HL Deb 11 November 1959 vol 219 cc500-76

3.4 p.m.

LORD PETHICK-LAWRENCE rose to call attention to the report of the Committee on the Working of the Monetary System (Cmnd. 827); and to move for Papers. The noble Lord said: My Lords, I rise to move the Motion standing in my name to call attention to the Report of the Committee on the Working of the Monetary System, and to move for Papers. Those of your Lordships who, like myself, have read all through the 340 pages of the Radcliffe Report will be acutely conscious of the monumental character of the Report itself. Certainly we shall agree not only that it contains an immense amount of information but that immense care has been taken in its compilation; and therefore I am quite sure that, in whatever part of the House we sit, we shall express our thanks to the noble Lord, Lord Radcliffe, and to his eminent colleagues for what they have done in preparing for us this volume of evidence and the findings which enable us to deal with this extremely intricate question.

Now, having said that, I should like to say that, for my part—probably like some other noble Lords who are present and who have also read the Report—I put it down, after reading it, with a certain amount of disappointment; disappointment so far as I am concerned, not because I found myself in any opposition to the findings of its signatories, but owing to the fact that, at the end, I was not quite sure of precisely what the Report intended its findings to convey. In order to put the issue into hard outline I will put two questions. The first is this: do the Committee consider that the monetary policy pursued in the 1950s was reasonably successful? Secondly, do the Committee consider that if we in this country are confronted by similar emergencies in the 1960s, we should be well advised to follow policies similar to those we adopted in the 1950s? To that question I confess that the intelligent inquirer will be hard put to find a specific answer from reading the pages of the Radcliffe Report. So I will put down one further question with a view of clarifying the questions to which my alleged reasonable inquirer will wish to know the answer.

I believe the Committee would agree that the total cost of the monetary methods employed during the 1950s was very considerable, including the cost to the Exchequer, the cost inflicted upon private individuals, and the injury to the body politic and the productive output of the country as a whole. Now in view of that, are the Committee of opinion, in the light of experience, that in any further future emergency of the economy much of the cost might be avoided by a better choice of instruments? My Lords, to that supplementary question, equally with the previous questions that I have put, I do not find that the Committee have supplied a categorical answer. Nevertheless, I am satisfied from reading the Report as a whole, its facts and its recommendations, that the Committee would be inclined to give a definite affirmative reply. And it is because I am fully satisfied of that fact, and because I believe that the facts which the Committee have elucidated in the course of their inquiry indicate that conclusion, that I believe that the findings of this Report, when they are fully studied and digested, will prove of the greatest value to inquirers on financial matters in this country.

That, my Lords, brings me to consider the Report and its recommendations in detail. In the early chapters of their Report the Committee state in great detail the outlines of the monetary scene, and they point out, I think perfectly correctly, that a great number of changes have taken place in the years of the earlier part of the century, at a time when banking policy and changes in bank rate were quite common; and that in the intervening years, when bank rate remained stationary, the alteration in the monetary outlook of the country as a whole has become entirely different from what it was a quarter of a century ago. I will quote one or two examples which are given in the bulk of the Report. First of all, the National Debt has very greatly changed in volume; then we have inaugurated the system of Treasury Bills; we have giant concerns which are capable of finding on their own immense sums of capital resources; we have had the formation of national industries of a very large character and with vast accumulation of reserves; and, in addition to that, we have to-day sources of credit which were quite unknown in the old days 25 or 20 or so years ago. In consequence of all that, the problem which faces the monetary authorities at the present time is essentially different from what it was in those days long ago. Summing up their attitude towards the monetary problems of to-day the Committee, in paragraph 312, page 107, use these words: … it is the liquidity position as a whole upon which the monetary authorities must act. That is, of course, an entirely changed position from what it was in the years 20 or 30 years ago, when the monetary system was comparatively simply thought of, as it was in those days.

Turning to what is claimed for the bank rate policy as a controller of the disequilibrium in the internal situation of the economy, I would direct your Lordships' attention to paragraph 472 of the Report, on page 167, and I propose to read to your Lordships the relevant part of that paragraph. This is what the Committee, after very great deliberation, definitely said: We are driven to the conclusion that the more conventional instruments have failed to keep the system in smooth balance, but that every now and again the mounting pressure of demand has in one way or another (generally via the exchange situation) driven the Government to take action, and that the quick results then required have been mainly concentrated on the hire purchase front and on investment in the public sector which could be cut by administrative decision. The light engineering industries have been frustrated in their planning, and the public corporations have had almost equally disheartening experience. That these two should be the 'residuary legatees' for real resources when sharp adjustments were called for is not a comforting thought. Then the Committee wind up the paragraph with these words: It is far removed from the smooth and widespread adjustment sometimes claimed as the virtue of monetary action; this is no gentle hand on the steering wheel that keeps a well-driven car in its right place on the road. I think your Lordships will agree that that is quite a strong statement on behalf of the Committee. Dealing with the efficiency of bank rate policy in regard to external disequilibrium, the Report says, in paragraph 439, on page 152, these words: Traditionally the major impact of a change in short-term interest rates was upon movements of international short-term capital. Omitting now quite a large number of lines, I come to the end of the paragraph, which states: So far as this old automatic effect is concerned, a jump in short-term rates seems on past evidence to have lost much of its power to effect any real immediate improvement in Britain's international balance sheet. And in order to be fair, I quote the final sentence: It is not yet clear whether the power will revive as exchange markets take on a more settled appearance.

I come now to a very important paragraph, 695, at the foot of page 253. This is a particularly interesting paragraph because it displays the attitude not only of the Committee but apparently to some extent of the Bank of England itself. I gather, though the paragraph is not entirely conclusive, that the Committee were impressed with the view that the international effort bringing about a change in bank rate was psychological rather than actual. The Report says, in fact: … we have had little evidence of actual movements of funds in response to changes in short-term rates, or of other measurable effects on the exchanges.

Now, my Lords, let me try to press home the point which the Committee are making in those comments. They are pointing out that the actual effect of an increase in the bank rate on outside resources is very little in itself. The only real effect is a psychological one; in other words, it is raising a flag and suggesting that all will be well with matters; it is not a measurable effect—something actually achieved. That seems to me a matter of very considerable importance. I venture to suggest to your Lordships that, taking those two effects together—first of all, the effect on internal equilibrium; and, secondly, the effect on external equi- librium—the Committee go a very long way to suggest that it is the bank rate itself, and not the policy which it envisages, which really is the powerful factor, if powerful factor there actually is, in bringing about any change in the situation.

I do not want to take too long over these matters, and I have dealt with what seem to me the main features of the Radcliffe Report on this vital question of monetary mechanism. I have shown, in the paragraphs that I have quoted (I could extend my inquiry to a great number of other paragraphs, but I do not intend to waste your Lordships' time by so doing), that it is quite clear from the Radcliffe Report, both from the facts and from the recommendations, that the Radcliffe Committee are extremely doubtful whether the monetary methods that have been used during the 'fifties of this century (which, as I have already said, have cost so much to the private individual, to the Exchequer, and to the public weal) have really been justified in the result, bearing in mind the immense expense and injury they have done to the economy.

My Lords, I propose to leave that matter. No doubt other Members on all sides of the House will enlarge on those fundamental matters. I propose, in the concluding remarks of my speech, to refer only to one or two important but comparatively subsidiary questions. I will take, first of all, a very important statement by the Radcliffe Committee on the relationship between the Chancellor of the Exchequer and the Bank of England. The first question is a theoretical one, though a very important theoretical one, and one which the Radcliffe Committee stress in some detail in different parts of the Report: It is the question of who, in the last resort, shall have the final word. Shall it be the Chancellor of the Exchequer, or shall it be the Bank of England? It think those of your Lordships who have read the Report will agree with me that the Radcliffe Committee come down quite specifically in favour of the Chancellor of the Exchequer, and they do this in two main particulars. In the first place, they say that, irrespective of the Bank of England Act, from time immemorial it has been and must be the Chancellor of the Exchequer who makes the final decision, because the whole economy of the country rests in his hands; and though the Bank of England naturally has a great deal of expert knowledge, and though the Bank of England must necessarily advise the Chancellor of the Exchequer in great detail, nevertheless, in the final resort, the decision must be that of the Chancellor—and I think your Lordships will realise that that must inevitably be so. But the Radcliffe Report goes even further than that and says specifically in one place (I have not the actual quotation; I do not want to keep on wearying your Lordships with quotations) that even in matters which the Bank has hitherto considered belonged to its own precise prerogative, in the last resort the Chancellor must have the final word.

In reference to that, there is a later paragraph in the course of the Report which is of sonic considerable importance. The Radcliffe Report makes the suggestion that, in order to help the Chancellor of the Exchequer, a Treasury Committee should be appointed, with various persons on it, to advise the Chancellor of the Exchequer—and that suggestion seems to me, broadly, along sensible lines. I should not like to commit myself as to the precise terms or suggestions which the Radcliffe Report proposes, but it must be perfectly clear to Members of your Lordships' House, and to Members in another place, that the Chancellor of the Exchequer is not in a position to stand up, if I may so put it, to the Governor of the Bank of England entirely on his own legs. He must have expert advice that will enable him to some extent to be a match for even the august personage of the Governor of the Bank of England.

I have thought this matter out very considerably, because, as your Lordships know, I was at one time Financial Secretary to the Treasury, and I am fully acquainted with proceedings in the Treasury. The real question is: where two individuals are confronting one another, such as the Chancellor of the Exchequer and the Governor of the Bank of England, whose view will ultimately prevail? It is not simply a matter of who has the right or ho has the theoretical responsibility. Quite clearly, when two individuals of that kind are discussing things the man who has the greater financial knowledge will be able to exercise a special influence on the other party. And it is my experience over a very long period of years that it is not the person who has the function that necessarily secures the victory of the day; it is a question of who is the person with the greatest expert knowledge. Certain Chancellors of the Exchequer seem to me to possess powers—I will not mention any names—which enable them to stand up to the Bank of England and pull their own oar, whereas other Chancellors of the Exchequer have been largely the mouthpieces of the Bank of England. That must necessarily be so. But in so far as the proposal of the Radcliffe Committee, that we should get this special expert body of people in the Treasury to help the Chancellor of the Exchequer, is a workable proposition, it seems to me the most important proposition that could have been made.

There is one other matter which the Radcliffe Committee put forward and which again I think is worthy of full consideration. Your Lordships will remember that some year or two back a tribunal sitting on the Bank of England went into the question of part-time directors of the Bank. I think that everybody who knew the men concerned had not the least doubt that those who were involved in the inquiry acted with the utmost bona fides and to the greatest of their ability, but it was brought home in certain cases that they had a divided responsibility. As directors of the Bank of England, they had to be told all the facts leading up to this question of the bank rate, and in their private capacities as merchant bankers, or whatever they might have been, they were confronted on the same day with decisions that affected their own businesses and the interests of a large number of people from a fiduciary point of view. It was felt by some people that this divided responsibility was too great a burden for them to be called upon to bear. And the Radcliffe Committee, as I understand their proposal, suggest that in order to deal with that situation the part-time directors of the Bank of England should give an opinion, as any person might give an opinion, but that they should not have any final responsibility for decisions regarding the bank rate. They should not be placed in the rather invidious position of double responsibility in which they have been placed up to now. I think that that is an admirable suggestion, and I hope that your Lordships will take the view of the Radcliffe Committee on this point.

I propose to deal with only one further question, a comparatively small one. In years gone by, there was what was called the Local Loans Board. Whereas important municipalities preferred to issue their own loans, generally of a considerable amount, running certainly into hundreds of thousands of pounds, and possibly into millions, for the smaller municipal authorities it was more expedient that they should be classed together and should be enabled to draw their funds from a common pool, the Local Loans Fund, from which they were entitled to draw in order to carry out their municipal obligations. A little while back—I forget how many years ago—that was all changed. The smaller local authorities were forced to come into the market and float their comparatively small loans, and only when they failed to get the loans they required was it suggested that they should be had from the Local Loans Fund—I forget what it was called precisely. I was always against that step, for it seemed to me to be a retrograde one, and I am very glad that the Radcliffe Committee have now come down in favour of reversing that procedure, which has been in existence for only a few years and which I do not think has worked very well.

In these remarks, first of all on the major issue of the policy of using monetary means like the bank rate and other similar instruments, I have dealt with the larger issue of the Radcliffe Report. I nave concluded by taking two or three special cases, and though there are several other important issues raised by the Report, I do not propose to try the patience of your Lordships further today. I would only say that it is an exceedingly difficult subject, and I am greatly indebted to your Lordships for so kindly listening to what I have been trying to say. I hope that those of my colleagues who are to take part in this debate will be able to draw on the indulgence of your Lordships, as I have drawn, in dealing with this very interesting, very intricate and very carefully thought out Report. I beg to move for Papers.

3.36 p.m.


My Lords, in rising to address your Lordships for the first time, I must ask your indulgence, not only for my inexperience but also because of the great intrinsic difficulty of the subject under debate. The Report we have to discuss is a long and highly technical document. Hardly anything that one says about it in a short time can possibly be true. Moreover, one is bound to be controversial. It is hard to think of a less suitable subject for a maiden speech. Yet the Report deals with matters with which from time to time I have been concerned, and I should feel something of a coward if I let the occasion pass without attempting some contribution.

Before plunging into detail, I should like to join with the noble Lord, Lord Pethick-Lawrence, in an expression of general gratitude to the noble Lord, Lord Radcliffe, and his talented colleagues. The comments which have appeared since the Report was first published have not all been wholly favourable and I have the impression that for months, and perhaps for years to come, professional economists will be arguing about some of the contents. All this is surely quite healthy, but it would be a great pity if it should seem to show any lack of appreciation of the immense and splendid labours which lie behind this Report or of the great addition to knowledge which it has made.

If only for its descriptive sections and for its figures, it would take its place as one of the most important documents of this century on the subject with which it deals. And its indications of how more reliable knowledge is to be obtained in future are likely to begin a new epoch in the history of financial statistics. It is because it is so authoritative in these connections that if one argues with it elsewhere, one must argue, as the Germans say, "with the hat in the hand". Yet the subject is appallingly complicated and it would be futile to pretend that differences of opinion do not persist even after all these labours.

Perhaps your Lordships will bear with me for a short time, if I try to sort out a little of my own rather mixed reactions in this respect. To begin with matters of agreement, I would single out for special welcome the emphasis which the Committee lay upon the importance of debt management in the context of monetary policy. I am not sure that I understand all that they say in this respect, but I am sure that the focus of attention is right and highly important. This is no totally new discovery. I am sure that the authorities of the Bank of England have long been acutely aware of the limitations imposed on their management of the market by the abnormal size of the short-term debt, and in recent years there have been important articles from Mr. Manning Dacey, Mr. King and Professor Sayers who have opened our eyes to the significance of the Treasury Bill in this connection. But it is fair to say that until recently public, and even professional, discussion has been all too apt to ignore these complications and to talk as if control of the credit base were wholly within the competence of the Bank regardless of the form of public debt. It cannot be sufficiently emphasised that in the last analysis it may be the volume of Treasury Bills which is the governing factor in the supply of money; and it is a great step forward to have this recognised by a public Committee.

Secondly, I count it a considerable gain that we now have acknowledged in a unanimous document the fundamental truth that the appropriateness of interest rates is not a matter of absolute height, but rather of relation to a particular situation: that is to say, the structure of interest rates may be too high, in that in some way or other it restrains spending when more spending is called for; or it may be too low, in that it stimulates spending when some restraint is in order. The Committee leave us in no doubt that, in their judgment, at certain times in the last few years interest rates have been too low and that this may have made the restraint of inflation more difficult than otherwise would have been the case. My Lords, I think that this is most important. All this, in my judgment, is very much to the good.

My doubts begin with the more detailed analysis and its consequences for policy. To begin with, there is this curious repudiation of some alleged over-emphasis somewhere on the supply of money which occurs like a leitmotiv throughout the argument as though some peculiarly discreditable connection were being repudiated. I am not at all sure that I have got to the bottom of this, any more than that I always understand the precise meaning of the Committee's substitute notion—the so-called liquidity of the system as a whole. But, speaking as one who still finds the influence of money supply a useful central guiding concept, perhaps I might say two things conducive to mutual understanding. First, I do not know a single economist since the 17th century who has argued that the supply of money is the only factor determining the volume of spending and the level of employment and prices. I confess that I find it hard to imagine the frame of mind in which this can be conceived to be possible. The reason why in discussions of policy the supply of money has been high-lighted, so to speak, is not because it is thought to be the sole influence operative, but because, rightly or wrongly, it is believed to be one of the influences which can be controlled.

But to argue thus—and this is my second point—is not to argue that the control of money supply in this sense should be the only control applied. I will not say that there have never been economists who have thought that monetary policy in this sense could do everything: for there have been some, chiefly, I believe, abroad. But I will say that I doubt whether in recent years there have been many such. I think that most of us have felt, at least during the ardours and endurances of the post-war period, that a more eclectic policy was essential, and that in such a situation to eschew fiscal measures was as unwise as to eschew control by the supply of money and interest rates. My own view is that the Committee would have done much better to base their own argument on this conception. If only they could have overcome their repugnance to starting from the idea of the credit base as the centre of the picture, they could have shown, on the one hand, how an abnormal composition of Government debt impairs control by the Bank of England, and, on the other, how perverse effects, on the fringes can effect its influence; and I think they could have said all they wanted to say about debt and liquidity without running into some of the ambiguities which I think experience already shows tend to make their argument at this stage rather difficult to follow. But all this, perhaps, concerns technicalities without much bearing on practical action.

My chief worry about the Report concerns its diagnosis of the effects of monetary policy, and I confess that at this point I find it very difficult to follow. They examine in some detail a good deal of evidence regarding the effects of particular interest rates upon various sectors of the economy. They acknowledge a variety of influences and reactions, and it is not at all easy to make up one's mind how much importance they attach to each. They discover cases where interest rates have had some influence; and they elaborate some arguments showing how this influence is to be conceived. But in the last analysis I do not doubt—and here I agree with the noble Lord, Lord Pethick-Lawrence—that the drift of their argument is to suggest that monetary policy is much less capable than has recently been thought of making its contribution to the general stability of the economy. They believe in monetary Policy, but they do not believe in it very much.

I confess that I find this attitude both perplexing and unconvincing. I am not in the least surprised to find that the cross-examination of witnesses whose main business experience has been acquired in a period of brisk inflation should yield ambiguous conclusions. Very often since the war the rise of prices has been such as to reduce what may be called the real, as distinct from the nominal, rate of interest to something more like a negative than a positive percentage. If prices rise 4 per cent., a borrower of £100 who returns £104 at the end of the year is paying zero real interest; if they rise more than that, as they frequently have, then the real rate is negative. At such times I should not expect small fumblings in the neighbourhood of 4 per cent. to have great effect all round: and I certainly should not be surprised to find many businessmen who paid little attention to such things. Indeed, to me, the remarkable thing about the evidence quoted is not that some of the witnesses said they paid no regard to the rate of interest, but that some of them said that they did.

What surprises me in this context is that the Committee should have attached such considerable weight to this kind of evidence. Surely, before getting down to questions of this degree of detail, the prime desideratum was to establish whether the broad run of economic history confirmed or refuted the view that a lax money supply and relatively low interest rates are associated with inflation and that a curb on money supply and a sufficient rise in interest rates is capable of bringing such conditions to an end.

Here, surely, there is a wealth of evidence from different times and from different places. It is true that relatively low interest rates and easy money do not always generate expansion, although I think it can be said that when inflation does take place these conditions are always present. But it is also true—and this is the relevant point in this connection—that inflation has always yielded to determined applications of the reverse policy. Are we really to suppose that in recent years it has been just a succession of lucky accidents that all over the world where inflation has been checked and reasonable control of aggregate demand has been re-established, there control of money supply and manipulations of interest rates have been practised and have been regarded as essential ingredients of policy? Think, for instance, of the German stabilisation. I think it is quite reasonable to say that we do not always know in detail how these influences have operated. But I do not think it reasonable to proceed as if the brute fact of their operation were still an open question. I will not say that the Committee go as far as this—that would not be fair. But I think that what they say, and still more what they do not say, will give encouragement to those who do.

I fancy that there is already some evidence of this in the reception of this part of the Report up to date. The chief praise has come from those who hardly believe in monetary policy at all. I would suggest another test—the probable reactions of the central bankers. Central bankers, as we all know, are a modest, sensitive race of beings who are apt to resent suggestions that they can do a great deal for the economy, especially if they fear that their best efforts are likely to be upset by Government borrowing policy. But I wonder how many central bankers would endorse the degree of scepticism regarding the instruments at their disposal which seems to emerge from the deliberations of the Committee. I will not say that the Committee have actually thrown the baby out with the bath water in this respect, but I do suggest that the poor child is left perched very precariously on the side of the bath.

This brings me back to our own experience in recent years. On this, as it seems to me, the Committee do not draw all the morals that they could. They think that greater recourse might have been had to the use of interest rates, and they are inclined to attribute the inflation of 1954–55 partly at least to some laxity in this respect. But this does not preclude some doubts when it comes to positive claims of what might have been done in this connection. And when they come to the episode of 1957, they show a considerable reserve. I must say that to me this history seems to have a much less equivocal significance. To me, the inflation of 1954–55 is a good example of what happens where monetary policy is insufficiently firm and when the policy of public finance is working in the opposite direction. And the events of 1957 seem to show pretty conclusively what can be done when it is really strongly applied. I do not wish to attribute the turn in our fortunes solely to what was then done in the monetary sphere, but I do believe, very firmly, that not only the dramatic ending of the crisis but also a good deal of the easement which has come since was due to the policy then pursued. I do not think that the present expansionist policies—of which, may I say, I completely approve—would have been possible if it had not been for the courage and imagination of the then Chancellor of the Exchequer in bringing the inflation to a halt.

Finally, may I say one word about the relations between the Bank of England and the Treasury? This is a very difficult but a very important subject. I have no doubt at all that in the modern age, with our changed conceptions of policy, there can be no place for complete independence of the Bank of England. Nor have I any doubt that the relations between the Treasury and the Bank must be those of continuous and intimate co-operation. The idea of relations between two sovereign States is entirely inappropriate. I daresay that there has been, and possibly still is, much to learn on both sides. But I cannot say that I am enamoured of the solutions suggested by Lord Radcliffe and his colleagues. I am somewhat sceptical of the formal Committee which is suggested, and I am still more distrustful of the proposal which puts upon the unfortunate Chancellor of the Exchequer of the day the humble functions of the Deputy Governor, namely, that of announcing changes in the rate of discount.

Of course, if the Committee's attitude to interest rates is to be interpreted as implying that there should be changes only once in a blue moon, all this has greater plausibility and consistency. A change from 4 to 3½ per cent. in such conditions would be, of course, an event of tremendous moment. But if, as many of us still believe, the needs both of internal and of external stability demand a more flexible and continuous policy, then a procedure of this sort, in my judgment, would be a move in the wrong direction. In any event, I think we should remember that in the Bank of England and its traditions, with all its faults and occasional intractability, we have an asset of great importance in international relations; and that while it is desirable that its habits and organisations should adapt themselves to change, it is undesirable that its strength and standing should be impaired. I hope that the Chancellor of the Exchequer will hesitate long before he takes any step which, to the outside world, might seem to imply any weakening of his confidence and trust in the Bank of England. There are plenty of other ways of bringing about whatever changes may be thought to be desirable.

4.0 p.m.


My Lords, I am sure that any members of the public who supposed that this House is mainly composed of illiterate backwoodsmen can hardly still think so, after listening to the speeches of this afternoon. I am particularly grateful to the noble Lord, Lord Beveridge, and the noble Lord, Lord Boothby, whom I am sure the House would wish to hear at this point, for allowing me to speak in front of them as I have to fulfil an engagement elsewhere which will compel me, I am afraid, to miss most of the later speeches. The noble Lord, Lord Boothby, has more than once shown great moral courage, if I may say so, in taking an unpopular view of financial matters, and the noble Lord, Lord Beveridge, would salute the noble Lord, Lord Robbins, with his special authority as his old Director—he having been for so long Director of the London School of Economics, where the noble Lord, Lord Robbins, has been such a distinguished professor over a great period. I, as a part-time assistant lecturer for a few months at the London School of Economics under the auspices of the noble Lord, hesitate to add my bouquets to those bestowed by the greater financial authorities who will follow me, but I cannot fail to be grateful to him for allowing me to assist him even for that short time.

My mind goes back further to the time when he advised me on book reading at New College, Oxford. I remember going to him as a young, first-year student and asking for vacation reading on economics. He gave me a list. I cannot remember what they were now, but no doubt they were Knowles' Industrial and Commercial Revolutions, Henderson's Supply and Demand, or books of that kind. The noble Lord thought I was rather downcast. He said, "Don't you like the look of them?" I, trying to say something bright, offered the opinion that they were rather dull, and he said, "Don't you like dull things?" I said, "No, not very much," and he looked at me in a rather damaging way and said, "You surprise me. I should have thought you would have enjoyed them." That was a very healthy experience for a first-year student, and my devotion and allegiance to the noble Lord has never wavered from that moment onwards. Certainly, owing him many kindnesses over many years I feel that not the least is the fact that this afternoon he has given us a speech which will be read wherever economics are going to be studied, and that means all over the world. I am sure that wherever people read the Radcliffe Report they will want to know what the noble Lord, Lord Robbins, said about it, and they will not be disappointed in what they have heard this afternoon.

If I am asked whether I agree with him, I would reply that one must not disagree too much with maiden speakers, and therefore I will not say very much now. I was interested to note that the noble Lord, Lord Robbins, and the noble Lord, Lord Pethick-Lawrence, seemed to be agreed on one central point. I think that it was put into words by the noble Lord, Lord Robbins, and I believe that the noble Lord, Lord Pethick-Lawrence, who opened in his usual very cogent fashion, would accept that rendering of the Report. The noble Lord, Lord Robbins, said that the Committee believe in monetary policy but they do not believe in it very much; and that, I think, is what the noble Lord, Lord Pethick-Lawrence, discovered in their Report. Therefore, in dealing with this very elusive document, we at any rate reach some point of initial agreement. I think we may take that as a starting point they believe in monetary policy but they do not believe in it very much.

The noble Lord, Lord Robbins, deplores this, and although he wrapped it up in his usual courteous way, he thinks that this is a rotten Report. I do not consider that that is putting it too strongly. He shakes his head, but I am in the recollection of the House and I do not think anyone will disagree with that interpretation—the collection of figures is monumental, the labours past all praise; but when it comes to conclusions they are slightly ridiculous. I think one read that into the speech of the noble Lord. I am simply offering a reaction to a speech which the whole House heard. The noble Lord, Lord Pethick-Lawrence, taking that one sentence which I have used from the noble Lord, Lord Robbins, thinks, on the whole, that the Report makes pretty good sense. It is simply a matter of opinion between two very learned Lords, but at any rate they seem to agree about what is the main gist of the message of the Radcliffe Report. I join with all those who have paid and will pay their tribute to the Report for its immense collection of information, and I also salute what they have achieved in several spheres—in particular their demand for much better information and many of their other recommendations, which are altogether excellent.

But let me just point to what I think are some of the limitations of the Report, not from the angle of the noble Lord, Lord Robbins, but more in a fashion to supplement what fell from the noble Lord, Lord Pethick-Lawrence. If I am not inflicting on noble Lords a piece of knowledge known to all, I would say that there are some very helpful articles about the Report in the October number of the Banker. Among those articles I suppose nothing is more helpful than an article from the pen of Sir Oscar Hobson, I suppose the most distinguished of financial journalists in this country or any other, who I am bound to say shares a good deal of the views of the noble Lord, Lord Robbins, about the Report. On pages 616 and 617 Sir Oscar Hobson summarises the Report in a passage which he calls "Radcliffe—in One Page"; and if any noble Lords after this debate feel that they have not quite got the hang of the thing, I suggest that they look at the article, and particularly the passage called "Radcliffe—in One Page".

Perhaps I may quote two sentences which are drawn from the Report but which are picked out by Sir Oscar Hobson, as I think they give a balance. Our conclusions on rate of interest policy are … that while there can be no reliance on this weapon as a major short-term stabiliser of demand, the authorities should think of rates of interest—and particularly long rates—as relevant to the domestic economic situation … Then they go on to quote this sentence, which I do not think was used by the noble Lord, Lord Pethick-Lawrence, though it may have escaped me. They say: … we envisage the use of monetary measures as not in ordinary times playing other than a subordinate part in guiding the development of the economy … That is saying what was said in other words by the noble Lord, Lord Robbins, and I think probably accepted by the noble Lord, Lord Pethick-Lawrence. I do not say that the Radcliffe Report is infallible; I am merely saying that this is what the conclusion appears to be.

Accepting that point of view, that the monetary weapon is to be subordinate, I find a difficulty about the Report in trying to discover how the Committee think the monetary weapon should be used. Let us assume that it is subordinate, but, let us also assume that it is in some sense necessary. We cannot, perhaps—I am not sure I am capable and would not have the temerity in front of the noble Lord, Lord Robbins, and the noble Lord, Lord Pethick-Lawrence—try to go into the theory too deeply. But I think it is fair to say that the Radcliffe Report debunks what might be called the orthodox view of monetary policy, without putting very much in its place. I do not object to its belittling monetary policy, but it leaves a gap, and I think we are bound to ask ourselves what any Government would do if they had to accept the Report in its entirety.

It is quite true that the Report declines to estimate the respective weight that might be placed on the three main instruments of economic policy: the direct or physical controls, import licences, building licences or what you will; secondly, fiscal measures, particularly the Budget; and thirdly, monetary measures, of which, of course, the use or manipulation of interest rates is only one part. The Committee leave it open to the Government of the day to say how much emphasis is to be placed on each of those three factors. I think probably my own colleagues would place less importance on the third, the monetary policy, than perhaps the general run of noble Lords opposite, but I do not think anyone would place no emphasis at all on monetary policy. Therefore one is bound to ask how would this third weapon be used at all, whether in a big way or small.

When we come down to that we can, I suppose, consider monetary policies under four very general headings—I assure the House that I shall not dwell on any of them very long. May I take the example of where the object is to restrict the use of the credit of money and not to expand it, although one can, of course, take illustrations from either case. But we have seen this system of restricting credit in recent years when we have been tackling inflation.

In regard to monetary policies, we may think of direct requests of some kind or another from the authorities, be it the Government, the Treasury, or the Bank of England; or we may think of steps which are taken by the authorities, such as what is called open-market policy, which actually reduces the capacity of the banks to lend. I must not go outside the banking system: there is the difficulty of restricting the lending of the commercial banks while leaving other institutions free to lend outside. Or, again, some instructions or guidance may be given to the banks regarding their reserve requirements: it is possible to vary what is considered the proper liquidity ratio either below or above 30 per cent., or as you will; but they can be given the guidance that they may not have a higher or lower reserve ratio than hitherto. That is something I have advocated in this House before now, and I am glad to see that the Report is somewhat more favourable to varying liquidity ratios than many of us expected. Another way is to vary interest rates—either the short interest rates or the long interest rates. I hope that the experts present will agree that we can place all monetary measures under these four headings.

Of course, it would be absurd to under-estimate, or to try to summarise in a sentence or two, all that the Report has to tell us, and all the help that it has to give us in regard to all these ways of expanding or restricting credit. But with regard to liquidity ratios I should like to quote a sentence from the September number of the Banker, which, referring to the Report, says: Its meaning is especially hard to discern"— and that is saying quite a lot— against the introduction of variable liquidity flowers as normal regulators. Putting it quite crudely, the Report contemplates various emergency situations and various emergency powers. But I think it would be true to say that, for normal purposes, leaving out emergencies, it concentrates on or selects interest rates as superior to all other forms of monetary action.

Still within the framework of monetary action, and leaving out physical controls and the use of the Budget, but within the monetary field, it concentrates on interest rates. Within that still more limited field of interest rates it concentrates on long-term interest rates as distinct from the use of the bank rate, the short-term manœuvres with the bank rate which I suppose the noble Lord, Lord Robbins, had particularly in mind. Here perhaps I might quote an extremely effective article by Professor Ballog in the Manchester Guardian of, I think, October 26, where he points out that this use of the long-term interest rate, which is their, so to speak, specially chosen remedy, is apparently for long term use only. It has therefore nothing to offer for the main problem which worries Governments—how to deal with normal short-term problems which arise. That issue is really left to us. I am glad that I am now carrying the noble Lord, Lord Robbins, with me to some extent. I think it is fair to say, therefore, that they leave a vacuum at the heart of the financial problem. That is my own criticism of the Radcliffe Report. They do not give the kind of guidance which a Government might reasonably expect in dealing with the normal short-term problems that arise. I hope, therefore, that I have to that extent conciliated the noble Lord, Lord Robbins, while taking my stand firmly on the major question. I see that the noble Lord, Lord Pethick-Lawrence, has left us, though not, I hope, through disagreement with anything that I have been saying.

My Lords, I feel sure that I can close without offering my own thoughts further as to how this gap should be filled. But perhaps I may just say this, returning to a wider question, a most delicate question, but one, I suppose, with which few people would conceive themselves fitted to deal in the particular way in which I feel that I have some qualifications. There is no doubt that all this excellent work by the Committee, whether we agree or not with their conclusions, will not be wasted. It will help to enlighten the public about what the City does. In that sense, therefore, it will, I think, help to bring down that wall of misunderstanding which exists between the City and the general public.

If I may say so, the tension or misunderstanding is most acute as between the City and my own Party, the Labour Party. There is in that misunderstanding, in that estrangement, at once a rational and an irrational factor. I think it is not very likely that the average City director will ever vote Labour. I think it is also just as unlikely that the average miner will ever vote Conservative. When I pleaded on an earlier occasion for a better understanding between the City and the Labour Party somebody said to me that it was like asking a member of the Society of Jesus to become a paid-up member of the Ethical Church. Well, there are, of course, these barriers which I think to some extent are permanent. The point of view of the average business man, politically speaking, is never likely to be that of the average member of my Party. Therefore I think we must expect some difference to remain.

But there is also an irrational factor, and here I should lack moral courage if I did not make myself remarkably plain. Taking it from the point of view of my own Party, there is no doubt that it is widely suspected—it may be wrongly: but it is suspected—as a general view, that, to put it crudely, there is too much easy money made in the City. To give an example, I spoke in many constituencies—I should think in over 25 during the Election campaign—for the Labour Party. I suppose it never occurred to any chairman when I was speaking, to introduce me as the chairman of a bank. I think it would have been felt that that would have struck a jarring note. I think that is so; I believe there is that suspicion on that side. I think it is right to say, therefore, as a Labour man who has been chairman of a bank for five years, that that suspicion can be over-done.

I am coming to the other side. Take the City. I recall a story, told me, think, by Dr. Hugh Dalton, of Ernie Bevin when somebody asked him, after his first meeting with Stalin, what he thought of Stalin. Ernie Bevin said, "He was not so bad; he was just a working chap like you and me, trying to make his way in the world." That is a charitable, but I daresay a justified estimate. That is, I think, how it is necessary to look at those who earn their living in the City. They are really a great section of the British public. They have the faults and virtues of the British public; and as we are all Britishers in one way or another, I think we must realise that we have these faults and virtues. I believe that it would be well if my own Party came to that particular point of view, while always differing from the policies which are likely to be most popular in the City.

On the other side, we must face the fact that the suspicion of the Labour Party is also very pronounced. One cannot work in the City, as I have done for five years, without realising the depth of the prejudice and how unreasonable it is in the extent to which it is carried. If I may speak frankly—and I am speaking frankly, for we are in public life and these things matter—it is very obvious, it is well known, that if any Conservative Member of Parliament falls out of office he does not find it difficult to be padded out with a lucrative seat in a board room. That, I am afraid, is only too obvious to every member of the Labour Party. But, Labour ex-Ministers are not accommodated in that way. Now that is a basic factor, something which everybody notices.

The prejudice is there, and although there is the rational factor, there is also the irrational prejudice. I put it from both points of view. I am putting it as fairly as I can, and I speak, I suppose, as very few people can speak—there are some, including Members of your Lordships' House—from both sides. But if noble Lords opposite suppose that this prejudice towards the City which we feel in the Labour Party is a one-sided affair, they are very much mistaken. The suspicion is mutual. There are faults on both sides. It is not for me this afternoon, when I am trying to place this point before the House, to say who is more at fault, but these things should be said because there are very few who are in a position to say them. These rational differences are natural. They will continue; they are unlikely to pass. But the irrational prejudice is something that could be rid of; and the sooner it is got rid of, the better, because it can be of no help to our country to which we are all so greatly attached.

I have added those thoughts to our discussion of the Radcliffe Report. It is, in its own way, a great document. I hope that the noble Lord, Lord Robbins, will forgive me for treating him as an opponent in the Report. I know that what he said at the beginning of his speech was entirely genuine. This is an historic document. I am glad that my noble friend Lord Pethick-Lawrence should have raised this subject this afternoon, for no one is better qualified than he is to debate these matters with us. But there are others who also possess exceptional knowledge, and though I shall not be here for the whole of the debate I am delighted to think that the House of Lords should spend this day on a Report which I am sure will go down in history for its many memorable qualities.

4.22 p.m.


My Lords, I have been grateful in the past for many things that the noble Lord who has just sat down has done with me and for me. I am even more grateful than ever before for one thing which he said in the speech he has just made, giving me the inevitable opening for what I have to say. I am before your Lordships as an illiterate backwoodsman who has tried, but failed, to read the Report that is under consideration to-day. I have done some statistics on the Report—that is my dirty nature. The Report has 986 paragraphs and is followed by ten pages of names of people giving evidence or submitting memoranda. There are nearly forty names to a page. Let us say, then, that about 400 people have contributed to it. The taxpayers have also contributed £20,000, apart from the voluntary work done, for the printing and the collection of the material; and I am bound to say (to use a phrase which the Committee themselves used in one of their paragraphs) that I cannot help feeling that this thing could have been done much better.

My chief difficulty in pursuing the matter is that although the Committee were formally instructed, having made their Report, to make recommendations, they firmly refused, not merely to give a list of recommendations—there is nothing of the kind anywhere in the Report—but even to suggest where one would find recommendations. In fact, those who want to know what the Committee really recommend have no choice except to read 986 paragraphs. One can leave out the memoranda and statistics at the end. That is the simple choice put before one by this Committee. I confess that I feel it is a great pity that they, having to deal with a vital question and to come to recommendations or suggestions, do not do so at all. The best they say is that something could have been done a little, or perhaps a good deal, better. They make no recommendations of any kind anywhere. In a moment I will come to the fact that when they mention five things to which they really attached importance they also leave us to find out the explanation of all those things—in 986 paragraphs. And I do not know how to do it.

I confess that I am a little troubled by this. If I violently disagreed with anything that I understood them to recommend, I should feel very much like the two economists who were discussing a book written by a third economist. A said to B, "Have you seen what C has been saying about you in his book? It is perfectly horrible stuff." B asked, "How many words has he taken to do it?" The answer was, "Oh, it is an enormously long book." The comment of B was, "Oh, that's all right; nobody will read it." If I did not want this Report to be read I should be quite happy, but I should like Ito see the Report or, at any rate, the subject with which it deals, examined and dealt with, because it is vital to the happiness of the people of this country.

I will say at once that there is one sentence, in paragraph 980 of the Report, in which the Committee say: There is … no single objective by which all monetary policy can be conditioned. As a very ordinary citizen and a backwoodsman, I wish to urge that there is one indispensable quality for money, and that is reasonable stability. Money is the practical instrument by which the citizen manages his own life and decides how and when he will spend his free resources. The State having provided him with the basis on which to live, money is the instrument. He has to decide whether he will spend it all in his youth or will save it for his old age or for his children. How on earth can a man make that decision unless he knows whether money will be of the same value twenty years, six years or even one year hence as it is to-day?

Reasonable stability is an absolutely essential requirement of money. Let me say that that is not easy to achieve. It is very difficult, particularly in countries like this or, say, the United States of America. Reasonable stability of money has to be combined with two other things to which the people of this country are absolutely attached—I believe that they are firmly attached to reasonable stability of money. My study of monetary policies over the past 700 years shows what passion for the stability of money the people of this country have had, always wanting good money and not debased money of any kind.

That has to be combined with two other things—full employment and freedom and responsibility for the citizens. It would be quite easy to get full employment if we did not want freedom. We should simply have a nice Communist State to ensure it. But if we want freedom it means that the State, by itself, cannot solve this problem for us; and nobody but the State can give us stable money, because the State is the manager of money. But the State cannot do it unless other people co-operate with them—all the banks and the other institutions of all kinds. The associations of employers and of workmen have all to co-operate if we want, in a free society, to combine full employment and stable money. It cannot be done by the State alone. It is a very difficult question, but I think it is one of the three most important questions facing this country at the present time.

I wish that this Report, into which so much brain-power and so much assiduity have gone, were more likely to be read, and that when read it would really help to solve that problem. It is a very difficult problem to approach—how we treat banks, how we treat employers' associations and workpeople and all the rest of them, in order to get them to co-operate in securing stability of money, without giving up their freedom. Whether we put what I call the central management of money into the hands of the Chancellor of the Exchequer or into the hands of the Bank of England is an important question, but it is far less important than solving these other questions, and I wish we had been helped by this Report to solve them. I am going to read this Report again, but I do not believe, having looked at it carefully, that it is really going to help very much for that purpose. May I express my hope that I ant quite wrong in that belief.

4.32 p.m


My Lords, the noble Lord said first of all that he had not read this Report; now he says he is going to read it again, which implies that he has at least had a look at it before coming to this House. I think myself he was a little uncharitable to the Committee. I want, however, first of all, to congratulate the noble Lord, Lord Robbins, on his maiden speech. It is an atrocious subject upon which to make a maiden speech—what the Prime Minister described as a realm where mysticism and dogma are so strangely mixed. It is upon this awful uncharted sea that he proposed to embark, and has embarked with such enormous success. He made a frightfully good speech, if I may say so, to your Lordships on a subject about which no one but the noble Lord, Lord Pakenham, can be funny; and no one except the noble Lord, Lord Pethick-Lawrence, can be interesting.

My only excuse for speaking this afternoon is that I was the first person to suggest to Parliament that a Committee should be set up to inquire into the working of the monetary system. That suggestion was acknowledged by Mr. Thorneycroft, as Chancellor of the Exchequer, when he subsequently announced the setting up of this Committee. One achieves so little in public life that the temptation to take credit when one "pulls something off" is quite irresistible; and the main purpose of my remarks this afternoon has therefore already been achieved.

I feel, however, that the result has not been so melancholy as the noble Lord, Lord Beveridge, implied. We have now—and I think I shall carry the noble Lord, Lord Robbins, with me—an authoritative and lucid account of the monetary and credit system as it works in this country to-day; and, particularly, of the technique of debt management, to which both the Committee and Lord Robbins rightly ascribe great importance. For this alone the Report seems to me to have been well worth while. It is, however, by no means alone. No one, I think, has yet drawn sufficient attention to the importance of the need for more and better statistical information, which is emphasised again and again throughout the Report. The Bank of England, it says, has not published all the figures it collects; and it has not collected enough anyway. A great many of us have always suspected it; and it is satisfactory that steps have already been taken to rectify this. For my part, I hope that not only the research and intelligence side of the Bank's activities will be strengthened, but that the closer collaboration between the Bank and the Treasury, envisaged in paragraphs 863 and 864 of the Report, will now take place. The figures that ought to be available have been made abundantly clear in the Report, over and over again; and—rather remarkable—one has the impression that some of the figures that have been produced by the Radcliffe Committee were almost "screwed out" of the monetary authorities for the first time.

There can be no doubt, my Lords, that the criticism of the management of the National Debt in recent years is severe. I do not share the view of the noble Lord, Lord Pethick-Lawrence, that there is anything equivocal about this. The Report says there has been too much secrecy; and a lack of clear purpose in the funding operations of the Bank of England, which is tacitly criticised for not allowing gilt-edged prices to fall in 1957, and for preventing a rise in 1958 through over-funding; and, at the end, there is a criticism of the Bank for failure to make its intentions known to the market. These criticisms add up to quite a lot.

Then we come to the "symbolical" significance of a high bank rate; and here is where the noble Lord, Lord Robbins, and the Radcliffe Committee part company. The Committee say, in paragraph 441: We find it difficult to believe that such veneration for Bank Rate can persist if there develops a general scepticism of the power of interest rates over the internal economic situation. This statement is coupled with a warning that The authorities must resist the temptation to push interest rate so high, in order to get the debt firmly held, that they engender a slow but damaging decline in activity. Again, there is a rejection of … any suggestion that the rate of interest weapon should be made more effective by being used more violently. This, of course, ties up with what the Committee regard as the limited significance of any changes in the interest rate. I think there is no doubt at all—and we have to accept it—that the use of monetary policy by itself, in isolation, is thought by the Committee, as against the noble Lord, Lord Robbins, to be very limited indeed; and I think that is a very important conclusion. I am not myself saying (I am not really an economist, only an amateur) whether your Lordships should agree with them or not. I do not know; but after a careful reading of the Report, I have no doubt on which side they come down. They are, on the whole, very sceptical about the use of monetary policy, in isolation, to direct the national economy.

The noble Lord, Lord Robbins, raised an interesting point concerning business men, and this is the relevant passage in the Report: When we confined our questions strictly to the direct effect of interest rate changes in making business men alter their decisions to buy or sell goods or services, we were met by general scepticism. The insignificance of interest changes in relation to other costs and to the risks involved was emphasised to us again and again, in relation not only to fixed investment but also to stocks of commodities. That, I think, is what the noble Lord, Lord Robbins, had in mind when he said the Committee should not have been guided as much as they were by the evidence of the business community. Nevertheless, I think it is not entirely without relevance; and I thought that passage was of sufficient interest and significance to copy it out.


During inflation?


Yes, during inflation. We now come on to the relative significance and importance of the supply of money and the velocity of circulation. Here again the Committee come down hard against the general conception of the supply of money as having a great influence upon the economic welfare of the country as a whole. The noble Lord, Lord Robbins, said that this question of the supply of money was the leitmotiv of the Report; and wondered why this should be so. I think we all remember that, during the period 1957 and 1958, the phrase "supply of money" became the basic theme of Ministers of the Crown in justifying their policies, which may or may not have been right. But they went on and on talking about the supply of money, until one wished one might never hear the phrase again. It was persistent and monotonous; and I think it was perhaps to counteract this that the Radcliffe Committee introduced a leitmotiv on the treble section—to counteract this thundering and steady bass, which had gone on for so long. There is no doubt that if the Radcliffe Committee did unduly stress this question of the supply of money, Her Majesty's Minister—and I think the noble Lord, Lord Robbins, did so as well—from another angle.

The Committee came to the conclusion that the supply of money is not the critical factor; and that the velocity of circulation is. In fact, they go so far as to say that there is no limit to it. In October, 1957, I pointed out in another place that the supply of money had not been increased since 1954; and that our wage-cost inflation had been financed entirely by the increased velocity of circulation—and that is a fact which you cannot get round. It is always agreeable to an amateur to find his views confirmed by professionals; and I do not think anybody can deny that there were some pretty good professionals on the Radcliffe Committee. I do not think that the 1956–57 inflation was caused—in fact it clearly was not caused, because it did not happen—by an increase in the supply of money.

The next point that interests me very much—and I do not know how far Lord Robbins would concur in this—is the emphasis put by the Radcliffe Committee upon the limited effect of any single remedy. "Monetary measures", they say, "can help, but that is all." And there are "narrow limits" to the usefulness of hire-purchase controls. In a real emergency they come down in favour of some kind of prescription for bank liquidity ratios, which some of us have been advocating in another place for several years; and also, if necessary, a quantitive control over private capital expenditure, rather than the qualitative control exercised by the Capital Issues Committee—and I think they are right here.

To summarise the Committee's proposals, they say that monetary measures are not so much a policy in themselves as part of one general economic policy which includes among its instruments fiscal and monetary measures and direct physical controls. As one who has been saying this, on and off, for the last 35 years, how can I be blamed for feeling pleased? As for the emphasis that is placed on the various instruments for carrying out the economic policy of this country, no doubt the noble Lord, Lord Robbins, would disagree with Lord Radcliffe and the members of his Committee in detail; but I do not think he will dis- agree with the general conclusion of the Committee, that no one of these instruments can be taken alone, in isolation. You must consider them in relation to the whole economic situation; and use whatever you think best, without any doctrinaire prejudices in relation to the circumstances at the time.

My Lords, I now come—and I am nearly at the end of the points I want to make—to the necessity for retaining control over the export of capital, of which the Committee are firmly in favour. The relevant paragraphs, which are paragraphs 731 to 747, are cogently argued and, to my mind, are completely convincing; although I would put in this reservation: that blocked sterling for non-residents should be swept away altogether. Indeed, my Lords, it is something of a myth—but it is a myth which undoubtedly exists in the minds of foreigners at the present time. To my mind it is responsible for keeping away quite a lot of foreign capital that would otherwise flow into this country, not on short-term but on long-term, because foreigners vaguely feel that there is such a thing as blocked sterling for them; and that, somehow or other, their investments may be tied up on that account. It is in fact negligible; and I think we should make a firm statement that, for non-residents, the days of blocked sterling are over. I think that would do a great deal of good to the national economy.

In the circumstances, I must say that I found it more than somewhat astonishing to learn that Treasury assent had been obtained just the other day for the City Centre Company to invest 25 million dollars in a skyscraper in New York. This seems to conflict with the recommendation in paragraph 740, that it would be foolish to export capital if that meant denuding British industry and thus impairing its competitive power; and also the recommendation that overseas investment in the Commonwealth should have priority. I am delighted to see our rapid expansion abroad, as well as at home; but I do not think that at this moment we have quite got to the stage of building skyscrapers in New York.


May I interrupt the noble Lord? I do not think he has seen an explanation which has been given, I believe in another place, to the effect that this was an exchange of investment. It was a maturity or sale of a dollar investment, and was a replacement.


If that is the case, I am delighted to hear it. I had not seen the explanation. I saw merely the fact that Treasury assent had been given for the building of a skyscraper, and I think in the first announcement there was no qualification at all; it merely stated it was for that purpose. If it is an exchange, then my remark has no relevance, and I am delighted to withdraw it.

There is one last point in connection with the constructive proposals of the Report, arising from what it describes as "a shortage of risk capital." It recommends the establishment of an Industrial Guarantee Corporation, on similar lines to the Export Credits Guarantee Department; and I hope that Her Majesty's Government will be able to tell me that they will give serious consideration to this proposal. As the noble Earl, Lord Dundee, will realise, a special agricultural credit corporation was considered unnecessary, as it was thought in the Report that farmers did not realise the facilities that were already available to them at the banks. I think that is largely true; but there was a definite statement that there is a shortage of risk capital which an Industrial Guarantee Corporation might help to fill.

All in all, my Lords, this Report is a pretty revolutionary document. I agree with the noble Lord, Lord Beveridge, that you have pretty well got to read all of it: you have got to "plug through" the whole thing, though it is very well written. But when you come to the end of it, if you have read it with some care, you realise that it is pretty far-reaching. All the economic policies pursued by the Treasury and the Bank of England in recent years, and particularly in what I may perhaps call the "Thorneycroft-Robbins phase," are dismissed as well-intentioned but, on balance, ill-conceived; and based on hopelesly inadequate statistical information. That is how the Report comes down; and I am not at all surprised that the noble Lord, Lord Robbins, should have vehemently refuted these conclusions. The fact that it is done in polite, gentle, scholarly prose to my mind adds weight to the indictment rather than detracts from it.

Now I come to a few brief criticisms which extend to a rather wider field than the monetary field, but which the Committee did deal with. It has been said by Sir Roy Harrod that the Report as a whole is not based on any firm substructure of theory—and there is an element of truth in this. I agree that the velocity of circulation is far more important than the supply of money in any given inflationary situation. Nevertheless, I would also agree with the noble Lord, Lord Robbins, and with the Committee, that the supply of money is an important factor; and, provided they maintain their ratios, the commercial banks alone can create new money—and it is no good saying that, if they do create new money, it will not have any effect on the economy; because of course it will.

My Lords, the note issue is now completely detached from the gold reserve; and I confess that I had hoped for an alternative, in the shape of goods, to the production of which the supply of money might be brought into some kind of relationship. We do not get it. We do not in fact get any alternative suggestion. The Committee say that the Bank Charter Act of 1844 has been repealed; and that cash is no longer related to the gold reserve, or indeed to anything else. But they do not make any attempt to put anything in its place. I quite agree with the noble Lord, Lord Pakenham, and with the noble Lord, Lord Beveridge, that a stable measuring-rod of value, to quote Keynes, is essential to a healthy functioning economy; and that if money is unrelated to anything the danger is that it will fail, in the long run, to provide one. After all, it is the goods and services that money can buy which give it its value.

My second criticism is this. I promise that I have nearly finished, and will never, never mention the subject again so long as I am alive. In fact, I can tell your Lordships that the Radcliffe Report and every document connected with it is now in my wastepaper basket. This is my swansong: it is not a subject one can return to at frequent intervals and keep sane. But the Committee come down in favour of fixed exchange rates; and I must say to your Lordships that I have long believed that the system established at Bretton Woods was too rigid. Between 1934 and 1937, as some of your Lordships will remember, we let the pound find its own level in the exchange markets of the world. We established an exchange equalisation fund, and regulated credit with the primary object of maintaining the stability of commodity prices. According to the late Mr. Frank Graham, of Princeton University, who was a great economist: This provided Great Britain and the world as a whole with the best exchange system we have had since World War I, He went on to say that: unco-ordinated national monetary policies, non-discriminatory multilateral trade, and fixed exchange rates cannot be made to mix. My Lords, I think that there is a great deal of truth in that observation.

The theoretical price paid at Bretton Woods for fixed exchanges was adequate and well-distributed liquid reserves for the free world; and they were not provided. As a result, to-day nothing automatically "gives" under external economic pressure; and the necessary economic adjustments have too often to be made too late by means of violent changes in interest rates, or physical controls, with substantial devaluation as a final resort. In the absence of a single, comprehensive monetary system, which is not yet in sight, I believe that we need a more flexible international currency system than we have got, with a margin of, say, 3 per cent. on either side of parity, to smooth out fluctuations of normal size in international trade balances, and to equate the nominal and real value of the national currencies of the free world. I hope that at some point the Government will raise this matter at the annual meeting of the International Monetary Fund, because I do not think that it would necessarily meet with great objection from other countries.

There is also the question of gold. The Committee come firmly down against a rise in the price of gold. I am against that for one reason only. I think that the liquid reserves of the free world are inadequate for the task that lies ahead of us—and I include in this the United States and all the countries of Western Europe, as well as this country. I think that altogether, distribute them how you will, our liquid reserves are quite inadequate for the task we have to do, which is stupendous. It is no less than the capital equipment and economic development of the uncommitted countries of the world; and for us, in particular, there is a special responsibility for the Commonwealth. This is a gigantic task, which requires enormous resources; and despite recent additions that have been made to the resources of the International Monetary Fund and of the World Bank, they are still inadequate. The easiest way to increase them would be to raise the dollar price of gold, which I believe would benefit all concerned; and which I am certain will have to come sooner or later.

Finally, my Lords, I come to the management of the National Debt, to which my noble friend Lord Robbins frequently referred, and which is described by the Committee as the … fundamental domestic task of the central bank. This task is defined as follows (in paragraph 562): To push the rate of interest to a level that is high enough to attract sufficient firm holders for the debt, and is yet consistent with the balance between demand in the public sector, demand in the private sector, and the available resources of the economy. I would only suggest to your Lordships—and I think that here I shall carry my noble friend Lord Robbins with me—that this is a pretty tall order. If we want to do all this simultaneously, it is a very formidable task; and the Committee are by no means clear about how these requirements, which must at some time or another conflict, can be reconciled.

Professor lames Meade made a pregnant statement in The Times a year or two ago. He said: It remains very desirable to find some way of preventing a continuous inflation of prices without stopping economic growth. I believe that in that single sentence he got to the heart of the economic problem which confronts us to-day. If the Radcliffe Report has not found the way, I think we can say with truth that it has illuminated the scene, and put up some useful direction posts. It is a remarkable State Paper, which will be regarded as an economic textbook of the highest calibre, not least because it lives up to its own standard of constant and profound diagnosis, accompanied by the avoidance of doctrinal preferences of any kind. This is what gives the Report its great weight and value. I profoundly disagree with the noble Lord, Lord Beveridge, when he said that it amounts to being a worthless document. It is not so, and it will not be so regarded by economists or by anybody else in the years that lie ahead. I think that we have every reason to be grateful to the noble Lord, Lord Radcliffe, and to his colleagues.

4.56 p.m.


My Lords, to have read the Radcliffe Report is something which, to those of us who have accomplished it, gives grounds for a certain amount of boasting. For the last few weeks copies of Dr. Zhivago and the Radcliffe Report have gone with me wherever I have travelled, but owing to the decision of my noble friend, Lord Pethick-Lawrence, to put the Report down for debate, Dr. Zhivago is still waiting its turn. I would point out one important difference between these two volumes. In Dr. Zhivago there is a list of the principal characters. There is no such list in the Radcliffe Report, and in studying it one of the difficulties is that if one wishes to refer to, say, the supply of money, one has to re-read the Report. In view of the criticism of the noble Lord, Lord Beveridge, I am wondering whether perhaps this was not intended by the authors.

In his time, the noble Lord, Lord Beveridge, has produced many distinguished and, indeed, voluminous Reports. His recommendations—for instance, those on broadcasting policy—could hardly have been clearer. They were so clear that the Government of the day decided not to put some of them into effect. In the few remarks I have to make I should like to appeal to your Lordships not to follow the noble Lord, Lord Boothby, with most of whose speech I found myself in agreement except on this one point. We should not regard this Report as being finished with to-day. This is only the beginning of, or, shall I say, only a further stage in, the process of attempting to understand our economy, to which noble Lords, like the noble Lord, Lord Robbins, have made so distinguished a contribution.


My Lords, may I make it clear to the noble Lord that I was referring entirely to myself. At the moment, I am so exhausted with monetary policy that I cannot take it on again for some years. I was not referring to anybody else, certainly not to the noble Lord.


My Lords, I cannot think that the noble Lord is exhausted about anything, and I hope that he will participate in future discussions, because there are many aspects of this Report—the whole question of policy in the monetary field from a monetary and credit standpoint, for instance—which we shall have to explore again.

I should like to add the request that we should follow the example of the Committee and not approach this subject from a doctrinaire standpoint. I hope that at this stage none of us will seek to make Party political points on it, tempting though this may be. It seems to me that here is a document which has been produced by a number of people of great distinction—economists of distinction and trade unionists of distinction—and they have arrived at, not total agreement on every issue, but a broad agreement in their analysis, and it is in the analysis that I believe this Report is so valuable to us. It will be the subject of agony to many economic students for many years to come, because I do not doubt that this will be standard reading for those who wish to take a degree in economics.

The great contribution of this Report is that it explains in much greater detail than has been done before the consequences of certain tried and tested instruments of policy. I do not believe that to-day there will be any disagreement between us on the fact that the Government have a responsibility in the field of monetary policy and in the running of the economy. The extent to which they exercise that responsibility is a matter which will continue under debate for quite a long time.

What we are now enabled to do is to look at the effects of certain instruments. I feel it a great disadvantage to disagree with a noble Lord as distinguished in this field as the noble Lord, Lord Robbins—indeed, it was always a pain to me to read my economy essays to my tutor at Oxford, and to do so in the House of Lords in the presence of the noble Lord is a great embarrassment. But I must say that the concept that the Committee drew up in regard to the supply of money, and the advantages or disadvantages or effectiveness of any policy in solving the current problems by attempting to bring action on the supply of money, is something which is made abundantly clear in the Report; and those of us who, like the noble Lord, Lord Boothby, remember the tremendous over-emphasis that Government spokesmen and a former Chancellor of the Exchequer made on the importance of the problem by attacking it on the supply of money, will see that this does justify the Committee in their emphasis on this aspect of it, in contrast to their general advice that any monetary policy to be effective must be effective on the total liquidity of the economy. I may have misunderstood what the noble Lord, Lord Robbins, said, but it seems to me that this is an important point.

Nor did the Radcliffe Committee, in fact, reject the idea of using monetary policy. What they have said is that in the short run it is not nearly as effective as is generally believed; and they point, quite clearly, to the disadvantages. I should like to refer to some of those disadvantages, and in doing so I would stress that I am talking purely in terms of the short-term problem. When we take the question of control over capital issues, which I take it is part of monetary policy—it is, like the bank rate to-day, almost a weapon in the field of inflation—the Report shows quite clearly that the effects are far too slow to produce any worthwhile result in the short run: it may have some slight result, but the Committee feel that it is an ineffective instrument. This is something which gives those of us on this side of the House who are interested in investment policy great cause to think. They regard the qualitative capital issues control as something largely ineffective, and they say that if you are as hard up against it as to require drastic action, nothing less than quantitative control, which is going to be a very rough and harsh instrument, is necessary.

But the main burden of the Committee's Report is that monetary policy and its use in this way is something that, on the whole, we ought not to put too much emphasis on in the short run, either in regard to expecting much in the way of effectiveness, or in the way of hoping that it will not have any ill effects. I believe that, although the policy which the Government have followed to deal with the situation to bring back a relative state of prosperity has been effective, it has not been purely the monetary policy; the fiscal policy has played an important part—and the noble Lord, Lord Robbins, mentioned this. But we are paying some price for it, in that we are faced to-day with a decline in the private sector of industry. This is a serious matter and is, I think, part of the working of certain of these monetary controls.

The general conclusion of the Committee on the short-term problem is that any monetary measures must operate on the credit system as a whole, and that these liquidity requirements must be laid down, if it is necessary to have them, not merely for the clearing banks but for all the major financial and credit-providing institutions in this country. I admit that the Committee do not go so far as to say how that shall be done; and this is again consistent and is not a matter for which we should blame the Committee. They have taken their analysis to a point, but they clearly found it impossible to go on proliferating the different types of measures that should be taken. They point to the disadvantages of control over hire purchase and the consequent directional effect of it on certain sections of industry.

The question which no doubt will be the subject of much debate in the future is the extent to which it will be possible to use more freely and effectively fiscal instruments. Again, I should have liked to see some further examination of the methods by which fiscal weapons could be used. We know that, in practice, it is difficult and uncomfortable, particularly in another place, to have more than one Budget a year, but it may well be that this very direct and much more effective—and I think the evidence of the Committee is clear on this—method of achieving monetary ends can be achieved if we can use fiscal weapons. It has been suggested, most interestingly—although I think it would be political dynamite—that one of the directions is in the rate of National Insurance contributions; although I do not say that this should be adopted. But it does show that there is a good deal more thought to be had on this. I would only say that, whatever the Government do, I hope they will not play about too much with purchase tax rates, for reasons which have been frequently argued when that subject has been under discussion.

Finally, the Committee do not exclude the possibility of direct controls. I want again to repeat my wish that we should look at this in a non-doctrinaire light, and even if "controls" has been a nasty word in the past, we should not shrink from facing up to the possibility of using that sort of instrument in a really difficult situation.

The main point of the Report is not, I think, how best to deal with short-term crises, but how best to serve long-term monetary and economic ends: and whereas the Committee have repeatedly said that they hoped monetary policy and monetary methods of this kind would not be used in the short-term, and that it should be possible to avoid them, they strongly advocate, possibly, I believe, for the first time—and I shall be interested to hear from other noble Lords whether my interpretation is correct—that open market operations should be conducted by the Government in regard to long-term finance, so that the interest rates are effective in order to serve the major aims of Government policy. This, I understand, has always been held to be impossible: that whereas open market operations were possible in regard to short-term finance, they were not a suitable object, for a number of reasons, for long-term bonds. I should be interested to know what is the view of the Government on this particular proposition.

I would say only one further thing, in conclusion. To-day—and I speak for a moment as a business man—we are in the middle of a consumer boom: we can see retail sales rising to a prodigious height, and I would go so far as to forecast that the figure will really "go through the roof" this Christmas. At the same time, our friends in industry know that they have not had too easy a time of it in the course of this year. Indeed, as I mentioned earlier, the rate of investment in the private sector of industry is, if anything, going down. Whereas one would expect to see boom conditions, or at least better conditions, spreading throughout industry, they are not being achieved to-day.

Speaking as one who has to take decisions in these matters in regard to investment, and in regard to the raising of new capital, I would ask the Government to consider this Report very carefully, and in particular the evidence which has been given by individuals and different sections of industry. So far as I know, that evidence has not yet been published, and I doubt whether I shall be able to attempt to read the whole of it, but I think there will be some important and enlightening evidence on the consequence of Government action in various ways. I would only mention again the Capital Issues Committee. It has been a most tedious and trying business for those trying to take proper decisions. In any machinery that may result in the future, I hope that the needs of industry will be much more clearly understood than they have been in the past. In conclusion, I should like to say again that I hope that this is only the first of many considerations, and that noble Lords who have not read this quite fascinating document—provided they do not try to read it all at one time—will persevere and will see this whole matter in as undoctrinaire a way as possible.

5.12 p.m.


My Lords, I should like to take up only one point made by the noble Lord who has just sat down, and that is his statement, which I regard as a myth, that owing to the monetary policy there has been inadequate investment in productive industry. I would answer him out of his own mouth by asking: how can there be a boom in consumer goods going "through the roof" if industry has not been equipped in the past to produce those goods? I believe that the last investment boom set up industry for a good long time ahead, and that a certain degree of pause was thus inevitable.

I think everybody must agree that it has been a most memorable afternoon. We have had the maiden speech of one of the leading economists in the country—and, my goodness! how I enjoyed it—and we have had what I suppose is a unique occasion, the chairman of one of the larger banks speaking from the Opposition Dispatch Box, asking for a greater understanding between the Labour Party and the City of London. All men of goodwill must thank him and respect him for his speech, and hope that his wish will be gratified.

The noble Lord, Lord Boothby, took up two points upon which I have always agreed with him: first, the point that it would be wise to have somewhat more flexible exchange rates; and secondly, the point concerning the very low price of gold which exists in the world to-day. As a humble student of these matters, I welcome the information in the Report very much indeed. At first sight there was not a great deal of positive guidance, but at second sight some of the guidance was found to be tucked away in various places. But it is tucked away, and there is a certain degree of excuse for those noble Lords who somewhat petulantly prefer that Reports should be served up in a more easy manner.

The subject on which I particularly wanted guidance—and I suppose it is one which exercises all of us—is that, so long as there is human frailty in this world, we shall have moods of mass pessimism and mass optimism, and therefore we shall have booms and slumps. How are we to ensure, in a nation of capitalists, large and small, that the stored-up claims on the economy are matched at a rate neither greater nor less than the coming into force of physical resources to meet them? The chief problem is dealing with the inflationary boom. The Report supports varying interest rates, though with some reservations. It supports a variation in the liquidity ratio of the banks, and a restriction on the absolute volume of lending by the banks, together with control on capital issues. All these powers and controls, so far as I am aware, exist at the moment.

But the Report also stresses the indivisibility of the pool of liquidity of the whole economy, and it recommends, or suggests, that other controls will have to be adopted to match those I have already outlined. The control of the volume of hire purchase credit and of building society advances has been adopted in the past, but the Report goes on to mention other credit-giving institutions. I think many sensible people will agree that this is a necessary armament for a Government to have. But the precise form is not quite easy to visualise when you get to the institutions who are at the present not controlled. Then there is a subsidiary problem arising out of the last one, and that is the sharing of the pool of credit in an inflationary boom between the public and the private sector. When optimism is in the air and everything is booming, the private sector is extremely greedy. It wants to go full steam ahead and everybody to get out of the way. It wants the public sector to be cut so that the private can be allowed its full head. This, of course, may not be either practicable or desirable.

It is, of course, axiomatic that in an ideal society the full weight of public investment would fall when the economy is slack, but in practice it is almost impossible to do such a thing. In the past, when this necessity to cut back has arisen the Government have had to re-phase their capital commitments, chiefly in nationalised industries and by postponing defence expenditure—policies which are not unpopular, but which may be very dangerous to the national economy. In the future, it may well be that if a similar situation happens to arise the thing that will have to be cut will be the road programme, and that will not be half so popular. Therefore, I believe that we must try to get some balance of living between these two sectors in an inflationary boom. It may well be—in fact, I think it will be—that the private sector will have to submit to considerably more curtailment of its activities than it has in the past if a similar boom arises.

This leads one to a discussion on borrowing and lending. The Government must make both ends meet, and therefore must borrow at times. It must renew loans as they fall due; it is responsible for paying out that vast pool of demands on the economy called National Savings—I think the Report rather belittled those thousands of millions, demands for which, in theory at all events, could be presented to the Government to-morrow—and it has got to pay for any below-the-line expenditure for which it is not willing to tax further its already overtaxed subjects.

The Report recognises that the Government must borrow long if it can, and that the terms must be attractive. But that is difficult if we follow the policy of expansion that we must follow, because an expanding economy tends automatically to bring growth to the first-class equity stocks, and at the same time bonds have to pay the penalty of any inflation which an expanding economy does tend to engender. So I believe it is perfectly reasonable to-day to believe that Government long-term bonds must be expected to yield a higher rate of return than that obtainable on the first-class equities of companies with a stake in an expanding economy. The Government for many years have had the tremendous advantage of a virtual prison in which they kept all the trustees in the country. Those trustees are gradually escaping. We in the Church of England managed to forge the key earlier than most people, but the trustees, one after the other, are having the files or the skeleton keys passed in to them, and they are getting out one by one. That means that more and more Government stock will come on the market, and the sale of that Government stock is going to mop up funds which would otherwise go into fresh Government stock. So that the position for long-term borrowing by the Government is really extremely difficult.

All this new situation takes a bit of getting used to. In fact, an attractive rate of interest for long-term bonds may not be enough, and the Government may have to think out other methods of borrowing. If the Government cannot borrow long it has got to borrow short, and if it sells short-term bonds to the general public, that is all right; it is taking cash out and giving bonds in return and spending the money, so there is no inflationary effect. But if the Government has to sell Treasury Bills, the position, as I understand it, is that it automatically increases the deposits in the banks, which are thus in a position to make more advances to their customers. So that the securing of purchasing power for the Government from the banking system at the same time creates further purchasing power in the banking system for the private sector, and the means to gratify it may not come into being at the same time. That means inflation if the economy is already at full stretch. Clearly, what we want is some system or method whereby the Government, in borrowing from the banks, can borrow some portion of the lending power of the banks which would otherwise be used to lend to the private sector; then there can be no inflationary effect.

Perhaps the Report is intended to convey that this can be done through the variation of liquidity ratios and the restriction of the volume of bank advances—but here I am in very deep water and, quite frankly, out of my depth. To a simple-minded person like myself, it would seem that if the Government could lay their hands on the money the banks would otherwise lend to the public, the Government could borrow from the banking system with impunity. The banks would not like this, because their advances are the most profitable proportion of their funds; but that presupposes that a bank must lend to Government at a lower rate than to its customers. But I challenge that ancient concept—in fact I am not sure that it is quite so ancient. If my recollection of our history is right, many of our Sovereigns had to pay considerably stiffer rates for their money than some of their loyal subjects. Allowing a certain margin for the inevitable bad debts—not being a banker I have no idea what proportion of bad debts they make, but I suspect they are remarkably small—I see no reason why lending to Government should not be as profitable as lending to customers.

Then I come to a part of the Report with which I am afraid I do not agree: that is where the Committee say the local authorities should go back to the Public Works Loan Board. Everybody knows that the local authorities are borrowing much shorter than they ought to for long-term works and are paying what at first sight seem stiff rates. On the other hand, this is making them scrape the barrel. I found a figure in one of the tables which seemed to confirm that they are scraping their own internal resources, and they are, to some extent, tapping an entirely fresh stream of credit. If the local authority were not there to borrow it, some of this stream undoubtedly would be going to the gilt-edged market, but I question whether very much would go into the long gilt-edged market. Some would stay on deposit in the banks, and some would go to institutions whose borrowings have not as yet been controlled; and at the moment there is no need to control them. The Government is already borrowing all it possibly can from the public in the long term, and there seems no justification whatsoever to think that the Government could borrow more than at present from the public or on better terms than those on which the local authorities are getting the money.

The sums are pretty stupendous. If I am right, in the last year in the table (I think it was 1958) the local authorities borrowed £376 million. I found it difficult to find exactly how much Government had borrowed long-term in the same period, but one of the tables made me think it was something of the nature of £100 million. So that to step up that £100 million by a further £376 million is really out of the question; it could be done only by selling Treasury Bills or other short-term loans to the banks. The local authorities are paying, of course, 5½ or 5¾ per cent. for mortgages. I suppose that the long-term Government credit rate is something about 5¼ per cent., but how much could Government borrow to-morrow if it went to the market for a long-term loan? And people forget what the Government is paying for some of its money. I personally am lending money to the Government at rates which, worked out gross—that is, adding back tax—come out at 15 to 30 per cent. That is on tax reserve certificates, savings certificates and premium bonds. So that it is a complete illusion, I believe, that Government is capable of borrowing long at a lower price than the local authorities are now borrowing short.

This problem, and the others that I have outlined, are very complex and very fascinating ones, and I believe that finding a solution to them presents a real challenge to the skill of our monetary managers. The Report is a magnificent survey of the practices, but it does not go as far as I should like in suggesting a solution to the problems. I believe that solutions to the problems would be much more likely to come out of a Working Party of the Treasury, the Bank of England and the financial institutions. Nevertheless, I greatly welcome the Report.

5.30 p.m.


My Lords, in the absence of the noble Lord, Lord Robbins, I have more courage to congratulate him than perhaps I would in his presence. I confess that his overwhelming knowledge seemed to me, a mere amateur, as the noble Lord, Lord Boothby, called himself, or layman as I should prefer to say, rather daunting, and indeed to congratulate him might seem to be something of an impertinence. However, I cannot resist saying how much I enjoyed listening to him. If only I, like my noble friend Lord Pakenham, had had the privilege of sitting at his feet, I am sure I should not need to describe myself as a layman.

There is, I think, one point upon which every single speaker in this afternoon's debate, even Lord Robbins, has been in agreement. It has been universally recognised that this Report will become a classic—it will become a mine from which ore will be extracted by economists for a very long time in the future. I found myself in disagreement with the noble Lord, Lord Beveridge, because, frankly, this Report has seemed to me singularly readable. Indeed, like the speech of the noble Lord, Lord Robbins, it is, when dealing with as complicated a subject as this, surprisingly intelligible. I could not help wondering—I think one other noble Lord also wondered—whether perhaps there was a method in the manner in which the Committee have spread their recommendations through the text, so that those who wish to find them will have to read—no short cuts, and therefore the argument presumably has to be studied and possibly understood.

With your Lordships' consent, I should like, first of all, to read two quotations. The first is from paragraph 514. At the end of that paragraph one finds the words: Monetary measures can help, but that is all. I think that that is a pretty clear statement of the Committee's views. The other quotation will be found in paragraph 64—again the last sentence. This I find a profoundly interesting statement: The choice between conflicting alternatives is a continuous process, to be lived through all the time. This seems to me an inspired statement of the greatest possible interest.

This Report comes at a time when doubts have become general of the simple explanation of Britain's post-war difficulties: that they have been due to demand inflation, too much money chasing too few goods, curable simply by a deflationary monetary policy. The Governor of the Commonwealth Bank of Australia, in his address to the Australian and New Zealand Association for the Advancement of Science, showed, I think most interestingly, that the monopolistic practices, administrated prices, and the post-war character of collective bargaining had been largely responsible. The place of monetary policy is among economic weapons, along with fiscal and direct controls, and their relationship and co-ordination must be analysed. On such an analysis—in this I have been encouraged by the debate in your Lordships' House this afternoon—perhaps unexpectedly widespread agreement might be reached. I thought during the speeches this afternoon that, on the whole, even between Lord Robbins and Lord Boothby, there was not really so much distance.

This I believe to be profoundly important in view of Britain's disappointing post-war record. Already under the Labour Government decontrol measures had weakened resistance to recurrent balance of payment crises, to which the reaction of all Governments was a restriction of investment. The fraction of the national income devoted to investment declined, and so at the same time did the rate of increase of that income. Since 1952 the increase in Britain has been 14 per cent., while that in France, beset by troubles at home and abroad, increased by 60 per cent. That in Russia increased by 600 or 700 per cent. To Germany Britain has lost her place as the third industrial Power, and also second place as industrial exporter and shipbuilder. This year she lost to France her position as the third largest producer of automobiles. It is a disquieting record. The clash between a vigorous demand for higher living standards and an insufficient increase in productivity has been causing the periodic recurrence of balance of payments crises.

It is, perhaps, unfair to reproach the authors of this Report with a failure to find answers to these problems. This, however, may have been due to an understandable desire to produce a unanimous Report. It is debatable whether the cost of unanimity has been excessive. That is not—I would say this most emphatically—to underrate the usefulness of the Committee's Report. The Committee have had a number of criticisms to make. They have criticised not only the Bank of England's management, but also some of London's other institutional arrangements. For example, the Committee clearly do not think that a discount market provides an essential link in banking management.

The most unsatisfactory, and indeed inadequate, part of the Report is that which deals with London's position as a financial centre, and the sterling area. I am not going to weary your Lordships by repeating this afternoon and at this late hour what I have said on other occasions in connection with the sterling area, but I cannot believe that it was either wise in our own interest or just in the interest of other members of the Commonwealth that the poor and primary producers should, in effect, have financed the richer and better-off areas of the Commonwealth. Here I come to a point upon which I hope that perhaps I may receive guidance later on. I am much puzzled by the Report's acceptance of the Treasury's estimate of the need for a £450 million export surplus, without apparently—I speak with diffidence about this, but it strikes me as curious—considering how Britain, with so low an overall savings rate, can possibly afford to do this without a complete reversal of domestic policy.

However, the Committee have made a number of most shrewd suggestions, scattered though the Report. They reject the romantic notion that the interests of poorer and weaker countries were protected at Bretton Woods by Clause 7, the so-called "scarce currency clause". This promised discrimination against the exports of a country whose currency had become scarce. But the dollar could not be declared a scarce currency for years, as a result of the structure of the International Monetary Fund. The Committee's recognition of this fact led to their consequent rejection of the formal convertibility obligation.

Perhaps the most important aspect of the Report is that which deals with the status and management of the Bank of England. When the Bank was nationalised it was claimed that it would serve an overall plan for progress and social justice, to which end it had been put under the control of the Treasury. It emerges from the Report that it was, in fact, the Bank which took over the Treasury. Nearly all monetary decisions seem to have been taken by the Bank rather than the Treasury. The terms of the Bank of England Act left the relations of the Governor and the Chancellor of the Exchequer ambiguous. These should be clearly defined. I venture one more quotation, from paragraph 767 of the Report, at the end of which will be found this sentence: The policies to be pursued by the central bank must be from first to last in harmony with those avowed and defended by Ministers of the Crown responsible to Parliament. And with that I could not agree more. It is instructive to compare the way in which the British economy staggered into an exchange crisis, even in a period of improving terms of trade, despite—if not on account of—the policy of the Bank, which made no secret of its dislike of controls, with the brilliantly successful management, in far more difficult circumstances, of the Australian economy by the Australian Government and Central Bank.

The Committee make it clear that in their view internal policy should not be dominated by financial considerations. To this end they have suggested the setting up of a Committee to undertake the effective management of the Bank, under the chairmanship of the Chancellor of the Exchequer, with a membership which would include officials from both the Treasury and the Board of Trade, and a minority of hank representatives. This suggestion has already been mentioned in your Lordships' House this afternoon, with rather mixed enthusiasm. It is one which seems to me extremely wise and modest. In the future, it is suggested—and this has been said previously this afternoon, I believe—that even changes in the bank rate should be announced by the Chancellor of the Exchequer and made under his authority. I think the noble Lord, Lord Robbins, was a little scornful of this particular point, and where the noble Lord is scornful I tremble to differ from him and to approve; but owing, perhaps, to my limited understanding, I find I am totally in agreement with the suggestion. I thought, too, that the suggestions made for the alteration and easing of the position of part-time directors was desirable, and desirable, I should have thought, in the interests of the directors themselves.

The inadequacy of the Economic Intelligence Department of the Bank is criticised. The Committee has stated in paragraph 776 of the Report that their report is "less useful" because of lack of essential background information. That department is to be increased in importance by the promotion of its head to membership of the Court. It will be interesting to see, and I hope we may have some indication this afternoon, the extent to which Her Majesty's Government will accept the suggestions of the Report. But even if they were formally to accept none of them, things can never be the same again. Many previously basic assumptions have been exploded: and for that we must, I think, be profoundly grateful to the Committee.

5.45 p.m.


My Lords, my first pleasure is to congratulate my noble friend Lord Robbins on his remarkable speech. I deliberately asked to be put rather late in the debate—though no doubt I should have been put late anyway—because I wanted to hear and think over what he said. I believe that what he said has been extremely valuable to us. Before I go on, I ought to congratulate my noble friend Lord Radcliffe and his Committee on the Report they have introduced. I do not agree with all of it, but I do regard it as a very wonderful document. I believe that it will be enormously useful in the economic schools at Oxford and Cambridge in explaining to them how the City and other things work financially. I do not agree with all the Committee's conclusions, but nobody would say that this is anything but a great piece of work.

I now come back to my noble friend Lord Robbins. In my view what he said about the bank rate and the rate of interest in connection with inflation really hit the nail on the head, and more or less destroyed the views of the noble Lord, Lord Pethick-Lawrence, on the importance of the effect of the bank rate during a period of inflation. It is really a pleasure to borrow when inflation get very high and very rapid. One does not lose money; one makes money. To judge of the rate of interest during a period of inflation, and its effect and value, as compared with its effect during steady stable prices, I should say, is really impossible. That seems to me a very important contribution to our debate.

I might go on to say that I agree with my noble friend Lord Robbins and I do not agree with the noble Lord, Lord Faringdon, on the recommendations of the Committee as regards the Bank of England. These are two definite recommendations which the Committee make, not in the course of their disquisition. They are definite recommendations in different paragraphs: that all changes in the bank rate, small and great, should be announced by the Chancellor of the Exchequer; and that what is called a "deliberative advisory committee", of whom one member, it appears, is to be the Governor of the Bank of England, shall sit to advise the Chancellor of the Exchequer. The idea is that there shall be about eight other members, including representatives of the Board of Trade and the Treasury; and the chairman will be not the Governor but the Economic Secretary to the Treasury—because he and not the Chancellor of the Exchequer will always be there.

Both these proposals seem to me, to use Sir Oscar Hobson's words, to "degrade the Bank of England." Although the noble Lord, Lord Faring-don, obviously hates the Bank of England, I regard it as very important to keep up the authority and prestige of the Bank of England. The Governor of the Bank of England has an immensely responsible position. He represents a whole financial, almost an industrial community—certainly a financial community—and the banking community. He has to keep his end up with all other central bankers. His powers, in any case, are nothing like those of the chairman of the Federal Reserve Board in the United States, who is completely independent of Government.


My Lords, I wonder whether the noble Lord will excuse me. I take it that he was joking, but I should not like it to go on record that I hated the Bank of England or would do anything at all to damage its prestige.


My Lords, I accept what the noble Lord said. I only noticed a sort of tone of delight come into his voice when he cracked at the Bank of England, and it struck me that he was pleased to see the Bank of England down-graded. It is very important to keep up the prestige of the Governor of the Bank, and I do not see how any harm can come to the Chancellor of the Exchequer by the ancient practice of changes in bank rate being notified in the City instead of in Whitehall; and I do not see how the intimate relations that already exist between the Governor, the Deputy-Governor and other members of the staff of the Bank of England and the Treasury officials, and, no doubt, the Board of Trade officials, can possibly be helped by a deliberative and advisory committee. I have had, and I daresay other noble Lords have had, a great deal of experience of advisory committees, and I can tell your Lordships that they do not lead to action. I was a member of the Advisory Committee of the Board of Trade, and of other advisory committees. I was asked by Mr. Ramsay Macdonald to be a member of his Economic Advisory Committee. I refused because by that time I had come to the conclusion that advisory committees had nothing like the value that discussions between executive officials—in this case of the Bank and the Treasury—had in themselves. I do not think they make any advance at all.

I realise that those noble Lords who have not spoken are very few, and that the Ministers are looking tired; therefore I shall not say a great deal on any other subject. But I do want to make a certain observation about a matter that I do not think has been mentioned yet. That is the list of objectives which the Radcliffe Committee summarised and the order of the list. In paragraph 69 they do not make recommendations but they summarise a list of objectives in pursuit of which monetary measures may be used:

  1. (1) A high and stable level of employment.
  2. (2) Reasonable stability of the internal purchasing power of money."
What "reasonable stability" amounts to one is not quite sure. The paragraph continues: (3) Steady economic growth and improvement of the standard of living. (4) Some contribution, implying a margin in the balance of payments, to the economic development of the outside world. (5) A strengthening of London's international reserves". A page or two before that the Report states: Stability of the external value of the country's money remains a major objective. A page before that the Committee speak (I will not hurt the feelings of the noble Lord, Lord Radcliffe) in a slightly patronising voice about the Committee of which I was a member, the Macmillan Committee. The Report states: When it came to elaborate the major objectives of monetary policy—'the maintenance of the parity of the foreign exchanges without unnecessary disturbance to domestic business, the avoidance of the credit cycle, and the stability of the price level'—it still placed foreign exchange stability first. Only two paragraphs later did it explicitly state as an objective stability of output and employment at a high level. Well, my Lords, I personally would still put first of all in the objectives a stable rate of exchange (I do not know whether the noble Lord, Lord Robbins, would agree), and ample reserves. We are far from that point at the present moment.

I consider that at present this country is still in a dangerous position so far as the return of inflation is concerned—not very dangerous; but still we have not nearly reached a stable position. We want a great deal more of gold and dollar reserves than we have, and it is not very likely that we shall get them at the same time as our consumption is increasing. As the noble Lord, Lord Shackleton, says, our consumption is increasing very greatly and—I do not know why—our production is not. Our capital programme is not increasing. I took out some figures the other day concerning Germany compared to England. The gross national product, the consumption per head, of the Germans, was much more than ours, and the capital investment was much greater, both in 1957 and in 1958. Unless we can make that position better, I do not think we shall prosper as much as the other European countries are prospering. I will not bother your Lordships longer because time is running out and I expect the Minister wishes to reply.

5.59 p.m.


My Lords, I shall not detain your Lordships long, but I should like to say a word or two on this problem. I presume that one of the main reasons for the appointment of this Committee is that we are all concerned about the problem of inflation, with which this country has been beset ever since the close of the war, and perhaps, in a con, cealed form, at an earlier date than that. But I do not want to go into the history of the monetary measures which were taken during the war. Every economic policy involves costs of some kind or other, and the question that arises is how those costs will be distributed, and what the effects of the policy adopted will be. I think it is a mistake to suggest that a policy which does not use, or does not use to any great extent, alterations in the bank rate is necessarily a less costly policy to the community than one which does; and certainly a policy which involves a continuous increase in the price level inflicts upon some sections of the community a cost of a very drastic and extreme character. The purchasing power of money in this country has fallen in the last few years by something like 50 per cent., or prices have gone up in that proportion; and that has imposed costs upon people. Some of those costs are, in turn, shifted, by means of the price of goods or labour, on to other persons; and the residuary burden falls upon those who are least able to shift the costs and who are left to carry the burden in the long run.

However, I venture to suggest that perhaps some undue attention has been devoted to the question of the bank rate. After all, if we are concerned with the problem of inflation, our primary concern must be to see that the amount of money which is in circulation is restricted. When I say "money", I mean that in the broad sense of the means by which exchange is effected, whether by money in the limited sense of notes and coin, or in the sense of bank deposits which are capable of being transferred from one person to another in extinguishment of obligations. It is perfectly clear that for years past the amount of money in circulation has tended to increase. The note issue has gone up more or less continuously, and according to the last Bank of England return the notes in circulation now are about £100 million higher than they were a year ago. This is something which must be taken into account; and unless the monetary circulation is restricted, the increase in prices is bound to continue, leading from time to time to crises which involve additional costs because of the dislocation which is caused to the economy as a whole and to the stream of production, distortion of which is necessarily involved in violent changes brought about for these causes.

Therefore it must surely be the primary object of any Government to watch the situation as it develops from day to day; and in this I agree with the Report, that it is necessary that there should be a prompt and adequate collection of financial and other statistics which will enable decisions of policy to be taken quickly, in sufficient time to avoid any difficult situations arising. That, surely, with the resources at our disposal, is not an unduly difficult problem. If the main objective is to ensure that inflation is avoided, steps can be taken by controlling the monetary circulation, with the use of the bank rate also, so far as that is necessary—and it is indeed necessary, particularly when questions of foreign exchange come into consideration. By those means I believe it should be possible to avoid any appreciable amount of inflation, and to keep the economy upon a stable and sensibly-developing basis.

6.6 p.m.


My Lords, we are now drawing to the close of a most interesting discussion upon a matter which, inescapably, is somewhat technical. I would, however, point out that the subject is not limited to one of mere economic considerations. After all, the management of the monetary mechanism of this country affects the lives of our people and their future; and we should approach the problem of preserving economic equilibrium with some sense of humility and remember that the application of measures which may seem so neat and tidy and logical to us may result, in operation, in throwing hundreds of people out of employment and shattering hundreds of homes. It is in that spirit that I, at all events, approach the consideration of this matter.

My noble friend Lord Pethick-Lawrence has added to the sense of obligation of this House to him by introducing this Motion this afternoon in one of his inimitable speeches; in which, with fascinating simplicity and clarity, he brought out the main features of the problem to be discussed. This afternoon is memorable, as has already been said, for the fact that we have enjoyed an outstanding speech from the noble Lord, Lord Robbins: a speech which was based upon an informed and experienced consideration and knowledge of the complexities of the problem, speaking as he did from a wide academic experience. His speech, if I may say so with every respect, was fascinating in its lucidity.

We have had an interesting and, I think, a stimulating discussion about what I have indicated is an important and impressive matter, dealt with in a Report which I think has been correctly described as monumental. It is the Report of a Committee which is representative of most of the important elements in our economic and social society. It is a Report which is comprehensive, if at times a little diffuse; but it has, it seems to me, for the first time taken the mystique out of this problem. It has brought monetary affairs down from the Olympus to which only the high priests can ascend to the valley where live the common men. That I think is an achievement. It will enable more people to understand the mechanism of our increasingly complicated society.

The Committee's Report is unanimous. I think that it can be said, without any criticism of the Committee, that it may well be that that unanimity is reflected in some measure of mutual accommodation between the members of the Committee. I do not myself think that that is necessarily a defect, because, clearly, if there had been any serious fundamental differences they would have been expressed. The noble Lord, Lord Brand, referred to the fact that he was a member of the Macmillan Committee. When I commenced to read the Radcliffe Report I could not help recalling the Macmillan Committee; but, of course, they met in entirely different circumstances. They met at a time when we had had, and were still having, a serious and continued deflation, whereas the Radcliffe Committee have been sitting in a period of continued inflation. But I think that the differences are even deeper than that. At the time of the appointment of the Macmillan Committee certain elements of our economic structure were approaching a state of decay. That applied not only to equipment but also unhappily to the workers, who were not permitted to work. At that time we had a very large unemployment problem, and even in 1939, just before the outbreak of war, the number of unemployed was no less than one million. Between the wars, the economic system was kept in balance by the operation principally of the monetary mechanism, and that was entirely based noon the movements of the bank rate and the control of bank facilities. Thus we achieved a reduced total demand at the price of unemployment.

I was a member of the May Committee in 1931. I had the honour of signing the Minority Report with my good friend the late Sir Arthur Pugh, a former chairman of the Trades Union Congress. I cannot help thinking that our history shows that in those difficult, bitter and wretched days we took the wrong course. We allowed panic rather than reason to determine the steps we should take, and in the result we pursued a policy which generated wretchedness. Conventional and accepted methods were applied, but at what a price!—the price of Jarrow, the North-East Coast and South Wales. And we are still paying the price. We shall pay it right through this generation.

Those were unworthy and desolate days. To-day we are considering monetary policy on a basis of preserving full employment and relatively stable prices. That must be the basis. It is accepted by all Parties, as it was accepted during the war; and it is unthinkable that we could manage our society except on a basis of full employment and relatively stable prices. By that I do not mean fixed prices: I take the view that expansion involves, in a modest degree, some measure of inflation. So we are in a different position to-day, living in a society that is quite changed. The Radcliffe Committee review the financial measures which have been taken since 1951, in the changed conditions, and suggest methods for the future. The Committee are of the opinion (and my noble friend Lord Pethick-Lawrence read out the related words) that conventional measures, principally monetary policy, have failed, for a variety of reasons.

First of all, they had a limited effect, arising from the different economic structure. The evidence tendered seems to show that a high bank rate or a bank squeeze did not lead manufacturers or distributors or industrialists to cut down their capital expenditure to any marked degree. When there was a cutting down it was, unhappily, a cutting down in capital investment and not a cutting down in consumers' consumption. Accordingly, the mechanism exercised very little restraint on distribution businesses or light engineering. As the Report points out, a number of witnesses said that if the bank rate went up by 2 per cent., 1 per cent. of that was paid by the Government by way of relief from taxation.

Then there was the fact that the retained profits of companies amounted to a very large sum, and that those retained profits could be used for expansion, for capital investment or as the owners might please, without let or hindrance, and without any control whatsoever by the Government, whether through the banks or otherwise. In 1954, after tax, £1,500 million was retained by or ploughed back by business enterprises, and accordingly that money was available to counter what was intended to be the result of the bank's restriction of facilities. Then, as my noble friend Lord Shackleton said, there was hire purchase.

So it is now clear, it seems to me, that the bank rate alone is not an effective weapon: it needs to be reinforced by a properly related fiscal policy and also by a policy of controls. It seems to me that the proposals made in 1957–58 from this side of the House for controls which could be selective and discriminatory provided a proper and a better method of meeting the situation which then existed. The Committee, I think, are conclusive in their view that adjusting the bank rate alone is of no great utility: it is only a utility as part of the armoury, consisting of also, as I have said, fiscal policy and controls.

Then we come to the cost. My noble friend Lord Pethick-Lawrence, in an earlier speech, gave some figures as to the cost of the increase of the bank rate—and they were very high and disturbing figures. In the Report, it will be noticed, it is suggested that, as regards our external balances, an increase of 1 per cent. in the bank rate leads to a loss of £15 million a year or part addition to sterling balances of £15 million a year, which in four years, of course, can become £100 million. As regards the National Debt, in 1951 service of the National Debt cost us £550 million a year, and in 1958 it cost us £783 million a year, an increase of over 42 per cent., with the National Debt up by only £6 million. Then, of course, there was the cost arising through local authorities and the nationalised industries having to pay a higher rate of interest for financial accommodation; and there was the loss, not only monetary but a loss of all kinds and descriptions, referred to by my noble friend Lord Pethick-Lawrence. So it seems to us that on all counts—on efficacy, on proper operation, on indiscriminate application of controls and the like—the present monetary system is inadequate and ineffective to deal with the problems of preserving an equilibrium which arise in the new conditions of to-day.

I should like to close with one or two remarks about the position of local authorities and their financing. The noble Lord, Lord Hawke, took the view that the very strong recommendation appearing in the Radcliffe Report was one which ought not to be supported. The Report gives three conclusive and, in my view, convincing reasons why the practice which endured until some two and a half years ago should be reverted to—namely, that the local authorities should have the right of access to the Public Works Loan Board (of which I was a member for a number of years), but that if they wished to go elsewhere, by way of stock issue or otherwise, they should be at liberty to do so, and that the rate of interest charged to them by the Board should be the rate prevailing for gilt-edged on the day of borrowing.

When one talks of local government expenditure one must remember that a large element of it comprises money that is being spent by the local authority for the Government. For instance, education is a national service, and the Government, through the Ministry of Education, quite properly see to it that it is maintained on a minimum standard, insisting upon new schools being built, new playing fields being provided and all sorts of things involving capital expenditure; and the local authority raises the money. But it raises the money mainly for the Government, because the local authority formerly had a percentage grant on educational expenditure but is now, of course, getting a grant included in the block grant. The actual borrowing of the money is on account of the Government. Why should local authorities pay more than the Government for the money which they want for purposes in which they are acting largely as agents for the Government?

Take this Gilbertian situation. A local authority builds an "A" road. It is entitled to, and gets, 75 per cent. of the cost from the Government, and the Government have raised that money, with other money, at a certain rate of interest. But for the remaining 25 per cent. of the same road, under present arrangements, the local authority has to go into the money market—or if it is a large authority make a stock issue, if it can get into the queue—and pay a higher rate of interest than is paid by the Government. So you have three-quarters of the road financed at one rate of interest and a quarter financed at another. The situation is absurd.

At the present time the outstanding short-term debt, as a debt repayable in one to five years, of local authorities is £550 million, and there is a continuous scramble between local authorities and their treasurers to get almost day-to-day money. It is said that at the recent Conference of the Institute of Municipal Treasurers, which caters for the treasurers of local authorities, most of the time was spent in talks among various treasurers as to how they could get another £10,000 on seven days' notice.


The noble Lord has taken me up. He wants to put this to the Government. Where are the Government going to get the rest of the money? I think I mentioned a figure of £376 million in a year.


It does not mean that any more money is raised; it means only that there is a difference of who raises it, and on what terms. In 1956–57 the total expenditure of local authorities on capital account was £582 million. It really is indefensible to say to local authorities—and there are 1,000 local authorities concerned—that they should go into the money market and scramble for what they can get. I have borrowed for a local authority, and I have lent to a local authority. And of this £582 million. £94 million is spent on education, which is really a national service administered by the local authority as agents for the Government. At the present time, the yield on recent London County Council stocks is £5 10s. 9d.; and the yield on comparable Government stock, £5 5s. 2d. Why should the London County Council pay that extra rate to the money market?


My Lords, the noble Lord misses my point. If it has to borrow from the Government, the Government have to borrow from somebody. Who is the Government going to borrow this enormous sum of money from at the rate he is saying, except by selling Treasury Bills to the Bank?


The money is borrowed from somebody. I am reminded that apparently no such considerations were in the mind of the Government when it was decided to provide £50 million for Colville's at gilt-edged rates. No one is going to suggest that Colville's is a better security than a local authority, including, if I may, the London County Council.

To take that point a little further, that is a difference of 5s. 7d. The rate for mortgage loans is £5 15s. 0d., as against £5 5s. 2d. on Government stock, Why should the local authorities be burdened—and burdened for not a few years? Unless there is a stock issue, the local authority gets a loan sanction for a certain period. It borrows the money for that period, and it may go on for 20, 25, 30 and, indeed, in some cases 40 years, paying this high rate of interest which is incidental to circumstances over which it has no control whatsoever.

I was concerned with this matter as far back as 1944. Until 1944 local authorities had the option of going to the Public Works Loan Board or elsewhere to get the money they wanted. In 1944 the then Chancellor of the Exchequer, the late Lord Anderson, accompanied by the then Minister of Health, called a meeting of local authority associations and said that the Government were anxious that the cheap money policy should be maintained and that all concerned should benefit by that policy. The Labour Government pursued a policy of cheap money. Its successors, of course, have not. The then Chancellor went on to say that: "Local authorities would incur expenditure on reconstruction" and so on and so forth, and that is the case. It was Essential that all that capital expenditure be financed not only in orderly fashion but on best terms obtainable, and to avoid scramble for capital and consequent increase in rates Government proposed that local authorities should borrow only from one central source at rates determined by the credit of the central Government. The arrangements should be temporary, perhaps for four or five years. When that proposal was first put to the local authorities they were not very keen about it. I think they were wrong. However, the London County Council, having regard to its record of stock issues and credit standing, was probably at a slight disadvantage in corning into the proposal. Nevertheless, I persuaded the London County Council to do so, and the central pool was established. It worked pretty well. Later on, the obligation to go to the Public Works Loan Board was removed, but local authorities could still go; and in my view they should be permitted in future to go to the Public Works Loan Board and to borrow at a rate equal to and no more than the gilt-edged rate on the day of borrowing. That seems to me to be a sensible proposal.

I cannot understand why this extra cost should be cast upon the ratepayers. One must bear in mind that residential rates are based on need, for the most part, whereas the payment of taxes is based for the most part on means. I hope that whatever else the Government may or may not do, as a consequence of this Report they will accept this strong recommendation that the local authorities should be able to borrow from the Public Works Loan Board and go elsewhere if they wish. It has been suggested that it is a subsidy. It is not a subsidy. Nobody gets anything out of it except that the ratepayers pay less for the money they have to borrow. If it is good enough for Colville's, and if it is good enough for, I suppose, the "Queens"—the terms for which, I suppose, will be similar—it really ought to be good enough for local authorities whose expenditure is largely determined for them by statutory policy or by Ministerial direction. As I say, I hope the noble Earl who is to reply will be able to indicate that among the subjects to which the Chancellor is giving consideration, as I understand it, arising from the Radcliffe Report, this reversion to the practice of enabling local authorities to borrow from the Public Works Loan Board, if they wish, will be considered favourably.

As I have said, this has been an interesting and informative discussion of a subject which is of prime importance to the modern societies of the whole Western world. High among the merits of the work of the Committee and its distinguished Chairman is the fact which has been referred to by quite a number of speakers, that their Report has opened up to a much wider public the consideration of the problems of maintaining full employment and stable prices—that is, restraining inflation without, I stress, casting the cost of it upon the unemployment of a number of citizens. It seems to me that unless these problems are satisfactorily resolved, then the free system of the Western world may be in the greatest difficulty and the East may, in the result, win the contest on economic and social grounds, with incalculable consequences to the fate of mankind. I think we shall all agree that this afternoon we have been discussing a problem which goes right to the root of the expansion—indeed, the survival—of Western economic civilisation.

6.40 p.m.


My Lords, I am sure your Lordships would like me to begin by expressing the congratulations of all your Lordships to the noble Lord, Lord Robbins, on his maiden speech, which we all heard with so much delight. I was astonished to find that the noble Lord has been a professor of economics at London University for no less than thirty years. He must have been phenomenally young when he started, probably a good deal younger than some of his students. During the war he gave to the country the most distinguished service as Director of the Economic Section of the War Cabinet, and I understand that he was also associated with Lord Keynes in preparing the Economic White Paper of 1944 on which all subsequent monetary and economic policy, including the terms of reference of this Radcliffe Committee, have since been based. I may possibly, if there is time, make a further reference later on to the noble Lord's speech. All I wish to say now is to express the hopes of your Lordships that we shall often hear him again. As I think the noble Lord, Lord Pakenham, indicated at the beginning of his speech, one of the best functions of your Lordships' House is to provide a means of expression to people like the noble Lord who ought to be heard in Parliament as well as in the classroom.


And, if I may say so, not only on economics.


Certainly. I hope we shall hear the noble Lord on a wide range of subjects.




The Radcliffe Committee was appointed in 1957 by Mr. Peter Thorneycroft, largely, no doubt, at the instigation of the noble Lord, Lord Boothby, and one of the reasons given for its appointment was that we had not had a comprehensive official inquiry into the whole theory and practice of British monetary policy since the Macmillan Report of 1931. Therefore it is clear that this Committee was not appointed primarily to advise the Government about any immediate financial crisis or about any temporary economic problem, but rather to help everybody, both inside and outside Parliament, who is in any way concerned with the management and the guidance of monetary policy for the next generation, and the Committee have certainly done that. On behalf of the Government I should like to thank the noble and learned Lord, Lord Radcliffe, and the eight distinguished gentleman who served with him on this Committee for the prodigious amount of work which they must have done to produce a Report of this character.

The only really disastrous effect which it seems to have had is that it has produced such a shattering effect on the noble Lord, Lord Boothby, that he says he is never going to talk about monetary policy again. This is a most formidable prospect. I cannot help wondering what would happen if Reports similar to this one were to be published on the road transport problem and on the herring fishing industry. I am afraid the noble Lord might then retire into a Trappist monastry, which would be a matter of some regret, I think, to most of us. I hope he will relent at least so far as to take the Radcliffe Report out of his wastepaper basket and use it occasionally for a little light bedtime reading.

I am very glad that this Report is unanimous and has not got any of these tiresome little Minority Reports appended to it. Those of your Lordships who were in the House of Commons after the economic crisis of 1931 may remember that we used to invite all the most distinguished economists in the country to come and meet us in our Committee Rooms so that they might be able to advise us on the best means of extricating the country from its economic difficulties. I think the conclusion that most of us came to was that when you put five economists into a room together you would always have six different opinions, two of which would probably be the opinions of Mr. Keynes. The Radcliffe Committee had only two professional economists on it, and they had a Lord of Appeal in the Chair to keep them in order, which he seems to have done with good effect.

The Report modestly explains in paragraph 15: It is not to be expected when a Report of this volume and complexity is produced that everything which is expressed by way of view or suggestion would necessarily have been said by each member of the Committee if he had been reporting singly instead of as one of a body of nine colleagues. Indeed, your Lordships may have noticed in reading from this Report—I am glad to find there are so many of your Lordships who have done so—that occasionally we come across passages which contain two completely contradictory statements, each of which is expressed sensibly and reasonably, not, of course, leading to any very definite conclusion, but managing somehow to give the impression that they are not really inconsistent with each other; and your Lordships may have been inclined to admire the skill with which, perhaps, academic intransigence may have been tempered by judicial moderation.

The Report was published only on August 19, and it is a long Report, although I would not call it lengthy in relation to the massive quantity of information which it contains, and I am sure your Lordships will readily agree that my right honourable friend the Chancellor of the Exchequer and his advisers need a little more time than they have had yet before the Chancellor can express a really considered and balanced view upon the contents of the Report as a whole, as I think my right honourable friend will probably do in another place in the next few weeks, before the Christmas Recess. Indeed I know that many of your Lordships were anxious to have this debate in your Lordships' House to-day in order that the Chancellor might have the opportunity of studying your Lordships' opinions before he had finally formulated his own, and I can assure your Lordships that my right honourable friend is greatly looking forward to doing that. I should like to thank all your Lordships who have spoken for the informed advice which you have given in this debate, especially, if I may say so, the noble Lord, Lord Pethick-Lawrence, both for initiating this debate and also for giving us the pleasure of hearing his own views which are drawn from his long and ripe experience of political economy.


My Lords, may I interrupt the noble Earl for one moment to ask him to bear in mind the fact that none of us has had the opportunity of studying the three very large volumes of evidence upon which the Report was based. That has still to reach us. So, to that extent, we have all been under a handicap.


I have not read them either. It will be several weeks before anybody has an opportunity of studying the extracts of evidence whose publication is promised in the Report, and I certainly have not got that advantage.

It would be certainly premature, and possibly misleading, if I were to anticipate this evening anything which my right honourable friend the Chancellor of the Exchequer may be likely to say in another place in a few weeks' time. I shall be very careful not to do that. I know that your Lordships will not expect me to do so. I must therefore resist the temptation to join in a great many of the most interesting and sometimes controversial matters which many of your Lordships have raised in this debate arising out of the Report. There are in the Report not a large number, but a few, specific recommendations which have been mentioned by your Lordships. There is a recommendation which the noble Lord, Lord Latham, has spoken a great deal about in his speech, about the Public Works Loan Board. He and Lord Pethick-Lawrence both approved of it; my noble friend Lord Hawke behind me took a different view. I had confidently expected that Lord Latham would naturally use this recommendation as a stick with which to beat the Government, since we have been doing something the reverse of that for the last two and a half years or more—I think it is since 1955. But this afternoon I must endure the noble Lord's chastisement in silence, although I hope with an appearance of innocence. My right honourable friend the Chancellor of the Exchequer was yesterday asked in another place a question on this point. He will, of course, consider it, but I could not say whether he will do so favourably or otherwise. All he said was that he hoped to be able to make a decision on this and other points before the debate in another place.

Then there is the recommendation about having a Standing Committee on economic policy, which I have no doubt my right honourable friend will consider in all its aspects. There is also the proposal that the bank rate should be announced not by the Bank Deputy-Governor but by the Chancellor of the Exchequer, which has been approved by some newspapers, while other commentators have taken the view that it would invest every change in the bank rate with an altogether inappropriate solemnity. But I shall give no indication as to the conclusion which my right honourable friend may come to. Then there is the recommendation about greater publicity and more information which many of your Lordshpis have referred to with approval. I think perhaps in some ways this recommendation about greater publicity has already begun to be fulfilled, because the Report is not only addressed to the Government but to banks and other institutions as well. The Bank of England's recent decision, to which I think Lord Boothby referred, to re-create the former Overseas and Statistics Department into a Central Banking Information Department is at least consistent with the spirit of the Committee's recommendation; and the Treasury has lately announced its decision to publish quarterly, in the Monthly Digest of Statistics, a table showing how the Exchequer has been financed quarter by quarter. But all these matters will be decided by my right honourable friend in due course, I hope before the Christmas Recess.

If I may make just one general remark about all these recommendations, it is this: although all of them are important, and some are very important, they are, I would say, only incidental to the main purpose of this Report. I think that is probably the reason why the Radcliffe Committee had decided not to publish any summary of conclusions—a fact which some of your Lordships have complained about. I am sure that most of your Lordships would not wish to take the easy course of reading a sort of potted summary of conclusions. It would not do the slightest good with regard to a Report of this kind. What the Radcliffe Committee say about this matter, in paragraph 978, near the conclusion of the Report is: We have decided not to append to our Report any summary of recommendations … To do so would not be well in keeping with the fact that a great deal of what we have written is, by design, devoted wholly to exposition and analysis, contributions which in this field are of value for their own sake I would therefore infer that these recommendations, which are not great in number, are intended to be incidental; and I would say that the main purpose of the Report is, first, to present in one single volume and in a convenient form all the facts which are relevant to modern economic and monetary policy; and then, perhaps, to focus attention on those factors affecting monetary policy which are newer than some of the others and which may not have received yet enough attention from economic authorities.


My Lords, I cannot imagine that the Government would anticipate that there would be hundreds of thousands of people in the country at large who would want to read this voluminous Report. But a good deal of education might be done for people of all classes if the Government were to issue a White Paper giving a considered summary of the recommendations. If the ordinary person decided to try to get at the recommendations he would, in many cases, have to refer to half a dozen or a dozen different paragraphs to find out exactly what they were getting at. Why not give the whole of the public a decent summary?


I will certainly convey the suggestion of the noble Viscount to my right honourable friend, but I hope that your Lordships will not press me to digress too much from the few remaining remarks which I have to make.

I think the expository part of the Report is to be found mainly in the first five chapters, which deal with the background and nature of the monetary problem and the financing of the public and private sectors, and the work of the Bank. On the main contents of these first five chapters I do not think I have either heard or read anything but unqualified praise. I have no title at all to express any opinion of my own about them, but, on reading them, my impression was that the Committee have not left out anything which is relevant and have not put in anything which is redundant. Although many of your Lordships are very great authorities indeed on political economy, I think you will probably agree that, however much you may have known before, after you have read these five chapters you will know a great deal more than you did.

In regard to the next two chapters, chapters 6 and 7, on the effects of monetary policy and the management of the National Debt, of course we could hardly expect that all the economists in Great Britain would join in a unanimous chorus of agreement. In fact, if they did so they would not be giving us the entertainment which we are entitled to expect from our economists, and we should probably want our money back. The points on which criticism has per- haps been chiefly focused are, first, the one that has been mentioned by several noble Lords, in relation to paragraphs 514 and 515. Many of your Lordships have quoted them already: I will not do so again. They point out that monetary policy is not the only weapon to be used, and that controls and fiscal measures must also have their place—a matter on which of course we all agree.

I noticed when the Report came out that a large number of newspapers and writers in newspapers hailed this passage as a sign that the Radcliffe Committee preferred controls to monetary policy. I daresay their enthusiasm may have been somewhat moderated when they read, a little later in the Report, at paragraph 524, that the Committee were suggesting that these controls should be brought into play only when there is a very exceptional economic crisis with a danger of galloping inflation. But so far as Her Majesty's Government are concerned, I do not think I shall be prejudicing anything which my right honourable friend the Chancellor of the Exchequer may be going to say if I simply repeat what has often been said by many members of Her Majesty's Government, including myself: that we have no objection in principle to any particular form of control. We believe that all different measures should be at our disposal to use, either singly or in combination and, indeed, either at a time of crisis or in normal times. And from the point of view of the Committee, if I have interpreted rightly what they say, I do not believe they felt that their observations on this subject were likely to change the opinion of anybody who wanted either more or less of any particular kind of control.

Then there is the criticism that the Committee have too much deprecated the value of monetary policy. I do not believe anybody has ever suggested (at least I have never heard of anyone who did) that the price level is governed solely by the amount of money in existence. Obviously, if one were to issue £10,000 in bank notes and give it to a miser who hid it in his stocking, that would have no effect at all on the economy. We have always been taught that the price level is affected not by the amount of money but by the amount of money multiplied by the velocity with which it circulates. I will not pursue that point.

There is only one thing I want to say arising from the speech of my noble friend Lord Robbins, with which I most profoundly agreed, and in particular with his most powerful argument concerning the beneficial effects of interest rates for the purpose of checking inflation: I was not quite sure whether my noble friend intended to couple this with the issue of money as one of the things which the Committee had unduly deprecated. I rather doubt whether they did, in fact, deprecate the value of changes in rates of interest as a method of preventing inflation. They say in paragraph 397 of the Report: The authorities thus have to regard the structure of interest rates rather than the supply of money as the centre-piece of the monetary mechanism. This does not mean that the supply of money is unimportant, but that its control is incidental to interest rate policy. It is only because I agreed so much with the noble Lord's speech that I should like to make it quite clear that I do not believe that the Radcliffe Committee are neglecting the value of changes in the rate of interest which, indeed, they describe as being the "centre-piece of the monetary mechanism".

Perhaps the chief focus of criticism on this Report has been the theme or leit-motiv running through these middle chapters, about the connection between interest rates and liquidity, the effect of liquidity on our credit base, and consequently on the stability of the price level in this country. The usual criticism made, I believe, is that this long chain of argument is not always presented with that lucidity and conciseness which we always like to find when we are studying a complicated and perhaps unfamiliar subject. When I read through these chapters for the first time I could not help being reminded of Rupert Brooke's poem about the religious beliefs of the fish which your Lordships may remember: We cannot doubt that, somehow, good Shall come of water and of mud And, sure, the reverent eye must see A purpose in liquidity. I believe I have tried to read all this argument with reverent eye, hoping to discover a purpose in liquidity; and I am sure I have not understood it nearly as well as I ought to have done. If I were to try to justify what the Commit- tee have said they probably would not thank me. Probably I should not do them justice.

But as I see it the position seems to be this. From, say, the first Sinking Fund of William Pitt in 1787 until the end of the Second World War—a period of about 160 years—it has always been supposed that the policy of British Governments was to try to reduce the amount of the National Debt by means of Sinking Funds. We have never been very successful in that, because in those 160 years the National Debt has increased from £200 million to £2,500 million. Now we have abandoned the attempt altogether, and deliberately go on trying to increase it by means of a Budget deficit below the line every year. There is always a surplus above the line, but a much greater deficit below the line, in capital expenditure. I believe that the estimated net deficit below the line this year is expected to be over £700 million, Obviously, when you have the Treasury managing this huge existing debt, partly funded, partly unfunded, increasing below the line, by all these hundreds of millions of pounds every year, the way in which they manage it from one month to another must have a very great effect on liquidity; by changing their methods they could create either more or less liquidity and this must have some effect on the credit base and monetary structure.

That sounds very dull and uninteresting. To use the phrase of the only economist, I believe, who has really been unkind to the Report, and who is, of course, at Balliol College, it might be described as the highest common platitude. I do not believe there would be any disagreement about it. Where there may be disagreement is how far the increase or decrease of this liquidity can be used to carry out our objectives. That, of course, is a matter in which there is room for very great difference of opinion. It may be that the Committee have exaggerated the extent to which it can be so used, or have failed to give enough evidence to support their general ideas on the subject. I would suggest however, that the seventh chapter, dealing with the management of the National Debt, is at least a contribution of some value to modern economic thought.

I believe that the rest of the Report, and particularly the part about foreign exchange is, on the whole, not at all inconsistent with the lines which Her Majesty's Government have been following for the last few years, and certainly the Committee's definition of our economic objectives are entirely such as we should all agree with—the maintenance of stable prices and full employment, and industrial expansion with a large trading surplus for the purpose of investments abroad. Although I do not want to introduce disagreement at the last moment, I am afraid I must say that I cannot accept the view of the noble Lord, Lord Latham, that full employment and expansion are bound to involve some measure of inflation. I think that would be a wrong and disastrous view for a Government to profess.


My Lords, I did not say that. I said "a restrained measure of inflation". I take the view, and others may not, that you cannot have expansion without some slight measure of inflation.


My Lords, I wonder exactly what is meant by the words "restrained" and "slight". It sounds as though we might be getting to the beginning of the slippery slope again, and I very much hope that the Party of the noble Lord is not officially of the view that full employment and industrial expansion must be accompanied by even restrained inflation.

But, my Lords, the obligation to maintain stable prices, to maintain a reliable currency, has always been the obligation of every Government all through history. What is new here are the other objectives; that is, using monetary policy as a deliberate instrument to maintain full employment and to promote industrial expansion. These objects are comparatively novel in our politics and it is not surprising that we have all made some mistakes in applying them. But I do not think we should be too arrogant if we were to claim that the modern generation of British politicians have been more successful in their economic policy than any of our predecessors have been in the past.

When this Report came out, I thought it would be interesting to look up the first of these great national Reports on British monetary policy; that is, the Report of the Bullion Committee of 1811, and the classic speech which was made about it in the House of Commons by Canning. If your Lordships will read Canning's speech and also the later speeches of Sir Robert Peel in 1819 when he resumed gold payments, and in 1844 when he introduced the Bank Charter Act, you will admire the absolute command over their subject which these statesmen had and the high sense of duty with which they applied what they believed to be the right policy. But what were its social consequences? After the Napoleonic Wars the result of resuming gold payments, going back on to the gold standard, was a deflation which caused the most cruel industrial distress which this country has ever experienced. The textile workers in the West of Scotland who had been earning as much as 37s. during the Napoleonic Wars came down after it to earning 8s. a week, and of course nearly half of them were unemployed. That was happening all over the country; and if it had not happened at the height of the Industrial Revolution, as it did, the whole history of industrial relations in this country for the last 130 years might have been quite different and far better.

The noble Lord, Lord Boothby, will remember his own attitude to affairs in the 1920s. Of course, the distress then was to a certain extent cushioned by social services at that time, but it is a very similar story. Acceptance of the Cunliffe Committee's recommendations in 1919 leading to the restoration of the gold standard in 1925 prevented expansion and was one cause of the unemployment from which we suffered between the wars. Since the Second World War, of course, our problem has been rather in the other direction; that is to say, inflationary pressure resulting from full employment and from industrial expansion. Whoever may have to control the affairs of this country for the next twenty-five years I am sure will make some mistakes. But our objectives will remain the same: that is, to use monetary policy, as we are all pledged to do by the 1944 White Paper, for the purpose of maintaining full employment, maintaining stable prices and industrial expansion, and gaining a surplus for foreign investment. These will continue to be our objectives; and we are grateful to the noble Lord, Lord Radcliffe, and his colleagues, for helping not only the Government, not only Parliament, but the banks, financial institutions, civil servants and, I hope, the general public, by promoting what is really the most important thing in seeking our objective, and that is a proper understanding of the subject.

7.15 p.m.


My Lords, it is never my custom, in winding up a debate, to prolong the discussion for more than a few seconds. I feel very glad indeed to have had the pleasure of hearing the maiden speech of the noble Lord, Lord Robbins. It seems to me a tradition of this House that economists always disagree, and therefore it is not surprising that I, as a fellow economist of the noble Lord, should disagree with him on this occassion. With regard to the noble Earl who has wound up the debate. I concur in his view that it is not expected that we should be for-warned of the Chancellor of the Exchequer's decisions. I do not altogether agree with a good many of the remarks he made in summing up, particularly upon all he said about monetary policy, but that matter can wait for another occasion. In the meantime, I thank him for his remarks about the Chancellor of the Exchequer—we are not expecting him to disclose anything that is secret—and for what he said; and if he has not given us very much information, we thank him for the way in which he has expressed it euphemistically. I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.

House adjourned at eighteen minutes past seven o'clock.