HL Deb 09 May 1923 vol 54 cc49-56

LORD VERNON had given Notice to ask His Majesty's Government—

  1. 1. Whether they intend, in the near future, to hold the further inquiry into currency policy which is suggested in the latter part of paragraphs 1 and 41 of the interim Report of the Committee on Currency and Foreign Exchanges of 1918.
  2. 2. Whether they can make any statement of their future policy towards stabilisation of the internal value of the currency, for the guidance of local authorities and others in dealing with the consolidation of war bonuses and similar temporary financial arrangements.

The noble Lord said: My Lords, the first part of the Question on the Paper refers to the Committee which was set up towards the end of the war to inquire into the policy which should be followed in regard to currency and kindred matters after the conclusion of peace. The interim Report of that Committee, issued in August, 1918, was followed by a final Report at the end of 1919, which was nothing more or less than a confirmation of the interim Report. I will, therefore, refer only to the interim Report of August, 1918.

The policy recommended by the Committee was adopted by the Government of the day. So far as I know, it has never been repudiated either by the late Government or the present Government, and it is therefore to be supposed that it holds the field at the present time. That policy is generally described as one of deflation and its effects have been such as to produce general approval throughout the country, but that approval has not been entirely unmixed. Many economists and others have pointed out that it has had very detrimental effects upon trade and industry. It is only necessary to look at the writings of economists and the speeches of bankers during the last three or four years to see that this is the case. Take a definite case. The Chairman of the London Joint City and Midland Bank, speaking at the annual meeting last January, stated quite definitely that this policy was largely responsible for the present unemployment and he called attention to the effect of the Government policy in funding Floating Debt as a contributory cause.

But I am not concerned to-day either with the rights or wrongs of the policy of the last four years. What I do suggest is that there is sufficient doubt with regard to what has been done and what should be done in the future to warrant a further inquiry into this subject. There are, indeed, other reasons why this course should be adopted. In the first place, the conditions to-day could not have been foreseen, and obviously were not foreseen, by that Committee. They made their Reports in 1918 and 1919 and they could not have foreseen the extent of the breakdown in Russia or the extent of the breakdown in Central Europe. Further, they could not have foreseen the breakdown of the exchanges or the speculation in foreign currency which has made that breakdown much worse, and, finally, they could not have foreseen the long-drawn-out struggle over the question of Reparations.

It is only necessary to study the Report to see from its general tenor that this was the case. It is interesting to observe in the first paragraph of the Report a statement which shows how little the Committee foresaw the events which would take place after the war. They state that— A sound system of currency will, as is, shown in paragraphs 4 and 5, in itself secure equilibrium in these exchanges. The Committee must have had in mind the view that other countries would adopt the same strict financial policy which has been adopted by this country and the United States and would attempt to restore their currency to pre-war value. We all know that that is not the case. It is perfectly clear that it takes two to make an exchange which will remain in a state of equilibrium. However correct our currency may be, if the currency of, say, Germany is inflated to the extent it is to-day, no corrective on our part will keep the exchange in a state of equilibrium.

I suggest that the Committee foresaw quite clearly that their recommendations were very temporary indeed. In the first part of their Report, in paragraph 1, they say: We have had in view the conditions which are likely to prevail during the ten years immediately following the end of the war, and we think that the whole subject should he again reviewed not later than the end of that period. Only four and a half of those ten years have elapsed, but the financial conditions of Europe have become so extraordinary that I suggest that five years should be substituted for ten years. That is not unreasonable in view of the fact that the Committee make their ten years a maximum term. In addition, it will obviously take time for any inquiry which is set up to be carried through and a Report made, and it may easily be another six or twelve months before such a Report could be issued.

The other passage to which I call attention is in paragraph 41 of the Report, where they say— When the exchanges are working normally on the basis of a minimum reserve of £150.000,000 the position should again be reviewed in the light of the dimensions of the fiduciary issue as it then exists. Those conditions, of course, are not yet fulfilled, but they are not far from being fulfilled. The exchange with the United States of America is not so far from par as, and the reserve is considerably larger than, it was at the time the Report was made. It may well be that before any further inquiry and Report the conditions laid down would be fulfilled. There is another reason why I suggest that an inquiry should be held, and that is that the present level of prices in this country is more or less steady. We have been through the full cycle—a boom and rising prices followed by a slump and falling prices. For the last twelve months prices have been fairly steady. That is the moment when an inquiry should be held, if one is to be held; we should not wait until another large rise in prices takes place.

It may be the view of the Government that they have all the information that is necessary on this point and that therefore no further inquiry is desirable. That brings me to the second part of the Question on the Paper. If the Government hold that view, then I suggest that they ought to announce their policy. If they have decided on a policy of their own and do not intend to hold any further inquiry, they should announce their policy. The important aspect of the whole question is the effect on the level of prices in this country. Many noble Lords will remember the debate initiated by Lord D'Abernon in the autumn of 1919. That debate which lasted for some time clearly brought out the effect of currency on the question of prices, and a Return was made in accordance with the noble Lord's Motion showing the extent to which prices in all countries had followed the degree of currency inflation.

Everything that was then shown has been amply borne out in the last four years. Since then prices have continued to follow the degree of inflation or deflation in all countries. They have followed the downward course in this country and in America as faithfully as they followed the upward course of inflation during the war, and I believe it is a fact that this view is generally accepted to-day. Currency is, in fact, the primary cause determining the general level of prices in any country. But we can go further than that. I think it is also generally accepted that the one thing we need, in regard to that level of prices, is that it should be stable. Mr. McKenna, in the speech last January to which I have referred, stated this most emphatically.

In March last the present Chancellor of the Exchequer, in a speech at Liverpool, said exactly the same thing. He stated: By far the most important thing for any country to-day is to manage to have, if it can, stable prices. Last week brought another ample confirmation of this view. Mr. Goodenough, the well known banker, delivered an address on "Currency and World Prices" before the Industrial Club of Chicago. I have not a cerbatim report of his speech, but I have the report in The Times, and I find that he stated the same thing quite clearly. He is reported to have said that— An abnormal rise of prices must tend to alter the conditions of life of every member of the community. It raised questions of the readjustment of wages and other labour conditions, through alterations of the cost of living, and it upset the fundamental basis of industry. Those three authorities are, I suggest, sufficient to bear out my contention that it has become generally accepted that we should aim at getting a stable level of prices if possible. The words which I have just quoted from Mr. Goodenough's address emphasise the importance to everyone of this fact, in addition to the vital point that if affects to such a great degree wages agreements and agreements regarding salaries throughout the country.

That is the specific point which I have raised in the second part of the Question on the Paper. It is well known that the salaries and wages not only of Government employees but also of the employees of local authorities and of many private industries are regulated on a sliding scale based upon the cost of living. I do not know how long the year 1913 is to be treated as a magic year to which all figures of this kind are to be referred. I do not know how long it is expected that salaries shall vary every quarter throughout the year. But I imagine that this cannot go on indefinitely, and that the Government must have in view some definite date, or some definite period, when some form of stabilisation shall take place. It is hardly necessary to point out how disturbing it would be if we were to experience the same phenomenon as has been experienced in the United States during the last year. During the last eighteen months prices in the United States have risen by twenty-five per cent. Supposing that were to take place here. It is clear that the whole of the Government finances would be upset by the increase of salaries which would result and that the finances of the local authorities also would be upset, as well as those of private industry.

In this country, on the other hand, we have had during the last eighteen months a most remarkable stability in the level of prices. Taking wholesale prices, the maximum variation from the average is only five per cent., which is remarkably little. I hope that this reflects to some degree the policy of the Government—that this stability in prices is not accidental but is the definite result of policy on the part of the Government. But if that be the case it does represent to a certain extent a departure from previous practice, and I suggest that the people have a right to know what that departure is. It may be that a certain degree of co-operation will be required between this country and the United States if anything permanent is to be achieved along these lines, and I hope that His Majesty's Government may be able to state whether any arrangements either have been made or are in contemplation on this matter between this country and America.

I submit that there are three courses open to the Government in this matter. They can hold a further inquiry in the light of our experience of the last four years to re-examine the whole question; or they can decide upon their own policy and follow it, in which case I suggest that they should take the country into their confidence; or they can follow a third policy that of continuing the present uncertainty. Whatever else His Majesty's Government decide to do, I hope that this last course will not be adopted.


My Lords, the noble Lord who has placed this Question on the Paper to-day prefaced his interesting remarks by referring to the Report that was presented in August, 1918, by the Committee on Currency and Foreign Exchanges, of which Lord Cunliffe was Chairman. The noble Lord is, of course, perfectly correct in saying that in August, 1918, before the war had come to a close, it was impossible for that Committee or for anybody else to foresee what would be the condition of affairs four and a half years after the war. But I think any of your Lordships who take the trouble to read through the interim Report of that Committee will be surprised to see, despite the great difficulty of forecasting the position of affairs three or four years after the war, how remarkably accurate in some respects were the judgments that were expressed by the members of that Committee.

In that Report the Committee stated that they had in view the conditions which were likely to prevail—naturally, they could not go further than that—during the ten years immediately following the end of the war, and they added— We think that the whole subject should be again reviewed not later than the end of that period. Paragraph 41 of the Report, which was not, I think, quoted by the noble Lord and which deals with the amount of the gold reserve and the limit of the fiduciary issue, similarly speaks of a "review"—not necessarily a new Committee—" when the exchanges are working normally." Obviously, we have not yet reached this condition or anything resembling it. Indeed, until there is a settlement of Reparations we cannot even begin to see what the normal exchange position will be. It would be both contrary to the intention of the authors of the Cunliffe Report and in itself premature to hold a further inquiry at the present moment. Such, at least, is the opinion of His Majesty's Government.

With regard to the second part of the Question, the stabilisation of the internal value of the currency cannot be dealt with in isolation. When we return to a gold standard the external value of our currency will be bound up with the purchasing power of gold in the world's markets and the internal and external values will be mutually dependent. The problem of stablising the internal value of the £ will then merge in the larger question of stabilising the commodity value of gold. This can only be done by international co-operation among the bodies responsible for controlling credit in the countries in which a gold standard is effected; that is to say, among the central banks of issue. I may add that the policy of stabilisation cannot in any case do more than eliminate the purely monetary disturbances, and that there must always be changes in prices of particular commodities, resulting from changes in the underlying conditions of supply and demand.

Your Lordships, I am sure, will unanimously agree that production, good harvests, and world peace—all matters largely outside the Government policy—are bound to be most important elements in prices, and it is obviously impossible, to dogmatise or prophesy on such subjects. It would, of course, be possible to debate these subjects at very great length, as they involve many propositions on which there is acute controversy, even among the few experts who have really studied them, but I do not think that the Questions that have been put down by the noble Lord this afternoon are those that readily lend themselves to such prolonged debate. I can only recapitulate that it-is, in the view of the Government, entirely premature at present to set up a further inquiry into currency policy, and that, as regards the noble Lord's second Question, this matter is very largely governed by factors such as supply of and demand for commodities, which are outside Government control. In his concluding remarks the noble Lord made some reference, as I understood him, to the question of negotiations with the United States as regards finance. If the noble Lord will be good enough to put down a Question on that subject I will endeavour to answer him, but I am afraid that this afternoon it is out of my power to do so