§ LORD HUNSDON OF HUNSDON rose to call the attention of His Majesty's Government to the desirability of considering at the forthcoming Economic Conference the advantage of a gradual return to the bimetallic system of currency which existed in the world before 1873. The noble Lord said: My Lords, I hope you will feel that no apology is necessary for calling your attention to any question which may be of some relief to the country and the world in these very critical times. Of course I am well aware that bimetallism, to which I am calling your Lordships' attention this afternoon, is regarded, or was regarded and is still for all I know, as a dangerous heresy and is resented accordingly. In fact, I remember the late Lord Salisbury referring to that feature of the controversy on one occasion. He said that he felt perfectly certain that the fires of Smithfield would have been re-lighted ere then but for the fact that that useful building was required as a refrigerating chamber.
§ Another difficulty which I am under is that this question of bimetallism is unfamiliar at the moment. It is now fifty-nine years since it was in working order in France, and people have forgotten about it to a great extent. Therefore, as a preface to my remarks perhaps it may be of some assistance to your Lordships if I recapitulate very briefly the history, or the principal events in connection with currency which have occurred of late years. As your Lordships are aware, the world was working under a bimetallic system until 1873; that is to say, the mints were open in France and the Latin Union and in the United States to the free coinage of both gold and silver into legal tender money at a fixed ratio. Therefore the relative value of the two metals remained practically constant. Thus, in effect, the whole world had one standard of value, as there existed a par of exchange between gold-using and 252 silver-using countries. Moreover, as the stability of two metals is obviously greater than that of one separately, the world had more stable standards of value, whether countries used gold or whether they used silver, or whether they used the two metals together.
§ After the Franco-German War of 1870 Germany exacted an indemnity of £200,000,000 in gold from France, and decided to transfer from a silver standard to a gold standard, and, as the French mints were open to silver, she proceeded to send her surplus silver to the French mints to be coined. France, however, being in no way desirous of assisting Germany, restricted her coinage of silver in 1873 and closed her mints altogether to the coinage of silver in 1876. About the same time the United States closed her mints to silver also, and thus for the first time, I believe, in the history of the world the two money metals were divorced from one another, and the present modern experiment began, with the concomitant scramble for gold.
§ Now, there happened to be at that time several people who understood currency questions, and they pointed out that the certain effect of abolishing bimetallism would be that prices would fall, and there would be an increase of protective duties throughout the world. That happened. One gentleman, having even more foresight than the others, told us exactly what the monometallists would say when there was a depression in trade—they would put it down to strikes, overproduction and every reason except the right one, which was the scramble for gold. Talking of the fall in prices, I remember quite well that the late Lord Balfour described that which we used to call in those days the appreciation of gold as the most deadening and benumbing influence which could touch the strings of enterprise in a nation; and anyone who has had experience of the last two or three years will say that that language was not exaggerated.
§ May I go back to the history of this country for a moment? Sir Isaac Newton, when he was Deputy Master of the Mint, reported to the Government that the ratio at which silver and gold should pass current in this country should be the average of the ratios of the neighbouring countries. This proposal was adopted, and the ratio in accordance therewith 253 was fixed in the year 1717, and remained our ratio for 99 years. This shows that Sir Isaac Newton was a bimetallist, and in default of international agreement he was endeavouring to get as near as possible the same results by adopting the average ratio of the surrounding countries. Therefore, if bimetallists are wrong we are erring in pretty good company. In 1816, as I said, we adopted monometallism in this country and this change was made partly, no doubt, because people preferred gold and preferred monometallism to bimetallism, but mainly, if not entirely, I think, because silver had for some time been over-valued by the ratios of the surrounding nations, and had gone abroad and left us with gold alone, so that in practice gold alone had already become our standard.
§ I will continue my outline of the more modern history of the case. I recall that a movement arose in the '80's and '90's of last century for a return to bimetallism, and it was supported by so many distinguished people that a monometallic league was formed by the principal bankers of the City of London and others to oppose it, and their roost telling argument, if such it can be called—and it was also employed by Sir William Harcourt when Chancellor of the Exchequer—was that our prosperity was due to our gold standard. Apparently none of these gentlemen realised that the zenith of England's prosperity was reached when the world—and we, of course, with it—had the advantage of bimetallism, although we were on a gold standard. About 1896 the discoveries of gold in the Rand and the application of the cyanide process greatly increased the production of gold and therefore raised prices, and to that extent rendered the re-introduction of bimetallism temporarily unnecessary. This is not likely to happen again, and indeed, according to Mr. Hays Hammond, the well-known engineer of the Consolidated Gold Fields of South Africa, the production of the Rand mines will be greatly reduced in the near future.
§ It may also be observed that as the stock of gold in the world is now much larger than it WAS in 1896 it would require a much greater increase in production to produce the same effect. On the other hand, there may be some increased production for a time owing to the fact that gold produced in the Em- 254 pire obtains a premium in our depreciated coinage. England has done much through her Indian Empire to destroy the value of silver, first by closing the Indian mints to silver in 1893, and later by placing the rupee on a gold basis and forcing the Indian Government's stock of silver on to the market. She has also helped the fall on her own account by debasing her silver coinage. Thus, though a world-wide trader, she has been greatly responsible for depreciating the standard of about half the inhabitants of the world. If time permitted there are many other occurrences which I ought to mention to complete even a short history of silver in late years, such as the Bland Act and the Sherman Act in the United States. I ought also to refer to the Gold and Silver Commission Report of 1888, in which the conclusion was reached that, given the adherence of a certain number of nations to bimetallism, the market value of silver as measured by gold would conform to the ratio adopted and not vary to any material extent.
§ May I now give your Lordships a few reasons why in my judgment this country should consider sympathetically a return to the ancient and well-tried system of bimetallism and should try to induce other nations to join with us in abandoning the modern and, as I think, disastrous experiment of competing for the stock of gold in the world? First, I would say that to my mind the most unexpected feature of the present situation is that it appears to be sterling and not gold which rules prices, and, moreover, rules the exchanges of all the nations whose currency is not based on gold. That seems to me to mean that any lead which this country should give in currency matters would be largely followed, and therefore that it is in the power of this country to get the world out of its present currency difficulties if an approved remedy suggests itself. Now there are, as it scorns to me, two great advantages to this country in the adoption of bimetallism at a ratio which would raise the value of silver and reduce the value of gold. The first refers to India, and the second is the present difficulty of discharging debts owing to the fall in price of primary products.
§ I feel very diffident in speaking about India in the presence, probably, of many of your Lordships who are much better acquainted with that country than I am, 255 but I suppose I may say that the political position in India is undoubtedly insecure and, as I think, apart from dynastic questions, nearly all revolutions, wars and political troubles, are mainly due to economic causes and it is probably true to say that this is the case with India to-day. Anyhow, we know that from time immemorial the natives of India have hoarded silver and the total amount in that country to-day must be very great. Sixty years ago these hoards were worth over 60d. an ounce in gold, to-day they are only worth 18d. in our depreciated currency. It is true of course that commodities have also fallen as measured in gold so that silver is worth more in commodities than would appear from its price, but the fall in the purchasing power of silver has been considerable and for much of that fall the natives of India have to thank the Imperial Government. Anyhow, it is certain that if bimetallism were adopted at a ratio of, say, twenty to one, it would not only give an intrinsic value to the old silver rupee of 6d. but would also raise the purchasing power of the silver of the natives of India from 18d. to 48d. on the basis of the sterling prices of to-day. This, I suggest to your Lordships, would go far towards contenting the people of India and would, by increasing their purchasing power, be a great gain to the exporters to them from this country.
§ The other great advantage which I think would accrue from bimetallism with a ratio of twenty to one is that it would raise prices and enable people to pay their debts. This is said to be inflation in the interests of debtors, but in the first place this would not be paper inflation when the value of your currency might disappear altogether, as in the case of Germany, but it would be a currency based on solid metals. In the next place I may observe that the present position is, if your Lordships will excuse the expression, the creditors' funeral, and it is in the interests of the creditor countries to take up the question of raising prices by any means in their power and get their debts paid. The debtors are in a fairly strong position. In the first place they have got the money, and in the next place they, or many of them at least, simply cannot pay in full, and as it is really not reasonable to expect them to do so, they lose very little credit 256 by defaulting so long as they make an effort to pay, for what they did was to borrow a certain amount of commodities of various kinds and now they have to pay back a greater amount of commodities because their debts were expressed in terms of gold. It is really not fair.
§ We have remedied this injustice or inequality in the matter of our National Debt by reducing the rate of interest. May I point out here in parenthesis that the success of these Conversion Loans has done nothing to raise prices and that their success is due to the fact that the fall in prices deterred investors from putting their money into anything which is dependent on the price of commodities? Therefore, before trade can improve either here or in the world at large, we must give investors confidence that wholesale prices will rise. That indeed is what everybody wants, and what the Macmillan Committee reported most emphatically in favour of, and the Government have expressed the same wish time and again; but so far they have done nothing to bring it about and they apparently rely on an era of cheap and plentiful money to do it for them. Anyone who had experience of cheap and plentiful money in the years before the gold discoveries of 1896 could tell them that cheap and plentiful money is a symptom of bad trade, and no more of a remedy than a rash is a remedy for measles. I should regard it as nothing less than a calamity if this country, to whom the world, I think, looks above all others for guidance on currency matters, should go into a conference with no plan to raise prices and no remedy for the monetary disorders of the world.
§ By the fall in prices this country has lost heavily on what are called our "invisible exports"—a dismally suggestive expression—signifying in the main interest on our foreign investments and our profits on shipping. I calculate that the income from these two sources, which in 1929 was £380,000,000, will in the current year be not more than half of that amount, or a loss of perhaps £190,000,000. Your Lordships are aware that it is our invisible exports on which we rely to feed the people of this country. Nothing has been done to raise prices and enable the interest on foreign investments to be paid, and unless something is done it seems to me obvious that we are heading straight for disaster. Our 257 imports, visible and invisible, exceeded our exports last year by £110,000,000, and apart from any benefit which we may get from the Ottawa arrangements or Import Duties the adverse balance will, I think, be nearer £200,000,000 this year. Of this condition the fall in sterling is a better indication than any figures. The only way by which we have prevented a greater fall in sterling is by selling securities and living on our capital, and that cannot go on for ever. It cannot go on very much longer. And what then?
§ The failure to collect the interest on our foreign investments is due to the heavy fall in prices, and that, in turn, is due to our having as a standard of value a metal which is no standard at all, or hardly more of a standard of value than a piece of elastic would be a standard of length. Of course I know, as your Lordships know also, that the rise in the value of gold is put down to what is called its maldistribution; that is to say, to the large amounts which are now held by France and the United States of America. It requires better knowledge than I have to criticise either of those countries, but one thing, I think, is abundantly clear and that is that neither the United States nor France can be satisfied with the heavy fall in prices which is much heavier in their gold currency than in ours. Therefore they would not hoard gold and accentuate its fall unless they had what in their opinion were compelling reasons. I might perhaps add without offence that we have not shown ourselves to be so expert in currency questions that we are justified in criticising others.
§ Another reason which is given for the fall in prices is over-production but no figures, so far as I know, are ever given in support of that statement. When you find distress in the case of some countries at least, it is difficult to believe in it. The fact is that though there may have been over-production in a few cases the real trouble is that credit and confidence, upon which the trade of the world rests, have been destroyed by the fall in prices. By the courtesy of the Board of Trade I have been given the production and price for the last few years of eleven commodities which are generally regarded as world staples. They are wheat, cotton, copper, lead, zinc, tin, rubber, sugar, tea, coffee and petroleum, and at my request they added silver as I thought it might be relevant to the present discussion. I 258 am not going to trouble your Lordships with all these figures, because figures are very difficult to follow in a speech, but I will give a few of them. I think it will surprise your. Lordships to know that of these commodities the only ones the production of which has increased during the last three years are sugar, coffee and petroleum. Of these, coffee shows the most over-production. The increase in the production of coffee was 11 per cent. in those three years. The price of coffee fell according to quality from 10 per cent. to 50 per cent.
§ Your Lordships must remember in considering any of these calculations that the ordinary increase in the population of the world during these three years would normally require an increased production, and as regards price you will remember that the pound sterling fell as measured in gold in the last three or four months of 1931, so that any fall in the prices of commodities is, in effect, greater than I show. Your Lordships may say that the small increase in production, especially of consumable things, pressing on the market, might well cause a disproportionate fall in prices. That is perfectly true, but how are we to account for the fall in the prices of commodities the production of which has decreased? I will take cotton for instance. The production of cotton fell from 1929 to 1931 by about 4 per cent., and yet the price fell from 50 to 60 per cent., according to quality. The production of copper fell during those three years by 30 per cent. and yet the price fell by 50 per cent. The figures for lead, tin, zinc and silver are very much the same. Of course your Lordships know that figures can be manipulated, but I have given your Lordships facts, and I do not think that any one who examines the figures of production and price can come to any other conclusion, than that the figures of production do not in any case justify anything approaching the present fall in prices.
§ It seems to me to be of great importance that when we are trying to find a way out of the wood we should get our facts right and not be led off on a false trail. The falling off of consumption is no doubt responsible to some extent at least for the fall in prices. But why has consumption fallen? It is because, if people cannot sell, they cannot buy. One of the reasons why they cannot sell 259 is that when they export to certain countries they can only receive payment in the currency of the country to which they export; and they can often neither get interest on the currency nor can they remit it. And when the exchange gets normal it is as likely as not that there will be a very heavy loss on the transaction. In other words, international trade is almost dead, and will remain so until the prices of primary products rise and enable countries which produce them to increase the value of their exports, pay their debts and allow their exchanges to work in normal fashion.
§ Your Lordships will no doubt agree that a rise in the prices of primary products is essential to any recovery, but you may ask at this stage how would bimetallism raise prices? With your permission I will endeavour to explain. Gold, like any other commodity, is subject to the law of supply and demand. There is a certain supply of gold in the world and there is about fourteen times that amount of silver. Before 1873 silver was worth over 60d. an ounce in gold and the whole mass of silver was the equivalent of gold at that price; and for the purpose of a standard or the measurement of value it in effect practically almost doubled the supply of gold in the world. After 1873 the price of silver fell. Therefore its equivalent value in gold also fell and there was a smaller supply of gold plus the equivalent of gold than there had been. The value of gold therefore rose or, in other words, the gold price of commodities fell. The gold price of silver is now about 12d. or one-fifth of what it was, and so far as one could raise the price of silver under bimetallism one would increase the equivalent of gold in the world and therefore gold would fall in value, or, in other words, prices would rise. Of course, this is a very rough explanation, but I think it is substantially true and therefore that if you want to raise prices you have silver to your hand with which to do it.
§ May I now say a word or two in conclusion about the objections which are urged against bimetallism? These mostly arise from an idea that it is an artificial experiment, and the objectors are not usually aware that it was in existence from the time of the Assyrian Empire up to 1873, so that the period of trial has been fairly exhaustive. As to its being artificial, I would suggest to your 260 Lordships that all currency is artificial and it is the artifice that gives it most of its value. For instance, gold is a most inferior metal for practical purposes and almost the only point about it is that it does not oxidise, but as nowadays there is a preparation which will even prevent steel from oxidising there is no great point in that, and I suppose that if it had not been used as currency it would be of about the same value as lead.
§ Another objection, which is not an objection to bimetallism only, is that experts do not agree about any monetary proposal and that therefore the Government cannot do anything. But have your Lordships ever known experts agree with one another about anything? Certainly I never have; and is it not the business of the Government to hear what the experts have to say, to get at the facts, and to come to a decision? Another objection raised is that if bimetallism were adopted at a ratio which greatly increased the gold value of silver the world would be flooded with silver; but no attempt has been made, so far as I know, to estimate the proposed future increase in production or to explain from what source it would come. And it is material here to observe that one great advantage that silver has over gold is that about two-thirds of its production is a by-product in the production of other metals such as lead and zinc. So that the production of silver depends on the demand for those metals and that depends on the condition of trade. As, therefore, only one-third of the silver production comes from pure silver mines it would indeed require a greatly increased production to produce a flood.
But it may also be observed—and this is even more important—that during the Californian and Australian gold discoveries a flood of gold appeared imminent and, indeed, the yearly production was greatly increased. Yet the bimetallic ratio then existing was not disturbed and, more than that, everybody was delighted with the rise in prices which accompanied the discoveries, when our prosperity increased, as Mr. Gladstone said, by leaps and bounds. It is therefore difficult to see why, if we went back to bimetallism, an increased production of silver should disturb the ratio or why, if there was an increase in production, it should not also lead to similar rejoicing. In reference to the
effect of floods, we have the Royal Commission's Report of 1888, to which I have referred, which speaks of
the vast changes which occurred prior to 1873 in the relative production of the two metals without any corresponding disturbance in their market value.
The vast changes to which this Report refers were, no doubt, that in the first twenty years of last century the production of silver was in weight fifty times that of gold, and from the years 1852 to 1871 the excess production of gold over silver was £311,000,000, a very large amount compared with the stock of gold in those days.
§ I am well aware that in spite of my long and tedious harangue I have given an inadequate statement of the bimetallic position, but I would observe that my friends and I are not asking your Lordships or the Government to accept it. What we are seeking to do this afternoon is to establish a prima facie case for the consideration by the Government of a return to a monetary system which served the world successfully up to 1873 in lieu of the modern experiment in monometallism which has failed.
§ LORD DESBOROUGH
My Lords, I rise to say a few words upon what I think is generally accepted now to be the most important question in the world—namely, money, the mightiest engine to which mankind can lend intelligent guidance. It has occupied the attention of the great men in the past—Aristotle, Plato, Copernicus, Newton, Hume, Adam Smith, and economists down to the present time, and so it is certainly a question which one approaches with a due measure of humility. If there is one point on which anybody who wants to study this matter should make up his mind it is how money measures value. There are two theories which have existed. One is the commodity theory—namely, that the value of other commodities are measured by the value of the commodity of which the money is made; that is, gold. They used to say that gold is the best measure of value because gold has intrinsic value, but there is no such thing as intrinsic value. The value is always relative. The other point of view, which is supported by Aristotle and other writers, is that the relation is numerical: that what really matters is not what the pound is made of, but the number of pounds there are in circulation.
262 An instance which will be easily understood by all is that of our own currency. About two years ago we were on the gold standard, and even before then the value of all our commodities and services was supposed to be measured by gold—by the golden sovereigns that we all used to carry in our pockets. On the 21st September of last year we were knocked off the gold standard; and what is our money now? Our money is some £400,000,000 to £414,000,000 worth of paper notes. These notes are of no value in themselves (except as rather good illustrations) and if you took them to the bank they would give you nothing for them. In the old days, if you took a five-pound note to the Bank of England, the Bank of England gave you five pounds, but now, if you take any of these millions of notes to the Bank of England or anywhere else they will give you nothing. We are on the second system of money—namely, notation, and it has been most extraordinarily successful. If we had been tied on to the gold system now we should have been in a very much more lamentable plight than we are at present. The gold-standard countries, tied to the gold system, have suffered a great deal more in the last year than those which have adopted sterling.
Now we come to the shilling. I want to prove that money is a creation of law. The shilling originally was worth one-twentieth part of a pound in silver. When Sir Isaac Newton gave up his studies of the heavens, became Master of the Mint, and established our currency, silver was at 60d. per ounce, and the shilling was a twentieth part of the pound at the ratio of 15½ to 1. It was actually what it was supposed to be. Now the ounce of silver has gone down, as my noble friend just now said, as low as 12d. instead of 60d., and in addition to that a good deal of alloy has been put into it. What value in pence this token is now I do not know, but the law says that it is still the twentieth part of a pound, money being the creation of the law, and it acts as the twentieth part of a pound.
I may say, with regard to that, that so great an economist as Ricardo has said that paper money, which would possess no commodity value, would perform the functions of money and maintain its value provided its issues were strictly limited. That is the whole point. The essence of money is quantity and limita- 263 tion, and not the substance of which it is made. This is rather important when we come (if we have time) to the discussion of the ratio. He also said: "A currency is in its most perfect state when it consists wholly of paper money." I have not come here to praise or to advocate paper money, but I am only going to implore the Treasury, or any of those who have this matter under their control, to think twice, thrice, and ten times, before they put us off from the standard of sterling upon which we are now, and back to a standard which has proved such a lamentable one as gold monometallism has in the past, and is now. I have not come here to praise paper; I am standing here to bury gold monometallism as far as I can.
As I said just now, gold was always a delusion. There never was enough gold, even in the old days when we were on the gold standard, and they knew that, because they had to issue notes in excess of the gold which they kept at the Bank of England. But I think it is rather interesting to recall that Sir Robert Peel, who of course is always quoted as the great monometallist and who was a very able financier, said in the House of Commons even then, when they were discussing the Bank Act on the 20th May, 1844:For these reasons I am inclined to propose that the Bank shall have the power of issuing notes on the deposit of silver.That is just what some nations will very likely ask us to do now, and I trust that the Treasury will not meet them with an absolute non-possumus. It may be one way, if we come to an agreement, of discharging the enormous burden of those War Debts which are doing so much to destroy the happiness of the world. He continued:If we provide that the amount of silver on which issues may take place shall not exceed one-fourth of the amount of gold; (for instance, if there be four millions issued on gold, permitting an issue upon silver to the extent of one million), we shall probably ensure the maintenance of a sufficient stock of silver to rectify the exchanges.That is a very striking proposition, coming from one who has always been understood as being such a stern gold monometallist.
As I say, there never was enough gold to perform its function, and at the present time the whole of the gold of the world— 264 that is to say, the monetary gold—consists of about £2,200,000,000, and it would not pay one-third of our own National Debt, leaving nothing for the millions and millions and thousands of millions, which are owed everywhere, nominally in gold, which cannot be paid in gold, and never can be paid in gold. We must remember this also: when we were on a bimetallic standard, up to 1873, the population of Europe was 180,000,000. The population was 450,000,000 in 1914; and more people need more money, and more commodities also need more money in order to keep prices anything like steady. What we need, if we can get it, is a stable ratio. That postulates that there must be enough of the substance of which the money is made to go round. The Macmillan Report—and a most excellent Report it is—said that stabilization at present prices would be a calamity, and advocated a return to the prices of 1928; and with that I cordially agree.
I will not take up your Lordships' time and attention very long, but I would like to say one word on the present position. Sir Henry Strakosch is one of our most distinguished economists, and has a knowledge of finance which I think is at the present time unrivalled. The Gold Delegation of the Financial Committee of the League of Nations at Geneva issued a report last June, and at the end of that report Sir Henry Strakosch, Sir Reginald Mant, and the Chairman, Mr. Albert Janssen, signed a disagreeing report which ended up with these most remarkable words:It may be truly said that international trade is being gradually strangled to death; if the process continues, millions of people in this economically interlocked world must inevitably die of starvation, and it is indeed doubtful whether our present civilisation can survive.My Lords, those are very strong expressions coming from anyone who measures his words, and I should like for one moment to see exactly what they mean.
In the first place, starvation! Owing to the break-down of money, there are at the present moment millions of people only just above the verge of starvation—millions in India, millions all over the world, who are just above that margin; and I am sorry to say also millions in the United States. I read the other day an instructive article which spoke of all 265 those people crowding on to freight trains, moving from one State to another, with nobody allowed to stay more than a certain time, gong from one prison to another, and in a state of absolute starvation. The simple fact is that if it does not pay to grow rood, food will not be grown; and I do not think that at these prices food will very much longer be grown. The prices do not cover the cost of production and transport. I saw some papers the other day with reference to India. Seventy per cent. of the population of India are agriculturists, and owing to their being tied on to an artificial rupee, in connection with our own system, their prices have gone so low that these cultivators at the end of the year have absolutely no margin upon which to live.
To show you in a very homely illustration, I do not know whether your Lordships have read the Farmer's Glory. The author of this brings out every month an account of his agricultural experiences, and in one of these he says: "Currency! currency! currency! I cannot understand this currency question. All I know is that if it goes on as it is at present I shall be ruined. When my sheep produced one lamb I could pay my way, but now I do not know what I shall have to do. I shall have to go to them and say: Look here, old ladies, last year you gave me one lamb each, next year you will have to produce two, and if this currency question goes on you will have to produce six each.'" That is only an illustration of what is occurring in farming, but the situation all over the world is such as I do not think I need describe, as you are probably well aware of it.
My noble friend has touched upon the question of over-production. There is no over-production. You cannot prove it. They say that the price of wheat has fallen because of over-production, but the Corn Trade Year Book shows that the production has fallen off. The production did increase up to 1929, 3, 4, 5 and 6 per cent., but since then, up to the present time, there has been a decrease in production of 37 per cent., and it there is a decrease in production what becomes of the argument that there is a fall in price owing to over-production of these materials? I believe that is an entire fallacy. We have wheat lower than it 266 was in the time of Shakespeare, and unless something can be done to restore its price I do riot suppose it will be cultivated. That is what I have to say with regard to starvation.
Then the statement is that there is a danger that if these things continue our civilisation will not survive. What does that mean? I happen to be on the Council of Foreign Bondholders, and we see country after country evading its obligations. We have ourselves addressed a most touching letter to the United States of America, showing them that it would be greatly to their disadvantage if we paid them the money which I suppose we legally owe them. I think myself that it is rather a dangerous precedent to set. If we talk about our inability to pay, surely all these countries who owe us thousands of millions will be able to adopt the same reason. What I should say to them would be this: "Take your gold and"—to paraphrase Sir William Harcourt's words—"you can now go and stew in your own golden syrup." It will riot do them much good because the gold they get now might very well be put back in the mines of the Rand.
What it means, I suppose, is that once it becomes assumed that debts need not be paid, civilisation will come to an end. Therefore to my mind the question of money having gone wrong is one which ought to be taken in hand without the smallest further delay. The proposal of my noble friend is really an invitation to the Government not to turn down summarily this question of silver. I have received numerous communications from all over the world asking why the Government do not take the matter of silver in hand at once. Two very important events have happened. As your Lordships are aware, the two great holders of gold at the present time are the United States of America and France. Between them they have got five-eighths of the gold of the world, and I would like to draw your Lordships' attention to this important fact: from both these two countries there have come invitations to reconsider the question of the rehabilitation of silver.
One invitation comes in a book which I have here written by M. Raymond Patenotre, of the Departement d'Economic National of France. In that book he uses these words: 267One of the remedies which we propose in this crisis is a monetary one, and this reform in currency is a general return to bimetallism—gold and silver, which fifty years ago way in almost general usage…Silver also is a precious metal. It has already been used as a currency. Let us restore it to its old dignity to the extent that the inefficiency of gold calls for support from outside.The preface to this book—"An Invitation to the World to return to Bimetallism"—is written by M. Caillaux, Chairman of the Finance Committee of the Senate and a former French Minister of Finance. I cannot give you the substance of the book, but there is one sentence which rather struck me—namely, that while the world is looking on the nations are marching under a strange emblem:The bar sinister of Unemployment on a field Or.If you have financial authorities of this sort advocating a return to the old system of bimetallism, it appears to me that there is no reason why we should not return to it.
I would like to say one word as to ratio. My noble friend has mentioned it. It is said that a ratio between two substances is impossible; but it is not a ratio between two substances, but between two moneys. The history of ratio which I have here shows you that when people say you cannot establish a ratio the answer is that it was done, and that it was done when there was an enormous disparity in the production of the two metals, gold and silver. I advocate a return to that old and well-tried system which my noble friend has so lucidly explained.
One word to the noble Earl who is to reply. We do hope that the Government will not turn down too unsympathetically this very moderate request that the question should be considered at the forthcoming Economic Conference. The monetary history of our country in the past with regard to the question is a bad one. There is no doubt that we made a great mistake in going on to the single gold standard in 1816. The Act was bad and the reasons given for the Act were still worse, but I will not go into them now. Then we did not suffer because the bimetallic system in France went on till Germany demonetised silver in 1873. We had the whole advantages of the bimetallic system with regard to India and the East, because in 268 France and the Bimetallic Union the mints were kept open at a certain ratio and that ratio did not vary.
Then nation after nation came to England and asked us to join in a new bimetallic league. Take the Conference in Paris. That was attended by Mr. Goschen, a great authority, but the position of England—selfish and, I think, short-sighted—was that we would do nothing. Another Conference was called in Brussels at the instance of the United States and France and many other countries, but England merely adopted the attitude that we should be on gold, and they could be on silver, and it would be a very good thing. Mr. Goschen even went so far as to say it would be a mistake for other countries to adopt gold because there would not be enough gold to go round. But all the same they were very sorry that England could not alter the system in 1860. I can only say that I do most cordially endorse the request made by my noble friend, for which he has given ample reasons, that the Government will give a sympathetic ear should any such application be made from abroad for the subject to be properly considered at the forthcoming Economic Conference.
§ LORD SANDERSON
My Lords, I have listened with the very greatest interest to the speech of the noble Lord, Lord Hunsdon—an interest on general grounds, of course, but also on special grounds. I have been particularly interested in what he said because as a very young man in the early '90's I was an ardent bimetallist. I looked upon bimetallism almost as a panacea. At one time I could think of nothing else; in fact, I almost became a bore on the subject. And I should like to say that a good deal of the knowledge I had then on the subject was acquired from Lord Hunsdon himself. I remember a little book he published about that time—I think it was entitled "Bimetallism"—which contained, I think, the clearest short account of the intricate workings of the foreign exchanges which I know.
There are two difficulties in the way of bimetallism on which a great deal of stress was laid at that time, of which I made light in my youthful optimism, but which in my more sober age I have come to think are real difficulties. One was the difficulty of securing a wide and per- 269 manent international agreement. That was essential for the maintenance of the bimetallic system. There was always a danger that if you could get an international agreement on a wide scale among the leading nations of the world such a system might break down owing to the falling away of one of the leading partners to the agreement—not necessarily for want of good faith, but simply from monetary conditions and other general circumstances. I think that difficulty still exists at the present day. I do not think that our experience of the last few years has shown that it is easier than it was forty years ago to secure permanent international agreement. In fact, I should say it is rather more difficult. Then again, there was the question of the ratio. What was to be the ratio at which gold and silver were to be linked together? Nobody could make up his mind at that time. The bimetallists were not agreed about the point. I remember a correspondence going on in The Times. It went on for weeks, I am not sure whether it did not go on for months, under the heading "Wanted, a Ratio." Was is to be 15½ to 1, 14 to 1, 16 to 1, or what was it to be? Nobody could agree. That ratio was never discovered, and I am afraid that the same difficulty exists at the present day. There would he a great deal of difficulty in arriving at an agreement as to the ratio which should be fixed between gold and silver.
I do not say that those are insurmountable reasons against a movement towards bimetallism now, but they are reasons which weigh considerably with me, and they are reasons why I feel doubtful about supporting Lord Hunsdon in his wish for the gradual introduction of bimetallism. But there is another reason which weighs much more strongly with me. That is that I think there is a better way of solving the monetary problems of the world than the bimetallic way, and I hope the noble Lord will forgive me if I cannot follow him in his desire for bimetallism because I think there is really it, better way. But the noble Lord and I, I am sure, have one or two points in common. I am sure we are both anxious for a stable standard of value. I believe that would be one of the greatest boons that could be given to mankind in connection with industry and trade and the ordinary busi- 270 ness of life. Gold is not a stable standard at all. The noble Lord has said himself that it is like a piece of elastic. Gold has fluctuated violently all through the last hundred years. Nor would silver be a stable standard of value by itself. It would be like another piece of elastic. The fluctuations in silver have been very violent and wide over a long period of time. Within the last twenty years the value has fluctuated, I believe, between 5s. and 1s. an ounce.
I admit that gold and silver linked together as a metallic standard, if it could be brought about, would lead to greater stability than a single gold standard or a single silver standard. I think that was proved by experience especially between 1816 and 1873. But the noble Lord will, I think, agree with me that, although we were on a bimetallic standard during that period, there wore considerable and violent changes in the general level of prices between 1816 and 1873. I am sure there were a great many violent changes between the time of the Syrian Empire and 1873. You do not get anything like a stable general level of prices under bimetallism, although it may probably be true to say you did have, in that part of the last century which I have mentioned, greater stability than you would have had under a gold standard alone. You cannot find any single commodity which is stable in value, simply because the value of any one commodity is determined by its supply in relation to the demand for it, arid both the supply of any commodity and the demand for it are variable, so that you cannot get stability.
Since the beginning of the War I think we have gained a very large amount of new and very valuable experience on monetary questions. The world has gained a lot of new experience, and I think we might take advantage of some of it. The economists before the War always used to teach that you can have an inconvertible paper currency, and that there was no reason why you should not have an inconvertible paper currency so long as it was generally acceptable, so long as it was kept stable in value, and so long as Governments did not tamper with the supply and unduly inflate. But the economists always added that it was almost impossible to get an inconvertible currency which would be generally acceptable, and that no Government could be 271 trusted not to tamper with the currency. It was always said that no Government would be able to resist the temptation to inflate in order to raise revenue simply by issuing more notes. We have been, practically, since the beginning of the War on an inconvertible paper currency. An example of the danger of inflation which was always quoted, is that of the French assignat. We had really an inconvertible paper currency all through the War, and for seven years after, and nobody worried because they could not take their paper notes and get gold for them. The noble Lord, Lord Desborough, mentioned just now that he did not worry about it either. People are quite content with the paper notes, and nobody thinks of bothering to get sovereigns. That is an enormous change. I believe it was theoretically possible to get a sovereign for a Treasury note during the War; I know people who did it. One I knew was a most persistent lady. She had the utmost difficulty in doing it, but she did succeed. I think that shows it is possible to have an inconvertible currency which is generally acceptable. People do not bother about turning their notes into metal.
With regard to the trustworthiness of Governments, there was a considerable amount of inflation of our currency during the War, and, indeed, in some other countries of the world the inflation was colossal, so much so that the French assignat was simply child's play to it. But I think your Lordships ought to remember that those times were not normal, and that the circumstances were very exceptional. Another point which I think is important is that all these countries in which there was so much inflation were on a gold standard when the War came. The point I want to make with regard to that is that the mere fact of your being a gold-standard country does not prevent you from resorting to inflation and violent measures in an emergency. But I think most countries have learnt pretty well the dangers of inflation, and I believe most Governments now can be trusted not to inflate unduly. I almost think that a National Government might be trusted in that respect. I do not believe that the present Government would really attempt to raise revenue by increasing the note issue.
272 I have said that gold is unstable and that silver is unstable, and that there is no one commodity that is stable. But we must have a stable standard of value. Although you cannot get absolute stability in one commodity, you can get a standard which by itself, uncontrolled and unregulated, would be unstable, but which, if properly regulated, could bring about stability. You cannot get absolute stability in a standard but you can estimate the causes of instability and allow for them. You can allow for fluctuations and counter-balance fluctuations. If you can estimate the causes of instability and counteract them you get stability. That can be done. I am thinking of what is called a managed standard. It is not a very good expression because all standards have to be managed to some extent, but perhaps it is good enough. I am suggesting a standard where the pound would be based on commodity prices. You would construct an index number based on a very large number of commodities and services. If the general level of prices rose as shown by the index number, you would reduce the supply of money. Where the general level fell, you would increase your supply of money and so maintain a fixed general level of prices.
As the noble Lord, Lord Hunsdon, and many of your Lordships will know, that is not a new idea at all. It was worked out very fully by Stanley Jevons sixty years ago. He talked of a tabular standard. I believe the idea was thought of and worked out to some extent long before that, at the end of the eighteenth century. I mention the fact of the age of this plan, that it is an old plan, in the hope that it may be more likely to appeal to your Lordships, because I have noticed that your Lordships' House is a little apt to have a way of rather hesitating with regard to novelties. It is a plan which is by no means new. If that scheme were adopted I think we could get rid of gold altogether. What is the good of hoarding up gold in banks all over the world? It is very expensive, and we have shown that with regard to internal currencies it is quite unnecessary and quite useless.
I shall be asked, of course, what about the foreign exchanges and international settlements? Speaking for myself, I think we have spent far too much time in the last few years in trying to stabilise foreign exchanges and not nearly enough 273 time in trying to establish a general level of prices at home. After all, our home trade is very much greater than our foreign trade, both in volume and value. It is, I think, something like six times as great as our foreign trade, and it is much more important, too. We should be wise to concentrate on establishing a stable general Level of prices here first of all, and I think that if we gave a lead —the noble Lord, Lord Desborough, is anxious that we should give a lead to other countries and I quite agree with him—other countries would soon follow our example. I think they would probably adopt similar measures and establish a stable general level of prices in their own countries. If you got a stable general level of prices in all the leading countries of the world, or in most of them, the problem of foreign exchanges would solve itself.
The whole question is so vital, in my judgment, that I think it is of the utmost importance that we should work out some new plan. I am sure that we ought to get out of our heads all the old so-called orthodox ideas, and that we ought to stop thinking in terms of precious metals altogether and try to work out a new Plan. We are much more likely to reach a solution along the lines which I have tried to sketch, very inadequately I am afraid, than by trying to force a union between a discredited god of gold and a very flighty and unstable goddess of silver.
§ LORD CLINTON
My Lords, I have no claim whatever to address your Lordships upon any financial question. A noble friend below me asks why I do so. I am going to do so because I want to put my view on one point in this debate which has been put forcibly on the other side by some of my noble friends who have spoken. The figures which the noble Lord, Lord Hunsdon, gave showed how greatly the wholesale producer was suffering from the low prices which have prevailed recently. He showed very considerable restraint in stating those figures. He only went back some three years. If se had gone back to the period of really high prices in the year 1920 he could have shown your Lordships a vast contrast which has been entirely to the disadvantage, at all events, of the agricultural producer. Cereal prices generally in the year 1920, the year of high prices, were 274 three and a-half times as high as they are to-day. Meat prices in the same year were two and a-quarter times as high as to-day. Those extreme prices have created a vast misfortune to agriculturists generally because as they fall there is a progressive loss owing to what is known as the "lag" in agricultural prices—the months between the sowing and the reaping of crops and the years between the breeding; of cattle and their sale.
That has been so great a misfortune that I think every agriculturist will say that very high prices are no advantage whatever to the industry. I think it is clear from the speeches delivered by the noble Lord, Lord Hunsdon, and the noble Lord, Lord Desborough, that if we can arrive at some standard of values less variable than that of gold we shall obtain a price level more stable and more continuous, which is what I think agriculturists require. Both the noble Lord, Lord Hunsdon and the noble Lord, Lord Desborough, denied any possibility of over-production having any connection with low prices. In fact, the noble Lord, Lord Desborough, described it as an entire fallacy to suppose anything of the kind. If it is a fallacy it is a fallacy which, for the agricultural producer, has got a tremendous punch behind it. In the opinion of the industry it is overproduction at the moment which is causing the fall in prices. I do not want to weary your Lordships by giving many instances, but is it not the case that it is the over-production of milk to-day which is the cause of the fall in liquid milk prices? The supply is so great that the contractors for milk will not take all the wholesale producer's milk as liquid milk, but some has to be put on the market as surplus milk.
§ LORD CLINTON
If my noble friend confines himself to corn I apologise to him for replying to him perhaps in terms of rebuke, which I need only apply to the noble Lord, Lord Hunsdon. In regard to corn alone there may be a case, but I am speaking at the moment of milk, and I think it is certain in the case of milk that it is over-production which has led to such a large quantity being paid for to-day at the price of surplus milk, which is much less than is paid for liquid milk. 275 You will find exactly the same thing in the case of potatoes. The fall in the price of potatoes to-day is so calamitous that the grower is losing upwards of £10 an acre on every acre which he grows. That was foreseen in the month of July. We approached the Government and asked them to put a duty on imported potatoes. That was done and the imports fell the following week to one-tenth of the former supply. While imports fell the prices did not rise. That, perhaps, points a moral which has nothing to do with the argument I was using. Those two commodities of milk and potatoes are similar in this respect, that the fall in prices was due in both cases to our over-production. Although I do not accept the noble Lord's conclusion, that the one standard has been the entire cause of our troubles, if by adopting this dual standard we can flatten out extremes and get some stable price level I think a real case has been made for an inquiry.
§ LORD GREENWAY
My Lords, I rise to support the noble Lord, Lord Hunsdon. I do so with the more confidence inasmuch as my fifty years of experience as a merchant trading with every part of the world and as a former director of an Exchange Bank, and the fact that I took an active part in the bimetallic discussions of thirty years ago, at the time of the closing of the Indian mints to the free coinage of silver, and have ever since been a close student of monetary questions, have given me a practical knowledge of the working of international exchanges and currency which has, perhaps, not been within reach of most of your Lordships. It will not, therefore, I hope, he regarded as presumptuous on my part if, in addition to supporting strongly the views expressed by the noble Lord who introduced the subject and by the noble Lord, Lord Desborough, I draw attention to the very great amount of confusion of mind which exists in many quarters on currency questions—confusion which is no doubt largely due to the great mass of literature which has been written on the subject in recent years by so-called experts expressing views so varied and so conflicting as to throw a sort of smoke screen over a subject which, when reduced to elementals—by which I mean the knowledge we gained of the principles of barter in our early schooldays—is not a very complicated one.
276 This confusion of mind is well illustrated by some remarks made by the noble and learned Viscount who leads the House a few months ago at a lunch. I hope the noble and learned Viscount will not mind my quoting him. He told us he knew little or nothing about the monetary question, that to improve his knowledge he had consulted six different experts, five of whom had put forward totally different schemes for remedying the present currency difficulties, and that in the end he knew little or nothing more about, the subject than he did before. I hope I have not misquoted the noble and learned Viscount and that, if I have, he will correct me.
§ TEE SECRETARY OF STATE FOR WAR (VISCOUNT HAILSHAM)
I do not think that was intended as a very serious contribution.
§ LORD GREENWAY
Well, I have quoted the remarks because I think they have a bearing on the speech delivered by the Chancellor of the Exchequer in another place early last month. In saying this I do not intend the slightest disparagement of the Chancellor, for whose ability and acumen we all have the greatest admiration; but we all know how much his time and his thoughts in recent months have been engaged upon other important questions and that he can have had but little time for consideration of the currency question, important as that is and ranking, as in my opinion it does, far ahead even of tariffs in the solution of the grave problems of unemployment and of financial dislocation with which the world is now confronted.
It is therefore, I think, reasonable to assume that in this matter he has had to rely largely, if not entirely, on the views of others, for if he had been able to study it closely himself he would not, I feel sure, have given voice to some of the views expressed in his speech. For example, dealing with the proposals of Sir Robert Horne, he is reported to have said that:If the price of silver was going to be the market price it was not going to be any particular inducement for the hoards of silver to come out of India and China. Supposing they could raise the price of silver from 1s 6d. to 2s. an ounce, and supposing they got by that means 1,000,000,000 ounces 277 of silver to come forward, what did that mean? It was only going to mean an addition of the equivalent of £100,000,000 of gold to the available supplies which were £2,500,000,000. That was too small—only 2 per cent.—to have any appreciable effect.I observed with some surprise that these remarks called forth some applause in another place, because they appear to me to reveal a complete lack of knowledge of international exchange operations. If a gold and silver bimetallism were adopted it would not be at all necessary that the hoards of silver now held by Indians and Chinamen should come out of those countries, nor is it probable that any would.
The advance which would occur in the prices of all raw commodities produced in these countries as the result of a bimetallic standard would, of course, give every Indian and every Chinaman more rupees and more taels to spend in the purchase of imports, but the two transactions of selling their produce and buying imports would, so far as one balanced the other, be in the nature of an exchange transaction and require no transfer of bullion. Any transfer of bullion that may become necessary to adjust the balance of trade must, in the case of India, be in favour of that country, because her exports are, and always must be, in excess of her imports. In other words, no silver can, to quote the Chancellor's words, "come forward" from India excepting in exchange for such gold —whether of the present or of a lowered standard—as that country may require in addition to that which she will in any case receive for the adjustment of her balance of trade.
As regards the figures he gives in support of his statement that the addition of silver to the gold supplies now available would have little appreciable effect—only 2 per cent.—I would point out that the correctness of this statement is dependent upon two factors: (1), as to what he means by "available supplies"; and (2), as to whether or not his assumption that silver would, as a result of the adoption of bimetallism, only advance to 2s. an ounce is justified. As regards (1), if he means that the amount of gold now available for international currency purposes is £2,500,000,000, I entirely differ from him, since a large portion of that amount is, as we all know, hopelessly sterilised 278 and is not available for international currency purposes, because the countries holding it cannot use it for purchasing from other countries. If he means that the £2,500,000,000 does not mean the gold available for international currency purposes, then the 2 per cent. he refers to is a totally misleading figure as it has no bearing at all on the question. As regards (2), there is no ground at all for the assumption that in the event of the adoption of a gold-silver bimetallism, the price of silver would only advance to 2s. On the contrary, it is certain that it would gradually advance, as purchases for currency purposes were made, to something like the price of pre-gold standard days, say to round about 5s. per ounce or even higher, if the old ratio of 15½ to 1 be adopted.
But to my mind the most serious and the most disturbing point of all in the Chancellor's speech was the remark that he did not see how bringing in silver to help out gold was going to be any effective help, "even supposing that they could get, what he was quite certain they could not get, the agreement of all the main central banks to adopt that system." I do not know precisely what he meant by "all the main central banks," but presumably he was referring to the main central banks of this country, commonly known as the "Big Five"— which, by the way, can hardly be regarded as reliable authorities or advisers on international currency questions, since their business lies almost entirely in the direction of home banking, and any little exchange business they may have to do is chiefly done through the medium of one or the other of the banks or financial houses having branches in other countries, and whose daily business is the carrying on of exchange operations.
It is true that some, if not all, of the "Big Five" may be opposed to bimetallism, quite wrongly and against their own interest in my opinion, because they do not keep their funds in gold and, bimetallism or no bimetallism, their pounds sterling would always remain pounds sterling, no matter what the standard of the sterling may be, and with a reduced standard for sterling they must necessarily get more pounds into their coffers. But, my Lords, is it not an entirely new and dangerous departure in legislation for a Government to require the assent of a very small section of the parties 279 chiefly concerned before they can introduce, or even consider seriously, a measure which has as its object the benefit of the whole Empire and the world at large? I say a very small section advisedly, because after all it is not the banks—whether he means the "Big Five" or any other group of banks—who are chiefly concerned, but the hundreds of millions of people in this country and in our Dominions and Dependencies, as well as in the rest of the world, including a vast number of the banks' own shareholders and customers, who are now suffering from the appalling economic evils which have been brought about by the gold standard, who are entitled to the greatest consideration. What would be the result if this principle—that a very small section only of the community should rule the policy of the Government—were applied to the Means Test Bill, to the Transport Bill, or to any other measure that may be brought forward with a view to ameliorating the terrible economic conditions now prevailing? I will leave your Lordships to answer this question for yourselves.
At the beginning of my remarks I ventured to say that the monetary question is not a very complicated one. I will now, in a very few words, endeavour to demonstrate this, although the same point has been pretty well covered by previous speakers. At present gold is the standard by which the values of all commodities are valued—the "yardstick," as it has been aptly called. Given an insufficient supply of that metal—which has been the position ever since so much of the world's gold currency has been sterilised—with which to carry on the commerce of the world (that is, for adjusting the trade balances between different nations) prices of all commodities must fall, as they have done in recent years, to a point at which, speaking broadly, it not longer pays the producers of raw materials to produce, whether he is in this country or abroad, or the manufacturer of those materials to manufacture. The situation in this respect has, it is perhaps needless to point out, been much aggravated in recent years by the fact that a number of other countries have gone on to the gold standard, thereby reducing the supplies of that metal available for the two or three countries which first of all set up the unfortunate gold fetish.
280 If on the other hand the standard for international currency purposes be altered from gold only to gold plus silver or any other alloy—that is, if the "yardstick" be lengthened—the prices of commodities must, conversely, advance to the extent of the percentage of alloy adopted for the new standard, and practically everybody will have more money to spend. Producers and manufacturers will be able to buy more plant and employ more labour. Shipowners will have more freights to carry. The man of means and the rentier will, by virtue of getting larger returns from their investments, and having to pay less Income Tax by the way, be able to resume their former mode of life and to re-engage the vast number of employees whom they have unfortunately been compelled in recent years to discharge. The professional man, because of the larger demand there will be for his services, will also be able to resume his former mode of living and thereby provide additional employment. The clerk, the artisan, the farm or other labourer will, owing to the greater demand which will be created for their work, earn higher wages. What is more important still, a great number of the men now unemployed would earn substantial wages instead of the meagre "dole" they are now getting, and all be able to buy more bread, more meat, more clothes, and more beer, tobacco, and other luxuries than they do now, and at the same time have more money to spend on their amusements. The only classes of the community likely to be adversely affected are pensioners and the clergy, and, I may add, the members of the other House in respect of their Parliamentary salaries. The incomes of these classes would no doubt have to be adjusted in one way or another, but this should present no difficulty, as the national revenues and Church funds would both be largely augmented.
In short, the adoption of bimetallism must, in our opinion, bring about an enormous reduction in the amount of unemployment, the removal of the crippling exchange—restrictions now in operation in so many countries, and consequently a great improvement in trade and a general return to prosperity all over the world. The only one argument that I have heard against it that seemed at the first glance to carry some weight is that the new gold of a reduced standard of quality 281 would also find its way to the countries which already hold the bulk of the world's supplies of that metal, and become equally sterilised. I do not think there is the least fear of this. Nations cannot go on accumulating useless and unremunerative "yardsticks' indefinitely—as America is now beginning to realise—any more than can a linen draper, and the adoption of bimetallism will, in my opinion, bring those nations which now hold the bulk of the gold to recognise all the sooner the futility of accumulations of useless metal, and sooner or later they must realise their hoards, either in trade or by loans to other countries.
The noble Lord, Lord Sanderson, made some reference to a scheme by which a basis of value could be set up, and in doing so he said that we should not pay attention so much to foreign trade as to our own home trade, which was six or seven times larger than the foreign trade; but does he realise that the value of our home trade is created by the imports of foreign raw materials? The actual production of raw materials in this country, which is the only thing by which you can judge, is infinitely less than the production of raw materials in the rest of the world, and, comparatively, our production of raw materials is negligible.
I think I have now taken up perhaps as much of your Lordships' time as I can reasonably expect, but before sitting down I will make a most earnest plea, as has been made by some of the previous speakers, that the Government will take up consideration of this vital question at the forthcoming World Economic Conference with all the earnestness it deserves, and that they will send to it as their representatives business men possessing real practical experience of exchange and currency questions, and not theorists or men whose experience is entirety limited to home banking. I will conclude by expressing the hope that your Lordships will strongly support the proposal before the House.
§ THE UNDER-SECRETARY OF STATE FOR WAR (EARL STANHOPE)
My Lords, those who know this House best have often remarked that there is practically no subject, however difficult and however abstruse it may be, upon which it will not be found that several members of your Lordships' House are ex- 282 perts and speak with a very real knowledge. Your Lordships will agree that the debate this evening is yet another proof of that statement; but it makes my task all the more difficult. I feel somewhat in the position of a friend of mine, who had to qualify for a mathematical examination in order to obtain an Honours degree. He worked very hard, and eventually presented himself for examination. After it was over he returned to his tutor and told him the answers he had given to the questions which were set. The remark of his tutor was: "If the examiners are kind they will probably let you through, but some of your answers show quite clearly that you really know nothing about the subject." Incidentally, he won a first, but 1 am afraid that I have no expectations of that character.
I think the whole House will agree that the object of those who favour bimetallism is a general rise in world prices, and what we really have to consider in regard to the debate is whether the adoption of bimetallism will effect that object, and to a really material degree. Bimetallists, I think, really put their faith in all nations coming to the same ratio between gold and silver, and I am rather sorry that Lord Hunsdon when he was speaking did not give us the reasons why bimetallism broke down in 1873. He gave us the impression that practically the whole world was under bimetallism, but I am informed that until the Latin Union France was the only country which really used it to a material extent. Why was it that bimetallism came to an end? England practised it once, but in 1816 it came to an end. The Latin Union, which was confined to France, Belgium, Switzerland, Italy and Greece, set up a Union about 1865, but that came to an end about 1875, partly due to the payment by France to Germany of the War Indemnity, which she had to pay in gold. It came to an end in other countries because those countries did not have the same ratio between gold and silver. The Gresham law, which lays down that the cheaper metal displaces the dearer, was really operative then. If a country found that it had over-valued its silver, and silver had decreased in price throughout the world, to such an extent that one pound of gold purchased 25s. worth of silver instead of 20s. worth, thereupon everybody sold his pound of gold to buy 25s. worth of silver, and proceeded to turn his 25s. of silver 283 into coinage, and so make a profit of 5s. The result was that silver flowed into that country, and gold disappeared. If it was the other way round and silver appreciated in value, then gold flowed in and silver flowed out.
That is what happened in this country. The result was that we found most of our silver had disappeared, while France and her allies in the Latin Union found they were loaded up with silver, and they became frightened and had to stop the coinage of silver. In those days the exchange of goods and commodities throughout the world was very much less than it is to-day, and therefore if you are to come to an arrangement by which gold or silver is not going to flow out of your country or other countries, you have to come to an agreement between all the most important countries, fixing the ratio at the same figure. I think from our experience of arrangements which we have had to make with other countries it is going to be a matter of extreme difficulty. I think Lord Sanderson referred to that point, and said he had not very much hope about it. I will not go so far, but I say that when you realise there are many countries, France herself for instance, which have reason to wish to stick to gold, while others such as China are on a silver basis, you will appreciate that it is going to be extremely difficult to get them to agree to a basis as between gold and silver.
The further argument has been put forward with regard to bimetallism, and I think Lord Hunsdon used it, that if you can improve the value of silver you will improve the purchasing power of the countries of the East. He particularly referred to India. India is not on a silver coinage basis. She is on a sterling basis, because the rupee is linked to the pound sterling, and therefore an increase in the value of silver will not have any effect upon the rupee. The only effect we can see with regard to India is that the vast hoards of silver held by natives may be tempted from those hoards and used for the purchase of commodities throughout the world. We shall all agree that these hoards are very largely used in India for social purposes, or at any rate for ornaments, and that many natives buy silver not merely in order to have a metal that they can handle but actually for the decoration of themselves or their houses, and so on.
§ EARL STANHOPE
The same with gold. When gold increased we did get a certain amount out of the hoard of India, but only a small proportion. The same thing would happen with regard to the hoards of silver. It is estimated—I think Sir Robert Horne gave the figure in another place—that there were 6,000,000,000 ounces of silver hoarded in India, and 2,000,000,000 ounces hoarded in China. What amount could we expect to come out? The Chancellor of the Exchequer said that as an extreme estimate we could not hope for more than one-eighth of that hoard to be thrown upon the world for currency purposes, and I think your Lordships will agree that that is more likely to be an over-estimate than an under-estimate. Supposing you put the value of silver at 2s. Supposing silver appreciates from 1s. 6d. to 2s., your 1,000,000,000 ounces only makes …100,000,000.
We are rather inclined to talk as if, with the increase that silver would make, the amount of metal available for currency would be very large indeed, but I think few of us realise the immense appreciation in the quantity of gold which exists in the world to-day. In 1900 there were £1,000,000,000 worth of gold in circulation. At the present time the supply of gold for monetary purposes has increased to £2,500,000,000 worth or two and a half times. Therefore your Lordships will realise that it is not shortage of gold in the world which has caused the great drop in prices. What has caused it is, as Lord Hunsdon said, maldistribution, and if your Lordships will refer to the report of the Committee of the Gold Delegation of the League of Nations you will find that they record their opinion, and I think it is one with which we should agree, that:The world's total stock of monetary gold, apart from any considerations as to its distribution among different countries, has at all times in recent years been adequate to support the credit structure legitimately required by world trade, and the rapid decline in prices which began in 1929 cannot be attributed to any deficiency in the gold supply considered in this sense.Therefore your Lordships will see that the Committee which has just been considering it says that the supply of gold in the world is adequate for the supply of goods 285 and that that is not the cause of the great fall in prices.
There are many other causes, and one of them undoubtedly is that so large an amount of the gold supply of the world has really been frozen in the vaults of France and the United States. Those two countries together hold something like 60 per cent. of the world's supply of gold, and Belgium, Holland and Switzerland hold a further 10 per cent. between them. That is to say, those five nations hold 70 per cent. of the monetary supplies of the world's goods. Are you going to increase the monetary supply if you add silver to gold? Even taking an extreme estimate, that you get 1,000,000,000 ounces of silver out of China and India, you will only get £100,000,000 sterling added to the £2,500,000,000 sterling which exists.
§ EARL STANHOPE
At the rate of 2s. If you take the annual output of silver, you will find it is 200,000,000 ounces. That again at 2s. per ounce only amounts to £20,000,000. Therefore your Lordships will see that, supposing we were able to get agreement between the more important nations of the world to establish a ratio between gold and silver to which they will all agree—and stick to it—the only increase in your yardstick is £20,000,000 on to an amount which at present exists of 22,500,000,000. That is to say, you would increase each year simply by the £20,000,000 of silver.
I hope I have shown your Lordships that, although it might make some difference, the view of the Government is that the adoption of bimetallism would make very little difference. That being so, we do not feel that at the International Conference we ought to pursue this question in the first instance. The whole country feels that the situation of the world at this moment is far too grave for us to spend many weeks on coming to an agreement on the question of the ratio of gold to silver. Certainly we look on the matter in a friendly light. We are anxious to do anything to improve the trade, and above all the confidence between the nations of the world which will increase that trade. Although we shall certainly be glad to consider anything put forward, bimetallism among other things, we do not consider it so important as to make it one of the first things to receive con- 286 sideration at the forthcoming International Conference. I am afraid I cannot entirely have satisfied my noble friend by this answer, but I can assure him that among other subjects bimetallism will undoubtedly be considered.