§ LORD MELCHETT rose to ask His Majesty's Government whether since the safety and prosperity of the subjects of this realm would be seriously endangered by a repetition of an economic catastrophe of the dimensions of the depression of 1929–1934, His Majesty's Government are prepared to inquire into the possibility of avoiding such a catastrophe by the joint action of His Majesty's Government, of organised industry, and of the recognised financial institutions of the country; and to move for Papers.
§ The noble Lord said: My Lords, I do not think that the subject of the Motion which I have put on the Paper for this afternoon requires an apology on my part for troubling your Lordships' House with it, because within the last few weeks there has been a great deal of general interest taken in this subject. Your Lordships' House yesterday spent a long time in discussing the international position with which we are faced, but without, I think, going very carefully into the basic causes which have given rise to that international position. Although the question to which I want to draw your attention this afternoon is in my opinion closely related to 357 the troubles that you were dealing with yesterday, no reference was then made to it at all. It is not many weeks since The Times newspaper published a series of articles by a very eminent economist, and followed them with a leading article of its own in which it made a statement with which I should like to preface all the remarks I propose to make this afternoon. The Times said that this country and the world can no more afford a new slump than it can afford a new war. And not only The Times but also the Daily Telegraph, a very responsible paper, published a number of articles and letters on this question, and drew the attention of the country to the fact that most of the chairmen of our great banks had in recent speeches referred to the dangers of a new depression and the troubles that might arise from it.
§ I believe that this is one of those matters which deserve our attention and our interest perhaps more urgently than is usually realised. There is rather a tendency, to-day, to look upon the recent depression as something which has happened and is now fortunately passed, to think that its effects are temporary in character, that some people lost money and other people made money, and that there was a certain amount of unemployment which is not likely to happen to the same extent again. Since then progress has been rather more rapid than people had supposed it would be, and they are inclined therefore to think that there has been an end of the matter. I want to spend some time this afternoon in trying to show that in fact the opposite is the case, and that while there are a certain number of temporary phenomena, distressing indeed but strictly temporary, there are also a great many and perhaps the most dangerous phenomena arising from the depression which are by no means temporary but permanent.
§ If one deals with the condition of affairs at home to begin with, I think one would first observe that perhaps one of the best phenomena arising out of the recent depression is that His Majesty's Government was evoked by that depression. Secondly, this country embarked upon a tariff system, which was a very big, a very remarkable, and, with many others I hope, not a temporary change. One is bound to admit that one of the worst results of the recent slump, and 358 one which appears, at any rate at present, to be a permanent result, is what we know as the distressed areas. Before the recent depression one never heard the term "distressed areas." There was in the country at different times a great deal of unemployment which rose and fell, but the distressed areas, this hard core of trouble which all the efforts of His Majesty's Government have so far been unavailing to shift, are a post-War phenomena. They are something with which we have to deal for the first time in this country, and something which, I think the Government will agree, has so far proved very intractable and very hard indeed to cope with. Then we have had such a change as the abandonment of the gold standard. That I do not think is a temporary change. I think it is a permanent result of the recent depression.
§ One has to realise among the temporary effects the very severe unemployment that took place at the time, the arrest of progress in all commercial and industrial enterprise, the arrest of progress in research, the arrest of progress in welfare, the general slowing up of all the most beneficial activities of the community, and, indeed, of the world. In addition to that, there was the slowing up of one aspect of our national life with which we have now to deal very stringently. I refer to the cutting down of His Majesty's forces to an extent which very definitely endangered the peace of Europe, and caused the very sudden revulsion of policy on the part of the Government as seen in the necessity for a large expenditure upon those forces to-day because we expended so little in the past.
§ If one takes those things only in their broadest way and not by any means as a detailed survey of the malignant effects at home, I would next ask your Lordships to consider the effects abroad. One could go on at great length on the subject of the dangers and difficulties that arose in this country during the years 1929 to 1933–34, but I do not wish unduly to stress this aspect of the matter, because in many ways I think the depression in foreign countries was a great deal worse and more dangerous than that which we experienced at home. I would just like to say, however, before I leave the domestic picture, that one of the most depressing aspects of it was the apparent 359 helplessness of everyone concerned. One remembers during those dark days a Government spokesman referring to the "economic blizzard" as something which had swept down upon them and with which they were quite unable to cope, as something beyond them, as something that they struggled against as best they could but did not pretend to be able to master. Here was a great economic phenomenon, which was unprecedented in the history of the world, which they hoped they would be able to survive but which they were by no means able to control.
§ Let us look abroad. I think it is no exaggeration to say that the present Government in Germany is the direct result of the economic depression of 1929 to 1933–34. I do not want to stress this point unduly. One knows very well that the Treaty of Versailles and many other aspects of international relations affected the growth of the Party which the present Government of Germany represents, but any one who has studied the political history of that country knows very well that the success of that Party was not by any means a consistent forward movement, but was due chiefly to the great depression beginning in 1929 and continuing in the succeeding years. It was that which gave that Party the opportunity to seize power, to destroy democracy, and to set up a dictatorship. The results of the course of events that took place at that time have been serious to the people of this country, and, indeed, to the people of Europe.
§ At the same time, and during the same period, the foundations were laid—one might say foundations were destroyed—that led up to the trouble in Spain. There a semi-Communist Government got into power. It was a weak Government, unable to control the country, and there followed the violent and bloody reaction which is still in progress. Without wishing to put more upon this argument than it can naturally stand, I think that any one would find it difficult to say to what extent the great economic depression had an effect upon the decision of the Italian Government to embark upon its Abyssinian adventure. Serious economic troubles are often relieved by an external display, and one certainly knows of such a display within recent years which caused the greatest possible embarrass- 360 ment to this country, endangered the basis of the League of Nations, and disturbed the whole peace of Europe. I do not think that it is possible to deny that abroad the results of the great depression very nearly brought the world to the brink of the abyss, very nearly brought us to the stage where, once more, we saw war staring us in the face. And this all arose consequent upon and immediately after this unparalleled economic depression, and was by no means inherent in the period from 1920 to 1929, when, in spite of the many difficulties we had to face, both in the domestic and in the international field, the world did seem to be moving forward to an element of stability, an element of peace and an element of prosperity.
§ When one regards the crisis itself, looking back on it as a thing of the past, one is chiefly struck by its absurdity. It is, perhaps, the most ridiculous period through which the human race ever passed. One can sum it up by saying that the prices of commodities and the volume of production and consumption of the primary commodities and of most secondary commodities fell and rose by between 60 and 70 per cent. in a matter of four or five years. If one follows the curve of the main world industries that is just about what happened. They went down in price and quantity by from 60 to 70 per cent. and they have since risen again by the same amount or a little more. That is a truly ridiculous thing to have happened. It is an absurd thing for us to have experienced. It dislocated the whole economic system of the world and, as I have pointed out and propose to argue again in a moment, it had the most disastrous effects on the political systems of the world.
§ To-day one is not living in the same sort of society or in the same sort of structure as in the last century. I would have your Lordships remember that the political structure of countries in those days was something very different from what it is now. We had not then the great extensions of the franchise which have been made since. At that time there were far more means of resisting shock and disturbance. To-day the world, to a large extent, is organised, or it was organised before the depression, upon a highly democratic basis, and democracy is in some ways a tender plant. It cannot stand too much stress or too much shock. 361 That has been historically true for many centuries. As a result, many democracies have been destroyed in all directions. Even in a great country like the United States of America it has been stated—although I do not think justly stated—that democracy is in some danger, and that the President in seeking powers to deal with economic troubles is jeopardising the freedom and liberty of the State.
§ There can be no doubt that in the modern world, with the existing power of rapid communication, the speed with which people all over the world, whether they are engaged in trade, or finance, or commerce, or politics, may form the same opinion and act upon it almost within a few minutes, you have a much more dangerous state of affairs than ever existed before. The telephone, wireless communication, the great extension of communications in every direction, and the far greater knowledge of statistics and figures, enable one direction to be taken by the whole world at one time in a way which creates a far greater economic danger than existed before, when information spread about the world rather slowly and there were all sorts of countervailing actions which could be set off against the extreme view taken by one set of individuals. If, for instance, the view is taken that one commodity, say copper, is too dear or too cheap, the whole world can take practically the same view immediately and everybody can buy or sell copper within half an hour. From Valparaiso to New York, from New York to Shanghai and right across the world to Moscow, everybody can be doing exactly the same thing. So you get very exaggerated movements in velocity and volume compared with anything that existed before.
§ That velocity and volume of economic movement, as compared with the delicacy of modern political structures, creates a danger to civilisation which I do not think is wholly realised. The danger is all the greater if one takes into account that there is no reason to suppose that the consequences of any future depression will not be worse than the last. There is no reason at all to imagine that if another depression develops it will be less severe in any of its effects than was the last depression. In fact, I would say that there is evidence to show that it may be far worse, far more severe. I would put it to your Lordships for consideration that, if that 362 be true, even the political basis of this country, which to-day seems so safe and so secure with a comfortable Parliamentary majority and a National Government, might be endangered and might go through that period of difficulty which one has seen in countries on the Continent. I do not think that can be wholly dismissed or that one can imagine that, because we are secure to-day, we are bound to be secure for ever.
§
One might say without real fear of contradiction that slumps and economic depressions evoke dictatorships and tyrannies and that they evoke one of the greatest dangers which we have to face at the present time. The Times summed it up very well when it said:
In these modern times the alternation of the [trade] cycle has become so violent, so devastating in its effects, that the old fatalistic attitude is no longer possible. Whether we like it or not, we are compelled to work out a science of economic engineering and economic irrigation to maintain a steady flow of the river of business activity, protecting industry from alternate floods and droughts.
I think the case for something to be done is unanswerable, but I am quite prepared to admit that I cannot come forward this afternoon with any patent panacea or any great plan for settling the problem. It is far too big. It requires the greatest consideration. What I do plead this afternoon is that it requires consideration and constructive work on the part of the only people who can undertake the work, and those people are His Majesty's Government. There are various people who have different views as to how these matters might be dealt with. There are some who believe that there is a monetary solution to all these problems. There are others who believe that planning is an answer to all our economic ills. There are those, too, who believe that Socialism will cure those ills.
§ LORD MELCHETTI would like to deal with Socialism for a moment. It might have been in old days, if anybody had understood what was meant by Socialism, that Socialism would have had a real effect on the question at issue and might have had some fundamental influence upon the trade cycle. With this in view I took the trouble to refer to the latest authoritative statement of the question, which was put before us at 363 the time of the last Election in 1931. I then found that the situation had very much changed from the days of the early theoretical Socialism, the broad scheme which was in those days, if I remember rightly, defined as "the nationalisation of the means of production, distribution and exchange," which I always thought was a very grandiloquent phrase and might have had almost any effect you can imagine. But from those days the thing has been watered down very much, and we are now faced with this: the public ownership of banking, coal, transport, electricity, iron and steel, cotton and land.
I do not propose this afternoon to enter into an argument as to whether it would be a good thing to nationalise those services or commodities; whether if they were run by people who knew nothing about them they would be better managed than by people who have studied them all their lives. But I do propose to say this: that I do not think the most ardent Socialist would be bold enough to put forward the view that such activity on the part of the State would have any real effect on the trade cycle. It is, if I may say so, not sufficiently comprehensive; it touches it at too few points, and it cannot really come into account for the purposes of the argument which I am putting forward to-day. So I think we may rule Socialism out and admit that it can have no real effect in solving this problem, but that, on the contrary, it might if anything rather exasperate it, because it ignores to such a large extent the power and the value of the operation of the knowledge plus the common sense of the untrammelled individual. It is quite true that individuals often act foolishly, and we have seen plenty of examples of it, but in the general commercial and industrial knowledge and genius of this country there is an enormous latent power which we should be very foolish to destroy.
I shall not be tempted into any further digression by the demonstration upon the Benches opposite, other than to say that in Russia Communism is being abandoned and Communists are being shot, and that even in that country one has to be very careful what particular brand of Socialism or Communism one advocates, otherwise one may find oneself by no means popular but, on the contrary, against a wall with a 364 firing squad in front of one. The sad thing at out the world from that point of view is that one sees a great struggle arising between Communism and Nazi-ism, both of which, as far as I can judge, are economically developing in precisely the same way and will eventually arrive at the same economic results. The only difference is that in the one case the middle classes and in the other case the working classes are favoured, so that there is a great struggle going on between the working classes and the middle classes which is likely to spread all over Europe. They are likely to tear each other to pieces, fight each other violently for names, signs and banners which really do not represent such very different things, when it is obvious to anyone that if they co-operated and worked together and if they found a means of common action rather than hostile action, they would both be very much better off.
I will turn just for a moment to the monetary aspect of the matter. There are some people who believe that you can find a purely monetary solution to this problem and, indeed, to all the economic problems of the world. I cannot say that I share that view. I think that the monetary aspect of the matter is of the greatest importance, but a great deal has already been done in that respect. The Exchange Equalisation Fund, on the broader basis upon which it now exists, based upon gold while the domestic currency is entirely divorced from gold, has made a very great difference to the old monetary stringency from which we used to suffer. Of course, these things were all prophesied long ago. My predecessor in this House in 1925 pointed out the mistake of going back on the gold standard and showed that very much better arrangements could be made. In those days that was all looked upon as very wicked and not very proper, but since then the Government have in fact done it, and it is now looked upon as a new and enlightened theory, anything from ten to fifteen years too late.
I should have considered that to be rather fast. I have come to the conclusion that it takes about twenty-five years for a sensible idea to percolate from the mind of its originator into action and fact, and that anything quicker than that is really rather remarkable, even in this 365 country. The Daily Telegraph expressed that idea the other clay as follows:
We seem, therefore, to have reached this stage of evolution. We have an official control of money and credit which assures the steady supply of reasonably cheap money and credit to trade and industry, so long as no international crisis intervenes with a shock. At the same time we have made steady progress towards the building of machinery designed to prevent such shock occurring. This represents a very notable advance since the time, only a few years ago, when in orthodox circles the chief anxiety was to know how soon we could safety return to the old gold standard, and a cardinal belief was that Mr. Roosevelt's experimentations destroyed all hope of international monetary co-operation.We have moved a good way since that time, and I think that our present monetary basis is by no means unfavourable for prosperity and for the continued development of our economic life, and that it does not constitute any great danger so far as the emergence of a new slump is concerned.Now, for a moment, I should like to turn to planning. There are a great many people who think that planning can completely solve all our problems. I must say again that I am afraid I differ from them. Planning is very useful in a way, but the trouble with plans is that they are inclined to be much too rigid, and over-planning and too much rigidity invariably lead to trouble. While one can say that, I think it should not be held that, because one does not believe in planning a rigid economic system, one also does not believe in using common sense and exercising a little common foresight. There are too many people who think that all they need do is to say, "Oh, I am against planning, I am an anti-planner," and that then they need not use any foresight or common sense. That is going much too far from one extreme to the other. The necessity for arranging industrial and economic affairs in a reasonable way is perhaps more obvious now than it has been at any other time. One of the great lessons of the last depression was that those industries which had old and well-seasoned trade agreements, both national and international, weathered the storm far better than those industries which had not.
I think one is then drawn to the conclusion that it is necessary to use a combination of all these methods to arrive at the sort of result which we want. To 366 prevent further business depression developing into violent slumps, finance and industry, including labour and the Government itself, must combine, first of all to find out the facts, and secondly to make a reasonable plan. At the present moment what happens is that when there is a depression everybody stops spending. The Government stops spending, local authorities stop spending, industry trims its sails, private individuals have to trim their sails, too, and every step that is taken tends more and more to accentuate the one effect that everyone is anxious to avoid, which is a violent depression, leading to really dangerous results. A great deal of that is entirely unnecessary. It was put to the present Government during the depression—I use this merely as an example—that it should buy 300,000 tons of copper when that metal was standing somewhere around £30 a ton. It was quite obvious that the Government would need to use copper in due course for electrification for rearmament. But no, that was during the slump and nothing could be done. Nobody could take any step or take any apparent risk. Well, it would have been a very handsome transaction at to-days prices, to put it mildly. It would have been not only that, it would have had a very direct effect upon the course of economic events at that time. It would have restored confidence, it would have made people believe that there was at any rate somebody at work. And if Governments bought primary commodities at any time when they fell below the cost of production of the previous ten years, they would always be doing a good thing; not only Governments, but if every business, if every local authority, if every person who had any power to spend took that action, they would always tend to check a depression and to stimulate recovery.
The real fact of the matter is that as things stand to-day we curtail all our activities just at the time when we could must usefully enter upon them. All Governments and all local authorities, all industries too, have a great deal of useful work that needs to be done, have many schemes and plans which could usefully be put into effect. To-day we embark upon these at a time when prices are high, when labour is scarce, and when there is general commercial activity in the country; whereas surely it would be 367 far more beneficial to embark upon these at a time when labour is in excess of requirements, when prices are very low, and when the opportunity for carefully considering and planning these schemes is available by the mere fact that there is not quite so much to do as there is in times of great activity. Mr. Keynes put this point some time ago in The Times. He urged the setting up of an authority whose business should be not to launch any scheme of public investment, but to make sure that sound schemes are ready against the time when they are needed to revive flagging activity. That is to my mind the crux of the whole problem.
I put it in this way: Is the trade cycle really necessary, or cannot we find ways and means whereby we can iron out the extremes of the trade cycle? I would like to quote one more paragraph that appeared recently in the Daily Telegraph:
It is a matter of high significance and vital importance that, with a unanimity which is truly remarkable, the chairmen of our principal banks have revealed themselves, in their recent annual speeches, as enthusiastic explorers in this new line of country. No longer are they fatalistic acceptors of the old 'trade-cycle' theory—namely, that booms and slumps must and always will alternate, and that human beings can do nothing about it.For military emergencies we have a mobilisation plan—a nicely printed book which is kept at the War Office and carried out when people are able. There is always a question of whether mobilisation plans can in fact he carried out, because they are not able to take into account a number of circumstances. But is there any reason why we should not have a mobilisation plan for economic purposes? Is there any reason why we should not have a plan of the local authorities, of the Government, of industrialists, which could be put into effect in the case of another severe depression, and which the Chancellor of the Exchequer could ask local government authorities and others to join him in embarking upon, if he felt there was any real danger of a normal business recession developing into a grave and serious slump? Is there any real reason why that should not be done?It is into that really that I want the Government to inquire. They are the only people who can find out whether such a mobilisation plan can be made 368 effective, or whether it can in fact be constructed. And I would ask the Government to remember that, when all is said and done, they sit there in glory, having brought a great country out of a very serious slump. They brought it out by three means: by going off the gold standard, by imposing tariffs, and by adopting a policy of cheap money. I would ask them to remember that the first two cannot be repeated again within a century. You will not have the great power to restore the trade of this country by a change from free trade to the tariff system available a second time. You will not be able to go off the gold standard a second time. And, as for cheap money, that was only a tertiary and by no means one of the most important weapons which they used.
I think I have said enough to make my point plain: that there are many dangers and troubles which result from severe economic depressions and from economic blizzards with which statesmen of the world are not able to deal; that there are ways and means in all probability, by spending our money wisely and at the right time instead of at the wrong time, of considerably mitigating the effect of these great depressions; and that it is a matter of prime importance to the people of this country, and indeed to the world at large, that the lead that may be given by Great Britain should be followed by other countries all over the world. This is not entirely a novel subject. It has already been discussed in the United States of America, where the same idea has crossed the minds of people troubled with the same problem. The Government, as I said before, was perhaps one of the more fortunate results of the slump. They have grave obligations to the people of this country not only to see the country through the difficulties with which it was afflicted at the time the change in Government took place, but also to use such energy and enterprise as they have to try to prevent a recurrence of the same event. Their task will not be complete unless the Government have at any rate made an attempt to do this.
I am not proposing any panacea to the Government. I am not suggesting that there is any cut-and-dried plan that could solve their problem, but I am suggesting—and I think this is undeniable—that it is their duty to make every effort in their power to try to find out what are 369 the most effective steps to prevent the recurrence of slumps, and to take into their confidence in those inquiries the members of the banking industry and of industry and commerce generally. If they failed no one could blame them. If they succeeded, they would have rendered a very great service to the people of this country and the world at large. I beg to move.
LORD STRABOLGIMy Lords, may I congratulate the noble Lord, Lord Melchett, on making a very Socialistic speech? Apart from one or two of what I may call the usual "flap-stick" motions of politics which he used, I find myself and so have my noble friends, in general agreement, with nearly everything he said. In the old days in another place he would have been greeted with shouts of "Come over here" from the more demonstrative members of my Party. I thank him very much, with his great ability as a business man and an economist, for admitting frankly that the 1930 to 1932 trade depression and slump was not the sole and only fault of the then Labour Cabinet. In fact he said it was not their fault at all, and that at any rate is honest. What the Government are going to do at the next Election without that cry of which he has robbed them, I do not know. However, that is their affair.
I thank him for his clear demonstration of the economic basis of so many wars and, one might say, so many civil wars. We have been told that that argument is unpatriotic. Of course it is not; it is simply the truth and common sense. I think with him that the next slump, if and when it comes, will be deeper, and for a reason other than those he gave. I believe that the effect of the present walls and blockages to the channels of trade represented by high tariffs, quotas and currency restrictions, will be to accentuate the depth of the next slump if the ordinary course of nature is allowed to prevail, or rather the course of capitalistic nature. The noble Lord, Lord Melchett, tried to separate Socialism arid planning. Socialism is planning. His views on Socialism, if I may say so, are out of date. The idea that we are going to put ignorant people with no experience in charge of great industries and services is quite absurd. If we had, perforce, to nationalise the chemical industry, I should hope to see him playing a very 370 important part in a State Chemical Trust. Many noble Lords of great industrial experience might be of assistance to a Socialist Government in that same way. However, if the noble Lord will do us the honour of waiting a few days and reading our one-Parliament programme which has been worked out and will soon be published, I think he will find it very interesting and see that we have honoured ourselves by adopting some of the proposals he has made this afternoon.
With regard to the proposal to the Government to buy a large quantity of copper when the price was low, I do not know if he made it, but whoever did it deserved a better reception than it has had. That is very similar to a policy we have been advocating for a long time in my Party—namely, the bulk purchase of certain necessary commodities, wheat, metals and so on, one purpose of which is to steady the market exactly as the noble Lord has suggested. May I finally ask the noble Lord—he mentioned interesting articles in The Times and the Daily Telegraph—if he saw an article in yesterday's Daily Herald by Douglas Jay, the City Editor? I am sure he reads the City Editor's notes of the Daily Herald just as he reads the racing notes for both contain useful tips. Probably he does not read the middle page, the leader page. I can quite understand that.
§ LORD MELCHETTThe noble Lord must not put too many words into my mouth. I am a student of the Daily Herald, but I did not happen to read the article.
LORD STRABOLGII am not surprised, because the noble Lord put his Motion down a long time ago and really the speech he made this afternoon in your Lordships' House might have been written by Douglas Jay, the City Editor of the Daily Herald, whose article appeared yesterday in the middle page and which I am sure he will read with the greatest interest. I am sorry I have not given notice of this question, but may I ask the Government what has happened to a body which I believe was called the Economic Advisory Council, which was set up to advise on this sort of question? Does it meet still? If it works, does it produce anything, and if it does, is anything done with its recommendations? I think that would be an interesting ques- 371 tion to have answered. Or is it that this Council has been turned on to problems in connection with rearmament? This inquiry proposed by Lord Melchett is the very kind of thing they could be doing. That kind of economic cabinet would be invaluable in working out the plans which he wants and we want, in case of another depression approaching.
I always find it a great pleasure to praise anything that the present Government do—a rare occasion. I must say of the present Chancellor of the Exchequer—I am not talking of his Budget and his taxation and his loans—that I think the way he has, with the Treasury, tried to carry out the Ottawa financial proposals—not the Ottawa tariff proposals—is worthy of praise. If I understand the policy that is being followed, it is to raise prices out of the terrible trough they were in, and it is now intended when they reach a certain level to keep them stable. If I understand their policy and the situation correctly, the corollary of the currency agreement between the French, American and British Governments is a further co-operation to maintain the stability of the prices of the main basic commodities. I believe that is the policy of the Treasury, and I venture to say that within the limits of the present capitalist system which cabin and confine the action of the National Government, that is a very sound policy. I hope it will be carried out without any fear of the old orthodox economists and the old orthodox financiers.
In introducing this Motion the noble Lord, Lord Melchett, spoke of preparation beforehand. I must say I think that is most necessary. Preparation should begin now. Supposing that as a result of the negotiations that begin at Geneva in the next few months, and as a result of the programme which Lord Plymouth described to your Lordships' House yesterday, and as a result of the international conversations that are going on, a halt can be called to the present armament race—everyone wants that; certainly all the Ministers of Finance want it—and supposing at the same time your housing boom begins to show signs of coming to an end. It must be remembered that the two have overlapped. I have always understood that it was expected the housing boom would slow down 372 when the armaments programme was beginning to take shape. Supposing you get your double slump simultaneously, from a successful limitation of armaments and an improvement in the international situation—and that is not impossible, and would be very desirable—and a slump at the same time in house building, you are then faced with a very serious situation indeed. I think the arguments of Lord Melchett are unanswerable: that proposals ought to be prepared beforehand to deal with the then situation.
He did not suggest panaceas, but I am going to be a little bolder. Within the limits of the capitalist system I am afraid that slumps and booms are part of it and as a result of it. I do not want to quarrel about words and terms. The sort of preparations beforehand would be to have ready a great programme of public works, particularly in the distressed areas. The mistake the last Labour Cabinet made under the leadership of the present Lord President of the Council, was in not preparing these things in advance. It was difficult for them of course in opposition, but they should have had these things ready. We have learned that lesson and we will have a good deal ready when we come into office after the next Election. The sort of thing I have in mind is this—a great bridge building programme. There are such schemes as the Humber Bridge and the Forth Bridge and the Severn Bridge. There is the Forth and Clyde Canal, the reclamation of the Wash, an extra road tunnel, badly needed, under the Thames to relieve pressure on the Dartford tunnel, roads badly needed for the approaches to the London docks, and so on. Further more, the remodelling of about 70 per cent. of the roads of this country, which are quite unsuitable for modern traffic.
I go even further. I would like to rebuild a great deal of the City of London—I do not mean the titular City of London, but the Metropolis of London—and other large cities, which are trying to get along with streets designed for hansom cabs and victorias and are quite unsuitable for modern motor traffic needs. All these things could be prepared beforehand. You could have the whole thing ready in a kind of "Peace Book" corresponding to the "War Book," or, as Lord Melchett proposes, a kind of mobilisation plan, so that you could put your schemes into operation quickly 373 without the delay of then placating vested interests or the local authorities or land owners; have them cut and dried, pigeonholed, docketed and all ready to put into operation You can do something there.
In that connection I should like to refer particularly to what Mr. Jay says in that article in the Daily Herald to which I have drawn attention and in which he explains very clearly and lucidly that, for example, we could have ready a new Bill to tighten up the overcrowding regulations; as soon as that Bill was passed through the Legislature a new rehousing scheme would have to be put in hand; for what are now considered suitable dwellings for the working class would then be considered overcrowded and there would be a new programme of slum clearance and rehousing. All that could be done. It would not cost much to get the plans ready. Might I ask the Government in this connection if they have paid attention to what has been done by Labour Governments in other countries? I particularly refer to Sweden. Sweden, by this very kind of programme, was one of the very first countries to get out of the slump, arid it has made relatively a better recovery than we have in spite of being a country with small natural resources and great climatic difficulties.
The Swedes have gone ahead faster than we have, and by the very sort of measures we are now proposing, combined with something of the very greatest importance which was only touched upon by the noble Lord, Lord Melchett, and that is open-market operations by the central banks. Open-market operations by the central banks, if they are boldly conceived and carried out, can do a great deal to iron out the effects of booms and slumps. The engine of a motor car acts as a brake as well as a means of propulsion, and, in the same way, open market operations by central banks can act as a brake or stimulus as required. That is not always understood, and I would like to see the central banks having a plan between them to carry out these operations on a much wider scale and in a great number of countries. You could certainly get the sterling convoy organised for joint open market operations. Many of the central banks in the sterling standard countries are much more under Government control than the Bank of England, and I believe a great deal could 374 be done in that direction. Of course it will mean careful and expert preparation beforehand. We are the last people, inside the Labour Party, to suggest that the ordinary private individual or the ordinary private politician can work out a scheme of that sort. The experts must be called in. But the experts will be only too pleased to do it, if you give them the chance, tell them what the problem is and what they have to produce.
My last word in dealing with what is a very important subject is that we in the Labour Party believe that this succession of booms and slumps is inseparable from the capitalist system as at present organised, and is getting worse; but we say that a great deal can be done within the limits of the capitalist system to prevent the worst of its effects. We believe that if only we can have efficient planning, and if only we can use modem means of production and transport for the use of the community instead of allowing them to be manipulated by profiteers—I do not use the word in an offensive sense; I refer to people who live by business, which means making profits—we believe that these booms and slumps, with all their forced unemployment, technological unemployment, and so on will in time come to be regarded as curios of a very interesting but obsolete age. But that is a matter for the future. In the meantime, we want to see our own people, the masses of the people for whom we try to speak on these Benches, the working people of this country, relieved from these undeserved stresses and horrors that they go through whenever the kind of panic which Lord Melchett has described overtakes the buyers of the world; when poor fellows who have worked all their lives in industry are thrown out because somebody in Chicago gets into a state of panic which eventually spreads all over the world—a horrible, obsolete system that must be ended. That is why we are sitting on this side of the House instead of the other.
VISCOUNT ELIBANKMy Lords, I unfortunately was detained and therefore unable to hear the whole of the speech delivered by my noble friend Lord Melchett, but I gather from the speech which the noble Lord has just made that he claims from the remarks made by my noble friend that his speech was a 375 Socialist speech which found full favour with the Benches opposite. He even went on to say that the Labour Party was acquitted from the charge of having been responsible for the occurrence of the slump in 1931. I for one have never heard that the Labour Party were accused of that slump nor that it was so stated at the General Election, but I have always heard, and I believe it to be true—and in fact it was obvious from the circumstances at the time—that the reason the Labour Party were accused in the country was not that they were responsible for the slump, but that they would not face up to the initial effect of that slump. In fact they retired from office and left the National Government to clear up the mess.
LORD STRABOLGII know the noble Viscount does not want to misrepresent the position. We never had any choice in the matter. The National Government, so called, was formed behind our backs and we woke up one morning and found it there.
§ LORD MELCHETTI do not wish to interrupt, but as a matter of fact I never referred to the subject at all.
VISCOUNT ELIBANKI seem to be between two fires; but it was referred to by the noble Lord on the Opposition Bench, and I think I am perfectly justified in taking the point. I do not wish to misrepresent what he has said or what his Party have done in any way. Nor is it for me to enter into the internal difficulties within the Party which apparently occurred at that time, with the result, as I have just said, that they withdrew from the position and left it to the National Government to clear it up.
Having said that, I should like to congratulate my noble friend Lord Melchett on having introduced this Motion. There is little doubt that, especially during the slump and since, there has been an enormous amount of controversy on the question as to how we are going to avoid a slump in the future. This Motion does not suggest any measures for meeting any situation of the kind in the future, but merely asks that His Majesty's Government should set up a committee, or have an inquiry, to ascertain the possibility of avoiding such a catastrophe in the future. I feel sure that such an inquiry would be welcomed very much by all those repre- 376 senting commerce in this country. I happen to be connected with a body of Empire Chambers of Commerce, and this particular matter has formed the subject of very intensive discussion and inquiry during the last three years. We have always come back to the point of view that it was very difficult for purely commercial men, apart from bankers, financiers and others, to devise any scheme which would meet that situation. Is that surprising when you consider the difference of opinion which is expressed from day to day by letters and articles in the Press written by some of the most distinguished economists in this country?
There is one point which to commercial men is of enormous importance, and that is the question of exchange. Commerce cannot function properly or satisfactorily if it is not able to do so upon a stable basis, and so long as you have the exchanges of the world jumping up and down, differing from each other and never being the same from one day to another, commerce will always find it difficult to get back to that basis of prosperity on which it stood before the War, when all the exchanges were stable and practically the same from day to day. That at least is one point which could be considered by such a committee as is proposed by my noble friend. In 1932 a very important Commission, at the head of which was a distinguished member of your Lordships' House, Lord Macmillan, sat and reported upon this monetary question. I suggest with my noble friend that the time has come when a similar Commission formed, as my noble friend suggested, upon a wider basis, might once more be set up by His Majesty's Government with the object of pursuing the same sort of inquiry and carrying on the Report of that particular Commission from the point at which it left off.
There is no doubt, as has been stated by my noble friend and by the noble Lord, Lord Strabolgi, that unless we are able to put all these questions of exchange, which in turn affect such matters as tariffs and quotas and similar things, in a more satisfactory position, the world will never arrive again at a peaceful state. Everybody is at least agreed on this point, that it is the economic difficulties to-day throughout the world that keep it in such a state of unrest, and anything that His Majesty's Government can do to help to solve that particular problem 377 will, I am sure, be done by them and done with the best spirit. Therefore, I have great pleasure in supporting the Resolution of my noble friend Lord Melchett, and I hope His Majesty's Government will take an early opportunity to set up such a Commission as is indicated in the Resolution.
§ LORD BARNBYMy Lords, there will be several others in your Lordships' House who will be grateful to the mover of this Resolution for the manner in which he approached it, there being in his speech the absence of any controversial spirit. He touched upon things that are occupying the minds and thoughts of all students of this problem, and of all schools of thought. He carefully enumerated the factors which called for consideration. He reminded your Lordships of the factors which were the ruling ones in the recovery which has occurred under the direction of the present Government, and he emphasised particularly two, the removal of an over-valued currency and the imposition of tariffs; in other words, a cessation of the flow of free imports into this country. He also reminded your Lordships that many of the views which so recently as the time of the last Labour Government were regarded as economic heresies, were now almost accepted as inevitable in practice.
We have seen how the urge to save, at a period when a complete change in price levels occurred as a result of factors outside the control of individuals, intensified the depression, and we all know how the depression, the economic pressure upon the homes and lives of millions of workers, produced social disturbances throughout the world. At that particular time, when all these anxieties and pains were being inflicted upon those whose livelihood depends upon a weekly wage, the word went out from the Government that economies of every kind must be practised. That intensified the fall of the money measurement of all physical or tangible assets. It is because of that that I am sure many in your Lordships' House will have appreciated the point made by the mover of the Resolution, that it was regrettable that there was no economic general staff recognised as the guiding adviser to prevent what was then considered the inevitable piling up of resources at the banks, and to help in building up some machinery, the details of which it would be idle now to attempt 378 to explore, for utilising these funds in carrying over all primary raw materials the production of which extended over the five Continents in mining and forest and pastoral areas. That surely would have lessened this feeling of anxiety which compelled everybody to intensify his lack of spending.
I remember, as a very small boy, being present at a discussion in my home which I did not understand. It was the negotiation of a purchase and sale. At the end of it I remember my father saying to someone from whom he had just made a considerable purchase: "And now, as I see I have to pay you a substantial sum of money, may I, out of curiosity, ask what it is your intention to do with the money?" The purchaser was a very florid gentleman with every evidence of affluence and solidity, the very personification of the John Bull who eats beef and drinks ale and believes in everything orthodox. The date of this, I may say, was about 1902. The gentleman replied: "I am going to take no chances, I am going to put it all into British Consols." At that time British Consols stood at appreciably over one hundred. The gentleman died a few years later, and for the purposes of Death Duties they were taken at a round sixty. He took no chances; he was backing British Consols. I think the stock of the Bank of England fell in that same period by anything between fifty and one hundred points. The feeling has been that money could be better conserved in the custody of the banks, and there was no machinery to purchase raw materials on the basis of the relation to production costs for the previous ten years.
This debate is being conducted in no controversial spirit. It is an appeal to His Majesty's Government to consider what steps should be taken to still those whisperings of anxiety which we hear. We hear them from the mouths of economists who have the greatest reputations, and from one who was probably one of the wisest prophets of what would be the consequences of the peace. One sees daily reports of steadily mounting profits in concerns in the heavy industries the valuation of whose property as recently as three years ago had fallen from millions to a few hundred thousands. There were slips in building yards once full and representing millions 379 of capital which were totally unemployed and the value of which it was suggested had become negligible. Yet surely those steel works and shipyards and factories were a national asset and a national necessity. To see those values evaporating was to witness a misfortune which brought hunger into the homes of millions of workers who depended on weekly wages. Surely it might then have been admitted that it was as essential to maintain those national assets as it was to maintain the primary products.
The mover of the Resolution instanced one product. He might have instanced others like rubber and wool (which is one of the primary products of the British Empire). When the prices of the primary products fell there resulted a weakening of the economic structure of the Dominions. It surely ought to have been obvious that if the prices of primary products were to remain for a long period at a price level representing a fraction of the gold value of five years before, the whole social structure and the whole Imperial relationship would be shaken. Now we find steadily mounting profits. Does that mean that there has been a sudden change in the brilliance and ability of the directorate? Is this the result of increased efficiency? Surely it is the result of a change of general world conditions. Those of your Lordships who were intimately connected with industrial enterprise in 1919 and 1920 will remember how unhappy were relations between employers and workers, and how then the sudden change in fortune and status brought social uneasiness and affected political conditions. We should take time by the forelock, as has been urged by my noble friend the mover of this Motion. I should like to repeat the feeling that, being free from political controversy, it should be responded to by the Government, and that some kind of an economic general staff should be applying themselves to these problems in order to avoid the repetition—it can easily be done—of those years of restlessness in industrial relations and to ensure the continuance of that prosperity which we then enjoyed and which is now enjoyed—thank goodness, and to the credit of His Majesty's Government—in the home of millions.
THE MARQUESS OF DUFFERIN AND AVAMy Lords, in the absence through 380 illness of my noble friend Lord Temple-more, it falls to me to give as adequate an answer as I can on behalf of the Government. I feel sure that had my noble friend been here he would have begun his speech, as I shall begin mine, by congratulating the mover of this Motion on the subject on which he chose to make so remarkable a speech. I am sure my noble friend Lord Melchett agrees with me that the contributions we have had from Lord Barnby and Lord Elibank have not in any way lessened the importance of the debate. But I must confess that, knowing I had to reply for the Government, when I heard the almost sycophantic agreement of my noble friend opposite with the mover of this Motion, the thought crossed my mind that when the lamb lies down with the lion, the wise shepherd probably gets out of the way. Therefore, as I find myself between two fires, I hope that mercy will be extended to me.
But in so far as the main purpose of the first sentence of the Motion is concerned of course the Government are in agreement with the noble Lord. The Government appreciate, just as much as the noble Lord, that the prospect of a new slump is not one that can be faced with equanimity. So far we are in entire agreement, and we agree that the possibility of such a slump ought to be constantly in the minds not only of the Government but also of bankers, industrialists and financial leaders at the present moment. We therefore particularly welcome the publicity that the noble Lord's Motion will give to that thought. Bit I will say a word, if I may, both to my noble friend opposite and to my noble friend who moved this Motion. They both took the view that the next slump was not merely certain but was in all probability going to be very much worse than the last one. That is a very doubtful proposition. The noble Lord must remember that the last slump was the direct result of the tangle of post-War problems: of Reparations and of many other factors which all contributed greatly to aggravate its effect. No one knows better than my noble friend that authorities still differ very much about whether the calamities of 1929 to 1934 were due to the special problems of the aftermath of the War, or whether they were necessarily the symptoms of that inevitable trade cycle which he seems to take as 381 almost a destiny which man has to bear. People are not so agreed that the trade cycle must necessarily come and must be borne.
But I can, of course, agree with him that it is no use adopting an easy optimism in these matters. We hope that the worst will not come, but if the worst does come, we shall be prepared for it. I would urge the noble Lord and those who think like him not to allow their necessary pessimism to carry them into just those dangers they want to avoid. We all know that the psychology of the trade cycle—if there is a trade cycle—of the slump and the boom is not the least important factor involved. I urge the noble Lord not to allow himself to get into the frame of mind which assumes too readily that the slump is certain and must come; and, of course, I would give him this further crumb of comfort: that at the present moment we are better prepared to meet a slump than we were in the period of which he was talking, for the very simple reason that up to the period of the slump—up to 1029, say—we in this country had not enjoyed that boom prosperity which might have warned us that there was a danger ahead. At any rate we are warned new, and it is common ground that there are certain measures which you can take, almost automatically, when the slump becomes imminent.
Naturally you aim presumably at a low bank rate, supplemented by such open-market operations as are necessary to keep short-term and long-term rates of interest at the lowest possible level. We are all agreed that those are the kind of measures which must necessarily almost automatically be taken. I feel that we should realise that, owing to the fact that the Government and the country are prepared and are aware of the danger of slipping out of a boom into a slump almost before they know they have done it, we are prepared to take those measures and able to take them, of course, much more quickly and with more ease than we were in 1929. But I am not going to pretend for a moment that these palliatives will necessarily be altogether effective. If a world slump develops, I certainly agree with my noble friend, and the Government also agree, that the policy of dovetailing central and local expenditure on capital projects so as to smooth the total volume of investment activities deserves serious consideration.
382 Having said all that, and having agreed so far, let us now come down to the Motion itself. The Motion suggests that an inquiry should be set up, that is to say, that you should have an inquiry of some kind, and eventually that inquiry will presumably issue a report which will enshrine certain economic truths. Now I do ask my noble friend and all your Lordships to remember one very important and dominating circumstance, and that is that economics—and this is to be a report about economics—is not an exact science. It differs from the physical sciences, because there are no fixed empiric laws. If you were to ask the Government to set up a Committee to decide whether the law of gravity or of the conservation of energy were true I think you might get a very good answer, but nobody knows better than the noble Lord that the so-called science of economics has no fixed laws of experience at all. It deals with a multitude of variables, and of course it deals above all things with the most variable of all factors—human psychology. Therefore when my noble friend talks about the mobilisation of economics he is really confusing two quite different things. The point surely is this, that you cannot in economics produce a reasoned plan for an unpredictable future. All that you can at best hope to do is to produce an intelligent estimate of probable requirements, and I think that I can best explain my point by quoting my noble friend himself.
In 1932 my noble friend wrote a book called "Modern Money" in which he proposed a system based on a greatly extended scope of collateral securities, which was to make the banks, in his own phrase, "infinitely liquid." He said:
Bankers would no longer have to worry about their ratio of cash to deposits. It would always be enormous. The only limitation of loans would be the security which could be offered. Since it is the loans that create the deposits, they would also grow.I am not prepared to argue whether or not my noble friend was right when he suggested that line of policy in 1932, but I am sure that in his reply he will admit that it would probably be a wrong policy to adopt in this present year of grace; or at any rate he would find many people who would consider it disastrous. Therefore if you want to get a report on a science so unpredictable as economics 383 you would have to try to get all the experts in the country together round the table and persuade them to iron out their differences as best they could. When I was at the University there used to be a saying, when I was studying economics there, that "Where there are six Cambridge economists gathered together, there you will find seven opinions, and two of them will belong to Mr. Keynes." And I was interested to hear my noble friend support his argument by quoting Mr. Keynes to-day. Well, if these experts sat together and did manage to produce a report it would consist of every conceivable opinion. No, it is much better, if you are going to rely on experts, to let free controversy decide the issue.
VISCOUNT ELIBANKIf that is the case will the noble Marquess please say why the Macmillan Committee was set up?
THE MARQUESS OF DUFFERIN AND AVAThe Macmillan Committee was of an entirely different character. That Committee had a specific object in view. The point of this committee would be to decide a great number of matters of theory, which is entirely a different matter. That is the whole point of the argument—that economics is a matter of theory, that you cannot legislate in economics for three years ahead, because the whole condition will have changed, or may have changed.
VISCOUNT ELIBANKBut surely—if my noble friend will excuse me—it is possible for such a committee of experts to inquire into the reasons for the last slump and to make recommendations as to how the next slump might be avoided. They may not necessarily be right, but if you have your experts brought together, at any rate you would have the best opinion obtainable as to how the thing might be done.
THE MARQUESS OF DUFFERIN AND AVAI do not deny for one moment that such an inquiry might be set up; all I am trying to argue is that the result of such an inquiry would be valueless.
§ LORD MELCHETTI never at any time suggested a committee of experts, which my noble friend is destroying with great skill and with a good deal of agreement on my part.
THE MARQUESS OF DUFFERIN AND AVAI do not want to tilt at windmills any longer. In that case let us come to the other form of inquiry which I think my noble friend envisaged. That would to the form of inquiry in which everybody would be entitled to come and express his personal opinion as to how the great problems which face economists could hest be met. My noble friend is a business man and nobody knows better than he does how extraordinary it is that the moment the hard-headed business man gets on to the subject of economics he becomes as whimsical as one of Sir James Earrie's fairies. And nothing is more extraordinary than the deteriorating effect of economic theory on intellect.
But I really do appeal to my noble friend. Does he imagine that any good could come about from a committee at which many hours of the proceedings would be taken up by members of the Green Shirt organisation explaining their theory, and a great many more hours would be taken up by every conceivable person who thinks he has got a panacea—which I admit my noble friend did not attempt to offer—for the present state of the world? I really feel that the proposition is not worthy of the very great thought which my noble friend had obviously put into his speech. I think that he should rely much more on the fact that the Government are very well aware of the problem, that the Economic Advisory Committee is still in existence avid providing invaluable material for the Government at the present time, and that the Government are keeping in the very closest touch with the heads of the banks, with the heads of the financial houses and the leading business men, and above all, that the Government have not for a moment forgotten that their duty is to prevent at all costs a slump as disastrous as that of 1929.
§ LORD MELCHETTMy Lords, I would like first of all to thank the noble Marquess for the nice things he has said, and, secondly, to congratulate him on the ingenuity with which he has destroyed a number of proposals that I myself never made. In many of the remarks which he made he rather confirmed the point of view which I hold. But though one does not want to tear the scenery down, it is quite clear that the Treasury do not think that an inquiry would do much 385 good at the present time. I must say that I do not agree. I think the noble Marquess put their case as well as it possibly could be put, but I think the Government a little lack imagination as to the sort of inquiry that can be set on foot. A noble friend of mine once said in this House, "Heaven forfend that we should have a committee of economists to decide this question." Nothing was further from my thoughts. Nor do I suggest that we should have another Macmillan Committee, in which every type of monetary crank evoked by the last slump should come forth and pour out his ideas. What I should propose would be a small and practical committee consisting of the chairmen of two of the great banks, two industrialists—one of the wholesale and one of the retail trade—representatives of the trade unions and the Chancellor of the Exchequer, to see whether they could arrive at some practical solution.
§ LORD MELCHETTI should see if such an organisation could not arrive at some concrete proposal. Even if that is not proposed, they can have some other form of inquiry. I totally deny that it is beyond the wit of man to discover a means of going more closely into the position. There are one or two other matters I would like to review briefly. The noble Marquess rather suggested that I thought there was going to be a slump rather soon, and that it might be very severe. That is not my view. I think we are likely to have several years of prosperity. It is during those years that I propose to press this point of view, that we should prepare for the next slump. The next slump may be very bad; it may not. I have not the slightest intention of prophesying about that. If we knew the real dangers it would be much easier to take steps to meet them. At the same time the danger of the next slump being 386 severe and serious is to my mind much too great for anyone to ignore. I am very glad that the Government take the question very seriously, by keeping in close touch with the local authorities, and that they still try to take steps before it is too late to mitigate the evils that may arise.
The noble Marquess also quoted something I had written in 1932. I did not ignore the suggestion he put forward in the slightest. I read one of these books of mine the other day, and I came to the conclusion that in principle there was nothing I would withdraw, but I was much surprised how much had been done—even a double currency now exists in this country although it is not called that. The Exchange Equalisation Fund based on gold does give you that and a domestic currency divorced from gold. Of course, they have got other names for it. I came to the conclusion that a great many of these things would take a long time to come about, and it was no use talking about them many years before they came into effect. The problem of making provision, of mobilising the resources to deal with another depression, is one which I believe we shall have to take into account and pay more attention to than has been done in the past. While the Government, at the present time, do not feel they want to institute some large official inquiry or even to alter the present practice, they have given me assurances that they are keeping the matter closely under review, that there are certain steps they propose to take, and above all, that the Economic Advisory Council is still in existence. I am sure that that Council will do what it can to bring itself up to date on the question and advise the Government as to what steps they will be able to take. I ask leave to withdraw my Motion.
§ Motion for Papers, by leave, withdrawn.
§ House adjourned at five minutes past six o'clock.