§ 4.18 p.m.
§ Debate on Second Reading resumed.
§ LORD GLADWYN
My Lords, nobody can doubt the limited utility of this Bill, and I am quite sure that there will be no objection to it in this House any more than there was when it was discussed the other day in another place. As I understand it, the total amount of 155 the proposed 25 per cent. increase in our quota in the International Monetary Fund is approximately £175 million, of which £44 million will be payable in gold, the remainder being really a bookkeeping transaction, and the effect of the gold payment being mitigated or cushioned by ingenious arrangements which seem to have the effect of spreading it over a period of years.
In return for this increase in our quota, our drawing rights are apparently—though I am not quite certain about this—increased by no less than £218 million. If that is so, of course, the net effect of the whole transaction is advantageous to us, more especially in the difficult period which we are now going through. But more than that, as has been said already this afternoon, it is a definite if limited increase in that so-called liquidity which everybody recognises as essential if a world depression, with all its catastrophic economic and political effects, is to be avoided.
This arrangement does not, however, in any way solve the looming problem which, as I have recently said, circles around our economic horizon like a great thunderstorm, and the solution of which is obviously getting increasingly necessary. Here there are, as I see it, two distinct problems, though of course they are to some extent related. They are the provision of adequate funds to finance international trade, in the first place; and the defence of the pound sterling, in the second. On the second point I need not dwell at length, beyond saying that if anybody thinks that we can defend the present value of the pound when our real reserves are practically at zero; when our hidden reserves, mainly in public and private investments (even if they could all be realised) are largely balanced by the huge sterling balances which are at the disposal of non-nationals of this country; when we have already borrowed, I believe, something like £800 million; and when our balance of payments is still in substantial deficit; without an enormous national effort—and an unpleasant one, too—and probably a very considerable reduction in expenditure on armaments, then I can only suggest he should have his head examined. Our only real card, my Lords—and I think it is a really good one—is that, since the last thing anyone wants is for us to go "bust", we can 156 count on an immense amount of good will, and thus buy time more cheaply, during which we can endeavour to put our own house in order.
On the first point, which is the one that concerns us now, of course, I am a little puzzled to know why the Motion on this very subject, which has been set down by the noble Lord, Lord Boothby, on the Order Paper for so many months, has not yet been taken. It seems to me that, in addition to the noble Lord, there are many of your Lordships who could contribute profitably to this debate. Indeed, I think that the whole subject ought, if possible, to be disentangled from the undergrowth of technical argument which has surrounded it for so long, and brought out into the light of day, as it were, so that the ordinary citizen may appreciate the grave political issues which underlie it and are responsible for the fact that international agreement on how to settle it has not yet been reached.
It is true that, if it were only a question of avoiding the final absurdity, the reductio ad absurdum—that is to say, arrival at a point at which international trade ceases except for barter deals, everybody wanting to have a surplus on trading account and no one being able to obtain credit with which to finance a deficit—any of the solutions and plans so far produced would do. For anything would presumably be better than a collapse of the whole capitalistic system. This, no doubt, is what was implied when, in a recent dialogue organised by the Federal Trust, the celebrated Professor Triffin (who is, of course, an American of Belgian origin) and the equally celebrated M. Jacques Rueff, of France, agreed that, rather than have nothing, they would prefer, each of them, to have the system recommended by the other.
The real point, as I see it, is that some of the systems now suggested would undoubtedly favour one or more of the industrialised nations of the West more than others, and some would be less likely than others to benefit the unfortunate developing nations, as they are called, too. So that, as I see it, is what the present crisis is now really about; and, to be quite specific, it is largely a struggle between those who, up to now, have provided the so-called reserve currencies of the world—namely, the 157 dollar and the pound—and those who perforce agreed to the continuance of the 1946 Bretton Woods system when they had hardly any gold and were practically "broke", but now have much more gold even than America, and in addition represent a community which accounts for a considerably greater proportion of world trade than any other Power or group of Powers. I refer, of course, to the European Economic Community, the present members of which held in 1948 only 4.5 per cent. of the Free World gold reserves but now hold 35.5 per cent. the share of the United States of America having dropped during the same period from no less than 70 per cent. to 22 per cent. My Lords, these are remarkable and highly significant figures.
The lead here, naturally, is being taken by the French, since, apart from anything else, the last thing the Germans want to do is to irritate the Americans; but the struggle would have been bound to develop, de Gaulle or no de Gaulle. Put in another way, there really is no inherent reason why the European countries should carry on indefinitely with the so-called gold exchange standard, thus soaking up dollars which represent the deficit on the balance of payments of America—in other words, that they should indefinitely finance this deficit—even though such a process might be well designed in itself to provide an answer, and perhaps an adequate answer, to the present liquidity crisis. This is not just wickedness on their part, my Lords; it is not just nationalism rampant, and all that, as has sometimes been suggested; I think it is an almost inevitable reaction. Because, if they simply did nothing they would certaintly over the years become part of an American economic conglomeration, or whatever you like to call it, in much the same way as California now comes under the jurisdiction of the Federal Reserve Bank of the United States and Scotland comes under the jurisdiction of the Bank of England.
If you look at the problem quite objectively you might well come to the conclusion that this would indeed be the best plan. It would certainly be the best way to form the well-known Atlantic Community, which we say we all want and which I think we all really do want. But, unfortunately, this is where you 158 inevitably come up against the famous spirit of nationalism—namely, the desire of at any rate the larger European nations to preserve their individuality, or their identity, or their personality, whatever you choose to call it; or, if they cannot do that, at any rate to preserve some kind of European personality. And this is entirely comprehensible, though it is probably true that, things being as they are, none of the European States can really "go it alone", and that, if it came to a real show-down, they could hardly stand out all by themselves, save perhaps only France, which is self-supporting, but even then only as a result of a terrible drop in the general standard of living. It may therefore be that, if the Americans really get fed up and reduce all their commitments—God forbid!—and the dollar becomes a scarce currency once again, the Americans can, if they want to, force the issue, so to speak; but this, I think, would be only as the result of great distress all round and possibly the emergence in Europe of heaven knows what, but certainly quite sinister, political forces.
So, very broadly speaking, I should say that there are two main schools of thought. There are those who, like M. Rueff, are in favour of letting nature take her course and simply doubling—I dare say even he would not mind actually trebling—the price of gold and thus at one blow enormously increasing the credit available for financing overdrafts and also, as the noble Earl, Lord Dundee, pointed out enormously increasing the value of the huge gold reserves of France, to say nothing of course of Russia and South Africa, though I do not think that this need weigh with us unduly. Nor would it necessitate the formation of any new international body to determine credit policy collectively. Thus it would be entirely in accordance with the nationalistic principles and, in so far as the European Economic Community may now be said to exist, it would not appear to do anything save reinforce the general bargaining power of that huge trading block, either. The difficulty of course is that the Americans are violently opposed to the idea, though it is true that it was effectively their solution about 33 years ago, and it does not find favour in the City of London. Incidentally, it is only in the last few days it has definitely been 159 ruled out by Her Majesty's Government. Even what seems to be the French official plan for a "Composite Reserve Unit" which would, as it were, supplement the reserve currencies and give Europe a much greater say in management—even that has very great political connotations.
On the other hand, most of the other plans seem to postulate a sort of World Authority where decisions would be taken by a majority vote, and, no doubt, a majority vote in which we should no longer, with the Americans, find ourselves in a majority. This at the moment at any rate is not a conception likely to be acceptable either in Europe or in America. So, on balance, I think the general idea of a "Composite Reserve Unit", which would somehow provide for increased credit for the sorely tried developing countries, might, in principle be the best line of approach. But if we are to back up the French on this—and here I revert to my King Charles's head—it ought to be on condition that they make it easier, or at least less difficult, for us to join the Common Market. If we ever do so, there is no doubt that our troubles in this respect will be largely ended; for a combination of sterling—the whole sterling area, to say nothing of the unparalleled and unique financial facilities of the London Market—with the great Continental currencies would indeed represent a financial power equal to the dollar; and the way would then be open for the construction of an Atlantic Community on two pillars, which also commends itself, as I have often suggested, on grounds of politics and defence.
So, my Lords, I repeat that when we consider this grave and overshadowing problem it must be with our eyes wide open to the political consequences of any attitude that we may take up. It may well be that the Government are quite aware of that; but it is certainly true, to say the least, that they do not give that impression. In introducing the present Bill in another place the Chancellor of the Exchequer—and I believe I am in order in quoting him—said that he did not feel that he wished:to join the band of protagonists who are taking up fixed lines in a field where there are so many issues".That is not exactly an elegant phrase, but I think your Lordships can see what he meant.
§ LORD SHEPHERD
My Lords, if the noble Lord reads my speech he will see that that is also what I said.
§ LORD GLADWYN
My Lords, I am afraid I do not think that the phrase gained in elegance by being repeated I here. The Chancellor of the Exchequer said earlier—and this was also made clear by the noble Lord, Lord Shepherd—that he would not "shrink" from having a discussion onthe role of the reserved currencies and the extent (if any) they need to be supplemented by any other acceptable international unit or drawing right.But that is as far as he got. Caution, which may indeed be dictated by our present financial plight, could hardly go further than that. If we really knew what we wanted, perhaps we might do better. But that is the moral of all my speeches.
§ 4.34 p.m.
§ LORD BOOTHBY
My Lords, I am grateful to the noble Lord, Lord Gladwyn, for the kind remarks he made about my Motion, which has been standing on the Order Paper for many months, and which nobody has touched with the end of a barge pole. I think I know the reason why; but I shall not give it. I should have liked to move the Motion weeks ago; but better late than never! I was slightly encouraged by the speech of the noble Lord, Lord Shepherd, who made it totally clear, by implication, that he, as well as all your Lordships, regards this Bill as totally inadequate to meet the requirements of the present international monetary situation. We all know it to be so. The Bill is a fractional step in the right direction; but it will have no real or vital effect upon the dangerous situation which is coming upon us. This is a problem of immense difficulty and complexity. We know of its existence; we have known of it since the war. No one has found the answer. The few who, from time to time, have thought they had, have disagreed violently with each other.
No-one knows this better than the Prime Minister, himself. In what I regard as the greatest speech he has ever made, to the Economic Club of New York, he said:If the volume, however defined, of monetary liquidity does not keep pace with the increase in trade, we do face the problem I 161 have mentioned, of the world industrial machine seizing up through a shortage of lubrication. Secondly, I think it is a fact that in international monetary relationships we are in the same relatively primitive stage that national financial systems were in before the great revolution in the use of credit.It is not merely that we lack the means of matching the volume of liquidity to the requirements of world trade, without the continuous export of crisis and deflation from one currency area to another: we urgently need to find the means of supplementing world liquidity arrangements with purchasing power to facilitate the financing of approved development plans, without plunging either importing or supplying countries into balance of payments difficulties.This problem is urgent. There is too much at stake for it to be decided by reference to national pride or attachment to any particular plan. Even more so is it true to say there is too much at stake for the problem of world liquidity to become a part of the small change of any undeclared conflict for leadership and power within the western alliance. It is not only monetary institutions that are involved, nor yet our freedom to develop wider and warmer exchanges of goods between nations. What is at stake is the prosperity of ordinary men, women, and children all over the world.He went on to say:It will be our responses to the challenge of economic interdependence which will decide whether generations still unborn will pour upon us their blessings or their curses.That was a remarkable statement to make especially to a New York financial audience.
But my noble friend Lord Baillieu, whose knowledge of international trade is almost unsurpassed, took very much the same view a week or two later, in an almost equally remarkable letter to The Times. He said:To-day there is in the making a developing crisis of liquidity, with its manifold repercussions on trade, on employment and human welfare, which bodes ill for the future, and there is the need for some corrective action to meet present balance of payments difficulties It would be far better, however, if measures other than those which threaten permanent prejudice to the future climate of investment opinion could be used.The great need is the preservation, and indeed the extension, of the flow of trade and investment between nations, with an international monetary system devised and managed to facilitate this to the full. Only if policies of powerful and highly influential governments are directed to this end will sound economic conditions be developed and proper standards of living established and preserved.We have yet to learn in this age"—and this is the most important passage— 162that the time span of change—be it in politics or in social or economic affairs—is continually shortening.Capital is proverbially a 'shy bird' and the time, in which we are free to take healing action, may not be so long as some choose to think.I think that is profoundly true. But it does not stop even there. Last, but by no means least, we have the recent observation of Mr. Dillon, in the United States, that the greatest challenge ahead is to work out changes in the international monetary system; and the warning of Mr. McChesney Martin, the Chairman of the U.S. Federal Reserve Board, that he saw "disquieting similarities" between current economic developments and the situation which culminated in the greatest economic crash known to history between 1929 and 1931. And those who have any knowledge of Mr. Martin will know that he is not a man who speaks out of turn, or without good reason.
My Lords, it seems to me that the danger is that the expansion of world trade will soon be threatened—in fact, is already threatened—by a serious shortage of international money, the volume of which will rise at a much slower rate than the needs of world production and trade demand. The problem is to find enough international money to deal with this situation and at the same time to impose, at international level, some discipline on the domestic policies of the countries which are members of the International Monetary Fund. The difficulty is the impingement upon national sovereignty; now alas! more rampant than ever before, because nations are even more reluctant to give up sovereignty in the economic field than in the field of defence.
World trade has expanded four times, in terms of money, since the war. The credit base has only doubled. There are, at this moment 25,000 million dollar American short-term engagements—I am talking in terms of dollars—and 12,000 million in sterling balances, against only 14,000 million in gold held by the United States and 2,500 million in Britain. We ourselves at this moment are attempting, and have been ever since the war, to act as one of the two principal bankers of the world, with liquid assets which can only be described as derisory. If this goes 163 on indefinitely, it can, in my judgment, lead only to another almighty crash.
It all stems, of course, from the Bretton Woods Agreement. I have already spoken to your Lordships on this subject, and I will not bore you with it again; but I am on the record. I moved the rejection of the Bretton Woods Agreement in the House of Commons, and got nearly 100 Members to support me, on seven grounds. First, it put the onus of restoring a balance of payments not upon the creditor but upon the debtor nations. Second, it failed to provide adequate liquid reserves for the Free World. Third, it fixed exchange rates, within far too narrow limits, in a world that was still in chaos. Fourth, it committed us to convertibility long before we could possibly hope to carry out that commitment. Fifth, it fixed the price of gold at a ludicrously low level—and here I think that I carry a number of noble Lords with me. Sixth, it was inflexible; and seventh, and finally, that uncoordinated monetary policies, nondiscriminatory multilateral trade and fixed exchange rates cannot, in fact, be made to mix.
My Lords, this led, alas! to hitter argument, in public and in private, between myself and the greatest economist we have produced since Robert Malthus—the late Lord Keynes. He said that we had to have the American Loan on the best terms we could get; and that was it. He said—and Heaven knows it was true!—that he had tried his hardest to get adequate international monetary reserves behind the I.M.F., and he added (this was in private) that he himself was not happy about fixing the price of gold at that particular moment of time. In the end, he was defeated, and I would say brutally defeated, by Mr. Harry Dexter White. I believe, and shall continue to believe to the end of my life, that it broke his heart.
The question is, what is to be done now? I have never deviated in my own views, which are that the I.M.F. should be expanded and given the power to create international credit. I said to your Lordships in March, 1961, that it should be developed into an International Central Bank for the national Central Banks, equipped, like them, with powers of credit creation and contraction. I still believe this to be the right solution. But there is, at present, a fatal snag, which was pointed 164 out by the noble Lord, Lord Gladwyn: that no one can yet agree about the method of doing it. Worse still, the degree of confidence for the international co-operation and pooling of national sovereignty in the economic field which would undoubtedly be necessary does not exist at the present time. The breach between Paris and Washington, as the noble Lord, Lord Gladwyn, well knows, is at the moment total. The New York Times recently remarked:International monetary co-operation of any kind seems to thrive only under the gun of a crisis.That brings me to my last point, gold, which has been raised by the noble Earl Lord Dundee, and also by the noble Lord Lord Gladwyn. Sir Winston Churchill has been unjustly accused of taking us back to the gold standard, with all the dire consequences that followed, in 1925. That policy was already decided by the then Governor of the Bank of England, Mr. Montagu Norman, with Baldwin, and with Snowden, before he took office as Chancellor of the Exchequer. I subsequently became Sir Winston Churchill's Parliamentary Private Secretary, and I know that he never liked it; in fact, instinctively he recoiled from it. He once said to me, characteristically, after a conference in the Treasury, "I wish they were Admirals or Generals, I can speak their own language, and I can sink them if necessary. But after a while, when I am talking to bankers and economists, they begin to talk Persian; and then they sink me instead; and I think this a great misfortune for this country." He was right.
I have in my hand a letter from Sir Winston Churchill, written in February, 1932, from Chicago; and because I think that justice should be done to Sir Winston in this matter. I will quote from it:I have gone the whole hog against gold. To hell with it! It has been used as a vile trap to destroy us.My Lords, because we went back on the wrong parity of exchange, at the wrong time, to a rigid gold standard, and without any continuous or effective international co-operation between central banks, that was quite true. Gold was used as a vile trap to destroy us; and we did have, for fifteen bitter years, unemployment figures which ranged between 1½ million and 3 million people, without a break or let-off.
165 It can be argued that gold itself is a myth. We dig it out of the ground, as the noble Lord, Lord Gladwyn, said, at enormous cost, and transport it all over the world; and we then re-bury it in the vaults of banks all over the world. No-one ever sees a gold block; and if anyone did, he would not recognise it as such. I saw one the other day, and it did not look in the least like gold. Nevertheless, it is the most formidable myth the world has ever known. It has lasted for a couple of thousand years; and in my judgment it will continue for many years to come, and for one simple reason: it is the only medium of international exchange which, in the final analysis, is trusted by all, by everybody. That is the answer to the gold question, and I think we have to tackle it.
I agree with the noble Earl, Lord Dundee, that the attitude of France, as was also said by the noble Lord, Lord Gladwyn, is of crucial importance. I do not believe that it is as adamant as many people have tried to make out. There was an extremely interesting interview the other day between Professor Triffin—who has been referred to—and Mr. Rau. I will quote one question and answer, because I think they are of great importance. The question was:You, Professor Triffin, I believe interpreted President de Gaulle's speech in February rather differently from most people—that the President does not endorse a return to the gold standard?The Professor replied:Absolutely, yet I have no doubt about my interpretation. In fact it was confirmed by M. Giscard d'Estaing when he spoke at the Sorbonne, and then only two weeks ago I appeared with him and M. Rueff on a French television programme: he confirmed what I had said—that de Gaulle had never endorsed a return to the pure gold standard such as Rueff suggests. De Gaulle left room in his speech for an international credit superstructure which however would no longer be based on the dollar alone …Those are the operative words, because, as the noble Lord, Lord Gladwyn, knows better than anyone else, it is total dependence on the dollar that President de Gaulle is determined to avoid; and I think that there is some justification for it. Professor Triffin continued:One of the possibilities would be the famous French proposal for a collective reserve unit.166 My Lords, in order to avoid a world recession, we need a breathing space of at least three years in which to devise an international monetary system that will meet the requirements of the modern world. There is only one way to do it—and here I agree entirely with my noble friend Lord Dundee: that is, to raise the price of gold. If we were to combine with the Common Market countries to declare a doubling of the price of gold, all the Americans would be able to do would be, first, to fall in line, and then to talk. This is the compromise solution to which I myself have been driven. Although I make no claim to be an economist (the nearest I got to it was when I had the honour of sponsoring the most distinguished economist in this country, my noble friend Lord Kahn, the other day), I have given more thought to this problem since the war than to any other.
The noble Earl, Lord Dundee, mentioned the possible benefits to the economies of South Africa and the Soviet Union of a rise in the price of gold. What is that by comparison with the miseries that could be caused by a genuine world recession? It is an argument that should not be considered, in my judgment, for a single moment.
Meanwhile, on the home front, it seems to me that Her Majesty's Government could do much to restore confidence in this country abroad by reimposing import controls, which are legal, instead of an import charge, which is illegal; by reducing current expenditure—not expenditure in 1966 and in 1967, but current expenditure, and not least expenditure on armaments—which in our present position we cannot afford; and by encouraging investment in productive industry, not only in companies which operate exclusively in this country, but also in those which are earning abroad money that we most desperately need. I have said over and over again that any attempt to solve the balance-of-payments problem by repressing industrial investment, and with it the modernisation of industry, is a policy of madness. Increased productivity is essential for our survival.
It is all very well for the Prime Minister to chide Mr. Heath, as he did yesterday, for very properly giving instructions that the question of the control of imports should be studied. He was perfectly 167 right to do so. The Prime Minister did chide him, and Mr. Heath admitted that he did it. That was right. What the Prime Minister should have done when he came into office was to say to the people studying this problem: "You had better buck up!" He should have sent them a minute headed "Action this day", in red ink. And the controls should now be in operation. As your Lordships know, we are now importing, recklessly and wholesale, all kinds of unnecessary luxury goods for which there is no justification; and which we cannot really afford. If your Lordships go around the West End of London—and not only of London but of provincial cities—you will see the number of luxury goods, foodstuffs and other goods, which are now being brought into this country and which, for the time being, ought to be kept out.
I have kept your Lordships too long, and I know it. I have done so because I am worried. All the evidence points, in my view, to the imminence of a classical credit collapse and liquidity crisis. No matter what the so-called experts say, money, or the lack of it, is now doing the real talking. Falling commodity prices and markets. Japan in trouble. Australia in trouble. India, worst of all. Even Western Europe showing every sign of impending recession. Both Britain and America, as the noble Earl, Lord Dundee, said, trying to get control of their payments deficits by depriving the rest of the world of credits upon which its prosperity ultimately depends. The warning lights are flashing all over the world.
It seems to me that Her Majesty's Government either cannot or will not see this. I have seen it happen before, and in Parliament. I have seen a Labour Government brought crashing to ruin, because Snowden did not know how to deal with the crisis and because they continued that relentless and ruthless deflation under his guidance. I have seen Hitler brought to power because Schacht did know how to deal with the crisis. I have seen the entire British economy saved from utter wreckage by an enforced devaluation which a so-called "National Government" was formed to prevent. Thank God, they did not do it! They were kicked off in the nick of time. Well 168 we all know that they were no good; but at least they did not manage to smash the economy for good, as was their original intention.
If I am asked to choose between continuous deflation and reflation, I have no doubt what the answer is. I rate the welfare of the workers of the world well above the convenience of international bankers, who, as the noble Lord, Lord Blackford, has already told us this afternoon, are doing quite nicely. We still have the chance to give a lead.
I want to say something rather carefully, and not perhaps altogether wisely; but sometimes I find myself a little disturbed about what seems to me to be the abject subservience of this Government to the Government of the United States. I do not think that that is the best way to deal with the situation; nor do I think that it is the best way to deal with President Lyndon Johnson, who is a tough boy, but one of the shrewdest politicians in the world, who knows probably better than anyone else what can and what cannot be done in politics. I do not think that the Government should absolutely and completely acquiesce, without question, in every decision by the United States Government, and in every field. They should go there and argue. The President is a good man to argue with, and a tough one, and he might beat them in an argument. But I do not think that we should grovel, to the extent we are now doing, to the United States of America. We have a real chance to give a lead; and, if we do not take that chance, it may well be that the generation still unborn will, as the Prime Minister suggested in New York, pour upon us their curses.
§ 4.58 p.m.
§ LORD GRANTCHESTER
My Lords, we have commenced a debate on an admittedly complicated subject, much wider than anything contained in the Bill before us. Something has been done to unravel some of the complexities of the subject, and this is all to the good. I think, as did the noble Lord who has just sat down, that the discussions could usefully be continued, for those who have spoken agree on some points with each other and disagree on others.
I have listened to university professors when lecturing express surprise that politicians meddle with the problem of an 169 international monetary mechanism which, because of its technical character, they consider should be left to experts to fashion. However, experts agree no more than do politicians on this subject. But in these days Government do rely increasingly upon experts in many technical fields. During the 19th century and up to 1914 Governments were content to exercise supervision and to require honest dealing by those who were authorised to issue currency, rather than to be directly involved. But under the strain of widespread wars standards were abandoned and Governments resorted to what was euphemistically called "flexibility" in monetary management.
So a new weapon was added to the armoury of Governments for use in the struggle for power and pretence. And a sorry story it makes and one of which the European States cannot be proud. Some have cheated more than others. The worst offenders, the Germans in the two decades immediately following the two wars, provoked such a reaction that to-day the German people are perhaps more on guard than any other people against this social cancer, as The Times recently stigmatised inflation, because they suffered the worst from monetary manipulation. To-day we have a situation in which more and more there is, as one Liberal speaker expressed it last week, a smell of economic disaster in the air. As inflation progresses in this country from a steady 3½ per cent. per annum to what looks like being double that this year, the gravity of the situation should be apparent to all.
After two years' study by an international governmental committee, on which most of the so-called progressive nations were represented, we have this Bill which, as more than one speaker has emphasised, does not touch fundamentals. Nor has it any immediate relevance even to the limited problem of liquidity, for the committee's recommendation to increase the resources of the Fund was as a precaution against a situation which might arise at some future date. It would not be right to regard this Bill as making any contribution of substance to the dangerous position in which we find ourselves in this country at the moment.
I am afraid that in the minds of many "liquidity" is often confused with 170 "capital". The explanation of the noble Lord, Lord Shepherd, was most lucid, if I may say so with respect, but if one reads the debate in another place I think one finds there were a number of Members who thought they were talking about capital for development rather than liquidity. As noble Lords well know, liquidity is only important in relation to a country's surplus or deficit on its external account of trading and investment. Furthermore, the I.M.F. can really be of assistance only where imbalances are temporary and not due to continuing and heavy capital movements. This is clearly set out in the I.M.F. rules.
With these explanations and reservations, perhaps I may briefly summarise the position as it appears to me. First, the present system, the so-called gold exchange standard, is now generally regarded as unsatisfactory. It could, in any case, only continue, as the noble Lord. Lord Boothby, said, so long as some countries in surplus were willing to finance countries in deficit, accepting the national currency of the deficit country as security for so doing. Of course, if this went on sufficiently long there would be such an accumulation of, say, dollars, for example, if the U.S. was the deficit country, that they would not hold their value. On what would appear to be reasonable grounds to-day, the surplus countries appear to be determined no longer to finance the deficits of the United States and the United Kingdom, thus placing a limit to the amounts of the reserve currencies they are willing to hold.
Secondly, it would be common sense to start any reform from the basis of the system at present in operation, rather than to try to impose a completely new system all at once. Gradual change may involve the introduction of some form of reserve, such as a composite unit based on "stable and freely convertible currencies"—this is important—or increased holdings in gold, which as the noble Lord, Lord Boothby, said (and I agree with him) would probably involve a change in the price of gold, and, I believe, should do so. But if it does, this increase in the price of gold must be arranged in such a way that this does not become a big inflationary operation. A new composite unit or increased holdings in gold would be in substitution, to a greater or lesser extent, for the existing reserve currencies— 171 namely, dollars and sterling. Strictly speaking, dollars can no longer be considered to comply with the condition I just mentioned of being "freely convertible", as they are hedged in by restrictions under political understandings, if not agreements. This applies particularly to the dollars held in the reserves of Germany.
Sterling is under continuous pressure, I would say, not solely financial, but more due to a lack of confidence engendered by the Government; and confidence is as important as, or even more important than, physical reserves. Perhaps, if I may so suggest, the greatest mistake which was made by the present Government was their belief that internal actions had no repercussions upon our balance of payments. This revealed a simplicity which in days of great wealth might have charmed, but in days of strain could only be destructive of confidence; and confidence, once it is lost, is difficult to regain.
Thirdly, the I.M.F. have never said that at the present time an increase in international liquidity was necessary. On the contrary, some maintain that there is too much liquidity, and that it is because of this situation that certain countries tend to disregard the need to exercise monetary discipline.
Fourthly, this Bill is a concession to those who claim that, should the volume of international trade increase, and should countries now running a deficit—that is, the United States and Britain—establish equilibrium, a shortage of liquidity could develop. But the war in Vietnam, if it continues, may well affect the declared intention of the United States to reduce its deficit. So it would not appear that there is any danger of a real shortage of liquidity developing in the immediate future.
This Bill is also a concession to those who would like to see reserves under international control rather than under national control. The Bill will diminish our national reserves. I understand from what he said that the Chancellor of the Exchequer estimates that we might lose £80 million of gold by paying our £44 million gold deposit and by probable sales of sterling by other countries to purchase gold to find their increased deposits with the I.M.F. Even if this gold is re-deposited in London while 172 actual payments are spread over a period of years, I do not think it can have quite the same effect, but I should not like to be dogmatic. I do not believe it is quite the same thing as holding the gold in our reserves. The currency deposit carries a gold guarantee which, of course, imposes upon us a potential liability which has not so far been mentioned. I hope I have not misunderstood the position. If I have no doubt the Minister responsible will correct me later. I am also not quite sure, nor was my noble friend Lord Gladwyn, whether the additional drawing rights of £218 million, which the Chancellor of the Exchequer mentioned are unconditional drawing rights, or whether the right to draw a part of it is subject to conditions. I cannot believe that we have an immediate unconditional right to draw £218 million when the payments of the deposit are spread over a term of years.
Fifthly, and lastly, we must resolve, as I think we are all agreed, to create a generally acceptable reformed international monetary system, but the purpose of my introductory remarks was to emphasise that this is not only a question of protecting central and other banks who hold existing reserve currencies or who may hold new forms of reserves. We must say, and make it clear, that no reform will be acceptable to our people unless it enables real "backing" to be placed behind the currencies with which they are issued, so that they have again an honest value. So far this aspect of the problem has been avoided in international discussions. It is avoided in this Bill, and the increased volume of money circulating in this country appears to show that the present Government are unable, or unwilling, to face up to the exigencies of monetary discipline, for which the I.M.F. calls, in addition to the passing of this Bill.
§ 5.14 p.m.
§ LORD SHERFIELD
My Lords, it seems that there is pretty general agreement that this Bill is a useful step; that in present circumstances it does not go far enough; that it is urgent that further measures of the kind should be taken, and before the Americans bring their external account into balance; and that it is a matter of great difficulty to reach international agreement on the next development—for there are almost as many plans 173 as there are pundits, and the various plans tend to be caught up in considerations not only of international interest but of national prestige.
On the latter aspect, there has been in the past some competition between the United Kingdom and the United States as to the precise measures to be followed in setting up an international monetary system—a competition healthy enough, no doubt, but not always conducive to early action. It has been intermittently true ever since the 1940's when, as the noble Lord, Lord Boothby, has reminded us, Lord Keynes proposed a monetary unit called BANCOR and Mr. Harry White, Under-Secretary to the American Treasury, countered with another monetary unit called ISCOR.
In spite of close collaboration in the work of the International Monetary Fund and in international financial arrangements of all kinds, this competition has continued intermittently up to a recent meeting of the I.M.F. and the International Bank, I think in 1963, when proposals more far-reaching than those now proposed were put forward by the then Chancellor of the Exchequer, and were met by quite a different proposal from the then Under-Secretary to the American Treasury. In consequence, no additional measures were then possible. Since that time, noble Lords may be aware that a great deal of study has been given to these matters in the United States, and especially by both Parties in the United States Congress, leading to a number of important reports. The consensus seems to be emerging there of a policy similar to that which is being advocated by many authorities in this country and, I think, supported by the Government, in particular that any further measures should be closely meshed into the existing mechanism of the International Monetary Fund. In view of this, the auspices are, I hope, more favourable for a concerted Anglo-American approach in the forthcoming international negotiations.
I do not find myself in agreement with the noble Lord, Lord Boothby, on this point, and I do not suppose he would expect me to find myself in agreement with him. But I myself am of the opinion that as the negotiations upon which we are now about to embark are likely to be of considerable difficulty, it is very 174 desirable that Her Majesty's Government and the United States Government should be agreed about the general programme which they intend to advocate, and should march arm in arm through this particular international labyrinth.
I wish to make only one more point. It is about the price of gold, and it has nothing to do with the arguments for or against this step; it is a purely practical consideration. I think it would be unwise to underrate the determination of the present United States Administration not to depart from the present gold price, and I consider, therefore, that any negotiated and agreed solution in the next stage will have to be sought on other lines.
§ 5.18 p.m.
My Lords, I intervene for only a minute. May I humbly congratulate my noble friend Lord Dundee for a speech very much after my own heart? I have seldom heard a better one on this subject. I intervene chiefly because I do not think sufficient emphasis has been placed on the strain on liquidity caused by the ever-increasing quantity of capital moving about the world. I think that oil money in particular is increasing the whole time, and this is very often owned by countries who find the greatest difficulty in spending it in the short term. We want to try to do something about that, because that puts a great strain on liquidity, and capital is frightened out of one country into another.
I have always been a protagonist of raising the price of gold, but the Americans seem to have the obsession that to raise the price of gold means devaluing the dollar. I remember for many years I received numerous speeches which Senator Fulbright sent to me, and I once had the temerity to retaliate by sending him one of mine on this subject. He had the kindness to reply, and the burden of his reply was that the United States would never devalue the dollar. Of course, it is the most utter nonsense to say that raising the price of gold is devaluing the dollar, and the more we emphasise that the whole time the better. This Bill is certainly useful.
§ LORD BOOTHBY
If the noble Lord will forgive me, it was President Roosevelt himself who raised the price of gold, in defiance of the whole of the rest of 175 the world, and stopped the major recession in 1933. It was the Americans who did that.
I have very often agreed with the noble Lord, Lord Boothby, when he speaks on this particular subject, but I must say that to-day I thought he took a quite unnecessarily gloomy and frightening view of the whole situation. I do not think the world situation is anything like it was in 1931. At the moment we have high wages and a considerable balance of purchasing power in all the industrial countries of the world, including Europe. I recommend the noble Lord to go for a walk anywhere near Victoria at the moment. He will find it absolutely packed with Frenchmen, all presumably spending their surplus wages. In America, the Administration has had the courage and insight to reduce personal taxation. That is leading to great consumption, and, of course, war which is scaling up in the Far East is blowing off a lot of commodities into nothing the whole time.
We want, as the next thing, an international conference to produce a better system all round, but it must take cognisance of the world's commodities. It is not much use producing these liquidity solutions which are of great importance to the more sophisticated countries unless you can do something about the more unfortunate countries which are in a state of deep penury. The more they grow in order to try to get a little more money, the less they get for it, and the danger is that they will become bankrupt. Therefore I welcome this Bill as a first step towards what I hope is a more enlightened look in the world.
§ 5.23 p.m.
§ LORD SHEPHERD
My Lords, I am quite sure we can claim to have had an interesting debate. The noble Lord, Lord Gladwyn, complained, and I think perhaps, having listened to this afternoon's debate, with some justification, that we had not been able to have the Motion of the noble Lord, Lord Boothby, before us. As the House well knows, there are 176 a limited number of Wednesdays which are available for general discussions and we always have a great deal of competition for subjects. I had some discussions with the noble Lord, Lord Boothby, many weeks ago and I informed him that this Bill was likely to arise in this Session. We both took the view that this would be the right opportunity for this discussion, although I think it would be readily admitted that our debate on liquidity has in fact gone a great deal wider than the terms of this Bill. But let us not complain about that.
There are five points which have arisen in this debate. May I say to the noble Lord, Lord Hawke, that I very much appreciated his more optimistic attitude towards the problem than that of the noble Lord, Lord Boothby; but I will come to that in a moment. I think everyone agreed that this is a useful Bill. Also there was the feeling—and I think it was shared everywhere—that the 25 per cent. increase is perhaps inadequate, considering the possible needs that may arise, although again I would remind the House that there is a conflict of opinion. There are some who think there is already too much liquidity in the world and there are others—and we are among them—who think we may well have to increase it. I think we should remember that 103 countries are going to increase, or are expected to increase, their quota by the figure of 25 per cent., and I understand this will mean that the resources of the International Monetary Fund will be increased by these quota adjustments by 5,000 million dollars, a fairly sizeable figure. In view of the fact that the drawing rights will be increased by 125 per cent. of this sum, this means that there will be 6,250 million dollars more which members will be eligible to draw within the International Monetary Fund.
I think I should have mentioned, when moving this Bill, although this particular point is not affected by the Bill, that there are sixteen countries which are invited to accept the recommendations of the Directors of the International Monetary Fund that their own quotas should be additionally uplifted in view of their own capability to meet that quota. So there is not just this 25 per cent. general increase in quota here; we have the extra moneys coming in from these 16 other countries.
177 Again, I think everyone agreed that there should be further discussions. This is certainly recognised by the United States of America and ourselves, and I think by most of the European countries—some a little more than others. We will do our best in this matter. We must try to seek an agreement. It has already been said, time and time again this afternoon, that we have many suggestions and proposals; many diverse, some quite contrary and contradictory to the others. I think we should avoid trying to take up a national position in this matter—taking up a position with one country or another group of countries. What we must seek is international co-operation rather than trying to attach ourselves to a particular bloc. That is one of the reasons why my right honourable friend the Chancellor of the Exchequer has been careful not to align himself directly with one particular group or another, or to stand fast on any particular proposal.
I am sorry the noble Lord, Lord Gladwyn, thought we were a little negligent in this matter, but we thought that in view of all the proposals which now exist, one further proposal from us might not make a great deal of useful contribution, and there is something to be said for trying to get other countries to consider the existing proposals and to see whether we can find common ground and then achieve agreement.
I would end by making one comment. I hope that whilst the countries of the world will recognise the dangers that confront us, and particularly the dangers which confront this country, we shall not accept the view that ultimately, and unless there is a major change, we are going to confront the world slump conditions of 1930. In 1930. we knew very little. We did not have the knowledge and experience which is now made available to us by the Directors and staff of the International Monetary Fund and many other organisations. We have learned a great deal. I do not believe that those conditions exist to-day. They could come if noble Lords continually talk as they have spoken this afternoon, of a major slump inevitably arising next year. I think this is utterly wrong. I do not believe it is so, and I think it would be wrong for it to go out from this House that this is possible. But let 178 us recognise that there are difficulties and there are possible dangers unless we take the necessary action.
My right honourable friend the Prime Minister spoke about this matter and the noble Lord, Lord Boothby, mentioned his words this afternoon. This is not only known and experienced in this country; it is recognised in many other countries and, my Lords, I believe there is a will and there will be a way out. But it will take time. I think that although we still have time we should press on persistently and flexibly, and in the end I believe good reason will prevail and we shall be able to establish an international monetary system which will be a service not only to the rich and powerful countries which need its support but the developing countries which look anxiously to the future. It is only within this international monetary organisation that the world in fact can prosper and develop. I now ask your Lordships to give the Bill a Second Reading.
§ On Question, Bill read 2ª; Committee negatived.
§ Then, Standing Order No. 41 having been suspended (pursuant to the Resolution of July 22), Bill read 3ª, and passed.