on Imperial economics as the right hon. Gentleman the Member for Sparkbrook (Mr. Amery). It is not therefore possible for the right hon. Gentleman to ride off on these speeches and declarations which he made at Ottawa and the World Economic Conference, and to suppose that public opinion in the country, or a large number of his own supporters, accept them as an adequate statement of monetary policy.

We on these benches regard monetary policy as a matter of the highest importance. We cannot agree with the hon. and learned Gentleman that monetary policy is of no importance to the worker. We no more agree with that proposition than do the hon. Members who sit behind him. We realise to the full the importance of this question from the workers' point of view, in that the smaller a man's income, the more important it is to him that that income should retain its our chasing power. I could not help wondering who this rentier is whom the hon. and learned Member holds out as an Aunt Sally at whom to fling his rhetorical quips. The rentier is a man whose savings enable a large number of workers of this country to make and export goods to the countries whom the hon. and learned Gentleman now invites to cancel their debts. He asks what it would matter to anybody except the rentier if these foreign countries now cancelled their debts. It would matter to the producers in this country, who would no longer find the resources accumulating to enable our trade to be financed.

The hon. and learned Member talked about the rigidity of the present system. I never heard such an instance in this House of Satan rebuking sin. He is a Socialist, saying that the economic system of this country is too rigid. He went through it picking holes and drawing attention to all the difficulties with which industrialists and others concerned with the trade and industry of this country are confronted, but he never gave us a single indication of his constructive alternative. One must assume that it is something like that of the Government in Russia, which is the only effective Socialist Government now in operation. The foreign trade of Russia is slackening, its Five-Year-Plan is falling into complete and utter confusion, and the position of the worker there is far inferior to that of the worker in this country.

The right hon. Gentleman says that we have tried Free Trade, that we have tried capitalism. Let us be quite clear about this. Having tried Free Trade and having tried capitalism for 100 years, we find that they have quadrupled the population and the wealth of the country, that the wealth of the country has been increasing at the rate of 3 or 4 per cent. a year, and that under no other system in the whole history of the world have such immense advances been made in 500 or 1,000 years in the production of wealth and in raising the standard of living of the people, as have been made during the last century under capitalism and Free Trade.


Why did you cross the Floor?


Why did I cross the Floor? I said that I was unprepared to intervene and I do not want to make a long speech, so I shall not go into that question but merely ask the hon. Member to be good enough to look up my old speeches, in which I have dealt fully with it. The matter is not in any event germane to the subject we are discussing this afternoon. I should like to answer the hon. Member very fully, but I have too much respect for all those hon. Members who wish to follow me.

The Chancellor of the Exchequer gave us, as he always does, an extraordinarily interesting speech, but I could not help regretting—I know he dislikes the word and I do not wish to use a word which is offensive to him; he has chided me before for using it, but I must use it on this occasion, because nothing else will express what I mean—that strain of complacency which ran through his speech. "Trade and employment," he said, "have steadily increased, and the increase is continuous." I hope he is right, but he hedged on that statement afterwards, and said that there had been a little check. Of course, as we know, there has been a little check. For the first time for many months both the monthly curve and the three-monthly average curve of business activity in the "Economist" have taken a turn downwards. I see from paragraphs that have been published in the newspapers that the Unemployment Returns are not going to be quite so good next time. I hope profoundly that that is not true, and I hope, if it be true, that it will not continue.

The Chancellor of the Exchequer said, however, in his speech—though he did not say it the first time—that the increase is not continuous, and there are some factors in the situation which lead one to fear that it may not prove to be continuous. He also, however, referred to the figures of trade and production and asked, having achieved "so much success" and having done all that, "what is there to complain of?" The common people of this country, if he went about among them, would tell the Chancellor of the Exchequer what there is to complain of. If he went among the miners, the fishermen, the 2,000,000 unemployed all over the country, the cotton operators, the shipbuilders and the men who are looking for employment in ships, millions of people in the country would tell him what there is to complain of. There is enough to complain of to justify us in discussing whether, in this fundamentally important question of monetary policy, we are going on the right lines and whether the announcements of the Chancellor of the Exchequer at Ottawa and the World Economic Conference in London are really the last word on monetary policy.

Of course, the Chancellor of the Exchequer then went on to refer to the Macmillan Report and to use what is obviously, a formidable argument. He said: "There is the Macmillan Report; it is quite recent; is not that enough?" I submit to the Chancellor of the Exchequer and to this Committee that it is not enough. It is a very exhaustive report; it is a mine of valuable information, but conditions have greatly changed since that report was presented to the House. It is a report which would immensely lighten the burden of any committee which might inquire into this subject and make a great deal of research unnecessary; but it is not the last word and cannot be taken as the last word, and it does not, with all respect, apply to the situation in which we find ourselves to-day.

The hon. Member for East Aberdeen (Mr. Boothby), in the extraordinarily interesting speech with which he delighted the Committee earlier this afternoon, referred to the Genoa Resolutions. He did not refer, as I should have expected him to refer, when he was talking about consultation with the central banks as the essential method laid down in those Resolutions of giving effect to them, to the constitution of the Bank of International Settlement which has since taken place. That has to some extent provided the means of arriving at the end which the hon. Gentleman has in mind, but which does not seem to have been employed for that purpose. The Chancellor of the Exchequer said, however, that he was quite clear that the main objective must be a return, to an international gold standard subject to certain conditions. We know that a number of conditions were stipulated in the announcements made at Ottawa and again in London at the World Economic Conference, but I should have thought that there were other policies which would have been worth consideration. I am doubtful about most of those which I have been asked to consider, but ideas have been put forward by economists, not only in this country but in other countries, which in the opinion of a great many people are worthy of consideration and investigation.

Even if we are definitely committed to the return to gold, let us consider what progress we are making towards the achievement of those conditions which the Chancellor of the Exchequer said are essential. He mentioned two—the removal of trade barriers and the raising of prices. As regards the removal of trade barriers, all that the Chancellor of the Exchequer has done since he talked like that at Ottawa has been greatly to increase the trade barriers. As a result of Ottawa, the trade barriers have been increased not only in this country but in the Dominions. As a result also of our adoption of Protection, it was stated in the House of Commons three weeks ago by the President of the Board of Trade that we had provoked, I think it was, 21 countries to increase their tariffs and 15 to the imposition of quota restrictions upon our exports—I do not wish to be tied to the figures, because I have not verified them. We entirely agree that the removal or lowering of tariff or quota barriers, and the removal of exchange restrictions, are essential preliminaries to any return to the Gold Standard; our complaint against the Government is that, far from making any progress in that direction, they are constantly, almost week by week and certainly month by month, adding to those obstructions which already exist.

The Chancellor of the Exchequer referred with great pride to the cheap money, and in so far as that cheap money is due to his financial policy and to the huge conversions of War Loan which he conducted, he is greatly to be congratulated, and I gladly pay my tribute to him, as I have frequently done, to his conduct of the finances in that respect; but cheap money is also a sign of something which is very much worse, namely, of appallingly bad trade. We shall not get back to better conditions of trade until we are able to lower the barriers to the international exchange of goods. Far from giving a consistent lead in that direction, the Government have never given a lead to foreign nations. When they come here they are told that it is to the excessive tariffs that we object. Our tariffs, we say, are quite new and very scientific, but we object to the excessive tariffs in foreign countries. Quotas? We have no quotas except those which are absolutely necessary for our domestic purposes, and which we are not willing to discuss, but it is the arbitrary quotas which are imposed by foreign countries to which we object. Subsidies? Shipping subsidies are most iniquitous and injurious to the nations of the world, and we want to get rid of those, but do not ask us to discuss the beet sugar subsidies or anything of that kind, because they are simply adapted to local needs. Foreign countries will not deal with us on that basis. They will only deal with us on a basis of the common interest of mankind and of the trading nations of the world to free the channels of world trade of obstructions. They will only deal with us if we show them that we, also, are quite prepared to make our contribution to that process.

The Chancellor of the Exchequer, I think, has failed to make out the case that all is well, that we are being so successful, and that the expansion of trade is continuous, in face of this wretched expansion of exports of 11 per cent. over what is the worst year but one since 1905 for British exports. The President of the Board of Trade gave us some indication yesterday, in respect of shipping, of how serious is the position of our foreign trade. In these circumstances we have no right to adopt this complacent attitude. We ought to busy ourselves in every direction we can to improve trade, realising that the monetary problem lies as the very root of the prospects of this improvement. The Government ought not so cavalierly to dismiss a demand which, although it may have been voiced mainly from these benches this afternoon, has, in fact, been made in speeches from all parts of the House.

7.22 p.m.


As the first supporter of the Government to speak since the Chancellor of the Exchequer made his announcement in regard to Germany, I hope the Committee will allow me to add my tribute of congratulation upon the result which the Chancellor was able to announce a few moments ago. In every quarter of the Committee there will be great satisfaction that this agreement has been completed. It is true that we are not yet in possession of the whole of the details of that agreement, but from what the Chancellor of the Exchequer said it is evident that an arrangement has been reached which is satisfactory to both sides. I am sure that from every quarter of the Committee there is real congratulation to the Government and to the Chancellor of the Exchequer for the result of the negotiations which he has been able to announce to-day.

I have listened with great interest to the speeches which have been made on a subject which is of great interest to almost everyone of us. We may congratulate the Liberal party upon the fact that they took this opportunity of raising a matter in which the House of Commons always takes a very definite, if a somewhat limited, interest. I was a little surprised at the intervention of my right hon. and gallant Friend the Member for Caithness and Sutherland (Sir A. Sinclair), because although he started to support the setting up of the committee, he went on to make a speech which was reminiscent of some I have heard him deliver before, and his speech became really an eloquent address in favour of Free Trade. I do not want to follow him in that matter, except to refer to one point which he made. He said that the Government were not only complacent, but that they acted on the principle of putting up more and more barriers against foreign trade, in the shape of subsidies or tariffs. He went on to tell us that we would never get any Government in the world to work with us if we continued on those lines. My right hon. Friend has surely entirely forgotten that there was a party in office not very long ago who also had a very active and earnest President of the Board of Trade, who spent not days and weeks but months in trying to get Governments all over the world, and particularly in Europe, to agree to work together on a Free Trade basis. It is well known that he had to admit quite frankly that all his negotiations on those lines had failed. I suggest that it is hardly doing justice to any Government working under the present circumstances of trade in Europe to suggest that no attempt has been made by this country to work on what my right hon. Friend would describe as a Free Trade basis.

I rose, however, to refer to the proposal for a committee of inquiry into monetary policy, contained in a new Clause which the hon. Member for East Edinburgh (Mr. D. Mason) has upon the Order Paper during the Committee stage of the Finance Bill. Even before the Chancellor of the Exchequer spoke I was convinced, anxious as I am in regard to this matter, that this was not the method by which it should be approached. I invite the attention of the Committee to the wording of the Clause, which is to "set up a Committee of Inquiry into monetary policy the Members of which shall be appointed by the Treasury."

All I can say is God help the Treasury if they have to appoint it. If the other proposal were accepted, namely, to set up a committee to inquire into the basic principles upon which the present monetary system is founded, we should be going into matters which are of great moment, but, which, I believe, cannot be dealt with by the mere setting up of an inquiry immediately by the House of Commons. I do not approve of the setting up of the committee in this way. I am satisfied with the methods by which the Government have managed their financial policy since we went off gold. Let me qualify that: I am satisfied that they have done the best they could, but I think that anybody else would have done almost as well. The fact of the matter is that they were forced into the position of acting as they are acting now. I do not refer to the excellent management by the Chancellor of the Exchequer of the conversion scheme, but to the general policy in the financial affairs of the nation in the last three years. So far as Treasury control is concerned, the principles under which the Government have had to work have been brought about by the conditions which existed in 1931 when we were forced off gold.

I do not think that we should gain very much therefore by merely inquiring into the present system. My hon. Friend the Member for East Edinburgh (Mr. D. Mason) with great justice looks upon to-day as his field day. This is his special day. He brings before the Committee all the advantages of the Gold Standard and he tells us quite frankly that he is a Gold Standard man. I admire my hon. Friend greatly for his pertinacity and for his staunch Conservatism. He read out at considerable length paragraphs in the speeches of Sir Robert Peel and others, 100, 120 or 130 years ago, and I began to wonder whether my hon. Friend was a Liberal at all. I am certain that he is the one person in the country who really can answer the question as to what the Gold Standard is. He is the one person who really feels that he knows what it is. I suggest to him, with great deference, that a very large number of so-called experts find it impossible to give an answer to the question. I am reminded of the story of a little girl who came home from school and asked her father what the Gold Standard was. He said, "I cannot tell you what it is, because I do not know." She said, "But the girls at school say you ought to know, because you are a banker." Her father replied: "All I can say is that, when we were on the Gold Standard, it was all wine, women and song, but now that we are off the Gold Standard it is all beer, your mother and wireless." If I do not follow my hon. Friend the Member for East Edinburgh into a disquisition upon the Gold Standard and its merits or demerits in the past, it is not that I do not realise the earnest nature of his convictions. He, possibly, is the one person who is prepared to say, "Go back to the Gold Standard at once, just as you had it in the days of the Bank Charter Act, 1844."

The position as I see it is that we are working fairly satisfactorily on the system which was forced upon us in 1931, and no further inquiry into the working of that system, whether set up by the Government or by the House of Commons, will get us anywhere. But there is a far wider question into which the Government will have to inquire, either directly or by means of some body set up either within or without the House of Commons. I do not think that any of us who follow the position of trade and industry in this country can fail to be impressed by the fact that the expansion which has taken place during the past 18 months must gradually draw to an end. It is impossible that that expansion can go on at the same rate, or, indeed, perhaps at all. I think there will be very little opposition to the statement that it is very largely an expansion in our internal trade. What is going to happen—we may as well face the position—when that expansion ceases? There is here a problem, not only for this country, but for the whole world: How are we going to arrange the economic and financial system to deal with national and international trade in view of the complete change that has taken place in the whole system under which we live in the world.

Let me try to give an illustration of what is in my mind. The change I speak of is not new; it has been going on for many years; but recently the process has become much accelerated. It is a process which is very often described as replacing man by the machine. The position to-day is that, by a very much smaller expenditure of man-power, it is possible to secure all the production that the world wants. Every possible article of consumption, whether of necessity or of luxury, can be produced with a small percentage of the man-power that was previously used. What does that mean? The world has to face the position that it ought to mean a very much larger leisured period of life for all of us; that is the real answer to the bounty of Nature and the scientific development of production. But the result up to date, instead of being of benefit to mankind, has been disastrous. I suggest to the Committee that it is on the question of what is to be the result of that development in the future, not only in this country but in the world, that inquiry is necessary.

The other day I came across an illustration or two, which I will venture to give to the Committee, of the extent to which this change has taken place. I have said that it is not new. I find that, as long ago as 1886, the Commissioner of Labour Statistics in the United States reported that 4,000,000 persons then in the manufacturing industries were producing as much as 21,000,000 people could have produced under pre-machine conditions. That was in 1886, nearly 50 years ago. Let me give now an illustration brought right up to date. The first electrical grain harvester, produced in 1932, can harvest 10 acres an hour—four times the speed of the previous machines. It reaps and stacks the grain simultaneously. Two men are required for its operation. That example is from Russia. Turning again to America, in certain areas where rates for electric power are low, a nickel's worth of current will milk 10 cows, separate 1,400 portions of butter, sharpen an axe on a grindstone six times, pump two days' supply of water for people and animals, run a sewing machine for five hours, or do two big family washings.

It is, I suggest, worth while for the Committee to take an opportunity such as we have to-day, to consider into what matters an inquiry is really needed. It is not, I suggest, into the working of the present financial system; it is not into whether the present system of Capitalism should be replaced by Socialism. Socialism is unable to give any answer to those questions; it has never even tried to deal with them, nor for that matter has Capitalism either. The fact is that the whole conditions of the world are changing, and, unless we are prepared to alter the whole, economic system under which we live, and to adapt ourselves to these new conditions, we shall find ourselves faced with continual penury and want because we have not done so.


Develop mechanisation.


That is only one part of the problem. There are other factors, but I have given that as an example of the facts that the world will have to face. These are the matters that need to be inquired into. How it is to be done—whether by Government action or by international action—is too large a question for any one Member to deal with at the present time; I can only say that these are questions which every nation in the world will have to face. There is, of course, a definite and urgent monetary and financial aspect of this problem, and it is to this larger matter that I am trying to draw the attention of the Committee. Under our present system, the community becomes inevitably indebted to the banking system of this country for all the money that is required for production, by means, as we all know, of the credits supplied by the Joint Stock banks, on the basis roughly of 10 to one of their assets. All this money comes originally from the Bank of England. It is very doubtful whether this system can continue under the new condition of things which most of us cannot help seeing must be faced very shortly, but let me say again that that change has nothing to do with the political fights about Capitalism or Socialism; it is a much greater matter than anything of that kind—it is a change in the whole economic system of the world.

Are we going to continue to keep money as a thing of value in itself, or are we going back to the days when money was nothing but a token? As long as money, whether it be gold or anything else, has a fluctuating value, it puts a premium on the difficulties of production. To-day production is restricted by the quantity of money available. That in itself is wrong. The object of the economic system, surely, is to supply goods and services as and when they are required, and, therefore, it is illogical that the money supply should govern production; it is production that should govern the money supply. Under the economic system of the future, if human labour is displaced, as it must be more and more by the scientific development of production, by mechanisation, and by the other changes that are coming, we shall undoubtedly have to face a change in the financial and economic system, which covers also the monetary and currency systems of the world; and that is a problem, not only for this country, but for the whole world.

In conclusion, I would say that, if the Government can give us some lead as to what they are thinking, as to the lines to which their minds are turning, in connection with that greater problem, that I have tried to indicate the House of Commons would be a great deal happier than it is to-day. There are Members in every quarter of the House who are seriously disturbed about the future, not because they find fault with the management of the present financial system by the Government, but because they are wondering whether the Government, or those whom it employs to undertake research into these matters, really realise the changes that must come, and, if they do, what action they are going to take to meet them.

7.42 p.m.


I do not think there has been in recent weeks any Debate in this Chamber which will attract more public attention and interest than this Debate on a subject of which a widening circle of persons, who until recently had no interest in these matters, are every day becoming keen students. Not only in this country, but throughout the world, stirrings and studyings are going on, and it is little to be wondered at, because everybody is asking for the answer to the amazing paradox that, as the world gets richer in goods and services, the majority of the people in the world get poorer and poorer.


That is not true.


The hon. Baronet says that it is not true. It may not be mathematically exact that the man who is unemployed to-day is actually living in greater misery than a man who was unemployed a decade ago, but relatively to the wealth of the community it is true, and the impression produced—and this is what I am addressing myself to—in the mind of the ordinary man and woman is that poverty, in existing circumstances, is indefensible. More remarkable still than the interest taken in the subject is the amazing attitude—I can use no other word—of the Chancellor of the Exchequer. One would have thought that, when the Chancellor of the Exchequer had been addressed by Members of all parties—Members who in many cases have made a life study of these matters, and who have occupied important positions in the Government in connection with this very question, like the right hon. and gallant Member for Ripon (Major Hills), with the whole of whose speech I found myself in almost complete agreement—when such obvious public interest is reflected in the House of Commons in a subject of this kind, one would have thought that the Chancellor of the Exchequer would not merely have repeated the complacent platitudes which we have heard from the Front Government bench over and over again, The Government, apparently, are thoroughly satisfied with what is happening; they look complacently upon the world enjoying the gentle rain of their beneficence, and they are trusting to the hope that things will go jogging on much as they are. I submit with the greatest respect that that attitude is one which the House of Commons should find it extremely difficult to tolerate.

There is, surely, in existing circumstances, no kind of justification for the fact that millions of our fellow-countrymen are short of food, clothing and housing. We have millions of people out of work who are capable of producing the commodities which make the difference betwen poverty and comfort. We have at the same time a glut of the raw materials from which those goods can be made. On every hand we have capital standing idle—liquid capital accumulating unproductively, and actual capital, in the form of the tools of production, standing rusting away. We have the material, we have the labour, we have the capital; but we lack the wit to bring those three essential factors together, and to replace poverty and want with employment and security and comfort.

It is felt by an increasing number of people, whether rightly or wrongly I do not know, that the problem may be due to some fault in the monetary system. It is expressed sometimes that we are trying to force the productive capacity of the 20th century through the bottle neck of a monetary machine which was devised in the 17th century. It may be that somewhere in that direction the answer to this paradox lies. Surely one would have expected the Chancellor of the Exchequer as the Minister charged with the direction of the nation's policy in this most important matter to show a little interest in a great public demand of this nature, instead of which he repeats that the Government policy is meeting things very satisfactorily and very comfortably. I should imagine that the reduction in unemployment is almost entirely due to factors outside the Government's policy altogether. The Government were elected to avoid doing the one thing which has had the greatest possible effect on the unemployment figures. It was elected to cling to the Gold Standard. The Labour Government were betrayed by their leaders because they insisted on clinging to the Gold Standard at all costs, and it was to avoid a departure from the Gold Standard that the Government were dissolved and the Election took place.


Was it the case that the Members of the late Labour Government, with the exception of those who are now supporters of the National Government, were in favour of going off gold?


I said that the purpose of the formation of the National Government was to avoid going off gold. Have we forgotten the antics of the Prime Minister in paying his election deposit in depreciated German marks in order to demonstrate that he was asking for a mandate to avoid these terrible things? Surely I need not follow it any further. The whole point of dispute between my hon. Friends and those with whom they parted company was whether or not action should be taken which would force this country off the Gold Standard. It was the fact that the Government, fortunately, was unable to carry out the policy for which it was formed that put a premium on exports, which so greatly improved our export trade and the employment position. It is surely rather beside the point in a Debate of this kind, of an entirely non-party character, for the Chancellor to repeat that he in his wisdom and his party have rescued the country from the horrors of inflation. Nothing of the kind. We know very well that what has happened is due almost entirely to this change in monetary policy. But that is not the point of to-day's Debate. This Debate is to direct attention upon this essential paradox of the capitalist system, the paradox of poverty and unemployment in the midst of plenty and in the midst of wealth, with the certain knowledge that every increase in man's capacity of producing wealth will result in an increased amount of unemployment and poverty.

We have to decide what we are going to do about this paradox. How are we going to get the increased product of mechanised and scientific production consumed? I suggest that we shall never get it consumed so long as we insist on basing our monetary policy on the Gold Standard. The Gold Standard is an inflexible standard. Its sole purpose is to secure the stability of the exchanges, to secure that the money of one country has a constant exchangeable value with the money of another country. But it fails to provide the first essential quality of a monetary system, which is to provide for the stability of purchasing power of our own coinage, and it is obvious that we have had a more stable purchasing value of the £ since we abandoned the Gold Standard than before that date. The second essential criterion of a monetary system is literally whether it will deliver the goods—whether it gets the goods that are made consumed. Surely the purpose of a money token is to be a means of exchange between the producer and the consumer, and if the monetary system fails to achieve that, if it fails to secure that all the goods that are produced are consumed, it is a failure. We have evidences of that failure. We are suffering from poverty, from unemployment, from stagnation of trade and from all the difficulties that we are now experiencing, not because we are over producing but because we are under consuming—because the great pool of demand for food, for clothes, for houses, for books, for travel, for education, for all the equipment of a civilised life is ineffective through poverty.

Our monetary system has failed to enable our potential consumers to satisfy their demands, and in such circumstances the House has a right to expect that the Chancellor of the Exchequer will be willing, at any rate, to listen, to examine and to inquire. The working people—not only manual workers but an increasing number of people who work in offices and banks and in the distributive trades—are facing poverty, worry, insecurity, unemployment and the threat of unemployment in the increased bitterness of knowing that it is unnecessary, that it is avoidable and that it is indefensible. The Committee would have been better pleased had the Chancellor shown some interest and some sympathy with the general public interest which we reflect here rather than repeated the fallacious platitudes about beneficence of his own actions.

7.54 p.m.


I should like to take the opportunity of congratulating the Chancellor of the Exchequer and the Government on the result of their negotiations with the German Government. It is the most satisfactory news that we have heard in the last few days, and it should certainly lead to increased confidence and hope in regard to our relationship with other nations. One factor which has not been mentioned to any great extent to-day, but which to my mind goes to the root of the problem in regard to money, is the question of confidence. Many nations seem to think that you can repudiate or refuse to pay a debt in a very light manner and expect at the same time that this system, which is built up above everything on confidence, is going to run on in the same way that it did in the past. Someone once drew my attention to the fact that the great mass of our food supplies and necessities of life come to us from other nations, are carried in ships from all parts of the world, financed on the promises of merchants, bankers, and financiers who simply put their names to little pieces of paper, and on the credit of those pieces of paper your great industrial system is being carried on. If you once get to the point that the credit of those pieces of paper cannot be relied upon, you begin to open up the endless difficulties and troubles which are perplexing the world to-day.

Confidence, to my mind, is the first necessity of a sound financial system, and that is one reason why I welcome the agreement that has been made so successfully with the German Government. The next point that is essential is, I think, stability. I believe that the problem in regard to money is linked up with the exchange system. It is one of the misfortunes of the Liberal party that, when they bring up these questions, they always sooner or later get on to the question of Free Trade. We had a passionate appeal by the right hon. Baronet who spoke last from the Liberal benches, but it was pointed out that the late Mr. William Graham did everything he possibly could at Geneva to bring about a reduction in tariffs and not a single nation responded to the appeal. No one could say that Mr. Graham was not as true a Free Trader as anyone on that bench, with the exception of the hon. Member for East Edinburgh (Mr. D. Mason), whom we look upon as standing by himself. I always look upon him as an emblem of 100 years ago—in the words of Milton: Faithful found Among the faithless, faithful only he. When I hear an appeal like that of the right hon. Baronet that we should approach the nations it seems to me perfectly futile. It seems to be forgetting that the world has changed. These other nations have chosen, for better or for worse, to build up their home factories and in many cases to supply good which in the past they have been content to take from us. Can we imagine that a sentimental appeal is going to induce them to reduce their tariffs to such an extent that these factories will be swept out of existence? We have to face up to the problem on the new lines of today, which to my mind are the lines that are being carried out by the Government. We shall have tariffs and quotas. These are matters of negotiation.

Meanwhile, hon. Members are often diverted from the much more hopeful question of whether more cannot be done in regard to the removal of the exchange restrictions. Therefore, I feel that we are facing an international situation. Many of the poorer countries have to be considered in the light almost, one might say, of a bankrupt customer. If we are to help them we have, in the first place, to consider the whole of their financial condition. Some community, either the League of Nations or a group of the Wealthier nations, will in many cases have to find out whether assistance in some form is not just as necessary to some of these other countries as it has been to nations like Austria, even though one has seen the difficulties in which a small nation like Austria is placed.

I was amazed at the speech of the hon. Member for Lowestoft (Mr. Loftus). His idea seemed to be a world in which there was no trade at all between the nations, and, as far as I can gather, the ideal at which he was aiming would be reached when international trade of every kind had been brought to an end. The hon. and learned Member for East Bristol (Sir S. Cripps) seemed almost to lend himself to that idea. I may have misunderstood him, but I could not gather from the speech of the hon. and learned Member why he should have objected, even if he thought that under that system the rentiers or capitalists of this country were wasting their money. I speak of the world as it is to-day and not as it is going to be sometime, as outlined by the hon. and learned Member for East Bristol. One of the mysteries I have never fully understood is how and upon what lines the world is to be formed when he has drawn it up according to the methods and ideas to which he refers but never fully explains to us. Speaking of the world to-day, we have to arrive at a state when the wealthier nations will be prepared and able to lend money to some of the other nations. The extraordinary statement was made from the Labour benches that the monetary system does not make any difference to the workers. But when, money is lent to another nation, sooner or later, in some form or other, in nine cases out of ten, it is almost certain that money will go out of the country in the form of woods. The manufacture of these goods will produce profit and bring wages to a certain number of workmen engaged in making commodities for overseas.

The hon. Member for East Fulham (Mr. Wilmot) said "Look at the disastrous state of this country." He compared it to the days when this country was the great lending nation of the world and when this country was the most prosperous and the workers were making goods for export to all parts of the world. I disagree entirely with the statement which was so confidently made by the hon. Member who, I am sorry to say, is not now present. We are both going to the same dinner. He has got ahead of me at the dinner table, and I shall have to delay my arrival until a later course. He is a much younger man than I am. When, 40 years ago, I became acquainted with the constituency which I represent here to-day, there was a great mass of poverty and slums, and I have not the slightest hesitation in saying that for the hon. Member to say that the condition of the working class to-day is worse than, or as bad as, it was 40 years ago, is utter rubbish. I do not wish it to be understood that I think that they are in a good condition, but it is absurd to say that they are in a worse condition.

One has only to think of the social services which have been brought into existence. When I first went there, there were not even old age pensions, much less health services. The whole of the medical services for the schools have come into existence since that time. To-day there are widows' pensions, and some £200,000,000 or £300,000,000 a year is being spent on services which were not in existence at that time. Unsatisfactory as the position is to-day, it is absurd to suggest that the condition of the workers generally has not been bettered. People have begun to realise the opportunities of life, and are rightly asking for a larger share of what they consider should be possible to them. In the days when I first went to my constituency, poverty and want were so great that the people did not realise what life meant. One has only to consider what was given in the form of relief to realise the change which has taken place.

The hon. Member for East Fulham also referred to the question of the mechanisation of industry, and I doubt whether he is not equally incorrect in that. I remember reading an article on the subject in the "Economist" a short time ago, in which it was shown that, if you make an allowance for the fact that mechanisation leads in many cases to cheaper goods, it has been discovered that, granting that there is a demand—

Notice taken that 40 Members were not present: Committee counted, and 40 Members being present


I was referring to the charge made by the hon. Member for East Fulham that mechanisation led to a reduction in employment and to poverty. I was drawing attention to the article in the "Economist" some time ago which entirely refuted the argument made by the hon. Member. I want to say something in regard to the real subject before the Committee on this occasion, namely, the money problem. I agree with the hon. Member that there are many people in this country who recognise, as, I think, all hon. Members do, the evils of our social system. Some have too little and others seem to have too much. We have seen unemployment and poverty in our midst, and undoubtedly many men and women think that, in some way, it is due to our monetary system. The result is that we have many schemes proposed by different schools of thought in an attempt to do what they can to solve the problem. It is very doubtful whether the money solution will in any way be a contribution in any way comparable to that which is expected.

When I first heard the suggestion of the appointment of a committee, I thought that hon. Members on the Liberal benches were to suggest a committee of Members of this House which would have given some of us interested in this question the opportunity of meeting together to try to find out whether some light could be thrown upon the problem, which is so exceedingly difficult and complex. I understand that the proposal is a much larger one, and in consequence I am not so attracted by it, committees or commissions take such a long time, and they get so lost. It was not quite the idea I had in mind when someone approached me and asked me whether I favoured a committee of that kind. I still cannot help thinking that there would have been considerable scope for a committee of Members of this House. I agree very largely with the interesting speech of the hon. Member for East Aberdeen (Mr. Boothby) in regard to the future line of action. I understand that the Government cannot say anything on this problem, the solution of which does not rest in the hands of any Government in this country, but solely in the hands of certain nations. Until we know what America is to do, it is practically impossible for us to make any definite statement as to what we are to do. It ought to be possible to come to an understanding in regard to some new monetary system. It is obvious that an understanding will have to take place. There will have to be consultation with great nations like the United States of America and France, and one or two other of the leading nations, in order to obtain a uniform policy as to the level at which the different nations now off gold are to return to gold. I cannot envisage in the world to-day any other monetary system than one which, in some ways, has to be based on some form of gold standard.

I think that the hon. Member who said that the Gold Standard was so rigid rather exaggerated. The old standard was rigid, but I think that it is possible so to adjust and alter the whole of the working arrangements that some of the hardness of the system may be removed, and that it could be made to expand much more easily according to the needs of the producer for financial help. The hon. Member exaggerated the system as it is to-day. He said that the financial side entirely governed the productive side. That is incorrect. It has to be remembered that the system of credit is an elastic one. You might get a figure to-day, but if there were a greater demand for trade, such figure could easily be expanded by the traders themselves. They need not go only to the bankers; trade is not financed only by the banker lending money. In the past, especially, it was financed by the system of issuing and the drawing of bills, which is a matter carried out by the trader not necessarily in connection with the bank at all but with the accepting houses. It means an enormous expansion of credit. There are hundreds of millions of bills in the world to-day. The system could be expanded to any extent as long as there was genuine trade requiring assistance. But if one looks at the position to-day one sees large sums of money lying idle. It is most essentially a case of the banking system, waiting for trade. That is one of the things which makes me rather doubtful whether any great alteration in our financial system will meet the problem with which we are faced to-day.

I should have been only too glad if it had been possible in some way to have explored this great unknown question, unknown in one sense, in regard to which knowledge is so important. It seems to me that the line on which the Government are moving in their financial policy is the only one that they can possibly follow, and unless one has the information, which is known only to Ministers, as to what can be done in approaching other countries or in helping to come to an understanding between this country and the United States of America, and the countries which are still upon gold, it makes it almost impossible to criticise and to say that more could be done, because we may find that the decision rests in the hands of other nations rather than our own. We are indebted to the Members of the Liberal party who have brought up this question, because among the many questions which are important to-day there are few that are more important than finding a solution of the financial problem.

8.16 p.m.


I am sure that the Committee is sorry that the hon. Member who has just spoken has had to sacrifice his dinner. I do not know whether he feels that it was worth while to make the sacrifice, but those who have had the pleasure of listening to his speech will feel that it was. I think a Debate on these great issues shows up the House of Commons in an extraordinarily interesting light, in that it reveals the diversity of viewpoints. I have listened to most of the speeches and I have found that each speech had its distinctive emphasis. The hon. Member who has just resumed his seat is somewhat perturbed because certain Members on these benches emphasised the issue of Free Trade, Whether we discuss Free Trade or loans for development purposes or any of the other points raised to-day, they are all facets of the same fundamental problem, and that is, the spanning of the chasm between production and consumption.

May I say that in his somewhat complacent speech the Chancellor of the Exchequer rather assumed that this had been brought forward as a gesture of censure upon the Government in respect of their financial policy. It is nothing of the kind. Let us give the Government full credit for the restoration of confidence. Let us assume, if you like, that all the improvements in trade, all the improvements in the figures of unemployment, the extension of industry and so forth, are due mostly to governmental action. Still, when we realise the stupendous possibilities of improvement in the standards of life if the statesmen of the world were sane, we cannot be complacent. I do not say that this country, whatever Government it has, can really solve the problem on its own account. I have no doubt that the hon. and learned Member for East Bristol (Sir S. Cripps) is full of optimism about what a Socialist Government might do. I have no doubt that they would tackle many problems, but is the ownership of industry and the ownership of the banking system really relevant to the problem we are discussing to-day? You must have some sort of standard of value, some sort of mechanism whereby goods and services can be exchanged.

I should like to make one or two points, and the first is, that there is a real danger of overstressing the monetary factor. When one considers the position of the world to-day—mention has been made in more than one speech of the actualities of the situation—there never was a time when man's capacity to produce was as great as it is now. Civilisation on its material side consists of a multiplication of human wants, and our capacity and willingness to consume is ever increasing, but we have not yet solved the problem of distribution. There is common ground between us, whether the speeches come from the Labour benches, the Conservative benches or these benches, that we are all attacking the same fundamental problem, and that is how we can span the gulf between production and consumption and bring within the reach of the masses of the people the abundance of wealth which we have learned to produce.

We are not quite right in insisting that the monetary problem is the sole problem. It does not matter very much how you reorganise the international money basis. Whether you return to an automatic Gold Standard, whether you have a reformed or managed international Gold Standard, whether you have what Sir Basil Blackett suggests a systematising and development of the present paper currencies of the Empire into the form of a Sterling Union, or whether you enlarge the functions of the Bank of International Settlement and make it a clearing house for commercial debts as well as inter-governmental debts, none can work unless you have willing co-operation between the nations and a willingness to trade one with the other. Therefore, I feel the inappropriateness of the remark of the last speaker concerning the relevance of Free Trade. I am not going to discuss Free Trade. We are living in a world that has made up its mind to limit trade, a world all tangled up with debt, a world in which nations have been trying to secure for themselves favourable balances of trade to meet their overseas obligations in respect of debts. No doubt Reparations and the question of inter-Allied debts have been contributory factors to the present world depression, and we cannot leave out their consideration from our discussion to-day.

Whether a Committe of this House or a committee of experts drawn from outside could make any worthwhile contribution to the solution of the problem, I do not know. We had the Cunliffe Commission, which made its report. From 1920 up to 1931 we were under the spell of the Cunliffe Report. I am not at all certain that many of the disasters, the shrinkage in trade and the continuous deflation which followed were not due to the report of the Cunliffe Commission, and I cannot but feel that if another committee reported along the same lines and the Government implemented that report that our last plight might not be worse than the first. But, surely, the conditions of the world have changed. When the Cunliffe and the Macmillan Commissions sat the world was still on gold. There was a certain measure of willingness among nations to trade with one another, a feeling of optimism that when the aftermath of the War had been dissipated they would live neighbourly and trade with one another. The condition of the world has altered, and we have to envisage this problem from an entirely new angle. Most of the great nations are off gold. What basis are you going to give to international trade? Sooner or later nations will have to come together, they will have to anchor their currencies to something stable, there must be some common denominator as the standard of value and the basis of commercial transactions. Sooner or later the matter will have to be settled internationally, but tremendous gain would accrue if we in this country could now settle down and study the situation from our own point of view.

Trade is improving, and the International Labour Office published figures the other day to show the universality of this improvement. We all rejoice. One feels that it is not entirely due to the action of individual governments. Governments have been resorting to artificial methods for raising internal price levels, these are cumulative in their effect, and after a period of depression there was a great void to be replenished, as in the case of iron and steel. No doubt for a time conditions of trade will show an improvement, but can you in confidence, viewing the realities of the situation, believe that this improvement will continue for any great length of time? So long as you have a tangle of debts, the necessity forced upon nations to build up a favourable balance of trade, to buy as little as they can and sell as much as they may in order to secure the means whereby to settle their overseas obligations, so long will you have economic nationalism rampant. A time is bound to come when it will be necessary for nations to come together to find a basis for international comity and economic co-operation. Sanity must surely return some day.

There is yet another aspect of the problem. I am not certain that the last word has been said on the problem of banking. I speak only of the domestic situation. There is a widespread suspicion to-day that our banking system is not so sacrosanct as it used to be, when people spoke in a whisper of those people who alone possessed that esoteric knowledge which could never be vouchsafed to the general masses of the people. The repercussions of our banking policy since 1918 have been such that there is considerable disquiet as to whether the banking system of this country has been managed in a way most helpful to industry and trade. Take the boom period; the banks yielded to the boom psychology with great facility. This country experienced an orgy of optimism, it was felt that we were standing on the threshold of a new era, and we know that many harmful operations were undertaken under the direct stimulus of the banks during that period. The coal industry, the cotton industry, many other industries; it was the golden age of financial buccaneering. We in South Wales know a good deal of these manipulations, as well as people in other parts of the country in areas which have been rendered derelict as the result.

The banks at that time had an opportunity of checking a boom which was largely psychological, which had no real basis in economic facts. When as a result of the Cunliffe Commission and the-subsequent decision to deflate and prices began to fall fears crept in, and the banks again yielded, with equal facility, to a panic psychology. Undoubtedly, a large number of industries were destroyed because of the summary withdrawal of credit facilities. A great deal of distrust was caused, and there are some people who are very apprehensive to-day. We know the commitments of the banks, we know that their assets are frozen in many large industries, that they have provided funds without due consideration, and that the Vassar-Smith Committee expressed' great doubt as to whether the banking system, as we know it, was equal to the task of exercising the wisest possible judgment in advancing credit.

The boom period proved that some coordinating authority was necessary, and I feel certain—I say this with all earnestness and with all reserve—that the reorganisation of many basic industries is being rendered impossible as the result of our banking system Can you reasonably expect a bank which has perhaps £500,000 or £1,000,000 in debenture stock in a great iron and steel undertaking to stand idly by, and see these works, because of their inefficiency, closed down? Can you expect it? I am not censorious, I do not blame them, but are the Government certain that the banking re-sources of this country are being harnessed in the interests of industrial efficiency? It is not enough for the Chancellor to say that the country ought to be completely satisfied with the situation. There are great possibilities which could be achieved to-day if the world were sane and if nations were willing to co-operate, but this will not be made possible merely by implementing some ingenious device. We may yet have to get back to our old-fashioned notions. What we want is stability, confidence. If a cohort of angels brought down a perfect monetary system, without good will and confidence among the nations and a willingness to trade and live in neighbourly fashion, they would not bring the abundant life within reach of the masses.

8.35 p.m.


I am not at all sure that I agreed with the hon. Member for Carmarthen (Mr. R. T. Evans) when he said that the Chancellor is not entitled to stand at the Box and be completely satisfied with what has been done since 1931. I find myself able to agree with almost every word that the Chancellor said. I think that when we look back over the conditions during the last three years there is a very considerable justification for the Chancellor congratulating either himself or his Government or his officials on the practical results of the financial policy that has been adopted.

There are very many reasons why a Debate of this kind is difficult in this House. It is not a party question, and particularly this is the sort of Debate which can easily degenerate into a succession of theoretical suggestions being hurled at the head of the Chancellor or the Financial Secretary—suggestions which really have no practical bearing on the problem. Yet there can be no question that in the country this is a Debate that will be very closely watched. During the last two or three years there has been a surprising development of interest in monetary questions. I observed only yesterday that a certain gentleman was convicted at the police court for throwing a brick through the window of No. 11, Downing Street, in order to indicate the fervour of his attachment to the Douglas credit scheme. He meant it for the window of No. 10. But surely his misdirected aim was the better one; he threw it through the window of the Chancellor's residence. That brick was some indication of the wide general interest in this monetary problem throughout the length and breadth of the country. We all find in our constituencies a very general opinion that the condition of the country and of the people is now affected by monetary policy in a way in which it has not been affected before, or at any rate in a way in which it has not been considered to be affected before.

In this Debate so far there have been many divergencies from the main topic. We have had the advocacy of the policy of 100 years ago by the hon. Member for East Edinburgh (Mr. D. Mason), whose views we respect but almost uniformly disagree with. There was the remarkable speech of the hon. Member for East Rhondda (Mr. Mainwaring). As I listened to his Marxist speech, which we all know so well, I began to get tired of these cardboard Socialists. It is all very well for hon. Members to come down here and pretend to be Socialists. They dare not even join the Socialist League of the hon. and learned Member for East Bristol (Sir S. Cripps).


Would the hon. Member care to explain where I made any wrong statement, and to correct me in any particular?


The hon. Gentleman and his friends if they were in office dare not put into force one half of the things that they breach from these benches in this House. They have not got the moral honesty of the three hon. Gentlemen who sit below the Gangway and believe in their doctrines. I give credit to the hon. and learned Member for East Bristol. He is a logical Socialist. I listened carefully to him this afternoon, and recognised that he must have been reading with great care Bernard Shaw's "Intelligent Woman's Guide to Socialism." We had whole paragraphs from that extremely erudite exposition of doctrinaire Socialism.


I have never read it.


I wish the hon. and learned Member would interrupt me audibly and on his feet. Yet I did feel that this Debate really ought to hang on the statement made by the Chancellor of the Exchequer at the Monetary and Economic Conference last year. I listened with great attention to the quotations he made from that declaration. Quite properly he said that on 14th June of last year he made a definite statement of the general lines of the monetary policy of this country. He said that "the United Kingdom delegation endorsed the view that the ultimate aim should be the restoration of a satisfactory international standard, and that there was no doubt that a Gold Standard seemed to be the most likely to be generally accepted." In qualifications he subsequently made it clear that he meant something more akin to what was indicated by the hon. Member for East Aberdeen (Mr. Boothby) than to what was indicated by the hon. Member for East Edinburgh (Mr. D. Mason).

The Chancellor went on to say that three conditions should be fulfilled before a real approach could be made to this ultimate objective. First was that there should be "a rise in the general level of the wholesale prices of commodities." When we compare the cost of commodity prices in the periods 1926–31 and 1931–34 there is considerable ground for gratification. If we compare price levels in 1926 with those of 1931 we find that there was a drop on the average of over 50 per cent. Lloyds Bank is my authority for this statement. Taking the mid-September, 1931, price-level index as 100, the price level in 1926 was 211. That is to say that between 1926 and 1931 prices had more than halved. From mid-September, 1931, until the present year prices have increased by 18 per cent. That is not great, but it indicates that there has been a definite move in a desirable direction. The second condition that the Chancellor made was that there should be a removal of the factors which caused a breakdown of the Gold Standard in the past—factors which he described as reparations, War Debt payments, and obstacles to international trade caused by export tariffs, exchange restrictions, and other abnormal impediments. As has been said, there is really not much ground for satisfaction on that score.

The third condition laid down was perhaps the most interesting of all. It was that the Gold Standard was in future to be so administered that wide fluctuations in the purchasing power of gold, in so far as they arise from monetary causes, shall be to the greatest possible extent prevented. That qualification was very much in line with what was intended by the hon. Member for Eastern Aberdeen when he said that, looking to the future, we must look to a form of currency that is partly related to gold and partly a managed currency.

I want to ask the Financial Secretary whether it is in his power to go a little further than the Chancellor went. I think we can agree that, having regard to the circumstances, the Chancellor can be gratified with the progress we have made along the lines that he indicated in June last year. But he said this afternoon that there seemed no prospect of those conditions being completely fulfilled in the near future. He went so far as to suggest that they might never be fulfilled. If his prognostication was correct, we want to know what we are going to do in the absence of the fulfilment of those conditions? I think there can be little doubt that in the absence of the fulfilment we shall have to proceed with our monetary policy on very similar lines to those on which we have proceeded during the last 2½ years.

If I have heard any complaint at all against the Treasury, it is that they have been doing a thing at the same time as they have been vehemently denying that, they have been doing it. I know that that is in the true tradition of this country. We achieve a revolution and vehemently deny that a revolution has been achieved. But no reasonable person can doubt that during the last 2½ years the monetary policy of this country has been that of a managed currency. According to the Chancellor of the Exchequer himself, before we can get an international gold exchange standard certain conditions have to be fulfilled which in his view are not likely to be fulfilled in the near future and may never be fulfilled. Very well. We have shown during the last 2½ years that even in the absence of the fulfilment of these conditions we have yet been able to conduct our monetary policy very satisfactorily. I do not think that any reasonable person can have any serious complaint against the conduct of our monetary policy in the last 2½ years.

The short point which I want to make is this. In the absence of the fulfilment of those conditions, has not the time come when the practice of management that we have been pursuing during the last 2½ years might be erected into a theory? I agree that it is often a mistake, particularly in monetary matters to determine theory first—that is a theory that is strict, dogmatic and rigid as the Athanasian Creed—and to say that your practice shall not move outside the bounds of that theory. A monetary theory depends for its success on so many attendant circumstances which may not in fact be present, that if you are bound to theory you may fail. None the less, in view of the fact that we have proceeded not by the method of first having a doctrine or a theory and then putting it in to practice, but empirically and by the method of trial and error, I would ask whether we have not now got sufficient experience and sufficient knowledge of the reasons why we have achieved such success during the last 2½ years, to enable us to say definitely what we are doing and what we are going to do?

I feel that the business community of this country would have even greater confidence than they have to-day, if they knew with some degree of definiteness what theory of money we are using to guide our policy. We do not know at the moment. We are satisfied with events as they pass. [HON. MEMBERS: "No."] I know the hon. Member for East Edinburgh is not satisfied but I would say that the majority of us are satisfied. But we do not know when the Government may depart from the policy which they have pursued. The present policy which has succeeded in maintaining price levels fairly stable is satisfactory to the business community but we do not know when the Government may leave that policy and indulge in a further bout of inflation. I do not believe that they are going to do so but it would help the House of Commons to be confirmed in their confidence in the Government and it would help the country and the business community if my hon. Friend the Financial Secretary could go a little further than the Chancellor of the Exchequer went in his very interesting speech and could tell us whether there is any prospect that the practice which we have been pursuing during the last 2½ years might now be erected into a theory and a statement of that theory issued to the country. I am satisfied that, substantial though the recovery in confidence has been, if such a statement could be made then that recovery would continue with increasing success and rapidity.

8.50 p.m.


I am sure all the Committee were deeply interested as I was in the statement of the Chancellor of the Exchequer in regard to the settlement with Germany. It will remove an immediate source of great anxiety and disturbance not only in the financial world but in the business world generally. Although there is much yet to be got over, at the same time it is highly satisfactory that we have been able to come to terms with Germany by diplomatic means rather than by employing any of those methods of violence which lead to the disorganisation of ordinary trade and which are becoming, alas, all too frequent in certain parts of the world to-day. We owe a debt of gratitude to those hon. Members who ask that this Vote should be put down for for discussion to-day. As has been pointed out, this monetary question is causing a great deal of interest and also anxiety not only in this country but throughout the Empire, as I know from having made a tour through many parts of the Empire recently. The anxiety which exists today is, I think, largely due to ignorant teachers of ignorant people. I for one have to be extremely careful in anything that I say on this subject here, because I may be in the presence of an expert who does really understand this question. But one has met many so-called experts who have given themselves away completely the moment they proceeded to expound their theories in detail.

The first question which I would ask is: What is the matter with our monetary policy to-day? I have not heard one single word in this discussion or in the discussions which frequently take place in chambers of commerce at which I attend regularly which could be taken as evidence that the monetary system practised in this country to-day is the cause of our trouble. I agree with what has been said that there are many causes for our troubles. There can be no question that there are troubles in the world and that we ourselves are still suffering a great deal, but those troubles are largely, if not entirely, economic and the result of the bad financial and monetary policies of other nations. For instance, why did we leave the Gold Standard? It was solely because of the ruinous and foolish policies adopted by certain other nations in diverting gold from its proper purpose.


Then it was not the policy of the Labour Government?


I am not discussing this matter from a party point of view. I think I did hear something from the hon. Members who have spoken on the Opposition side which savoured a little of political discussion but I do not propose to follow them in that, because it is an old story which neither amuses nor interests people very much now. I want to deal with the serious problem which is raised in this discussion and the more one goes into this question in discussion with other people the more one realises how little is known of what money really stands for. One hears people talk about money as if it were something in itself. We all here know that it is nothing in itself and that it is merely a token of the value of goods and services of one kind or another but it is impossible to get that idea into the minds of many of the people who are always complaining about our monetary system. In my recent tour throughout the Empire I found that Major Douglas attracted vast crowds of people by his addresses on this question but the people who were attracted were mostly people in a monetary difficulty to whom any way out of an embarrassment appeared welcome. It is very uncomfortable to feel that the bank may be coming down upon you for something more than you are able to pay but that, after all, has nothing to do with the general monetary system.

I found in certain parts of the Dominions a demand that we ought to alter the currency. One man with whom I discussed the question said to me: "I want you to understand the real position. I borrowed £5,000 from the bank when maize was 6s. and maize is 3s. to-day. What does that mean? It means that the money the bank lent me is not the money that I owe them to-day." I asked him one question only. I said, "Tell me, what would you have done if, when you had borrowed your £5,000, maize had been 3s. and it had then gone up to 6s.? Would you have paid the bank double?" He said, "Certainly not," and I said to him, "Just think that over." Like a sensible man, he thought it over, and he came back later and said, "I think you are right. I must make the best arrangement I can with my bankers." If people would only be sensible and see the real position in these matters, they would realise that it is not monetary policy but doubtless economic policy or their own business methods that have got them into trouble.

We have been discussing this question from many points of view, but what the Chancellor of the Exchequer said was very valuable to the country as a whole, because I ask again: What is wrong with the monetary policy of this country to-day? When we look back, we can sec how we have emerged from the almost hopeless condition of two and a-half years ago, and how we have, by careful management, not only come right through it, but stand in a position to-day in which no other country in the world stands, and our currency, although it is off the Gold Standard, is looked upon as entirely reliable. The hon. Member for East Edinburgh would insist on talking about the depreciated pound. That is one of the foolish statements—I say it with all respect—that people made when we first got into trouble, but the longer we went on, the more people began to realise that the pound had not depreciated at all, but that it was gold that had appreciated. I would like the hon. Gentleman on the Labour benches who smiles at that remark to go to those countries where gold is the standard to-day, and he would find that the cost of living there has increased enormously, just because the particular measure and value of their currency is so different.

We have been forced off the Gold Standard by the folly of others, and now we have to carry on as best we can. Every business man and everyone who deals with the trade of the world must admit that we must have some foot rule, some measure, to value the different currencies as between themselves. Every sane man must feel that sooner or later, and the sooner the better, we must get some common standard by which we can measure the value of each other's currencies, but I agree with what the Chancellor of the Exchequer said to-day, and I think the Government's policy is sound and that until the same sanity which exists in our Government is to be found in other countries, we can but go on as we are doing. The more people look these matters in the face and brush aside quack remedies which are produced by people in distress, the better it will be for all concerned. There are some people who put their faith in certain schemes of valuing the currency, schemes which are really nothing but shifting sands, but the business world at home does not accept such schemes. We like continuity and solidity, and that is what the business men want to see. They therefore repudiate these fancy ideas. They recognise that the Government are steering, through difficult times, a safe and sound course, and we thank the Chancellor of the Exchequer for the statement he has given us this evening.

There is plenty of evidence that we have recovered in a way in which no other country in the world has recovered, and that trade is improving here as it is improving nowhere else, except perhaps in certain parts of the Empire which have followed in our wake. I think we should be thankful to the hon. Member for East Edinburgh for his very interesting speech and for the fascinating way in which he led us through his historical survey, but we have to face the situation as it stands to-day, and we have for the last two and a-half years faced the difficulties in front of us in spite of exchange restrictions and all the mad schemes with which different countries have tried to save their currencies but actually injured them more; while we have steadily gone on maintaining a straight line of conduct and a sound method of finance. Although I am not saying that everything in the garden is right, I do feel that the way in which things are being handled by our Government is the best in the interests of the country, and we are grateful for their wise forethought.

9.2 p.m.


I consider myself fortunate in having held my present position for such a short time and in the Debate being one so extremely easy to reply to. My hon. Friends in all parts of the House have really saved me most of the trouble, because they have all replied one to another. The hon. Member for East Edinburgh (Mr. D. Mason) replied to the hon. Member for East Aberdeen (Mr. Boothby), the right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) replied to the hon. Member for East Rhondda (Mr. Mainwaring), who I am sorry is not here at the moment, the right hon. Member for Caithness (Sir A. Sinclair) replied to the hon. and learned Member for East Bristol (Sir S. Cripps), the hon. Member for Finsbury (Sir G. Gillett) replied to the hon. Member for East Fulham (Mr. Wilmot), and, finally, the hon. Member for Huddersfield (Mr. Mabane) replied very satisfactorily to the hon. Member for Carmarthen (Mr. R. T. Evans). It leaves me very little to say. Both branches of the Opposition have, I think, concurred in their praise of the Government and in their recognition of all that the Government have done and of the wisdom as well as the success of their monetary policy, but my deepest gratitude must be due to the hon. and learned Member for East Bristol, who said that as long as the capitalist system continued to exist, he did not think it could be better run than we were running it at the present time. He saw no reason at all for setting up a committee to inquire into our monetary system, a view he does not share with some of his hon. Friends. I would also like to congratulate him on having used the famous old metaphor of the ship of State, and on having produced a conclusion to that simile which I had never heard before, the conclusion being that the best thing to do with the ship was to sink it.

The right hon. Member for Caithness replied very successfully to the apologia for Socialism which we heard from the hon. and learned Member for East Bristol, but I must protest against the view expressed by the right hon. Baronet, a view that has been reiterated by some other hon. Members, that in this matter the Chancellor of the Exchequer is guilty of complacency. The right hon. Baronet worked himself almost into a fury on this particular point and began to tell us of all the ills from which the country is still suffering. I can assure him that my right hon. Friend is just as well aware as he is of those evils, and has them as closely at heart and feels them as deeply as the right hon. Baronet. We are, however, not discussing our present discontents to-day. We are not discussing the condition of the people. We are discussing our monetary system, and the Chancellor in his speech was speaking of the monetary system when he said that there was little to complain of with regard to it. He said it was working well in a difficult and bad world where much was ill, but that in this particular phase of our political life there was a great deal that was good.

I do think that when the Chancellor of the Exchequer permits himself to speak in a vein of extremely moderate but, at the same time, confident optimism, it is not necessary for hon. Members to taunt him with complacency or to try and undo the good work that his optimism may do by pouring forth floods of pessimism with which to drown it. Without believing in the doctrines of the late Doctor Coue, I believe it is undoubtedly a good thing that the Chancellor of a great country like this should, when he considers it right and possible to do so, use words of optimism which may help to produce the very good that he speaks of and to increase it. The hon. Member for East Fulham said that there was a great public demand for this inquiry. I do not think that the Debate has sustained that view. He made a further error when he said the Government were elected to cling to the gold system. The fact is that we were already off the gold system before the Government went to the country, and therefore they were elected for nothing of the kind.


Everyone knows that one of the principal planks on which I and many others who supported the National Government went to the country, and on which the Government were returned, was undoubtedly the maintenance of the pound.




May I point out that the hon. Gentleman is scarcely relevant. He stood alone as a protagonist of the Gold Standard in the whole of Great Britain, and nobody agreed with him.


My hon. Friend the Member for East Aberdeen has sprung into the breach and replied to the hon. Gentleman for me. What the Government were elected to do in October, 1931, was to restore the credit of the country and not to uphold any particular monetary system. Perhaps the electors of East Edinburgh took a different view. If so, they took a solitary view, which their representative worthily, but very often almost alone, maintains in this House. My hon. Friend the Member for Huddersfield expressed the hope that I should be able to make a statement in amplification of what the Chancellor has already said. In view of the fact that I have not had the opportunity of consulting my right hon. Friend, my hon. Friend will not expect me to give any such assurance as he asks. In any case, I should have thought that any such assurance was unnecessary and would not do the good which he thinks it would do. My hon. Friend is surely in agreement with the Chancellor's view that the best plan, the plan for which he is working, is to get back to an international gold exchange system if that be possible. My hon. Friend said that the Chancellor implied that there were difficulties in the way and even suggested that those difficulties might prove insuperable. If they should prove insuperable, could we not, he asked, now say that the present practice, which has been so successfully followed during the last two and a-half years, would be magnified from a practice into a theory and a system to which we should hold through thick and thin. So long as we are pursuing any ideal it would surely be a mistake to crystallise into a theory what has proved a satisfactory practice. I am not quite sure at what precise moment a practice becomes a theory, whether it has to be written down, or passed by the House of Commons, or engraved on tables. Personally speaking, and on general grounds, I am always extremely reluctant to lay down any theory, and I think that often in the past economic life of this country we have suffered much by being too loyal to theories even when they do not suit the practice of the times.

I do not think that a case has been made out for setting up a committee to inquire into the monetary system. That is, after all, the subject of the Debate to-day, although a great many Members have wandered very far from it. Of whom would such a committee consist? The hon. Member for Finsbury seemed to suggest that he would like, and I have no doubt other Members would like, a committee of Members of this House. We have had a foretaste today of what such a Committee would be like. No doubt their discussions would be extremely interesting and their reports extremely helpful. I say "reports" because, if there were 12 Members, I think we should certainly have about a dozen reports. We should see in print the views which we often have the experience of hearing. Perhaps that would be an advantage. There is nothing to prevent those members setting down their views now, as some Members do, and circularising them in the form of a pamphlet. There, is nothing to prevent them getting together in an unofficial way and discussing these matters and seeing whether by their own efforts they cannot work out some system which would be worthy of the Government's attention. If they do so, I am sure the Government will be glad to study anything with which they provide them. I do not think, however, that a case has been made out for the Government lending their authority to the setting up of such a body.

If it were not a body of Members, it would be a body of experts. Who would they be? We all know who the economic experts of this country are and the differences of opinion that exist among them. We have had in recent years the advantage of the views of such experts taken after deep consideration and after hearing all the available evidence. We have had the Macmillan Report, which is hardly three years old. Since that report there have been others. There has been the report of the League of Nations Gold Delegation, which well repays study. There has been the Preparatory Report of the World Economic Conference. These are all reports made in the last few years. It cannot seriously be contended, nor in any of the long speeches to which we have listened has it been argued, that these reports are so much out of date and that there is so much new matter available, that the time has come to set up another committee of experts to produce a further report.

After all, why should a Government ever set up a commission of inquiry? Perhaps because there are some facts which it does not know and wishes to ascertain; but there are no grounds for supposing that all the facts are not known in this matter. We have had evidence to-day of the wide interest in monetary problems, and that interest has manifested itself in a very large number of publications—many hon. Members cannot have the time or leisure to keep up with them; many of them are extremely valuable—produced by experts on this (Subject during the last few years. What other reason could the Government have for setting up an inquiry? Because they are themselves at a loss, because they are uncertain. Two conflicting schools of thought are brought before them, and there is a wide public demand for a certain course, and the Government are uncertain of the policy to pursue. Another reason may be that they are dissatisfied with the present position of affairs. Then they have every reason to, and they frequently do, set up a Royal Commission or a committee of some sort to make inquiry and to report. But, as the Chancellor of the Exchequer has already explained, we are not dissatisfied with the monetary system which we have been following during the last two and a-half years. We have no reason to be dissatisfied with it, and it has not really been made out by any speaker that we have been dissatisfied with it. Therefore, in all the circumstances, I think the Government must adhere, and have every ground for adhering, to the view which they originally expressed that there is no case for inquiring at the present time into the working of the monetary system.

Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again," put, and agreed to.—[Captain Austin Hudson.]

Committee report Progress; to sit again To-morrow.

The remaining Orders were read, and postponed.

Back to
Forward to