HL Deb 12 March 1969 vol 300 cc565-89

7.48 p.m.

LORD BOOTHBY rose to ask Her Majesty's Government: Whether they are aware of the urgent need to double the price of monetary gold in order to provide sufficient international liquidity to finance the growing volume of world production and trade which is to be expected over the next decade, to prevent recurrent monetary crises, and to give necessary assistance to the underdeveloped countries. The noble Lord said: My Lords, I hasten to say that at this late hour I shall be as brief as possible, which means pretty brief indeed. As I am a little touchy on this particular subject, I think I ought at the outset to declare a personal interest: I own a few Consolidated Gold mining shares; I only wish that I owned more of them.

My Lords, we are living in an age of vast potential expansion, vast poverty and a vast shortage of international liquidity. I do not think anybody would deny this. Bank rate in this country is 8 per cent.—a crisis rate; if I may say so, a disgraceful rate—and interest rates in the United States and other countries are rising. But the dollar and sterling still claim to be the reserve currencies of the world. They do this with what result? Production is being throttled back in the rich industrial countries of the West, and money which is urgently needed in the underdeveloped and starving countries of the rest of the world is being denied to them. My question, therefore, is a perfectly simple one: how do Her Majesty's Government propose to get out of this dilemma by means of an increase in international liquidity, which is the only possible way?

As I have often said before, it all stems from Bretton Woods. The theoretical price paid there for fixed exchanges was adequate international monetary reserves, and they were not provided. The Americans then possessed most of the monetary gold of the world, and that is why they insisted on convertibility, which within two years brought about the first and biggest crash of the pound. I am on the Record about this. On July 31, 1947, I said in another place: This convertibility of sterling is imposing upon us an unbearable burden which we are simply not capable of carrying…It is sheer, stark insanity, in our present position, to embark upon this ludicrous course."—[OFFICIAL REPORT, Commons; cols. 765–6.] That can be quoted from debates and no doubt will be in the OFFICIAL REPORT. Within five weeks, my Lords, convertibility was abandoned in disarray; and within two years the pound was sharply devalued.

True, the scarce currency clause was written into the Bretton Woods Agreement, but in fact it has never operated. Why? Because the whole onus of restoring a balance of payments was then put upon the deficit countries and not upon the surplus countries. Here again I am on the Record, because I said it at the time. As Dr. Aschinger subsequently said: When a country runs into deficit the fault usually lies with itself. Surpluses, on the other hand, are very often the upshot of inflationary trends in other countries. The implications of this doctrine, if it is true, are not very encouraging for us; because it means that, if we do get into surplus, as Her Majesty's Government are desperately trying to do, it will be due to the defects of other countries; and that is not a very satisfactory situation.

I have frequently said that fixed exchange rates, unco-ordinated monetary policies (national monetary policies), a gold price fixed in 1934 and never since changed, and non-discriminatory international trade can never be made to mix or work. This has now been proved. There have been 11 devaluations of the franc and the pound since Bretton Woods. There has been a persistent and worsening shortage of national reserves. particularly gold. We have now reached a stage when restrictions of every kind are being imposed by most countries in the world, almost daily, in order to preserve a system that was allegedly designed to permit freedom of trade and payments—and, with it, economic expansion. Contraction is now the order of the day.

Two questions arise. First, was American insistence on convertibility at a fixed price of 35 dollars an ounce in 1945 at Bretton Woods due to the fact that at the time they had most of the monetary gold in the world, and with it economic domination over the world? I thought so, and said so, at the time. In fact, we did hand over economic power over Western Europe to the United States for nearly twenty years—witness Marshall Aid. And not only over Western Europe; over the whole world outside the Soviet orbit.

The second question is: was there a more sinister motive? Lenin (who nobody can deny had a capacious intellect) said that in order to overthrow the capitalist system gold had to be overthrown first. But he went on to qualify that statement. He said that in the existing state of the world, and until capitalism had been overthrown, the Soviet Union should use such gold production as they possessed—which is rather less than many of us think—to the best practical purposes. And they have used it to the best practical purposes. We do not know (I see the noble Lord, Lord Ritchie-Calder, shaking his head) how much gold the Soviet Union do possess; all we can say is that they are certainly using it to the best advantage.

Reverting to my question—was there a more sinister motive?—as I have said, Lenin stated that the overthrow of gold must be a necessary prelude to the overthrow of the capitalist system. Mr. Harry Dexter White was not a stupid man. Did he see ahead as far as that? On this point I do not carry with me my noble friend Lord Robbins, who is a passionate defender of Mr. Harry Dexter White. But before he died Mr. Harry Dexter White was being exhibited as a Communist and as a paying member—well, not a paying member but an actual member—of the Communist Party. Alternatively, it could have been that the ultimate demonetisation of gold, and its replacement as a world reserve currency by an inconvertible dollar, was the longterm objective of the United States. And I say to your Lordships tonight that neither of these is a feasible solution.

I conclude my speech with a few assumptions and a few conclusions. The assumptions are these. There is a great and growing shortage of international liquidity to finance a great and growing increase in the volume of world production and trade. Not even my noble friend Lord Balogh can deny that. Hence, what Lord Cromer has aptly described as the "Bankers' Bedlam". Too late to avert a crisis, the bankers scurry off to Basle, where they must have almost permanent rooms in the hotels, and there either fail to agree, or get the deficit countries, including ourselves, into even greater and more inextricable debt by means of "currency swaps" and other devices. Hence the I.M.F. Budget with which we are to be presented next month and which we face with some trepidation. I hope that it will not be too harsh. They are quite kind and quite genial chaps, the I.M.F. boys; but do not let us be under any illusion that it is the Chancellor of the Exchequer who any longer decides what the British Budget is to be. It is the I.M.F. boys who come over and pay such frequent visits to the Treasury who tell him what he had better do, and in fact what he has got to do.

My Lords, the third assumption is that gold will continue to be the basis of settlement of international surpluses and deficits, and for a long time to come will hold a privileged rank among international means of payment. The link between national reserves and gold must therefore be preserved. Why? Simply because the great majority of countries, especially in Europe, trust gold more than paper money, Government promises (just look at War Loan or Daltons when you think of Government promises), and paper panaceas such as the proposed Special Drawing Rights, which have no backing in terms of gold at all, and which in any event, even on the most optimistic assumption, cannot seriously dent the world illiquidity at the present time.

Two billion dollars has been mentioned as a maximum figure. It is nothing like enough. We should not forget, I think, that the purchasing power of the dollar itself has fallen by between 80 and 90 per cent. since 1940. The cure lies in expansion, industrial expansion, not further restriction; and a rise in the price of gold to 70 dollars an ounce would only be in line with the depreciation of the dollar in terms of purchasing power since the price was fixed at 35 dollars an ounce in 1934.

My fourth assumption (and I am nearing the end of my assumptions) is that by refusing to raise the price of monetary gold we have aggravated the liquidity shortage by discouraging the production of gold, now running at only about a 1 per cent. increase; and by diverting what is produced from central banks into private hands and for private purposes. We have made sterling almost useless, and the dollar, with the present U.S. deficit, highly suspect, as reserve currencies. We have created a great uncertainty about the future price of gold which we see reflected in the Press every single day and almost every hour of our lives. This is encouraging speculators all over the world, and meanwhile we have been forced to deny much-needed aid to the underdeveloped countries. If the drawing rights of the underdeveloped countries to-day were added together, the figure would not counterbalance that of the United States alone.

My fifth assumption is that the short-term debts of the United Kingdom are, as the noble Earl, Lord Cromer, has said, hollow bricks manufactured at Basle and elsewhere during the past five years, and gilded, for the sake of appearances, in mortgaged gold—and that is not real money to me. Our present so-called international system, as Enoch Powell so aptly said the other day, is based on the systemisation of a lie—the lie that the relative values of gold and of respective paper and credit currencies are constant; because they are not.

My sixth assumption is that reasonable stability of exchange rates, although highly desirable, is no longer of paramount importance. I do not go all the way with the noble Lord, Lord Crowther, when he says that fixed exchange rates should be done away with altogether, and that we should go back to floating exchange rates. I think there should be wider margins, and I leave it at that. As a seventh assumption and before I reach—to the great relief of your Lordships—my conclusions, I would remind you that Mr. Schweizer said only last year in New York that the pre-eminent role of gold in the international monetary system is still assured.

If that is the case, based on these assumptions I reach my conclusions, which are that there are only two ways out: first, the demonetisation of gold, using the S.D.Rs. as a screwdriver, and the replacement of gold by an inconvertible dollar. That is what Mr. Fowler, the Secretary of the U.S. Treasury, was clearly after in Washington last September. It proved to be a non-starter then; it will prove to be a non-starter for the rest of our lives, and I should think for the lives of our children and grandchildren. S.D.Rs, as a screwdriver? My Lords, an axe would be required; and a screwdriver is no axe.

The second way out is an increase in the price of gold. It is the only commodity the price of which has not moved since 1934, as against every other commodity in the world the price of which has doubled, trebled or quadrupled. To double the price of gold would give us all a breathing space, perhaps of ten years, perhaps even longer, in which to devise a rational international mcnetary system based on gold and the International Monetary Fund, which in due course should be developed into a Central Bank for central banks, as many of us have said, and many of the leading bankers have said during recent years, but about which absolutely nothing has been done.

This doubling of the price or gold would immediately increase the liquid reserves of the Group of Ten—the rich countries of the world—and enable them to avert constant currency crises between one another, and to give aid to the less fortunate peoples of the world—including, let me add, the coloured population of South Africa. It would greatly improve our own prospects for a continued rise in exports, for which the Government, to give them due credit, are striving very hard indeed, and enable us to realise at last that borrowing is not the same thing as having money in the bank. It would re-establish international monetary law embodied in the E.M.F. Charter and now being recklessly and flagrantly contravened. It would be the precise opposite of the old pre-1914 gold standard because it would be a guarantor of stability and liquidity alike, in a context of expansion.

Finally, my Lords, it would stop the speculation and private hoarding—speculation about the future price of gold, not only from day to day but from hour to hour—for many years, perhaps for ever, if the I.M.F. scheme which I have so long and so often advocated came off, because gold would flow only into central banks, and from them to the I.M.F. itself. I see no reason why, if this system were to be devised, the central banks should not give at least one third of their gold reserves to the I.M.F., which would then be in complete control. That degree of supra-nationalism seems to me to be necessary and desirable. It would bring an end to the present ghastly uncertainty about the future price of gold, with all its speculation and hoarding, and dreadful and dreaded consequences.

Meanwhile—and this is the end—the two-tier system is not working, and nobody can claim that it is. It has become an urgent necessity to find within the next few weeks—or months, at the outside—a temporary modus vivendi between Pretoria and Washington regarding the sale of newly mined gold to the central banks. If this happened—and mercifully there are signs of it under the new American Administration—we should be spared, at least for a time, the crises from which we reel to-day, one to another. The ultimate solution remains to double the price of monetary gold and to link this with a radical reform of the I.M.F. which would transform it into a Central Bank for central banks.

My Lords, I thank you for having listened to me yet again on this subject. I promise you that I shall not trouble you with it again for a very long time. Before I sit down perhaps I may say that I am reminded of a man who was very different from myself. He was ornate; I am by nature sedate. He was howled down in Parliament. That fate has not yet befallen me, although at one moment I feared it might befall me this evening when I made yet another speech on this subject. He was finally acclaimed as one of the greatest statesmen this country has ever produced. Alas! the only person who has ever acclaimed me as that, is myself. My Lords, Disraeli said, when he was howled down at the end of his maiden speech (and this is a Bowdlerised version): "You will not listen to me today but one day you will listen to me". And one day, my Lords, you will listen to me on the subject of the price of gold.

8.9 p.m.

THE EARL OF DUNDEE

My Lords, the reason why the noble Lord, Lord Boothby, has put down this Unstarred Question is because he wants a big increase in the present insufficient amount of international currency. What I should like to say is that all those who want to increase liquidity ought not to dispute too much with each other about the best means of doing so; for that will only help those financial and banking authorities in all countries who do not accept the need for greater liquidity, and who may not be in the majority but who have on their side the weight of inertia, and who also have on their side the timidity of ephemeral political Governments who, in democratic countries, are often apt to play for safety and to do nothing, especially if those who want something done spend all their time in disputing with each other about how to do it.

My own view, which I have expressed to your Lordships before, was put very well, and I could not put it better, by the late Lord Keynes in the draft which he wrote of his plan for a clearing union during the war, which was approved at that time by the British Treasury. Lord Keynes said: We need a quantum of international currency, which is neither determined in an unpredictable and irrelevant manner, as, for example by the technical progress of the gold industry, nor subject to large variations depending on the gold reserve policies of individual countries, but which is governed by the actual current requirements of world commerce, and is also capable of deliberate expansion and contraction to offset deflationary and inflationary tendencies in effective world demand. My Lords, if Lord Keynes had got what he hoped to get then, the Free World would have had a clearing union with unconditional drawing rights on 25,000 million dollars worth of bancors, as he would have called them, and the Free World would now be a vastly stronger world. Its potential growth would not have been constantly hampered and frustrated by a shortage of international currency reserves which has caused these continual balance-of-payments crises in one free country after another.

LORD BOOTHBY

My Lords, may I interrupt my noble friend for one moment, merely to say that of course he is right, and Bancor would have been absolutely right. But Bancor was destroyed by Mr. Vinson and Mr. Harry Dexter White in the teeth of Keynes.

THE EARL OF DUNDEE

My Lords, I know it was. I was going to say that the noble Lord, Lord Beswick, yesterday, in reply to a Question, was good enough to give your Lordships sonic comparative figures about international currency reserves and world exports. He gave the figures for 1948: total amount of exports 53.3 thousand million dollars—or 53.3 billion dollars, as the Americans call it; total amount of reserve currencies in 1948, 48 billion dollars. In 1967 there were 190.5 thousand million dollars of exports, compared with only 73.5 billion dollars of currency reserves. If I may add one more figure, which I got from the International Monetary Fund publication, in 1938—before the war—the figures were 27,000 million dollars of exports and about 29,000 million dollars of reserves. So that in 1938 the reserves exceeded the exports by 7 or 8 per cent., in 1948 the exports exceeded the reserves by 10 or 11 per cent., and in 1967, now, the reserves are only 37 per cent. of world exports, compared with more than 100 per cent. before the war.

My Lords, surely when the noble Lord gives the expected figures by which international reserves would be increased by the Special Drawing Rights of something like 2 billion dollars a year for five years, amounting to about 2 per cent. of the total, he must agree that these increases are dwarfed by the tremendous increases in exports for which he gave your Lordships figures yesterday. The noble Lord quite rightly added that the velocity of circulation reduces the need for more currency. Of course that is true, both in domestic monetary transactions and in international ones, too. But the noble Lord would surely not suggest that the velocity of circulation since the war has increased by nearly 300 per cent.

LORD BALOGH

My Lords, may I ask the noble Earl a question?

THE EARL OF DUNDEE

The noble Lord is going to speak in a minute; could he not put it then?

LORD BALOGH

I should like to ask a question, not to make a statement. What does the noble Earl mean by velocity of circulation of gold?

THE EARL OF DUNDEE

My Lords, I do not know if the noble Lord was in the House at Question Time yesterday, but when the noble Lord, Lord Beswick, very kindly gave me these figures on the recent comparisons between currency reserves and world trade, he pointed out, quite rightly, that the quicker money circulates the less of it you need; and that is an obvious platitude.

The noble Lord, Lord Boothby, as he told us, has been giving advice to many people for a very long time, and for some reason they have never taken his advice. But he has perhaps partly made up for it by continually telling us how right he has always been. Let us suppose that, by sonic miracle, the financial and monetary authorities of the world were to accept the noble Lord's advice now and double the price of gold. The present total of international currency reserves given by the noble Lord, Lord Beswick, was 73,000 million dollars, and last July he gave the distribution of this figure between gold and paper currency—about 40,000 million dollars of gold and the balance in paper currency. If Lord Boothby's suggestion were adopted, that would only increase international reserves by another 40,000 million dollars, so that you would have 80,000 million dollars worth of gold, and adding on the other 33,000 million dollars of paper currency you would get a total of 113,000 million dollars, which is still less than 60 per cent. of the total of world trade, still a much lower percentage than we had either in 1948 or in 1938. I should not have thought that an increase of this order was an unreasonable one, having regard to the needs of the world for more international liquidity.

Of course I know the noble Lord cannot get up and say that he is in favour of increasing the price of gold. It is a matter which has often been considered, sometimes favourably, by the Treasury, but the great obstacle is the attitude of America. without whose agreement it would not be any use. The late President Kennedy was advised, which your Lordships may think was not good advice, but he took it, to give a pledge that the gold content of the dollar would never be reduced. In American economic termin ology devaluation is synonymous with raising the price of gold, which of course is not really true at all. It would be true if you devalued the dollar in terms of gold but did not devalue other currencies in terms of gold. But if you devalue all currencies simultaneously in terms of gold, that simply means that you are acknowledging the fact that gold ought to have risen in price, as all other commodities have risen, in the last thirty or forty years. But if the Americans think it is a matter of national pride that they cannot do this, it would not be practicable to try to do it without them. What we can perhaps do is to talk to people of influence on institutions like the Group of Ten or O.E.E.C., who may be willing to listen and to think of, to them, new ideas of this kind. But if we do not, if we cannot persuade the Americans to agree to an alteration in the value of gold, we must at least try to persuade them and others to do something upon an immeasurably larger scale than has been done by the recent Special Drawing Rights Scheme.

Of course it is true that, in the last twenty or thirty years, the economy of the Free World has advanced. But it has advanced unevenly, like a cripple with one leg and a crutch; and the only reason why it has been able to continue to advance in the uneven way in which it has advanced, is that the United States have never been required to pay off their vast external currency deficit which has been accumulating for the last twenty years. Suppose that they found they had to pay it off; suppose that the international bankers required them to pay back some of it—it amounts, I think, to more than 20,000 million dollars. Or suppose that you got an American Congress or an American Administration who suddenly felt that they ought to try to pay off their foreign debts in foreign currency. Or suppose that the American public became tired, as they may well do some day before long, of bearing so much of the burden of helping underdeveloped countries, of defending the Free World and of helping other countries with their trading deficits.

Suppose that were to occur, and that America were to stop accumulating this vast currency deficit. The economy of the Free World would then collapse more disastrously than it did in 1931; and if we are to get rid of this lurking danger which is always behind us, we must increase international liquidity to a far greater extent than what is now proposed, and we must do it soon.

8.23 p.m.

LORD BALOGH

My Lords, I rise in fear and trembling. When a humble person like myself disagrees with the noble Lord, Lord Boothby, and the noble Earl, Lord Dundee, he must indeed be in terrible panic. Nevertheless, if I rise to my feet in order to oppose their view, it is really because I understood Keynes once to say that gold is one of those barbarous relics which mislead us into the abyss. The noble Lord, Lord Boothby, said that we ought to raise the price of gold in order to end the uncertainty about its price. Should one, for instance, legiti-mise car speeding because there are many people who exceed the speed limit? Should we further speculation by satisfying people's speculative urge, by giving them profits, by raising the price of gold? They will thirst for more.

What is most interesting in this debate is that we have never been given facts: nor have we been given any idea of the relationship of the monetary side to the real facts of production. First of all, we ought to look at trade. Since the last World War trade has expanded far faster than production, and it is still rising very fast indeed. There is no proof that there is a shortage of international liquidity if you look at trade, because trade has never before been expanding quite so fast. Even last year the expansion was near its maximum—not quite the maximum, but near its maximum. So from that point of view, again, there is absolutely no reason to suppose—

LORD BOOTHBY

My Lords, may I interrupt the noble Lord for one moment, to ask him about the prosperity of South-East Asia and South America?

LORD BALOGH

My Lords, the prosperity of those countries is connected with various political factors into which we do not now need to enter. In any case, I could not give them because I am not a great expert on them, although I have visited those countries. But I should not have thought that it had anything much to do with gold. Actually, the gold reserves of the Latin American countries have increased quite smartly. One of the troubles is that they cannot spend it fast enough on development expenditure.

The noble Earl, Lord Dundee, says that he does not believe that the velocity of circulation (whatever he may mean by that in this context) is rising very fast. What is happening is that on the basis of a certain amount of gold a much larger credit is built up. You may express it in this way—I think it is a perfectly sensible way of expressing it—but the real situation is that we have expanded credit on the basis of gold and foreign exchange reserves much further than it was expanded before. Indeed, what I am a little puzzled about is that the noble Earl, Lord Dundee, now says that we want to have more liquidity because the monetary circulation has not risen fast enough. I always understood that his friends, both here and in the lower House, had been complaining that the monetary circulation has risen too fast and that our Government at the moment were rather reckless in increasing monetary circulation in this country too much.

THE EARL OF DUNDEE

My Lords, I think the noble Lord is confusing domestic monetary circulation with international monetary circulation. My remarks about velocity were simply a comment on what Lord Beswick said yesterday in reply to a Question, and if the noble Lord would take the trouble to read it I think he would understand it.

LORD BESWICK

My Lords, I think in fairness to the noble Earl I ought to say that I was referring to the improved or increased international co-operation, the swap arrangements and so on, which enabled us, as my noble friend is also saying, I think, to make a given quantity of monetary reserves do a greater job.

LORD BALOGH

But, my Lords, the internal circulation has an immense amount to do with it; it has a most intimate connection with it. What does international liquidity do? It is to pay balances; not for trade—for trade balances. If all countries expand together the trade can expand rapidly without the balances rising, because both imports and exports rise together. The need for reserves arises when there is a great difference between the policies of various important Governments in respect to their internal prosperity. If one country expands rapidly then the other will not. Difficulties have arisen to some extent, but only to some extent, from the fact that the Germans especially, and to some extent also the Japanese, have not been expanding that fast in terms of money, but they have been expanding very fast in real terms; therefore their exports have gone up, their imports have not risen as fast, and we have had to pay in cash. That sort of cash payment needs international liquidity. International liquidity is necessary to pay for the balances.

I fear that for us, the British, now to say that we need more international balances is not altogether a very tactful or a very good thing, because obviously our personal problems are involved. Therefore it would be much better if we waited so that somebody else should take the matter up so far as the international situation is concerned. Because foreign countries—and especially the French—will make an enormous case against us by saying that we want much more international liquidity in order that we may be able to go on in what they call our "profligate way". Obviously there is little in that case again us; but for tactical reasons I am sorry that the noble Lord, Lord Boothby, has raised this matter just now.

It seems to me that if this world is to find its balance again there are two major problems to be overcome. The first is, as the noble Lord, Lord Boothby, said himself, very rightly, that a system should be established in which creditor countries have to contribute to the balancing process as much as debtor countries; that creditor countries should be made to benefit by expanding as much as debtor countries are forced to contract. In that way, the need for international liquidity will decrease.

The second thing, it seems to me, is that in making our readjustments we shall have to give up our main reliance on indirect global controls. Neither deflation nor inflation have been working very well when managed either by fiscal or by monetary policy. It seems to me that a much more sophisticated and much more direct policy on incomes VS ill be needed if the creditor countries are to be permitted to expand without their fear of being overwhelmed by an irresistible wave of inflation—which obviously Professor Shiller is now resisting; and by resisting it he makes the process of readjustment in all other countries much more difficult. In our case it is the increase in our wages and other incomes which constitutes the basic danger for our international liquidity and our international solvency. So long as our incomes rise faster than our productivity we shall not be able to accelerate the increase in productivity sufficiently, our costs per unit of output will rise faster than those of other countries, and we shall, therefore, be in debt; and therefore we shall lose our economic independence. It seems to me that this is the point to emphasise.

I do not believe that a revaluation of gold—apart from giving profit to people who ought not to get any profit out of their anti-social activities, and apart from giving a national present to Russia. to Rhodesia and to South Africa—will accomplish very much. It may accomplish one thing, however: that the rich will get richer and the poor may get much poorer, because some of their debts have been expressed, unfortunately, in gold. Therefore, I feel that for once I must, with deep sorrow, part company with my noble friend Lord Boothby—I hope he still calls me that after this. I think that much more direct, much more thoughtful, much less arbitrary and much less "squandermania" measures are needed than a change in the price of gold.

8.35 p.m.

LORD FRASER OF LONSDALE

My Lords, I arrived in Britain from South Africa only to-day. I only knew of this debate at a late hour to-day, and therefore I am speaking almost off the cuff, though noble Lords are aware that on a number of previous occasions I have shown an interest and declared an interest in South Africa. I shall be very brief and deal with only two or three points in a vast subject. One of them was mentioned by the noble Lord who has just sat down. We do not want, he said—he almost said it would be a painful thing, but he did not quite use those words—to reward those who do not deserve to make a profit. Now, who are they?

LORD BALOGH

Speculators.

LORD FRASER OF LONSDALE

My Lords, people who mine. Why should they not be rewarded fairly according to the cost of the efforts they make, just as every other labourer is worthy of his hire? Investors—if you like, speculators. Is not this a word bandied about by politicians to cause prejudice? A speculator is surely a person who buys and sells, and thereby makes a market; and there must be a market, whether you are talking about rice, wheat, boots and shoes, platinum, diamonds or gold.

LORD BOOTHBY

My Lords, if I may interrupt my noble friend for one moment, I might say that Lord Keynes was one of the greatest and most successful speculators of all time.

LORD FRASER OF LONSDALE

My Lords, indeed he was. It is no crime to speculate. Secondly, it is no crime to enrich South Africa or Russia because you do not happen to agree with some of their internal policies. If we were to devise our economic way of life in order to enrich those countries who pursued policies we liked, and to avoid enriching those countries who pursued policies we did not like, we should get into a terrible tangle. Surely we must trade with the whole world without prejudice, and without trying to direct our affairs this way or that.

The noble Lord, Lord Balogh, said that not only would the rich get richer—which he would regard as a terrible thing apparently—but the poor would get poorer. Not at all. Whenever the rich get richer the poor get richer too, because there are more riches to go round, and if trade and industry and world movement of affairs increases, it enriches everybody. If South Africa gets richer, or Russia gets richer, the world is not going to be impoverished thereby; it is going to be enriched. In particular, in southern Africa neighbouring African countries are going to be enriched because more and more the Republic of South Africa is itself becoming not only an economic adviser and supporter, but a power in southern Africa, a power for good, just as we have sought in vain for many years to be a power for good in other parts of the world. Unless one is going to cut off one's nose to spite one's face, one cannot say, "We will not do something that is going to be good for the trade of the whole world because it will enrich particular countries".

I wish to make a plea for a slightly different solution from that which has been argued by the noble Lord, Lord Boothby, and that is a return to the free rates of exchange and a free price for gold which was the system for the greater part of the last 100 years. 1 have ventured to say on other occasions that it is only since we have had a fixed price for gold that we have had recurrent gold crises; they did not exist before. If the price of gold is fixed by the terms of demand and supply, by the daily market in gold itself, then it is self-adjusting, and one does not build up the pressures which lead to these recurrent and upsetting gold crises.

The noble Lord, Lord Boothby, ventured to quote himself from Hansard of twenty years ago, if I may say so with great effect. I have not got Hansard here and I did not expect to speak tonight, but I may remind those Members of the House who happened to be present of a debate on finance which was held in the last week of November of last year. Just before I went to South Africa I spoke on this subject, and ventured to say that there would be another crisis in a short time, possibly within a year. In fact it occurred within a fortnight, and we had Mr. Jenkins's mini-Budget. I prophesy again, and I am sorry to be a prophet of woe, that unless we tackle together the problem of the exchanges and the problem of gold intelligently and sensibly—and that means freeing it, and freeing it probably means allowing it to rise—we shall be forced to do it in circumstances after yet another crisis. Who knows that it may not come in another fortnight? If it does not come in another fortnight, it may be in another month; and if it is not in another month, it will be in another six months. But it is as inevitable as the return of the sun to-morrow morning. Therefore, I support my noble friend Lord Boothby, and I am glad that he has brought this matter back before the House.

I should like to say one last word to my noble friend Lord Dundee. If Keynes's schemes for this and that had been followed, how different it would have been. But how many "if's" and "and's" are there in the world? If Socialism had operated for the last fifty years, the noble Lord, Lord Balogh. no dou'lle would he richer in intelligence and in happiness, if he was not a com missar as well. Maybe we would all have been better off and the rich would have been poorer or the poor richer, or perhaps they would all have been poorer. But "if's" and "and's" do not get us anywhere. The fact is that people as a whole do not believe in Keynes. I was a believer in Keynes when I was a young man, and read him with the greatest of interest. I hoped that his wisdom might prevail among the leaders of the world: but it did not. The fact remains that gold is the only guiding commodity in the financial structure in which all people in the world believe. Theorists like Lord Balogh who do not believe in it are limited in number, and they are not the people who rule Governments—even he does not now, I believe. Gold is believed in; paper is not.

I apologise for repeating one other sentence which I uttered last November. We in these Islands and the voters in most countries that have voters do not trust their own Treasuries. How much less can one trust the Treasuries of other countries? If one does not trust them, how can one expect to make a paper credit-note work?

8.45 p.m.

LORD RITCHIE-CALDER

My Lords, I intervene only because I am provoked by Lord Boothby's reference to Harry Dexter White. I am reporting a circumstance which was part of history. I was the messenger in 1942, just after Pearl Harbour, who took to America Keynes's proposals on Bancor. I did not understand it; I do not understand it now. I was merely the messenger "by hand of officer alone" on a mission to the White House. One thing which was clear, obvious and manifest—Keynes said it and I say it now—is that Harry Dexter White was the tool of Wall Street. He was not a Communist; he never was a Communist, and he died in the process of being accused of being one. That was in the McCarthy days.

I would ask Lord Boothby not to repeat this absolutely macabre story in which White was identified as a Communist. He was not. He was, in Keynes's terms, a tool of 'Wall Street, Why? Because, as the agent of Wall Street, he shot down Bancor. He destroyed the whole idea of an international currency for which Keynes was working and which he canvassed in this Chamber, and which one might think was workable. It was not destroyed by some great Communist intrigue: it was destroyed by the demand at that time in the United States that one should not have any international currency but the dollar—but, by concession, they conceded the acceptance of sterling as one of two reserve currencies. There was no gold dollar to which this could be related, yet the whole of the subsequent currency was related to a dollar which was never minted because the U.S. itself had gone off the gold standard—a dollar which did not exist.

If we are going to ask ourselves this question, I must seriously ask your Lordships to consider what is the literal meaning of gold. I do not care who is interested in gold investments or gold mining. There is only one purpose that I know to which to put gold and make it work. That is to make a wedding ring of it and put it on your wife's finger and send her to the wash-tub. There is no other purpose for gold except ornamental or in backing up a currency. We have to escape from the mythology which those like the noble Lord, Lord Fraser of Lonsdale, are creating. It is a mythology which we must destroy. The noble Lord, Lord Balogh, said that we are creating an enormous potential of production. We are trying to put it through gold pipes but we have not enough gold to produce the right diameter.

LORD BOOTHBY

My Lords, before the noble Lord, Lord Beswick, replies perhaps he would allow me to say this to the noble Lord, Lord Ritchie-Calder. If he gives his personal authority that Harry Dexter White was not a Communist, then I accept it. I also have it on the authority of the noble Lord, Lord Robbins. The only thing that strikes me as funny is that before he died he was proclaimed as a Communist, not only in the American Press but in the Press of the world, and I have never seen it authoritatively contradicted.

LORD RITCHIE-CALDER

My Lords, may I reply by saying that the answer is that that is McCarthyism.

8.49 p.m.

LORD BESWICK

My Lords, I was fascinated by what the noble Lord, Lord Boothby, had to say, and I was equally interested to hear what was said by the noble Earl, Lord Dundee, by my noble friend Lord Balogh, by the noble Lord, Lord Fraser of Lonsdale, and my noble friend Lord Ritchie-Calder. This is indeed a fascinating subject. It is a mythology that we are discussing. But I am particularly grateful to the noble Lord, Lord Boothby, for raising this matter, as it gives me an opportunity of saying that the Government are opposed to an increase in the price of monetary gold and I am going to give the reasons why.

Of course, as the noble Lord, Lord Boothby, the noble Earl, Lord Dundee, and others have said, there is a need for more international liquidity. The point at issue is the method of achieving it. To raise the monetary price of gold would certainly increase liquidity, and it could conceivably bring about a certain strengthening of the monetary system at least for a short time. But it would also have many harmful effects, of which not least would be the loss of the present opportunity of reforming the international monetary system on a sounder and better basis. I propose to spell out six reasons why the Government reject this pressure for an increase in the official gold price.

First, it would mean an excessive and sudden increase in liquidity. We cannot have intermittent changes in gold price if there is to be stability in the international monetary system. That is why in 1934 it was necessary to raise the price to a level at which people could have confidence in it for a long period. Those who advocate an increase in the price as does the noble Lord, Lord Boothby, call for a doubling of the price Ito 70 dollars an ounce. Think what this would mean, my Lords. World gold reserves at present stand at about 39 billion dollars, out of total reserves of gold and foreign exchange of about 67 billion dollars. The effect of doubling the price would be immediately to raise the total of world reserves to about 106 billion dollars, plus an enormous flow from new production and private holdings into official reserves. We need an increase in liquidity, but not a sudden jump like this. In due course a time would come when there would be new pressure for another increase in the price of gold and the world would again be facing the question whether the increase in liquidity was to come about by this means or by some other.

Secondly, the gold price method would mean that the increase of liquidity would be distributed in a harmful and undesirable way. The gold in official reserves at present is overwhelmingly concentrated in the hands of the strong countries. Those with already ample reserves would have more, while many countries with exiguous reserves would gain nothing. I do not need to emphasise the fact that it would be grossly inequitable and would leave the countries which have held their reserves mainly in the form of currencies with a justifiable grievance. It would be an inefficient method. More reserves are needed for the world as a whole, if world trade is to benefit, not just for those who are already well padded. I am not arguing that an increase in the gold price is to be resisted because it would benefit countries like South Africa and the Soviet Union. Indeed the truth is that it would probably create a major inflationary problem in the South African economy. That is a secondary point. The main point is that the new liquidity would not go where it is needed. I know that it is suggested by M. Rueff, the gold apostle, and Lord Boothby in his new apostolic role, that after the price has been increased something might be done to redistribute some of the gains to the less-developed countries. I regard this as an admission of the inadequacy of this technique for increasing liquidity. The practical problems involved in making such a redistribution would obviously be very great.

Thirdly, so sudden and large an increase in liquidity would probably have inflationary effects. This is not a matter of Governments going on a spendng spree with their newly-gained reserves. The greater danger of inflation lies in the unloading of private hoards which would be provoked by the price increase. Countries where there is a lot of private gold hoarding, such as France and India, would feel this particularly.

Fourthly, and most importantly, an increase in the price of gold would probably mean throwing away an opportunity to advance towards a more rational monetary system. If we rely on gold, no matter what the price, the supply of international reserves is arbitrary. The noble Earl, Lord Dundee, quoted the words of Lord Keynes in his "Proposals for an International Clearing Union", and he could not have quoted better words. I should have quoted them myself if the noble Earl had not given them to us. But instead I will quote from someone else, from the truly prophetic speech made in this Chamber—and it was in this Chamber, although at the time it was occupied by the House of Commons—on December 12, 1945, by Mr. Boothby, as he then was. He then said: I believe it"— that is, gold— is the greatest obstacle to the one thing which will get the world to its economic goal, which is a continuous policy of economic expansion". I know, as he reminded us, that he was relating that evil of gold in the context of Bretton Woods, but it was gold itself which he attacked as he made clear in remarks which followed. He said then: Many hon. Members will remember vividly the Debates of 1925, and the old days of the gold standard of the 1920s. This Debate is like living the whole thing over again. We finished the last war"— that was, of course, the 1914–18 war— a prosperous country, with a prosperous agriculture. It took ten years of deflation to turn it into a really poor country, with a derelict agriculture, the workers migrating to the United States, factories, dockyards and workshops closed down, and with 3 million unemployed. That is what the gold standard did to us last time. Progress towards the objectives of a genuinely international currency has been slow. Lord Keynes's far-seeing proposals have still to be translated into reality. It may be many years before we get to a point at which the world can rely on an international paper money managed by an international agent or some kind of World Central Bank. But we should not underestimate the progress we have made with the scheme for Special Drawing Rights. Nor should we underestimate the contribution made by this country to get the world to move forward towards reason.

Many people may have been misled by the title of "Special Drawing Rights". S.D.R.s are not a borrowing facility. They are a new form of reserves in themselves. They are quite unlike the existing drawing rights in the I.M.F.—they do not confer on countries the right to draw or borrow currencies from a central pool. Indeed, the radically new thing about S.D.R.s is that there is no central pool or deposit of currencies or gold to back them. Their value lies simply in the fact that all participants in the scheme have undertaken, within the regulations of the scheme, to accept S.D.R.s from other members and provide currency in exchange. In practice, therefore, they will be used in much the same way as gold is now used for the settlement of deficits.

The noble Lord, Lord Boothby, said that the scheme would never get off the ground, but it is now in process of ratification, and there is every reason to expect that that process will be completed this spring, and Her Majesty's Government hope that it will be possible to make the first distribution of S.D.R.s before the end of this year. An increase in the price of gold at this stage would, I believe, undercut the foundations of this new edifice. The incentive to move forward would go. We should be back to relying on the arbitrary supply of a certain beautiful metal. International co-operation to regulate the world's supply of reserves would have been dealt a very heavy blow.

Fifthly, my Lords, an increase in the price of gold would create very great problems for the International Monetary Fund, and especially for its debtors. This is a point which we in this country must take very seriously indeed. Debts to the I.M.F. carry a gold-value guarantee and a doubling of the price of gold would mean that those debts would be doubled in terms of sterling or dollars. It is true that the I.M.F. has the right to waive this guarantee. But since there is an absolute gold-value guarantee on the Fund's liability to its creditors, which cannot be waived, we can by no means take it for granted that our debts would not be increased. The I.M.F. would be in some difficulty, and we cannot be quite sure how these problems would be solved. We should of course benefit from an increase in the price because the value of our own gold holdings would go up; but the fact is that our debts to the I.M.F. at present exceed our holdings of gold.

Finally, although we must recognise that in practice the gold price is in the hands of the United States authorities, the fact is that the American Government is opposed, as are we, to an increase in the price of gold. This applies to the new Administration as it did to the old.

LORD BOOTHBY

My Lords, is the noble Lord sure?

LORD FRASER OF LONSDALE

Qualify it.

LORD BESWICK

I do not qualify that at all. That is the opinion which Her Majesty's Government hold; and, of course, we have had recent opportunities to find out what is the policy of the United States of America.

My Lords, these reasons seem to me to add up to a formidable case indeed against an increase in the price of gold. I have made no mention so far of the two-tier gold system. Since the conference in Washington a year ago the monetary gold price has been separated from the price of gold on the free market. This is taken by some (and it was by the noble Lord, Lord Boothby, this evening) as being an indication that the system is about to collapse. But the fact is that, despite recent bidding in a thin market, the two-tier system has worked smoothly since it was introduced a year ago. It is, in a way, a recognition of the dual role of gold: on the one hand, as a medium for official reserves and, through the dollar price, a yardstick for exchange rates; on the other hand, as a commodity which has industrial uses and which people all over the world have always liked to possess, in the same way as they like to possess silver or diamonds. But, of course, there is an overlap between the two functions. A certain amount of private buying of gold takes place because people believe that the monetary price will go up. It is true that private and industrial demand for gold has been rising steadily, but this does not give us any indication of the price which gold would command if it were purely a commodity. The price is inflated by hopes that the monetary price will be increased—and, as I have said, we are against an increase in the monetary price.

Similarly, it is quite misleading to draw attention to the general increase in prices since 1934, when the gold price was fixed, and to argue that the gold price should have gone up in parallel. The fact is that the gold price was fixed in 1934 at a level far above its commodity value—at a level at which the United States could buy all the gold it wanted. But there is no reason to believe that the sequence of events of the early 1930s will be repeated in the late 1960s or in the 1970s. We are living in a very different world indeed.

LORD BOOTHBY

My Lords, if the noble Lord will forgive me for saying so, by raising the price of gold to that level it pulled the world out of the greatest depression the world has ever known.

LORD BESWICK

Yes, my Lords; that step was then taken and it did have tin effect—but here we are again arguing the same old points all over again. As I said earlier, the noble Lord, Lord Boothby, wanted, so did I want and so does Her Majesty's Government want a rational system which would start us off on a new basis. My Lords, for these reasons I have to reject the proposals that were put forward so interestingly by the noble Lord, Lord Boothby.