HC Deb 28 June 1937 vol 325 cc1655-735

Considered in Committee under Standing Order No. 69.

[Sir DENNIS HERBERT in the Chair.]

Motion made, and Question proposed, That it is expedient to increase from three hundred and fifty million pounds to five hundred and fifty million pounds the aggregate amount which may he issued to the Exchange Equalisation Account out of the Consolidated Fund."—[King's Recommendation signified.]—[Sir J. Simon.]

3.46 p.m.

The Chancellor of the Exchequer (Sir John Simon)

The Resolution is for the purpose of authorising an increase in the resources of the Exchange Equalisation Account by £200,000,000. As the Committee knows, the Exchange Equalisation Account was set up by a Section in the Finance Act, 1932, and its resources were extended in 1933 when the borrowing powers of the Treasury for the purposes of the Account were enlarged from £150,000,000 to £350,000,000. Now, I am asking for authority to bring the total up to £550,000,000. I should like to say a few words, elementary though they may appear to some hon. Members, as to the Account itself. The Exchange Equalisation Account was set up, as the language in the Finance Act states, to check undue fluctuations in the exchange value of sterling. It is not necessary to emphasise the importance of that object. If there were undue fluctuations, traders would be hampered in entering into and executing their foreign contracts, they would not be able to count with confidence on prices holding and they could not venture freely on extensions of enterprise.

It will be remembered that the Exchange Equalisation Account was established after we left the Gold Standard. As long as currency is linked to gold, there is, obviously, in constant operation a restraining and limiting influence which confines the oscillations in foreign exchanges to narrow limits. The Gold Standard is, as it were, a measuring rod, and when the measuring rod of the Gold Standard is removed, then the oscillations in currency exchange may become more pronounced, more frequent and more serious, and opportunities for speculators are very greatly increased. Hence, after we left the Gold Standard we decided to set up the Exchange Equalisation Account. We were the first country to do so, but our example has been widely followed. For instance, it has been followed by the United States, France, Holland, Switzerland and other countries. There really can be no doubt that the existence and the operation of this Account has been instrumental in promoting and maintaining our steady recovery.

The view which I present to the Committee is, that under existing conditions such an Account is an essential element in the financial machinery of any country in our position. I will not attempt to describe the technical operations of the Account. Not many people would be capable of descanting upon them, and even of those only a small minority would be accurate and complete; but for the purposes of the discussion in the Committee, I think I state it sufficiently accurately if I say that this Account acts, as it were, as a shock absorber. It damps down the fluctuations in the currency exchanges, as they arise, through appropriate purchases and sales in order to suppress and minimise these undulations.

Colonel Wedgwood

May I ask how you distinguish between an undue fluctuation and a trend?

Sir J. Simon

My right hon. Friend will no doubt have an opportunity of dealing with that later, but I think that, on the whole, it would be best if I stated the matter in my own way now. It follows from what I have said that the contemporary operations of the Exchange Equalisation Account must be conducted in the most complete secrecy, for anything like a contemporary disclosure of what it is doing would be a heaven-sent opportunity for currency speculators, and indeed, it would enable them, by plunging in at the right moment, to amplify and to exaggerate those very undulations which the Fund is engaged in reducing. So much for correcting the direct variations in foreign exchange.

But there is a second sort of phenomenon which is calculated to produce the same fluctuations in exchange and which needs to be counteracted by similar methods. It is a phenomenon which has very greatly developed of late. It is the deliberate shifting of large quantities of capital from one centre to another. I invite the Committee to observe this contrast, Before the War, gold movements from one place to another were usually due to what one may call more strictly economic or financial causes, which could be isolated, measured and appreciated on their separate merits. It might be, for example, a difference in interest rates—the bank rate is put up with the result that foreign capital is attracted to London—striking variations in price levels in various countries, excessive borrowing or lending, and things of that sort. They were really economic causes. That was the general explanation of gold movements before the War, and especially before the dropping of the Gold Standard. Since the War, and especially since the suspension of the Gold Standard, capital movements have been far more frequent and far more sudden and they are not necessarily directly economic or financial. They are in a much less degree due to the purely economic causes of which I spoke.

What really happens is this: Great quantities of short-term funds, which their owners may call back again when they please, are accumulated in the main financial centres, and then under the influence of it may be temporary distrust or speculative ingenuity, they are shifted precipitately from one centre to another, and one gets the situation which is sometimes picturesquely described as the movement of refugee capital. The point which I am asking the Committee to observe is that this is, to a certain extent, a new development. Under the Gold Standard regime, gold movements took place mostly for the purpose of settling international trading balances, but now we have large amounts of capital moving from one country to another for quite other reasons. The Committee will observe that unless the bad effects of this in causing violent fluctuations in currency exchanges are, as far as may be, neutralised, the result will be exactly that same obstruction to trade and exactly that same loss of business confidence which I described as the danger against which the Exchange Equalisation Account is directed.

Although I have put it briefly, I hope I have stated it correctly and intelligibly. It follows that while these large-scale capital movements to London are taking place, the Exchange Equalisation Account in present circumstances must be prepared to add to our holdings of gold, for that is what is necessary to avoid frequent wide fluctuations in our exchange rates, both now when the gold is coming in and also later on when the foreign owners call for a return of their deposits. For this purpose, having considered the matter carefully and with the advisers who are always at the service of the Treasury, the Government have come to the conclusion that it is prudent and timely to add £200,000,000 to our existing borrowing powers.

There is a further reason which, I think, will appeal to the Committee. Hon. Members will recall how last September we entered into what is called the tripartite monetary agreement, between the United States, France and ourselves. That is a policy which, I think, was almost universally approved. We then announced, with the other signatories, that one constant object of our policy was to maintain the greatest possible equilibrium in the system of international exchanges, and to avoid to the utmost extent the creation of any disturbance in that system by British monetary action. I wish to state most plainly to the Committee that if we are to pursue that policy, then that policy at the present time and in existing circumstances does involve us from time to time in the purchase of gold. It is quite impracticable to avoid one consequence and yet to keep the other; it would be quite impracticable that we should both avoid any addition to our gold holdings and at the same time avoid wide fluctuations of exchange rates. If we want to avoid the second it must be because we are prepared to face the first. On Friday, when making a statement on the matter, I was asked by my hon. Friend the Member for Plaistow (Mr. Thorne) whether the line of policy that we are pursuing is in accord with the line of policy of the United States of America, and I am very glad to give him and the Committee the answer. I am happy to say that the line of policy we are pursuing is in accordance with the line of policy of America.

Having made that statement about the Account, its nature and its needs, I would turn for a moment to a second question which from time to time has interested hon. Members and to which I wish to make a contribution to-day. It has not to do with the merits of having such an Account, or even with the merits of the way it is worked, but it has to do with the extent to which its past operations are kept secret. I feel that there is a widespread view among the Committee, without in the least desiring to prejudice the good operation of the Account, that if it was possible they would be glad if more disclosure could be given—I do not mean contemporary disclosure, because that obviously could not be done, but disclosure after a proper interval. I have been looking into this matter very carefully, remembering that my predecessor, the present Prime Minister, in the Budget Debates referred to the matter, and pointed out that it was very difficult to decide what should be done, but promised that he would himself look into it and see what could be done.

I have inherited that pledge, and I am to-day doing my best to show the result. Of course there can be no doubt at all as to the wisdom of the rule laid down by the present Prime Minister and adopted, I think with complete good will, by Parliament as a whole, the rule of the policy of secrecy with regard to the current transactions of the Account. In the nature of things that must be so. Anyone who wants to pry into that wants to break up the Account, not to understand it. But while any other course would merely destroy the effectiveness of the operation of the Account, I do feel, after going into this matter very carefully with my advisers, that it is most desirable if possible to find some concession in respect of past operations and records.

Let me give one illustration of how important: it really is not to make premature disclosures. Since the Exchange Equalisation Account was set up we have had in this country more than one experience of violent movements of capital both inwards and outwards, continuing sometimes over quite a considerable period. There is no question, of course, that the violence of those movements would have been accentuated and prolonged if the action taken to resist them had been publicly known. Here is an example. It is not one of a time when capital was flowing to London, but when, since the establishment of the Account, there was a very big pull the other way. A few years ago, when the total gold resources of this country were comparatively small, the Exchange Equalisation Account lost in three weeks no less than £50,000,000 of gold. That was followed by the loss of a further £25,000,000 in the succeeding eight weeks. In all that was £75,000,000 in II weeks. Of course if that had been advertised and there had been a rush to follow this example, the pressure on the Account would have been extreme. The way we dealt with it was unknown, and that had a most material effect in limiting the danger. On other occasions we have gained equally substantial quantities of gold with equal rapidity, and publicity could only tend to exaggerate those large sums. Therefore, there can be no question at all that there must be no disclosure of current or recent transactions connected with the fund.

The true position is this: Our situation now, the situation of the Exchange Equalisation Account is very much better than it was; that is to say, we are much better secured, and we have resources which by comparison with earlier dates can be described as fairly abundant. I am not going to prophesy. This is much too difficult a subject for me to do that. But I am advised, and it appears to me to be true, that it is at any rate unlikely that any sudden sustained loss of gold would now occur of a magnitude to embarrass us very seriously. Therefore, I have been considering with my advisers what information as to the former state of the Account could without serious harm be made available from time to time, and I have two proposals to make.

First of all I have come to the conclusion that there would be no harm in indicating at a date after the event the amount of the gold and all other assets held by the Account every six months, the information being made public three months in arrear. In other words I propose that henceforward, at the end of June and December, the Treasury should publish what were the resources of the Account on a date at the end of the preceding March or the preceding September. I think that in the first place that will be a change which will be recognised by the Committee as contributing to their natural desire for more information. Inasmuch as we are just at the end of June I may as well begin my new practice now. I therefore inform the Committee of these facts: On 30th March last, three months ago, the gold held in the Exchange Account was 26,674,000 fine ounces. I am giving weights for the moment, for a reason which the Committee will see later. On the same date, 30th March, there was also gold held in the Issue Department of the Bank of England amounting to 73,842,000 fine ounces.

Mr. Thorne

What is the value of it in money?

Sir J. Simon

If I began with the money value there would be confusion. I shall, of course, give the value later. That makes a total of 100,516,000 fine ounces, and at the price of £7 an ounce represents a little more than £700,000,000. The Exchange Account at that date did not hold more than a trifling amount of foreign currency. That sort of statement, I propose, should be made public at intervals of six months, and I think it will have a great deal of interest for those who follow these matters.

Mr. Dalton

The right hon. Gentleman says he is prepared to make such a statement as to the amount of "gold and other assets." Is "other assets" to be a blanket term or is it to be subdivided?

Sir J. Simon

It will be subdivided. Perhaps the Committee will forgive me if I add one matter, a little technical, which really explains why I began with weights and only later turned those weights into value. The reason is this: Perhaps the Committee will recollect that gold in the Issue Department of the Bank of England is shown in the Bank of England accounts, and indeed is bound to be shown by law, not at the current market price of gold, but at the old par value of 84s. 11½d. a fine ounce. When gold is bought or sold for the Issue Department the difference between the actual price and this old par price is provided by or is paid to the Exchange Equalisation Account, and the Statute provides that when the Exchange Account comes to be wound up the whole of the gold of the Issue Department will be revalued at the then current price. The surplus in the Issue Department so created by valuing its gold at a higher price must by law be handed to the Exchange Equalisation Account, and must thereafter, together with any profit in the Account itself, be applied to the repayment of debt. The Committee will see that the way I stated it by giving weight first and multiplying it to get the value afterwards, really simplifies the matter.

That is the first of the two matters to which I refer. Before I pass to the second, the Committee may wish to know whether in the view of the Treasury the possession of a stock of gold exceeding £700,000,000 is regarded as reasonable or adequate or excessive. It is, of course, a, much larger figure than has prevailed in the past, and if necessary very good reasons can be given to show why it should be. Circumstances are very different indeed. But if you put to yourself that question about the £700,000,000 of gold, or any such figure, and try to answer it, it seems to me that you must weigh many things. Much depends, for example, on the extent of our short-term obligations, that is to say on the amount of money which has been placed in London from abroad and is liable to be recalled. After all, we are the centre of the Sterling Bloc, and many of the countries concerned, included in that Bloc, keep very large holdings of sterling in London as a part of their reserves. The conclusion which the Treasury is disposed to come to is that when all considerations are weighed we do not consider the present gold holding excessive.

I hope it is made quite plain to the Committee that the action I am now proposing, which the terms of the Resolution will carry out, does not indicate any change in our present policy. There is no reason why the present conditions of uncertainty in connection with the international movement of capital should persist. We are dealing with the present situation and the present situation compels us, for the purpose of maintaining our general financial policy and in support of our undertakings and objectives under the Tri-partite Monetary Agreement, to make this further provision, as an insurance against additional movements into sterling. Now I come to the second of the two new departures which I am contemplating in the interest of getting rid of what might seem to be unnecessary secrecy, and, as far as may be, providing discreet disclosure. So far, I have spoken of the six-monthly statements of gold holdings which would be made public.

Mr. Dalton

And "other assets."

Sir J. Simon

Yes, of the different elements. I am not going back on that at all. I think the time has come when the Public Accounts Committee, a most responsible committee which has to be appointed every Session, and which guards these matters in the interests of us all, might reasonably desire an opportunity of examining, after a suitable interval, the state of the Account itself, together with The amount of its surplus or deficit. I am not now directing my remarks to the question: "How much?" I am directing my observations to the question: "Is there a profit or is there a loss?" I had indeed already framed proposals on this head when I noticed on the Order Paper this morning—whether as the result of intelligent anticipation or original skill—a New Clause which has been put clown to the Finance Bill by certain hon. Members, all, I think, Members of the Public Accounts Committee. I should be out of order if I were to discuss it in relation to the Finance Bill, but I can state what I have in mind, I think, while keeping strictly in order. Those who put down that Clause have, to some extent, stolen my thunder. I thought I had something good to give, but they have anticipated me. However. I am very glad to see that we have been thinking alone very similar lines, and I state categorically what I am prepared to do.

I am ready to agree that the state of the Account as at 31st March—the annual account—should not only be available to the Comptroller and Auditor-General, who has a statutory duty to report to the House of Commons, but should also be confidentially communicated to the Public Accounts Committee by the following 31st January. Not only so, but I think if they are to make good use of their opportunity they must have the opportunity of putting questions to the Treasury witness when the Account comes before them later in the year. I, therefore, propose that, having got the Account before them, the Public Accounts Committee should examine the Treasury witness on the Account, as they do about a great many other confidential matters. They will get particulars of course and, there will be, on the Account, an indication as to whether at the date when the Account was taken the result was a profit or a loss. I notice that the New Clause put down by my hon. Friend the Member for Caerphilly (Mr. Morgan Jones) and others suggests that this piece of information should include the prices at which different elements in the Account were acquired. I think if he reconsiders the matter, he will see that in that form it would not be a very easy or a very useful thing to do, because this fund is continually buying and selling. It may buy a large block and dispose of a portion of it. Each transaction will have its appropriate price and it would be difficult to specify, in an accountancy sense, the proper price for the particular part of the stock that is left. What I think is really sought for, and what I should be prepared to give, is this statement which would show, in respect of the contents of the account, at the date when it was taken, whether or not at present prices there was a profit or a loss.

There is one more thing. We in the House of Commons naturally place great confidence in the Public Accounts Committee. It is a most important Committee of the House, and one of its duties is to report, if it finds on examination of the public accounts anything irregular. Therefore, while stipulating that the information shall be given confidentially, I should be prepared to agree that that would not alter their right, if they found any point in the statement put before them which they considered to be irregular and for that reason calling for special mention, to make a report on it to the House of Commons. I think hon. Members will see that we have honestly set ourselves to try to remove this veil of mystery as it has been called. I am sure that public confidence in our proceedings will be greatly promoted when we remove any idea that we are seeking unnecessarily to work in secrecy.

Mr. G. Strauss

Is it proposed that the House of Commons and the public should not know whether a profit or a loss has been made on the fund after a period of, say, two or three years?

Sir J. Simon

I think that is in fact made public. I think if the hon. Member looks up the statutory duty of the Auditor-General together with the practice of the Chancellor of the Exchequer, he will see that that is covered.

Mr. Bellenger

But it is only a general statement, and does not give the amount.

Mr. Dalton

In order to have the matter made clear, may I ask whether the Public Accounts Committee will receive disclosure from the Treasury witness of the complete transactions in detail during the year? Will they be told, for instance, that on such-and-such a date a certain quantity of francs were exchanged for certain quantities of other currency?

Sir J. Simon

I have not contemplated that, and I think probably the exact arrangements will have to be discussed with the Public Accounts Committee. I recollect that the present Prime Minister made a similar offer. I am not seeking at present to draw the lines too precisely. I am trying to make a real advance in the direction of public information. I should be opposed to the idea of these arrangements being laid down by Statute. This must be regarded as an experiment; it may turn out to be a rather generous experiment, and, therefore, these arrangements may have to be revised. But I am confident that if the disclosure is maw in the way in which I visualise it and dealt with by the Public Accounts Committee in the way in which they deal with such matters, it will give a great deal of satisfaction to the public and will, I think, strengthen the hold which this policy has upon public opinion.

I have reminded the Committee of the purposes of the Account, I have explained the reasons for the present Resolution, and I have indicated the change of practice which I am willing to adopt to meet the natural desire that there should be no unnecessary secrecy—a desire which, I think, the Treasury can now face, because the fund is in a much stronger position. I make one observation in conclusion. If there be, in any corner of the Committee, anybody who is disposed to resist this policy, he must be prepared to face the alternative. I assert with very much confidence that the long spell of cheap money, during which we have vastly increased our production, during which we have witnessed a great reduction of unemployment by one half, these results would not have been possible, had there been nothing like this Exchange Equalisation Account to act as a shock absorber. After all, if the burden now put upon the Account has increased, that is the result, the penalty if you like, of this country being a solid rock in an unstable world. Therefore, while there is no reason why present conditions of unsettlement, in connection with international movement of capital, should be permanent, the present situation compels us to make this further provision as an insurance against additional movements into sterling. I hope I have satisfied the Committee that the policy which we are following is essential for maintaining our general financial policy, and in order to support the undertakings which we gave under the Tri-partite Monetary Agreement.

Mr. Mabane

With regard to the £700,000,000 of gold which the right hon. Gentleman said was in the fund in March last, is the Committee to understand that the only liability to set against that is the £375,000,000 of capital originally in the fund?

Sir J. Simon

I do not think my figure of £700,000,000 was limited to the fund. I was careful to state that we had to include, for this purpose, the gold in the Issue Department of the Bank of England.

4.27 p.m.

Mr. Pethick-Lawrence

The right hon. Gentleman towards the close of his speech told us that he had explained the working of the Exchange Equalisation Account, that he had promised to alter the arrangement regarding the publicity attaching to the Account, and that he had elaborated to us the reasons why it was necessary to make this increase at this time, and why the particular amount of £200,000,000 had been chosen for that increase. I agree that on the first two heads he gave us a good deal of information, but on the last two heads, which I imagined would have provided the main theme of his discourse, up to that moment he had been almost silent. I think we are entitled to know a little more about the reasons for this course—why the Chancellor of the Exchequer has come here in this great hurry to ask the Committee to pass this Resolution, and why the particular amount of £200,000,000 has been selected for the augmentation of the fund. I should have thought that the grounds for it were not a matter of mystery. I thought they were largely understood. I thought it was known everywhere that the reason for extending the fund at this time is what has been happening in the international world and, in particular, what has been happening, not so far away, across the Channel.

I desire at the outset to make it clear that we on these benches are ready to support any action which, without injuring the position of our own country, is to the benefit of the other great democratic nation across the Channel. It is probably within the knowledge of most Members of this Committee that during the past week-end an all-party delegation from this House has been enjoying the hospitality of the Deputies of the French Chamber, and I have been asked by my colleagues of all parties who have been with me in Paris to take the opportunity of this Debate to reaffirm the cordial relations between our two countries. In this House as in France the acute differences between the political Right and Left do not affect the common sentiment of good will which the two great democracies have for one another, and in so far as this proposal of the Chancellor of the Exchequer is designed to assist our French friends, it will, I am confident, have the united approval of this Committee.

There is another matter which I should desire to make abundantly clear at the outset. We, on these benches, fully believe in the principle of the Exchange Equalisation Account. We regard it as a very valuable institution, and we do so primarily because it has restored to the Government of this country the control over its currency and finance which it ought never to have parted with. We go back for many centuries, to a date before the Christian era, and we find that the rulers of countries in those days realised that the control of the monetary system was an essential part of the functioning of their government. We remember in the Gospels an indication of the character of the sovereignty of the country, in the words, pointing to a coin, "Whose is this image and superscription?"

That control of currency and money remained vested in the King and the Government of the country until recent times, and then, for some unexplained reason, as the character of money changed, it was seen fit to hand over the essential control of finance to a private institution in this country, the Bank of England, which, with the powers that it had during the greater part of last century and the early years of this century, had really the control of the lifeblood of the community; and, coupled with the form in which the Gold Standard found itself, the trade and industry of this country were clamped in a vice, and the price level was determined by the accident of the amount of gold that happened to be mined in some remote corner of the world and the arbitrary decision of a single body of persons, however excellent and well-informed they might be, that sat in the parlour of the Bank of England. For my own part—and I think certainly for those hon. Members who sit behind me and some Members in other parts of the House—I say that we welcome most definitely this restoration of the control of our currency and our money to the Government of the country and to this House of Commons, and I hope that, having got it back, we shall never part with it again, and that, having freed ourselves from the narrowing shackles of the Gold Standard as it was worked in those days, we shall never submit to being put into those shackles again.

I do not want to pursue that rather academic subject any further, important though it is; I want, rather, to come to the present position and to be allowed to put in a very few words how I see the need which has arisen at the present time. I understand the position to be this: A citizen of some foreign country has more confidence in sterling than he has in his own currency. Therefore, he desires to convert his holding of securities in his own land to the holding of securities here. It is rather remarkable to note, in passing, that he actually prefers sterling securities to the possession of gold itself, and it is a very great tribute to this country that that should be so. If there were no question of gold in the picture, then large numbers of the foreigners of that nationality would be competing with one another to buy sterling with their own currency, and the necessary result of that would be to depress the value of their own currency in terms of sterling, and thereby very considerably to upset the exchange market. What do they do instead? They go to the Treasury of their own country, and with their own currency they buy gold. That is in effect what they do. That gold then comes across into our country to purchase the currency of our country. They pay for their securities which they have bought with the currency of our country, and the currency of our country, going into the banks, finds its way into the coffers of the Bank of had some explanation from the present England.

In order to make that possible, two things are necessary. In the first place, there must be sufficient gold in the Treasury of the foreign country for the foreigner to be able to buy it with his currency, and, in the second place, the Chest of this country must be large enough to take the gold which comes across in that way. If those conditions are not fulfilled, the transaction cannot be carried out by those means, and we get a pure higgling and haggling of the exchange. As I understand it, the right hon. Gentleman has come down to this House to ask for this Resolution because it is necessary to enlarge the chest in this country, in order that it may hold more gold, and, as I said at the beginning, that is being done to assist the foreign nations which are involved, and to prevent the undue rising of British sterling as against the foreign currencies. We on this side support this action.

That is all very well, and we are prepared to agree to it in general, but I must remind the right hon. Gentleman—and I was rather surprised that he did not refer to it—that in the last Debate, when the first increase was made in this fund from the sum of £150,000,000 to £350,000,000, the then Chancellor of the Exchequer, the present Prime Minister, said that he had been considering what amount it was desirable to make the increase. He said he might have proposed some comparatively small amount, but then he would have had to come to the House again, possibly later on. He had therefore fixed the amount, and he said he had no expectation that he would have to come to the Committee again and ask for any further sum. The figure of £200,000,000 which was proposed, therefore, on 4th May, 1933, was at that time considered by the then Chancellor of the Exchequer to be the maximum that would be required, and he thought there would be no further need to come to this House for more.

Sir Frank Sanderson

What date was that?

Mr. Pethick-Lawrence

It was 4th May, 1933. The right hon. Gentleman said, at the same time, quoting from the Bank of International Settlement's report that at the beginning of 1931, the amount of short-term capital totalled a sum of £2,000,000,000. I think we should have had some explanation from the present Chancellor of the Exchequer why, in spite of what had been said only four years before, it had been decided to make this very considerable further increase. I am not quarrelling with the fact of the increase—I recognise the fact—but I should have thought it was for the Chancellor of the Exchequer, and not for me, to explain why this further large demand is being made upon this House. We have to remember that the cost of this apparatus is not entirely negligible. The effect of the assets of the Exchange Equalisation Account becoming more and more golden in their appearance is that, of course, we lose the interest on this amount. It is true that at the present time we borrow money on short term at comparatively low rates, but as the amount of gold in the chest goes on increasing, even at that low rate the interest will assume proportions that we cannot altogether neglect.

Now I have said that I think I understand broadly, and I think the Committee appreciates broadly, without going into too great detail, why this proposal is being made at the present time, but I do not feel quite so sure that other circumstances may not arise in the comparatively early future which may bring either the present Chancellor of the Exchequer or his successor to this Committee again for another Money Resolution increasing this amount still further. I confess that I was rather alarmed during the week-end on reading the current issue of "The Statist." I will not trouble the Committee with the quotation, but the effect of the article was to suggest that there was a considerable body of opinion which anticipated that a large proportion of the gold at present sterilised in the United States may shortly be coming over to this country. Personally, I think that is probably a considerable exaggeration, but even if a comparatively small part of that gold comes across—I think there is something like £2,000,000,000 worth of gold in the United States at present—or even if none of that gold comes across, but this country is expected to absorb the whole of the new gold which is coming into the market in the course of the next two or three years, we may easily find, as I have already said, that the amount which even the Chancellor of the Exchequer is asking for to-day may not be sufficient, and I am bound to say that that is rather an alarming fact, if it be a fact, that we may have to face in the early future.

I am all for friendliness, not only with France, but with the United States of America, and I am very anxious to see nothing said or done which will in any way be antipathetic to our great neighbour across the Atlantic. I will go further. I am very anxious that trade with the United States shall increase, and that we shall support our great neighbour in attempting to free the trade of the world. Therefore, I have no wish to take any step either with regard to this Account or any other which will discourage that end. I do think, however, that the Chancellor of the Exchequer and the Prime Minister, and, indeed, the whole Government will have to consider this matter very carefully. We are prepared to support them to-day in making a further advance in this sum. That is not to say that they can expect the House of Commons to hand out to them on a plate £200,000,000 additional money to the Exchange Equalisation Account whenever and however often they come to the House to ask for it. Sometimes the Chancellor of the Exchequer—using the title in a general sense—says, "It is all right; you need have no worry about the fund, for it is making a profit, and any sum that it costs in interest is fully met by the profits which it has already made." I want to examine that a little carefully.

I suggest that this statement about a profit and loss is somewhat illusory. Take the case of a private individual. He can look at his investments on 1st January, 1936 and again on 1st January, 1937, and if he takes the Stock Exchange prices on these two dates, he can judge whether he has an appreciation or a depreciation in the value of his investments during that 12 months. That is true provided he holds a reasonable amount in any one of the securities which he possesses. But suppose, in point of fact, that in any one of those companies or whatever they may be, he holds the major part of the capital, and suppose the price at which the stock is valued on the Stock Exchange is largely dependent on the fact that for some time past that individual has been buying up the stock of that company. It is true that the market price of the stock in that company appears at a certain figure, but let him begin to un- load. As soon as he does that those shares go down in value and the apparent appreciation which he thought he had was a paper appreciation only that is dissipated as soon as he attempts to sell. The Government are rather in the position of that man with regard to these assets that they hold. It is true that the paper value of the assets of the Exchange Equalisation Account may have appreciated, but let the Government find it desirable to dispose of those assets, and it by no means follows that the appreciation that was called profit will, in fact, result. Therefore, I take with a great deal of reserve—not because I mistrust their arithmetic, but because I doubt the accuracy of their basis of calculation—the principle on which their estimate is made.

The Chancellor has dealt with the question of publicity. I think that he has dealt with the matter in a very good House of Commons spirit, and speaking on behalf of my hon. Friend the Member for Caerphilly (Mr. Morgan Jones) and others on this side who have raised the issue, we are satisfied with the proposal he has put forward. I cannot, of course, speak for other hon. Gentlemen who have put down certain proposals. I think that more publicity of a retrospective character was desirable, though no doubt current publicity might be injurious to the objects for which this fund exists.

As I have already pointed out, the Chancellor has made no attempt of any kind to defend the figure of £200,000,000 in this Resolution. We on these benches think that the figure is unnecessarily high. We consider it is rather salutary that at not too long intervals the Chancellor of the Exchequer should be obliged to come to this Committee and defend his actions. Therefore, at a later stage in this Debate, I or one of my hon. Friends propose to move a reduction, so that the increase shall be only £150,000,000. I do not regard that as a party concern but as a House of Commons matter, because it is important that this House should be able to review the policy which is involved in this fund without too long intervals. Over and above that question, I hope that the favourable attitude which there is on all sides of the Committee towards this Account will not send the Chancellor and the Treasury to sleep as to its future. It is all very well for us to be willing to take another 50 or 100 millions of gold to-day; it may be that we shall have to take another 50 or another 100 a little later on. Governments are very fond of taking short views, but clearly, if we are to take a really long view, this process cannot go on indefinitely. There is any amount of gold to be dug out of the earth in different parts of the world, and it is obviously impossible for the United States and this country to be the dumping ground for an indefinite amount of gold while other countries reap the interest on securities.

One of the advantages of this fund is that it is forcing the Treasury to have an individual and positive mind of its own with regard to the question of currency and finance. The time was when the Treasury never had a mind on finance until it had run round to the Governor of the Bank of England to find out what he had to say on the matter. That day has gone by. [HON. MEMBERS: "Oh!"] It has, and the proof that it has is that the policy which the Treasury is pursuing on many of these matters is not the policy which the Governor of the Bank of England would have pursued had he had entirely his own way. I repeat that the Treasury and the Chancellor have a mind of their own to-day on financial questions apart from the Bank of England. It is a good thing they have, but that is not enough. It is true that they are guiding this fund and have been doing so with a certain amount of success for some time past, but they have to look ahead. They have to see that there is a time coming when a new attitude will have to be adopted. We have got away from the old dominance of the Gold Standard. We have got out of the narrow limits in which the Gold Standard forced us. We must not allow the dominance which gold has at the present time to increase until it becomes a new shackle upon our life and industry. I ask the Chancellor of the Exchequer, and I ask the Prime Minister and the Government as a whole, to put on their thinking caps and to make up their minds not only what is to be the short-term policy, with which we are in substantial agreement in the matter of the increase in the amount, but also what is to be their long-term policy with regard to the whole question of the gold supply of the world.

4.56 p.m.

Sir Francis Acland

I think everybody will agree that the statement of the Chancellor of the Exchequer at the end of last week with regard to this Resolution, being made when it was, did a great deal of good, and that it was at once a sedative and a tonic. It evidently seemed to finish off the last remains of the gold scare. It meant that we were willing to help the United States and France to hold their babies—those very different babies which are only alike in that they are inconveniently heavy at times. The news of it got out to the United States before it did here. The considerable buying of gold mining shares which took place on Thursday after 4.30 on American orders showed that that was so. I know how difficult it is to prevent, but this is not the first time it has happened, and it would be a good thing if it could be prevented in future.

While I hold that the announcement of the intention to increase at the end of last week did a great deal of good, I also believe that the continued increase of this fund in the conditions on which it has hitherto been operated is, on the whole, liable to do harm. Therefore, I welcome the statement which the Chancellor has made as to the modifications of the conditions with regard to the limited publicity. All that we have hitherto been told periodically is that the fund has been operated at a profit. I do not know, and I do not know whether other people know, in spite of what the Chancellor said to-day, whether that means a net profit. Does it, for instance, cover the fact that, as the Chancellor told us before, when gold is sold by the fund to the Bank, it is sold at the new price but bought at the old price? If considerable transactions are in question, as they were some time ago, it must mean a very heavy loss. We do not know when we are told that the Account has been run at a profit, whether that profit covers losses which would be made by transferring gold from the fund to the Bank. I do not press that point now because this sort of thing will surely be clear in the periodical statements which are to be made, according to the promise which the Chancellor has just made to us.

I agree with the Chancellor that the fund is a useful buffer—his word was shock-absorber, but it is much the same—between the markets and the stark and hard reality of otherwise unescapable facts. One may sometimes sleep very uneasily even on the softest pillow. In this connection it seems to me there is a great deal in an argument which I found in the financial article in the current issue of the "Spectator," in which one is reminded that many of the influences responsible for trade activity and the prolonged rise in securities are special, artificial and temporary, and that the ease in money responsible for the great rise in gilt-edged securities, say, in the last two years, was largely the result of the monetary policy of this country and the United States, and that the expansion of credit was largely, though not wholly, due to the operation of their Exchange Equalisation Accounts.

Following upon that it is suggested—and that is a suggestion which leads up to the idea of extra publicity, the main point I want to make—that because this easy money and abundant credit were due, not to natural causes, but to Government policy, there is now apt to be underlying mistrust of policies, as there is bound to be of any human agency which "moves in a mysterious way its wonders to perform." I think that has helped in the past—and I hope that what is now to be done may prevent—that strained and jumpy and sensitive condition which has been so marked a feature of the investment markets, as we saw lately when a very unnatural distortion and dislocation of things arose out of a cause which ought not to have produced anything of the kind, and that was the announcement of the National Defence Contribution in its first form. The dislocation—stagnation—that that caused was due to the fact that we have got into the habit of relying on accounts of this kind and suspecting their methods without knowing much about it. There was the same sort: of upset over the recent gold scare.

If the City had known, as it would have known by the publication of a quarterly statement in arrear, that the Exchange Equalisation Account had plenty of money behind it with which it could, if necessary, buy gold, or had known that the Account was likely to be increased, half the upset over gold might never have occurred. We shall, at any rate, all agree in this, that these upsets, when they do occur, encourage the speculator and the gambler, and discourage the honest investor, and, therefore, it is desirable to do everything we can to avoid them. I should not have been making these points to the Committee, and I am not sure that the Chancellor would have made his proposals to avoid undue secrecy in future, if it were not possible that events may be approaching—I think it was wise of the Chancellor not to say much about it—which may lead to our having to make still further increases in the Account—that was one of the points which was made so well by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence)—and, possibly, to that swollen account being operated in a still more disturbing way.

For instance, if we are effectually to help France through, we may have to have a great deal of gold earmarked for our Account in France, in order to support the franc. I agree with the right hon. Gentleman that that is a very important thing to do, but I think it may lead us into needing a great deal of money in order to do it effectively. If the United States has to repel that large of "hot money" which is now bothering her, particularly at a time when events in Europe may be looking worse, which will mean that no one will be wanting to bring gold back from the United States, the Account may then have to be used not for buying gold but for creating fresh money here. Things have been all right with plenty of cheap money about on the boom, but they might be very different in a few months' time, and then the uncertainty of whether the Account was going to create inflationary money would be very disturbing.

The hope we have with regard to all these difficult matters is that international trade will revive to such an extent that our preoccupations with finance will tend to be relieved, and that the world supplies of gold may then be found insufficient rather than 'redundant, and then the remaining problem will only be to correct the present lop-sided distribution of our gold stocks, and to remove the reproach that large amounts of gold which ought to be used as a basis for money and credit are sterilised at a heavy cost to those concerned. But hopes of this kind are rather a poor diet, and hopes that a probable revival of trade and of returning confidence in Europe, which would automatically relieve the strain on the Exchange Equalisation Accounts, are, unfortunately, rather difficult to justify now.

Therefore, it is with very special pleasure that I have noticed the Chancellor of the Exchequer's suggestion that a good deal of the existing mystery and secrecy should be removed from the operation of this account, particularly if, as I fear, we may have to increase it still further.

To show how minds of different calibre work together, I had been intending to make a suggestion that we should publish a quarterly statement in arrear. That differs to only a small extent from the proposal of the Chancellor of the Exchequer, which is for a six-monthly statement quarterly in arrear. Perhaps he will consider the small variant which I make, which is for four statements in a year, each a quarter in arrear; because, as he said, one cannot make contemporary disclosures of what is being done. The other suggestion I was proposing to make was that there should be periodical reports to the Public Accounts Committee, who would enjoy reasonable powers, to be worked out between them and the Treasury, of asking how the account had been operated. Both those points have been met in substance and I am very glad of it. I started out to make in the main the one point that we wanted more light on this subject, and I am very glad that we are to get it. We on these benches would not have been willing to vote this large sum unless the Chancellor had been willing to meet us in this matter, and I am very glad to hear the suggestions he has made to the Committee.

5.10 p.m.

Mr. Boothby

I think the Chancellor must be gratified with the welcome which has been accorded to his request to the Committee to sanction a further £200,000,000, which is a large sum. Personally, I think it is the best step which could possibly have been taken by the Government at the present juncture because I can conceive of nothing that could so quickly contrive to restore confidence, which is more important, perhaps, than anything else in the world to-day in both the political and the economic fields. Confidence in the determination of the Government to maintain the monetary policy which was laid down at the World Economic Conference and from which, the Chancellor told us the other day, they had not deviated; confidence in the determination of the Government to maintain, so far as is possible in a rocking world, exchange stability; confidence in the determination to maintain the status of gold; and last, but not least, confidence in their determination to share with the United States of America the temporary burden of absorbing the surplus supplies of gold at a very difficult and abnormal period. It may be truly said that, The dogs bark, the caravan proceeds. I think this policy will give satisfaction to many responsible people not only in politics, but in trade, and not in this country only but all over the world. I think the Committee will warmly welcome the suggestions for publicity made by my right hon. Friend. I had intended to add my plea for less mystery and secrecy about the operations of this Account, but I feel that, broadly speaking, the Chancellor has satisfied the Committee and I do not now intend to say more on this point.

But when all is said and done we shall have voted nearly £600,000,000 for this Exchange Equalisation Account. It is a very large sum. It is used to operate our financial and monetary policy. And I think it is desirable in these circumstances that we should have from time to time not only information, but a discussion about the broad lines of the financial policy which has been pursued. At the time of the scare the other day some of us put down questions to try to elucidate from the Chancellor of the Exchequer whether there had been a change in policy; and there is no doubt that there was for a time a great deal of mystery, which did a lot of damage, as to what the financial and monetary policy of the Government really was. We know clearly for the moment what the financial policy is; but it is a changing world, and policy may have to be altered from time to time; and it is desirable that in addition to the explicit information to be given to the House and the Public Accounts Committee we should be given an opportunity on some Vote or other to have a general discussion, perhaps once or twice a year, on the main lines of the financial policy which is being pursued. Meanwhile, the proposals which the Chancellor has made, and the information which he has given with regard to the condition of the Account, can only be regarded as very satisfactory. The right hon. Gentleman said there was no doubt that in the immediate future the Account would have to make fairly substantial additional purchases of gold. In this connection I wish to raise one rather technical point. In the past there has been, I understand, an agreement between the different Exchange Equalisation Accounts for the purchase of gold from each other. Could not that arrangement now be rounded off by having an agreement for the sale of gold to each other under certain conditions? It is rather a technical point, but I should be grateful if my right hon. Friend would look into it.

The fundamental question which has been raised in every speech this afternoon is, Have we got too much gold? Are we going to have too much gold as a result of voting this money? In this connection I would venture to suggest that hitherto there has never, in the history of the world, been a superabundance of gold. From 1921 to 1931 there was a definite shortage, and in those days, it ought not to be forgotten, everybody was talking not of the plethora of gold but of how to economise the use of gold for monetary purposes. There is no reason whatever to suppose that if conditions were normal or anything like normal the available supplies of gold in the world to-day for monetary purposes would be too great for the adequate support of the credit structure of the world. The problem is not one of plethora, but of mal-distribution, and we ought not to confuse the two. At the moment conditions are far from normal; and, even so, and in support of the largest possible gold reserve for this country at the present moment, I should like to reinforce what the Chancellor himself said.

We are still, to a large extent, the world's bankers, even now. We have short-term obligations which may grow very considerably at any given moment. We hold the reserves not only of the Colonial Empire and of the Dominions, but of a very large part of the sterling area. It is also sometimes forgotten that we have an adverse balance of trade at the present time. We have, in addition, to re-arm and to purchase raw materials on a very large scale from all over the world for some years to come. Last, but not least, the time will come, and we hope it will come sooner rather than later, when we shall have to consider lending our money abroad again. All these things taken together impose upon this country, above all others, the necessity of having ample supplies and reserves of gold, so that we may never again be caught in the position in which we were caught in 1931.

That last point, foreign lending, has already been stressed in debate on both sides of the Committee. No one wants to see this country plunged, as a result of obtaining adequate gold reserves, into a reckless foreign-lending policy. But this is a matter which deserves continuous consideration by the Chancellor and the officials at the Treasury. The Chancellor has a committee, the Foreign Transactions Advisory Committee, to advise on this particular question from month to month. Is that committee given any information regarding the supplies of gold at the disposal of the authorities, in the Exchange Equalisation Account, and in the Issue Department of the Bank of England? As the Chancellor of the Exchequer suggested in reply to a question of mine, this does seem to be one of the criteria which have to be borne in mind in framing a foreign-lending policy. It seems, if the Foreign Transactions Advisory Committee are to carry out their duty properly, that they must take cognisance of the amount of the gold reserves which are from time to time at the disposal of the Government of this country.

Another argument that has been used, not in this Committee but in the Press, is that it is highly dangerous to increase the Exchange Equalisation Account for the purpose of purchasing gold because of the danger that, in the future, the gold itself will be written down, and the Account will thus sustain a substantial loss. I would say in answer to that argument only this—that never yet has a currency been successfully revalued. The main economic problem which has confronted the human race ever since the days of Moses has not been how to write up debt but how to write off debt. The right hon. Gentleman may remember that Moses had an admirable idea, which I wish we could have put into operation in 1919—that of the Jubilee year, when all debts were written off and everyone started again with a clean slate. There is no doubt that any revaluation of gold would inevitably increase the burden of indebtedness of all kinds all over the world, and it does not seem to me to make sense. When, after much travail, the world has succeeded in writing down some portion of the gigantic burden of debt accumulated between 1914 and 1919, why on earth should we now go out of our way to write it up again? We tried that in 1925, without conspicuous success. It landed us in, among other things, a general strike, a coal stoppage, and acute unemployment for seven years. As the right hon. Gentleman the Member for North Cornwall (Sir F. Acland) pointed out, the problem now is not a superabundance but a maldistribution of gold; and the solution, the only solution, is once more to use the gold, instead of merely sterilising it in the vaults of the banks. That, in turn, can be done only by a revival of confidence and of international trade.

Before I sit clown I would like to point out that a very valuable lesson can be learnt from the events of the immediate past, the last three or four weeks. Until two months ago recovery was proceeding steadily but satisfactorily, based, as always, upon confidence, and a rising commodity price level. No prosperity is genuine—here, I am sure, I shall have with me hon. Members opposite—which is not based upon the prosperity of the primary producer. There can be fictitious booms which benefit the rentier, but they do not count, in the long run. Then came this so-called "gold scare," caused by uncertainty about the intentions of the British Government and of the Government of the United States regarding the price of gold; and also, I think, by considerable doubts as to whether effective co-operation did exist between these two countries.

In my submission, that gold scare should have been and could have been nipped in the bud right at the outset; and that would have done a great deal of good. It was not done. Instead of it being nipped in the bud, no clear, explicit statement of policy was given either from the other side of the Atlantic or from this side and the discount in relation to the American shipping parity of gold was allowed by our authorities to widen until on one day the difference was something like sevenpence; and that caused many people to think that all effective co-operation between the Treasury officials here and in Washington, had, for the time being, come to an end. Nobody knew what was going to happen. It may be that the reason why the discount became so wide was that we had at the time insufficient sterling reserves in the Exchange Equalisation Account; and that, I believe, is one of the main reasons why the Chancellor of the Exchequer has had to come to the House to-day to ask for £200,000,000, a sum which I do not think will be too much. But it just shows what confidence or the lack of it can do. Immediately you had that uncertainty, the trend was reversed.

Much has been made of the fall in the value of securities by between 20 and 30 per cent. That is a temporary thing, not very serious in itself, except for the people who held the securities as a speculation and not as investment; but much more serious was the temporary but quite distinct reversal in the trend of commodity prices, which, if it had been allowed to continue, could have landed us in very serious consequences. That is the answer to those who maintain, academically, that a deliberate alteration in the price of gold need not involve an alteration in the level of commodity prices. A reduction in the price of gold at the present time would be a signal to the trading community that prices were going to fall, and would be so interpreted; and prices would fall. Of course, so long as gold is not allowed to affect the credit structure, for the time being and temporarily, it need not affect the price level; but that is an artificial condition which is not desirable as a permanent feature of policy.

If, arising out of this proposal of the Chancellor of the Exchequer, there is to be increased co-operation between the Exchange Equalisation Account of this country and that of the United States, we ought in my submission to bring every pressure upon the United States Government to allow some of the gold which has flowed into the United States to influence the credit structure, and to raise the commodity price level over there. It is because commodity prices in the United States are kept so artificially low as to be out of alignment with the exchange value of the dollar, that the inflow of gold into America has been aggravated, and with it the problem of maldistribution.

With regard to the future, I would say I hat this step of the right hon. Gentleman is to be welcomed, not only because it will be of such value in restoring confidence, which should never have been lost, but because it is a practical gesture, far more powerful than any words could be, towards the United States of America. That is a point of supreme importance. In the long run, co-operation between the British Empire and the United States of America in the economic field is the best hope of the future, and indeed, of saving civilisation. There may be great technical difficulties in the way of achieving a wider economic agreement; but they can, and must be, swept away, because the basic interests of the United States and of this country and the Dominions, are identical. Separately, we can achieve something, perhaps; together, the United States arid the British Empire could use their natural resources and their gold in fruitful co-operation to restore prosperity to the whole world.

5.26 p.m.

Colonel Wedgwood

I hope that the hon. Member will forgive me if I suggest that Sir Henry Strakosch could not have put it better; but it must be remembered that Sir Henry Strakosch is not the last word in this controversy. We have had three very admirable articles after Sir Henry Strakosch's letter in the "Times." in the articles it was argued that a fall in the price of gold would not necessarily mean a fall in the price of raw materials or of anything else, and would not involve the deflation feared by Sir Henry Strakosch. It is important that we should realise that there are two views on this question. The question is whether, if the American Government and ourselves should co-operate and refuse to buy gold, whether that would have the slightest effect upon the credit structure or upon the exchange between England and America, provided that the two countries continued to act together?

Mr. Boothby

I have held these views for 14 years, and I think the right hon. and gallant Gentleman will do me the credit to say that it is legitimate to hold them without particularly having a directorship in mind.

Colonel Wedgwood

The hon. Member's views have changed completely since 1932, when he was supporting inflation and held the view that we should come off gold and become a sterling country.

Mr. Boothby

No. It is exactly the same. I am resisting deflation now.

Colonel Wedgwood

The speech of the right hon. Gentleman to-day urged that the Exchange Equalisation Account should be increased by £200,000,000. There was nothing about the profits of the Account, and he promised that for the future we should have some information about the exchange fund. But he gave no reason why the Account should be increased. The old use of the fund was ironing out fluctuations. If it were found that there was a variation in the rate of exchange between two countries, the Account might be used to reduce that fluctuation. That was one perfectly clear use of the fund, and although I opposed it at the time with a great many people, yet there has been a great deal to be said for it. It has proved itself useful.

The right hon. Gentleman mentioned something new that the exchange fund is to do. It was no longer to act merely as a buffer to reduce fluctuations, but it was to carry out the policy of the tripartite conversations between America, France and ourselves. Under that tripartite policy we were to maintain the exchanges at the figures at which they stood at that time. But a change has come about, not on account of the difficulties on the Continent, but on account of the enormous increase in the supply of gold. When the tripartite agreement was come to, there was no fear of this increase in the supply of gold, and to the best of my recollection the compulsory purchase of gold was not a feature of the tripartite policy. Now the situation as regards the Exchange Equalisation Account, as regards the actual exchange between us and America, and as regards the tripartite agreement. is completely changed. It is no use concealing the matter; it is a matter of history.

Some months ago there was a fear, not that America would go off gold, not that there would be any violent change in that country, but that America might cease to buy gold at the price at which gold stood at that time. Supplies from South Africa have increased very largely, and, according to the statements from South Africa, will increase still further. Above all we have the enormous unexpected increase from Russia; and the question now is, how long will America go on buying all the gold that is offered to her? Without us she would not be able to go on, but now we are bound together, not under the tripartite agreement, but under some understanding with America, that we also will continue to buy gold at the top price of 140s. an ounce if she will do so too. That is a very serious position. When we use this fund to keep up prices for the purposes of a "corner in gold," the risks involved are infinitely great. We all know what has happened before in the case of wheat, and a similar thing may happen in the case of gold. It is not that I disapprove of the policy of the Government, but I want the Committee to realise the risks that are involved in carrying through this policy, and to remember that a point may come when we shall have to drop out.

We have seen two previous crises similar to this. The right hon. Gentleman opposite will remember the stop on the exchange during the War. All through the War, the exchange between England and America was kept at a stable figure. Our purchases from America were all regulated on the basis of the £ being equal to 4.87 dollars, and at the end of the War the real value of sterling was far less than the dollar equivalent. For six months after the end of the War we continued that stop on the exchange, so that everything we bought from America was artificially cheap, the difference between the price at the actual value of sterling and the figure at which sterling was stopped by the Treasury being paid by the Treasury. I brought the matter up over and over again, and was ridiculed at the time, but at the end we were actually paying something like £1,000,000 a day to the Americans to balance the artificial value with the real value. That was not going into our pockets; the import of munitions had more or less ceased; it was going into private pockets as a bonus on the importation of goods from America. The Treasury insisted that there should be no change, that the matter should not even be mentioned, and they predicted terrible results if we took this stop off the exchange. But when the stop was taken off the exchange, things went on just as before, except that the £ sank from 4.87 to 3.50 dollars. That had the perfectly natural result of making things that we bought from America much dearer, so that we did not import so much from America, while on the other hand it made goods supplied to America from this country much cheaper, so that our export trade to America increased. That was a perfectly natural result, and one which was not disadvantageous to this country. On that occasion the Treasury were quite wrong. This country was bled to an extent which worked out, I think, at something like £200,000,000 and the change that was finally forced upon the Treasury, owing to the expense, was of benefit to the trade and industry of this country.

The second occasion was in 1931. I remember rising from the bench opposite, while the Labour Government was still in power, to denounce the idea that sterling and gold should be permanently united. I pointed out that the crash was bound to come, that we should have to go off gold, that that was the only way in which we could reduce the debts which were strangling industry, and regain the natural exchange between foreign goods and British goods. In the same way as before, the Treasury ridiculed the idea. Only a week before we came off gold, the Treasury officials were saying to me, "You do not really think it would help British export trade if we came off gold?" The same vaticinations of ruin came from the City of London. Again the Treasury wasted millions in trying to support sterling against other currencies and against gold. We did everything we could, at great expense, to prevent this country going off gold, and when we went off, in the twinkling of an eye, the investing public and the business community decided that it was the best possible thing that could have happened. The Treasury were wrong again.

Are they going to be wrong a third time? The issue does not rest any longer entirely with us. I ventured to point out the other day that the principal reason for the Government buying gold was in order that they might keep up the price of the gold which they have. We know now that all the gold they have is 100,000,000 ounces, worth, at the old figure, £450,000,000, and at the present figure £700,000,000—a very satisfactory profit, if it be all profit, which I doubt. But this is not the end. It may well be that the right hon. Gentleman will come back to this House in three months' time and say he must have another £200,000,000 to keep the price up, to keep the "corner" firm, and we shall give it to him. He may come back again and still be spending 140s. an ounce on buying gold from Russia which no one wants. I may add that, when we buy gold from Russia, either at this price or at any other price, we pay for it, of course, in British goods made in this country, and, according to all modern theories of economics, the more you owe to a foreign country the more prosperous you are. Bat we are not the only people in the gamble; we are not the only people in the "corner." What about America?

No doubt the arguments in favour of continuing to buy all the gold that is put before you at a fancy figure apply to America even more than to ourselves. I am told that they are burying the gold which has been dug up in South Africa underneath the green grass of Kentucky. But al] these things have a limit. Next year the increase will be still greater, and there will not be room in Kentucky. What will happen when America says, "No; 100s. an ounce is quite enough for any man who owns gold?" Directly they say that we shall have to say the same, and, directly we say that, while it is possible that other things may happen, one thing is certain to happen—that £700,000,000 will be written down and the taxpayer shoulders the loss. These were the figures three months ago; now they may be astronomical; they certainly will be later if this process goes on indefinitely. There will then be an immense loss to the taxpayers of this country, or, in other words, an immense increase of debt unrepresented by any valuable assets.

I should like to ask the Chancellor of the Exchequer one question: Has he set himself some definite limit as to the amount of unwanted gold that is to be buried in this country? I do not want to know the figure; goodness knows, we do not want to give any more points to those gold hoarders, gold miners, and the rest; but: we want to know that the Treasury realise the danger that is ahead of them, and the fact that everything they do must be in complete unison with the United States of America. It is conceivable that it might come to this, that the Americans might refuse to buy more gold and that we should be left to buy it instead, and that Would put us in an even worse position. We cannot go on carrying the gold baby indefinitely. It is possible to share the burden with America for another year or so, but, if it is going to he left to us, it will be a worse burden upon industry here, and a more serious loss to the taxpayers of this country, than anything we have ever faced.

I cannot help being suspicious of the vested interests behind this determination that we should go on buying gold at 140s. South Africa, we know, and the various gold-producing companies, we know, must be in favour of the price of their article remaining high, but the tragedy of it is that, as long as it remains high, more and more gold will be produced. Gold has been exempted from the natural law of supply and demand, and that exemption is continued by promising to buy at a fixed price all the gold that is produced. Where a Government sets itself to act contrary to the laws of Nature, a time comes when the laws of Nature come back like a punching-ball and hit it on the head. Here you are defying Nature, and you are doing it, in the first place, to keep up the book value of the gold that you have. You are doing it, in the second place, allegedly to prevent a break in the exchange, on which it has no bearing at all.

If America and ourselves fix the price we are prepared to pay for gold at some figure below the present figure, it need not alter by one jot the exchange between England and America, but will it be a disaster to trade and industry? Will it, as some of these city financiers say, cause a slump in the price of all other raw materials? Will it end the boom? Will it throw people out of work? Why should it have the slightest effect upon the price of tin, rubber and copper, where the price is fixed by the demand for the article in the market? Why should a change in the price of gold, for which there is no demand in the market, affect the price of all those other raw materials which have a demand, and an increasing demand, at present? The effect might be psychological. A great many people whose reserves are in gold will suffer, but it cannot have any actual economic effect upon the producing industries of the world as a whole, except indeed that there will be less gold produced in future as the price is brought down.

All the Press and the Government have been extraordinarily silent on this point, but it is quite time that those of us who realise that the interests of the taxpayer and of the producer are the ones that we should consider, spoke out in order to prevent any sort of injury to trade which might be brought about if these exaggerated stories as to what would happen if we paid less for gold go unchallenged. I do not believe myself that if we bought gold with America at 85s. an ounce instead of 140s. it would affect industry and production in the least, any more than it did when we came off gold in 1931 or when we put an end to the stop on the Exchange in 1919. Every time the prophets of evil and the vested interests painted a picture of ruin, and every time they have been disproved and found wrong.

5.49 P.m.

Mr. Mabane

The House knows the right hon. and gallant Gentleman, who has just spoken as a doughty warrior, but sometimes he appears to us to be rather more concerned with the battle than with the victory and I think, if he were to look back over the last five years, he would have considerable ground for believing that the speeches that he made in 1931 and 1932 had resulted in a very considerable victory. Surely during the past five years we have had a currency which has virtually been a managed currency and not one based on gold. Therefore—and I speak as one who had something to do with supporting his view in 1932—I think we may take to ourselves some consolation in the fact that our currency in the last five years has been so substantially a managed currency and not one tied to gold.

I was delighted to hear the announcement of the Chancellor of the Exchequer to-day with regard to the publicity that is in future to attend the Exchange Equalisation Account. Particularly was I delighted to hear it because that was to have been the main purpose of my speech if I had been fortunate enough to catch your eye, and to that extent I am absolved from making it. As a member of the Public Accounts Committee who had something to do with drafting the Clause on the Order Paper, I should like to say that, as far as I am concerned as an individual member of that committee, the Chancellor's announcement will not only remove some of the complaints that were made in the House in 1932, but will have a further value in enabling the House to judge of the operation of the Exchange Equalisation Account. It has seemed to me in the last few years that the position has been really very difficult. It is the duty of the Public Accounts Committee to secure that all money voted by the House is spent for the purpose for which it was voted, but in recent years we have had to take the ipse dixit of the Comptroller and Auditor-General as sufficient evidence that the money in the Exchange Equalisation Account was being applied for the purpose for which it was voted. If that had gone on very much longer, it might well have been a dereliction of duty on the part of the Public Accounts Committee and, I think, on the part of the House, to have submitted to that practice. Therefore, it appears to me that, the Chancellor of the Exchequer having undertaken to convey to the Public Accounts Committee such a very substantial amount of information, the complaints that were made when the Exchange Account was introduced in 1932, and perhaps voiced from time to time since then, have been very fairly met.

I should like to say a word about the general position created by this proposal to-day. The Chancellor referred to the original purpose of the Account and its establishment. I notice that he did not read the whole sentence which indicated the purpose. The account was established "for the purpose of strengthening the currency and checking undue fluctuations in the exchange value of sterling." [Interruption.] In the original Resolution submitted to the House.

Sir J. Simon

I thought I read the words of the Act of Parliament.

Mr. Mabane

I am quoting the original words of the setting up Resolution. The phrase there was, "for the purpose of strengthening the currency." It is interesting to observe the word" strengthening," because clearly since that time there has been a substantial change. Sterling, from being a currency which was likely to depreciate, has become one that is regarded throughout the world as the most stable of all currencies. It is very interesting to observe that in the last five years politics and finance have become intertwined in a way that was not anticipated in 1932, when this account was first established. In those days we spoke of exchange rates being determined by the trading position as between one country and -another. In the last five years we have realised as we never realised before that the political position in the country can very seriously upset the exchange of that country, and indeed the exchanges of the world. When we read about the danger of depreciation in the value of the franc, we are hound to come to the conclusion that we are being asked to support the franc against Socialism, and perhaps it is not entirely a party point to say that the fact that sterling is so strong is a tribute to the power of the Government during the last five years in maintaining this country in such a stable financial position.

Mr. Morgan Jones

How is the present position of the franc attributable to Socialism?

Mr. Mabane

I think the hon. Member will agree that French policy in the last few months has been representative of the views of the extreme Left. Such a policy means a great strain on finance and industry. If 40-hour week Bills and so on are to be introduced, then there is an additional burden to be borne by trade and industry, and the effect is to weaken the exchange of the country in which those experiments are being carried out. [HON. MEMBERS: "Why?"] Because in such circumstances those in control of money in France regard sterling as a safer repository for their wealth than the franc. You may disagree with the operations of such people but the fact is there, and, in consequence we are faced with the task of supporting the franc.

May I state the alternatives before us? They are simple. We can either let the price of gold go or we can continue to buy gold. I do not think there are any other courses oven to us. If we let the price of gold go in a manner quite uncontrolled, the consequences might be deplorable. On the other hand, we may go on buying gold. There are many of us who do not like the policy of buying gold, but I am bound to come to the conclusion that, of those two alternative policies, I prefer that we should depend on the one we are apparently going to adopt, provide this additional money, and thus prevent an uncontrolled fall in the price. But I hope the Treasury will not in the future regard the buying of gold continuously and for all time as their only policy, or indeed as a policy at all. I hope that from now on the Treasury will, as has been suggested by the hon. Member for East Aberdeen (Mr. Boothby), think fit by some means or other to present to the House a long-term monetary policy, and that the House may have an opportunity of discussing such a long-term monetary policy. I think if we were simply to imagine that we could go on playing a kind of strip poker with the gold producers of the world we should be likely to be broken in the end.

I cannot believe that that is the intention of the Treasury or that it is the motive which led to this proposal being put before the House. I feel that if, on the other hand, we can look forward to the time when the price of gold can be adjusted—perhaps lowered to a figure more in keeping with the trading situation of the world—we shall in the end have no cause for complaint. To let the price go in an uncontrolled fashion seems to me a course of action that would be likely to precipitate a situation not unlike that of 1931, but, with this £200,000,000, surely the Treasury can look forward to the time when the price of gold can be altered, under control and in their own time, to a figure more consonant with the trading situation of the world. With those words, and again thanking the Chancellor for his concession to the Public Accounts Committee, I support the Resolution.

5.59 P.m.

Sir Arthur Salter

I think all of us feel under a rather peculiar difficulty in debating a subject of this kind, because we obviously cannot set out judgment against that of the Government of a matter on which in the nature of the case we have not the information on which their judgment has been formed. For that and other reasons I welcome the promise of further information in future. I am, however, not quite sure that the information that the Chancellor of the Exchequer is going to give us will meet all the purposes that I should like to see served. He is going to give us information of two kinds, one of which will be public, but that is very limited in character; the other information he is going to give confidentially to the Public Accounts Committee and it will therefore not serve to meet some of the dangers which have followed from the complete secrecy which has hitherto attended the operations of the Equalisation Account.

It is obvious that when you have equalisation accounts in operation by different countries, the great danger is that they will be used, or be thought to be used, competitively rather than co-operatively. I have been several times in the United States when the whole atmosphere of economic and financial circles was being poisoned by the belief that the English Equalisation Account was being used to hold the pound below its proper level in the interest of the English export trade. I know the difficulty that one had at that time in getting credence for the sincerity of the professed principles of that Account, namely, that it was merely to defeat undue fluctuations. How often have I thought that if I had the kind of information which the Public Accounts Committee, but not the public, would have in the future, one could have dissipated those suspicions. I do not think that the information to be given under he first head will be sufficient to obviate such a danger in the future. I wonder, therefore, whether the Chancellor of the Exchequer would not perhaps find it possible to make public at least some part of the information that he is going to supply to the Public Accounts Committee? I will not make that request more specific because I should like to study rather more closely the proposal which has been made this afternoon, the full implications of which I am not able to judge immediately. But if it were possible for the Chancellor to add some of what he is giving to the Public Accounts Committee to that which he is making publicly available, he might help to prevent the suspicions as to the purposes of the equalisation fund which were current in the early days, though they had been less since the tripartite declaration, from being again revived.

What people in other countries and the public in this country naturally want to know about the working of the fund is, first of all, that it is not being used competitively against similar funds in other countries and secondly that it is not being used so as to run counter to long-term economic trends. If it could be seen from a fairly full account of past operations that the fund had not in fact been so used in the past public confidence in the present working would be greatly increased. One cannot tell that at present, and the information given under the first head of the Chancellor's proposal, i.e., publicity, will not in itself be sufficient for this purpose. That is all I have to say in regard to that particular question, but I would like to make a few more general comments on policy.

Obviously, we must accept the position that this extra amount must be added. But the authorised total is getting a very formidable amount. One cannot but be made rather anxious by the fact that the Government thought originally that the purposes for which the fund is necessary could be served by authorising borrowing up to £150,000,000, that after no very great length of time that became £350,000,000, and, now it has become £550,000,000. The rapidity of the growth and size of the total must at least make us wish that we could have a rather fuller account of the general financial policy with which this particular instrument of policy is associated.

May I suggest a few factors that I would like to see in such a policy? First of all, I should like to be quite sure that our fund and the other funds, particularly the American and the French, are really being used co-operatively, and not competitively now and then, co-operatively a little later. I should like to be sure that the three funds are being used consistently to make effective an agreed general policy. I believe myself that that policy should be one neither of unconditional de jure stabilisation of the currencies at unchangeable rates, nor of a mere day-to-day or short-period accommodation of one exchange rate to another. I believe that there is a halfway between what seems to be the policy of the Government at this moment and full stabilisation. I believe it would be possible to arrange a conditional stabilisation agreement between the three countries under which at a given period the three funds would be all buying together or selling together so as to maintain the relations between the three particular currencies within certain limits narrow enough to give a basis for trade transactions but wide enough to enable the three funds, operating together, to come down with decisive effect upon speculative movements that were directed against the common policy. I believe, however, that it would be both dangerous and disastrous to attempt to fix such a relation between the three currencies as would mean new legislation or legal repudiation to make a change in the future.

It is quite clear that if one of the countries concerned embarks upon a social or other policy which tends to increase costs in that country out of relation to the increase that may be taking place in the other countries a time will come when the relation between these three currencies must be changed. If you attempt by equalisation funds, whether separately or together, to run counter to a fundamental economic fact of that kind you are sure to come to disaster. I think it would be possible to have arrangements between the three countries under which at a given period they would attempt stabilisation, but with a quite definite understanding from the beginning, that, if the common experience of the three funds so working together showed clearly that one currency had, by virtue of the underlying economic facts, become less valuable, then, after consultation, the ratio would be changed. I believe that that kind of arrangement would be a sufficient basis not only for ordinary current trade transactions, but, equally important, a sufficient foundation upon which it would be possible to negotiate trade agreements.

It is obvious that no agreement for the reciprocal reduction of tariffs can be made between two countries if each of them or one of them is under the apprehension that the advantages to itself may be counteracted by the currency policy of the other country. Such an arrangement as I have suggested, however, would be sufficient to enable trade agreements to be made, and in turn the extension of economic relations by virtue of these trade agreements give an extra safeguard for the monetary policy itself. I believe that the tripartite declaration, which I think every one in this Committee welcomed very sincerely as an indication of co-operation, must either go back or go forward. It it is to succeed it must be developed into greater co-operation on financial policy generally, and, if possible, also on economic policy as well as financial policy. I believe that that could be done and that if it were done, and if the public generally in the different countries knew that co-operation was continuing and developing, all our difficulties in every sphere would be immensely reduced.

I think then that the experience of the last few months has shown, what some of us have believed for some years, that a somewhat greater measure of stabilisation than we have had in the past is possible but that equally it is dangerous, and cer- tainly premature at this moment, to attempt a de jure stabilisation which would involve legislation before any change in exchange ratios could be made. We have for some time to come to go on in an intermediate position but not, I think, in the precise intermediate position the Government have so far reached. There is a practicable halfway stage between their present measure of stabilisation and full stabilisation either as between the currencies in relation to each other or in relation to gold.

6.11 p.m.

Sir Geoffrey Ellis

May I add my plea to what was said by the hon. Member for Oxford University (Sir A. Salter) in pointing out that little information was being given to the Committee? I would put it to the Chancellor of the Exchequer that the whole question is of much more interest to trade and industry generally than to the Public Accounts Committee. Those of us who have sat on the Public Accounts Committee are well aware of the questions that come before it, and know that when you get to a certain stage you are always met with the reply, "That is a question of policy in the Department concerned, and I am not sure that I ought to publish it." Whatever is evolved from the question and whatever explanation is given and whatever may or may not be put into the report of the Public Accounts Committee, I submit to the Chancellor of the Exchequer that this is rather a different problem. What industry in particular and the country generally want to know—and honestly I do not pay much attention to the currency experts in these matters—is the kind of general policy behind this matter. They do not ask for detailed explanations. A statement on a given day of what the assets and liabilities of the fund may be is not worth much to anyone. They would like to know the sort of general policy the Government have been following with regard to the Exchange Equalisation Account over a period in order to get things straight, and more or less the way in which they have been doing it, and how they have protected industry and exchange in the process. People would be much more interested to know that than they would be to know the mere machinery details.

We have had a great deal of discussion here to-day on a lot of detail. It is worth while considering the industrialist's point of view. He regards all these currency questions and what they produce as an unnecessary interference with his business and production, and he looks anxiously forward to the day when all these things will not interfere with him. If you look at the increase which has taken place in the demands of these funds you will find that, as the tally of gold has been mounting up throughout the world, there has had to be more and more protection for it. I shall not go into details to show what one ought to do, but it appears to the ordinary man, and particularly to the industrialist, that the remedy is essentially a political rather than a financial one. He hopes, that, above all things, the Government will direct their attention to throwing off the shackles on international trade because he firmly believes that if they can do that all other things will follow.

6.15 p.m.

Mr. Arthur Henderson

I can assure the Chancellor of the Exchequer that I have no desire to criticise the proposal which he has made. I gladly welcome it in so far as it strengthens the Exchange Equalisation Fund because, like the hon. Member for Huddersfield (Mr. Mabane) I hope and believe that it will give an indirect measure of assistance to the franc. Unlike the hon. Member, however, I do not consider that the franc has been weakened as a result of any action taken by Socialist legislation in France. In so far as it has been weakened it is, according to his own argument, the direct result of anti-Socialists seeking to avoid their social and patriotic responsibilities by transferring their credits to another country. So far as the increase of this fund will assist and strengthen the franc, I am sure that hon. Members on this side of the Committee will be glad to support it.

I was also glad to hear the Chancellor of the Exchequer state that in future there will be a measure of publicity in respect of the fund. I gather that hon. Members who have spoken, and especially the hon. Member for Oxford University (Sir A. Salter) have had personal experience of the working of the fund. I had personal experience of its reactions in the United States of America during the 12 months following its establishment. It fell to my lot to be in New York about six months after the fund was established and quite a number of Wall Street financiers and other people interested in its working took the view, as expressed by the hon. Member for Oxford University, that the object of the fund was to enable the British Government to take a mean advantage of the American competitors of British exporters by pegging the pound at such a level as to permit or enable British exporters to have an advantage over American exporters. We know that to be unsound and untrue, but owing to the veil of secrecy that has been wrapped round the fund it was impossible for me to give any explanation of it at that time, because I knew nothing about it. I am sure from my own limited knowledge, however, that it had a very unfortunate effect on wide circles in the United States of America. It is to be hoped that as a result of the measure of publicity that will now be given to the fund that objection will no longer apply.

I was very interested also to listen to the Chancellor of the Exchequer expounding the historical background of this vexed question of exchange. He pointed out that before the War the principal cause of exchange fluctuation was economic, largely due to the desire to move balances from one country to another. He admitted, in reply to an interjection from these benches, that in the post-war years one of the principal causes had become political. I was very interested to hear that admission, because my mind went back to 1931. Whatever may be the differences of opinion in this House as to the financial and economic situation in which we found ourselves during that year, and whatever may be the differences of opinion as to the causes of that particular situation, I have never heard any responsible member of the Government admit that the causes of the immediate crisis in August or September, 1931, were due to causes over which the Labour Government at that time had no control.

We have been told that when there is a desire to remove short-term loans from one Capital to another, that is done through the medium of the gold exchange. That was exactly the position in 1931. Hon. Members will recollect that in June or July of that year there was a political unsettlement in Europe and as a result many people in France, Belgium, Holland and other European countries desired to withdraw their credits from this country. Many of the bankers in this country who had received those deposits from their foreign customers had in turn loaned the money to Germany on long-term credits at a higher rate of interest, and as a result it became necessary for them to meet their obligations by exporting gold, and that led to an outflow of large quantities of gold during those months. No Government under the present system of banking in this country can be held responsible for that particular chain of incidents. The Government of this country does not control the discount houses in the City, or the Bank of England, or the joint stock banks. Therefore, no Government under the present system can be held responsible, because it has not the control.

If that is the case under the present National Government it certainly was the case under the Labour Government of 1931. Therefore, I hope that in future, when the party on this side of the House have taken the places of right hon. Gentlemen on the other side and if we get into another financial crisis—[Laughter]—similar to the one that we are facing at the present moment; it is not the Labour Opposition which has come to the House and asked for another £200,000,000, it is the National Government who are asking for it. Therefore hon. Members laughed a little too early. They did not allow me to finish my sentence. When the next Labour Government find themselves in the same position as the National Government find themselves in at the present time and come to the House to ask for additional credits in order to permit them to deal with a problem such as we are facing to-day, I hope that the present Chancellor of the Exchequer, when he speaks from this side of the House, will adopt the same generous attitude as was adopted by the right hon. Member for East Edinburgh (Mr. Pethick-Lawrence), who spoke to-day for the Opposition.

May I endorse what was said by an hon. Member who spoke earlier from this side as to the need for international cooperation on this question. The Chancellor of the Exchequer stated in reply to a question that his policy was in line with the policy of the United States. I understood him to say that he was following the line of policy which was taken by the United States Government. I should like him to explain that a little more fully. It is not merely a question of following the United States. I should like the Government to co-operate with the United States. It is common ground that the tripartite stabilisation agreement in September of last year between the British Government, the United States Government and the French Government was to some extent a success. It was only a partial success because it only dealt with the problem partially. Could not that co-operation be extended to cover the questions which are now beginning to obtrude themselves in the international and economic sphere?

I hope that the intention of the Government is not merely to obtain some sort of fixation of the price of gold. The only country in the world which at the present time has a fixed price of gold is the United States of America. The fact that we have this situation is clear evidence as to the lack of co-operation between the United States Government and our own Government on this particular matter. I hope the Chancellor of the Exchequer will assure the House that he will not only follow in the lines of United States policy but that he will enter into active co-operation with the United States Government in order to deal with this very vexed question. At the present time the United States, Great Britain and France own between them more than two-thirds of the gold supply of the world, and I should have thought that one solution would be to consider whether it is not possible, instead of sterilising gold, to make some use of it through an international bank. A very distinguished member or former member of the staff of the Treasury wrote a very interesting book some time ago on the best way of dealing with this question from the international point of view through an international bank. While that may seem idealistic in these days, I believe that in days to come we shall have to face up to some sort of an international bank superimposed over the various national banks, of the civilised world.

I hope that the Chancellor of the Exchequer will be able to give that assurance to the Committee, because some of us attach very great importance to the value of co-operating with the United States on this particular question. In so far as we on this side of the Committee have found it possible to give partial support to the proposal for which the right hon. Gentleman is responsible, I hope that in the spirit of generosity which characterises him he will be able to give that assurance to us.

6.28 p.m.

Mr. Harold Macmillan

I think the Chancellor of the Exchequer must congratulate himself on the course of the Debate, which is largely due to the skill and clarity with which he introduced the Resolution. I never heard a more masterly treatment of this difficult subject, and I think all of us felt that for a few moments we understood it. It looked in the earlier stages as if the Debate would fade out in an hour or so, because of the skilful explanation given, but a few economists have revived the Debate and, as always, we have had the right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood), who can be reckoned on whenever the word "gold" is mentioned. I was delighted with that part of his speech where he represented the Government as having embarked on a vast Birshirgian gold pool; in fact that this Resolution was to promote a kind of punter's paradise.

I should like to put two or three questions to the Chancellor of the Exchequer. He said that the first and primary object of the fund was to check undue fluctuations of the exchange. It is true that at the beginning of this fund its main purpose was to stop fluctuations due to speculation or similar causes. It was not intended to control the general trend of exchange due to natural causes, but to control minor fluctuations due to speculation or otherwise, which largely become mixed up with other causes. He explained the movement of capital for political and other causes, but I hope we shall not fall into the error—I am sure the Government do not intend to fall into the error—of trying to prevent fluctuations of exchange when those fluctuations are right and natural.

There has been some discussion as to the movements of the franc. We must be careful lest in our anxiety to get the benefits of stabilisation we ultimately get into the shackles of stabilisation, as we once got into the shackles of the Gold Standard. In the tripartite agreement the three countries agreed that, given certain conditions in the world and in their own country, such and such should be the appropriate parity between the currencies. Obviously, the appropriate parity must depend on how these countries are conducting their internal affairs. The French Government have chosen to embark at home on a certain social and industrial policy which will have important effects. I will leave out altogether the flight of capital because it is frightened by Socialism; that is a minor effect, and probably will be transient and can be dealt with satisfactorily. But if the 40-hour week policy, with other social reforms, and a rise in wages, is carried into effect, it must mean that the internal costs of production in France must rise and, therefore, the appropriate parity which was right in September will not be the right and appropriate parity in March unless England and America equally carry out the same social programme. In other words, the franc ought to fall, and any attempt to prevent it falling in such circumstances would be a mistake. Exchange should in such circumstances be allowed to do what it is supposed to do, represent the exchange of goods at the purchasing price of parity between different countries.

In an interesting speech the hon. Member for Oxford University (Sir A. Salter) suggested that there might be a half-way house, in what seems to be a dilemma. Either you will have to give up the idea of controlling these fluctuations and give a perfectly free exchange—perhaps the world will go back to Free Trade—and if you do then you are at the mercy of the speculator and have all the difficulties which the fund was framed to deal with, or the alternative is to have fixed and permanent stabilization—and that is equally dangerous. What we want, and I think it is what the hon. Member for Oxford University suggested, a series of temporary stabilisations at currency levels agreed upon and which properly represent the purchasing power at parity of the different countries. If the bank of international control or the three members of the tripartite agreement could work this out—could work out a co-operative management of world monetary policy—they would avoid on the one hand the disadvantages of absolutely uncontrolled exchanges, and, on the other hand, would avoid what a lot of people in industry to-day equally fear, a fixed stabilisation which will produce the same effect in this country as was the case when we were tied to the Gold Standard. A series of temporary agreements stabilising exchanges for a year or two, allowing the trader to make his deals knowing what currency prices are going to he, but still allowing for the internal policy of countries to be reflected properly as they should be on the exchanges, is the most hopeful plan on which the world can embark.

Of course there is mixed up with it something which is very different from when the Exchange Equalisation Fund was first introduced. The Chancellor of the Exchequer mentioned it but slid over it with Treat skill. He said that if we do not vote the money we may have to reverse the whole policy of monetary expansion which has saved this country since 1931. Incidentally we only embarked on this policy in 1933, that is after two years of strong pressure from independent Members, when we were still under the leadership of the Governor of the Bank of England and carrying out a policy of deflation, when unemployment rose to the highest level known in this country, 1,000,000 higher than in 1931. We have abandoned, and I hope finally, that deflationary policy. But it is not absolutely logically necessary that a policy of monetary expansion should be linked up with a policy of buying gold at any price. There I agree with what has been said during the Debate. It is perfectly clear that it is an intolerable position, and one that the world cannot permanently maintain. You may get a situation in which so much of this unwanted metal is produced that nobody could possibly require, when the world would really be alarmed at the thought of having to go on paying for it in goods and services at fancy prices. But that does not mean that it would automatically condemn itself to a policy of deflation and gradual decline. That is not so.

I think the Chancellor of the Exchequer and the Government are right, having in mind as they must have this fundamental proposition in the present situation, that there is nothing they can do except to prevent a sudden and disastrous fall in the price of gold by their policy. That does not mean that it is necessarily right as a permanent policy, but it is the only thing they can do at the present time. They have to restore confidence to the world and I think it is the best thing they can do in the present circumstances. I hope that the Government will lead the world in a policy of a series of temporary stabilisations, getting the advantages of temporary fixation, without the rigidity of the old gold system, and in a policy by which we shall ultimately and finally either increase the use of the existing gold in the world, increase its credit structure, increase its potential wealth, or find another satisfactory method of conducting its currency and monetary policy without being tied to gold. I think it is agreed that the policy of the Government is the only one which can be pursued in the present circumstances, and the character of the Debate has shown that in the general view of the Committee the Government have taken the only right and proper course.

6.39 p.m.

Major Hills

I agree with the hon. Member for Stockton-on-Tees (Mr. Macmillan) that there must be a certain flexibility about exchange values, but I disagree with him that the tripartite agreement is of necessity too rigid. I believe it can be worked with all the flexibility which we want to see in it, and that it will allow a fall of the franc, which I believe is imminent, to a lower level. I would point out to the hon. Member that although exchange stabilisation is good and that no one wants to see a sudden fall in the financial values, the tripartite agreement is to settle the external values of the £ and the dollar. What we want for the benefit of industry is stability in the internal value of the £, some stability of prices, continuity in the value of money and not the wide fluctuations which we have had in recent times. But that is by the way.

The Chancellor of the Exchequer told us that one reason for increasing the amount of the Exchange Equalisation Account is to buy gold. I agree that gold is wanted by the Account. If sterling is bought in New York or Paris we have to redeem that sterling in gold, and so the account requires a certain amount of gold. But I am not sure that the Chancellor of the Exchequer's speech stopped at that requirement. He made a speech of extreme interest and far-reaching importance. He dealt with the whole relation of currency with gold. May I con- gratulate him on one thing, and that is on the publicity which will now obtain as to the affairs of the Exchange Equalisation Account? The secrecy has done harm. It has given rise to all sorts of rumours, and a certain amount of information which has leaked out has been distorted. The truth and the whole truth can do nothing but good.

But when the Chancellor of the Exchequer said that the Exchange Equalisation Account wants gold I want to ask two questions. If we want gold now why did the account last December get rid of £65,000,000 of gold to the Issue Department of the Bank of England? It got rid of that amount of gold. And why, when all the world is getting out of gold do we want to get into gold? The Chancellor of the Exchequer told us that a marked feature of modern financial conditions was that people who were afraid of changes in the value of their money preferred to hold their money in sterling rather than in gold. Sterling now stands in a stronger position, and its value is regarded as more certain than the value of gold. That has happened since we went off gold in 1931. We are a fortunate country. We did not mean to go off gold, we were forced off gold, and we thought dreadful things were going to happen. Suddenly we found that they did not happen. But why, when the world is going off gold do we want to get into it? Is it a good investment?

We want gold for the tripartite agreement. We have to hold enough gold should there he an unwonted fall in sterling. If sterling is bought in New York or Paris we are under bond under the tripartite agreement to redeem our currency in gold, and we must have enough gold for that purpose. At the moment the opinion is that sterling is overvalued, and there may be a necessity to support sterling. Then of course, as the hon. Member for East Aberdeen (Mr. Boothby) said, there may be an adverse balance of trade and we want gold to pay for that adverse balance. I am not afraid of an adverse balance of trade. I am of the same opinion as the right hon. Gentleman opposite. I do not want to see this country go back to the Gold Standard, for I believe it might well be disastrous for it to do so. If this money is to be used to buy gold at the price of 140s. a fine ounce, it is really a corner in gold between this country and New York. There is nothing magical about the price of 140s. a fine ounce; a short time ago the price was 142s. and now it has fallen to 140s., and the world has not come to an end.

Let hon. Members consider what is happening. I understand that some South African mining companies are refraining from working their first-rate ores and are working their second-rate ores, in order to take advantage of the high price of gold and to hold back the first-class ores until a time when gold falls to something like its old price. Moreover, the Soviet Government is shovelling out all the gold it can. Russia has now come into the market as a very big producer of gold. According to Messrs. Montagu's figures, Russia's production in 1936 was something like £56,000,000 sterling, taking the price at £7 a fine ounce. If it were the case that in return for this gold we exported manufactured goods to Russia, I should welcome it, but I am not sure that it works out in that way.

I heard the speech of the hon. Member for East Aberdeen: stands Aberdeen where it did? I have heard him declaim against the Gold Standard, and now he tells us that if the gold price is allowed to fall, there will be deflation. I could understand that if gold were the basis of credit, but our currency is not based on gold. Moreover, gold that is bought by the Exchange Equalisation Account is sterilised and does not come into the market or affect the price level. It goes from one coffer, the mine in Russia, to the other coffer, the cellar of a bank; there it is equally sterilised, and I do not see how it affects the price level.

Mr. Boothby

I do not want this country to go back to the Gold Standard again, and I do not want to see deflation, but I want to see gold used as a method of obtaining credit expansion which, I think, is required in the world, and of which, I think, there is not enough. I am afraid that if the price of gold is reduced, we shall go back to the old deflationary game, which some people are only too anxious to play.

Major Hills

I do not see how gold can be used as a basis of credit unless the country possessing the gold is on the Gold Standard. After the Macmillan Report, nobody believes that gold gives value to an inconvertible currency. Gold has certain very obvious uses, but except for countries that are on the Gold Standard, gold is not necessarily a basis of credit. The hon. Member for East Aberdeen spoke of foreign loans. One thing that we wanted under the pre-War system was to export manufactured goods, and I suggest that that is still one of the great uses which foreign loans possess. In any case, I am very glad that the hon. Member does not want this country to go back to the Gold Standard, although I find it difficult to understand why he wants to keep up the price of gold, because I cannot see that it affects the price of goods. The value of gold, like that of any other commodity, goes up and down, and I do not want to see an artificial price for gold.

I speak subject to correction by the Chancellor, but I think there may be some other object in putting gold into the Exchange Equalisation Account. In an article in the "Times" recently, it was stated that gold had got some mystic quality. That is true. It has a psychological, sentimental, mystic value, and one cannot disregard that, because it carries weight. Gold is indestructible, beautiful, and easily transportable, and it is always received with thankfulness. It has a large part to play in the world's economy, but let us not get the gold obsession to the extent that modern novelists have the sex obsession. Although we have definitely left the Gold Standard, there seems in be a sort of clinging to gold as though it possessed a value which it does not possess.

I listened to the admirable speech of the hon. Member for Oxford University (Sir A. Salter). I wish he would write a book: "Gold, its Cause and its Cure." It is obvious that gold must always be kept in order to meet emergencies, and it will always play its part in the equalisation and the stability of world currencies; but when we are asked to go beyond that and to treat gold as the basis of credit, I do not see how it can be done, unless we go back to the old, unregulated, unmanaged Gold Standard or a Gold Standard under international management, of which I see no chance whatever. I believe that each country, it may be for the time being, has to keep its currency stable in terms of commodities, and to keep continuity in the value of money. In the achievement of those two great objects, which keep business and employment steady, the Gold Standard would not be a help but a disastrous impediment.

6.54 p.m.

Mr. G. Strauss

During the speech of the Chancellor of the Exchequer, I asked the right hon. Gentleman a question to which he gave me a reply which was inaccurate. That may have been my fault, because I may have put the question in such a way that he did not understand it properly; but I would like to repeat it, with the request that the Financial Secretary when he replies later on, should give me an answer. When the Chancellor was informing the Committee that he intended to give more publicity to the transactions, or at any rate to the position, of the Exchange Equalisation Account in future, he said that he would give a statement of the position of the Account, together with a statement of the profit or loss sustained by it, to the Public Accounts Committee. I asked whether that statement of the profit or loss could not be given to the House and made public, it might be after a reasonable period, and the reply of the right hon. Gentleman was that this figure is now given.

The Financial Secretary to the Treasury (Lieut.-Colonel Colville)

I think what my right hon. Friend said was that the fact that there had been a profit had been announced to the House.

Mr. Strauss

Perhaps that is how the misunderstanding arose. I asked whether the figure could not be given and I repeat that question now. I see no reason why, after a reasonable period has passed, the public should not know whether its money has made a profit or loss in the transactions made in order to keep the exchange at a stable figure. The Chancellor's statement to-day was as clear as usual, but he made it as though he were merely proposing some technical adjustment to the Exchange Equalisation Account which arose out of circumstances of the moment, but in which there was no great significance and to which no undue importance should be attached. Indeed, the right hon. Gentleman did not mention—or if he mentioned it, he certainly did not stress it—the whole question of the position of gold in the world to-day, and that the obvious object of this increased amount which is to make it available for the purchase of greater quantities of gold. He did not refer to the fear which has sprung up during the last six months that gold may be devalued, and that it is the obvious object of the Government to prevent that devaluation by buying all the gold that is put on the market. Therefore, I think we are entitled to accuse the Chancellor of keeping back, in his explanation to the Committee, the most important matter concerning the proposal which the Government have put forward. I do not think the Government have been quite honest to the Committee.

I ask the Financial Screetary why this proposal is put to the Committee in this remarkable manner? What exactly is the urgency in the matter? On the last occasion, when the Account was increased from £150,000,000 to £350,000,000, the proposal was included in the Finance Bill. The Finance Bill for this year has not been printed very long, and I would like to ask whether anything happened between the printing of the Finance Bill and last week that made necessary this increase in the Account. It may be that the explanation is to be found in the situation in France. I do not know whether that is the case, but if it is, we ought to be told. It may be that the fear of a devaluation of gold has made it more urgent that the Government, having decided on the policy of keeping up the price of gold, should implement that policy as quickly as possible.

There may be another reason. At the Imperial Conference, did the representatives of South Africa, who naturally have the interests of their mining concerns at heart, put any pressure on the Government to bring forward this proposal very quickly? If the world fear of a devaluation of gold became a reality, it would, of course, hit the profits of the South African mines considerably. Did the representatives of South Africa, at the Imperial Conference, exert pressure on the Government to bring forward this proposal as quickly as possible? If that was not the sole reason why the proposal was brought forward, was it partly the reason?

The Committee should not consider this proposal as just a technical arrangement owing to certain unimportant causes, but should look at it as significant and symptomatic of the growing instability of the world financial position. One could quite well measure the instability of the world financial position by the amount provided by this House for the Exchange Equalisation Account. Until 1932, owing to comparative free trade in the world and the vast amount of money which was being lent by England and America to Central Europe, there was no very great instability; countries were on the Gold Standard; and there was no need for any such fund to be set up. In 1932 the fund became necessary, and it was started at £150,000,000, which has been raised successively to £350,000,000 and now to £550,000,000. There is no reason to believe, in spite of the naturally optimistic statement of the Chancellor, that the fund has reached its limit.

Why is the financial situation becoming such as to necessitate the increase in the fund? What is it in the world financial position which has brought this about? Nominally it is, I will not say too much gold, but a severe maldistribution of gold. If the gold were equally distributed among all the countries of the world, it would not be too much to form a proper credit basis for the industrial borrowers of money. But the situation is not that. Gold is accumulating in the United States and to some extent in this country, because of the rapid deterioration of the world situation. Free Trade is becoming less, foreign lending is being gradually abandoned, because there are so few credit-worthy borrowers, and because such a large part of the world is using all its resources in preparing for war and no country likes to lend money when it is to be used mainly for war purposes.

This situation has become acute. Gold has been drained from most countries of the world into the vaults of a few countries, the price has been forced up—it is so high that more and more gold is being produced in South Africa, Russia and elsewhere—and the financial world is fearing that sooner or later devaluation of the price of gold must come about. This fear, on top of the other instabilities which exist, has brought about a state of affairs in which the big financial interests of various countries of the world are spending a great deal of their time and their energy in transferring their money from one currency to another currency, from gold to currency, and from currency back to gold, and so on. It is a pretty picture, and a serious reflection on capitalism is presented to us by this constant and frantic transfer of money from one country to another in the hope of avoiding partial or complete loss. That is made worse by the usual crowd of speculators—commercial banks, private individuals and so on—who come in and try to swim with the tide and make a little extra profit. As a result of this position—for which the Government as a government are not responsible, but for which capitalist finance and organisation are definitely responsible—the Government can either allow gold to devalue, by refusing to purchase any more, in which case there is likely to be a considerable contraction of trade and the upward industrial curve may come downward very quickly. If they refused to buy more gold, America would be likely to take a similar line and down goes the price of gold and down goes the price of commodities——

Colonel Wedgwood

Why?

Mr. Strauss

If the right hon. and gallant Gentleman desires an explanation I should have thought that it was simple. The rise in the price of gold which took place in recent years coincided with the rise in commodity prices.

Colonel Wedgwood

Surely the rise in commodity prices was due to demand? Is there any demand for gold?

Mr. Strauss

I do not want to argue the case with the right hon. and gallant Gentleman. It is a matter on which there are differences of opinion, and one could go on arguing this for a long time. But may I put it like this? It is definitely the view of the commercial world in America and this country that if there is a fall in the value of gold, it will seriously affect the general level of commodity prices. That may or may not be correct, but the fact that that fear exists suggests that commodity prices would fall. Anyhow, confidence would be severely shaken. If the Government did not increase their fund, America probably would have to take the same line, and there is a serious risk that the present industrial prosperity here and elsewhere would come to an untimely end. The alternative is for the Government to say that they are prepared to purchase gold; to increase the fund from £350,000,000 to £550,000,000 and allow the industrial prosperity to continue for some time, or maybe increase. But in my view that will be only a temporary respite, because all the forces which are making for a final fall in the value of gold are continuing and, indeed, increasing in vehemence.

The production of gold, in continuing to be very profitable, will increase. There is no likelihood of the distribution of gold becoming better within a year or two than it is at the moment. All the signs show that it is likely to accumulate even more in the future than in the past in the vaults of one or two central banks, and before very long the pressure of events—the increasing gold supply particularly—will make it inevitable that the value of gold will have to be lowered. One cannot go on for ever buying a commodity at an artificially high price, and it certainly is artificial at the moment. If that happens—it may be at a time when the prosperity curve is starting its downward course—the effect on world trade will be very severe indeed, much more severe than if the purchase of gold at the present price were abandoned and a lower price were agreed upon. So that what the Government are doing is to postpone the evil day. They say, "We will go on buying gold and continue the existing level of prosperity." But by postponing the evil day they are making the final day of reckoning very much worse, because there will be larger quantities of gold available then, and the effect on world trade of a fall in the price after prosperity begins to decline, will be very much worse.

Mr. Hopkinson

The whole of the hon. Gentleman's argument seems to be based on the supposition that the Exchange Equalisation Account is used exclusively for the purchase of gold. Is there any evidence that that is the case?

Mr. Strauss

I do not say that it is used exclusively for the purchase of gold. It has been used in the past, and will, to some extent, be used in the future for ironing out day-to-day fluctuations, but I think that it is perfectly clear from what the Chancellor said, from the discussion in the House to-day and from the well-known fact that there is over-production of gold at the moment, with gold being flung on to the world market by owners of gold everywhere, that this increase in the fund will inevitably be used very largely for buying up the gold which is being thrown on the market. There are not many people in the House who can doubt that.

The proposal of the Government to-day is mainly a device to afford an artificial prop to a serious and deteriorating monetary position. By doing that they are postponing the evil day, which will be very much worse for the postponement. I cannot believe, as the right hon. and gallant Member for Ripon (Major Hills) believes, that there is some half-way house or some method by which we can get over this present disequilibrium which exists, by which we can go on to normal prosperity without continuing and recurring crises. All indications show that these crises will continue. All indications show that the crises are likely to become worse as long as the world's commerce is left to the play of what are called natural forces, but really are private interests, and they will continue until the world's commerce is deliberately organised by mankind for the benefit of mankind.

7.15 p.m.

Sir Walter Smiles

The Government ought, I think, to be thanked on behalf of the exporters of this country for their conduct of the Exchange Equalisation Account. Some of the speeches made from the benches opposite would almost make one believe that it was a disgrace to help the exporters of this country. I heard the remark that we were taking an unfair advantage of America. When the Japanese yen fell and the Lancashire cotton industry for six months was nearly wiped out, we did not say that Japan was taking an unfair advantage of us. When the South American exchanges fell at a time when great quantities of textiles were being sold by this country to South America, we did not say that the South American countries were taking an unfair advantage of us. We sympathised with those countries and hoped that they would soon he in a stable position again. I think the manner in which the Government have conducted this fund has been productive of great benefit to British exporters.

As the last speaker said, the fund is being used for the purpose of ironing out difficulties and although the currency of a country may fluctuate a great deal over a considerable period, what affects exporters even more is the question of how they will be paid in three months, six months or a year. Many of my friends were owed considerable sums in South America. They had sold textiles, each perhaps to the value of £1,000 or thereabouts, and even at the end of five years had not been paid. Only last year a friend of mine told me that he had been paid, but only to the extent of £300. There can be no doubt that the fund has helped considerably. I think we still do more business with India than with any other country in the world. One remembers when the Indian exchange jumped from is. 9d. in 1919 to 2s. Ind. in 1920. There were a number of bankruptcies, and it became impossible to sell goods to India and to get the money for them. It was not that the Indian people did not want to pay. They could not pay, with the exchange in that state. Since then, thanks to the efforts of this Government and the Indian Government we have managed for 15 years now to keep the Indian rupee stable within a few fractions at about is. 6d., and it has been a great benefit to trade between this country and India both ways.

Some of the remarks which have been made about the French franc have been rather unfair. Before the War it stood at 25 to the £; in 1924 it had jumped to over 200. Since then it has come back. The first time the world began to lose confidence in the franc was at the time of the Stavinsky scandal, and it is unfair to the present Socialist regime in France, which came into office only 14 months ago, that they should be blamed entirely for that lack of confidence, even though politicians in France have not an extraordinarily good repute among the workers of that country. Another speaker in this Debate said that when he was in America he found that opinion in Wall Street was that we were trying to take an unfair advantage of the Americans. I, also, was in America recently, but I did not go much to Wall Street. I went to see the yacht race; a good many American financiers took some time off from their offices for the same purpose and I met them in a personal sort of way. The only insult that I heard hurled at this country, if it can be called an insult, was the remark that England was a very wise old country. As a matter of fact I think people in America in 1928 thought they were on the top of the world. Perhaps to-day, in view of the unemployment insurance and the social services which President Roosevelt is going to introduce, they think they may learn something from this country.

I could not follow the last speaker in what he said about gold. I cannot believe that the South African mining magnates, who produce the largest quantity of gold in the world or even Soviet Russia, which produces the second largest quantity, had any effect upon what the Government have done or intend to do with the Exchange Equalisation Account. But I do believe in the desirability of getting back to the position as it was in 1913 when it was possible for an engineer in this country to open his pay envelope on a Friday evening and find a few golden sovereigns in it. If that were the case all over the world, it would be better for the exchange equalisation of the world, and it would be better for trade all round. I look forward with optimism to a return to that position when the British sovereign will no longer be looked upon as a curiosity but a coin of everyday use.

7.21 p.m.

Mr. Bellenger

I think the hon. Member exaggerated a little when he spoke of the pre-War engineer opening his pay envelope to find "a few golden sovereigns" in it. From my knowledge of pre-War wage rates, I should say the engineer in those days who found more than two golden sovereigns in his pay envelope would think that the boss had made a mistake.

Sir W. Smiles

What about overtime? I paid them, and I know.

Mr. Bellenger

Many expressions of approval of this Resolution have been heard this afternoon, but I think they have been due more to the charming manner in which the right hon. Gentleman the Chancellor of the Exchequer introduced the Resolution than anything else. The right hon. Gentleman has a very disarming manner when he is presenting legislation to the House, and for my own part I am never more alert than when I hear the right hon. Gentleman introducing a Measure in that apparently simple, facile and naive manner which he adopts to-day. On these occasions I think it is necessary to examine with particular care the proposals which he puts before us. The right hon. Gentleman said the purpose of this Exchange Equalisation Account was to check undue fluctuations in the value of sterling. If the checking of those undue fluctuations were for the purpose of fostering British trade, I should be more prepared than I am to support this Resolution but I have a suspicion, supported by a certain amount of evidence, that this tremendous increase in the Account is not principally for the purpose of fostering British trade, but is rather for the purpose of enabling financiers and speculators to transfer capital more easily from one country to another and to make profits in the process.

We must not shut our eyes to the facts. Perhaps as the result of a little intelligent anticipation, I put a question recently to the right hon. Gentleman, and I feel a certain sense of grievance about it. I asked him whether he thought that the £350,000,000, which was then the statutory limit of the Account, was sufficient and he answered confidently "Yes." Yet suddenly the Government propose to add a further £200,000,000 to it. I think we are entitled to know what is the reason for the sudden change in the Government's policy. The right hon. Gentleman on Friday said there was no change but it is evident that there has been a change and I am inclined to think, taking into account the heavy speculation in gold mining shares that has been going on, that this increase of £200,000,000 is for the purpose of maintaining the price of gold round about its present level. I have not the slightest doubt that financial speculation is all a part of the capitalist system and that part of our invisible trade balance arises from it.

I agree with the hon. Member for Ecclesall (Sir G. Ellis) who said that the traders of the country are not so much concerned with speculation in gold shares, as with the original purpose of this fund. That original purpose was to level out fluctuations in the price of sterling, so as to facilitate British trade. If we had any confidence that the fund was mainly serving that purpose we would be more satisfied. The right hon. Gentleman told us that he was advised that the fund was able to withstand all the demands for gold that might be made upon it. He spoke confidently, but what evidence has he to substantiate that statement? He he any knowledge of, or can he give an estimate of, the amount of short-term foreign capital held in this country? That, he has admitted, is the danger point in our financial system. He told us of huge withdrawals which have taken place at various times and it is significant that the President of the United States has also shown some concern over this "hot money" as it is called. If the right hon. Gentleman would be as up-to-date as the authorities in the United States and try to estimate the amount of this short-term foreign capital in this country and give us that information, we would be better able to judge of his statement that he has sufficient gold in this country to withstand all the demands that might be made upon him.

The right hon. Gentleman told us that on 30th March last there were in round figures 26,000,000 fine ounces of gold in the Exchange Equalisation Account and 73,000,00 fine ounces in the Issue Department of the Bank. The hon. Member for Mossley (Mr. Hopkinson) asked my hon. Friend the Member for North Lambeth (Mr. G. Strauss) how he knew that the object of this increase was the purchase of large stocks of gold. We do not know accurately, because the Chancellor of the Exchequer has not given us information on which we can base an opinion but it is interesting to note that, according to the right hon. Gentleman's figures on 30th March, calculated on a basis of £7 per fine ounce, the gold holding of the Fund represented £182,000,000. There we have some idea of the gold holding of the Equalisation Fund. At that time over 50 per cent. of the £350,000,000 was held in gold and I am inclined to think that that percentage will increase as time goes on. We know the tremendous amount of gold which is going and is likely to go on to the market and if we are to keep the value of gold round about the present figure, we shall have to purchase those stocks or agree with America as to the purchasing of those stocks which are thrown on the market.

The right hon. Gentleman also told us that the difference between the present valuation of 85s. per ounce and the actual price paid by the Issue Department was covered by the Equalisation Account; that eventually when the stocks of gold in the Bank were revalued the profit would be transferred to the Equalisation Account, and that the Account would, in its turn, be wound up and the profit would then go to the reduction of debt. Has the right hon. Gentleman any idea of what amount of gold will he held by the Issue Department of the Bank when revaluing takes place? If the stocks are large, it is obvious assuming the price of gold to be at £7 an ounce—and it may be even more—that the profits will be considerable and I have no doubt that the country will be grateful for those profits, it they are applied to the reduction of debt. Is it certain that at that time those stocks will be as high as they are now?

I feel that the existence of this fund is a direct incentive to speculation and to the heavy transfers which take place from time to time in gold stocks from country to country. I have a feeling that in certain circumstances the transfer of these gold stocks will be much heavier than has taken place in the past. I do not think that it is right, either in the case of France or of this country, for the prosperity and the security of the people, who, in the long run, are providing the funds with which this Exchange Equalisation Account can be built up. I am very much concerned at the suddenness with which the Government have introduced this Resolution, and I should like to have had a little more information from the right hon. Gentleman. I welcome his statement that he is prepared to give this House and the country more information as to the operations and the transactions of this Exchange Equalisation Account.

In conclusion, I have two questions to ask and one suggestion to make. My first question is, Did any consultation take place with either the South African Government, the United States Government, or the French Government before the right hon. Gentleman introduced this Resolution? The second question is, What is going to be done with the huge stocks of gold which will undoubtedly accumulate in this Account as time goes on? Are those stocks going to be sterilised as they are in America? Here I come finally to my suggestion. It has been said, I do not know with how much truth, that the right hon. Gentleman's popularity in the country among a great many of his supporters is declining, and I have this suggestion to make, that it would assist in regaining a great deal of that popularity if he would decide to convert some of these heavy stocks of gold which he will eventually have, into golden sovereigns and half-sovereigns, such as prevailed before the War. I believe that psychologically that would be a great advantage for all those fortunate individuals, engineers or otherwise, when they come to draw their pay on Friday evening.

7.33 P.m.

Mr. H. G. Williams

Unfortunately, I did not: have the privilege of hearing the opening speech of the Chancellor of the Exchequer, bit I understand that he has given an undertaking that there shall be more publicity in respect of the Exchange Equalisation Account than has been the case in the past. When this matter was introduced in 1932 by the present Prime Minister, I was one of those who spoke in support of secrecy in regard to the operations of the Account. I was thinking in terms of a fund of a relatively moderate amount at a time when it did look as if a mobile mass of money in the possession of the Government would check certain undesirable features, and if this was to operate with maximum success, on balance, probably secrecy was desirable. But with the very great growth of this fund, first from £150,000,000 to £350,000,000 and now to £550,000,000, it would, I think, be asking too much of the country and the House of Commons to give even to our most competent and most honest Treasury control over such a vast sum to operate without any check from public opinion. Therefore, I think the Chancellor of the Exchequer has been very wise indeed to concede to that sense of public opinion a change in the policy, and I can congratulate him all the more because I took the other view five years ago.

The financing of the Exchange Equalisation Account is the most mysterious financial transaction that has ever taken place. I remember the Debates of five years ago, as to how this money was going to be raised. We all visualised a public issue. There was no public issue. The Chancellor of the Exchequer of the day, the present Prime Minister, took his pen and wrote quickly on a lot of pieces of paper figures which aggregated £150,000,000. It was a sheer piece of credit creation, and there was sufficient faith in his signature, backed, of course, by the Consolidated Fund, which is you and me and all the people whom we represent, to secure that those pieces of paper were exchanged in various mysterious ways for golden coins and bank credits in other countries. That is, in fact, pure inflation. Then we had the second inflation, of £200,000,000, and now we are presumably having, by the same method of finance, another piece of inflation of £200,000,000. In other words, by the process of credit creation we have produced £550,000,000 out of nothing, apparently. We have only produced it, of course, by altering the value of all the other pounds that were in existence before we carried these transactions through. (An HON. MEMBER: "Capitalism.") No, it is not capitalism. It is the action of the State, not of the individual. If an individual tried to do that, he would go to an unpleasant place called Dartmoor. That is the difference between the State and the individual. All sorts of things when done by an individual are crimes, but when done by the State they are called Socialism and made respectable. If you murder a lot of people, it is called a war, and that is the State in action, or Socialism. All war is Socialism. But I do not want to be diverted——

Mr. Jagger

Nor diverting.

Mr. Williams

I want the Committee to realise that an act of inflation of £200,000,000 at this moment may have in it some risk. Commodity prices are now mounting somewhat dangerously. They have had some check through recent events. The abandoned tax was one, the gold scare was another, and the general European situation was probably another, though the latter to some extent may have stimulated the demand for certain commodities. At any rate, commodities are moving up, and if commodities move up too fast and too far, the cost of living will move up, and we shall be into another period of acute industrial unrest and ultimately an economic crash and widespread unemployment. That has happened before, and there is nothing fresh in these things in this world. We want to guide ourselves by past history as far as we can. I hope the Government are considering this aspect of this problem.

We are to have a little more information on this subject, but we shall never see quite what happens to these Treasury bills. Somehow or another they get into circulation, as a result of which the Exchange Equalisation Account finds itself in the possession of credits of one kind and another—it may be in the form of gold, or it may be in the form of credits in the central banks of other countries—but as a consequence those very people who place credits at the disposal of the Government in exchange for these pieces of paper, ultimately, through the working round of things, obtain control of credits in our banks. I believe there is a phrase used in the City—"hot money." I think it is used to describe bank deposits which are unduly mobile, which are moved with very great frequency from one financial centre to another, and which are one of the causes of these gold problems that we are now facing.

Where does a lot of this "hot money" come from? It has come out of the Exchange Equalisation Accounts of this country, the United States and France. I notice the hon. Member for Lowestoft (Mr. Loftus), who was approving what I said just now, shaking his head, but surely, if the Government borrow by means of the sale of Treasury bills, they are creating credit, or inflating. I know that the Treasury have sometimes thought, when they were reducing the number of Treasury bills, that they were inflating, but as a matter of fact they were doing the reverse of inflating. If you reduce the number of Treasury bills, you are deflating, and if you increase the number of Treasury bills, you are inflating. The more you borrow, the more you have got in this form of inflation. You create this new credit, you pay foreigners for their gold or for their bank credits, and in exchange they get credits in our banks which they may move about. [Interruption.] We may get gold, but that does not alter the fact that a great deal of this "hot money," as it is called, has, I believe, come into existence through the very operation and action of the Exchange Equalisation Account, and I want to be certain that in what we are doing to-day in building up defences against the trouble with which we are faced, we are not adding to that trouble by simultaneously adding to the strength of the attack.

That is a point of view which, so far as I am aware, has not previously been presented. I am not satisfied—I am not going to commit myself to the statement—that it is a sound point of view, because we are in the realm of experiment. We are dealing with a problem with which none of us is familiar, upon which no living person can pronounce with complete authority, but it occurs to me that there may be some substance in the argument which I have just presented to the Committee. I present it with some hesitation and some diffidence. I am not asserting that I am right, but I assert that the proposition which I have just made is one which calls for examination, if no more. Here we have this strange situation, of this country and the United States attracting great masses of gold. France is not doing so at the moment, but she may do as soon as she has restored internal confidence. I rather differ from what the hon. Member for Blackburn (Sir W. Smiles) said, that the flight from the franc was due to a certain scandal. With great respect, I think it is due to the fact that the Government of France have passed laws which have sent up the cost of production in France very much. There is no doubt about that, and while it may be a very desirable thing to work a 40-hour week, yet one of the consequences is increased costs, lowered exports, and a tendency for imports to grow when they ought to be checked, and these certainly are some of the causes of the troubles through which they are passing in France.

I was present with a number of other hon. Members of this House in Paris at Whitsuntide, taking part in the International Parliamentary Commercial Conference, and I happened to be privileged to present one of the papers to the conference, namely, that on the future of the Gold Standard. On the basis of that paper, I presented a resolution which deplored the systems of exchange control and of quantitative control of goods which prevailed, and I went on to express the view that a restoration of the Gold Standard at an appropriate parity—I did not want any country to go through sudden inflation or deflation in order to effect restoration—would probably be of enormous advantage to world trade. The curious thing was that after a certain number of amendments and adjustments, primarily for the purpose of assisting the representatives of those countries which have dictatorships, where ordinary public opinion is rather suppressed, we were able to get unanimity on a resolution, the contents of which I have just briefly summarised. There were, I think, alto- gether over 30 nations represented, and they were unanimous that exchange control is an evil, that quantitative restriction is an evil, and that restoration of the Gold Standard is desirable.

I do not see how those countries which are complaining of their difficulties about raw materials are ever going to get out of their difficulties until they stop inflicting them upon themselves. A system of exchange control is entirely wrong, because what does it mean? It means opening a bank in which you can pay deposits, but in which you cannot cash cheques, and no one with any sense will place capital in any country that has exchange control. Anybody who has any capital there will do his best to get it out. Therefore, all these countries are suffering from the evils inflicted on themselves by the very measures which they are proposing to cure those evils. It really is incredibly stupid that those countries should go on hindering themselves, and then make speeches blaming us for cornering the raw Materials of the world. We have got to help them to adopt the right course, and the restoration of the Gold Standard at this moment, when it is a part of these large equalisation funds in the countries which have the glut of gold, is, as a matter of fact, a much easier proposition than it would have been before those funds existed. I appear to have both praised and done the reverse with regard to the fund, but there it is; it is in existence. It has got to be used, and I hope that there will be the greatest care with regard to its use, having regard to the rise in the cost of living and to the growth of this "hot money."

The hon. Member for Bassetlaw (Mr. Bellenger) said that the object of the Government was to facilitate the operations of speculators. Surely it is the exact opposite. Anything which stabilises the rate of exchange tends to cut out speculation. If any criticism was not very apt, it was that. He went on to suggest that the other object was to assist the people who hold gold mining shares. I do not own any, and I have no interest in that direction, as far as I know, but I would point out to the hon. Member that the largest customer of this country to-day is the Union of South Africa. It is a bigger customer than the Indian Empire. Its vast purchases of British goods, mainly manufactured, which give employment to tens of thousands of people here, are built up on the prosperity of the South African gold mining industry. From the point of view of employment of great numbers of manual workers, it is worth while to take every risk to make sure that there is not a crash in the South African gold mining industry. If there is a crash, 50,000 or 100,000 workers of this country will lose their employment. I hope that when the Labour party are criticising this bit of State Socialism which the Chancellor of the Exchequer is running, they will criticise it on more valid grounds than those used by the hon. Gentleman. I am not asking the Chancellor to reply tonight to the point I have raised about the danger of the creation of new credits by means of the Exchange Equalisation Account aggravating the disease. All I would ask him is to examine that point with his advisers, and to make sure whether there is anything in it. I hope that I am wrong, but if I am right I trust that due notice will be taken of it.

7.47 P.m.

Mr. Lees-Smith

The Chancellor of the Exchequer opened our discussion this afternoon by giving a careful and fairly complete account of the general features of the Exchange Equalisation Account. We have, however, a complaint to make against his explanation. This legislation is being introduced in unusual circumstances. On Thursday afternoon we knew nothing about it. By Thursday evening something very exceptional had happened. All the week's business was changed, and legislation which is something in the nature of an emergency character is now before the Committee. The Chancellor's speech was not of the nature which that kind of legislation entitled us to expect from him. There must be some circumstances which have led to this change of arrangements, and a speech which merely deals with the principles, details, and history of the fund, and which might equally well have been made a week ago, is not suitable to the present occasion. We do not want great details, but we are entitled to more details than the right hon. Gentleman gave. On that account I wish at the close of my observations to move an Amendment to reduce this sum by £50,000,000, which my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) foreshadowed.

The Deputy-Chairman (Captain Bourne)

There is one point which the right hon. Gentleman might bear in mind. If he moves his Amendment at the conclusion of his speech before the Chancellor replies, it will very much curtail his reply. Until the Amendment is disposed of the Committee will have before it only the question of the sum. If the right hon. Gentleman moves his Amendment after the Chancellor's reply, the Debate can then go on on the question of the sum.

Mr. Lees-Smith

I thank you for your suggestion, which I shall be glad to adopt. There will, however, be no more debate as far as we on this side of the House are concerned. The Debate has turned not so much upon the reasons for this special legislation as on the long term policy of the Exchange Equalisation Account. It has been clear from the speeches that the two main elements are the increase in the supply of gold and, very closely resulting from that, the situation arising from the policy which is and will be in future followed by the United States. I wish to make a few remarks on that point.

I think that up to the present the United States has this year spent a good deal more than £100,000,000 in stabilising gold. The point which I want to call to the attention of the Chancellor is that, if at any moment the United States decides to decline to continue this process, it not only raises very general considerations but creates also a serious situation for a number of the British Dominions. The hon. Member for East Aberdeen (Mr. Boothby) suggested that we ought to respond to the initiative which is coming from the American administration, particularly from Mr. Cordell Hull, to come to an agreement not only about currency, but about our trade relations in general. The hon. Member has made the proposal before. I may say that I always follow his observations and they seem to me very wise. The position at present is, I gather, that the United States, and Mr. Cordell Hull in particular, is making an offer to try to solve this problem of the accumulation of gold by a natural process, by a reduction in tariffs in the United States followed by a reduction elsewhere, as a consequence of which the problem would be very largely solved, if not entirely eliminated.

Unless we come to some sort of currency agreement, trade can be undermined by changes in currency policy. The facts of the situation are such that, if one looks at long-term policy, the situation will become more acute, because if we consider the causes of this increase in gold, although some are temporary, others will be cumulative in force in years to come. Undoubtedly one cause of the problem has been the general deflation, with its ancillary results. The effect of that, no doubt, is temporary and has already passed away, but the fact remains that the great volume of gold from Russia has scarcely come on to the European market, and that cause is one which will be a cumulative force in the years immediately in front of us. That is why, it seems to me, it would be wise now, while it can be easily done and this great emergency has not come upon us, to consider the initiative from the United States with a good deal more care than is, at any rate, shown to us in this House.

In all these discussions up to the present—and I note that the proposals this afternoon have come on the whole from the other side of the Committee—the answer has always been that it is other countries which are imposing these trade impediments, and that our country is not mainly responsible. Now we find that the initiative is coming from another country, and coming from another country which, more than any other, is able to control the situation. There are other reasons, of course. Mr. Cordell Hull has made 16 trade agreements. It is well known that in order to fulfil and complete this policy it is very necessary for him to come to an agreement with a great manufacturing country like our own. The problem has been complicated by our obligations to the Dominions, by the Ottawa Conference, the Canadian Trade Agreement, and so on. The position and the interests of the Dominions are now being profoundly modified, apart from the general fact that the Dominions must export outside the British Empire. Apart from that fact, this gold situation is creating a new problem for them.

I have read carefully the article by Sir George Schuster which was referred to in the last Debate. There was another valuable article by Sir Josiah Stamp in the "Times" last Friday on his return from the United States the day before. Both these very careful and experienced authorities point out that, in talking to the administration at Washington, they found there is considerable disappointment that on this side of the Atlantic we do not seem more oncoming to their initiative. If as a result of the general failure to come to any agreement at all the United States alters its policy in regard to gold, the countries which would suffer most, apart from Soviet Russia, would be Canada, South Africa, and, to some extent, Australia—the British Dominions themselves. It is, therefore, to the interests of the Dominions, taking the Ottawa Agreements into account, themselves now to enter into negotiations—at any rate, to assist in negotiations—which would enable this problem to be solved. Otherwise, it is possible that they may lose far more in the ultimate consequences than they would have to give up by some modification of the Ottawa Agreements. It appears to me that at this moment there is a very favourable situation. It is essential for this country to look forward to a lowering of the tariff barriers in two or three years because, as soon as the trade curve goes downwards and the trade boom comes to an end, we must fill the gap from somewhere, and an increase in our foreign trade will be the line of least resistance. Now we have the United States themselves favourable to the proposal, and we have the Dominions with an element arising which makes it to their interest to take part in this proposal.

Mr. H. G. Williams

Will the right hon. Gentleman say what this proposal is? It is all very vague.

Mr. Lees-Smith

The proposal is to come to an arrangement with the United States for a trade agreement. It has come particularly from Mr. Cordell Hull.

Mr. Williams

But will the right hon. Gentleman tell us what the proposal is? Is it that the Americans should buy more British goods and correct their wrong balance of trade in that way, or sell more American manufactured goods here?

Mr. Lees-Smith

It is that there shall be a mutual reduction of tariffs and that in this mutual reduction the Dominions shall play their part. As has been stated in this House, there is no necessary antithesis between the two things. What I was saying was that, looking forward two or three years, if we fail to take the opportunity which is now offered, due to an accumulating combination of circumstances, we shall find that we shall greatly regret that the chance has been allowed to go by.

8.2 p.m.

Sir J. Simon

I think all who have been present this afternoon will agree that we have had a very interesting Debate, with one or two speeches in particular which have been full of useful suggestions. Perhaps it would be invidious to pick and choose, but I record my own feelings when I say that I was exceptionally interested in the analysis of the position which was offered to us by the hon. Member for Oxford University (Sir A. Salter) and which was carried further by my hon. Friend the Member for Stockton-on-Tees (Mr. H. Macmillan). The right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) was good enough to say on behalf of those for whom he speaks that the Opposition approve of the principle of our proposal.

Mr. Pethick-Lawrence

No.

Sir J. Simon

I am saving the point as to the reduction of £50,000,000, which is to come later. Judging solely by the first part of his speech, I should have thought his complaint was that the amount we are proposing to borrow is too little. That was the broad effect of his argument, though, of course, for reasons which we all know, he would not be in a position to suggest that the amount should be increased. When he came to the end of his speech and told us that at a convenient moment the Amendment to reduce the amount by £50,000,000 would be moved, I understood him to imply that he and his friends thought we were possibly asking for more than we needed. On that question I wish to be quite plain to the Committee. The right hon. Gentleman quoted what was said four years ago by the present Prime Minister when, as Chancellor of the Exchequer, he asked for the last increase. He said then that he hoped not to ask for more. At least he is justified to this extent, that it is somebody else who is now asking for more. He went on to say that he could not give a pledge that he would not come to the House again, and neither can I give such a pledge.

I invite the Committee to give me authority to this extent because, after considering the matter very fully, I believe this is a proper and reasonable addition at this time. In the nature of things the future is bound to be uncertain. My right hon. Friend the Member for Keighley (Mr. Lees-Smith) made the point that in my speech earlier in the day I had not specially explained what was the urgency of the matter, and I appreciate that there is justification for saying that my observations were not so expressly directed to the last two or three days. I think, however, that he and the whole Committee will well understand that we came to the conclusion that we should ask for this additional authority now for good reasons connected with the international situation, and I am sure that the very last thing he or anybody would ask would be that we should endeavour particularly to concentrate on one particular quarter abroad rather than another. As the Committee will appreciate, there are times when the movements of funds, very substantial funds, become for the time being exceptionally rapid, and we are now passing through such a time as that, and it seemed to me, and it seems to me now, and I think it will seem to the Committee as a whole, right to ask the Committee to make this provision without any delay.

The fact that this step has been taken has undoubtedly, as my hon. Friend the Member for East Aberdeen (Mr. Boothby) said, been a contribution to the establishment of more confidence, and I think that is a further reason why we should not leave matters in doubt any longer. I must be allowed to say that I thought that my hon. Friend the Member for East Aberdeen, for whose references to myself I am most grateful, was choosing his hero rather oddly when he said, as I understood, that the patriarch Moses was the man who in these matters should be copied and remembered. The patriarch Moses, if I remember rightly, dealt with extreme severity with anybody who happened to worship a calf of gold, and I should have thought there were other persons in the Old Testament whom he would have more naturally selected as his counsellors. I am obliged, also, to my right hon. Friend the Member for North Cornwall (Sir F. Acland), who used a very happy combination of epithets, which I believe were justified, in which he said that the course we were taking was operating both as a sedative and a tonic, which is a useful function for a medicine. I sincerely hope that in both respects our action will be found to operate with good effect. My right hon. Friend referred to my proposal on the subject of more disclosures, and I must be allowed to say that I am very much gratified to find that my two suggestions have been received with so large a measure of approval. I will carry that matter forward and endeavour to secure that the results in the matter of information are what we intend.

Then the hon. Member for North Lambeth (Mr. G. E. Strauss) made a speech in which, as I thought, he made a certainly unfounded and I felt a rather ungenerous insinuation. He gave us to understand that it was his confident opinion that the reason why this proposal was now brought before the Committee and urged upon it was that pressure had come from the South African Government, and I wish to say here and now quite categorically that there is not a word of truth in the suggestion that that explains in whole or in part our present action. There has been no more pressure from South Africa in this connection than there has been from Soviet Russia. So much for the hon. Member for North Lambeth.

Mr. Strauss

I did not state it. I asked the question.

Sir J. Simon

Then the hon. Member will be very glad, I am sure, to hear the answer.

Mr. Strauss

Very glad.

Sir J. Simon

If anybody did make that insinuation, or suggest that this is a trick on the part of the Government, inspired by concealed motives not revealed to Parliament, the hon. Member will know for certain that there is not one single syllable of truth in it. The hon. Member for Ecclesall (Sir G. Ellis) made some observations as to the suggested extent of the disclosure. It seemed to me that it was not really a suggestion for improving my scheme for disclosure to the Public Accounts Committee, but was really the expression of an opinion, which I thought many hon. Members shared, that from time to time it would be perhaps interesting and of advantage to have a general discussion of this sort on the subject. That, of course, is quite another matter, and I quite understand why they think so.

As regards one or two larger reflections which have been advanced in the Debate, I do not want, for my own part, to run the risk of making any additional wide and general statement, for the Committee will realise the extreme responsibility that anybody has about this matter, and how a mere turn of a phrase may have reactions or lead to misunderstandings in one quarter or another. Therefore, without going into the matter more at large, but keeping to the practical question of granting this additional authority now, I would say this and I say it more particularly in answer to what was said by my hon. Friend the Member for Oxford University: I do agree that ultimate, deep-seated economic trends cannot be held up and successfully resisted by any artificial interference. I do agree, too, that it is not by rivalry between the different treasuries or nations concerned, but by co-operation between the members of the tripartite agreement and others, that we may hope to bring about a better state of things.

I am glad to repeat what I said at the beginning of the Debate, that I have good reasons for the line I am inviting the Committee to take to-day. It is in accordance exactly with the line of policy of the United States, and I believe that that in itself is a very hopeful feature. I, of course, do not presume to offer them any advice, but I am entitled to make that observation. In answer to what was said by the right hon. Member for Keighley I do not deny at all the connection which does exist between currency policy and trade policy, because undoubtedly they are very closely intertwined. At the same time, when we are considering the subject-matter debated to-day, this very difficult and interesting subject, I do not think it would assist the clearness of our conclusions if we attempted in the last few minutes to turn this Debate into a general discussion of proposals and hopes as regards general trade co-operation between us and other parts of the world.

The hon. Member for Bassetlaw (Mr. Bellenger) asked me several question. In one of them he wanted to be informed how matters appeared to us to stand in view of the quantity of short-term obligations which rests upon us, and the provision which we might be supposed to be able to hold against it. The hon. Gentleman would not expect me to enter into technicalities, which I am trying to avoid in this reply, but I would observe that there is a certain danger of confusion when one speaks of these short-term obligations to overseas creditors. I know there are references to this subject in the report of the Macmillan Committee, but hon. Members will see on reflection that the claim which could be made upon us by overseas creditors would not be limited to short-term obligations like deposits, bills and things of that sort. We should have to add to them foreign holdings in British securities which, of course, they could, if they were so disposed, sell in the British market and demand the proceeds to be sent away just as easily as in the case of short-term securities.

Mr. Bellenger

I included those in the short-term policy, because, obviously they are liquid debts.

Sir J. Simon

The hon. Gentleman is quite right, and I am not seeking to give him a lecture but only to show that we must be clear on that point. The important thing is to consider whether all those things together are adequately covered. I repeat the answer, which I gave in the House to a question the other day; it is not possible, for technical reasons, to estimate very exactly what the sum total amounts to. Various efforts are made to do it, and I am speaking from the best material available. From such evidence as is available we are satisfied that any increase in our liabilities, that is to say in the last six years, which includes our liabilities to other parts of the Empire, is covered, and indeed more than covered, by the growth of our resources.

There is one further observation. I have presented the proposal as a practical and necessary step which we have now to take, but I have not sought to base it upon ultimate calculations of what, in the long run, may be the nature of our duties and responsibilities. I have not done so for the reason that there is no good ground for adopting the view that this accumulation of gold, at present concentrated in London and New York, is a situation which will always continue. Suppose—here I find myself almost in agreement with the right hon. Gentleman—that the wisdom of the world developed policies which drained back into active international trade, in those countries and areas which at present are not playing their proper part, and encouraged in every direction, and in the most natural directions, a freer flow of trade; just in proportion as that happened, those areas which at present have sent their gold to us or to New York, would want for themselves, and for their own ordinary purposes, a portion of those resources.

That is the future to which we should work. We ought not to regard ourselves to-day as committed to some particular cast-iron view; we should rather recognise that the present step is necessary in order that we might meet the practical needs of the time, and that all of us should keep in mind that the ultimate development to which we are working is an increase in the general trade of the world and the freeing of barriers which will have the tendency to bring back the accumulated resources to the separate places which naturally need them.

I do not think the Committee would expect me to occupy more time. I understand that it is agreed that at this moment an Amendment will be moved and voted upon. I suggest that £200,000,000 is necessary and I shall resist any future attack on that sum, for the general reasons which I have stated, and I hope that the Committee will be prepared, after the Division, to authorise the full amount.

8.20 p.m.

Mr. Pethick-Lawrence

I beg to move, in line 2, to leave out the second "and fifty."

This is the Amendment which has been foreshadowed, the effect of which is to limit the increase in the Exchange Equalisation Account to £150,000,000 instead of £200,000,000, and I had intended to move it formally but for something which the Chancellor of the Exchequer has just said. At the beginning of his speech he attempted to make a contrast between what he described as my speech and the Amendment which I am moving, saying that my speech indicated that I wanted more than £200,000,000 and the Amendment less. What I said was that, for the immediate purpose, we did not want nearly as much as £200,000,000, but that if the Government contemplated taking gold which would otherwise go to the United States, an unlimited vista was before them, and they ought to come to the House of Commons again before they did so, and demand permission.

Question put, "That the words proposed to be left out stand part of the Question."

The Committee divided: Ayes, 197; Noes, 96.

Division No. 241.] AYES. [8.21 p.m.
Acland, Rt. Hon. Sir F. Dyke Colfox, Major W. P. Granville, E. L.
Acland-Troyte, Lt.-Col. G. J. Colville, Lt.-Col. Rt. Hon. D. J. Gretton, Col. Rt. Hon. J.
Adams, S. V. T. (Leeds, W.) Conant, Captain R. J. E. Gridley, Sir A. B.
Albery, Sir Irving Cooper, Rt. Hn. T. M. (E'nburgh, W.) Griffith, F. Kingsley (M'ddl'sbro, W.)
Allen, Col. J. Sandeman (B'knhead) Courthope, Col. Rt. Hon. Sir G. L. Grigg, Sir E. W. M.
Aske, Sir R. W. Cranborne, Viscount Grimston, R. V.
Assheton, R. Crooke, J. S. Guest, Lieut.-Colonel H. (Drake)
Astor, Hon. W. W. (Fulham, E.) Crookshank, Capt. H. F. C. Guy, J. C. M.
Balfour, Capt. H. H. (Isle of Thanet) Croom-Johnson, R. P. Hannah, I. C.
Balniel, Lord Cross, R. H. Hannon, Sir P. J. H.
Barclay-Harvey, Sir C. M. Crowder, J. F. E. Harvey, T. E. (Eng. Univ's.)
Barrie, Sir C. C. Davies, C. (Montgomery) Haslam, Henry (Horncastle)
Beamish, Rear-Admiral T. P. H. Davies, Major Sir G. F. (Yeovil) Haslam, Sir J. (Bolton)
Beaumont, Hon. R. E. B. (Portsm'h) Dixon, Capt. Rt. Hon. H. Heilgers, Captain F. F. A.
Boothby, R. J. G. Donner, P. W. Heneage, Lieut.-Colonel A. P.
Boulton, W. W. Dorman-Smith, Major Sir R. H. Herbert, Major J. A. (Monmouth)
Bower, Comdr. R. T. Dower, Major A. V. G. Hills, Major Rt. Hon. J. W. (Ripon)
Bracken, B, Drewe, C. Hoare, Rt. Hon. Sir S.
Briscoe, Capt. R. G. Duckworth, Arthur (Shrewsbury) Holdsworth, H.
Brawn, Col. D. C. (Hexham) Dugdale, Captain T. L. Hope, Captain Hon. A. O. J.
Bull, B. B. Duggan, H. J. Hopkinson, A.
Bullock, Capt. M. Dunglass, Lord Hore-Belisha, Rt. Hon. L.
Burton, Col. H. W. Eastwood, J. F. Horsbrugh, Florence
Butcher, H. W. Elliot, Rt. Hon. W. E. Hudson, Capt. A. U. M. (Hack., N.)
Butler, R. A. Ellis, Sir G. Hulbert, N. J.
Campbell, Sir E. T. Emmott, C. E. G. C. Hume, Sir G. H.
Cartland, J. R. H. Emrys-Evans, P. V. Hunter, T.
Carver, Major W. H. Evans, D. O. (Cardigan) Hurd, Sir P. A.
Cary, R. A. Fildes, Sir H. James, Wing-Commander A. W. H.
Cayzer, Sir H. R. (Portsmouth, S.) Fleming, E. L. Jarvis, Sir J. J.
Cazalet, Thelma (Islington, E.) Fremantle, Sir F. E. Jones, Sir G. W. H. (S'k N'w'gt'n)
Chamberlain, Rt. Hn. N. (Edgb't'n) Fyfe, D. P. M. Jones, Sir H. Haydn (Merioneth)
Channon, H. Ganzoni, Sir J. Keeling, E. H.
Clarke, Lt.-Col. R. S. (E. Grinstead) Gilmour, Lt.-Col. Rt. Hon. Sir J. Kerr, Colonel C. I. (Montrose)
Clarry, Sir Reginald Gluckstein, L. H. Kerr, H. W. (Oldham)
Cobb, Captain E. C. (Preston) Gower, Sir R. V. Kerr, J. Graham (Scottish Univs.)
Keyes, Admiral of the Fleet Sir R. O'Connor, Sir Terence J. Smith, Sir R. W. (Aberdeen)
Kimball, L. O'Neill, Rt. Hon. Sir Hugh Somervell, Sir D. B. (Crewe)
Lamb, Sir J. Q. Ormsby-Gore, Rt. Hon. W. G. A. Somerville, A. A. (Windsor)
Law, Sir A. J. (High Peak) Perkins, W. R. D. Southby, Commander A. R. J.
Leckie, J. A. Pickthorn, K. W. M. Spens, W. P.
Lindsay, K. M. Ponsonby, Col. C. E. Stanley, Rt. Hon. Lord (Fylde)
Lipson, D. L. Raikes, H. V. A. M. Stanley, Rt. Hon. Oliver (W'm'l'd)
Little, Sir E. Graham Ramsbotham, H. Storey, S.
Llewellin, Lieut.-Col. J. J. Rathbone, Eleanor (English Univ's.) Strauss, E. A. (Southwark, N.)
Lloyd, G. W. Rawson, Sir Cooper Strickland, Captain W. F.
Loftus, P. C. Rayner, Major R. H. Stuart, Hon. J. (Moray and Nairn)
Lovat-Fraser, J. A. Reid, Sir D. D. (Down) Tasker, Sir R. I.
Mabane, W. (Huddersfield) Reid, J. S. C. (Hillhead) Tate, Mavis C.
McCorquodale, M. S. Reid, W. Allan (Derby) Taylor, Vice-Adm. E. A. (Padd., S.)
MacDonald, Rt. Hon. M. (Ross) Remer, J. R. Titchfield, Marquess of
Macdonald, Capt. P. (Isle of Wight) Robinson, J. R. (Blackpool) Tryon, Major Rt. Hon. G. C.
McKie, J. H. Ross, Major Sir R. D. (Londonderry) Tufnell, Lieut.-Commander R. L.
Macmillan, H. (Stockton-on-Tees) Ross Taylor, W. (Woodbridge) Wallace, Capt. Rt. Hon. Euan
Maitland, A. Rowlands, G. Warrender, Sir V.
Makins, Brig.-Gen. E. Russell, Sir Alexander Wedderburn, H. J. S.
Margesson, Capt. Rt. Hon. H. D. R. Russell, R. J. (Eddisbury) Whiteley, Major J. P. (Buckingham)
Maxwell, Hon. S. A. Russell, S. H. M. (Darwen) Williams, H. G. (Croydon, S.)
Mayhew, Lt.-Col. J. Salt, E. W. Windsor-Clive, Lieut.-Colonel G.
Mellor, Sir J. S. P. (Tamworth) Salter, Sir J. Arthur (Oxford U.) Withers, Sir J. J.
Mitchell, H. (Brentford and Chiswick) Samuel, M. R. A. Wood, Hon. C. I. C.
Moore, Lieut.-Col. Sir T. C. R. Scott, Lord William Wragg, H.
Morrison, G. A. (Scottish Univ's.) Seely, Sir H. M Wright, Squadron-Leader J. A. C.
Morrison, Rt. Hon. W. S. (Cirencester) Selley, H. R.
Munro, P. Simon, Rt. Hon. Sir J. A. TELLERS FOR THE AYES.—
Nall, Sir J. Sinclair, Col. T. (Queen's U. B'lf'st) Lieut.-Colonel Sir A. Lambert
Neven-Spence, Major B. H. H. Smiles, Lieut.-Colonel Sir W. D. Ward and Mr. Furness
NOES.
Adams, D. (Consett) Henderson, A. (Kingswinford) Morrison, R. C. (Tottenham, N.)
Adams, D. M. (Poplar, S.) Henderson, J. (Ardwick) Muff, G.
Adamson, W. M. Henderson, T. (Tradeston) Nathan, Colonel H. L.
Alexander, Rt. Hon. A. V. (H'lsbr.) Hills, A. (Pontefract) Noel-Baker, P. J.
Banfield, J. W. Hopkin, D. Oliver, G. H.
Barnes, A. J. Jagger, J. Paling, W.
Barr, J. Jenkins, Sir W. (Neath) Pethick-Lawrence, Rt. Hon. F. W.
Batey, J. John, W. Ritson, J.
Bellenger, F. J. Jones, A. C. (Shipley) Rowson, G.
Benn, Rt. Hon. W. W. Jones, Morgan (Caerphilly) Sanders, W. S.
Bromfield, W. Kelly, W. T. Sexton, T. M.
Brown, C. (Mansfield) Kennedy, Rt. Hon. T. Silkin, L.
Brown, Rt. Hon. J. (S. Ayrshire) Kirby, B. V. Simpson, F. B.
Burke, W. A. Kirkwood, D. Smith, E. (Stoke)
Charleton, H. C. Lansbury, Rt. Hon. G. Smith, Rt. Hon. H. B. Lees (K'ly)
Chater, D. Lathan, G. Smith, T. (Normanton)
Cluse, W. S. Lawson, J. J. Sorensen, R. W.
Cocks, F. S. Leach, W. Stewart, W. J. (H'ght'n-le-Sp'ng)
Cove, W. G. Lee, F. Strauss, G. R. (Lambeth, N.)
Daggar, G. Leonard, W. Taylor, R. J. (Morpeth)
Day, H. Leslie, J. R. Thorne, W.
Dobbie, W. Logan, D. G. Thurtle, E.
Dunn, E. (Rother Valley) Macdonald, G. (Ince) Tinker, J. J.
Ede, J. C. McEntee, V. La T. Viant, S. P.
Edwards, Sir C. (Bedwellty) McGhee, H. G. Walkden, A. G.
Fletcher, Lt.-Comdr. R. T. H. MacLaren, A. Watkins, F. C.
Gardner, B. W. Maclean, N. Watson, W. McL.
George, Megan Lloyd (Anglesey) Mander, G. le M. Wedgwood, Rt. Hon. J. C.
Gibson, R. (Greenock) Marshall, F. Williams, E. J. (Ogmore)
Green, W. H. (Deptford) Mathers, G. Williams, T. (Don Valley)
Griffiths, G. A. (Hemsworth) Messer, F.
Griffiths, J. (Llanelly) Milner, Major J. TELLERS FOR THE NOES.—
Hall, J. H. (Whitechapel) Montague, F. Mr. Whiteley and Mr. Groves.

Question, "That the Debate be now adjourned," put, and agreed to.

Resolution to be reported To-morrow.