§ THE EARL OF LIVERPOOL had given Notice that he would ask His Majesty's Government whether they will consider the desirability of taking steps to deal with currencies relative to the exchange problem, more especially in view of the fact that owing to the amount of frozen money the assets of the Treasury are considerably affected; and move for Papers. The noble Earl said: My Lords, I have been asked by certain people to put down the Question that stands in my name. Before going into detail, I ought to say they are very much alarmed at the condition of affairs which prevails in many parts, in fact in all parts, of the world, as a. result of frozen credits due to the unsatisfactory condition of the exchanges. At the same time, undoubtedly there has been some improvement in that condition of affairs since last the matter was raised in your Lordships' House, and I think it would 303 be unfair if great credit for that improvement were not given both to His Majesty's Ambassadors and to the Government officials in the three large Departments concerned—namely, the Foreign Office, the Treasury, and the Board of Trade.
§ I felt, before saying anything in your Lordships' House this afternoon, that I ought to give the noble Earl who is going to reply some idea of the examples which I was going to quote of cases where a large amount of British capital was involved, because I did not want to act the part of a leather-jacket and traverse the whole pitch of the world. For that reason I felt I should only quote three instances. The first one is the place where there is probably most frozen British capital, and that is the Argentine. We are fully aware, of course, that the Committee appointed by the President is entirely favourable to us in many respects, but it now depends on how these conditions are going to be carried out. The Argentine itself must have learned a certain amount from the fact of the failure of their loan over here, because, so far as their railways are concerned, which are practically run entirely by British capital, if their credit is not to be permanently affected they will have to do something to release some of their money over here.
§ This Question of mine has been framed for a dual purpose. First I want to show the large amount of capital which is lost to the Treasury. Secondly, it is framed to safeguard and protect, so far as possible, the large amount of British capital invested all over the world and at present locked up owing to the unsatisfactory condition of the exchanges. This capital should not be considered, I think, as the property of certain investors. It originated from the earnings and savings of our country. It is truly national property, and deserves every possible protection from every Government in this country, for the country cannot afford to lose its savings. It may be said that we in this country are unwise to invest any capital in any foreign country, but I do not think that would be the view of many in your Lordships' House. Indeed it has been the practice in the last few years for the Governments of this country to assist foreign countries by means of loans owing to the depression which has ensued since the War.
304§ I leave the Argentine for a moment, and pass on to another country which, until the last few years, has always upheld its obligations. I want to ask the noble Earl, especially, what is the position as regards Chile. There a large amount of British capital is involved, and by the loss of the interest on that capital the Treasury also loses a large amount of money. I understand that the Chileans sent over a delegation to this country to talk with our Foreign Bondholders' Association. They suggested that on their Government obligations they should pay 50 per cent of their debt and that the other 50 per cent should go to liquidate the bonds themselves. T understand—the noble Earl will probably tell me—that our people over here in the Foreign Bondholders' Association strongly objected to that arrangement. I should be glad to hear whether a solution has been reached on the question or not.
§ There is, lastly, on the American Continent another case which has to deal with the question of exchanges. As we all know, Australia and New Zealand, both in their public and private undertakings, have never failed to act up to their obligations. Unhappily, Canada has not been quite so fortunate, because, so far as their private undertakings are concerned, they are to a certain degree mixed up with a foreign country—namely, the United States of America. There is one undertaking in Canada which you can hardly call a private undertaking, because it is involved very largely as a Government concern; I refer to the Canadian Pacific Railway. A large part of its primary stock—I understand it is 97 per cent.—is held in this country and that company is involved in payments to other railway lines in the United States of America. I understand that our officials here are, at the present moment, somewhat concerned as to how far they are involved in the United States. I would ask the noble Earl who is to reply whether he can tell us whether or not we have been approached to deal with this whole question so far as the American continent—I include South America as well as North America—is concerned, and to see if we cannot devise some scheme to make more satisfactory the condition of exchanges in that part of the world. Those who asked me to put this Question down realise the fact that our payments next year are going to be very much 305 greater than at the present time, and it would be pleasant, at all events, to know, both for the private individual and for those grasping people the Treasury, that they are going to get more money without putting a bigger burden on this country. I beg to move.
LORD STRABOLGIMy Louis, I think it will be agreed by your Lordships that the noble Earl who has just resumed his seat has introduced a good hot weather subject, also that it is, despite the weather, a subject of very great importance. The noble Earl, in what perhaps he will allow me to describe as his most interesting speech, dealt with three particular cases. I propose in my few remarks to deal with no actual cases, but only with one or two general principles. The noble Earl has performed the great service of loosening the single stone which brings down the avalanche, and I shall attempt to supply the avalanche by dealing with this question from the point of view of broad principles. I gave the noble Earl, Lord Stanhope, some very brief preliminary notice of what I was going to say, and I am sure, with his great knowledge of these matters and his great experience, he will be able to answer to the satisfaction of your Lordships.
The subject which the noble Earl, Lord Liverpool, has introduced deals with the questions of currency and exchange. I believe that the question of the stabilisation of the world's currencies is of tremendous importance to this country as a great trading nation, and that the greatest service the Government can do is to press forward with a sound system for the stabilisation of international exchanges; but if that stabilisation means that we are going, once more, to be cooped up in the strait-jacket of the gold standard, I submit to your Lordships that will be disastrous. I believe the majority of business men, trade anion leaders, and others in this country, and especially the younger generation of business men, and the younger generation of bankers, would agree that it would be an unmitigated disaster to go back to the old gold standard. That standard was bad enough when the rules were observed, before the days of huge international indebtedness, of gold hoarding, and of restrictions on foreign exchange and 306 foreign trade. I submit it is quite impossible to go back to it now.
I will trouble your Lordships with a very few of the more recent statistics to show how the countries which remained on gold have fared, compared with those who have gone off gold and are now within the sterling bloc, including the countries to which the noble Earl referred. The trouble is that certain of the bank presidents and Central Bank governors who attend the meetings of the Bank of International Settlement at Basle, and who come from the countries on the sterling basis, will insist on flirting with the idea of going back to gold. They have encouraged the old orthodox economists in the gold standard countries to cling to that out-of-date standard, with results that you see in Belgium, where the country was nearly ruined by remaining on gold far too long.
I believe we need an authoritative declaration now from the Government. Let them speak as a Government intending to govern, and say that they have no intention of going back to the gold standard at all under the conditions now ruling. We now know that the modern need for a currency, national or international, is not only that it should keep the price level reasonably stable, but that is shall be capable of expansion to keep pace with the steady increase in production, national and international. Otherwise we get that modern evil, deflation, which brings with it cuts and economies and reduction of purchasing power, and that modern anachronism, hunger and poverty in the midst of plenty. The present Government, or its immediate predecessor, the present Coalition Government was formed for the purpose of keeping Britain on the gold standard, and I cannot refrain from reminding your Lordships of the terrible prophecies that were made of what would happen if we abandoned the gold standard. Everything, we were told, would be ruined; the English pound would be worth nothing; all prices would rise. We were told this not only in this country, but by the orthodox economists in other countries. Well, since we have abandoned gold, the Chancellor of the Exchequer and the Leader of the House and other Ministers have been very fond of telling us that the position of this country has steadily improved, and 307 so has the position improved in certain other countries also on sterling and off gold. Of course, that is the British Government's fault we will be told. Some other countries have done better than we have. They have benefited from the presence of the present Government in Britain, I suppose! Sweden, which, I am sorry to have to remind your Lordships, has a Labour Government, has done even better than we have. The unemployment figure in Sweden now is better than the pre-War figure. It represents three quarters of one per cent. of the population.
Now, compare that with the position in other countries still on gold. I will trouble your Lordships with a few figures which have just been produced and which, I think, are of sufficient interest to quote. Before we consider the case, however, of the sterling countries, let us consider the case of Belgium, a country in many ways on all-fours with ours, with a Colonial Empire, and with a closely-settled population, dependent on her industries and very largely on her overseas trade. Belgium was nearly ruined by clinging to the gold standard. The wholesale price index rose in Belgium—here is something for those advocates of the gold standard who talk about stability and sound currency to answer—from a basic figure of 100 in 1914 to 744 in 1926, then to a peak of 851 in 1929, falling back to 470. In the boom year of 1929 it went up to 850 and during the years of deflation it fell to 470. The retail price index rose to 618 in 1926 as compared with 119 in 1914. It then rose to 875 in 1929, but in the slump fell to only 660, with the result that anyone could prophesy.
The cost of living in Belgium before they went off gold was 15 points higher than in 1926, and unemployment—these figures, I submit, are very striking indeed—during this terrible period rose from 28,000 in 1926 to the fantastic figure of 392,000 in the spring of this year just before Belgium went off gold. That would have happened to us if we had remained on gold. If Mr. Ramsay MacDonald and the present Viscount Snowden and others had had their way we should have remained on gold and we should have gone through this terrible experience that the industrious, hardworking and very businesslike Belgians have passed through. Bankruptcies 308 trebled in Belgium, and their so-called sound money finally brought a collapse and the country went off gold. Now they are beginning to look up again. The position in France, Germany and Italy with their so-called gold currencies—I say "so-called" because in Germany and Italy they are only nominal—is notorious.
I am now going to trouble your Lordships with some figures, because one must get down to facts. There has just been published the Statistical Year Book of the League of Nations which gives a mass of most valuable and official figures relating to the cost of living, employment, the index of production and so on. They are a little difficult to follow, but they have been co-ordinated and correlated and reduced to a common denominator by a very able young writer, Francis Williams, of the Daily Herald, with whose writings I have no doubt the noble Earl is familiar. He has a great reputation as an economist though not perhaps as a politician on the other side of your Lordships' House. He has analysed these figures, and they are most remarkable.
In all cases the 1929 figures when the post-War boom was at its height have been taken as 100. There are seven countries which show a distinct recovery from the slump period of 1931–2. Taking the figure of 100 in 1929, Japanese industrial production went down to 91, but has now risen to 136. With the exception of Russia, Japan shows the greatest improvement of all. I do not want to enter into reasons here. I dare say one reason which will be given is that of the present Government at Westminster. In the case of Russia the figure of industrial production in 1934 is 296, nearly three times as much as in 1929. Now I come to Sweden. In Sweden in the slump years 1931–2 the figure went down to 84.5. It is now back to 100. Now we come to our own country. Our lowest point of depression was reached in 1932 with a comparative figure of 83. It is now up to 99.1. It is nearly back to the 1929 figure. I admit that that is very satisfactory as far as it goes. The Danes are level with us, practically back to the 1929 figure. Norway, having slumped down to 78, is now up to 94.3, and Hungary, having slumped to 73.5, is now up to 94.1. So much for the countries who are off gold.
Now we come to countries with Fascist Governments on a nominal gold standard. 309 It is necessary to mention Fascist countries separately because it is obvious that the attempts to make a Corporate State and the various restrictions introduced have affected production, and politics of course come into the question here. Germany, with 100 in 1929, had reached a productive output at the end of 1934 of 87, Italy 80.9 and Austria 72.1. Those are the Fascist countries. Now let us turn to the gold bloc countries. France slumped down to 68.6 in 1931, and has now recovered to 70.7. Holland at the end of last year, as compared with the index figure of 100 in 1929, was up to 69.8 compared with our 99.1; Poland, 63; the United States of America (not on gold now), 66.4—there were special factors there because the slump went much lower—and Canada, from a figure of 100 in 1929, went down to 48 in 1933 (a terrible thing for an agricultural and raw material producing country) and is now only up to 74. I submit that those figures are very striking. They show throughout that countries on gold have suffered much more severely than countries that went off gold, and that we have now recovered to a greater extent.
I must now trouble your Lordships with a few figures about employment. I will not deal with the terrible figures of the slump years, I will only take the year 1929, the index year, and the 1934 figures. Again the index figure is 100. In the case of Japan the figure in 1934 was 105.9. Actually there were more people employed than in 1929. The figure for Denmark was 111.5, and for the United Kingdom, 99.9. The figure for this country is slightly up now; this figure is only to the end of 1934 when the Statistical Department of the League of Nations closed their books. The figure for Sweden, 96.2, is also slightly up now. We find therefore that the volume of employment in countries off gold has gone up to nearly the pre-slump figures. Now take the corresponding figures in the Fascist countries. They are: Italy, 69.6; Germany, 86.8, in spite of the tremendous programme of public works and great orders for munitions and armaments; and Austria, 67.1. Now we turn to the gold bloc countries. We are told what a wonderful thing it would be for us to go back to gold. This is what has actually happened. The figures in the gold bloc countries are: France, 72.1 (a new record for all time in France); 310 Holland, 69.1; Switzerland, 70.8; Poland, 57.8; Belgium, 74.3; all compared to an index figure of 100 in 1929. As a matter of interest only I may quote the case of the United States of America, which of course is not on gold, where the figure is 78.6.
Those figures, I submit, are conclusive, and the same lesson can be learned from the comparative figures of cost of living and other statistics in regard to all these nations. Countries that have remained on gold have suffered much more severely than those that went off gold. What saved us was that the Government were driven willy nilly off the gold standard. I hope they have learned their lesson. The International Chamber of Commerce has recently met in Paris, and a well-known economist, Professor T. E. Gregory, who may be supposed to speak with authority, fried to stampede the International Chamber of Commerce by declaring:
Universal stabilisation can only be attained upon the basis of gold. Although fixity of exchange would be obtained if every country did link up with sterling, it is politically impossible to think of France or the United States of America ever agreeing to such proposals.That is not true, or rather it is one of those dangerous half-truths which do infinitely more harm than downright misstatements.It is true that neither France nor Holland nor Switzerland nor the United States would be willing to link their currency to sterling so long as the principles according to which the currencies of the British Empire are and will be managed, are not clearly and openly defined. I am not here to criticise His Majesty's Government on this occasion, but I think our position should be defined more clearly than in the past. It is probably true that British public opinion will not allow the Government to return to gold before the gold bloc countries declare their readiness to manage their currencies according to the principles laid down by the Brussels Monetary Conference of 1922; that is to say, in such a way as to "avoid undue fluctuations in the purchasing power of gold." As I have tried to show, especially in the case of Belgium, gold, far from being a rigidly fixed standard, is as elastic as gutta percha where the prices of goods are concerned.
311 Those recommendations in 1922 were counsels of perfection, but since then there has been great progress in monetary science. I must remind your Lordships of the work of such economists and students as my friend Dr. Carl Snyder, of the Federal Reserve Bank of New York, whose name is well known to the Treasury and to the noble Earl, and the two famous French economists, Dr. Georges and Dr. Edouard Guillaume, of Paris and Neuchâtel. They have shown us precisely how to define the particular method of credit control, national and international, which will keep the price level approximately stable and allow trade and industry to expand at their natural rate of increase. It has been demonstrated by these gentlemen, by my friend Dr. Eisler in Vienna, Dr. H. Bolza and others, that the price level will not remain stable and economic activity will not be able to expand at the normal rate unless the volume of credit—that is, fiduciary circulation of all kinds—is expanded year after year at exactly the same percentage rate at which interest falls due on the existing indebtedness of the country or countries in question. Any expansion of credit beyond the proper percentage rate, such as we are likely to be forced into by the new armaments race, spells inflation, with all the concomitant evils of the inevitably-following period of credit contraction. Any expansion falling below the percentage rate at Which interest is falling due in the respective period means deflation, increased unemployment, a wave of bankruptcies and a catastrophic fall in prices. That is, of course, exactly what has happened now in France, Holland and the other gold countries.
I suggest to the noble Earl that the Government should tell the world quite frankly that we are not going to submit to the proper expansion of sterling credit which we are enjoying now being fatally cramped in order to prevent an outflow of gold caused by the failure of the gold bloc countries to expand their fiduciary currency in the proper proportion. Why should we sacrifice our proper expansion of credit to preserve the gold standard currencies in Holland or France? If they want England to link the pound to gold again, they must put themselves into the position of being able to expand their national credit-volume to the extent 312 which is necessary to prevent a further fall of gold prices, and they must undertake to start, by open-market policy operations, the credit expansion necessary to this effect at once. In other words, they have to follow us in an expansion of currency and credit, and not in further deflation. In itself, devaluation of the French and the Swiss franc and the Dutch guilder is not necessary. All these gold bloc countries could start on an expansionist policy to-morrow without devaluation if they were prepared to lose part of their gold reserves.
There is no reason why they should not. Apparently, however, these modern worshippers of the Calf of Gold want us to abandon our managed currency, to abandon our cheap money policy—which the Chancellor of the Exchequer says has helped our trade, and which I admit—and close our doors to the much-needed expansionist policy. Why? In order to preserve the fetish of gold. Above all, they want us to mortgage our Exchange Stabilisation Fund for the purpose of underpinning an out-of-date gold standard system. I understand that the United States have made various proposals recently for conversations or negotiations with us for the purpose of stabilisation, and that they have been refused. I do not know whether this is true or not; perhaps the noble Earl will inform us. I am also informed that the French authorities have made a similar invitation to us, but they, of course, want us to put up with the same or a similar strait waistcoat to that which they are now wearing, and I hope that we shall declare what our policy is.
After all, the international gold standard only operated for forty years before the War. It is quite a modern thing. Then it was operated from London, under a free trade system, with free lending of our surplus capital for developing overseas markets. May I say to the noble Earl, Lord Liverpool, that I entirely agree with what he said about foreign lending? It was the only way to proceed in the old days; we had to lend our surplus capital abroad to undeveloped territories, for exporting machinery, and so forth. During the last twenty-five years we have only been on gold for ten years, and then it has worked very badly and inefficiently.
Then the Chancellor of the Exchequer declares that we are not ready to con 313 sider stabilisation, which I understand was his last declaration. What are the bankers doing? The members of the Bank of International Settlement are apparently working independently, seeking to stabilise round about the present exchange values, but without the dollar; that is, to stabilise our currency with the Dutch, the Swiss and the French currencies and others, using our Stabilisation Fund and abandoning the present advantages, but leaving the dollar free. I suggest that that would be a most dangerous course to take. But the interesting thing is that there seem to be two policies pursued. I say "seem to be," because there may be an explanation, and no doubt the noble Earl has one. At the same time there is one policy that is adumbrated and followed by the Chancellor of the Exchequer as head of the Treasury, he says that we are not ready for stabilisation yet. I dare say that he is right, but we ought to work for stabilisation, and on something like the present sterling basis. Then there is the other policy pursued by the central bankers, including our own eminent Governor of the Bank of England, and they appear to be working for stabilisation in order to be able presently all to go back to the gold standard. Which is the national policy, and which one is going to be followed, and who is the master in this matter?
The Labour Party policy is perfectly clear. It was laid down as long ago as 1931 at the Scarborough Conference, our annual conference. If I have your Lordships' permission, I will read it to your Lordships; it is quite brief. In 1931 this policy was laid down by the Labour Party, and I submit that it is the only sound policy for this country to pursue:
This Conference expresses the conviction that the aim of monetary policy should be to stabilise wholesale prices at a reasonable level.There are some words that follow which I leave out because they are not relevant to this discussion. It goes on:It would, therefore, condemn either currency inflation or any fresh attempt at deflation in order to force sterling back to the old gold parity. It recommends that this country should take the initiative in causing an International Conference to be called with the object of arriving at a concerted monetary policy which will enable the world's resources to be made available for the peoples who to-day are starving in the midst of plenty.314 That is the official policy of the Labour Party, which has not been departed from and which I submit is a perfectly sound policy for this country to pursue. But we must state what our present Government's policy is and make it plain to the whole world. I believe that if we do that there will be an opportunity of having a more reasonable currency system at work internationally in a few years.There are very powerful influences working in France, Holland, Czechoslovakia and the other gold bloc countries to come off the gold standard. When I was in New York in 1932 I ventured to suggest that America might find it expedient to come off the gold standard. There was a tremendous uproar. I made the remark at a public function; it was reported in all the newspapers and was made headline news. Then I received great praise from the people who depended on overseas trade, and great abuse from those representing the bond-holding interests generally. But America came off gold, as I believe was inevitable. France will eventually come off gold, and then Holland, Switzerland and other countries will do the same, and will benefit enormously when they do. But why not do it in an orderly way? Why should they invite a catastrophe by delay, as in the case of Belgium?
We have the oldest tradition of foreign lending and banking, as the noble Earl reminded your Lordships, of all the countries in the world. Speaking, I hope without undue pride, as an Englishman, I say that our bankers are the most honest in the world. Fewer bankers go to gaol in this country in a century than in any other country, and not only because they are not found out. By our very high tradition in the past we led the way in international lending and foreign monetary operations, and our prestige is enormously high. If we could only get away from this fetish of gold and learn from our recent comparatively happy experience of sterling, then I believe that we could give a lead to the whole world which would do more than anything else to help the restoration of international trade and commerce.
If this Government, with its financial prestige—I am not going to talk about its prestige in other directions—would take a line and stick to it, and give a lead, I believe that the policy which I have quoted could be carried out. Since 315 that Labour Conference at Scarborough, the World Economic Conference has met. It was not properly prepared for. It met in a jazz atmosphere, with cinematographs and limelights, and with the Prime Minister posturing and all that sort of business, but if another and more business-like Conference, such as the Brussels Conference of 1922, could be called, and we could give a lead, I think good results would follow. I have not followed very closely the line of argument of the noble Earl, Lord Liverpool, but I think my remarks have been relevant to his Motion. He has told us some of the evil results of the present state of affairs, and I have ventured to suggest a remedy.
§ EARL PEELMy Lords, I have listened with great interest to the speech of the noble Lord. It illustrated many things, and among others the fine liberty which we enjoy and the way in which we hate confining ourselves too closely to the questions put down for us. Nevertheless, I listened with great interest to the statistics which were so liberally given to us by the noble Lord in his comparison between countries on the gold standard and those which were not on the gold standard. I do not wish to delay your Lordships on that subject at this moment, except that perhaps I might refer to the Macmillan Report, which dealt very fully with this subject. I do not think we ought to lay all the stresses of the world upon, and draw all the inferences as to the condition of those countries from, the purely monetary question. There are so many other questions which come in. I entirely agree with the noble Lord on one point, in that I hope we are not going to have a. great International Conference again. I believe that nothing whatever did come out of that Conference, and that nothing can come out of a Conference of that kind. The only thing which does emerge is that it has shown how utterly impossible it is for anything to come out of a Conference of that kind. We have gained that valuable experience.
The noble Earl who started the debate did not, I think, give the Government much guidance as to the way in which they should act. His was a rather general invitation to them to deal with this extraordinarily complicated question of the exchanges. I was going, if I might, in only a few words, to say one or two things on that point, because the Chancellor of the Exchequer and other Government 316 authorities have indicated that, although the way was hard and difficult, and although a return to the gold standard was at the present moment impossible, yet they looked forward, or rather suggested, that in time we might see a return to the gold standard. I am not talking for a moment of whether a return to the gold standard is a desirable thing. I quite agree with the observation of the noble Lord that in this new world, in this difficult and changing world, it is almost impossible, anyhow, to recreate the conditions on which a gold standard has worked in the past. What has been called "playing the game" of the gold standard was a very difficult thing, and depended upon certain conditions. It depended upon the control which this country exercised of the money market and of finance, and also upon the very remarkable habit which we have acquired, whether by instinct or experience, of reinvesting in those markets where we made our money.
It does seem to me, however, and again I agree with the noble Lord, that it is perfectly hopeless to talk about any return to the gold standard, and that whatever that return may be, it must be an entirely different form of gold standard from that which existed in the past, so long as you have the United States of America in the condition they are. I know nothing about any conversations that have taken place. I can only judge from my own experience in dealing with them, and I understand that there is not the slightest intention, as yet, of the American Government making a more fixed relation between gold and the dollar, or, at all events, that they are going to reserve to themselves power to alter that relation when they like in relation to trade levels in their own country. If you have that condition of mind in the United States, it is hopeless to suppose that you are going to make any stabilisation system with the United States on the basis of gold. One has read the statement made by the President recently. He talks, not so much of a dollar which has particular relation to gold, but of the commodity dollar, of the dollar based on the values of certain leading commodities at the time.
If that is the case, surely we are further away from the gold standard than ever, and it becomes, I would suggest, almost a waste of time to be 317 discussing these matters. I think I differ to some extent about what the noble Lord said about young economists, because I notice that one distinguished, and I might say almost venerable economist, Professor Cassel, takes the view that the gold standard is worn out, and he is one of the most distinguished of the older economists. If that is not a practical policy, what are we thrown back upon? I think we have perhaps to learn a great deal as to the exchanges between those countries which have adjusted their currencies to sterling. It bas been very remarkable to those who have followed the stability of the exchanges, that Norway and Sweden, and so on, are practically on a sterling basis, and the only thing one can suggest—I dare say one ought not to suggest anything, because the whole subject is so difficult—is that every attempt should be made by this country to extend that sterling basis to other countries; because, if you compare our course of trade and exchanges with the countries which are wholly, or partially, or are pretending to be, on the gold standard, the extent to which our trade has improved with those countries which are practically on a. sterling basis is very remarkable.
I therefore urge the Government—I do not think they want urging as a matter of fact—to be extremely careful on this question of the return to the gold standard. If they really feel that the conditions which have been laid down more than once by the Chancellor of the Exchequer of returning to the gold standard are not likely to occur, they had better state quite frankly that they do not think that for many years at any rate there is much chance of returning even to a modified gold standard. I think if they said something of that kind it would have a great effect in clearing the air, and indeed indicating to other countries what was the line of policy in monetary matters to be followed by this country.
§ THE UNDER-SECRETARY OF STATE FOR FOREIGN AFFAIRS (EARL STANHOPE)My Lords, I am very grateful to the noble Earl who moved this Motion for his kindness in telling me something of what he was going to say and so enabling me to prepare to answer it. Whether my replies will be satisfactory to him I am not quite sure, but at any 318 rate they will be much more to the point than they would have been without his consideration. The Question on the Order Paper deals with currencies and with the exchange problem, and those are not quite t he same thing. For instance, in two cases to which my noble friend referred the currency of the Argentine is already definitely linked to sterling, and that of Chile to a large extent is for practical purposes also linked with our currency. As regards stabilisation, I really do not think that I can say very much more than was stated by the Chancellor al the Exchequer some two months ago when he stated that:
Stabilisation of the currency is one of our ultimate objectives. We are watching, and shall continue to watch, the situation with a view to taking action at any time that it seems likely to bring about useful results.I think your Lordships will agree that many conditions would have to be fulfilled before we could go much further in the direction stated. The noble Earl, Lord Peel, suggested that we should make a statement that we should never return to stabilisation. That, too, I should be unwilling to do—of course I am not authorised to do so—because conditions in the world are changing so rapidly that it would be quite impossible to forecast what would happen some years hence.
§ EARL PEELI did not put it quite so sharply as that. I said the conditions laid down by the Chancellor of the Exchequer were such that I did not think it was possible at any rate within any reasonable time for those conditions to be fulfilled.
§ EARL STANHOPEI am sorry I misunderstood my noble friend, but I think we are more or less in agreement on the matter. As regards the exchange our difficulties here, as I pointed out last year when the noble Earl, Lord Liverpool, raised the question, do not really arise in either the Argentine or Chile owing to the instability of their currency in relation to sterling, but to the heavy fall in the value of the products which they export. Argentine exports principally meat, maize and wheat. Chile exports principally nitrates and copper. The prices of those products are now very much lower than they were when British capital was invested in those countries, and unless and until prices return to a better level, the return on 319 British capital is bound also to be at a low rate of interest. We do not believe that prices will remain indefinitely at their present low figure, and that is one of the reasons why we think it would be unwise at this moment to return to the gold standard. My noble friend Lord Liverpool is quite right in saying that it is, of course, to the interests of the Chancellor of the Exchequer that the biggest possible return should be received from British capital invested abroad, and that is not only the view of the Chancellor of the Exchequer, as it is of every member of the Government, but it is also the view of every taxpayer. It is quite obvious that the more dividends we receive in this country the lower the rate of tax per pound would be; therefore it is to all our interests that we should receive the greatest possible amount of interest in this country.
I referred last year to the work which is being done by the Council of Foreign Bondholders and by the League Loans Committee. Those two bodies during the past twelve months have been perhaps more active than they have ever been before, and have done most valuable work on behalf of those whose money is invested abroad. Wherever they can reach an agreement with a foreign country without the intervention of the Government, that, I think your Lordships will agree, is the best method of all; but where it is found that they cannot make progress, or that there is some special reason, such as an attempt to discriminate against the British investor, or where the foreign debtor takes unilateral action in defiance of the reasonable expectations of the creditor, then the Government are not slow to intervene. There was a case only a few weeks ago when His Majesty's Government, in concert with the French Government, made strong representations to the Government of Greece, owing to the unilateral default of the Greek Government on the service of its loans since April 1 last.
As regards the Argentine railways, to which my noble friend referred, railways in these new countries are in particular affected by the economic activity of the countries in question. That was proved last week by what happened in regard to wheat. As soon as wheat prices broke, the price of Argentine railways on the Stock Exchange here also became unstable, showing how wheat prices affect 320 the value of our investments in Argentine railways, owing to the inter-relation of traffics between them. Now under the agreement between this country and the Argentine of May, 1933, the Argentine Government agreed to accord benevolent treatment to public utility undertakings and other companies in which British capital has been invested. As regards railways, a local committee was set up, and has recommended various ways in which the railways required help. So far, I understand that the President of the Argentine Republic has not given a. decision about the matter, and we do not yet know what effective action will be taken in the Argentine to give effect to the recommendations of that Committee. But I can assure my noble friend that we shall lose no opportunity to press the claims of British investors and the outlook and future of British railways in the Argentine upon the Government of that country in order to see that they receive fair, anti indeed generous, treatment.
As regards Chile, the improvement to which I referred last year has been maintained. In January the Chilean Government felt able to provide that the service of external debt should be partially resumed. The scheme which they proposed was not quite that which my noble friend suggested. What they proposed was that they should set aside all revenue which they received from the copper and nitrate industries, for the purpose of their foreign loans, and that 50 per cent. of that revenue should be devoted to the payment of interest, and 50 per cent. to amortisation. It is not for the payment of 50 per cent. of the interest, but 50 per cent. of the revenue raised is to be devoted to the payment of interest, which of course may be more or less, and I am afraid it is likely to be a good deal less than 50 per cent. of the amount due. That scheme was very strongly objected to by the Council of Foreign Bondholders, and for obvious reasons. If you do not pay interest on your debt, and thereby depreciate its value, of course you can buy it back at a very low price. That was obviously unfair. When the Council of Foreign Bondholders went into the matter more thoroughly, and had discussions with the Chilean representatives who came over to this country, they came to the conclusion that, in the very unusual circumstances which 321 prevailed in Chile, the Chilean Government were justified in saying that they could not put forward a more favourable scheme than that contained in the proposals of January last. I gather that the Council of Foreign Bondholders, therefore, agreed that the scheme should be accepted.
As regards the Canadian Pacific Railway, that, I think, is an entirely different matter. As I understand it, the directors of the Canadian Pacific Railway have decided not to pay any dividend or, the preference stock. As I understand it, that, of course, would be solely a matter between the directors and the shareholders of the company, in which neither the Canadian Government, still less this Government, would have anything to say. If it is wrong, it is a matter for the shareholders to set right by calling a special meeting and by dealing with their directors as they see fit. It is not a matter in which the Treasury or the Foreign Office or the Board of Trade could take any part at all.
The feeling of the Government is that au International Committee on the whole question of currency and exchange would suffer the same fate now as that of the. Economic Conference called in 1933. Believing, as we do, that the first essential is to raise the prices of primary products on the market, so that there should be a better return for the producers in countries such as the Argentine and our Dominions, we are attacking the problem in detail. The question of maintaining and increasing the price of wheat, which so materially affects the Argentine, and the price of copper, which affects Chile, are being discussed internationally at this moment, and we hope that some scheme may be arrived at by these, producers which will raise prices in the markets generally to the benefit of those countries and of ourselves. As in other matters, for instance in the question of armaments, and in many matters also of trade, we have found that better progress is made if individual topics are dealt with rather than if a too ambitious programme is attempted.
That is the case, not only from the financial aspect, but also as regards trade. There, of course, we have been able to make bilateral agreements with a whole number of countries. We have materially 322 improved the trade of our own country in consequence, and also we have succeeded in getting much better treatment for the redemption of debts due to those who have sold our goods overseas. In a good many cases, some of which I could give to your Lordships if you so desired, we have got foreign countries to set aside sums of money to unfreeze old trade debts standing there, and once again to get the wheels of trade moving. Also we have been following the line that discussions by those who are individually concerned in business usually have far more fruitful results than international committees set up to consider the whole question of the economic position. I do not see in his place either the noble Lord the Leader of the Opposition or the noble Viscount, Lord Cecil, both of whom always object to the experts. In regard to finance and trade, however, I think there will be very little doubt among other members of your Lordships' House that it is riot unwise to trust the expert where his business interests are concerned, and get him to discuss the matter with those in the same line as himself and come to an agreement if he can. Probably it tends to be a sound agreement, and, if it is overlooked by the Government, as of course it is, probably it not only benefits the trade in question, but also the consumer as well.
I need not deal with trade restrictions, because that is not a matter which any of your Lordships raised. The noble Lord opposite talked about the Labour Party policy of 1931, but I am afraid he is entirely out of date. The Labour policy now is, I understand, that put forward by Sir Stafford Cripps, to promote a great financial crisis in which I suppose everybody will have to be quick-fingered to pick up anything he can—
LORD STRABOLGIMay I venture to correct the noble Earl? I know be is very interested in these matters. When I speak of the Labour Party policy I mean the policy that is laid down and voted upon at our great annual gathering called our annual conference. Sir Stafford Cripps's 'speeches, frequently, I am afraid, misquoted as in this case, only become the policy when they are approved and debated and voted upon at this great gathering.
§ EARL STANHOPEI fully understand that, and I understand that the difficulty 323 last year was that they could not come to any agreement as to what their policy was. After all, 1931 is four years ago.
§ EARL STANHOPEThe Labour Party did not come to any agreement last year.
§ EARL STANHOPEThey will have to do it before they go to the country at the next Election, and I wish them luck. The noble Lord opposite apparently is not going to agree with one of his leaders.
LORD STRABOLGIThe noble Earl is very good-natured. I quoted the policy of the Labour Party with regard to currency and exchange and the gold standard. That has not been altered. It has not been debated. It stands.
§ EARL STANHOPEIt undoubtedly will have to be debated, and very promptly, because if the plan for a financial crisis takes effect there will be no stabilisation and no equalisation of currencies, because the first thing that will happen will be that our own currency will crash.
§ LORD SANDERSONMy noble friend is quite correct in calling it the Labour Party policy. The Labour Party policy has not been to advocate a crisis. No one has ever suggested such a thing. Our policy on this question of stabilisation is as laid down in the Party Conference at Scarborough in 1931, as my noble friend has claimed.
§ EARL STANHOPEI am quite content to leave noble Lords opposite to settle what their policy is to be. I hope they will make it clear to the country what it is to be because, at any rate, it is not clear to me. The noble Lord, apparently, gave advice to the United States that they should come off the gold standard. Whether he was suggesting that the Foreign Office should send him off as yet another Ambassador to the gold countries to give the same advice, I was not clear, but we do not feel it is our business to interfere in the matter. I am afraid, therefore, we cannot employ the noble Lord in that particular direction. He talked about the Government's financial prestige, and he is quite right. It was not the result of coming off the gold 324 standard. It was the result, first of all, of balancing our Budget and paying our way as we went along. That is the difference that exists between us and the Government from which we took over. That is one of the reasons which are making those extraordinary differences between the nations of the world.
It does not depend on whether a country is on or off the gold standard. It depends on a whole variety of circumstances, which I could not go into now even if I had the knowledge. The first one is that countries should pay their way, and until you get a balanced Budget it is impossible for a country to know whether it is going to keep its currency up to a particular figure or not. That is one of the first things which must be settled before you get any real feeling of security in the world, and that feeling of security is necessary before you take any further steps. I agree entirely with all my noble friend Lord Peel said on that matter, and also with what he said in regard to the stabilisation of currencies on sterling. It is quite true that those who have linked their currencies with sterling seem to have been able, as we have, to keep their currencies on a general level in regard to prices, and to have had comparatively few difficulties in regard to exchange from the variations of the currency problem.
But our difficulties in regard to exchange, I should like again to repeat, are very largely due to the fact of this extraordinary fall in the prices of primary products. That is a matter which is really vital before we can get the trade of this country fully going again, and before the Dominions can feel themselves really happy, in view of the vast amount of primary products which they send to this country, often at a price which is entirely unproductive to the producer. I am afraid I cannot lay any Papers about this question, and I am not sure that I have answered as fully as my noble friend would like, but it is an extraordinary difficult question. I hope I have not upset the agreement which has been prevailing throughout the whole of the sitting of this House to-day in contrast with what has been the case during the past few days, but I think, as a whole, we are in general agreement on this question, and I hope I have not said 325 anything with which the noble Earl is likely to disagree.
THE EARL OF LIVERPOOLMy Lords, I would like to thank the noble Earl for his reply. There is just one point on which I would like to have more information. He made a reference to the position in Chile and to an agreement which had been arrived at with the Foreign Bondholders' Association. I should be glad if the noble Earl could give me more information on that point.
§ EARL STANHOPEMy Lords, I can give the noble Earl the actual proposals of the Chilean Government in detail, as contained in a summary of Law No. 5580 of 31st January, 1935. They are: (1), All revenues accruing to the Government from copper and nitrate industries to be delivered to the Public Debt Amortisation Bank as from January, 1, 1935, for External Debt service. (2), No other source of revenue to be dedicated to this object by the Bank. (3), Fifty 326 per cent. of such revenue to be applied to pay interest, and in no case shall the payment exceed the rate of interest corresponding to each loan, and remainder to expenses and amortisation of bonds either by purchase in the open market, or by drawings at par. (4), Coupons to be surrendered in exchange for such payments of interest as may be made from time to time on their account. The encashment of one coupon to bring the bond to which it belongs within the future operation of the Law, the terms of which supersede those of the original contract. (5), If any bondholders do not take interest placed at their disposal, these sums may also be allocated by Presidental Decree to amortisation.
§ Motion for Papers, by leave, withdrawn.
§ House adjourned at five minutes before seven o'clock.