§ Motion made, and Question proposed, "That this House do now adjourn."—[Mr. Bowden.]
§ 9.22 p.m.
§ Mr. Stokes (Ipswich)
I have been seeking for some time to raise what I deem to be a very important issue on which I can get no real clear answer from the Treasury Bench, even though I have raised it at Question time. What I seek to do tonight is to explain to His Majesty's representatives at the Treasury why it is important that they should instruct their representatives who go to the International Monetary Fund meetings and other similar meetings, to press for a revision in the dollar price of gold. I am perfectly aware of the fact that they cannot control that particular price, but they can make representations. So far as I know, and so far as I have been able to ascertain from the answers I have received from the Treasury Bench, no such representations have been made.
I find myself in a somewhat paradoxical position, because I have always objected to a gold standard, but if we are to have a gold standard for heaven's sake let it be a proper one and not a fictitious one. My claim tonight is that we are in fact, through Bretton Woods and the International Monetary Fund agreements, hitched, through the dollar, to gold. Yet, because of the incidence of voting power, particularly on the International Monetary Fund—on which we are very sparsely represented having regard to the fact that we in the British Empire produce most of the gold—so far we have not succeeded in getting a revision of the kind which seems to me to be desirable.
I said to the Chancellor of the Exchequer at Question time yesterday did he not agree:… that the first way to ensure money having a real value is to realise that it cannot have it if it is hitched to a fictitious gold value?I described such a state of affairs as:living in a complete state of cuckoodom."—[OFFICIAL REPORT, 29th November, 1949; Vol. 470, c. 942.]I repeat that tonight, because, believe it or not, the situation is this. Today, on the latest information which I have from the City of London, in Bombay gold on the so-called free market—which of 1270 course I admit is a limited market—is selling at £32 per fine ounce, whereas the official price after devaluation is £12 10s.
One of the things which most astonishes me, is that I have never yet succeeded in implanting in the brain of my hon. Friend the Economic Secretary—I am saying this in no disrespectful sense at all—or the Financial Secretary or the Chancellor himself, that in fact the price of gold as compared with pre-war is only 70 per cent. up, and we are hitched to it through dollar control. Yet the price of practically everything else has multiplied three or four times. I shall not endeavour to do it, but one can argue that it would be a good thing to abandon gold as a standard and have a wheat standard. There would be a good deal more sense in it than in this present situation where we find ourselves artificially hitched to an artificial value.
If we take the cost of iron and steel in comparison with pre-war, gold is only 70 per cent. up but iron and steel is three times the price. We get a lot of lessons or instructions from America saying that we ought to reduce our costs of production. What in fact is the case is that we now pay 16s. a bushel for wheat whereas before the war we only paid 4s. As the costs of production primarily depend on the food which we put into the stomachs of the men who make the goods, how can we get the costs of production down as compared with pre-war if we are paying four times the amount for the food to put into their bellies? The Americans ought to set about reducing their costs of production and not we reduce ours, but that is another matter to be referred to on another occasion.
Our best dollar producer is said to be whisky, and of course it is. It is our best dollar producer but whereas we are paying four times the price for wheat that we paid before the war, the Americans are only paying 12 dollars 10 cents for a case of whisky where before the war they paid 11 dollars 25 cents. In other words, the price is only about 10 per cent. up! I am not seeking tonight to develop this question of the complete and crazy out-of-balance into which this ridiculous monetary system has got us. What I am seeking to do in the first place is to get the Treasury through the Chancellor of the Exchequer and his minions—that is not a disrespectful word, my hon. Friend 1271 will realise; "understrappers" is equally offensive; I mean the people who are not equally as important as he is at these meetings—to see that if gold is to remain, as remain it must so long as the Bretton Woods Agreement goes on, as the basis of dollar currency then that basis had better be a sound one and not a completely fictitious one.
After all, it is just as well to remember that the stuff put into one's teeth by dentists, known as dental gold, is different from monetary gold to which my hon. Friend so often refers at Question Time and not nearly of the same fineness. It is only 18 carat as against 24, yet it costs about 25 per cent. more than this artificially low fixed price of the fine ounce. That surely ought to give my hon. Friend and the Chancellor of the Exchequer cause to reflect.
I think I should not be unduly flattering myself or the hon. Member for East Aberdeen (Mr. Boothby), who is not here, if I reminded the House of what we said at the time of Bretton Woods. I happen to be one of those people who objected to the Bretton Woods Agreement and voted accordingly but at that time I actually said:As to the valuation of the £ at 4.03 dollars, who can really say what the value of the £ will be in six months or a year hence? No expert can. … I do not see how any expert can tell me what the pound sterling is going to be worth in 12 months' time or, for that matter, in six months' time. I do not believe that some of them even know what it is worth now."—[OFFICIAL REPORT, 13th December, 1945; Vol. 417, c. 708.]That is precisely the fact and it is true, as anybody who has travelled and had any dealings in international trade knows, that at the very time when we fixed the pound sterling at 4.03 dollars, pounds were being sold quite frequently in places like Lisbon and elsewhere at 2.50 and 2.75 dollars. The party opposite are very much to blame in this matter. A handful had enough courage to disobey the instructions of their Leader and to go into the Lobby against the Agreement but the majority did that most despicable of all actions, as I see it in the House of Commons—they sat still and did nothing. They are not relieved from the fault of our having arrived at this disastrous situation as a result of the 1272 Bretton Woods and International Monetary Fund Agreements.
I want to explain to the Economic Secretary one of the chief reasons why he and his right hon. and learned Friend are perfectly entitled to go to the International Monetary Fund or to any other international monetary conference such as the financial ones which took place recently between the Chancellor of the Exchequer, the Finance Minister of Canada, and Mr. Snyder in New York and claim that the whole of the Bretton Woods basis should be revised. It comes under Article 1 (2) of the International Monetary Fund Articles where it is laid down that one of the main objects of the fund is the maintenance of high employment everywhere and real income, and the development of the productive resources of all members as the primary object of economic policy.
I claim that the United States have fallen down badly there. I am not saying this in an aggressive spirit against the United States. I have always claimed that the Americans do not understand the situation. They understand the old-fashioned approach to the problem, but they do not understand what they have to do now under modern conditions, when they themselves are not succeeding in maintaining full employment in their own country or in raising the standard of living of the people of that country to the level to which those people have a right to expect, having regard to their productive capacity. That being so, under the written rules of the agreement, the Chancellor of the Exchequer has a perfect right to claim that something should be done to change the awkward situation into which the whole of world trade has now got.
I want to state comparatively briefly, although I do not promise to be short, the case for gold revaluation. The sterling area, from our point of view, produces 60 per cent. of the world's gold. The Economic Secretary to the Treasury tells me that last year South Africa shipped to the United States no less than £100 million of gold which at the ruling price was £8 12s. 3d., or 12 million ounces. Unfortunately, they have now ceased publication of the figures because that was suppressed during the war for security purposes and now that suppression is being continued because it suits 1273 the financial humbugs and makes it more possible for them to swindle the rest of the world. I am surprised that the Economic Secretary or the Chancellor of the Exchequer should subscribe to such a policy of secrecy. Again, that is a matter which can be pursued on another occasion.
The effect is what is important. If, during 1948, instead of the fictitiously low level of £8 12s. 3d. which was the Bretton Woods level of gold at that time before devaluation, gold had been set free, and the market price proved to be £22 10s. which was what gold in such free markets as those were sold at, I cannot say what would have happened, but we might suppose that the whole lot would have gone. I am certain that a good deal of it would have because a few months ago South Africa let loose £10 million of gold and the whole lot was snapped up at £22. That is the only figure which I can quote and which hon. Members can check. The effect of selling that gold at £8 12s. 3d. instead of £22 10s. meant that £2,200 million dollars less than ought have been was put into circulation in world trade. That is what happened.
I am not going to bore the House with arithmetic because most Members of this House are bad mathematicians, and, anyway, the House only gets bored stiff with a long list of figures. All that one can do when a Member makes a speech, such as I am trying to make, containing a lot of figures is to shove it over to one's accountant the next day and ask him to say whether they are right or wrong. As a result of this artificial restriction, £2,200 million too few dollars were injected into the whole circulation of international world trade.
Let us look at the other picture. I have forgotten the number now, but during the war I asked the then Chancellor of the Exchequer how many people were engaged in digging gold out of the ground from one hole, refining it, and then sending it across to the other side of the world and burying it in another hole. The answer was about 460,000, but one of my more facetious friends asked whether that included women gold-diggers, which quite spoilt the effect. We have here the astonishing situation that the United States are pouring out goods—for the purpose of what? For the purpose of acquiring gold, in my conception 1274 but not in the conception of the majority of the world who support this ridiculous Agreement, including my hon. Friend and the Chancellor of the Exchequer, which is then buried in the vaults at Fort Knox to the order of 24,500 million dollars, or £10,000 million; or about one-third of the British National Debt in gold. There it is, doing nothing, representing nothing, and utterly useless.
That is at a fictitious value, but if we put it up to its real value, it is two or three times that amount. If we did that, it would be £27.000 million, which is equal to our National Debt in gold. It means that the wretched population of the United States are being deprived of goods to this value while the gold lies idle and useless in Fort Knox. It brings to my mind the old story of how someone emptied a couple of cases of gold and put concrete chippings equivalent in weight, and in volume. The cases were then shipped as gold to London, and from London to somewhere else as gold, eventually arriving at Fort Knox where they were accidently dropped and broken, revealing their contents—there was the concrete chippings, but it did not really matter at all.
§ Sir Frank Sanderson (Ealing, East)
The hon. Member has pointed out that the total value of the gold held by America is £10,000 million sterling, and that if the gold was written up to the value suggested by him it would amount to £27,000 million. That would mean a profit of £17,000 million being placed in the hands of the United States. Does he desire to make a present of £17,000 million to America, in view of the fact that he does not like gold anyway.
§ Mr. Stokes
The fact is that they have got it, and it does not matter whether we write it up or write it down, because it is there. The fact that the value has changed has nothing to do with it.
§ Mr. Stokes
I am trying to persuade the Chancellor of the Exchequer that he ought to do something about it. The only way I can really persuade him to do that, because I do not get many opportunities of speaking to him except through HANSARD, is by reading a little lecture on what I call the first principles of phoney 1275 economics, in order that perhaps at breakfast time tomorrow he will read, mark and inwardly digest what I have been saying and do something about it. After all, it is his fault, because he allows this to go on. South Africa would willingly stop sending gold to America, but the Chancellor of the Exchequer says "No." The Chancellor of the Exchequer gets all the finance Ministers together and perverts them. That is one of the things I am trying to avoid. I am trying to save his soul, as well as the rest of them! All I can do is to raise the matter on the Adjournment. I am not trying to give instructions to Mr. Snyder, but I hope he will read my speech.
However, I will leave that point because I have finished with it in deference to your wishes, Sir, and say why the Chancellor should support my proposition. In the first place, there is considerable difficulty on the Gold Coast today. As I explained before you came back to the Chair, Sir, whereas other prices have gone up three times the price of gold has gone up by only 70 per cent.—less than double—and the cost of production is very high. The result is that about 90 per cent. of the gold mining companies on the west coast of Africa have been closed. If gold was restored to the free market price, the Gold Coast, instead of producing 600,000 ounces of gold would produce at least 1 million, which would solve the great economic problem of one of our Colonies. In the last 50 years 120 companies have been started on the Gold Coast; now they have been reduced to 12, of which only six are positively active.
Then we come to the question of sales to Belgium, Switzerland and other countries. If we add up the balance sheet of £100 million from South Africa which should have been valued at £270 million; Gold Coast production, which ought to have been £22½ million instead of £2½ million; sales to Belgium, which ought to have cost £56 million instead of £20 million; sales to Switzerland, which instead of costing £15 million, ought to have cost £45 million; sales from Britain to the rest of the world, £135 million; and add the production of Canada and Australia, which is about 2 million ounces, which gives us a figure of £45 million, we find, very remarkably—this 1276 is a problem which no one seems to understand except me—that extra income from the hard currency areas would be £321 million.
Our deficit for the half year was £239 million. Hon. Members can add up the figures for themselves; I know my figures are correct. I expect the Economic Secretary "cooked"—I mean prepared—the figures that went into the White Paper, showing that £239 million was our deficit for the half year. My system would give us an extra £321 million for the full year; in other words, it would get us more than half way home. I know what my hon. Friend will say in reply to me before I hear it. He will say that it is nothing to do with us, but all to do with America. I want to advance suggestions as to why he should persuade the Americans that it is in their interest to support my system. He and I and all of us know that world trade is out of balance. If we are to have gold based on the monetary system which we have got, however much we seek to deny it, it ought to be at the right value and not at a fictitious value. To revalue gold at the actual selling price on a free market would tend to restore real values the world over.
Second, it would expand the basis of credit everywhere, particularly in America. The mere fact that it did that would stop deflation on the other side of the Atlantic and, much more than that, would prevent future inflation in America because that expansion was available. I know that people say that what would happen would be that prices would break and there would be inflation. I do not believe that to be true. My hon. Friend should persuade America to revalue at a higher level. Instead of £12 10s. per fine ounce gold should be £22, or let me put it modestly and say 70 dollars, per fine ounce. There is in fact no direct relationship between the amount of gold at Fort Knox and the amount of dollars in circulation. Anyway, that is under the control of the Treasury in America, and they can stop inflation if they want to or they can let it go oh.
Fourthly, it would do one of the things of which we are all rather afraid, it would get us over the difficulty of the keen embarrassment which we by our action are going to cause American manufacturers as a result of deflation. Without 1277 any doubt whatsoever, we are going to take away from America very considerable markets if we go about it the right way. Inevitably, because of the increased circulation of dollars as a result of devaluation throughout the rest of the world there will be a bigger demand for American goods.
The dollar gap would be closed over night. It would be brought within what the Chancellor has called "manageable proportions" which to me is very like the lawyer's term of "reasonable"—nobody knows what it means! At any rate, the gap would be reasonably reduced, and the headache of my right hon. and learned Friend would be gone with the result he could sleep peacefully at night. There is only one thing which is argued against this policy, and that is that if we devalue gold it is going to place Russia in a considerable advantage. I do not know what Russia produces in the way of gold, nor does my hon. Friend the Economic Secretary. I do not very much care, but I put it to him that that is a fictitious and silly argument. If the effect of revaluing gold was to prevent prices falling, then Russia would be in exactly the same position as far as what she could get for her gold if American prices dropped as they surely will do if she does not revalue. That argument from the American point of view is nonsensical.
In conclusion I place the responsibility for the whole position on the indecent haste with which Bretton Woods was rushed through this House despite the protests of many Members and the promises that were given to us by the Coalition Government. As a result where do we find ourselves? The "Manchester Guardian" put it rather aptly on 17th December when discussing Mr. Havenga's representations on behalf of South Africa that America should agree to a reduction in the price of gold. This is what it said:Even though Wednesday's harsh words have given way to some compromise there still seems to be some latent resentment among European members that the Monetary Fund has become an automatic instrument of American policies. That this is so is hardly surprising since of the total 92,090 votes the United States has about 30 per cent. herself compared with the 14.39 per cent. held by the United Kingdom, 5.97 per cent. by France and 1.36 by South Africa, which produces all the gold.If I were a South African politician I should never go to bed. I should talk 1278 about it every day and all day and I would insist on breaking away from the whole European International Monetary Fund. That is the trouble. They cannot, in my view, get this changed and that is what some of us said to the predecessors of the present Government in December, 1945. I emphasise that unless very strong representations are made at the right place and at the right time and frequently, nothing will be done, and the sooner something is done the better.
My hon. Friend cannot give the lists, but there are £9,000 million of this gold in Fort Knox, which is three-fifths of the world's stock of gold and twice as much* as is needed by America to back her present currency. The "Financial Times" on 7th November—I am sorry the right hon. Gentleman the Member for Bournemouth (Mr. Bracken) is not here, because it is not often I have anything complimentary to say about anything he owns—was very truthful when it said that the amount of 24,583 million dollars was twice what America needs to back her paper currency and specified banking credits.
All this gold forms the basis of the blood circulation of world trade and it is artificially restricted and stopped in its flow round the veins of industry. Then hon. Members wonder why we are in a mess. Of course we are in a mess. We never ought to have agreed to it in the first place. The fact of the matter is that what we are really doing in this country, as a result of what has happened after the war, is that we are bearing the brunt of American inflation.
§ Sir F. Sanderson
Before the hon. Gentleman sits down, may I ask him a question? He would agree, I am sure, that the Treasury cannot instruct America what to do with her gold. Is he suggesting to the Treasury that they should prevail upon the United States of America to free the price of gold?
§ Mr. Stokes
Yes, that is one of the things that I am suggesting. Proper representation should be made in order to make it clear how absolutely cuckoo the present situation is. My own view is that the gold which now lies lustreless in Fort Knox would shine with far greater lustre if it were used to make the wheels of industry revolve again. That is the form of revaluation I wish to see.
§ 9.52 p.m.
§ Mr. Norman Smith (Nottingham, South)
I wish to associate myself with the hon. Member for Ipswich (Mr. Stokes) in the remarks he has made. We voted together in the Lobby on that famous occasion, 13th December, 1945. I would go even further than he has gone. He has suggested that the Treasury should proceed to make a proper recommendation in the appropriate quarter. I cannot see any conceivable reason why the Treasury cannot go further than that. It is a case of Governmental responsibility certainly.
I am trying to think what the Economic Secretary could oppose to the suggestion I am about to make. He may plead the sanctity of contracts and of a treaty, but it really is late in the day to plead the sanctity of the Washington Treaty to which this country put its name after this House gave that unfortunate vote on 13th December, 1945. It is no use pleading the sanctity of that. There were three major conditions to which we subscribed in that agreement, as the conditions of getting the American loan. One of them was that we agreed to accept the gold standard which fixed the pound in terms of the dollar and the dollar in terms of gold. That is the position which the hon. Member for Ipswich and I want to alter.
How is it that that condition is sacred? There were other conditions which the Government have, in one case overtly and in the other case covertly, repudiated. I refer specifically to the contract into which we entered, that, from the middle of 1947, sterling should be convertible for the purpose of current transactions. That convertibility lasted only a few weeks. We repudiated it. It is no use mincing words. That is what we did in the summer of 1947. If the convertibility condition proved not to be sacrosanct, why should the gold condition?
Another condition which we covertly repudiated was with regard to the notorious Article 9 and the principle of non-discrimination which, in effect, meant that if for reasons of shortage of dollars we could not afford to buy a certain commodity from America, we were debarred from entering into special arrangements with, for example, our Dominions, to supply the thing for sterling. We were supposed to observe that condition, but in every bilateral treaty into which we 1280 have entered in the last two years, and also in the arrangements which we have made directly with Colonies, Dominions and foreign countries, we have tacitly, if not overtly, repudiated that condition of non-discrimination. Non-discrimination has proved to be not sacrosanct in practice because it was unworkable. It is therefore useless for the Economic Secretary to get up, as I fear he may, and to say that this country is bound by an international contract which this House ratified on 13th December, 1945.
After, all, one cannot consider this matter in a vacuum. It has to be considered in relation to its antecedent causes, and the whole story began at Bretton Woods in 1944. The relevant and significant part of what happened at Bretton Woods is that, of the 45 nations there assembled to consider the whole problem of the post-war international currency, if I may perpetrate a piece of quite deliberate meiosis, 44 had not much knowledge of what they were talking about. Unfortunately, the British plan sponsored by the late Lord Keynes, which was comparatively reasonable, was turned down, and the American plan of the gold-based dollar as the international currency prevailed.
It prevailed because at Bretton Woods the Americans were able to convince the 44 "not know-how" nations of two things. First, they said that at the end of the war Great Britain would be bankrupt; that she would have some £3,000 million of 3-months bills outstanding, all of which would be presented simultaneously and dishonoured, and that would mean the financial bankruptcy of Great Britain. They succeeded in convincing the 44 "not know-how" nations, but I do not think they convinced Lord Keynes, who had a mercantile sense and knew how little mercantile sense the Americans had. At the rate they are now going on, they never will have any. The other argument was the extreme one that at the end of the war, in contrast with the British position, the Americans would have circulated 35 billion dollars of expenditure by the American Forces overseas, which would be a glorious amount of spending power to form the kitty for the world currency system of the gold-based dollar.
Both expectations have been falsified. The £3,000 millions of what we now call 1281 sterling balances—I could never understand why—were not presented simultaneously, and still less dishonoured. As for the 35 billion dollars, they all went home long ago, because for physical reasons, America alone in the world was able to satisfy the world's hunger for real goods, particularly manufactured articles. Both premises upon which the Americans based the claim for the gold-based dollar currency have been completely falsified in the event, and we are thus no longer bound to honour this thing.
This evening I went to a meeting of the Commonwealth Parliamentary Association and heard the Premier of Queensland telling about sugar negotiations contemporaneously going on, and giving a meeting of Members of Parliament to understand that the sugar people from every country are thinking seriously in terms of the international monetary conditions of the early '30s, when an abundance of sugar could not get to the people who needed it in other countries purely and simply for monetary reasons. If all that is coming back again, it is a convincing argument against an international gold standard.
The pleading of my hon. Friend the Member for Ipswich and myself ought to commend itself to the Economic Secretary. Just before the war he did something tremendous which had never been done before in the Labour movement. I speak with 43 years' experience of that movement. He put one over Transport House good and proper. I forget the name of it, but he wrote a pamphlet, some of which might have been written by me or my friend, Major Douglas. It bore the imprimatur of Transport House and the name of my hon. Friend the Economic Secretary to the Treasury. I wish he were his pre-war self instead, of what he has since become.
After all, this state of affairs is pretty serious. My hon. Friend the Member for Ipswich used the phrase "an instrument of American policy." We in this House are not Americans; we are Englishmen or Britishers. Why should we not stick up for our own country and strive for an international monetary system to promote British and not American interests. I would even add the plea not merely that His Majesty's Government should go to the length of making what my hon. 1282 Friend the Member for Ipswich called "proper representations in the appropriate quarter" but that the Treasury should call together the whole of the British Empire countries to work out a scheme for the unilateral denunciation of the gold clause of the Washington Agreement. I am convinced that that would do nothing but good. The great argument against all this gold nonsense is that we cannot expand the quantity of gold as fast as the scientists and inventors can expand the quantity of goods. That is the economic argument, but there is a political argument also.
It being Ten o'Clock the Motion for the Adjournment of the House lapsed, without Question put.
Motion made, and Question proposed. "That this House do now adjourn."—[Mr. Pearson.]
There is a political argument also, namely, that we in this little island with its tremendous population have somehow or other to feed our people, and we shall not do that so long as we assent to an international financial system calculated in the interests of Americans and not of our own countrymen.
§ 10.0 p.m.
§ Mr. Leslie Hale (Oldham)
I never embark upon economic waters without expectation of impending disaster. However, tonight I take comfort from the fact that the waters are full of submerged and sunken misguided economists.
I rise to put two or three short points only because I am anxious that the Economic Secretary shall have full time to reply on this exceedingly important subject, particularly as he has not availed himself of the opportunities which my hon. Friend the Member for Ipswich (Mr. Stokes) has given him by Question in the past to give us the information we seek. He may be too wise. However, it is a fundamental and an important matter. In the answer given on 10th November, the Economic Secretary said:As I have informed my hon. Friend before, the question of the dollar price of gold is a question for the Government of the United States."—[OFFICIAL REPORT, 10th November, 1949; Vol. 469, c. 1410.]I want to know when it became a matter for the United States to decide, 1283 how it became a matter for the United States to decide, when this House was informed that that situation had arisen, and how it arose. So far as I can trace, the last information we had on the subject was in the Bretton Woods Agreement and in the terms of the Protocol of the International Monetary Fund. As I understand it, Article IV (2) provides that a gold price shall be fixed with a seller's margin and a buyer's margin varying slightly, and that that gold price was fixed and remained right up to devaluation at £8 12s. 3d. per fine ounce.
If that be so, then it is a matter for the International Monetary Fund to decide, and it is a matter of fundamental importance to this House because, if the price of gold is to be fixed by the United States Treasury and by nobody else, then the value of the £ is fixed by the United States Treasury, the dollar gap is fixed by the United States Treasury, the force—at the moment the adverse force—of American prices pressing against us is fixed by the United States Treasury. Only a fortnight ago we were informed that the textile industry is run by General McArthur, and we are entitled to know what limits have been set.
As I understand the matter—it is not easy—the price of gold is a matter for the International Monetary Fund. It is well to remember that when France devalued the franc in January, 1948, she established a free market in gold while at the same time remaining a member of the International Monetary Fund. It may be that was a breach of the agreement which was condoned in the circumstances, but at least it is material to remember, and it is right to remember, that this establishment of a free market in gold was one of the factors which adversely affected the £. It is only fair to the Economic Secretary and to my right hon. and learned Friend to say that they protested in the strongest terms at the time, and tried to take some steps to mitigate the effect.
There is one other important point. As my hon. Friend has said, the Commonwealth is the greatest world producer of gold excluding the U.S.S.R., which is as doubtful in this as in other matters. We produce something like 73 per cent. of the total gold production of the world. My hon. Friend said 60 per cent. in the ster- 1284 ling area and 13 per cent. in Canada. There is no question whatever but that the acceptance of the price of gold at £8 12s. 3d. represented a real sacrifice on the part of the gold producers. My hon. Friend referred to the effect on South Africa. The effect on Australia was catastrophic. Coolgardie scarcely exists; as a town it is closed down. Kalgoorli has only two gold mines working—Lake View Star and Great Boulder; and over the rest of Australia there is very little gold production. The dominant question in Australia, when I was there last year, was when the price of gold would be increased and when the industrial areas which have been laid waste by this decision would be recreated.
Let me say at once to the Economic Secretary that we are so anxious to have a full report from him that if at any time he will indicate that he is anxious to speak, I will give way gracefully. I know that he wants to devote attention to the subject and to give us the full information we want.
My hon. Friend the Member for Ipswich has said specifically in Questions which he has put in the House what he has to some extent repeated tonight. He has said that in 1948 40 million fine ounces of gold passed to the U.S.A. I do not know from where he gets his figure, but it was not contradicted by my right hon. and learned Friend the Chancellor of the Exchequer. My hon. Friend has said that the price of gold on the free market was, at the time of his Question in the House, from £22 10s. to £24 per fine ounce. He has given the specific figure that if we accept that basis it will give to the sterling area something like a £560 million advantage or, indeed, would completely balance the dollar gap.
That is an extremely bold and most important assertion to make, and it is just not good enough for the Financial Secretary to get up tonight and say, "We do not know whether, if the price were higher, it would all pass to the United States." It is not good enough, for two reasons. Why not let us try and see anyhow; and if it does not pass, we would still have the gold in the sterling area which could be used to bolster up the pound.
We are constantly being reminded, and rightly so, of the generous and statesman- 1285 like action which the United States are taking in international affairs. Both sides of the House pay tribute to it. It is comon ground among most of us that the United States are taking a very international and very public-spirited attitude in international affairs. But we are entitled to say, when we are being faced with this dollar gap, that if it be the fact that the dollar gap has been artificially inflated by the Agreement of 1945, the time has come for revision.
I am asking the Economic Secretary to say what steps are being taken to raise this matter; what instructions have been given to our representative on the International Monetary Fund; what is the view of the authorities in this matter; what, in his view, is the accuracy or otherwise of the figures which my hon. Friend the Member for Ipswich has given in such detail? I am asking bun to say whether or not the facts now put are correct and, if so, what he is going to do about it.
§ 10.7 p.m.
§ The Economic Secretary to the Treasury (Mr. Douglas Jay)
I have listened with attention, and much interest, to the speeches of all my three hon. Friends. I hope that their speeches will be noted both inside this House and outside, by all who are interested in this subject.
I should like first to comment on some of the remarks of my hon. Friend the Member for South Nottingham (Mr. Norman Smith). As far as I understood him, he asked the Government to repudiate the Bretton Woods Agreement. He gave as a reason for that the assertion, which I do not accept, that we had already repudiated the convertibility and the non-discrimination clauses of the Anglo-American Financial Agreement of December, 1945. The first comment I would make on that is, of course, that the Bretton Woods Agreement is a treaty between a number of nations and was approved by this House in December, 1945, whereas the Anglo-American Financial Agreement was simply an agreement between the United Kingdom and the United States; the convertibility and non-discrimination clauses were part of the Anglo-American Financial Agreement and not of the Bretton Woods Agreement.
§ Mr. Norman Smith
Clause 4 of the 1945 Agreement referred to recognition of the pound and dollar respectively in terms of gold.
§ Mr. Jay
The simple point I was making was that the non-discrimination clause, and the convertibility obligation, were parts of the agreement between the United States and this country. I cannot accept that either of those clauses have been unilaterally repudiated by the United Kingdom.
I think my hon. Friend will remember that in August, 1947, conversations took place between the United Kingdom and the United States Governments about the convertibility provision, and the action which the United Kingdom Government took was taken with the knowledge of, and after consultation with, the Government of the United States.
§ Mr. Stokes
Surely my hon. Friend will be the first to recognise—in fact, he said so—that the loan was going on for more years than he thought, and when His Majesty's Government found themselves in the position in which some of us foresaw they would find themselves, they did, in fact, repudiate it. Of course, they did it quite decently; it was a decent repudiation.
Mr. Jay: I am asserting that that clause was not unilaterally repudiated by the United Kingdom. I think my hon. Friend also forgets that the non-discrimination clause refers to a much narrower point than is sometimes realised. It refers simply to the use of import quotas on goods imported into the United Kingdom on the one hand, or into the United States on the other hand. I could not agree that we have repudiated or disregarded that clause. The exact application of it is, of course, a matter of interpretation; we have often discussed the interpretation with the United States Government and, no doubt, we shall continue to do so.
My hon. Friend the junior Member for Oldham (Mr. Hale) raised the question, which I think is the essential one at issue, of the responsibility for the dollar price of gold. I think that is also relevant to most of the speech of my hon. Friend the Member for Ipswich (Mr. Stokes) because it is crucial to the issue of what exactly he was asking the Government of the United Kingdom to do. The facts 1287 are as follow. The dollar price of gold is, of course, and always must be, primarily the responsibility of the United States Government, because it is the buying price of gold for the United States Treasury. That is and must be so.
§ Mr. Stokesrose —
§ Mr. Jay
I had better continue. The legal position in the United States, under the American Bretton Woods Act, 1945, is that the American Government can only alter the dollar price of gold with, firstly, the consent of Congress, and secondly, the approval of the International Monetary Fund. That applies to all countries which are members of the International Monetary Fund. But I think the fact which my hon. Friend omitted to notice was that a change in the par value, as it is called, of any member country's currency can only be proposed to the International Monetary Fund by that country. A change in the dollar price of gold, therefore, could only take place if such a proposal were put to the International Monetary Fund by the United States Government.
§ Mr. Stokes
May I interrupt? Really that is evading the issue. It is clearly laid down in the regulations that the £ is to have a fixed value in relation to the dollar, the price of which was fixed in relation to gold. I do not dispute, and neither do my hon. Friends, that the American Treasury may fix the dollar price of gold. They can state the price at which they will not buy, but under these regulations they may even alter the price of gold. That is what I consider so "phoney." We produce a great volume of gold in the sterling area, but under the regulations we cannot alter the price of gold except by approval of a majority of the International Monetary Fund of which America holds 30 per cent. of the votes.
§ Mr. Jay
I was just pointing out what the position is under the Bretton Woods Agreement to which we adhere. The dollar price of gold can only be altered if there is a proposal to that effect by the American Government. Exactly in the same way, the sterling price of gold, which is the responsibility of the British Government, can only be altered if there is a proposal by the British Government to the International Monetary Fund, and 1288 which is then approved by the Fund, as actually occurred in September. Therefore, it follows that it could not be a responsibility of the British Government to propose to the International Monetary Fund any alteration in the dollar price, because it would be out of order to make such a proposal to that Fund. I think we ought to be clear about those basic facts which arise from the Bretton Woods Agreement and from the constitution of the Fund. We shoud also recall that—
§ Mr. Hale
I am not yet clear on this point. Do I understand that it is not possible for Great Britain to put before the International Monetary Fund a proposal for an alteration in the sterling price of gold? If such an alteration were assented to by all the other signatories as against the United States, would that not automatically and inevitably involve an adjustment of the dollar price of gold?
§ Mr. Jay
Surely the position is clear. It is within the authority of the United Kingdom to propose to the International Monetary Fund a change in the sterling price of gold, which was what occurred in September, and which did not result in any change in the dollar price of gold. The United States is in exactly the same position. It can propose to the International Monetary Fund a change in the dollar price of gold, which need not necessarily have a corresponding effect on the sterling price of gold.
§ Mr. Stokes
May I ask my hon. Friend a question which I have asked him about 25 times at Question Time? What is to stop us proposing to the International Monetary Fund that with today's relationship between the £ sterling and the dollar, the price of gold from the sterling area should be put up to £30 per fine ounce?
§ Mr. Jay
What is to stop us proposing to the International Monetary Fund an alteration in the dollar price of gold, is Article IV, Section 5, of the Bretton Woods Agreement. There is nothing whatever to prevent us from proposing, if we wish, that the sterling price of gold should be altered, but, as I understood my hon. Friend, the main issue which he has raised tonight is the question of the dollar price of gold.
§ Mr. Jay
—an important pronouncement which I think we must take into account.
In these circumstances I do not think that it would be appropriate for me to follow my hon. Friend very far in his very interesting argument on the question of whether it is desirable from the point of view of the sterling area that the dollar price of gold should be higher, or lower. I take note of what he said. I would only point out now that in some respects the question is perhaps not so simple as he has suggested. It is, of course, true that if the dollar price of gold were raised, the gold reserves and the gold production of the sterling area would become more valuable in terms of dollars.
I think my hon. Friend, however, overlooked the fact that one of the effects of a rise in the dollar price of gold would in all probability, though it is not certain, be a rise in the dollar price of commodities in the United States. It does not necessarily follow, therefore, that because the gold production of the sterling area would earn more dollars, it would earn more wheat, timber and cotton and other commodities which we buy from the dollar area. That is a question which could be debated, and I mention it only to suggest to my hon. Friend that the issue is perhaps a little more complicated than he suggested.
§ Mr. Stokes
I tried to explain to my hon. Friend that that is precisely what would not happen. The price of wheat today is four times more than before the war. We pay 16s. a bushel for wheat from America today whereas before the war we paid 4s. a bushel. America is paying only 70 percent. more for her gold. The whole position is completely out of proportion. If America really wants, as she says, to get the world into balance she should agree to the revaluing of gold at 70 dollars per fine ounce as a minimum.
§ Mr. Jay
The fact that the price of wheat has risen more than the price of gold over the last 10 years does not prove that a further rise in the dollar price of gold would not cause a further rise in the dollar price of commodities. Experience, I think, suggests that a rise in the price of gold does, sooner or later, lead to a rise in the price of commodities. I would refer my hon. Friend to the events in the years 1933 and 1934 when he will remember that that constantly happened.
The hon. Member for Oldham asked a question, which I should like to answer, about the actual events last September when the question of gold prices was raised by Mr. Havenga, the South African Finance Minister. Mr. Havenga tabled a resolution which suggested, not, of course, a change in the dollar price of gold, but that the Articles of Agreement of the Fund should not prevent the sale by any member Government of 50 per cent. of its gold production, in markets where it could obtain a premium over the official price. That was the essential resolution which he put forward. That resolution was discussed before the full Board of Governors, and they decided that it should be referred to a committee on gold, consisting of the governors from the countries most interested in the subject. In that committee there was unanimous agreement among all the members, including the British representative who was, of course, acting on our instructions, that the governors should be advised to refer—these were the actual words—to the executive directors of the fund …this subjectfor the study of all relevant considerations and for report back to the Board of Governors.
§ Mr. Jay
The Board of Governors accepted that resolution, and that study will continue. That is the actual story of the action taken by the International Monetary Fund, and of the instructions given by this Government at that time.
1291 I would emphasise that the point at issue was not the dollar price of gold, but whether permission should be given to a member country to sell 50 per cent. of its gold in a market where a premium could be obtained.
I hope I have answered the questions asked and done something to clear up the question of the responsibility of the various member Governments of the fund. I should like in particular to assure my hon. Friend the Member for Ipswich that we have taken note of the points he has raised and that we shall continue to study them. I hope also that they will be studied outside this House.
§ Mr. Stokes
Before my hon. Friend sits down, may I ask him to answer a perfectly simple question? I put a perfectly clear statement to him as to what would have happened if we had increased the value of gold. On the exchanges 1292 which took place last year we should have got £321 million more towards the estimated gap this year of £478 million. Will the Economic Secretary answer why we should not increase the sterling price of gold in order to achieve that desirable end?
§ Mr. Jay
I thought that the mathematics of my hon. Friend rested on the fallacy of ignoring the rise in the price of commodities which would follow a rise in the price of gold. Since it is impossible to estimate the rise in the price of commodities, it would be impossible to make a statistical estimate of the effect on the dollar gap of any given rise in the dollar price of gold. It is quite impossible to give an arithmetical answer to that question.
§ Adjourned accordingly at Twenty-five Minutes past Ten o'Clock.