GOLD STANDARD BILL.

HL Deb 11 May 1925 vol 61 cc125-60

Order of the day for the Second Reading read.

THE MARQUESS OF SALISBURY

My Lords, before my noble friend Lord Clarendon addresses your Lordships, I desire to make an explanation. The Government have put down a Notice to suspend Standing Order No. XXXIX, so that all the stages of this Bill could have been taken to-day, but since that Notice was given, it has been ascertained, upon careful consideration, that there is no absolute necessity that this Bill should pass before Wednesday. Your Lordships are aware that the Government are very much averse—and perhaps I may be allowed to add that I personally am, too—from suspending the Standing Orders except when absolutely necessary. In those circumstances I shall not make the Motion, but shall ask your Lordships to agree to the remaining stages of the Bill on Wednesday.

THE EARL OF CLARENDON

My Lords, in rising to move the Second Reading of this Bill I desire to make a full and frank confession to your Lordships that my knowledge of financial matters is not of a very extensive character, and in so far as the gold standard is concerned I am afraid that I must plead to ignorance. I am, however, fortified by the consideration that I have reason to believe that there are not many occupants of the Government Bench who possess more knowledge than I do upon this subject, and I may also say that the noble Lord who will follow me in this debate, Lord Arnold, has expressed to me privately the thought that if he were called upon to write a book upon this subject he would be very sorry indeed to attempt to do so. There are, however, amongst your Lordships a number of Peers who are fully qualified by experience and knowledge to speak upon this subject, and all I can do is to crave their indulgence if I happen to fall into any errors during the course of the remarks which I have to make this afternoon.

This Bill, as your Lordships are probably aware, gives legislative sanction to the steps which are necessary for the return to the gold standard. It is not part of my purpose and, especially after that which I have already said, it will not, I think, be necessary for me to attempt to argue the general merits of that policy. If there is not, and I believe that there is not, general unanimity in regard to this question, I think it may be truthfully said that there is at any rate a consensus of opinion in favour of a return to the gold standard at the earliest possible moment. Equally true is it, I think, to say that it has been the declared policy of every Government which has held office since the end of the war, and I need not remind your Lordships that a return to the gold standard was definitely recommended by what is known as the Cunliffe Committee, which sat in 1918 and considered the whole question of currency problems which would arise in this country at the end of the war. That advice is also reinforced by the Report of the Currency Committee which considered the whole question of currency in this country and of the Bank of England note issues.

As regards the date of our return to the gold standard, I should like to remind your Lordships that the embargo on the export of gold ceases to have effect at the end of the current year. It became necessary for His Majesty's Government, therefore, to make clear what their policy was in regard to this matter at the earliest possible moment. On the question of the prolongation of the embargo, it is fairly generally admitted that if the embargo had been prolonged it would have been considered a retrograde step by almost the entire world. There is strong support for the view that the prolongation of the embargo would have reacted most adversely upon our credit. The result would, I think, have been that we should probably have had to face a severe fall in the value of our currency and, in all probability, the withdrawal of a large number of balances from London. On the other hand, the exchanges, as your Lordships will have seen from a study of the exchange quotations in the daily Press, have been rapidly lending towards parity, and the Currency Committee pointed out that the difference between maintaining our position and returning to the gold standard was so slight that there was really nothing to be said for refusing to return to the gold standard.

It is true that doubts have been expressed whether it might not prove necessary, in order to maintain the gold standard, that prices should fall in this country, and reference has been made also to the lack of exact equality between the index numbers of wholesale prices in the United States of America and in this country. I need not refer to this point except to draw your Lordships' attention to the opinion expressed by the Bradbury Committee, which, if I may condense it, is contained in a few lines in paragraph 15 of their Report. This is what the Committee said:— it is not safe to attempt to draw precise conclusions from a comparison of index figures compiled upon different bases. Before proceeding any further, I think that I should give your Lordships a short statement of the precautions which His Majesty's Government have taken in order to ensure the success of their policy.

In order to defend the exchange we have three resources: The gold reserve, the bank rate and foreign credits. With regard to the gold reserve, your Lordships will probably be aware that it has been fixed at a level of £153,000,000, and I need hardly remind your Lordships that this figure was the figure at which the Cunliffe Committee recommended that it should stand. It is considered that this figure is amply adequate for the purposes for which it is to be used, but these purposes do not include an early return to the internal circulation of gold itself. This, it is considered, is an unnecessary expense which this country cannot afford at the present time.

Clause 1 of the Bill deals with the problem of how to maintain an effective gold standard without the internal circulation of gold. Your Lordships are aware that at the present moment there exists a legal right to demand gold in exchange for notes. By this Bill that legal right is suspended, unless and until His Majesty by Royal Proclamation otherwise directs. At the same time, the Bank of England is under an obligation to sell gold bullion at the fixed price of £3 17s. 10½d. per standard ounce in the form of bars which will contain approximately 400 ounces of fine gold. Therefore, gold can be obtained for export and the Bank of England have a general licence to export gold up to the end of December of this year, after which the general prohibition lapses. This provision, in addition to that which obliges the Bank of England to issue notes against deposit of bullion at fixed rates, anchors us firmly to the gold standard, while a return to the use of gold internally is thereby avoided.

Turning to the second line of defence, that of the bank rate, I need say nothing upon that matter, and for this reason: there is absolutely nothing in this Bill which affects in any way whatever that weapon of defence. Coming, therefore, to the last line of defence, that of foreign credit, I should like to point out to your Lordships the two precautions which His Majesty's Government have taken in regard to this. In the first place, they have accumulated a. sufficient amount in dollars in order to absolve the Treasury from the necessity of buying over the exchange in order to meet payments which become due in respect of our Debt to the United States of America in June and December of this year. In the second place, they have established a credit of 300 million dollars in New York itself which is only to be drawn upon in cases of emergency. Clause 2—and that is the only other clause in the Bill, except Clause 3 which is the definition clause— is a purely money clause and gives to the Treasury the necessary powers in all these matters.

I hope that in the few remarks I have made this afternoon I have satisfied your Lordships with respect to the policy of the Government in so far as a. return to the gold standard is concerned. I hope also that your Lordships will think that the policy itself is a fit and proper one, that the correct time has been chosen to return to it, and that all necessary precautions have been taken to safeguard this country in every possible way. There is in the present position nothing whatever to prevent gold being taken out and hoarded, and. while we have in the past been protected by the patriotism of our people in this respect, His Majesty's Government have thought it wise, in view of the relaxation of the prohibition of export of gold, to regularise matters without delay. This is all I think I need say at this stage, and I beg to move that the Bill be now read a second time.

Moved, That the Bill be now read 2^a.— (The Earl of Clarendon.)

LORD ARNOLD

My Lords, I cannot help thinking that the noble Earl in his opening remarks was, with characteristic modesty, rather too self-depreciatory. At any rate, speaking for myself, I will say this, that I have listened, in the course of the last ten or fifteen years, to many statements in Parliament on financial and technical subjects and I can only wish that they had all been as clearly and as well delivered as those which the noble Earl makes from time to time in this House, as representing the Treasury. Whatever difference of opinion there may be in regard to this Bill, I think it will be generally agreed that the return to the gold standard raises problems of great difficulty and extreme complexity. The general position of the Labour Party in regard to this Bill was indicated in the Amendment which was moved in another place upon the Second Reading. That Amendment deprecated the proposed return to the gold standard as unduly precipitate, and as running the risk of aggravating the present grave unemployment and trade depression. It is, of course, quite impossible for anybody—at any rate, it is impossible for anybody wisely— to prophesy definitely what will be the outcome of this step, and for my part I am not going to do so.

There is in this controversy, as in most controversies, a great deal to be said on both sides. It really is a question of the balance of argument—balancing one con sideration against another—but in my view the balance of argument finally points to the view that this step has been precipitate, and is likely to have injurious consequences. In support of that view I will proceed to touch upon some of the main points in this controversy, though without, I hope, making an undue draught upon your Lordships' time and patience. At the outset, I will refer to one point on which I think there is almost general agreement, and that is that this return to the gold standard has come very much more quickly than was expected. I suggest that it is true to say that last autumn nineteen men out of twenty, or forty-tine out of fifty, had no anticipation of a return to the gold standard before the end of next December, even if then. However, the Government Las taken this step, and it has fortified itself by the finding of the Report of the Treasury Committee, which Report is in your Lordships' hands in the White Paper which has been circulated. The Government, and the noble Earl in introducing the Bill, referred to this.

The Government, in deciding upon this step, has based its action in no small degree upon the fact that sterling exchange has appreciated and almost reached parity, and the Bradbury Committee also dwells upon this fact. There- fore, says the Government, this is an appropriate moment to clinch this matter, now that sterling is practically at parity. I think that is a fair statement of their argument. But it is necessary to emphasise, and very strongly emphasise, that this rise in the sterling exchange has been largely brought about by artificial means, rather than by a change in the balance of actual trade. After all, I say that in this matter we ought to stand on the facts, and the real facts are a good deal worse than this apparent parity position would suggest. The probability is that in the present circumstances there is strong reason to believe that this return to the gold standard will cause some deflation, or fall of prices, in this country, and even the Treasury Committee seemed to think that that might happen.

The noble Earl said that this Bill does not actually deal with the bank rate, but I take it that this is an occasion for the discussion of the whole question of the return to the gold standard and therefore I shall be quite in order in making certain references to the bank rate. One of the consequences of this step may be a rise in the bank rate, and that would mean some deflation. There are certainly fears in many quarters that as time goes on it may be necessary to raise the bank rate and, indeed, again the Treasury Committee itself has fully admitted that possibility. The view of the Labour Party is that a further measure of deflation at the present time is likely to be attended by harmful consequences in this country. There is a very considerable body of opinion which is agreed that the post-war deflation policy pursued by the Bank of England and the Treasury was too rapid and was carried too far, and that it is that policy which has been one of the chief causes of the great amount of unemployment which we have had and of the very grave trade depression.

For my part I agree with those who take this view. I think the post-war deflation policy was carried too far, and I claim that at any rate I have past experience on my side in suggesting that this present step may also be wrong. Therefore, to speak frankly, I am not unduly impressed by the fact that the Government may fortify itself by the findings of this Treasury Committee; as the experts were wrong before, it is at any rate quite likely that they are wrong now. Moreover, I think it is not inappropriate to remind your Lordships that after the Napoleonic Wars it took many years of agitation, in the teeth of the opposition of the Bank of England, to establish in this country a system of bank rate and of bank reserves, both of which at that time were very considerable steps forward. With regard to the deflation which may be caused as a result of this step, many competent judges are of opinion that it will mean a fall in prices of five per cent., and it has been put even as high as ten per cent. Should such a fall in prices take place, it will, naturally enough, be followed by a demand on the part of the employers for a reduction in wages, and I do not think that anybody can contemplete, except with great concern, the prospect of industrial conflicts in this country to force down wages to an even lower level than the present.

But that is not all. Quite apart from deflation leading to lower wages, it may also well be that it will increase unemployment and intensify the prevailing trade depression, which it really ought to be one of the first duties of the Government to try to alleviate. Is it not perfectly clear that this policy of the Government introduces into our present trade and industrial situation a new and uncertain factor because of the fears of a rise in the bank rate and of consequent deflation? Those fears will, naturally enough, cause manufacturers and exporters to pause before they buy further: they are expecting prices to fall, and they will want to wait to see what will happen. Therefore the whole course of trade is likely to be adversely affected by this step.

One of the chief claims made by those who support the Government policy is that the return to the gold standard will, by stabilising the American exchange and certain other exchanges, remove from the minds of our manufacturers and traders an element of uncertainty, and therefore that commerce will benefit. On the other hand, I have pointed out that this step introduces a fresh element of uncertainty in regard to the bank rate and deflation. Therefore, so far from the Government being able to claim that this step will remove uncertainty, the most which they can claim, at any rate at present, is that they will replace one uncertainty by another.

A further great objection to this step is one that has been frequently touched on. It is this, that the return to the gold standard at the present time will the us hand and foot to America and to the American price level, and that means the risk in this country of wide fluctuations in prices. I know very well that the reply which will be made to this is: "Are we not, anyhow, obliged to follow more or less in the wake of America and of American prices?" Yes, but there may be a great, possibly a vital, distinction between that position and the position which will arise when we have returned to the gold standard, because then we shall be, in effect, automatically coupled to the American price cycle.

America is a country which, especially in these days, when there is stall a good deal of what I may call post-war economic unsettlement, is subject to rapid and great fluctuations in prices, and during the past few years our price level in this country has, on the whole, been rather more stable than price levels in America. America is a vast continent of great resources and potentialities, and it can often surmount with comparative ease changes in prices and the difficulties which arise therefrom. Over any considerable period the trend of American industrial and economic activities may be said, on balance, to be upward and in the direction of expansion. That was the case with us for the greater part of last century, but times have changed for us and we cannot now, without the risk of disastrous consequences, stand frequent and considerable changes in the price level.

It is for that reason that there has come into being in this country a school of thought among monetary reformers, headed by Mr. J. M. Keynes, which is urging that the currency should be based upon a foundation which, although it might not give us exchange stability, yet would, so it is claimed, give us, at any rate to a large extent, stability of internal prices. I certainly do not propose to add to the complications of the present discussion by any consideration of the pros and cons of exchange stability versus internal price stability. But I do submit that, in trying to get a perspective of the whole problem, it is only fair to point out that this school does exist, and therefore it must not necessarily be assumed that there is no alternative to linking ourselves sooner or later to the American price level.

Now I come to the question of American credits. The noble Earl who moved the Second Reading of the Bill touched upon this at some length. It is common knowledge, of course, that these American credits which have been arranged for caused the gravest disquietude to a very large number of people in the City, and, I think, to financial people and business men all over the country. For my part I fervently hope it may never be necessary to avail ourselves of these American credits. But it may be necessary. We may have to use them, and if we have then we shall be more than ever in the grip of the United States. In my opinion it is worth while paying a pretty heavy price to avoid that happening. These American credits bring me to a point which in this controversy cannot be emphasised too often. It is that times have changed and conditions are totally different from what they were before the war. Therefore, do not let anybody suppose for a moment that in this policy the Government can claim that they are going back to pro-war conditions. That is not possible. America was then a debtor country. She is now a creditor country. Moreover, she has somewhere about £300,000,000 of gold more than her reserve. No wonder that she wants us to go back to the gold standard and will do almost anything to facilitate that happening.

Before I leave this point of American credits I should like to ask one or two questions about them. There is no limit in this Bill to (he amount that may be borrowed. The noble Karl referred to the fact that the credits wore for 300,000,000 dollars—that is, £60,000,000—but that limit is not in the Bill. An attempt was made in another place to insert an Amendment in regard to that, but it was rejected. Therefore there is no limit in this Bill. I think there ought to be some definite figure in the Bill, beyond which the Government cannot go without coming to Parliament again. However, as the noble Earl said, arrangements have been made to draw, if necessary, upon credits to the amount of £60,000,000.

There are two credits. One is for £40,000,000. That is a credit which has been arranged between the United States Federal Reserve Board and the Bank of England upon terms which do not include the payment of any commission. The next credit, we are told, has been arranged between the Government and Messrs. Morgan and Co., of New York, upon terms which, for the call of the money, include a commission of 1¼ per cent, for the first year and half that (that is ⅝ per cent.) for the second year, even if the money is not called. What is the position? The position is that for two years, even if this money is not called, we shall have to pay £375,000 to Morgan & Co. for this credit. If the money is called, although the Government has not made this clear, it looks as if the commission would amount to £500,000. That, of course, is apart from interest; the interest arrangements are separate. I was not without hope that the noble Lord, Lord Banbury of Southam, would have been here this afternoon. Had he been here, I certainly should have commended this point to him, because I think he would have been interested to investigate it. Further, it appears that this commission of l¼ per cent, on £20,000,000 is higher than the commission which has been paid —I will not say on other analogous transactions but other transactions which are not altogether dissimilar.

I would like to ask what exactly is the position in regard to these credits I Does it mean that if we have to avail ourselves of these credits, the £40,000,000 credit arranged between the United States Federal Reserve Board and the Bank of England will all be exhausted before resort is had to the £20,000,000 credit arranged by the Government with Morgan & Co. I Then I read that the Chancellor of the Exchequer said in another place that he had arranged for credits for £60,000,000 and that he could have got credits, I think he said, for £100,000,000. If that is so, and I dare say it is so, what exactly is the reason—there may be some explanation, and I am only asking the question— why the whole of this £60,000,000 credit was not arranged with the United States Federal Reserve Board? If we could arrange a credit for £40,000,000 with the Federal Reserve Board, on which no commission is to be paid, why should we arrange a credit for £20,000,000 with Morgan & Co., on which commission has to be paid? I am aware that those who support the Government view may say: "We dislike these credits also, and we admit there are a great many objections which can be brought against this return to the gold standard. But what are you going to do? What is the alternative?" They argue as the noble Earl seemed to me to be arguing, that unless this step is taken the sterling exchange with America may relapse again, at any rate to some extent. That may be true. I dare say it is true. But again I say it is all a question of balancing things. It is a choice of evils. It may be that the relapse to some extent of the sterling exchange of America again would be less injurious to this country and to its industrial position to-day, than the consequences which are likely to follow from this step of the Government.

I must again emphasise that sterling has only been brought to its present position largely by artificial means. Therefore it is not really quite fair to point to the probabilities of a relapse in sterling and say: "That is what you are faced with," because that relapse in sterling, although it may be inevitable, is only inevitable because of the policy pursued by the Bank of England and the Treasury during the past few months. I want to make it clear that, speaking for myself, I am not only criticising this present step as precipitate, but I am criticising the policy of the last few months which has led up to it and which, in my belief, had a good deal to do with the increase in unemployment, and the extremely bad condition of our export trades. It is well known that an appreciating exchange is not good for export trade. At any rate, it is very unfortunate from the Government point of view and is, to say the least of it, a remarkable coincidence that in every week this year, except one, the number of unemployed has shown an increase over the return for the corresponding week in last year.

In conclusion, I want to ask this question: Is it not the case that in this matter the Government has been putting the cart before the horse? I suggest that, instead of bringing the £ up to parity in order to go back to the gold standard, it would have been better to have waited until the £ had got to parity, or nearly to it, and then the Government could have considered going back to the gold standard. There is, however, one final matter to which I would refer. It is a phase of this question which may have a marked influence upon the course of events. It is a factor which, if it materialises will be a distinct aid to the Government. What I mean is this. It is possible—I think I might go further and say it is probables—that before long there will be a rise, perhaps a fairly substantial rise, in prices in America. I believe that the deposits in the American banks are larger than they have ever been before in the history of that enormously wealthy continent. Here then you have, at any rate, the possibility of an increased demand and higher prices. Apart from that, prices might be raised by exceptional moans in the United States, and it may be that His Majesty's Government have a good deal more knowledge of this aspect of the matter than they have yet made known to Parliament.

However, if from any cause there is a fair rise in American prices the effect may be that the deflation, which otherwise seems likely to come about consequent upon this return to the gold standard, will not come about. So far so good, from the Government point of view. On the other hand, another consideration arises which, I maintain, immensely strengthens the position of those of us who are criticising this step of the Government in what we regard as the hasty return to the gold standard. If it should be that American prices rise at any rate by natural means, then the exchange could right itself, and could do that without the exceptional measures which have been taken during the last six months. What docs all this mean? It means that if the Government had waited until American prices had risen and the sterling exchange had righted itself, then the gold standard could have been restored without the present risks of deflation and all that deflation involves. In short, in those circumstances the Government would not have been putting the cart before the horse.

I maintain that what I have been saying greatly reinforces the position of those of us who contend that the Government should have waited longer and should now have acted now. I come back to where I started, and say I hold that this action of the Government is precipitate. At the same time, I again fully admit that no one can prophesy with any certainty as to what the outcome of this stop will be. I have just been pointing out that the course of events in America may come to the aid of the Government by a, rise in prices there. Who can tell? No one can, with anything approaching definiteness, forecast what will happen.

I have endeavoured, I trust at not too great a length, to touch upon some of the main points of this controversy. I have endeavoured to do that without dogmatism, and I trust temperately. I have outlined some at any rate of the risks which are likely to attend this step on the part of the Government. Of course, the responsibility for the matter rests with the Government. It is their decision, and in my view it is a very serious responsibility, and unless and until the views which I have been expressing are proved to be wrong I shall hold the opinion that the Government have taken this step without sufficiently weighing all the consequences which may ensue from it.

LORD EMMOTT

My Lords, there is one matter on which I agree entirely with what has fallen from the noble Lord, Lord Arnold, and that is in the congratulations he offered to the noble Earl opposite for the admirable way in which the noble Earl introduced this subject. The noble Earl made a modest disclaimer that he was not an expert on questions of finance. All I cm say is he gave us an admirable, succinct, and clear account of the Bill, and used very formidable arguments in favour of it. There is one other matter in which I also agree with the noble Lord, Lord Arnold, and that is that the whole question of exchange is extraordinarily difficult and complicated; in fact, it is so difficult and complicated that I feel very much disinclined to dogmatise to the extent that he has done as regards the future. I shall, indeed, content myself with simply giving my reasons for support of the Bill.

I do not support this Bill because I am at all unduly attached to the gold standard as the be-all and end-all of financial wisdom. I do support it because, in our present conditions, I think it is the only possible alternative, and that any other course is open to much graver objection than a return to the gold standard. I support it also because there is a general agreement in the country that it is desirable to return to the gold standard as soon as possible. In the third place, I support it because, sterling exchange being so very near gold parity as it is to-day, whatever may have been the reasons of the rise, I think there is very much to be said for acting now. Moreover, we must remember that some of our Dominions are reverting to the gold standard, that Sweden has already adopted the gold standard, that Holland is adopting it, that Germany has stabilised her exchange on a gold basis, and that other countries are very much more likely to follow this course if we lead the way.

When I look at all that, and, on the other hand, consider the risk of some slight deflation arising from the adoption of the gold standard, I am inclined to think the stability in exchange that we shall gain from this Bill is worth a good deal more than the risk of slight deflation that it brings with it. I am aware, of course, of the objections that have been raised, and which were dealt with at considerable length by the noble Lord, Lord Arnold. There is the disparity of prices between the United States and ourselves. If I am correctly informed, that disparity is lessening a good deal at the present time, and I also believe that it is not greater than the disparity which often existed in the old days, before the war, when both of us were on the gold standard. Again, it is said that by the adoption of the gold standard we 'are linking our sterling, not to gold but to the dollar, that our policy will be dictated by America in the future, and that within the next few months we are likely to see a seven per cent bank rate. It is, of course, perfectly true that there are contained in this Bill much more of the elements of a managed currency than there were in the old pre-war gold standard scheme, but I think I may add that whenever a change is made some risk is involved, and as the Government responsible for the matter (primarily on the strength of an able and extremely well-reasoned Report by a Committee of experts) have advocated the return to the gold standard, I think that we ought to support them in the step that they have taken.

Any experience that I have of currency matters applies rather to other branches of the question than to international exchange. I was, some years ago, Chairman of an Inter-Departmental Committee that sat at the Colonial Office with the object of working out a scheme for a new coinage for our West African Colonies and Protectorates. I am glad to say that our Report was adopted by His Majesty's Government, and that the new currency recommended by us is working smoothly and satisfactorily. It has stood the brunt of the changes due to the war, and to the boom, and to the subsequent collapse that followed the war.

I was also, a few years ago, Chairman of a Royal Commission, the last Royal Commission that sat in this country on the question of decimal coinage. That was a fit punishment which was laid upon me because of my temerity in intervening in a debate in your Lordships' House on the question. But the details of subsidiary coinage at home, or even a scheme for keeping a token coinage in a Colony at sterling parity, are very different from what I may call the esoteric mysteries of international exchange. It is therefore with great diffidence that I express any opinion on the provisions of this Bill. But for what my opinion is worth, I should like to say that the safeguards set up in this Bill seem to me eminently calculated to protect our position so far as possible. I am particularly glad the Government has set its face sternly against any internal circulation of gold, at any rate until the gold standard is firmly established, for we need the £150,000,000 as a reserve to protect our position if we are to adopt the gold standard. I support the Government in that.

My principal reason for intervening was not to discuss the Bill in detail, but lo deal with some of the wider aspects of this question raised by critics of this Bill among members of the Labour Party and also by those who differ very widely on fundamental economic questions from the Labour Party. Many of the critics of this Bill treat this measure as an act of deflation which is likely to add to trade depression. There are other critics of the Bill, like Mr. Keynes, who believe in the possibility of a managed currency. To a currency managed by this country alone the difficulties seem to me to be absolutely insuperable. We should never be certain of stability of exchange with any of our Dominions, or any other country, for a week at a time with a currency managed by our Government alone. In present conditions and in the conditions that we are likely to see during the next decade or two, I should view with great apprehension any scheme of a currency permanently managed by Government.

On the other hand, there are an increasing number of people who say that a standard of value based on geld, which is a precious metal subject to wide fluctuations of output, can never be an ideally perfect standard. I wish the Government had given indications of their readiness to consider international action directed to removing the dangers arising from the fluctuations in gold output and their effect on prices. There is a great and an increasing number of traders in this country, people who are not organised and who are not very vocal, who think that we are suffering from the deflation due partly to Government action following the boom of 1920. I must remind the noble Lord, Lord Arnold, that any action of deflation on the part of the Government is some years old and has not occurred in the last few months—

LORD ARNOLD

I thought I made that quite clear in my speech. I was dealing with post-war matters.

LORD EMMOTT

I thought the noble Lord said "within the last few months."

LORD ARNOLD

Oh, no, not on the main point.

LORD EMMOTT

There are many traders who think we are suffering from the effects of deflation partly due to Government action and partly to other causes which followed on the boom of 1920. It is not difficult to understand why people who are interested in trade, and particularly manufacturers, should dread further deflation because they feel it will add to the trade depression that is hanging over us like a pall at the present moment. My own view is that the benefits of a return to a gold standard outweigh the risks, but then; are thousands, and probably millions, of people dissatisfied and anxious at the inability of this country to regain anything like its pre-war volume of overseas trade. They look at foreign countries and see the mills and workshops of France, Belgium and Italy working not only full time but overtime; they see similar conditions in Germany, while our mills and workshops only work half time; and these countries are competing with our foreign trade to an extent that never occurred before. They see no unemployment in these countries, and they see enormous unemployment here, and, having regard to the apparent success of France and other countries, they ask: Is our position at the present time due to some financial pedantry? They ask: Should we not be better off if we had continued inflation me not taxed ourselves so highly to pay our Debts abroad and not created a large sinking fund to meet our obligations at home? These are questions people are asking.

I have said, and I repeat, that I think those who yearn after inflation are wrong. I believe our plan is the best in the long run. I am sure that inflation leads to disaster in the end. Realities must be faced sooner or later, and France, sooner or later, will have to go through a period like that which we have passed through during the last three years. Two or three weeks ago I was in Belgium. I found a considerable set-back on last year's great boom in trade which had occurred in that country, and so far as I could discover, it was due to the fact that the exchange had become stabilised for some months, the stimulus of rising prices having ended for the time being.

There is no question that falling prices, or prices falling due to an appreciation of the currency standard, are a deterrent on manufacturing industry. Obviously that must be the case. Manufacturers generally do, and in many cases must, buy before they sell; therefore, in the conditions of a falling market, when they come to sell their goods they are liable only to be able to obtain prices which do not pay them. On the other hand, if they keep their goods they are liable to obtain still lower prices. In addition to that their competitors, owing to the fall in prices, can set up new mills and workshops at a lower price than their own cost them. That is obvious. Not only so, but where there is an appreciation of the standard of value undoubtedly the burden of taxation is increased and there is much greater inelasticity of revenue. On the other hand, history shows that with increased supplies of the precious metals, where they are the. standard of value, trade expands in volume as well as in value, revenue increases, unemployment decreases, and a general feeling of prosperity pervades the community.

I do not want to put the case too high. There are compensatory factors. Falling prices may conceal an increased volume of trade and rising prices may conceal a diminished volume of trade. The classical example, of course, is the year 1920. But speaking generally, unless I altogether misread pre-war history, in normal peace conditions, when the world is on a currency basis of the precious metals, a long continued diminution of new supplies of these precious metals has led to a relative stagnation in trade. And vice versa, the discovery of large new supplies has led to an expansion of trade.

If I am not wearying your Lordships I should like to prove that point by a reference to history. There was just about a century from Waterloo to the outbreak of the last war, and in that century there were two periods of relative stagnation of exports—if values are taken as the test—and two periods of phenomenal expansion of exports in this country, in value and in volume. And what applies to us applies also to the rest of the world. The periods of relative stagnation were when the output of gold was seriously diminished, the periods of phenomenal expansion were when great new supplies were found. In the first period, between 1815 and 1845, the output of gold and silver in the years 1810 to 1830, that is of new gold and new silver, was about £6,000,000 per annum. Jacobs, who is the great authority on this question, calculated that there was an actual diminution in the volume of gold and silver usable for money in Europe during those twenty years.

Our exports in the year 1815 were about £50,000,000. In 1826, which is the nadir of the curve of the period, they were £32,000,000. For the thirty years, 1815 to 1845, they averaged about £43,000,000; and the peak year was the last year, 1845, two or three years after Peel's famous Budget, of 1842. On the whole that was a period of relative stagnation. Meanwhile, more gold had been found in Siberia, but the great discoveries were in California in 1848 and in Australia in 1851, and the output of gold and silver bounded up from £6,000,000 in the year 1820 to £38,000,000 in the fifties. What happened to exports? The year 1845 was a big year. There were £60,000,000 value of exports. But our exports were more than doubled by 1857, three times as great by 1866, and £255,000,000, or more than four times as much, in 1872–73. After 1873 there came, of course, the demonetisation of silver and a great decrease in the output of new gold. It decreased to about £20,000,000 per annum. Exports did not again come up to the figures of 1872 until 1899, with the exception of the one year 1890, and those of your Lordships who were alive during the whole of that period—and I see that many of us were alive—will remember the Royal Commission on the Depression of Trade that sat during that time and will recall how serious was the condition of things. That was the second period of relative stagnation. By 1899 new supplies of gold from the Transvaal and other sources had come pouring in and the output of gold went up then, or a little later, to something like £90,000,000 or £100,000,000 a year. Prices, of course, went up also. What was the result, or at any rate what were the facts, that followed as regards exports? In 1895 our exports were £226,000,000; in 1905 they were £327,000,000; in 1910 they were £430,000,000; and in 1913 they were £525,000,000. In fact, they were going up until the expansion was stopped by the war. That is the second period of phenomenal increase in the century of which I speak, partly due to prices but also showing great increase of volume as well.

I am told, and no doubt I shall be told again, that other causes were at work. Of course, many other factors were at work, but I cannot find any other cause important enough to affect trade largely where the fluctuations synchronise so fully as they do between the relative stagnations and increase of our exports and the production of the precious metals, and I say with great respect but with firm conviction that I do not think that the connection between currency and manufacturing industry and financial well-being have had sufficient attention at the hands of the statesmen of this country. I think I might, without casting any slight on the memory of two great names, ask two questions. I would ask whether Mr. Gladstone—and to me that is clarum et vencrabile nomen— would have promised to remove the Income Tax in 1874 had he known the effect that the decreased supplies of gold, coupled with the effect of the demonetisation of silver. would have on the foreign trade of this country. Would Mr. Chamberlain have started his Tariff Reform campaign in 1903 had lie quite grasped how the new supplies of gold from the Transvaal and other sources were going to defeat all his prophecies of the collapse of British industry?

I have detained your Lordships too long, and I have merely to sum up. I support this Bill because I believe that it is best for us in the present circumstances to return to the gold standard. Here I speak with diffidence, but I must say that I think that for the next few years the annual output of gold, amounting to about £90,000,000 per annum— f believe that is the figure at the present day—added to the present great reserves, is probably adequate to protect us front a catastrophic fall in prices, which is the one great thing that we have to fear at the present time. In that respect prospects are immensely better than they were a hundred years ago for the annual output of new gold alone, is more than fifty times as great as it was then. I decline to be dogmatic, but I follow with a great deal of interest the prophecies of other people. Mr Keynes fears that there may be a plethora of gold and a dangerous rise; in prices. This is possible, but, as I read history, it is very difficult to produce enough gold to make the world feel sorry. I think the world's power of absorption of gold is enormous. Mr. McKenna, unless I misread him in one extract from his remarks that I have read, thinks that present prospects justify a rise in prices. It is with great, diffidence that I express doubt as to Mr. McKenna's views, but in 1913 prices were a great deal lower than they are to-day. At that time just as much gold had been pouring out from the mines for some years as is pouring out to-day. I very much doubt if there are the materials for a great rise in prices in the present output of gold, even added to the great reserves.

In the meantime I close with these observations. Our gold supplies seem to me to be subject to too great fluctuations to make gold a perfect standard of value. The whole question of the effect of currency on trade needs, in my opinion, much more careful and constant attention and research than it has received hitherto. I express an earnest hope that our statesmen and financial authorities, and particularly His Majesty's Government, will not lose sight of the fundamental issues raised in the Report of the Financial Committee of the Genoa Conference. That Committee recommended international co-operation in keeping the fluctuations of gold within bounds. I do not think that there is any question more vital to the prosperity of our nation and to our national well-being.

LORD BRADBURY

My Lords, in rising to address your Lordships on this subject I do so with very great diffidence, because I think this is the first time that I have ever spoken in any legislative assembly. On the other hand, I have ha3 occasion to study this subject of the gold standard from the practical point of view over a long series of years, and I have had the perhaps doubtful privilege of being called upon by His Majesty's Government for advice on several recent critical occasions. The Report upon which the present Bill is based is the Report of a Committee presided over originally by the present Secretary of State for Foreign Affairs, whose mantle, on his promotion to the Government, fell upon my humble shoulders, and I became Chairman of the Committee during the rest of its existence.

I do not propose to detain your Lordships with any discussion of a theoretical nature in regard to the desirability or otherwise of the gold standard. It may be that a better standard of value for the use of mankind could be discovered than gold, but, as a practical proposition at the present moment, we have, in fact, the most powerful financial nation in the world, the United States of America, with a standard at any rate based upon gold, though in a sense perhaps the American currency is a managed currency, because the supplies of credit in America are now manipulated by the central financial institutions and not by the ordinary traditional methods. On the other hand, the United States is undoubtedly a country with a standard based on gold and, what is more important from our point of view, a country that accepts, and is likely always to accept, gold in satisfaction of international debts. That is a very important fact, and, with the very large increases of indebtedness which have grown up throughout the world, debts expressly to be paid in gold, it is very difficult to see how those debts could be adjusted or paid if it were suddenly decided by mankind to adopt some standard other than gold. No nation would know what was being paid, or what was owing, to another nation.

If it is true, as Professor Keynes and other people hold, that gold in the future will depreciate in terms of commodities—prices will rise—there will be from that result a double advantage. The real burden of these international debts—one of the most serious drags upon the post-war development of international trade—will be reduced, and in so far as a depreciating currency may be a stimulus to industrial activity the world will enjoy the advantage of that stimulus. Therefore I am bound to say that even if Professor Keynes' prophecy is realised, I think we can face that contingency with equanimity.

I propose, however, rather to address my mind to this question: Given that the nation which is financially the most important, except ourselves (it would be a mistake to under-estimate the financial importance of the British Empire) is necessarily, as one of the great creditor nations of the world (to say it is the only creditor nation would be a mistake, because we still remain a creditor nation) indissolubly wedded to gold, that other nations which have tried various experiments—Germany in particular—have returned to a standard based on gold, that the British Dominions are returning to gold, and that the nations in Europe which have been least affected by the war have either returned to gold or are on the point of returning—then the question before this country was whether we should throw in our lot with the gold-using nations of the world, or whether we should try to maintain a position of isolation, which might be more scientific but would put us into very great practical difficulties in trading with other countries.

As the Chancellor of the Exchequer very well said in another place, the gold standard countries are floating on the tide represented by, perhaps, the change in value of gold. They are like ships, and rise and fall together. People can pass freely along the gangways from one ship to another. The question is: Shall we the ourselves up in the middle of the tideway, and do our best to climb along the gangways from ship to ship? As a practical policy I think that no other course is open to this country except to adopt this return to a gold standard. It may be that at some future time mankind in general, by international agreement, may discover and adopt a better standard than gold. When that time comes we can march along with other nations, but for the moment, for a country like Great Britain, whose international trade bears a much larger proportion to industrial activity than any other country, any policy which would have cut us off from our suppliers and customers would, in my opinion, have been suicidal. I therefore assume that the right policy was a return to the gold standard; but the return has been criticised on the ground of inopportuneness.

No doubt there is always a little timidity about taking the plunge, particularly a plunge in regard to a matter in which, as several noble Lords have already remarked, anything approaching to dogmatism is folly; but in mast matters a plunge has to be taken, and in regard to currency matters, the whole history of currency shows that the water is, in practice, never so cold as it appears to be. There was a good deal of timidity about a return to the gold standard after the great French Wars at the beginning of last century. The return was, in fact, effected, by methods which bear a striking similarity to those embodied in this Bill, in a much shorter space of time and with less friction than any of the economists prophesied.

Germany some time ago went through a series of not only amazing but almost farcical currency crises. A very ingenious financier invented a plan for the creation of a new currency unit called renten marks, which economists in other countries criticised as a wild-cat plan. It may have been to some extent a confidence trick, but it was a successful one, and further reforms initiated as a result of the Dawes Committee have apparently unravelled that very bafflling maze in such a way that there seems every prospect of a suitable currency being established in the German Empire. Therefore it seems to me that this plunge, such as it is, is one in regard to which it is not desirable to be unduly timid. Whether the moment was or was not the precisely right moment for taking the plunge is perhaps a little more arguable. It is true, so far as it possible to draw any precise conclusions in regard to comparative levels of prices, that on the basis of a parity of exchange American prices were a few months ago appreciably lower than British prices, and even at the present time are probably three or four per cent, lower. I use three or four per cent, as a safe figure, though perhaps the greatest statistical authority gave it to me as his opinion, only a few days ago, that the comparative price levels of Great Britain and America would represent an exchange of 4.75 dollars to the pound; that is to say, the discrepancy would be only about two per cent., but I should think on the whole I hat the discrepancy, even at the present moment, is a little larger.

It does not, however, follow that that discrepancy between price levels, according to index figures, will lead to a drain of gold when the exchanges are open. Those discrepancies are the result of a comparison of general index figures. The material factor, of course, lies in the prices of particular commodities which form the subject of international exchange at any given moment, and there is, of course, also the question of the ebb and flow of temporary indebtedness between countries. It may be that for a comparatively long period a general price level could be maintained in this country appreciably higher, though not by a very large percentage, than the price level in America, with a free market for gold, without loss of gold and without the necessity of deflation here.

The whole question is really a question to which an answer can only be found by experiment, and that, to my mind, is the great argument against any plan for a managed currency, by which the Bank of England would vary the bank rates from time to time after an examination of tables of index figures. It might be that that committee of economists would, on examination of the figures, come to the conclusion that there was a tendency of prices to rise and that the bank rate ought to be put up, and all the so-called evils of deflation would be inflicted on the country when, in point of fact, there was no real necessity for any such step. The great advantage of the free market for gold is that the test is automatic. If you lose gold it is necessary to put up your bank rate and have a certain measure of deflation; if, on the other hand, you are gaining gold, you can put down your bank rate and give that stimulus to industry which is provided by a depreciating currency, the blessings of which were certainly not minimised by the noble Lord, Lord Emmott.

And that brings me to another point. The opponents of the gold standard perpetually argue that the return to the gold standard means the evils of deflation and dear money, while apparently, if we did not return to the gold standard, we could continue to enjoy cheap money and a certain degree of inflation. I believe that that view is an entire fallacy. A short time ago, before the decision of the Government was taken, the exchange rose to about 2 or 1½ per cent, below parity, a rise which, I agree with the noble Lord, Lord Arnold, was due to a large extent, I would not say to manipulation—I certainly have heard of no manipulation— but to speculative purchases of sterling, in view of the general impression that a profit would be shown as the result of such purchases. I think in that sense the rise in sterling was artificial, or there was an element of artificiality about it.

Now, supposing the. Government, instead of deciding in favour of the policy which is embodied in this Bill had said: "No, we think a return to the gold standard would be premature; we do not really believe that sterling is worth 4.80 dollars, it is probably worth something more like 4.60 dollars, and we are going to wait," what would have happened? All those balances which have been brought over from foreign countries with a view to a speculative rise in sterling would have been frightened away again, there would have been a considerable drain on the exchange and a flump in sterling, and, in order to get over the international disturbance so created, I believe we should before now have had a much higher money rate than is necessary at the present moment. The noble Lord, Lord Arnold, and also Lord Emmott have said that this is a subject on which they prefer to listen to other people's prophecies rather than make prophecies themselves. After that challenge I do not propose to make any prophecy. But I will say this, that I am by no means seriously apprehensive that this Bill and the return to the gold standard are, in fact, going to lead to a higher bank rate than the rate which would have been necessary without this Bill.

We hear a great deal about foreign money in the London market. The term, perhaps, is a misleading one, because, in a sense, there is no foreign money in the London market. There are, no doubt, a few currency notes of the United States or France, but that is not what is meant by foreign money. What is meant by foreign money is British money which is temporarily at the disposal of a foreigner. Now, London, owing to the fact that it has, almost from time immemorial, been the great financial clearing house of the world, has been the centre at which the merchants and bankers of other countries were in the habit of keeping the balances required for their international transactions. The fact that those balances were kept in London had two advantages. It had primarily the advantage of bringing to London extremely profitable business, and it had secondarily the advantage that we had the opportunity of borrowing readily the amounts necessary to cover any temporary adverse position.

As a result of the distrust of sterling and the depreciation of sterling in terms of gold after the war a certain number of these balances were transferred to America, and kept in America. I remember, when I was the British Delegate on the Reparation Commission, having to consider whether certain moneys in the hands of the Commission should, for the time being, be kept, until an opportunity arose for disposing of them, in dollars, or in sterling, or in francs. It was at the time when sterling was most unstable. I felt bound to advise, as a trustee for these funds, that it would be unsafe for the Commission to keep them in any form except that of American dollars. And the financial authorities and banks, no doubt, have largely followed the same course. Once this country has returned quite definitely to the gold standard there will be a very great tendency for these funds to flow back to London, and I believe that the back flow of these funds to London will largely offset the removal of the balances which have come to London temporarily as an exchange speculation, to which I referred a few moments ago. But whether that will be an exact balance or not is one of those questions on which it would be very unsafe indeed to prophesy.

That brings me to the next point, perhaps the most debatable point in this Bill, the so-called "exchange cushion." The Government has arranged as a precautionary measure to have at its disposal very large credits in American dollars, to be used, as the noble Earl who introduced the Bill said, only in the case of emergency. In an operation of this magnitude I am bound to say that I think that a precaution of that kind is a very wise precaution. And, though no doubt having these credits available is to some extent expensive, I cannot myself think, when such large issues are at stake as in this return to the gold standard, that a premium of insurance of £350,000, or even £500,000, is a premium which should be grudged.

At the same time, I venture to express a very strong hope that these credits, which are an insurance and a precaution, shall not be allowed to become a temptation. Many nations have tried at various times to check a fall in the exchange value of their currency by foreign borrowing and the spending of the moneys raised. The results, I believe, in almost all cases, possibly one might say in all cases, have been disastrous. The only way of maintaining the value of the currency of a country is by establishing an international balance on trading and finance account; that is to say, that the imports of the country should equal the exports, allowing for services, plus or minus such amounts as in the free play of credit one country is willing to invest permanently in the other. If a trade balance becomes disturbed and the natural flow of credit is insufficient to correct the disturbance, there is only one remedy and that is deflation, high money rates and falling prices. In those circumstances that medicine must be taken. My point in this case is that I hope and, though I will not prophesy, I believe that that medicine will not have to be taken by this country. I hope also that this precautionary fund will only be used to meet emergency drains that are the result, possibly, of the withdrawal of funds speculatively brought over and, even though I think it is a very remote prospect, the attempt to raise the pound sterling artificially; and that it will not be used as a palliative in cases in which the more heroic remedy of the Bank rate ought to be employed.

I venture to congratulate the Government on this measure which, though unambitious in form, is entirely satisfactory as a complete return to the gold standard. It is true that the immemorial right of the holder of a note to obtain gold coin in exchange for that note at the Bank of England is abrogated, but the holder of the note is given, in exchange for that immemorial right, the right to obtain bullion—in large parcels, no doubt—and for the purpose of the maintenance of the value of the currency of this country and the exchange as between this country and foreign countries, that substituted right does absolutely everything which could be obtained from the existing right to gold coin. I believe that the so-called convertibility of a note into specie has only a sentimental value under modern conditions. From an economic and commercial point of view, I believe that the right given in the Bill is as valuable and as effective as the original light to obtain payment in coin for the bank note. On the other hand, I am pleased to note that the clause provides that this arrangement shall last only "unless and until His Majesty by Proclamation otherwise direct?," and I hope that the time will come, perhaps not immediately, but at the end of a few years, when that traditional right to obtain coin for notes, even though its value is a purel5' sentimental one, can be restored.

In regard to the question of borrowings, I should like, as an old Treasury official, to put a question to the noble Earl in charge of the Bill; that is to say, to ask him whether he reads subsection (3) of Clause H as in any sense limiting the borrowing powers under the earlier sections. It does not appear to me, as I read it, to limit that power. It only provides that if sums are borrowed under the earlier section the amounts so borrowed shall go in diminution of the borrowing powers under the Appropriation Act. Exactly what the situation would be if the amounts so borrowed exceeded the amounts authorised by the Appropriation Act is not clear, and if we could be given information on that point.—I do not know whether it is very material to the Bill— I think it would be a matter of some interest.

There is only one observation I should like to make, in conclusion. It is sometimes supposed that there is some conflict of interest between what is called the financial community and the commercial and industrial community in regard to these currency matters. I believe that this is a myth. The financial community, or some members of it, in this country make considerable profits from time to time as the result of dear money, particularly if the dear money arises unexpectedly. But the interests of all the great banks and all the great national merchant houses are intimately bound up with the production of this country, and to suppose that any policy which is mischievous to production can be profitable to finance appears to me to be an absurdity.

LORD HUNSDON OF HUNSDON

My Lords, I should like to be allowed to intervene for a very few moments because I have some opportunities of knowing the opinion of the City of London on this subject. I also happened to sign the Cunliffe Report with the noble Lord, Lord Bradbury, and I sat with him during the proceedings of the Commission. The noble Lord opposite has accused the Government of undue precipitancy, and I admit that when this question was first mooted earlier in the year a great many people in the City would have been glad if the date for the expiry of the Act for the prohibition of the export of gold Lad been next year instead of this. They felt uncertain as to whether the rise in the value of the £ sterling was not due to temporary causes or, as the noble Lord opposite called them, artificial causes, and I am sure that they would have liked another twelve months in which to test the position.

On the other hand, nearly everybody in the City felt convinced that as we had made great sacrifices and run great risks to attain a certain end, to turn back when we had practically reached the goal was unthinkable, for the reason given by the noble Earl, Lord Clarendon. It would have been a most severe blow to our financial position in the world had we ourselves shown so little confidence in our financial power and capacity; for certainly everybody else would have done the same; and that would have had the further effect, which was not mentioned by the noble Earl, of greatly increasing the difficulty of returning to a gold standard when the time came. Of course, there are many people in the City of London who have not made a very great study of this question, and who do not feel qualified to express an opinion. The noble Earl said that there might be some in your Lordships' House in the same category. Those people feel that they must rely on the opinion of others, and in the City we rely upon the Bank of England. We assume that no step has been taken in this matter without the approval of the Bank of England, and I may tell your Lordships, with an experience of nearly half a century, that I have never known the confidence of the City of London in the judgment of the Bank of England to be greater than it is at the present moment. Therefore I suggest that your Lordships might follow the rest of the City in that opinion.

The noble Lord, in balancing alternative uncertainties, suggested that if this Bill were passed there might be a fall in prices, and I think he admitted that if the Bill were rejected there might be a rise in prices. If I had to put that question, I should say that it was uncertain that there would be a fall in prices if this Bill wore passed, and it was absolutely certain that there would be a rise in prices—that there would be inflation—if this Bill were rejected, because nobody would have any confidence in the recovery of the pound sterling again, or at least their confidence in it would be greatly shaken. During the last few years we have taken very great risks, not only financial but social, to which I think the noble Lord referred. For my part I remember well that when I was on the Cunliffe Commission that aspect of the matter caused me great anxiety. I was afraid that as the pound sterling went up in value so wages must fall, and that there would be, as indeed there has been, a very great feeling of industrial unrest. If any plan had been forthcoming which was satisfactory and was of general acceptance, for shortening the gap between the then value of the pound sterling and the gold value I should have welcomed it, but we found no plan which would fulfil those conditions. Therefore the Cunliffe Commission recommended that we should take those risks, and should make those sacrifices. Now that we have taken those risks, and made those sacrifices, it would seem unwise that we should turn on our steps and go on with paper promises to pay instead of, as the Chancellor of the Exchequer said so well, shackling ourselves to reality in the shape of a metal standard.

I would like to refer to what the noble Lord, Lord Emmott, said about inflation. Inflation, of course, is very pleasant while it lasts, and all holders of stocks enjoy it very much; but deflation is the nemesis of inflation, as we all know, for we have just passed through that most extraordinarily painful and dangerous process. A financial friend of mine, a member of your Lordships' House, told me once that inflation was like getting drunk: it was very pleasant at the time— so the noble Lord informed me—but it gave you a. head the next morning; and that, I think, is a very good simile.

There is one other matter which has not been alluded to, and it is this. The Chancellor of the Exchequer, addressing another place the other day, told them that his advisers had informed him that the management of this currency for any further period was not possible. As your Lordships know there is a dictum that any country whose exports exceed its imports can manage any currency, can keep any currency at par. India, of course, is the classical example of it, but this country is not like India, and it differs in this respect, that the people in this country lend money abroad. Money sent abroad for loans has, of course, exactly the same effect on the exchanges as money paid for imports. Therefore, there have been for some time what are called voluntary restrictions—not so very voluntary but they are not legal—and one of them is what is called the embargo on foreign issues to prevent money being lent abroad. What has happened in fact, and what is happening now, is that foreign issues are made not in London, where they are not allowed, but in New York, where they are allowed, and, having been made, the bonds of those issues are placed in London, so that the real effect of these restrictions is nullified, and the sole result is that New York gets the commission instead of London. That sort of thing cannot, of course, go on. Not only that, but it bas become useless, and I imagine that is the reason why the Chancellor of the Exchequer made that statement.

If it is impossible to continue a managed currency, it is not a question of whether the time is opportune or whether it is not: you have got to go back to a gold standard if you can. As I think Lord Emmott pointed out, every business has risks, and, of course, there are risks in this business, bit speaking generally, the risks are, I think, not those which most people fear. There is, for instance, no risk that we shall be flooded with American gold, out the risk is that our gold will have to go to America. Anyhow I am sure that the City of London are of opinion that the risks of this business would be reduced, and not increased by the passage of this Bill.

THE EARL OF CLARENDON

My Lords, before the debate closes I should like to say a few words in reply to the various questions which have been put to me by the noble Lord opposite, Lord Arnold, and to the question put to me by Lord Bradbury, but before I do so I wish to express my warm gratitude to the noble Lord, Lord Arnold, for the very kind reference that he made to the few remarks which I delivered to your Lordships in moving the Second Reading of this Bill. If I may say so, he painted a far too rosy picture, but I am glad to think that the few remarks I did make, fortified and strengthened as they were by information and instructions from the Treasury, were in some degree explicable and understandable to your Lordships.

I do not propose to follow the noble Lord, Lord Arnold, in the arguments which he produced to your Lordships in regard to the return to the gold standard. Perhaps it would be sufficient for me to say—and he was good enough to say that this is only a matter of opinion—that I hope his opinion, which generally speaking is adverse, I think I may say, to a return to the gold standard, will not be found to be the correct one. He asked two questions, one in connection with credits and another in connection with the rise in the exchange. So far as the exchange is concerned, I should like to assure him that the rise is in no way due to any Government manipulation. With regard to credits, His Majesty's Government were advised that it was both wise and necessary to spread those as far as possible. If I remember correctly, the noble Lord somewhat criticised the amount of the commission payable to Messrs. Morgan and Co. In reply to that—and I rather fancy that Lord Bradbury, from what he says, shares this view —the amount of the commission, in view of the fact that Messrs. Morgan and Co. may be liable to be called upon for large sums of money at any moment, is not excessive in any respect.

Lord Bradbury, if I understood him aright, asked what would happen under subsection (3) of Clause 2 of the Bill if the amount authorised to be borrowed exceeded the amount authorised under the Appropriation Act. I will give him a reply in three words—it will not. That probably will not be sufficient for the noble Lord, and let me therefore add this. He is aware, no doubt, that the borrowing power of the Treasury amounts to a figure between £240,000,000 and £250,000,000. The exact figure for last year was, I think, £246,000,000. The actual borrowings, again on the basis of last year's experience, would amount to about £100,000,000. The amount the Bill authorises to be borrowed is the difference between those two amounts; that is, about £140,000,000 to £150,000,000.

LORD BRADBURY

The answer is, in fact, that it does operate on the power of borrowing.

THE EARL OF CLARENDON

That is so. In conclusion, let me say that it is very satisfactory that a controversial question of this kind, about which even the experts do not all agree, should have received a general blessing at your Lordships' hands. One observation made during the course of the debate struck me as being very true. It was an observation by Lord Emmott, and he said that whenever you make a change there must be some risk involved. I hope that the criticisms made on this Bill by the noble Lord, Lord Arnold, will not fructify.

LORD ARNOLD

My Lords, I was very loth to interrupt the noble Earl on this extremely technical subject and also to interrupt the noble Lord, Lord Bradbury, in what, if I may say with all respect, we shall all agree was a very notable maiden speech. But in order that there may be no misunderstanding let me say that I was particularly guarded in my remarks and that I did not use the word "manipulation." The words I used were "artificial means "—which is rather different. I did not, as a matter of fact, ask any question with regard to credits. My question was in respect of the position of the Government in regard to the American credits.

On Question, Bill read 2^a: Committee negatived.