§ LORD MAULEY rose to ask His Majesty's Government what steps they are taking to secure a reduction in the present unnecessarily high bank rate in order that industry may benefit from the provision of cheap credit; and to move for Papers. The noble Lord said: My Lords, I have put down this Question—I propose to be very brief in putting it—because the Party which I represent is very deeply interested in the prosperity of our country. I hope His Majesty's Government will realise that it is not intended in any way to embarrass the Government. The prosperity of Great Britain depends enormously upon the prosperity of industry, and I speak not only from the point of view of shareholders who have invested their money 139 in industry but more especially from the point of view of the workers who have invested their whole lives in industry.
§
The Committee on Finance and Industry, presided over by Lord Macmillan, has recommended that more publicity should be given to the reasons for changes in the bank rate and that the Bank of England should explain to the public the reasons which actuate it in. making these changes. I will venture to quote the relevant passage and I hope your Lordships will forgive me for detaining you for a moment with that. The passage concerned in this matter is paragraph 218 (1) on page 97 of the Macmillan Report, and is as follows:
The business world has found it difficult hitherto to interpret the meaning of a change of hank rate in any particular instance. They may be uncertain whether it merely represents an effort to correct a temporary maladjustment in the international short-loan position or whether it is the beginning of a contraction which will produce a curtailment of enterprise and business losses until the necessary adjustments have been effected. Thus a change of no great significance which is likely to be merely temporary or seasonal may cause undue alarm and may have a seriously unfavourable psychological reaction on business confidence. The only remedy for this is to be found, we suggest, in a diffusion of knowledge as to the relevant facts and a readiness on the part of the Bank of England to inform the money market, and the joint stock banks, whenever it can, as to its views of the situation.
The report goes on to say:
If the public was enabled to distinguish changes in bank rate intended merely to equalise supplies of short-term funds between different international markets from changes made necessary by excessive costs or excessive activity at home and intended to cause a contraction of domestic credit, some unnecessary disturbances to confidence might be avoided, and in course of time industry would learn to be more philosophical about changes made for non-industrial reasons.
§ The functions of the bank rate, which have been dealt with very fully by the Macmillan Report in a very excellent series of paragraphs, have always been understood to be mainly to prevent the efflux of gold. The bank rate has changed so rapidly in the last few weeks that the question presents itself whether at the present moment it is not too high. Up to July it was 2½ per cent., then on July 23 it was raised to 3½ per cent. and 140 on September 21 it was raised to 6 per cent. The low rate maintained up to July 23 was maintained expressly for the purpose of aiding and assisting British industry by putting no avoidable financial obstacles in its way. It was maintained despite the gradual and increasing efflux of gold. Owing to the Gold Standard (Amendment) Act, which received the Royal Assent last Monday, the reason for the high bank rate as regards its effect upon the efflux of gold has ceased to exist. Let me say in passing that that Act has not suspended the gold standard for six months. A number of newspapers, including The Times, have made this mistake, and it is just as well it should be made quite clear. The Act is suspended unless and until His Majesty by Royal Proclamation otherwise directs, and the six months only refers to the Orders which it shall be lawful for the Treasury to make in relation to the exchanges, and not to any suspension of the gold standard itself.
§ Since the reason for a high bank rate, as regards the efflux of gold, has ceased to have any validity, I have ventured to put down my Question to the Government. If a low bank rate was good for industry in June, I do not quite understand why it should not be good for industry now. I should have thought it would be still more good at the present moment because industry has a chance of expanding and recovering due to our going off the gold standard, and due to the possibility of an increase in our export trade; and it would be quite obvious that industry would be able to take advantage of that opportunity if cheap credit were available in this country. In the same way the provision of cheap credit would help in the great export industries, such as coal, iron and steel and cotton, in which the main bulk of our unemployment at present exists. Therefore I would suggest that a low bank rate would help to reduce the great volume of unemployment by assisting the export industries. Moreover, we want production to increase in this country in order to maintain the standard of living of our people. Therefore we do not want a high bank rate just at the time when industry has a chance of expanding.
141
§
At the present moment the deposits in. the great banks are standing at the enormous sum of £1,741,000,000. That is an increase of £140,000,000 since 1925, and what is more important still is the fact that the proportion of money on deposit has increased from something like one-third of the total to nearly half the total. That means that depositors are not using their money for the expansion of industry. The money has now a chance to be redirected into industrially useful channels, and at the very moment when there is a chance of money earning better interest and increasing production we find the high bank rate intervening. It seems to me that this is yet another example of the conflict of interests between the banks and industry which was referred to by the noble Lord, Lord Melchett, in this House a few days ago. He, of course, has inherited his industrial position, and, I suppose, his industrial knowledge from his father, and I found a letter from the late Sir Alfred Mond, written to The Times a few years ago, in which he said this:
It is a lamentable fact that the pernicious effect of this zigzag in handling our currency questions, without apparently any clear foresight or consistent policy, should be inflicted upon British industry. So long as the currency policy of this country is directed without any regard as to how detrimental it may be to British industry it is useless to demand from either employers or workmen the solution of problems which are not of their making, and over which they have no control.
He goes on to emphasize that a contraction of credit always leads to depression of industry and greater unemployment.
§ There was an extremely interesting memorandum published as a supplement to the Economist in July of last year, a memorandum written by a very well-known and respected economist, fair Henry Strakosch. The point he made was that cheaper credit to industry tends to cause a rise in prices, so that the share of national production going to what I will call the rentier class becomes less, and the share available for industry in the form of profits and wages tends to become greater. It follows—and Sir Henry Strakosch emphasized this point—that it is much easier for wages to register a rise in the face of rising prices when industry, being on a far more profitable basis, is in a position easily and readily, and with all justice, to grant 142 that rise in wages. Hence, of course, if we do have a rise in prices, following the present state of affairs, it becomes the bounden. duty of every employer to do his utmost to secure that a share in the additional prosperity is given to the workers, and it becomes the bounden duty of workers to press for rises in wages to meet the rise in the cost of living.
§
The Macmillan Committee dealt with this subject very clearly and said:
… there is substance in the view that the British financial organisation concentrated in the City of London might with advantage be more closely co-ordinated with British industry … than is now the case … in some respects the City is more highly organised to provide capital to foreign countries than to British industry.
This is an example of the conflict between the financial organisation in the City of London and the needs of British industry; and this conflict, as the Macmillan Committee pointed out, has actually become such that the City is better able to grant credits and advances to foreign industry than it is to British industry. That, surely, is a state of affairs which it should be the task of the Government to deal with at the earliest possible moment. That conflict of interest is a matter which should be dealt with in order that British industry may be enabled to expand in the way which we all desire.
§ We may be told that the Government fear inflation, and I entirely agree that unregulated or uncontrolled inflation would be dangerous. But nobody in his senses would demand unregulated or uncontrolled inflation. It is no good holding up to us the bogey of what happened in Germany or what happened in Austria in 1923 and 1924, and about that time, because the state of affairs in Germany and in Austria in those years has no relation whatever to the state of affairs in this country. Germany had no capital, either at home or abroad. She was affected by enormous Reparation payments, and she was troubled by the occupation of the Ruhr. In the same way Austria had special and peculiar difficulties in connection with the break-up of the old Austro-Hungarian Empire and the position of Vienna as an enormous capital in a very small country—conditions which make Austria no example 143 whatever of anything that we should fear in this country. It is just the old practice of putting up a bogey and then proceeding to knock it down. We had examples of that in some of the newspapers immediately before we went off the gold standard. I remember a rather pathetic article by Sir John Marriot in The Times of about three weeks ago, which described the awful effects of inflation in Germany. And then we had what in my opinion was a most dangerous and misleading broadcast speech by Professor Henry Clay on September 7. In my opinion such a speech was calculated definitely to cause panic, and ought never to have been made. In that speech Professor Henry Clay gave us the same old bogey of the pound dropping to nothing and unemployment insurance benefits fading away to zero, and other forms of panic-mongering. It was a very wrong action on the part of Professor Clay. What he said has been proved to be entirely wrong, and I should hope a good many of his prophecies in future will be discredited.
§ The Macmillan Committee named as the real danger the possibility that credit expansion may be checked before it has had any beneficial effect. The Macmillan Committee spoke of credit expansion and said that there was the danger that in stead of letting it have any beneficial effect in helping industry the tendency would be to check it before it had that effect. It seems to me that is what is happening in connection with the high bank rate. The noble Marquess, Lord Reading, speaking on September 8 on this subject, dismissed inflation as some thing which, he said, would be utterly disastrous. Yet other bank directors have claimed quite the opposite. I see that Mr. McKenna claimed that the volume of credit can be, increased with out in any way weakening the position of sterling. If, of course, the Government are worried about the balance of trade, it seems to me when we examine, the balance of trade that the right course would be—
§ LORD MARLEYI am concerned with what the Government is worried about, not with what I am worried about. I have told your Lordships' House that I 144 am worried about the expansion of industry, and I am trying to explain why I consider that a high bank rate is a deliberate evil to industry, and that evil results must come from it; whereas a low bank rate would ensure that industry would expand and that the balance of trade could then be put right by a-method which is more suitable, in my opinion, than other methods that may be employed. The balance of trade can be helped by increasing exports, and exports can be increased by a low bank rate. Moreover, the more our exports are the better are our shipping returns. I would remind your Lordships that shipping is an important item in the invisible exports which help to balance our trade returns. Moreover, insurance services follow from that, and there is no doubt that the rehabilitation of foreign borrowers from whom we receive interest on our overseas loans will be another method of helping the balance of trade without limiting imports more than is necessary and without recourse to other less satisfactory means of dealing with the problem.
I would remind your Lordships that one of our difficulties is that as a set off against the reduced cost of the National Debt resulting from going off the gold standard, the very expensive Chancellor of the Exchequer, who borrowed £130,000,000 from abroad to prevent us going off the gold standard—which it did not do—will now have to repay at the present rate of the pound to francs and dollars something in the neighbourhood of £162,000,000, a rise in the value of the loan of £32,000,000. I have tried to point out that the effect of this high bank rate will be less trade, less industrial activity and more unemployment; and that it will mean a continuation of the deflationary effect which will tend to lessen such advantages as we can gain from going off the gold standard, and will also mean lower wages.
On the question of lower wages, I would again refer your Lordships to the Macmillan Report in which that question is clearly dealt with in paragraph 215. It would appear, therefore (and I speak as asking for information) to be an extraordinary thing that we should maintain a high bank rate and continue our deflationary policy, knowing that it must tend to reduce the consuming power of our people at home, particularly the 145 workers and the professional classes, and reduce their consuming power far more than the consuming power of the wealthier classes, it must tend, therefore, to prevent the revival of home production and encourage, or tend to encourage, the import of luxury goods. Moreover, a very gross injustice is involved in giving those who have deposits at the banks an increased interest on their deposits from 2½ per cent. to 4 per cent.—a gross injustice when compared with the heavy cuts which are being placed on the shoulders of the workers and those who are not fortunate enough to have deposits in the banks. The result is that this, high bank rate is actually attracting capital from industry into the banks where it is serving no useful purpose or a purpose which is comparatively useless when compared with what would be the case were that capital really available for industry. For those reasons I placed on the Paper the Question standing in my name; and I beg to move.
§ LORD BANBURY OF SOUTHAMMy Lords, the noble Lord began his speech by saying that he was in favour of the prosperity of the country. I think every noble Lord in this House and the vast majority of the people outside agree with him. We are all in favour of the prosperity of the country, and the noble Lord and his Party have no particular credit to enable them to say or to infer that they alone are in favour of the prosperity of the country. The noble Lord is asking "what steps His Majesty's Government are taking to secure a reduction in the present unnecessarily high bank rate in order that industry may benefit." I had hoped to hear from him why the bank rate was unnecessarily high. As far as I can gather ho gave no reason for his statement that it was unnecessarily high. He merely went into a long discussion. He quoted from a Committee's Report which stated that it might be well if the directors of the Bank of England informed the directors of other banks why they raised or altered the bank rate—which does not seem to me to have very much to do with the noble Lord's speech. He also quoted from the Macmillan Report about credit being more easy to obtain for foreign than for British industry. Then he said, as I understood him—he will correct me if I am wrong—that he 146 was opposed to inflation. Having said that he went on to say that it was merely introducing a bogey if you dealt with the result of inflation in Austria or Germany, and seemed to think, as far as I could gather, that after all inflation was not a bad thing. We all know the result of inflation in Austria and Germany. We also know the result of inflation in France whereby the value of the franc was reduced by four-fifths. Whether the noble Lord wishes to see the value of the pound ' sterling reduced by four-fifths he has not said but that, undoubtedly, would be one of the results of inflation if it was carried out.
Then the noble Lord said that the deposits at the banks amounted to a certain figure which was a great increase upon two or three years ago—I forget the exact date. I did not quite follow him when he alluded to the amount of those increased deposits which the banks had. I am not sure whether I am interpreting him aright, but I rather thought he seemed to think that these increased deposits rested at the bank and were not being used; if so, of course, he is utterly wrong. The noble Lord said that the depositors—these wicked people who have any money—receive 4 per cent. for their deposits instead of 2½ per cent., and he seemed to think that was a very dreadful thing. I should have thought that 4 per cent. was a moderate rate of interest for the money of a person who had worked all his life and earned it, or who, having succeeded to it, had kept it, which is not always an easy thing to do. Let me point out to the noble Lord that there is no hole in the ground out of which you can take money. Nobody has any money except the wicked capitalist; he has some money, or a little. The noble Lord and his friends have taken a good deal from him, but he still has a little left. The bank rate is 6 per cent., and the capitalist has got his money on deposit at the bank and is receiving 4 per cent. I think the noble Lord will agree with me that the banks have no money except what is put there on deposit by other people. I think that is a self-evident proposition. At present you can buy War Loan to pay you more than 5 per cent.; you can buy English railway debenture stocks to pay you in some cases 6 per cent., and in others very nearly 6 per cent. Pre- 147 suming there was a low bank rate, and the depositor only got 2½ per cent., does the noble Lord think he would leave his money on deposit at the bank? He can call it up by giving seven days' notice. Does the noble Lord think the depositor would leave it in the bank at 2½ per cent. when he could invest it and get 5 per cent. or 6 per cent.? That does not seem to have occurred to the noble Lord. What would take place if the bank rate was reduced while investments remained low and the return on investments was very considerably higher than the return which would be received on deposits in the bank, is that those deposits would be withdrawn from the bank.
Again, the noble Lord must remember this. Is it advisable to lend large sums of money to manufacturers when the article that they produce cannot be sold at a profit? What advantage is it to a manufacturer to be able to borrow money if he cannot make a profit on it? And is it not a fact that owing to labour abroad being paid at a lower wage than labour here, and owing to labour abroad working for longer hours than labour here, the product of labour abroad can be sent over here and sold at a cheaper rate than the English manufacturer can make a similar product? As long as that state of things exists it will not be any advantage to a manufacturer to be able to borrow money even if he can borrow it at a cheap rate. Probably it would only encourage him to lose more. If the noble Lord will allow me to stray a little from the actual question, and to deal with the prosperity of the country, I would put this to him. How can the prosperity of the country be increased by increasing the capital which is in the country and which can be lent to manufacturers and to industry? It can be done in two ways, first of all by encouraging confidence, not by putting about ideas that the holder of War Loan who has a contract to receive 5 per cent. has got too much and that somebody else is taxed higher, and that, therefore, that contract should be reduced from 5 per cent. to 4 per cent. That does not encourage confidence nor enable people to keep their money over here. On that I might point out to the noble Lord—because he alluded to the depositor—that many depositors are paying half their income in Income and 148 Super-Tax at the present moment without allowing anything for insurance against Death Duties, and, therefore, the idea which has been spread about, and which, if I am not misrepresenting the noble Lord, he also has spread about, that the working man is being treated harder than the monied classes, is utterly fallacious. The working man is better off than he was before the War, and pays nothing in taxation, whereas the wealthier classes paid something like half their income in taxation during the War, and have continued so to pay it since the War.
If you want to restore the prosperity of industry I agree with the noble Lord that you must have money here, and the only way to get it is, first of all, by restoring confidence and letting people think that if they work hard the result of their labour will be secured to them, and, secondly, by abolishing the Death Duties which have been the cause, or one of the causes, of the diminution of capital. In the case of the Duke of Northumberland, half his money was taken at his death, and of the balance his heir will have to pay in insurance against Death Duties and Income Tax and Super-Tax such a sum that he will be left with nothing at all. That sort of thing cannot go on. You cannot go on taking money from the people who have got it and distributing it to other people, and yet find that there is still money in the country. Therefore, if, instead of discussing whether or not the bank rate should be 6 per cent. or 5 per cent., the noble Lord would devote his energies to ensuring that there should be a reduction in direct taxation and to restoring confidence, he would in my humble opinion do much to increase that prosperity which he and all of us desire.
LORD BALFOUR OF BURLEIGHMy Lords, when I saw the Question of the noble Lord upon the Paper the words which attracted my attention, as no doubt they did the attention of many of your Lordships, were the rather curious words "unnecessarily high." The suggestion contained in the words "unnecessarily high" of course is that, being bad for industry, this unnecessarily high rate is good for the banks. I should have expected the noble Lord in the course of his remarks to have endeavoured to show your Lordships, if that is what he intends, why the 6 per cent. bank rate is 149 better for the banks than a 5 per cent. bank rate. He devoted a good deal of attention in his speech to the alleged conflict between the banks and industry, and I cannot help wondering whether the Question of the noble Lord, and the speech which he has made in asking it, is not to some extent intended to assist a little later on in support of speeches made in your Lordships' House the other day, when the noble Lord and his friends go to the country to talk about what perhaps they will call a "bankers' ramp." The noble Lord did not use the phrase "bankers' ramp" to-day, and I should be very glad to hear later whether he believes that our crisis is in fact due to a bankers' ramp or not.
I regret I was not present for the first few moments of his speech, but if I understood the noble Lord aright the principal objection which he takes to the 6 per cent. bank rate is that it is bad for industry, and that a lower rate would be a less burden upon industry. With that as a general proposition I think few of your Lordships would disagree; but when the noble Lord expresses himself as categorically as he did to-day, and says that if a lower bank rate were adopted it would enable industry to expand, I am entitled to remind the noble Lord that up to a very few weeks ago the bank rate was in fact 2½ per cent. We have, indeed, been through a prolonged period of low bank rates, and in spite of those low bank rates industry has not found it possible to extend. I think, therefore, it is going a little far to lay quite so much stress as the noble Lord did upon the benefits to industry of a bank rate lower than 6 per cent. One other statement which he made I must admit I failed to follow. That was that a high bank rate would encourage the import of luxury goods. That, I confess, I do not understand. The noble Lord did not develop that point, and my impression is that imports, whether of luxury goods or anything else will be more difficult to pay wish the exchanges depreciating, and how a depreciated exchange or how the high bank rate of which the noble Lord was speaking will encourage the import of luxury goods I do not understand. Those were his main points, I think, in saying that a 6 per cent. bank rate was unnecessarily high.
I do not wish to discuss whether a 6 per cent. or a 5 per cent. bank rate is better 150 for the bankers, but it is at least open to question. I doubt very much whether it suits the banks to have a 6 per cent. bank rate rather than a 5 per cent. bank rate. I think that probably on the whole a 5 per cent. bank rate suits them better than a 6 per cent. bank rate. I am very far from wanting to attempt to suggest what may have been the reasons which prompted the rise in the bank rate, but there are one or two purposes which may have been in mind. In the first instance going off the gold standard was a grave crisis for the finances of the country and it would be accompanied, of course, by a great strain on the exchanges. It is not impossible that the Bank of England had in mind that a 6 per cent. bank rate might help in stopping the strain on the exchanges for a temporary period.
But perhaps a more important point, which was made out by the noble Lord himself, is inflation. He said that no doubt he would be told it was to guard against inflation, and he said that was only to raise the bogey of Austria. Of course it is nothing of the sort. When you are off the gold standard the danger of inflation becomes very much more acute than when you are on it. The gold standard is one of the anchors against inflation. What is happening on the Stock Exchange at the moment? Your Lordships know very well that industrial and other shares are having very sharp rises. If you have anything in the nature of a Stock Exchange boom you will be in danger of inflation. In fact, by the imposition of a bank rate of 6 per cent. you may have a great chance of checking inflation of the nature of a Stock Exchange boom. I am not in a position to say, of course, whether that is one of the reasons which guided the Bank of England or not, but to the man in the street it does appear possible that that may have come into it.
The noble Lord and I, of course, start the consideration of this matter from two totally different standpoints. The noble Lord thinks that everything done by the banks and the Bank of England has some malign and sinister purpose for their own profit. I know better. I know that the Bank of England does whatever in its opinion is best not only for the banks but for the whole country, including trade and commerce. I am afraid that with the attitude we have seen on the 151 Benches opposite, it is impossible to expect them to accept that point of view. I feel that if the Bank of England think that a 6 per cent. bank rate is advisable for a temporary period, we have every reason to leave the matter in their hands.
§ LORD MELCHETTMy Lords, I would like to say one or two words in support of the noble Lord who has just sat down. It is quite clear that the chief reason for raising the bank rate at the present time is to check unnecessary and undue speculation at a moment of great crisis and great changes in exchanges, when speculation might easily run rife. Industry does not expand in five minutes and if industrial expansion does come there will be plenty of time and opportunity to lower the bank rate in order to foster that expansion. I have no doubt that that is the course that will be pursued. It is quite true that a high bank rate does check the expansion of industry, but not nearly so much, I think, as is usually supposed. It is only when it gets to very high levels that it has any ill effect. One or 2 per cent. does not make all that difference to industry, but it does make a great difference to people who want to use bank money to deal in currencies or in securities where there is only a small margin of profit to be secured one way or another. The real effect of the present bank rate is in no way detrimental to industry, but it will check speculation, and when the time comes I have no doubt the Bank: of England in the policy it pursues will do everything it can to foster that industrial revival which we are all confidently expecting.
§ THE LORD PRIVY SEAL (EARL PEEL)My Lords, my noble friends who have already spoken in reply to this Question have really dealt with the matter very thoroughly and, if I may say so, their admirable speeches have left me very little to do. I was struck, as my noble friend Lord Balfour of Burleigh was struck, by this curiously tendencious Question in which the noble Lord opposite asks His Majesty's Government "what steps they are taking to secure a reduction in the present unnecessarily high bank rate." That seems to me rather to prejudge the question which I thought he was going to deal with. I confess I heard nothing myself in 152 the course of his speech which seemed to attempt to prove that adverb which he inserted in his Question. From the point of view of the Government—speaking for the moment purely from that point of view—I, of course, have very little to say in reply to this Question, because the Government are asked what steps they are taking to secure a reduction in the present unnecessarily high Bank rate. I think it is very well known—but, nevertheless, one has sometimes to repeat and lay stress upon things that are common knowledge—that the question of the rise or fall of the bank rate is a question for the Bank of England and is entirely within their authority and competence, and? that the Government, whatever Government it may be, has nothing to say to it whatever. I am bound to say that I am extremely glad that that is the situation.
All through the speech of the noble Lord to-day, and in his speech a few days ago and in a great many speeches of his friends and colleagues, there were indications that their thoughts are in the direction of insisting that there shall be some alteration in the management of the Bank of England, some alteration of control, in order no doubt to bring it into closer connection with Government. He quoted the May Report and on that may I say that in the May Report it is recognised that it is the special function and duty of a central bank to fix the bank rate. Indeed, it is generally admitted throughout the world by all economists—I cannot think of one who has taken a different view on this matter—that it is a question for the central banks in the different countries. May I, while I am on that point, give what I think is an interesting example of experience coming from another quarter? At the Indian Conference, of which several noble Lords and myself are members, there is, of course, a great deal of difference of opinion on all sorts of matters which we are there discussing—difference of opinion, it may be, between Princes on the one hand and British Indians on the other, between Moslems and Hindus, between Sikhs and Parsees. But on one point there is complete agreement—I have heard not one single word against it throughout the discussions—that if we 153 are to develop democratic institutions in India it is necessary to have a central bank, which is to control currency and credit and which is to be kept as far as possible from any sort of political influence. Upon that point there is no disagreement whatever, among all those varying views of the Indian Conference. I think that is very good evidence, though in this country, for some reason, one Party thinks that it can control far better than the competent people the question of the bank rate and its rise or fall.
Lord Balfour of Burleigh made one other interesting observation about the connection between a low bank rate and trade prosperity, and he quoted rather significant figures. I should like to dwell upon that point for a moment. From May, 1930, when the bank rate fell from 4 per cent. to 3 per cent., it remained at that figure for over a year. It stood at 2½ per cent. between May and July this year, when it began to rise. I do not think that even the greatest admirer of the Socialist Government could say that there was a great degree of trade prosperity during that period. Of course it may not be a fair comparison. It may be that, whether the bank rate is high or low, you cannot have trade prosperity under a Socialist Government. I admit that there may be some incompatibility between trade; prosperity and Socialism. Accordingly I say that it may not be quite fair to say that, although they were in office with a very low bank rate, there was no increase in trade prosperity. I pass that matter by for the moment.
There is another point, to which the noble Lord opposite referred, on which I should like to say a word. I may not have understood him, but I thought he rather sneered at the efforts made by successive Governments to maintain the gold standard. He said we had to go and borrow £50,000,000, and then another, £80,000,000—I recall the method by which be suggested a few days ago that the money should be raised—but the noble Lord was really very impartial in his criticism. Let me remind him that, if the money was borrowed at too high rates, yet that credit of £50,000,000 was raised by his own Chancellor of the Exchequer at that time. The noble Lord never exhibited any of those symptoms of distress then. He was perfectly satisfied. 154 It is only when a change of Government takes place and his old chief has seen salvation, if I may respectfully say so, in various ways, that he turns round. I may add that the further credit of £80,000,000 was arranged for, or at least negotiations were well in train, when the change of Government took place.
There are one or two scattered observations of the noble Lord on which I might say a few words. He seemed to think that money was perfectly idle when on deposit in the banks. I pass by the question whether one should get 2 per cent. or 4 per cent. on deposit accounts, and what the relations should be between the bank rate and that rate of interest, but the noble Lord was surely a little innocent when he suggested that the money on deposit at banks is of no value. It is used by the banks in every possible way. I think he told us that the City of London was organised far better for making loans to foreign industry than to home industry. It is always rather difficult to say whether loans are more readily made to home or to foreign industry, but I do know one thing, speaking from some experience, and that is that there is no competent borrower who can really make out a case who has been refused money from the banks for the purposes of industry. If I were to make any criticism of the banks, I should say that they have been rather too free in lending money to various industries, because a good deal of money is locked up in industry and these frozen credits have not been too good for trade.
The noble Lord opposite then considered at some length the effect of these rates upon industry. I entirely agree with my noble friend Lord Melchett that the difference between 5 per cent. and 6 per cent. does not have a great effect upon industry, and the main thing is that you should have confidence. That is far better than a high or low bank rate. As to the exact reasons that led the Bank of England to raise the bank rate to 6 per cent., that is a matter on which I can only speculate, but I think that, if we had had the responsibility thrown upon us of considering whether the rate should be made lower or higher, we should have felt that we ought to take all the reasonable means that we could, pending the developments of the situation, to secure that markets should continue to function 155 in the ordinary way. We should feel the pulse of the money market as well as that of industry and trade.
As to the question of inflation, this has been summarily dismissed by the noble Lord opposite. I certainly think that it is of great value to give to the world a firm and clear sign of the determination of our financial authorities to avoid any inflationary measures in these critical times. I do not know what ideas of this kind have entered into the minds of the directors of the Bank of England, but I can imagine that ideas of this sort, though I do not exactly know what they were, must have had considerable weight with them. Doubtless there remained other considerations which are not present to my mind. Of course, one is not going to minimise the importance of low bank rates to industry, but it is important at the present time that we should pass as successfully as possible through this period of strain. It is more important for industry that our economy is shaping itself under the new conditions in a very mobile manner. It is important for industry that confidence in our strength and power of recuperation should be maintained abroad. The noble Lord's anxiety about the bank rate is, I suggest, rather premature, and as we pass into smoother waters no doubt it will be found possible to consider what can be done in the financial sphere.
Meanwhile I should like to say this general word about the Bank of England. It has passed through the keen examination of the May Committee, and they have nothing but approbation of the way in which that Bank has discharged its duties for so many years. I conceive that your Lordships have confidence in the wisdom of that great institution, and will think that, when you have to weigh on the one side the views of all those experienced persons and on the other the view about the bank rate of the noble Lord opposite, you will probably consider that this matter should be left to the Bank of England, with all the circumstances before them and all the knowledge of the situation which faces us in these difficult times.
§ LORD MARLEYMy Lords, the chief point of the Question which I put down and the Motion that I made for Papers has been slurred over on the Government Benches. The question of the 156 provision of cheap credit for industry has simply been left on one side. We are told by the noble Earl, Lord Peel, that later on it may perhaps be considered. In fact the united cry from the Benches opposite is "Trust the banks." Well, after the recent exhibition by the finance houses of incompetence and misguided action, all I can say is that I should have thought the very last persons to trust with complete powers in connection with the prosperity of this country should be the banking houses as at present managed.
§ LORD MARLEYThey tire all closely connected, as the noble Lord knows perfectly well. I will reply to Lord Banbury's definite question. He said I was opposed to unregulated inflation and he then quoted France. I would remind him that France inflated to the extent of about 80 per cent. and reduced her National Debt by 80 per cent. and recovered so quickly that she is now the financial director of Europe.
§ LORD BANBURY OF SOUTHAMAt what loss to the investing public in France?
§ LORD MARLEYBroadly speaking, to some of the investing public about 80 per cent., but to the country as a whole and the workers enormous and almost incalculable gain, and if it is a question of balance between the workers and the wealthy classes I am for the workers all the time.
§ LORD DANESFORTMay I ask the noble Lord whether he would like to see the pound depreciated four-fifths in the same way as the franc in France?
§ LORD MARLEYWhat I want to see is a state of affairs under which the fixed interest-bearing security holders are not taking the enormous share of the produce of industry that at present they are enabled to take. The proportionate share of national production at the disposal of the workers in industry has got less and less owing to the fall in the cost of living, and those who have fixed interest-bearing securities have been getting richer and richer as a result of the fall in the cost of living. Lord 157 Banbury of Southam made the amazing statement that the workers paid no taxes. I would refer him to the Report of the Colwyn Committee where it was pointed out that a worker earning £100 a year pays 11 to 12 per cent. of his income in taxation whereas the man with £500 a year only pays 6 per cent. of his income and the man with a £1,000 a year only 11 per cent.
§ LORD BANBURY OF SOUTHAMThe worker does not pay any taxation if he does not drink or smoke.
§ LORD MARLEYFortunately for the brewers and tobacco merchants the average worker both drinks and smokes. Lord Balfour of Burleigh asks whether I consider that it is a bankers' ramp. Of course I do not. I am not such a fool as that. I think that the bankers have a direct responsibility to their shareholders, and if the bank director does not consider the security and safety of his shareholders he ought to be in the dock. The bankers have considered their shareholders and have done it very well. My complaint is that there is this divergence between the point of view of the bankers and the point of view of industry and the country as a whole. I need hardly remind Lord Balfour of Burleigh that the low bank rate up to June was in face of the world deflation due to shortage or maldistribution of gold. It might be impossible for a low bank rate to allow the expansion of industry in this or any other country during such a period, but in all probability we may say that the low bank rate saved industry from falling upon worse times than in fact it did. This statement, I am sure, will not be contradicted from any side of this House.
I was also asked the reason for my suggestion that luxury goods would continue to be imported as a result of a high bank rate. The reason is that those who are better off in this country are now receiving, to compensate them for the fall in the cost of living, a higher rate of interest on their deposits in the banks and that leaves them free to continue to purchase luxury goods, whereas the workers who have not that compensation to fall back upon have nothing to help them. I do not consider that the Bank of England is a malign and sinister figure, but I consider that its policy has been hopelessly misguided in the past. Lord Melchett, in my opinion, made the most 158 interesting contribution to this debate, but the backbone of his speech was that we ought to continue to trust the banks. Lord Peel, I think, consistently mixed up the May Report and the Macmillan Report. The Macmillan Report was on finance and industry and I was referring entirely to that.
§ LORD MARLEYI was referring entirely to the Macmillan Report. The noble Earl said of course that the Government which he represents intends to take, and can take, no steps whatever in connection with the bank rate, and that it is entirely a matter for the competence of the Bank of England. Therefore he says that it is left to the Bank of England whether industry is helped or hindered. That is the gravamen of my charge.
§ EARL PEELI did not say that the Government would take no steps whatever. I said that we could do nothing in the direction of bringing pressure to bear upon the Bank of England with regard to the bank rate.
§ LORD MARLEYThat is the gravamen of my charge and that is the whole point of the case that I have attempted to put. Of course we know and it has been referred to—it was suggested at any rate by the noble Earl—that £50,000,000 was? borrowed by the previous Government. That is perfectly true. I would remind him, however, that the borrowing was at the suggestion of the banks and that it was on the terms on which the £80,000,000 had to be borrowed the Government came out. I would remind him that the Prime Minister, speaking in the House of Commons on September 21 last, in answer to a question as to whether he would consider a concession to the unemployed similar to the concessions made in the cuts of the Police, the Navy and the teachers, said:
The handling of the unemployment cuts was necessitated by special conditions of borrowing, and they must remain.In other words it was laid down before the loan could be completed that the unemployed must have those cuts. That is what I call dictation by the banks which ought not to be tolerated by this or any other sovereign country. Finally he attempted to foist upon me opinions 159 which I definitely quoted from the Macmillan Report and which I propose to quote again so that the matter may be made perfectly clear.
§ EARL PEELI did not wish to suggest that. I said that the noble Lord used those words from the Report.
§ LORD MARLEYBut the noble Earl attributed them to me. Perhaps he does not know the passage to which I wish to refer.
§ LORD MARLEYIt is on page 171 of the Macmillan Report and is as follows:
We believe that there is substance in the view that the British financial organisation concentrated in the City of London might with advantage be more closely coordinated with British industry, particularly large-scale industry, than is now the case; and that in some respects the City is more highly organised to provide capital to foreign countries than to British industry.That, I wish to make clear, is a quotation and not my own opinion; and that is really the gravamen of the whole charge that the Government is not prepared to do anything in connection with 160 the bank rate to help the development of British industry in this country. I do not know whether any Papers can be laid, but I am not prepared to press my Motion and therefore, with the leave of the House, I will withdraw it.
§ Motion, by leave, withdrawn.