Lords Sitting of 15 May 1957

Preamble
The House met at half past two of the clock, The LORD CHANCELLOR on the Woolsack.
Prayers

LORD DENNING
The Right Honourable Sir Alfred Thompson Denning, Knight, a Lord Justice of Appeal, having been appointed a Lord of Appeal in Ordinary, under the provisions of the Appellate Jurisdiction Act, 1876, as amended by subsequent enactments, with the dignity of a Baron for life, by the style and title of Baron Denning, of Whitchurch in the County of Southampton—Was (in the usual manner) introduced.
LONDON COUNTY COUNCIL (GENERAL POWERS) BILL [H.L.]
Read 3a, and passed, and sent to the Commons.

EGYPT: BRITISH SUBJECTS' SAVINGS CERTIFICATES
2.46 p.m.
VISCOUNT COLVILLE OF CULROSS: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government whether they can elucidate the position of British subjects holding National Savings Certificates bought in Egypt who now want to cash them in Great Britain—

(a) if the certificates are physically in a bank in the United Kingdom;

(b) if the certificates are physically in a bank in Egypt.]

THE MINISTER OF EDUCATION (VISCOUNT HAILSHAM): My Lords, I have personally considered my noble friend's question very carefully. I am sorry to have to tell him that I have formed the opinion that both of the cases be poses in the Question raise serious
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and difficult questions of law which might become the subject of litigation in the courts. In these circumstances, I do not think that it would be proper for me to express an opinion upon them.
VISCOUNT COLVILLE OF CULROSS: My Lords, I thank the noble Viscount for his Answer, and I think that in consideration of what he has said I can ask no more.
VISCOUNT THURSO: My Lords, may I ask whether there are any other countries where British subjects buying these certificates may find it doubtful whether they are entitled to cash them when they want to do so? If there are such countries, ought it not to be published and made known to everyone that they buy certificates in these countries at their own risk and may not be able to get their money back when they want it?
VISCOUNT HAILSHAM: I did not say that it was doubtful here.

THE ECONOMIC SITUATION
2.48 p.m.
LORD PETHICK-LAWRENCE LORD PETHICK-LAWRENCE rose to call attention to the economic situation; and to move for Papers. The noble Lord said: My Lords, I rise to move the Motion standing in my name on the Order Paper. For many people the Budget which the Chancellor of the Exchequer delivers in another place has as its main interest the question of what taxes he is proposing to put on and what taxes he is proposing to take off. Far be it from me to disclaim my own interest in that proceeding, either personally or vicariously; and I imagine that most noble Lords to-day will take the same view. Nevertheless, it is not on that subject that I rise to address your Lord-ships. I propose to discuss this afternoon the many aspects of economic and financial importance dealt with by the Chancellor of the Exchequer and in other financial statements.
Your Lordships will perhaps remember that when I introduced a Motion in February, I concluded my remarks by asking the Chancellor of the Exchequer to appoint a Committee to consider and report on the best financial means that should be adopted to deal with inflation and other important matters of public

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finance. I was happy to hear the Chancellor of the Exchequer, in the course of his Budget speech in another place, definitely declare his intention of doing that very thing. Subsequently, we have had the names of the members of that Committee. I feel confident that the gifted chairman, the noble Lord, Lord Radcliffe, and the other illustrious members of his Committee will duly consider the evidence that will be laid before them and will state the facts as they find them, and, moreover, make very useful, happy and desirable recommendations. Your Lordships will no doubt remember that a somewhat similar Committee was appointed nearly thirty years ago. The Macmillan Committee, as it was subsequently called, made many useful suggestions.
I note that on this occasion the terms of reference of the Committee are wide. I will quote to your Lordships what they are:
" To inquire into the working of the monetary and credit system and to make recommendations."
In announcing this, the Chancellor of the Exchequer went on to stress the importance of savings and investments and the observance of international obligations. It is on those aspects of the financial and economic situation that I propose to devote most of my remarks to your Lordships this afternoon.
I am old enough to have lived for thirty years in the reign of Queen Victoria. Towards the turn of the century this country had reached perhaps the zenith of its position of influence in the world. The slogan, "Britain rules the Waves, "and the phrase, Pax Britannica, were no idle words in those days, because, as a matter of fact, Her Majesty's Navy (I use "Her" because it was Queen Victoria's) patrolled the seven seas and kept the peace of the world. It was no exaggeration to say that the British Empire, as it was then, was one on which the "sun never set", because in every continent of the world we had considerable possessions and our rule prevailed in them. But not only had we in the realm of power politics an outstanding position; our financial and economic position was one of great strength, and at that time we were convinced that that position was impregnable.
Let me recall to your Lordships some of the points on which this confidence
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was based. In the first place, though we were in the main a net importer of foodstuffs and raw materials, we still had one valuable material export which brought us in a considerable return. I refer, of course, to our coal trade, which had taken the place of the wool trade and of other articles of commerce which had prevailed in earlier centuries. At one time, the coal trade reached a total of 50 million tons in a year, which made a considerable contribution to our balance of payments. In the second place, we had a vast quantity of overseas investments. The figure was in the neighbourhood of £4,000 million, which was a much larger sum in those days than that figure would represent at the present time. Those £4,000 million of investments abroad brought us in no less than £300 million to £400 million every year, another considerable contribution to our import and export balance. That large mass of foreign investments had been built up over several decades of the reign of Queen Victoria and was the result of the saving and thrift of that section of the population which at that time possessed the greater part of the wealth and income of the country.
In the third place, Britain, as the pioneer of the Industrial Revolution, had gained during the preceding centuries the "know-how" and skill to produce manufactured goods which were greater than those of any other country in the world. From that we derived great advantage, because we were able to purchase cheap raw materials abroad and put our skill, knowledge and craftsmanship into working them up into expensive goods which were eagerly sought for in all parts of the world; and that, in its turn, gave us considerable profit in exchange. Then there was shipping and shipbuilding. Shipping was a service rendered to the world which brought us great advantage, and shipbuilding was a form of export, though I do not think that it is classed in the ordinary exports of the country.
Then there was the work we did in lending money abroad, carried on through the discount houses and carried on so successfully that to some extent they used up the available cash which was needed for home investment. Your Lordships will remember that the contribution of the Macmillan Committee to economic knowledge was what was

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subsequently known as the "Macmillan gap", which was the failure of our monetary institutions—the discount houses and the banks—to enable small industries to Obtain the capital they required to carry on and extend their businesses. There was also the insurance system, largely a British institution. The knowledge and reliability of insurance agents; in this country were respected everywhere throughout the world.
Finally, there was the contribution made by the position of sterling, which was not only the monetary symbol in which the trade and industry of Britain with other countries was carried on, but was also that in which the trade of one foreign country with another was largely carried on. Not only that: in effect, this country was the banker of the greater part of the world. When one country wanted to pay another and when an individual of one foreign country wanted to pay an individual in another foreign country, to a very large extent they paid in sterling through London, as the banking centre of the world. In order to support our position as banker, there were two or three factors of the greatest importance. The first was that we held a very large gold reserve in the Bank of England; secondly, because of our knowledge and experience, and the past history of our banking and financial system, we had attained a high respect in the realm of credit; and thirdly (I am not attempting to make any fiscal point over this), our free trade system at that time enabled goods to be invoiced through to London and out again without any question of Customs duties arising. Those were the assets that we had; they were considerable advantages, and put us in a strong position.
Before I pass on to consider them to-day, may I say that I should be sorry if your Lordships gathered from what I have said that I am wholly a laudator temporis acti and that I look back on those as halcyon days. I recognise that there was an unhappy obverse of the coin, because some, at least, of the strength rested upon the shameless exploitation of the working class, who in those days were synonymous with the poor; and it was, to some extent, due to grinding the face of the poor who lived, in many instances, stunted and sweated
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lives. Certainly I think that not only on this side of the House, but on all sides, there will be a feeling that, so far as that was a part of the strength and wealth of the country, none of us has any wish to go back to those rather sad days.
What is the position to-day? The logic of events, which in my opinion, is one of the great teachers of mankind, has forced the Government to-day, as it must have forced any Government of any Party holding office in this country, to take a realistic position with regard to power politics, notably in the realm of defence. We have had heartburnings in some ranks in Parliament, in both Houses, as to the changes in the defence policy of this country in consequence of the determination to be economically strong—because it is no good being on paper materially defence strong and not having the economic strength in order to back it up. So, because of the economic position, we have had a new realistic approach to the matter of defence by the Government. I venture to suggest to your Lordships that the time has come for us to take a wide sweeping view of our whole financial and economical position and to see how far what was splendid in those days of fifty or sixty years ago about which I am speaking can be carried on at the present time; how far the former glory can be maintained, and how much of it has to be discarded under the category of what I may call lost horizons.
I will go through the list of the things I have enumerated in the earlier part of my speech. The first question is the export of raw materials. Coal as a net export has, of course, "gone west". I do not suppose that we shall ever again export coal, and gain a profit out of it; in fact, the difficulty will be, even if we import a certain net amount of coal and add to it all the oil we can reasonably import, whether we shall have enough fuel material to carry on our industrial organisation until nuclear power has come in sufficient quantities to supply the balance. I am afraid that if coal goes, it means the end of our last raw material export from this country. I am happy to think that in other parts of the Commonwealth considerable export of raw materials is taking place, a fact which plays an important part in keeping the head of sterling above water and enabling it to be not submerged by the tide of change.
I come now to the question of overseas investments. Two great wars have dissipated the greater part of that splendid capital reserve of £4,000 million which we had at the beginning of the century, and only a small part of it now remains. To some extent we have built it up in the last few years, but I am afraid that it will be a long time before we are likely to be able to build it up again to a total of £4,000 million; and even if we did that, that amount to-day represents a much smaller sum, for practical purposes, in purchasing power than it was in the days of which I am speaking. We should probably require £10,000 million to £15,000 million to take the place of the £4,000 million in the days gone by, and I see little chance, at any rate in what is called the foreseeable future, of our finding any such amount.
While that has been happening here, in the United States, not only through its Governmental loans, found in the Budget and all the various lending forms of Government finance, but by private individuals, there has been a large investment in countries all over the world. A figure was quoted to me the other day—and I see no reason to doubt it—of something in the nature of 20,000 million dollars—that is, something approaching about £7,000 million—as the amount of private investment—investment by American citizens in their private capacity—in enterprise all over the world. That is a considerable sum, and it gives the members of the United States an immense control over the enterprise and work of the world as a whole. It is not for us to regret that, but it appears to me, as I imagine it will to most of your Lord-ships, unlikely that we shall ever rival the investment character of the United States. I am afraid that, if we are realists, we must face the fact that in the future our contribution to the investment and enterprise of the world will have to take second place to that of the United States.
While speaking of that subject, let me come to the question of investment by the discount houses. I have already pointed out that in days gone by, when the Macmillan Committee was sitting, there was a failure by the discount houses—they did not come into existence for that purpose—to keep our home investment going. Personally, I hope that in
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the days to come, in the not too distant future (I should not have regretted it had it been done even this year), we shall restore the favourable treatment of investment replacement of assets and extension of capital in this country and recognise that through financial means. At the same time, I should not like to see that done to the extent of again bringing about inflation, which I regard as a most serious evil.
Turning from that to the question of raw materials and our imports, in consequence, the question is a matter of how much difference there is between our export and our import total. A great deal of rubbish is talked about that, because people say, "If our exports increase only by so many hundred millions we shall be out of the difficulty." Most people when they say that, quite fail to realise that if you increase your exports by, say, £100 million, it must inevitably mean increasing your imports, not by so much, but by a considerable amount, because the raw materials out of which our exports are made are largely imported. Therefore, unless the people at home are actually going short, it stands to reason that every £100 million obtained from export—unless it is due to changes of price value—must be diminished for practical exchange purposes by the amount we have to pay for the raw materials out of which those exports are made. So it is only the balance, the profit, that we make which really helps our exchange.
When I come to the question of shipping and shipbuilding I think I see a more rosy picture. I understand that the shipbuilding industry has not only as many orders as it can cope with, but a great many more. I think there is something like £900 million of backlog in the shipbuilding industry. What I will say with regard to that is this. I hope that the employers and workpeople will come to some terms by which they can go on happily. There is no doubt that the shipbuilding industry makes a substantial profit, and the workpeople are entitled to their share of the benefit. It is essential for the financial stability of this country that the shipbuilding industry should get on with the ships which are being built and the orders that have been received. More or less the same argument applies to the shipping industry, because we

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carry materials all over the world, not only from and to these Islands but also from one foreign country to another; and this brings us in a valuable profit which is well worth having.
With regard to insurance, I am a great admirer of the insurance system of this country. In Lloyd's we have an institution which is almost without parallel. I think in some ways it is unique throughout the world. We have also a great number of insurance companies. American insurance companies are doing a large amount of business up to a point, but, at any rate, our insurance system is holding its own. Our credit in insurance is exceedingly high, and this business certainly provides a useful addition to our exchange.
Finally, I come to the tremendously important question of the position of sterling in the world, and the problem of Britain as the banker for a large part of the countries overseas. Bankers must be credit-worthy. By the nature of their trade, they are borrowing short and lending long, and in order to continue to do that without disaster, their credit must be unusually high. Their credit is of two kinds. It is, first, an objective fact. There must be known resources of reserves lying behind the credit of any bank. As I pointed out to your Lordships, in the days gone by we had large gold reserves in the Bank of England. Your Lordships will know that as well as I do. But your Lordships will also know that our physical reserves behind our sterling position at the present time are pitifully low—they are almost what I should call a pocketful. It is only recently that the present Prime Minister, when Chancellor of the Exchequer, went to the International Bank to raise a loan to strengthen our reserves. Of course, up to a point that was a good thing. But at the same time, to have to go to another Bank to underpin your reserves does not greatly improve the feeling of credit-worthiness of your own institution. I am not saying that he was wrong: I am merely saying that the fact that he had to do that shows, I think, how dangerously near the margin we are at the present time.
Further than that, it is of course an unhappy fact that the two World Wars, and their aftermath, have reduced our physical credit to very low proportions.
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But the other prerequisite in credit is equally important, and that is not solely a physical objective fact: it is a question of a moral, I might almost say a spiritual, quality. A banker has to be no respecter of persons. He cannot refuse to honour the cheque of his customer because he does not like his customer's morals, or because he has a personal quarrel with him or his wife. He has to meet his debts and his credit. If they are called upon by the customer, he has to provide them. That being so, that is one of the reasons why the whole Suez incident has dealt such a lasting blow, not only at the honour of this country, as we on this side of the House see it, but also, I think everyone must admit, to the material prosperity of this country. The customers not only must be able to get their money back—they must also be able to get it back in reliable currency. That is why a further devaluation of sterling will go far to put finis on the standing of sterling and the retention of our position as a world bank.
I say all this because, for my own part, I desire greatly that we should be able to weather the storm and to retain our position as bankers of the world. But that will be possible only on three conditions: The first is that we have no more Suez affairs; the second that we resolutely scotch inflation; and the third that we build up our reserves by the thrift of our people, and with their determination to make this country strong again in finance as well as in other ways. We have to remember that the sources of wealth in this country have changed. In the years about which I was speaking earlier, there was only one section of the people who had money which they could invest as a means of saving—what were called the "well-to-do" classes. Even the smaller middle-class man was taught that he ought not to spend his whole income, but that he ought to save with a view to his own old age and the wellbeing of his children. The wealthy people were also able to save very large amounts. But to-day, the centre of gravity of available money has largely changed, and it is essential that all classes of the community, if they have money they do not need for their immediate consumption, should be encouraged to put by an amount which will effectively benefit the country.
I should like to add this. One of the arguments of reply given to-day to that advice is: "What is the good of putting by £I when, ten or twenty years hence, when I want it, it will be worth 10s.?" That is true in a situation of inflation. But the inflation arises because not enough people save. If a very much larger number of people saved, not only would each individual have something put by for the future but there would not be that fall in the value of money that there is to-day. So the question of saving is, to my mind, very great and important. In the last resort, however, the future of our country depends on the character, resource and initiative of our own people. I have a tremendous faith in the people of this country, and I believe that if they are properly led, and properly encouraged, they will pursue a noble path in the history of the world. I believe profoundly in education and in the Welfare State because, if we are to hold our own in the world to-day, it must not be only a few here and a few there, scientists and other great people, who are able to carry on the industry of the country: it must be the whole population. We must not waste a single boy or girl who has brains by letting their education stop and their teaching come to an end.
Greatness is not a matter of material, finance and economy alone: it is also a moral quality; and I believe in teaching the youth of this time the greatness that has been in our country in days gone by. If we educate them along those lines, and if we make them feel that it rests with them to keep the greatness of our country to-day, under the new conditions and new forms, I believe that we shall win out and have a people as great in the future as they ever were in the past. My Lords, I beg to move for Papers.
3.23 p.m.
LORD GRANTCHESTER: My Lords, I cannot attempt, and I could not do so, a survey on the scale achieved by the noble Lord, Lord Pethick-Lawrence, who always speaks with great authority on economic matters. If I might venture one word of comment upon what he has said, I would say, with very great respect, that he appears to me to be a little guilty of reading history backwards. His strictures on the past are made in the light
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of the present. In an expanding economy, it takes time for the benefits to become spread over the whole population, but this process has been steadily going on over the years. I should therefore like to start my remarks with one or two rather general comments. First, I would congratulate the Government on the start they have made in reducing the excessive burdens on the people of this country, and in cutting expenditure so as to be able to do that. I am not convinced yet that their aim is sufficiently high. I should like to hear from them a recognition that no Government can go on, year after year, taking more than one-third of the national income and spending it; that they are therefore determined to keep their expenditure within a very strict limit. It is always possible to find good reasons for expenditure, but the Government must do the same as the individual has to do. How often we have to say, "We cannot afford it"!
Secondly, I want to challenge the principle of budgeting for a surplus. The Budget is an instrument by which the Government raise the money necessary to meet their authorised expenditure. This practice which has grown up of budgeting for a surplus is a comparatively recent innovation, and I think that it needs to be challenged. The Budget has become an instrument not only for raising money to meet Government expenditure but of compulsory saving. If a Government wishes to compel saving, then it should do so openly, under a separate Bill, and should not introduce forced saving by the back door as part of a Budget.
If money is not required to meet expenditure, it should be left in the hands of the taxpayer. As I have said, there is a welcome indication that there is a realisation that less must be taken from the taxpayer, but, if this principle of not budgeting for a surplus had been accepted, it would have been possible for greater relief to be given immediately. Not only are the people of this country taxed at a higher rate than other countries with whom we are in competition, but, as I have said before, they are assessed on a much stricter basis. It is upon a much stricter assessment that the rate of tax is levied. In comparing taxation in one country with that in another, I think we should look at the basis on

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which assessments are arrived at. For example, if insufficient allowance is made for depreciation, which is the case today in many businesses here, the tax levied is not truly a tax on profits at all but is a tax on capital.
Thirdly, I should like to refer to the discussions which have taken place between the Chancellor of the Exchequer and the Governor of the Bank of England, and to comment on the directives which have resulted from the representations of the Chancellor of the Exchequer, Frankly, I find the wording of the directives a little unfortunate. No banker who has been trained in sound banking principles needs to be warned against long-term lending or to be told that his operations should be confined to "bridging operations" where capital development is contemplated. The trouble is that a Government of one complexion, when it intervenes, intervenes in one way and a Government of a different complexion intervenes in another. I am old-fashioned enough to believe that the business of this country is best conducted and can best flourish if it is run on sound business lines, without pressure, threats or interference from the Government, and that there is really little excuse for interference of this kind to-day.
There is a large public sector in the nationalised industries, and if the Government are anxious to try out directives, let them try them out in the public sector. If, as a result, they achieve more satisfactory results, their example might well be followed in the private sector without any directives at all. In the meantime, I should like to ask whether the banks and other financial institutions in the City are to apply the directives given them to the nationalised industries. Will the projects envisaged by the nationalised industries be submitted to the Capital Issues Committee? If not, could not the Capital Issues Committee very well be dispensed with? I would much rather trust the financial institutions, who have long experience in the conduct of their business, than any artificial or arbitrary system of control as exercised through the Capital Issues Committee.
Or, my Lords, is the position really more serious than we think? Is it the truth that perhaps the Government no longer firmly believe in the application of the test of profitability? Have they, under
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Socialist tuition and teaching, come to believe that authoritarian direction is better than the economic democracy of the free market, which by the sum total of its choices determines profitability and thus points the only safe road to expansion? Or have the Government come to the conclusion that the market cannot operate satisfactorily while the exchange rate remains fixed, and therefore that they must continue to direct, or, shall I say, attempt to direct or influence the economy in what I call an authoritarian manner? If so, would it not be better to consider whether the exchange rate should not be freed. These are two matters to which perhaps the Radcliffe Committee will direct their study.
I have been very much impressed recently by the almost universal clamour in the world in favour of wealth. Mr. Bevan has been touring the world and has come back full of what can be done with wealth for good, for directing nations into the right policies. Many Governments are showing that they have little or no interest in dealing with countries where the people are not wealthy. I think Mr. Bevan has an exaggerated idea of the power of wealth for good. All the same, it should be the pride of any Government to create conditions under which its people can increase their wealth. For this to be possible the Government must not take an excessive amount of their earnings. It should confine its levies to meet specific purposes clearly stated, and, I suggest, abstain from including a surplus which may tempt it to increase expenditure.
As the noble Lord, Lord Pethick-Lawrence, has emphasised so well, individual wealth can be increased only by saving, and I suggest that the campaign in favour of saving must be intensified by every means. In order that this campaign may cover the widest possible range, I suggest that the Government should take a look at what is happening in the United States; how more and more saving there is going into shares secured upon industrial enterprises. Will the Government consider whether some modifications of the law might not be made here to make possible investment on similar lines—not necessarily in quite the same way, but along the same lines—in a simple and inexpensive form? I think that would be well worth looking into. When you

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are emphasising the importance of saving, it is a poor means to emphasise saving if you make a distinction between earned and unearned income. You earn it one year and save it. That is good. You invest it and the next year you draw a dividend. That is bad and must be penalised. This sort of contradiction destroys the ordinary individual's belief in the sincerity of the Government's purpose in advocating saving.
My Lords, there is another matter to which I would refer—I mention this particularly in view of the talk which is going on about the introduction in Europe of a common market. I should like to see more attention given to opportunities for development overseas in co-operation with Continental firms. In the oil industry the Government is very much involved, in its large shareholding and in its right to appoint directors to the boards of some of the oil companies; therefore the Government has a special responsibility, because of its direct interest in these oil companies. Is the possibility of co-operation with Italian and German interests, for instance, being given sufficient thought or encouragement?
I should like to conclude my remarks by stressing, as the noble Lord, Lord Pethick-Lawrence, did, the overriding importance of the problem of stopping inflation. Inflation is the disturbing factor to the thrifty: it undermines every campaign for saving; it threatens the security of the home and the family; it brings in its train moral deterioration, and destroys all that is best in human character. Certainly overspending by the Government and, I suggest, a too steeply graded system of taxation, as well as artificial controls on the exchange—all these are, I suggest, inflationary factors with which the Government should deal. It is not too much to say that this Government will be judged primarily on its success or failure to stop inflation.
3.37 p.m.
LORD BRAND: My Lords, I should like first to congratulate the noble mover of the Motion on his speech. I listened to it with a certain amount of nostalgia. I am a Victorian also, not the vintage of thirty years but I think twenty-two years, so I am not too far behind. I was also interested in his remarks about the Macmillan Committee, of which I happened
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to be a member, and where I had the honour, for about eighteen months of meetings, of sitting next to Mr. Ernest Bevin, so that I learned to appreciate his great qualities. We all had the pleasure, also, of listening to Lord Keynes cross-examine the Governor of the Bank of England and other eminent witnesses.
I have only two things on which I desire to comment further on Lord Pethick-Lawrence's statements. When he mentioned discount houses, I think he really meant the merchant banking houses, banks of issue, because it is not the discount houses who do the investment, particularly the foreign investment; they are in the short-term market; it is the private banking houses who do the foreign investment. I myself was not aware that I was "fleecing" the poverty-stricken when I was working in the City. I think that when we made money it was more out of the foreigner—perhaps equally unmeritorious, some might think—than out of our own country.
I would add that I think it is a mistake to condemn the last part, or even the first part, of the Victorian age for being so wicked in oppressing the poor. I think the poverty was much more due to the difficulty of producing wealth in those days than is the case in these days. Now, a single workman, with the help of machines, can produce three or four times as much as he was able to in those days, and that adds to the wealth of the whole population. Possibly one or two of your Lordships read in the Listener that I had a little controversy with another gentleman the other day, when I pointed out to him that Sir John Clapham, the eminent Cambridge economic historian, stated that by the year 1900 the standard of life was 75 per cent. higher than it was in the year 1850. Well, 75 per cent. is quite a lot, and in those days the standard of life was increasing rapidly, though nothing like so rapidly as it is now, of course.
I should like to detain your Lordships for a certain time (I hope not too long) by giving some sort of analysis of the present position of this country. I shall not say much on the Budget. Everything goes to show that we still need, first of all, restraint in the way of personal consumption in this country, and secondly, an increase in the total production, particularly of exports—of course with the

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noble Lord's proviso that we get only the net results of the exports less the imports brought, in to make them. But these are both commonplaces. I should like to congratulate the Government in one direction—on the success of their monetary policy during the year 1956: bank rate, credit restriction, and so on. The commercial balance which was minus £79 million on our balance of payments in 1955, became a surplus of £233 million in 1956. That is a considerable difference of £312 million in twelve months.
LORD PETHICK-LAWRENCE: May I interrupt the noble Lord? Am I not right in thinking that a large part of that difference was clue to pulling down of stocks, and therefore does not really represent the real advance—it is only the changing of stocks into money? Is that not so?
LORD BRAND: To a certain extent, it was—I could not state the figure—but anyhow, there was that addition, due to; the fact that capital investments were reduced. The long-term balance, after various deductions, but without taking into account withdrawals of sterling, was a surplus of £42 million, instead of a minus figure of £242 million. But that big surplus all vanished when one considers changes in what the White Paper calls the net monetary position. There were large withdrawals of sterling, largely owing to Suez; and we not only lost that surplus but had to borrow £200 million from the International Monetary Fund. At the end of that time, the total surplus to be added to our Reserves was only £5 million.
In view of all these circumstances, the Chancellor of the Exchequer had to be cautious in his Budget; and in my opinion he was cautious. It is true that he made certain total reductions in tax, equal in a full year to about £130 million, but the Budget also provided that the total deficiency above and below the line should be less by £200 million than the year before. So that, generally, I think it was a cautious Budget. I personally particularly welcome the relief on company profits earned abroad, because I think that will help our exports and encourage enterprise abroad.
I come now to our general economic problem. The immediate problem is how to avoid a crisis in two or three years. The more fundamental problem, as both
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speakers have said, is how to stop inflation. It seems to me that in the main the solution of both these problems is the responsibility of the Government. You cannot persuade people in general, not even employers, by reasoning with them to act so as to produce a surplus, and not a deficit, on our balance of payments. The Government must produce conditions under which everyone will so act that there is a surplus. Nevertheless, the Government ought to be able to look for assistance both to employers and to trade union leaders, as well as to bankers. I assume, of course, that trade union leaders regard continuing inflation as evil; that they regard continuing balance of payments crises as evil; rapid depreciation of currency as evil and rapidly rising prices as evil. I should have thought they must think so, yet sometimes they seem to wash their hands of such things and disclaim all interest. Perhaps I am denigrating them.
Nevertheless, it must be recognised that inflation is an almost world-wide phenomenon since the beginning of the last war. Take particularly stable European countries. Switzerland has had practically no inflation since the early 1950s. Sweden, Holland and the United Kingdom all show large rises in prices and wages since 1950. All three show relatively larger rises in prices and wages than the United States. There is much less rise in price there, and considerably less rise in wages. Germany has had a striking rise in the last two years, but she started later and from lower down.
If I am right, the main causes of inflation since 1945 are somewhat as follows. In the first place, undoubtedly Governments to-day understand more than they did in 1918 the importance of avoiding deflation—indeed, they have all been determined to avoid it. But beyond that influence are, I think, much powerful causes. The first, and the most powerful, is that we are now in what one might call a New Railway Age—something is happening now such as happened in the railway age. Science, technology, invention, new industries, new materials, and new chemicals are all making immensely rapid advances. Nearly all countries, and not only Western Europe and North America—though chiefly they—are taking advantage of this new knowledge—countries like Russia, China, South America

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and India. The population of the world is increasing by 25 million every year. In most cases, owing in the main to these causes, there is something like full employment. If we take the case of India, perhaps an example of a country going ahead too fast, we find that she is trying vast new five-year plans but has not the money to finance them. India believes, however, that by spreading a plan over some years she may be able to get through.
These are general instances of what I may call the New Railway Age. They are accentuated by the Welfare State idea and the doctrine of absolute, brimful, full employment. In consequence there is a tendency in nearly all countries, and certainly in this country, to press for conditions which accentuate inflation; and demands for more and more social welfare expenditure, together with urgent demands for new capital formation arising from the rapid material progress of the world, are very great. Added to this, over-full employment must inevitably lead to continuous pressure for higher wages, and that, again, to higher personal consumption.
All this, together with (in our case) huge defence expenditure, leads to our not having room for everything. We burst our seams at the point of the balance of payments. For instance, if we increase our capital formation to any substantial extent—and it is vital that it should be sufficient—then the consequent increase of imports brings a crisis, as it did in 1955. Crises are easily caused in this country by such circumstances, since—and here I entirely agree with the noble Lord, Lord Pethick-Lawrence—our reserves become insufficient for our liabilities and we are like a bank overtrading with insufficient liquid assets.
Being a Victorian, I should like to add something of the opinion of two other writers. I hope I shall have your Lordships' indulgence in reading one or two extracts from the Lloyds Bank Review, of which bank I am a director. One of the authors I know; the other I do not. Both are highly competent economists, comparatively young and should therefore know the feelings of this generation. Mr. Roberts is a well-known economist at the London School of Economics. This is what he says:
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" The extent to which inflationary pressure has drawn wages upwards in Britain, Holland and Sweden is apparent from the way in which earnings have tended to pull away from wage rates. In all three countries there has been a tremendous growth in special payments by employers to circumvent the nationally negotiated wage rates which have been fairly fixed at levels well below the market price for labour. When profits are running at such a level that it pays an employer to exceed the agreed wage rate in order to obtain the labour he requires, it becomes impossible in a democratic society to hold wages down. In other words, the problem has to be tackled at a more fundamental level. The Swedish trade unions have recognised that stability cannot be secured by wage policy and they have openly stated that it is the responsibility of the government to use monetary and fiscal measures designed to keep the level of purchasing power within non-inflationary bounds. They have also recognised that this will mean, in practice, a level of employment less than brimful. The Swedish T. U. C. thinks that this is a price worth paying because it frees the union from the necessity of exercising unreasonable restraint in their wage demands. Wage restraint, they point out, is not only in the long run impossible if the state of the market compels employers, by bidding against each other, to raise wages; it is also disastrous to the unity and effectiveness of the unions."
Then Mr. Roberts compares that with the attitude of the British T. U. C., and not too favourably. He thinks that they are more stuck in old ways. But I will not read that, unless the noble Viscount, Lord Alexander of Hillsborough, would like me to do so.
VISCOUNT ALEXANDER OF HILLSBOROUGH: I should like to read it afterwards, if the noble Lord will kindly let me have it.
LORD BRAND: Then Mr. Roberts says that there can be little doubt that a higher level of unemployment is one of the principal reasons why prices have not risen as much in America as in the three European countries. Whereas unemployment in those countries has averaged between 1½ per cent. and 2 per cent., in America it has been about 4 per cent. He says:
" It does not follow that unemployment would have to rise to 4 per cent. in Britain before stable prices could be assured; it is, however, almost certain that stable prices cannot be maintained at a level of demand that keeps unemployment much lower than 2 per cent."
The other author, Mr. Little, is a Fellow of Nuffield College. He was a Fellow of All Souls—my College—and was Assistant Director General in the

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Economic Section of the Cabinet Office. He says:
" All Governments now admit themselves responsible for ensuring ' high and stable' levels of employment. This has come to be interpreted in a very strict manner indeed. Unemployment of over half a million…would now be enough to evoke cries of mismanagement. But one cannot go much below this figure without excess demand and inflation resulting. Only a remarkably accurate balancing of economic forces is regarded by politicians and the public as good enough."
I have read those extracts because they are views of highly competent economists who spend their lives investigating this problem; and they both agree on that particular point.
I, like everyone else, am all for the fullest employment which our economy can stand, which means more or less full employment except for a small percentage of workers between jobs. Unless we can devise a plan for bringing about this result, any Government in this country seems destined to walk on a tightrope only just balancing or not balancing at all. Analysing our needs a little further, one finds that our total income arising out of total production goes broadly to meet the personal requirements of the population and also the current requirements of our companies and businesses and the demands of government and local authorities. But it is vital that we should allow room for certain other needs: first of all, sufficient for new capital formation which now seems to put us in a crisis immediately we try to provide it; and, secondly (and, indeed, this almost comes first), the replenishing of our reserves, I should say by at least £100 million a year. Our reserves—excluding the International Monetary Fund £200 million—are lower than they have been for eight years. It is vital that we should increase our reserves, and we should do so at a rate of a great deal more than £100 million a year for the next few years, as we have to pay back the International Monetary Fund in the course of the next three years.
Thirdly, we want the full amount of investment abroad. For the last four years the average has been about £200 million a year. I think that is none too much. I know that the Party of the noble Lords on the other side of the House are greatly in favour of helping undeveloped countries—helping the peoples of undeveloped countries to help them-selves,
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and so on—and I sometimes wonder whether they fully realise that they are asking for a much bigger surplus on the balance of payments, because only out of the surplus on the balance of payments can you lend money abroad. Therefore, I think they do not quite realise it is the people of this country who have to make the sacrifices, either by consuming less, or having lower wages, or saving more, if they want to help other countries. At the present time these vital needs are not met. Either, therefore. Government demands on the productive resources of the country or the demands of all the people in the way of personal consumption must be diminished, or otherwise production must be increased and, probably, at the same time, personal consumption restrained.
This double task is not easy. I only hope that Lord Radcliffe's Royal Commission will be able to show us how to carry it out. But I think it will mean that the terms of reference will need to be very widely interpreted. They seem to me now designed only to deal with the monetary problem, and the monetary problem is only one side of the matter. You cannot solve the problem by monetary means if the whole population is doing something which prevents that from being effective.
I am not going into the wages question as it affects the economy of the country. But I would allow myself to say that surely the picture which the noble Lord, Lord Pethick-Lawrence, has given and the picture which I have given of this country's condition is such as to demand that all restrictive practices on the union side and on the employers' side should be as far as possible removed. There, at any rate, I think particularly on the union side, is the direct way of raising the standard of life and helping to solve our problems. Many people resign themselves to more and more inflation as an inevitable necessity. It is true that we have not done so badly under inflation. I see that according to the London and Cambridge Economic Survey, which gives us the best statistics on this side of the picture, the real earnings of men in industry are shown to have increased by 14 per cent. between 1952 and April, 1956. That is to say, in four years they have increased 14 per cent. The rise in earnings has not simply been level with the increase

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in prices but it has been 14 per cent. more. If one compares long-term figures for. "wages and dividends of ordinary shares—and I am taking these figures from the National Income and Expenditure Blue Book for 1956—wages in 1953 amounted to £6,750 million as against £1,920 million in 1938. Therefore there has been an increase of about three and a half times. On the other hand, dividends on ordinary shares of non-nationalised companies amounted in 1955 to £646 million as compared with £331 million in 1938. Thus dividends on ordinary shares have nearly doubled in nominal value, whereas wages have increased nominally three and a half times.
Salaries will no doubt have risen in somewhat the same proportion as wages, but, of course—and this is the sad part of inflation—all those classes which live on fixed incomes, all pensioners, and all those who have no means of bringing pressure on the community, will have suffered and will go on suffering as long as inflation lasts. All savers of money in National Savings or any kind of Government security or other fixed interest security will go on gradually losing their money. I hold the view that we ought to have a Trustee Act that does not compel trustees to invest in fixed interest securities but forbids them to do so. I think that that is the only way of saving their clients' money.
The noble Lord, Lord Beveridge, is not here at the moment but some of your Lordships may have noticed an article of his on his pension scheme which appeared in the Press the other day. This he said had been put on to the scrap heap by inflation. I daresay that the Labour Party plan on pensions, which comes out, I understand, tomorrow, will in the next fifteen or twenty years suffer the same fate, if we go on as we are going on now. Of course there are some advantages to some of us if we rob our creditors, whether they are the owners of the National Debt or foreigners owning sterling balances. It is very pleasant to get rid of your obligations by gradual inflation. Nevertheless, anything like the present pace of inflation which we are suffering from, if continued indefinitely, will, in my opinion, rot our whole society. There is, to my mind, nothing more ruinous than rapid inflation
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I have seen it in Germany and in other countries and I know what it is.
My Lords, I would add three last observations. The first is that now is the time, when the world is highly prosperous and there is still a great and growing demand for our exports, to put our house in order. If the rest of the world suffers from depression it will be vastly more difficult for us. My second observation is that the fact that all other nations are inflating at nearly the same rate has saved us from serious difficulties. On the other hand, if they begin to hold inflation at bay and we do not, the difficulty of selling our exports will rapidly increase and we shall soon face critical times. Lastly, as to immediate policy, I am not sufficiently immersed in day-to-day financial affairs for my opinion to be of much value. As, however, for reasons I have given, our immediate objectives must be, first, to restrain home consumption which, with wage rises, will tend to increase, and secondly, to encourage exports and encourage also capital expenditure likely to be helpful to our export trade, I should agree that the banks should be requested to maintain restriction of credits where home trade only is concerned, but to encourage export trade; that hire purchase restrictions should be continued, and that the bank rate should not at present be lowered.
4.11 p.m.
THE EARL OF DUNDEE: My Lords, the noble Lord, Lord Pethick-Lawrence, began by saying that he was not so much interested in the tax proposals of this year's Budget as in the Committee which is being set up, under the noble Lord, Lord Radcliffe, to advise us about inflation. I certainly hope that the advice we receive from the Radcliffe Committee will be as valuable to the country as the £100 million of tax remission which the Chancellor of the Exchequer was able to give us last month. The noble Lord gave us some interesting reminiscences about the reign of Queen Victoria, in which we had stable prices which were based on the gold standard, but in which we also had great unemployment and unnecessary poverty. I am sure that the noble Lord will agree that it is better to have our present system of a managed currency, which is primarily directed towards maintaining full employment, even although that should involve, as it does, a grave and continual risk of inflation.

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For twelve or fifteen years now, since the end of the war, we have maintained full employment, but the value of our money has been reduced by more than half. I should like to believe that we may be learning how to reconcile full employment and stable prices by experience, by a process of trial and error, although so far the errors have been a great deal more than the trials. In the time of the Labour Government and for a year or two afterwards, under the Conservative Government, we tried to check rising prices by controlling them, by controlling also the purchase and allocation of industrial materials. That may have been right or it may have been wrong, but it certainly did not stop inflation.
The present Government have not entirely abandoned controls. I do not think that in the present age controls will ever be entirely abandoned. We still have the Capital Issues Committee and many controls over imports; above all, we have this credit squeeze. The Prime Minister told us that it is a squeeze of love, of affection. Nevertheless, it considerably restricts our freedom of movement. Whether these measures will be successful in preventing inflation, I do not yet know. We cannot yet say whether they have stopped it. The declared object of the Government's disinflationary policy eighteeen months ago was to check imports, to put the burden of restraint on consumption rather than on investment, and to increase exports. I think it ought to be said that in these respects the Government's policy has not been unsuccessful. Our imports have been checked; consumption has been checked, but not capital investment; and exports last year increased by £267 million.
When the noble Lord spoke about exports, he pointed out that they were not a pure gain, because we might have to import raw materials to make them. I am sure that he did not mean to imply, however, that a vast improvement in our export drive is not vital to the future of our economy. We need greater exports, not only to live but also to pay our debts, to pay back within the next two years the £590 million we have borrowed from the International Monetary Fund and to carry out our programme of investment abroad—all of which steps are essential to the prosperity and standard
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of living of the British people, to the maintenance of the value of our currency and to the prevention of inflation. Although an increase of £267 million in our exports is not nearly as much as we need, it is a move in the right direction.
I am particularly glad to see from the Economic Survey that our exports to North America increased last year by 23 per cent. On page 30, in the table, a single figure is given for the United States and Canada together—an export figure of £421 million. I should be grateful if my noble friend Lord Hailsham could give us the figure for Canada by itself. In 1955, our exports to Canada were £140 million, and if the increase for 1956 has been pro rata, I suppose the figure might be about £180 million. I should very much like to have the correct figure. There are many reasons why we ought to consider our Canadian trade figures quite separately from the figures of our trade with the United States. One reason is that Canada is pursuing a liberal trade policy. The Canadians are not trying to be self-sufficient. In the United States, only 4 or 5 per cent. of their consumption is imported from abroad, but in Canada it is about 25 per cent.
The Canadians want to encourage reciprocal trade with all parts of the world, including Great Britain, and they do not impose any serious barriers against British trade. Another reason is that the importance of Canada in the world within the last seven or eight years, which is only yesterday in economic history, and the importance of Canada as an export market for British goods, have been entirely revolutionised by the discovery of its mineral wealth. The richness of the ore, mineral and oil deposits and of the natural gas below the soil of Canada cannot be measured at present, but it is quite possible that within another generation the wealth of Canada may be greater than that of the United States. This vast natural wealth is now being exploited efficiently, but not prodigally, by a rapidly increasing population.
It is not much use giving any statistics about Canadian economy or population, because they are both increasing so fast that the statistics are usually out of date by the time they are published. The city of Edmonton, which a few years ago was the sixth in Canada, woke up one morning last November to find that it

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was the fourth city, because its population had just about doubled since the last set of figures was published. But nobody yet knows how much more it has increased since the present set of figures was compiled.
Canada is a young economic giant which wants to trade with Britain, and I do not think British industrialists have yet fully woken up to its importance. They want more capital goods and more consumption goods. British exports to Canada are usually cheaper in price and better in quality than those from the United States, which at present enjoys a major share in the Canadian market. However, we have two great handicaps, both of which can be overcome if we take the trouble to overcome them. One is unpunctual delivery. That, of course, is a matter which can be redressed only by industry itself. It may be that the long duration of the sellers' market after the end of the war has led some industries into the habit of thinking that punctuality does not matter. But the sellers' market has now gone; we have to engage in keen competition with our foreign competitors, and the most progressive of our customers will not wait for goods which are not delivered on time. Our other handicap is ignorance of Canadian needs, which is hardly surprising, because the Canadian economy is changing so fast that it is difficult to keep pace with it at a distance of 3,000 miles.
We have scored some good points lately in the Canadian market, particularly on the side of capital goods. All the material for the great pipelines—the West Coast transmission and the Trans-Canadian pipeline for carrying supplies of natural gas across Canada and the United States—have been supplied by British firms, and a great deal of the best electrical equipment in some new industries has also been supplied by leading British firms. These are all very creditable results, but they represent only a small fraction of what we could be selling to Canada now, and a still smaller fraction of what we ought to be able to sell to Canada in ten years' time.
The potential market for consumption goods is equally great, because the increasing population of Canada is earning such high wages that it is now uncommon for a married Canadian
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worker to live in a rented house. They are all buying or building new houses, and paying for them on the instalment system out of their wages; and if they want to move to another part of the country, they seldom have any difficulty in selling their house at a profit. That creates a huge demand for domestic goods of every kind. Not long ago, a small Scottish firm which exports floor covering found itself unable to sell a single yard of linoleum in Canada; then a representative went there and found that they wanted linoleum of a slightly different colour and pattern. The firm made a slight alteration of its plant, and in one year increased its Canadian exports from nil to £110,000; and it is hoping to double that figure in another year. That is only a trivial example of what could be done if we took more trouble to make proper use of the market which is waiting for us in Canada. The Canadians themselves feel strongly that we are not taking enough trouble to find out what they need and to sell them what they want.
When I was in Canada last winter I had the pleasure of meeting several of our Trade Commissioners in the Canadian Provinces, and I think it is impossible to speak too highly of the excellent work they are doing. The value to us of their services in promoting British trade in Canada is incalculable. But it seemed to me that the scale on which we enable them to operate is far too small. The salaries which we give them are not commensurate with the importance of the work they are doing; and however good a man may be at his job, if you pay him too small a salary that is bound to affect his status among the business community with whom he has to deal. What we want our Trade Commissioners to do is to introduce more British sellers to more Canadian buyers, and they will obviously be able to do that a great deal better if they can move about on terms of rather greater equality with Canadian businessmen. I thought, also, that the staff with which we provide them is not nearly large enough for the areas of territory they are expected to cover. We have only one Trade Commissioner, with a staff which could be counted on the fingers of one hand, for the two great Provinces of Manitoba and Saskatchewan, which are about equal in extent to the whole of the proposed

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European Free Trade area, and which may soon be almost equal to it in economic importance.
The time for British manufacturers and traders to establish a firm foothold in the Canadian market is now. In two years' time the St. Lawrence seaway will be open, and we shall then be able to send British goods by the cheapest method of transport into the heart of Canada. A great export drive of British goods to Canada now might cost us a few more of our precious dollars. What is needed is to spend more on the Board of Trade and the Commonwealth Relations Services there, and to give better dollar allowances to British visitors who go there. It is impossible to earn money without spending it. When the Province of Ontario was settled by the United Empire Loyalists after the American War of Independence, the British Parliament, on the advice of the Younger Pitt, who was then Prime Minister, gave them a grant of £4 million, which was a great deal of money in 1784, when our whole national revenue was only £15 million. That was a gift without interest, and I think it was the best overseas investment which Britain has ever made.
I am all in favour of expanding our trade in every possible direction—indeed, we must do so—and I am sure that it is possible to reconcile British participation in a European Free Trade area with our obligations to Commonwealth countries. But I think it will be very much in our own interests if we keep our eye fixed on the right target; if we give priority of attention to a country which is going to provide the greatest export market in the world—a country which does not impose any barriers at all to British trade; a country which can pay us in the dollar currency, which we need most, and a country which is a loyal member of the British Commonwealth.
4.30 p.m.
LORD DOUGLAS OF BARLOCH: My Lords, before I pass to the main topics with which I wish to deal, I should like, as a Canadian myself, to thank the noble Earl, Lord Dundee, for what he has said in his speech about the Dominion of Canada, its expanding and virile economy, and the opportunity which it so willingly offers for British trade.
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There seem to me at the present time to be three essentials for the economic progress and well-being of this country. The first is a reduction and a redistribution of the burden of taxation; the second is stabilisation of the purchasing power of currency, and the third is the removal of obstacles to international trade. All those are important and vital to our economy. The Budget, which has just been introduced, goes some little way in affording relief from the extraordinarily heavy taxation with which we have been burdened for so many years. The adjustments for the most part are in direct taxation. I hope that the time is coming when further relief will be given to indirect taxation, whether of purchase tax or of custom duties, because there is quite a large section of our population who cannot obtain relief from taxation in any other form than that.
It is very important to reduce taxation which is reflected in the price of commodities, because that, at any rate, does something towards stabilising the cost of living, and a steady rise of prices is undoubtedly a cause of extreme discontent to the working population. And, of course, it is one of the strongest reasons for ever-increasing demands for higher wages. I am not objecting to higher wages; I am all in favour of them. Those who contribute by the work of their hands and brains towards creating the wealth of this country deserve to be paid for it. There is need, therefore, for a readjustment of the burden of taxation so as to relieve the price of commodities.
And there is a need for readjustment in other ways than that. One of the most conspicuous examples, to my mind, is in the rates which are levied for raising revenue for local authorities. They constitute to a large extent a tax upon housing accommodation, and as rents become decontrolled and the level of rent rises, it is inevitable that when a fresh revaluation is made for purposes of local taxation the rateable value of houses will rise very much indeed, if it is to be brought into accord with the true economic facts. It seems to me impossible to continue for ever to rate other properties upon their present-day values, and to try to rate dwelling-houses upon the values which they would have had in the year 1939. This, again, is a tax upon a commodity of general consumption—the accommodation which everybody must have for

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himself and his family. I think the time is now long overdue when we should do what has been done in many other countries, and make a distinction between the value of the building and the value of the site upon which it is placed, and diminish the taxation upon dwellings and other improvements, and impose a rate upon site values in place of it. I do not wish to pursue that point any further.
I want to turn now to the question of inflation, and I am glad that in every quarter of the House to-day there has been a plea that this problem should be dealt with. There was a time, until comparatively recently, when debasing the currency was regarded as entirely immoral, as a species of theft upon a gigantic scale. It was left to this age to pretend that there was something virtuous in this process, and that out of it advantages could come to some or other class of the community. I do not believe that. I think it has been upon every occasion an unmitigated evil. I know that it has been defended by ingenious arguments.
Our late colleague Lord Keynes certainly expounded a thesis which was intended to prove that inflation was beneficial. Among other virtues of it, in his view, was that it would produce the euthanasia of the rentier. Indeed, that has been taking place in recent years. But who are the rentiers who have gradually been squeezed out of existence? They are the old age pensioners, the people who have saved a small amount of money intended to sustain them in their old age, the people who have invested in savings certificates and other Government securities, and who have been advised to do so by successive Chancellors of the Exchequer. Those are the people who have been gradually squeezed and, indeed, rapidly squeezed, by the process of inflation. Others, who possess greater resources and more knowledge and experience, have been able to evade the consequences; and so, at the same time as we have had the euthanasia of the rentier, we have also had the paradise of the speculator, because a period of inflation affords far more opportunities for his enterprise than does a period of stable money and steady prices.
This process of inflation has not only produced those results but has interfered with rational economic calculation and
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the proper conduct of business. In order that the economy shall expand, it is necessary that there should be not merely the maintenance of its existing capital equipment but a progressive increase in the amount of capital invested per worker. It is only upon that basis that the economy can continue to expand and that production per head of population can increase. The result of inflation is that, in order to replace its capital, a business has to calculate depreciation not in relation to the original cost of its equipment, but in relation to the ultimate cost of replacement when that is necessary. In the arrangements between the taxpayer and the Inland Revenue, no account whatsoever is paid to that factor. Therefore, the whole cost of replacement cannot be charged as an expense of running and maintaining the business but has to be met out of accumulated profits, and the accumulation of profits during a period of extremely high taxation is, of course, very difficult to achieve. Thus the high rate of taxation, combined with the steady inflation and increase of prices, has made the conduct of business and the expansion of our economy extremely difficult.
Now it is said—and I think I even detected an echo of it to-day—that inflation arises because people are so naughty as to wish to spend the money which they earn. I disagree with that view entirely. The whole object of economic life is to obtain goods for consumption, and to imagine that it has any other purpose is to turn the whole process upside down. The noble Lord, Lord Brand, quoted a very interesting article which appeared in Lloyds Bank Review by Mr. Roberts, and I think one of the most remarkable things in it is that he pointed out that, in general, wages were below, rather than above, the value of labour; therefore it paid employers to pay some, at least, of their workpeople more than the rates of wages which had been negotiated for the trade.
If that is true—and I believe it is—it is a conclusive answer to the argument that inflation has been caused by the pressure of the trade unions to increase wages. That argument is simply not true. Inflation is caused by Government policy and by nothing else. It is caused by the increase in the circulation of money. It is caused by the expansion of the issue of Treasury Bills and short-term securities

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by the Government which can be readily turned into money if the holder so wishes. So long as the Government continue to pursue a policy of that kind, so long will inflation continue, no matter what happens to rates of wages and to other circumstances in the economy.
Lastly, I want to say a word about the third topic which I mentioned—the need for the removal of barriers to international trade. It would, I think, be a very considerable step forward if a free trade area was created in Europe, so long, of course, as it was upon the basis that it was not a Customs Union and that the participants in it were not debarred from lowering their tariffs to other countries if they wished to do so. That condition is absolutely essential, because, although it is desirable that we should expand our trade with European countries, it is also essential that we should expand our trade with other countries, notably with North America, both Canada and the United States; and as those countries are pursuing on the whole a liberal policy with regard to trade, the opportunity possibly exists for extending that process further and reducing the barriers to trade between us and them. I sincerely hope that something of that kind will be possible, because international trade, while valuable to most countries, is of paramount importance to us, and has been for many generations.
We are dependent upon other countries for the procurement of both food and raw materials, and will continue to be so. After all, trade is an integral part of production. Goods are not of value until they have been brought to the consumer, and the process of bringing them there is as much productive as the fabrication of them. I hope, therefore, that further progress will be made in reducing and readjusting the burden of taxation, in stabilising the currency and in opening the channels for trade between this country and other countries.
4.48 p.m.
LORD MELCHETT: My Lords, I knew that I was inadequately qualified to take part in a debate in your Lordships' House on this very important subject, and I was all the more conscious of the inadequacy of my knowledge when I listened to the noble Lords, Lord Pethick-Lawrence and Lord Brand, reviewing our economic problems right
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back into the Victorian era. I became very much more aware of the fact that my own active interest in our national affairs goes back only to the end of the last war. When he came to the latter part of his speech, the noble Lord, Lord Brand, called on two young economists to support and sustain his argument that it was essential that we should have a slightly higher percentage of unemployment in order to stop inflation. I imagine that both those young economists belong more or less to my own generation, and I cannot allow this occasion to pass without saying that, even if we belong to the same generation, I could not possibly disagree more strongly with that proposition.
I consider it an absolutely fundamental responsibility of civilised and well-managed society that it should provide full employment for all people who are fit and able to work. To advocate in this day and age that it is necessary to hold the threat of unemployment, and all the human misery that goes with it and is synonymous with it, over the heads of working people, in order to control our wages policy and inflation, I believe to be both dangerous and entirely unnecessary. I must admit that my experience is very limited. I have had a little experience of industry and of managing people, and I am firmly convinced that it is possible to arrange a balance between the various calls on labour, the remuneration of labour and their terms of employment, in conditions where there is no surplus, or, at least, only the surplus required for people moving from job to job and the basically unemployable.
It requires, of course, a great deal more effort and a great deal more imagination on the part of management, as well as on the part of the organised labour unions. You do not, in my opinion, hold people in jobs and attract people to jobs only by paying higher wages than are paid by the alternative employer up the road. You keep them for a large number of reasons: more intelligent management; better facilities; profit-sharing, incentive schemes; explaining to people what their jobs are about; interesting them in their jobs, making them feel part of something more than a routine job where they do their work and leave at the end of the week with their pay packets. All this implies a much greater sense of responsibility, and requires far

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greater effort on the part of management; and I believe it is in that sphere, and not by returning to conditions of unemployment, that we shall find the solution to our wages problems. I did not intend to say anything on that subject when I came here this afternoon, but in view of the point which I think the noble Lord, Lord Brand, was trying to establish, I felt bound to express those views to your Lordships.
As I said, I have been conscious of these complicated matters for only a short period of time, during the post-war years; and throughout that period we have been faced with what has been referred to this afternoon as a series of recurring crises. I would rather view those years as a continuous crisis with periods of improvement, moments when things looked as though they were getting a little better; but the basic balance of payments difficulties and the main cause of the periodic acute crises have been with us the whole time.
At each moment of acute crisis various reasons have been produced for our difficulties. First, we were suffering from having fought the war and from all the devastation that it had caused and the amount it had cost us. Later, we established an enormous welfare system and brought about many social reforms, all of which, of course, had to be paid for. Then, after Korea, we started rearming. More recently, we seem to blame Suez as being very largely at the root of our immediate difficulties. As noble Lords will have seen, in the Economic Survey Suez is referred to liberally as being a factor which has accentuated our difficulties. No doubt that is true, but the difficulties were there; and I do not believe that Suez is anything very exceptional.
We are going to have recurring "Suez-es" of one sort or another. We have had all sorts of similar difficulties at varying periods since the war. We had the Korean war; we had troubles in Malaya; we had Abadan. I simply do not believe that we can look forward any time in the next twenty-five years to a period where we shall not have that sort of difficulty. It may not be "limited" wars, but even if it is not, we may have basic economic problems. It does not require much imagination to visualise the difficulties that would face us if we were
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to lose, say, the dollar earnings from Malayan rubber and tin; if we have difficulties in getting all the oil we require from the Middle East—not an impossible proposition; if we experience a change in the terms of trade that we now enjoy with West Africa, which are very preferential and on which a large part of our diet is based. Difficulties of this sort arise continuously, and I am convinced that we shall have them in the future.
Another difficulty which is likely to become accentuated in the next few years is the terms of trade, the difference between the prices at which we are able to import materials into this country and the prices at which we can sell our manufactured goods. The tempo of industrial development and production all over the world is increasing. The call on the available supplies of raw materials is putting them up in value the whole time, and we shall have greater difficulty, as the years go by, in getting the materials we need at attractive prices. Technical developments in automation and in other directions may enable us to become more efficient, but that is a two-edged weapon, because in so far as manufactured products fall in value as compared with raw materials, we shall be in a much more difficult position vis-à-vis our competitors overseas who are better endowed in raw materials. After all, we have to import practically all the materials we need.
The point I wish to establish is that we ought to consider our economic policy against the background of the facts of the world as it has turned out to exist in the post-war years, rather than as we should wish it to be; not trying to excuse our difficulties by various international crises but facing up to the fact that there will inevitably be difficulties and crises, and that we must have a plan which gives us a more stable basic balance of economy on which we can plan for the future. The Economic Survey, dealing with the prospects for the United Kingdom tells us in paragraph 90:
" The outlook will continue to be dominated by the necessities of the balance of payments."
Further down the same page, paragraph 92 says:
" We can look forward to further progress in industrial investment and with it further improvements in the living standards of the whole community only when the balance of payments has been placed on a really secure footing."

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I have no doubt that few people would disagree with that proposition.
If I may refer your Lordships to the section dealing with the general assessment—paragraph 79—I would point out that there is a statement which says:
" Restoration of the current balance of payments surplus without checking production could have been achieved only by an even better export performance."
Of course, that is referring to last year. But is that really the last word? Why just a "better export performance"? How about saving imports? After all, this is a balancing problem; there is just as much to be gained by saving imports as there is by increasing exports. I really cannot understand the extent to which the Government, as one sees here in this White Paper, is so set on this one-sided approach of striving for increased exports.
Since he took office as Minister of Power, the noble Lord, Lord Mills, has advocated the necessity of our investing more in our coal industry; of developing coal to the utmost extent, and of making use of coal in as many ways as possible—even deriving oil from coal, and gasification, and all the other various openings. That argument has, to a great extent, been based on the fact that coal is a natural resource of this country: it is part of our own wealth; we do not have to import it. Why, then, cannot we pay more attention to our other great natural resource, which is our land, and to our ability to grow things—food and timber? Can we afford to go on ignoring this natural resource which is right on our very doorsteps?
The products of the soil—that is, almost exclusively food and timber—amount to half of our total imports bill. I know that that has been said often before, and often in your Lordships' House, but I make no apology for repeating it. We imported £3,900 million worth of various commodities last year. Amongst those were included half of our food, which cost £1,250 million, and 85 per cent. of all the timber and wood products that we require, which amounted to £430 million. We do this as a matter of policy; it is certainly not necessary. It has been established technically for many years that we could reduce these imports and substitute home-produced products. Those of your Lordships who are interested in the technical aspects,
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which are obviously not suitable to be raised in a debate of this character, will no doubt study the Report of the Natural Resources Technical Committee on forestry, agriculture and marginal land, which adequately demonstrates what are the possibilities for increasing these products.
I will not enter into a detailed economic argument as to whether or not this is desirable purely from the point of view of economics: that is, whether it is desirable to grow more here in the way of food and timber as opposed to importing it. But I ask Her Majesty's Government this question: is it not well worth while again exploring this alternative? It is very much out of fashion at the moment, both with the Treasury and, one gathers from the White Paper, with the Government. But there is a large body of extremely well-informed opinion, economic, scientific, and industrial, which is convinced that a great deal more could be done to help—obviously, it is not a sinecure—the balance of payments problem by investing more and paying more attention to developing the natural resources of these Islands.
Is it not possibly also time to consider whether one or two of the other basic assumptions which lie behind our economic policy are really sound and working in practice? Several noble Lords who have spoken this afternoon have pointed out the difficulty of our investing abroad while we are bedevilled with a lack of surplus resources. Indeed, we are short of savings and real resources to invest in this country. Is it possible for us to go on playing a leading part in investing in under-developed areas? If you are going to take real resources from this country and build a steel mill in an underdeveloped area or put up a hydro-power scheme in Central Africa, or any other major project of that type, it can only be done at the expense of building something similar in this country. If we had a real surplus of money, of savings, so that we could pay other people to carry out those works abroad for us, that would be one way of doing it; but we have not a real surplus. If we had an actual surplus of labour and productive capacity, so that instead of increasing our steel plant in this country we could put the spare people to work to build a steel plant in some other part of the world, of course that would be possible. But

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as things are at the moment, we are fully committed, fully stretched, and, indeed, as most people seem to be agreed, we are, if anything, lagging behind in the rate of our industrial development and capital formation in this country.
My Lords, is it possible that we are suffering from what has been described as "delusions of grandeur" in this question of investing in under-developed areas? What are the real advantages to us? Looked at purely from the point of view of either reciprocal business or as an investment yielding long-term profits or earnings to this country, many of these investments are, to say the least of them, unattractive. It is, of course, difficult to face up to the fact that in regard to this great part that we played in investing overseas in territories where we are particularly committed, we can perhaps no longer sustain the effort. But if it is a matter of fact, is it not better to face up to it now and look for some alternative?
For instance, we could be more active in taking a lead in creating investment and lending institutions of an international or regional character, where either the savings and surplus funds of the European community or surplus investment funds which are available in other parts of the world—a great amount has accumulated in Switzerland nowadays, but of course there are surpluses available also in the North American continent—could be channelled into some of the territories where we ourselves are trying to carry the whole, or a large part, of the burden. That may not sound very attractive to some people, but if it is a matter of fact that we cannot afford to do it ourselves and are doing it at the expense of the economy of this country and our future stability, I feel it is time that people were at least faced with that choice: that either we make this investment overseas and go without something here, or we make the investment here and try to take part in some more general scheme for financing under-developed areas.
In the realms of defence, which we have had to face in the last few weeks, we have been told that it is impossible to defend this country by ourselves and that it can be done only as part of the collective security of the free world. It is equally true in the realms of economic
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development that there must be a collective effort by the Western world—the highly developed world—to invest in and support the under-developed areas; and I would submit that it is quite impossible for this country to take an unreasonable share of that burden on its own shoulders. In passing, I should like to make one reference to defence. We have had an enormous burden to carry in respect of overseas garrisons and bases for the defence of our interests all over the world. Would it not be possible to find a means of bringing bases such as Cyprus into N. A. T. O. rather than sustaining them as purely British bases? Can we foresee circumstances in which we shall again use these bases for a purely British operation outside the collective defence system of our Allies? If that is the case, surely we can also spread some of the costs and expenses of our overseas bases over the N. A. T. O. countries and our other Allies.
Lastly (and I apologise for detaining your Lordships so long) there is the question of sterling and its position as an international currency. The noble Lords, Lord Brand and Lord Pethick-Lawrence, and others, have this afternoon once again pointed out the total inadequacy of the reserves of the sterling area to stand up to use as an international currency, and the imperative need to build up those reserves if we are to continue to have sterling used on an international basis. I am unconvinced as to whether it is either possible or desirable to try to continue to have sterling used as an international currency. What are the advantages to this country? We are told that there are earnings from foreign exchange transactions; that we get a certain amount of business transacted through London and that the wide use of sterling is of great national importance from many points of view. But if it is as important as all this, it is extraordinary that there is such a complete lack of statistics to show that, in fact, we make any profit on our foreign exchange earnings, or to what extent.
LORD BRAND: My Lords, may I say a word in reply to the noble Lord's point? I do not think I referred to what one might call the "City earnings" at all. I want a stable currency. With a stable currency and strong reserves we may leave sterling to be either a national or an international currency—it does not matter which. It probably will be used

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all over the world because we have certain institutions. I am not interested in the earnings of foreign exchange dealers but in having a stable currency for the people of this country.
LORD MELCHETT: My Lords, I entirely subscribe to the view of the noble Lord, Lord Brand, that we must have adequate reserves in order to have a stable currency, and that if we have a stable currency it may be used over a wide area. What I am not convinced about is that it is possible to get it used or to keep it in being as an international currency, as we are so extremely vulnerable. We have now made sterling transferable to non-residents and, as we have seen in recent months, when there is a very small upset in the world, which can be quite outside our control, an intolerable strain is put on sterling and in turn on this country, and we have to take drastic steps to hold the situation—steps which have real repercussions on our whole economy. If we are doing this in order to maintain sterling as an international currency—
LORD BRAND: A stable currency.
LORD MELCHETT: My Lords, I am in favour of maintaining a stable currency, but I am putting the proposition that if we are doing it partly to maintain it as an international currency, ought we not to question whether that is really desirable? So far as I can see, it would be desirable only if there were real advantages, either because of trade through London, or earnings, or perhaps for many other reasons of which I would not know. I simply put forward the view that it should be carefully examined as to whether it is possible or desirable to continue to press to get sterling back to the kind of status quo ante where it was a strong international currency, carrying such a large part of the world's trade.
I make no apology for putting forward views which I fear some of your Lordships may find slightly unconventional, and even heretical. I have suggested that we should reconsider certain aspects of our present policy, particularly in regard to imports, investments abroad, especially in under-developed areas, and also the position of sterling as an international currency. I have done so only because I believe that the present policy,
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if it is continued unmodified, will be getting to the point where it is really unworkable. Indeed, I think in some respects it has already proved itself unworkable.
I am not qualified in any way to know whether alternatives exist or if alternatives are necessarily desirable, but I do ask, in all humility, that some of these points should be given very careful re-examination (I have no doubt they have been examined) as we seem to be making slow progress towards greater stability. We live in an age of Comet aircraft, nuclear power stations, managed economies and managed currencies all over the world. We must adjust our economic thinking and planning to keep pace with events, or we shall be in a very difficult position in years to come.
5.20 p. m
VISCOUNT MASSEREENE AND FERRARD: My Lords, I feel that I should offer some excuse for speaking in this debate, in that I can claim no degree in economics. Since, however, the wealth of this nation has not been created by economists, and since Mr. George Bernard Shaw has told us that if all economists were laid end to end they would not reach a conclusion, I feel emboldened to speak. For I, at any rate, have reached a conclusion. It is surely highly satisfactory to have an economic debate in your Lordships' House where Party rancour is non-existent. In our great nation, clustered as we are on this overcrowded island, we cannot afford to let the basic principles of economics be submerged in the welter of human frustrations and passion. If there is one sphere in which we dare not make mistakes to-day, it is in our economy, balancing as we are on a tight-rope of export-import stretched across an increasingly competitive world. Unlike the position in the past, as the noble Lord, Lord Pethick-Lawrence has said, we have no ample safety net of gold and foreign investments to tumble into. To-day, one wrong move and our standard of living crashes.
I saw it reported that Her Majesty's Minister for Publicity, Dr. Hill, stated at a Press conference that the economic position of this country was strong and healthy. All I can say is that I am only

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thankful that I have never been one of the doctor's less robust patients. I doubt very much whether the economic position of this country has been basically strong and healthy at any period during my lifetime—certainly it has not during the last twenty years. This does not mean that Her Majesty's Government have not every reason to congratulate themselves that the measures taken last year to relieve the inflationary strain on our economy have had success. Our debit trade gap with the world was reduced from £859 million to £571 million. Whether a £571 million trading debit can be called a "strong and healthy position" is surely open to doubt. I think that "improvement" would be a better description.
In spite, however, of this trading debit, we have, as the noble Lord, Lord Brand, pointed out, a surplus on balance of payments. But when we look into this it appears that it is chiefly owing to defence aid and to the fact that the annual interest on the North American loans last year was paid into special accounts and not entered in current debits. We have also, as the noble Lord, Lord Brand, pointed out, borrowed 561 million dollars from the International Monetary Fund which have to be repaid by 1959. We further obtained stand-by credits from the International Monetary Fund and the U.S.A. Import-Export Bank to the amount of £440 million to bolster up sterling. When we take these figures into consideration it will be seen that the surplus on our balance of payments is really due to defence aid and borrowed money. I do not want to appear a Jonah, but the point I am endeavouring to make is that although the figures for 1956 make happier reading than those for 1955, they give no undue grounds for optimism. As the Economic Survey points out, we were one of the few countries outside the dollar area which did not increase their gold and dollar reserves. Is it not also a sobering thought to realise that last year wages and salaries increased by 9 per cent., while output per man fell by 2 per cent.? In fact, industrial production did not expand at all. That output per man should decline is most disheartening when we take into consideration the increasing amount of capital invested yearly in plant and machinery.
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The one bright spot has been agriculture, where, in spite of the appalling harvest weather, net output increased by 3 per cent. and output per man by 1 per cent., notwithstanding that during this period the volume of capital investment in agriculture declined. That is a fine performance, for which every credit is due to the agricultural policy of Her Majesty's Government and to the farmers and the workers generally in the agricultural industry. But agriculture does not suffer from strikes and restrictive practices. Is this not where we hit the nail on the head? If production per man per annum would increase in terms of wages paid, our economic insecurity would vanish, and we could build up substantial overseas investments from our trading surplus. The question is how to get increased production for increased wages, for the latter without the former is economic suicide. You can bring a horse to water but you cannot make it drink. I think it was the noble Lord, Lord Brand, who said that in a democracy you cannot control the ever-rising wages. How can it be brought home in our democracy to the British working man that in his own interests he must make the best use of the tools given him, and that he must not perpetually come out on unofficial strikes for incidents so trivial that they belong to the nursery?
It is said, perhaps callously, that only two things make men work—fear or ambition. The Welfare State has removed fear, while not all men are ambitious. What is the solution? In fact is there a solution within the framework of democracy, or will labour eventually forfeit its freedom to an all-powerful State? I do not think so. In my small way, as an employer in light industry and agriculture, I consider that the British working man is second to none in the world, but he is suffering from a mental sickness, a hangover from past grievances, some real, others imaginary, an attitude of mind which was not helped between the wars by a flood of mischievous propaganda "agin the bosses". Some of the spokesmen can hardly complain now if the workers in the nationalised industries took them at their word—chickens always come home to roost. Without doubt there are forces agitating in industry to-day whose object is to bring economic chaos and ruin to our

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country, thereby preparing a fertile seedbed for Communism. I believe that these subversive elements would have no success at all if the British working man were taken more into the confidence of managements and could gain the simplest knowledge of economics.
Your Lordships have probably heard of a B. B. C programme called "The Archers" which explains to our vast urban population, in a very human family story, the facts of rural life. Could not Her Majesty's Government sponsor, in conjunction with Her Majesty's Opposition perhaps, an "Archers" programme on the radio or television to bring home to the industrial population that if you take more out of the pot than you put in, the end is an empty pot? I understand that in America all schools teach simple economics. Could not all British schools do the same? I have been to America two or three times, and during these periods I have been struck by the quite different attitude of the American worker towards management and capital, compared to that of his British counterpart. There is none of the suspicion or envy so often evident over here. I am convinced that this is largely because he understands the basic principles of economics.
I hope that your Lordships do not think that I am over-emphasising the importance of labour-management relations in our economy. I feel very strongly on this point: it appears to me to be the whole crux of the matter. Management must take a fair share of the blame. In very large factories, of course, it is not easy for management to retain the personal touch with the man at the bench, but every effort must be made to do this. It is useless talking about joining the free market, common market or any other market in Europe unless restrictive practices and strikes stop. Let us put first things first, the horse before the cart and not the cart before the horse.
If only we can clear away from our labour relations the smog of past grievances and ignorance, the future would appear to be extremely rosy. We hold all the other trump cards. Our nation has the finest scientists, inventors, engineers, executives and craftsmen generally to be found anywhere. To use slang, we have the "know-how". We
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appear to be ahead of the world in atomic energy for industrial purposes, a fact which offers exciting prospects in the production field. We have vast resources in the Commonwealth and Colonies still waiting to be tapped. The noble Lord, Lord Melchett, does not think there is much object in tapping them, but I beg to disagree with him. The standard of living throughout most of the world is rising, offering unlimited scope, for a great trading nation such as ourselves. The luxuries of yesterday are becoming the necessities of to-day. Full employment for the nation should be assured into the foreseeable future, provided, of course, it is understood that the object of production is, first and foremost, to produce goods.
What is the alternative to happy relations in industry? It is ever-increasing inflation, while we stagger from financial crisis to financial crisis and price ourselves out of world markets. No matter how brilliantly Treasury officials juggle with the figures, or how able our Chancellor of the Exchequer—and if I may say so, we have a most able one—it is only the people themselves, united as a whole, who can produce the wealth to maintain the Welfare State and increase their standard of living. As the Economic Survey points out, and as several noble Lords have said this afternoon, our prospects will depend mainly on the expansion of exports, but we shall need drive and determination if we are to take full advantage of the expanding markets. If we as a nation refuse to see the red light, and are led astray by agitators who care not one iota for the welfare of the people they profess to support, then indeed we shall get the Government we deserve. Before I conclude, I should like to remind your Lordships and the nation that those who would create a loafers' paradise will, as sure as night follows day, end up in a dictator's hell.
5.42 p.m.
LORD CLITHEROE: My Lords, when one speaks rather late in a debate it is always tempting to speak at some length, because one wants to comment on a good many of the speeches made by other speakers. I will not spend long discussing the last two interesting speeches to which we have listened. I certainly will not argue the merits of the Chancellor of the Duchy of Lancaster as an economic diagnostician, and

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I will not attempt to deal at length with the interesting speech made by the noble Lord, Lord Melchett, although I should like to deal with it at some time if I could. I think I understand what the noble Lord was driving at when he was discussing the question of sterling as an international currency, although at first I was not quite clear. I quite understand that if sterling does not remain a sound currency, then the price that we may pay for trying to use it as an international counter may become a heavy one; and I think that that is a point which merits a great deal of thought.
The noble Lord, Lord Pethick-Lawrence, introduced the debate, as he always does, with a fascinating speech. I am going to devote the few remarks I shall make to the House to the topic which has been raised by so many noble Lords—namely, the question of the depreciation of our currency. I am quite certain that the ordinary people of this country of all sections are unaware of the importance of this matter, although they all feel severely what they naturally describe as the rising cost of living. Before doing that, I should like to say a word or two with regard to the Budget, and to congraulate the Chancellor of the Exchequer on two changes that he made. The first is the new system of taxation of overseas companies, which I think will be of great importance to this country; and the other is the reduction of taxes on certain incomes. I must say I was encouraged to hear the Chancellor refute the suggestion that the Government are giving money to those taxpayers when, in fact, they are only slightly reducing the most excessive burden of taxation which these people have been bearing for many years.
I now want to come to my main theme, and I shall not make a controversial speech, at least from the point of view of Party politics. Like other noble Lords, I welcome wholeheartedly the appointment of Lord Radcliffe and his Committee which is to inquire into our monetary system and the working of it. Many of your Lordships have stressed this serious fall in the value of our money. I am not going back beyond the year 1946 for the moment, although your Lordships are no doubt all aware that the value of our pound now, so far as purchasing power is concerned, is only about
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one-third of what it was before the Second World War. I want only to go back to 1946, because the war was primarily responsible for the depreciation of the currency that took place up to that time. The depreciation which has taken place since 1946 has taken place under Governments of both Parties, and the purchasing power of the pound has steadily depreciated. Just to bring it home to your Lordships, I am going to read out the value of the pound, in terms of purchasing power, as it has been in this country since 1946. In 1946 we start at 20s. Then for the ensuing years, in their order, it was 18s. 9d., 17s. 5d., 17s. 0d., 16s. 5d., 15s. 2d., 14s. 5d., 14s. 1d., 13s. 10d., 13s. 4d., 12s. 10d., and now last March, the latest figure I have, 12s. 7d.: and it is still going down.
Apart from the duty of defending the country against foreign foes, there is no duty on any Government of more importance than providing and maintaining a sound currency. I do not apologise for again stressing to your Lordships the vast and enormous difficulties caused to the trading community by a fluctuating currency, or the suffering that it inflicts on so many members of the community. Currency which depreciates causes hardship to all holders of fixed incomes and creditors, and it gives an unjustified and undeserved reward to all debtors. This is grossly unjust and places a heavy burden on those who have saved: on those who have secured pensions for themselves by their hard work, or fixed incomes for themselves, as the result of savings either of their own or perhaps of their father, their husband or whoever it may be.
The social consequences of this fall in the value of currency are enormous, and history shows us that wars and revolutions are most apt to follow from them. I would suggest to noble Lords on both sides of the House that it would be quite futile to inaugurate a great new pensions scheme as a means of saving for old age, which in itself is highly desirable, unless we maintained a sound currency. Otherwise, we are just cheating people by taking their hard-earned money and eventually paying them back in money that is worth less. Without a sound currency that would be a first-class swindle on the public, and I hope that neither Party in the State will dream of initiating it.

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It is easy to say these things, and it is generally thought to be hard to propose remedies, though in his most interesting speech the noble Lord, Lord Brand, did propose certain remedies. But unless the remedies are found, we shall have continual industrial unrest, because the constant rise in prices naturally forces workpeople to ask for higher wages, and we shall have all sorts of serious consequences following from it. The most serious and obvious consequence will be the further devaluation of our currency in relation to currencies which have been better maintained. The noble Lord, Lord Pethick-Lawrence, said that a further devaluation would put finis to the value of sterling, to the British pound, and the noble Lord, Lord Brand, said that it would rot our whole society. I agree absolutely with them both.
Such a devaluation means a vastly increased cost of all our imports, without which we cannot live, and a reduced price for our exports; that is to say, we have to send more goods overseas every year for each quarter of wheat or each ton of raw materials we import. Those of us who can remember the early 'twenties remember what happened in the catastrophic devaluations which took place in Germany and Austria, when people were wheeling barrow-loads of notes about the place as a means of paying their bills. It is all very well to say that we in this country never go to extremes, but I can assure your Lordships that when you start down a hill you get to such a pace that nobody can pull you up. For goodness sake! let us pull up before we reach that point.
LORD GREENHILL: May I interrupt the noble Lord? It is not because I want to contradict what he has been saying about the value of the pound, but rather because the alarmist note which the noble Lord is striking is perhaps exaggerating the danger. My reason for saying that is that one hears similar complaints about the fall in the internal value of the dollar in America, where, over the last few years, the purchasing power of the dollar has been falling so greatly—though not perhaps to the extent the value of the pound has fallen here—as to cause alarm among the people of America.
LORD CLITHEROE: I fully appreciate the noble Lord's point, and I entirely sympathise with him. It is difficult to get the balance right. One does not want to be alarmist, but one does somehow want to arouse people to the dangers which are before them.
So far as the value of the pound in other countries is concerned, although it may affect our balance of payments difficulties, it does not make the slightest difference to the other serious consequences that I have been pointing out—namely, the immense impact which the fall in the value of money has on the people who have pensions here, even if similar things are happening in other countries. Of course, the noble Lord will agree that the fall in the value of the purchasing power of the dollar has been nothing like as great in the United States as the fall in the value of the pound here; and there are certain other countries who have managed their currency even better than that country.
We have been told by many noble Lords why this has happened. Broadly speaking, it is because the Government and the country are spending more than we can afford. Again, broadly speaking, I think that is the truth. Since 1951, the fiduciary issue has increased by 40 per cent. I am not going back many years. In January, 1952, the figure was £1,400 million, and in April, 1957, £1,975 million. Noble Lords are aware that since the end of the war we have placed the power to increase the fiduciary issue in the hands of the Government of the day without the necessity for them to obtain the prior consent of the House of Commons or of Parliament as a whole. That is a thing which I have not heard referred to by anybody. It was slipped through without anybody knowing about it. Now, all the Chancellor of the Exchequer has to do is to sign a chit, and it is done. I do beg the Radcliffe Committee to give due weight to the fact that all forms of credit: have some ultimate dependence on the stock of legal tender in existence. All forms of credit are related to that in some degree. I suggest that that fact has been largely ignored in recent years, and ignoring it had led us into trouble. There are eminent economists (I am not an economist) who share my view on this matter, and I hope the Radcliffe Committee will give attention to it.

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We have ahead of us at the present time an enormous programme of capital development. Those nationalised industries over which the noble Lord, Lord Mills, has some oversight, rely upon the Government under the new arrangements for their new capital. They go to the bankers now for working capital, day-today capital, but they rely on the Government for permanent new capital. This programme, which is for much-needed developments that have the support of all intelligent people in this country, amounts to enormous figures. I do not know whether noble Lords opposite have noticed the size of these figures, but adding up atomic power, electricity, coal and gas they amount to £4,700 million. In addition to that, the steel industry has a programme running into many hundreds of millions—a figure which has not yet been announced, but which I have every reason to suppose is a large number of hundreds of millions.
Many other great developments are on foot at the same time. The noble Lord, Lord Brand, referred to the "railway age". What was done in that period is the greatest miracle, I think, in our industrial history, but what we are attempting to do now is something even more. I assure your Lordships that if these great sums of capital are to be made available they can come only from two possible sources. One is savings, either within industry or outside it; and the other would be the investment of foreign funds in this country. I know of no other way. If the capital investment made in the coming years exceeds the supply of savings or foreign investment, and if the Government continue to issue more paper to fill the gap, that will inevitably, without the slightest doubt, cause a farther depreciation of our currency. Nobody can deny that.
It is clear that the programme of development and the savings that are required must be brought into line, and that the Government must cease the policy of printing paper to provide for capital development. Paper does not provide either labour or raw materials or brains, which are required in going in for these great developments. Printing paper may not be quite the literal truth, but if your Lordships look at the figures of the note circulation you will see that that is what it means in practice. The note circulation
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in 1950 was £1,287 million, and the average note circulation for this year is £1,949 million. That is a staggering increase since 1950.
May I be so bold as to make two suggestions to the Committee over which the noble and learned Lord, Lord Radcliffe, will preside? One is that they should study the history and the cure of previous depreciations of currency from the days when it was done by the clipping of coins, up to to-day, when it is done by the increase of the fiduciary issue. Secondly, they should take evidence, not only from the citizens of this country but also from distinguished observers from overseas—because outsiders often see a bit more of the game. I have not the slightest doubt that interesting evidence will be given by the Treasury, the Bank of England, the trade unions, the employers' associations, and by the bankers and economists in large numbers. It is right that they should all give evidence, and it is right that the representations of workers and employers should carry the greatest possible weight. But all those witnesses will have some difficulty in looking at the matter objectively. They are all deeply interested in it, and however objective you wish to be, when you are deeply interested, it is difficult to be objective. That is why I suggest most earnestly that much attention should be given to the evidence of history and, secondly, that we should get some evidence from distinguished observers from countries overseas, especially those countries, not excluding some of the Commonwealth countries like Canada, which have succeeded in maintaining a much sounder currency than we have. Take a country like Switzerland, which I think the noble Lord, Lord Brand, told us has maintained a stable currency for several years now. We could learn a lot from them.
We are living beyond our means and, unless we cease to do so, our currency will decline. That is another way of saying what the noble Lord, Lord Brand, said, that there must be some restraint of personal consumption. How to bring that about is the key to all these problems. We have either to increase our wealth by our work and our wits or we have to reduce our standard of living—one or the other. I suggest that any

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further creation of credit must be more closely related to output, and that effective control of the note issue is essential if a managed currency is to work honestly.
I remember in Bernard Shaw's The Intelligent Woman's Guide to Socialism that, after he discussed this currency problem for a long time he came to the conclusion that he would prefer even the gold standard to any standard managed by a Government. We have passed from those days and we must have a managed currency to-day.
I do not think that the noble Lord, Lord Melchett, quite did justice to the noble Lord, Lord Brand, in what he said about employment. I know that the noble Lord, Lord Brand, has no more desire than the noble Lord, Lord Melchett, or I have to see unemployment, but I do not think it is unfair to suggest that over-full employment is just as dangerous as under-employment. Of course, they are both undesirable things. The objective must be that everybody is fully employed: we must try to find the means of getting full employment. The dangers of over-full employment are as serious and menacing as are the dangers of under-employment. There is a great task before the Radcliffe Committee, and I know that the noble Lord, with the aid of his colleagues, will do his best to present the country with a Report which will give us something to work upon. I, for one, hope that it will not be too long before we receive it.
6.3 p.m.
VISCOUNT ALEXANDER OF HILLSBOROUGH: My Lords, I am quite sure that in all parts of the House we feel that this debate to-day has been well worth holding. We have been feeling that right the way through, especially after the opening speech of my noble friend, Lord Pethick-Lawrence. If the noble Lord looks me straight in the eye, I think he will agree with me that we have never really discussed religion together, but I should like to remember that the good is oft interred with men's bones instead of being brought out during their life. When I felt like this I went back to my room and picked up a little cutting. It is a cutting from Hafiz, who said:
" Fear God, and where you go, men shall think they walk in hallowed cathedrals."
When the noble Lord, Lord Pethick-Lawrence, talks to me or to anybody else
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about human things and economics, I feel I am listening to the good man who creates the atmosphere for me of the "hallowed cathedral".
I wondered to-night, when I was listening to him, whether he was really going to come down to the kind of problems about which I have been thinking. Towards the end, however, he put the historical approach to the subject and the debate which has taken place since has been on absolutely right lines. The noble Lord seems to have incited the kind of comment that I expected would be made. We are all very much obliged to him. It is a great tribute to his speeches on previous occasions that, however the Chancellor of the Exchequer may have arrived at his decision, he has nevertheless decided to appoint the Radcliffe Committee. That appointment cheers us on this side very much, because it is quite in accord with what the noble Lord, Lord Pethick-Lawrence, recommended.
I join with the noble Lord, Lord Clitheroe, in saying that I hope that that Committee will produce really substantial ideas for dealing with the very grave situation with which we are faced at the present time. I, of course, agree with the noble Lord, Lord Pethick-Lawrence, about the things that we have to avoid if we are to succeed. There must be no more such affairs as the Suez adventure—I will not comment upon it. We must work regularly to "scotch" inflation. We certainly have not given too much time in this debate, although we have given a great deal, to the question of inflation. The third point was that we must at all points build up the thrift of the people. I quite agree with the noble Lord that it is a fact, as was brought out in one or two other speeches, that the centre of gravity, as it were, of the money and resources of the population has shifted since the days about which he was speaking. The noble Lord is a Victorian, and the noble Lord, Lord Brand, is a Victorian.
LORD BRAND: Partly.
VISCOUNT ALEXANDER OF HILLSBOROUGH: I understand. They were talking about the fact that we have changed very much since then. I have been thinking while listening to all the speeches—and I have listened to all of them except one: that of my noble friend

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Lord Douglas of Barloch, who happened to be speaking while I was out of the Chamber—that the overriding difficulty which your Lordships' House is trying to face to-day is the problem of inflation. I do not often agree with the noble Lord, Lord Grantchester, but in his indictment of certain aspects of inflation I felt myself agreeing with him very much indeed. I should like a little more intimate knowledge of some of those bankers' directives than he seemed willing to give us to-day. I like the argument, but I should like to see some of those directives to bankers.
When he asked: "Do the Government no longer believe in profitability?", I felt very sorry that we could not get the noble Earl, Lord St. Aldwyn, on his feet to answer that question, because the noble Earl produced a White Paper in the House the other day in which he said that the aim of the Government's agricultural policy was to take the profitability out of several very easily and well-produced agricultural commodities. So it may well be that the Government are bound to answer "Guilty" to the noble Lord's charge and that they are giving up their belief in profitability. I would say to the noble Lord, Lord Grantchester, from my own experience of his previous speeches in the House and his great affection for the complete freedom of the individual to do almost just what he likes in the community with regard to the maintenance of profitability, that what he has suggested was not far off that.
LORD GRANTCHESTER: I suggested that profitability was a guide to what the people wanted, and that therefore profitability is the means of interpreting an economic democracy, as I understand it. You cannot make a profit unless you serve the public.
VISCOUNT ALEXANDER OF HILLSBOROUGH: That is certainly a definition. I will look at it on paper. I should not have thought it was the kind of special panacea to be applied to the great problems of inflation at the present time.
I was most interested in the speech of the noble Lord, Lord Brand. He and I look at a number of these economic problems from very different angles, but there is no reason why we should complain about each other on that count. In regard to the noble Lord's references
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to labour problems, especially those that were not his own but where he was quoting to the House from two economists, I felt very much at variance with those opinions. I wonder what the influence of those economists' opinions for dealing with inflation, if they were put into operation, would be so far as the organised workers of the country are concerned. My conviction is that if the economist, Mr. Roberts, who said we could hardly do with very much less than 2 per cent. of unemployment if we were to have something like a stable currency and a cure for inflation—
LORD BRAND: Is it not the case—perhaps the noble Viscount knows the exact figure better than I do—that we have 1½ per cent. unemployment now? I think so; I do not know.
VISCOUNT ALEXANDER OF HILLSBOROUGH: We have had an even smaller percentage than 1½ per cent., and it would not be as much as 1½ per cent. now if there had not been such a comparative stagnation in production in the last twelve to eighteen months. Because although certain export figures have improved, the rate of general increase of production we had in the country up to that time has gone down until it is actually reaching stagnation point. The 1½ per cent. includes some people who cannot find employment at present, and a good many who are working short time.
The other quotation—I think it was from Mr. Liddell—was in a similar vein. I would say at once that I have been working in the working-class organisation for almost all my life, and I have seen a great deal of progress made, both in the education and in the thinking of workers in those organisations, and especially those leading them. But if you try to go to-day to the educated worker and say, "You can have full employment only provided you can agree "—as it seems to me the economist he was quoting was suggesting that the Swedish T. U. C. were going to agree—
LORD BRAND: I dislike interrupting the noble Viscount. I promise to send him the two articles to which I referred, which will give him a pretty adequate account of the authors' views. I should like to put the problem like this. I know that if the word "unemployment" is mentioned

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one is bound to be criticised in every conceivable quarter. I should like to ask, how can you produce a state of affairs where the employer does not of necessity produce over-employment and inflation?
VISCOUNT ALEXANDER OF HILLSBOROUGH: I will look at that again in Hansard to-morrow and think it out, because it wants a little adjustment, having regard to what we heard earlier to-day.
From my experience, I do not think that if you go either to the trade union movement as an organisation, or to educated individual members, and say that you must have an economy in which about half a million unemployed must always be contemplated, you will get them to depart from what is still their fear, in view of what happened after the First World War—namely, the belief that "If we produce 100 per cent. we shall be gradually working ourselves out of a job ". That is the condition of mind among the workers that you must dispel, and we in the Labour Party believe that it is not impossible to organise full employment and yet not have a certain constant figure of unemployment. That can be done best by actual physical controls of the type that are sometimes rather frowned upon by members of the Party opposite.
I turn to the speech of the noble Earl, Lord Dundee. I am not going to criticise him at all, because I agree with most of what he said. The reference to Canada interested me very much. I think that what the noble Lord, Lord Melchett, said about investment overseas and the like wants examination; I think he put some very important points to us. I should like to feel that we had a much bigger British share in the investment which is now taking place and is still required in Canada. To do that we mast have a steady growth—and it is important to say that in this House, because the noble Earl the Leader of the House has under his special wing the development of the Dominions and must therefore have a special interest in the rest of the Commonwealth. We must develop every possible bit of good feeling in these Dominions and in the developing parts of our Commonwealth.
I think we had rather a set back in this regard, which I hope will not last
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and which I hope we shall recover from, arising out of the Suez affair. Sometimes we on this side of the House are charged with being the wicked people who help to produce difficulties for the Government over their Suez policy, but it is not so; there has been general criticism all the way round. I went just now to look at the Economist of February 9, in which there was an article on liberty, equality, and a word I confess I was a little puzzled over until I looked it up, sorority, which is something to do with sisterhood; I have no doubt the Minister of Education will tell me if that is correct. I was very struck with this passage, which I have remembered:
" Britain's historical rôle as mother country is not in dispute. But a conventional mother-daughter relationship ends when the daughters are mature enough to handle their own affairs. A certain time-lag may occur before the daughters see their emancipation clearly, especially if the old lady preserves a reputation as a shrewd adviser. But if Mum is caught pinching hats in Oxford Street, the relationship changes abruptly. She is now in need of advice herself."
If I had been the author of that comment upon the condition of the Suez affair, I have no doubt I should have got a very good slating in this House or anywhere else, and I think the illustration used by the author of that was a little hard. We could not describe the Suez affair as "pinching" anything. But if he had said that you have to be careful of a mother who engages in front of her children in the dangerous practice of picking chestnuts out of the fire, I think the illustration would be perfect. We need to recover all our good feeling and good will in the whole of the Dominions and Commonwealth.
THE EARL OF HOME: I think it is a common experience of all mothers and fathers that they are continually picking chestnuts out of the fire.
VISCOUNT ALEXANDER OF HILLSBOROUGH: I obviously ought not to have attempted to soften down the illustration, because the Government does not like it. I was trying to help the Government in the matter. If they prefer the other one, I will leave it.
I am, therefore, anxious to see investment go along in such a way that the returns from it can be profitable in our general balance of trade. I was impressed, most of all, among all the

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speeches from the other side, by the speech of the noble Lord, Lord Melchett. I think that he was facing up to modern conditions. He was trying to collect the facts in our minds and then trying to face them with realism. I hope that some of the things he said, especially with regard to sterling—I am not sufficiently expert to make a detailed comment upon his speech—will be brought to the notice of the Radcliffe Committee. It is certainly a matter for argument. The question of the use of sterling in a wide area, such as we have been using it now, even in conditions in which we cannot keep it stable, is a great question to have to answer. I should certainly like to see that question referred to the Radcliffe Committee. I should think it would be within the terms of reference which we have had brought to our notice to-day.
The other thing which struck me forcefully (I am glad to see that the noble Earl, Lord St. Aldwyn, is now on the Front Bench) was the reference to the means of helping our balance of trade by recognising that it is just as important not to have too large a proportion of imports as it is to have a steady increase, whenever we can gat it, in exports. I hope the noble Earl, Lord St. Aldwyn, will look at Lord Melchett's speech in tomorrow's Official Report, because it is worth bringing to the notice of the Ministry of Agriculture. They have done a great deal for agriculture, but I feel that in modern conditions, such as we have to face to-day, we can do a great deal to balance our trade position if we accept the task of producing more food in peace time, and make general provision, even for the difficult days of a future war, for the expansion of our growing of timber and also food products. I believe that a proper development of the ideas in the Agriculture Act, 1947, could secure that. It certainly will not be secured on the basis of asking farmers every now and again to take the profitability out of their particular commodity. I do not think that is the way to build it up.
I greatly appreciated the speech of the noble Viscount, Lord Massereene and Ferrard. I thought that he was thoroughly honest in picking out the points that ought to be observed by all impartial thinkers in dealing with the real assessment of which is the balance
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of payments situation at the present time. He gave adequate reasons why we should not be too "cocky", as it were, about the achievements last year, having regard to the balance of payments, because he gave the true facts. I was most struck with the common illustration used about the possible results of co-operation with the workers. I have been a co-operative propagandist for something like forty-five years, and we in our Co-operative Movement have always had one simple phrase to follow—namely, "If you put more in, you will get more out". The noble Viscount rather put it the other way round; that if you take it out and do not put any in, you get an empty pot. I think that is absolutely true. If you put more in, you will get more out.
But let the noble Viscount go away without looking at the latter part of his speech—that there are so many wicked agitators in the country that they are going to lead us into the disastrous result which he put into such vivid language in the last few words of his speech. They are not as bad as that. We in the workers' movement have difficulties to contend with, and the wrong agitators have got to be dealt with. But if he will continue to talk as he did in the other part of his speech, about giving new confidence to the workers, and about a proper share of that confidence being given to them in the ideas of management and the special problems of production, then, I believe that we can make real progress.
Now I come to the speech of the noble Lord, Lord Clitheroe, who concentrated on the one theme of depreciation in the value of our money. As to its possible effects, no one could quarrel with his assessment. But I still feel that we have not yet fully assessed the mistakes that have been made in both the main periods since the war. We in the Labour Party made mistakes when we were in office between 1945 and 1951. We know that we made certain mistakes—we cannot be perfect. But we found a very difficult situation in 1945. If we take the mistakes made since 1951, it falls to the lot of the present Opposition to try to point out what those mistakes are. No doubt noble Lords opposite will always find opportunity to point out our mistakes before 1951. At two successive Elections the

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country was promised a sort of "free-for-all"—reductions in food prices, all prices to be down, and that kind of thing. To find then that the value of the pound has depreciated on the rising of prices to the extent so graphically described by the noble Lord, Lord Clitheroe, suggests that the methods employed in managing our currency cannot have been completely right, or effective, or acceptable to the people themselves.
I believe that we cannot possibly get a cure, or even a substantial remedy, for inflation unless, in the circumstances in which we have found ourselves post-war and in face of the modern developments throughout the world, to which Lord Melchett referred, we have a planned economy for the country, and unless we have not merely a bankers' squeeze, under the direction of the Treasury, but also a planned control as to what is to be produced for export and what is to be produced for the home market, thereby keeping a general central control as to how the monetary resources arising from industry are deployed into the proper sphere of investments.
That is our policy. It is a policy of which we are not ashamed, and by which, in the years from 1945 to 1951, we saw substantial achievements. When one counts up the mistakes, whichever period one looks at, I do not think that any of them matters so much as the achievement in 1945 of pulling this country back from its bankrupt position, without any real reserves of production in the country, and the achievements of production and distribution such as we got up to 1951. There have been certain improvements since, but we have been having these recurring crises; and the anxiety, I gather, not merely in labour circles but in other circles, is whether the Government are sufficiently seized of the problem. I should rather doubt whether that can be so. I should surely think that they would be regarding it, like most people, as one of the most urgent problems to be dealt with.
If the noble Viscount, Lord Hailsham, who is to reply, would cast his mind back for a moment, he may remember an article in The Times on April 30, which referred to "The Lost Plateau". That article was printed only a few days before the Chancellor of the Exchequer
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announced that he thought now was the time for expansion in certain directions, financial and economic. If the noble Viscount recalls the article, he will see that whoever writes in, and advises, The Times on that subject fears inflation like the plague. And many other people also fear it, for the reasons given this afternoon by the noble Lord, Lord Clitheroe, in regard to the depreciation of the pound.
I daresay there are many in your Lordships' House who, like myself, experience it every day. I subscribed to a superannuation fund for nearly thirty years, and I should have been comparatively comfortable, in my very humble sphere: of living and spending, had we had a stable pound corresponding to the value it had when I was making my contributions; but to-day the return is not worth one-third of what I might have hoped to receive from that superannuation. It is that which, when we think of the Budget, makes us feel that surtax payers might have been able to wait a little longer than old-age pensioners. Though we have not made very striking criticisms of the Budget in this debate—and have not desired to do so—it seems a little difficult to understand why so many things that Her Majesty's Government do are necessarily inflationary. It is because they are inflationary that there are the organised applications from the workers for constant increases of wages and salaries to meet the situation, applications which are putting up costs, reducing the value of the pound and making things altogether much more difficult.
I hope that one result of our debate may be that Her Majesty's Government will look at this again. For although, as my noble friend Lord Pethick-Lawrence has said on many occasions in these economic debates, we have no biased political view against the handling of credit by Government direction through the banks, so that in that way there may be a check, and although we are not afraid of such a control, if it is not overdone, I am quite satisfied that Her Majesty's Government will not get where they want to get on this matter unless, instead of mere direction, they take more direct, more widespread and more operative controls than can be effected through a mere credit squeeze.
6.33 p.m.
THE MINISTER OF EDUCATION (VISCOUNT HAILSHAM): My Lords, on the last occasion when we had an economic debate I had to confess that I had too little to say for the reason that my right honourable friend was then preparing his Budget. On that occasion I was being pressed by a number of noble Lords, from more sides of the House than one, for the appointment of a Committee on monetary matters to correspond with that of some years ago. To-day, at any rate, I am in the happy position of receiving garlands of flowers because such a Committee has been appointed. I draw attention to this happy circumstance not in order to derive any satisfaction for myself—because, of course, I had nothing whatever to do with it—but to show that public opinion, reasonably expressed, through both the economic newspapers and the two Houses of Parliament, does have effect on Government policy; and to emphasise the value which debates of this kind necessarily have, even though at the time the Government spokesman may not immediately respond to the request which is made. I hope that those who question the value of discussion in Parliament will note this small circumstance, and others as they happen, to show how valuable our debates are and can be.
The thing which has struck me most about this afternoon's debate is how well we come out of it. Your Lordships have been talking about our underlying difficuties, and no one, I think, has sought to underestimate them. Certainly I shall not seek to do so. But we are talking mainly about the progress of the year 1956, for it is a little too early to talk about 1957 and a little too late to talk about 1955. During the year 1956, exports had a remarkable upsurge, and the balance of payments showed a definite improvement. We have had one or two sly "digs" about Suez but we shall be discussing that subject next Thursday, so I shall not respond to this fly cast over my nose. I will only say that whatever noble Lords may think of the circumstances, and whatever we may be saying about it, in one way or another, next Thursday, the fact that this episode took place during the year under review underlines the importance and value of the improvement which took place in the balance of payments and in the export
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position during that year. Because I think one can say without any exaggeration whatever that had it not been for the international situation—which certainly was not entirely of our making—those figures would have been very much more satisfactory even than they were. During the same period our reserves have improved.
I thought that the noble Viscount who has just spoken attempted a mild and not illegitimate Party passage in his speech just before he sat down. We believe that the policy which was adopted at the end of 1955 to counteract the position of that year, and indeed the policy which we have consistently pursued since 1951, has been more markedly successful in dealing with our underlying difficulties, including even the rise in prices, than that pursued in the period before. We believe that that can quite plainly be shown statistically; and though we have had special difficulties to deal with (and we realise that the Labour Party had a special difficulty, both at the beginning of their term of office and during the Korean war) it can be demonstrated that, on the whole, a situation which in 1955 looked menacing was handled during 1956 with almost complete success. That gives us a good deal of confidence for the future.
In fact, there has been remarkably little criticism. Again, we are dealing in 1956 with a year in which investment increased very rapidly. That is very encouraging because, after all, investment is the basis of an expanding economy in the future. In 1956, the amount of fixed capital expenditure by manufacturing industry was 20 per cent. higher than in 1955, compared with an increase of 27 per cent. between 1954 and 1955. The estimate previously given of capital expenditure during the last quarter has been substantially revised upward. Having been previously estimated at 16 per cent. higher than the year before, it was 17 per cent. higher than the year before. So that, in addition to a marked improvement in our overall position as regards exports, balance of payments and reserves, we are dealing with a situation in which investment was very much up.
I do not think that the noble Viscount, Lord Alexander of Hillsborough, and to a lesser extent my noble friend behind me, were quite fair in referring to a period of stagnation in production. In fact,

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stagnation is the exact opposite of what has been taking place. It is true that the total value of production was not up, but that was because industry was engaged in a very desirable form of "General Post." Production was veering away from consumer goods, which were causing the inflation, to export goods and to investment goods. In fact, if one looks at the figures for investment and export goods, it is clear that production was rising substantially. Therefore to describe the situation as one of stagnation in that important sphere of activity is, I think, a mere misunderstanding of the situation, a misunderstanding which I am sure has led to a lot of needless anxiety. We are dealing with a year in which there was an exceptionally large increase in personal savings, partly, though not of course entirely, the result of the Government's credit restrictions. That is another point which I think we are entitled to look upon not in a spirit of self-congratulation but in a spirit of sober satisfaction.
Taxes have gone down. The noble Lord, Lord Grantchester, said we had made a beginning. I think, with all respect, that he was doing us less than justice in that connection. I have in front of me a table showing the percentage of the gross national product accounted for by different types of taxes over the years 1946 to 1956. It has to be stated as a percentage, otherwise arguments would ensue as to the different values of money in each of the several years. In 1946, we were expending no less than 38·8 per cent. of our gross national product through taxation, including local taxes. The Labour Government had brought it down by 1950 to 34·8 per cent. But it has come down since then to 29·6 per cent. And that is true both of taxes on income and capital and of taxes on expenditure. In 1951, the former represented 16·4 per cent. of the gross national product. They are now down to 13·9 per cent. The same is true also of taxes on expenditure. Answering the point raised by the noble Lord, Lord Douglas of Barloch, they are down from 14·9 per cent. in 1951 to 12·6 per cent. in 1956. In fact, if one translates these percentages into terms of pounds it is literally true that hundreds of millions of pounds have been saved by reductions in taxation.
The picture which has been painted of taxation as high is a thoroughly just one.
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We are all conscious of it. Fortunately, even Ministers have to pay their share. At the same time, one must not underestimate the direction in which we are going, viewed as a percentage of the gross national product, which is, after all, the important factor to consider in judging the burden of taxation. So we are dealing with a year in which taxes were reduced.
I cannot accept the view, no doubt included for electoral reasons in the last part of the speech of the noble Viscount who leads the Opposition, that the surtax payers should always wait every time before getting a share of reductions of taxation. My own view of society is, and always has been, that one should try to make every section of society feel that they are part of a family and have some share in the affection of their fellow-countrymen. I do not share the view that surtax payers should have to wait, always and for ever, until it is considered electorally convenient to woo their votes. On the contrary, they come at the end of the queue—it may be right that they should; but it is also right that at the end of the queue there should be a little left for them when things are beginning to go better, so that they may feel that they also are playing a worthy part in society. I am not impressed with the contrast made between them and the old-age pensioners, who have received constant attention both from this and from other Governments, and no doubt will receive more from my right honourable friend as the years go on.
The first impression I got—I think a legitimate one—from the course of the debate, is that what we are discussing is a year of steady improvement in the face of very considerable special difficulties, some of which were international and temporary. And may I say, in passing, that, whatever view is taken—as I say, I do not want to anticipate next Thursday's debate so I shall express none—about operations in connection with the Suez Canal, I personally feel strongly that only a very exceptional concatenation of circumstances brought these events about, and it is quite unlikely that anything of the kind, whatever the view you take to-day, is likely to occur in the future. So from the economic point of view we are looking at a year of very considerable recovery and expansion, following

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a position which looked quite threatening at the end of 1955 and in the face of considerable difficulties.
The Government cannot accept the view that the present position is anything but an encouragement to them and an indication that the policies that they have been pursuing in relation to finance, monetary matters and credit, have been the right ones. For instance, I do not think we should accept Lord Grantchester's criticism that we should not have budgeted for a surplus. We did, of course, budget for a very large surplus. We have just done so. Lord Granchester was not behind anyone else in his attack on the evil of inflation. But budgeting for a surplus is a means of attacking inflation, and it is the means chosen to counteract inflation on the scale with which we are threatened. In the modern world drastic steps of that kind have to be taken. It was largely to counteract inflation and to meet dangers to the balance of payments that money was not left, as the noble Lord would perhaps put it, in a classic phrase, "to fructify in the pockets of the people."
LORD GRANTCHESTER: It all depends, does it not, upon the use to which the surplus is put? It is dangling a temptation before any Government Department to spend more money. That is the point which I was making.
VISCOUNT HAILSHAM: I think, with respect, that the noble Lord's argument is based on a confusion of thought. You only budget for a surplus if you have already decided not to spend part of the surplus. The temptation to spend more money comes before you have decided to budget for a surplus.
LORD GRANTCHESTER: There are such things as Supplementary Estimates.
VISCOUNT HAILSHAM: Supplementary Estimates come from wicked spending Departments like those over which I preside, and they bear no relation to the Chancellor of the Exchequer's decision to budget for a surplus. If I may divulge what is a well-known fact of English politics, I can assure the noble Lord that my right honourable friend is every bit as responsible for curbing the spending Departments after having budgeted for a surplus as before—much to the distress of some of us. So I do not
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think that the noble Lord's criticism was sound or reasonable. On the contrary, to fail to budget for a surplus is to encourage evils which we all want to face and face honestly.
Underlying the debate is the fact of the depreciation of the value in money and the rise in prices, or inflation—whatever you choose to call it. I think it was generally recognised on both sides of the House that in a system of full employment (the latest figures of unemployment, I believe, are about 300,000, and I think most of us will agree that that is full employment) wage demands not accompanied by an increase in productivity, if acceded to, must necessarily result in a depreciation in the value of money. I do not accede to the view, which seemed to be that put forward by the noble Viscount, Lord Alexander of Hills-borough, that because prices rise one per cent., or whatever it may be, wage demands for a much larger amount are thereby justified. On the contrary, I believe that in the long run both unions and Government would be well advised to calculate quite calmly what increase in wages is really justified by the increase in productivity, if any.
It was for precisely that reason that my right honourable friend, in dealing with the recent report arising out of a strike, was attracted to the proposal for an advisory committee to consider these things. I cannot remember off-hand how far the Committee's discussions have gone, but I hope that they will be received in a friendly spirit in all quarters. I do not believe that it is to the disadvantage of anyone to find out what are the facts and to discuss what the inferences to be drawn from them would be. Speaking for the moment personally, I would regard discussions of this kind as a contribution to the solution of the problem of inflation which we are all seeking.
I think that all Members of your Lordships' House were seized with the importance of defending the value of our currency, a plea for which was made in an eloquent speech by my noble friend below the gangway. Of course, the pound is difficult to defend in a period of full employment and rising costs and prices. It has been emphasised that other countries are suffering from precisely the same maladies in precisely the same context. But I think that it should be remembered, not to our discredit, that a

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large number of the countries we have helped with a certain sense of pride on the way to independence have acquired large balances of sterling currency which we have a natural commercial obligation in honour to turn into goods or capital goods at some time; that these countries naturally desire to turn their balances, which are expressed in currency, into solid concrete investments to develop and benefit their countries; and that we are honourably discharging that obligation. It is a burden to our people that we should do so. It is a burden which will be felt by our people but one which I am sure our people would wish the Government to bear. Of course, it adds to the pressure upon our currency, but I cannot see that an honourable commercial nation can do otherwise than honour them.
I would say, with respect, to the noble Lord, Lord Melchett, in whose interesting speech I was much absorbed, that when he asked what the advantage to us was of being the banker to a large part of the world, I would answer him by analysing a little more exactly what is meant by being the banker to the rest of the world. We are not in the ordinary sense bankers; we are bankers by analogy. There is in London a mechanism for international trade which exists nowhere else, except perhaps in New York. No one grudges the New York bankers their position in international trade, but is so happens that our mechanism is more used because it is more useful to other people on a larger scale. Many countries are short of dollars, and it so happens that sterling is the currency of which they have a greater quantity than any other; and therefore it is inevitable that a great number of international trading transactions should take place in the City of London in terms of sterling. It is an advantage to us to do so, even though it is in terms of small receipts, but I agree with the noble Lord, Lord Brand, that these small receipts can possibly be of immeasurable, impalpable advantage to the prestige of this country, to its standing in the world and its influence, perhaps even in an indirect way to the actual trading position that it should continue to possess. Certainly it is of direct advantage to this country that the total volume of world trade should be increased, and it is probably a factor that increases the total volume of world trade that our currency is available and our financial mechanism used.
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A large number of countries have acquired sterling, either as a result of direct export or import into or out of this country, or as payments from others who have so acquired it. These balances, when they are acquired lawfully in the course of commerce, constitute an honourable obligation for us to fulfil. I conceive that all these are the things which are meant when we say that Britain is the banker of the world. There is no bank and there is no account. What is meant is the position which I have endeavoured to describe. We cannot honourably vacate that position as a matter of deliberate policy, because it would involve the repudiation of current bargains which we have honourably undertaken. Therefore we must defend the stability of our currency, both in the interests of our own community and of those for whom we have to account for sums in terms of sterling. That is all that is meant by our being the banker of the world.
We also require a surplus on trade, or a balance of payments surplus, in order to invest abroad. I agree with my noble friend who contended that investments abroad are in themselves valuable assets which can be realised in an emergency, which broaden the basis of our economy and enable us to have a more flexible and mobile economic system. Though I do not wish to say anything in criticism of the noble Lord, Lord Melchett, who rightly stressed the importance of investment abroad, I would point out that during recent years we have invested abroad to the extent of about £200 million, which becomes about £160 million net, when the countervailing-figure is taken into account, and we have been investing at home. To my mind, all that shows a position in which the British nation, under its Government, is seeking manfully and realistically to cope with its economic difficulties.
I was deeply moved by the passage with which the noble Lord, Lord Pethick-Lawrence, began this debate, by the contrast between the spendour of Victorian England and the bewildered, distracted and convulsive twentieth century. But let us make no mistake. It may be that in relation to the rest of the world Victorian England stood on a pinnacle where we do not stand now. But Elizabethan England is much richer than Victorian England. The only differences

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which have taken place are, first, that during that period the rest of world has become much richer much faster than we have, and, secondly, that since the 1914–18 war in which, let it be remembered, we played an honourable part, the world itself has become a precarious and dangerous place to live in. It is precarious and dangerous for us to live in because Britain is not only one of the greatest world communities, it is also one of the most sensitive world communities. Nothing can happen anywhere which does not affect us.
There is no one place upon which we can rely in order to secure absolute prosperity—not even our home market or our agriculture. Although I agree that timber is a good thing, it takes a long time to mature after it is planted. Britain is thus one of the most sensitive of the world's communities. A disaster in America, Africa, Asia or Australia affects the bread and butter of people living in England, because there is nothing that can happen anywhere with which we are not intimately concerned. That, surely, is precisely what gives us a peculiar moral stature in the world.
There is no fight in the twentieth century in which British people have not been killed, in the long run, because it took place; there is no economic disaster in the twentieth century which has not brought British people poverty because it has taken place, even if it has taken place on the other side of the planet. There is no form of misfortune or good fortune which can afflict the world which is not reflected here, not simply as a matter of statistics but as a matter of human happiness. When we say that we want universal peace, it is not an expression of good will but an intimation of the condition of our existence and of our prosperity; we have to wish it, or we die. If we say we want universal prosperity, or greater trade, it is because we know that our life depends upon it, and not simply out of sympathy for our fellow-men. So we face an economic position in which, as it were, the whole planet is reflected in this island, and that is why what we say and do here is a matter of peculiar responsibility, and a matter from which we and our fellow human beings cannot easily dissociate ourselves.
7.2 p.m.
LORD PETHICK-LAWRENCE: My Lords, I think everyone present will agree
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that we have had a most interesting and good-tempered debate; not one of the speeches has been delivered in a spirit of acrimony. We are all faced, as I think the noble Viscount who has just sat down said, with great difficulties, and we are all striving, to the best of our ability, to find a way out. I have no intention, at the close of the debate, of dealing at any length with the speeches that have been made, but I should like to mention three in which I have been interested for certain reasons. The noble Lord, Lord Grantchester, talked about "this surplus". The real fact is that there is no surplus. It is only because we have put an arbitrary line down the middle of the expenses that it is called a surplus. We are still in deficit on the expenditure which the Government authorise, and it is not a surplus. That is why what the noble Viscount said in his reply is so essentially true.
Then I was much interested in the speech of the noble Lord, Lord Melchett. He may be interested to know that it is a good many years since I had a protracted debate with his grandfather on the question of the nationalisation of industry. I say that because I was particularly interested in some of the points made by the noble Lord to-day. With a good deal of what the noble Lord, Lord Clitheroe, said I found myself in agreement. I did not altogether agree with his view that it was the amount of money in being that created inflation. I agree with him that there is a correlation between the amount of money and the degree of inflation, but the real question is: which causes which? My own view is that it is the inflation that causes the excess of currency, and not the other way about. At any rate, I cannot entirely agree with his view on the matter.
Finally, may I say that I very much appreciate the speech of the noble Viscount who replied for the Government. He has said a great many things which many of us on this side fully support, but if on some points we disagree with him, that is only natural, sitting as we do on opposite sides of the House. I thank all noble Lords who have taken part in the debate, and beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.
House adjourned at five minutes past seven o'clock.