HL Deb 16 May 1973 vol 342 cc823-52

3.8 p.m.

LORD BOOTHBY rose to call attention to the increasing disparity between the official price of monetary gold, and the price of gold bullion on the free market; and to move for Papers. The noble Lord said; My Lords, I rise to move the Motion standing in my name on the Order Paper. I am going to be very brief, and as simple as I can, in the circumstances, because it is not altogether a simple subject. As I read to my horror this morning, I have already inflicted upon your Lordships half a dozen speeches on the subject of gold, and everything I have said in those speeches has now come true. I am on the record. I should like to say, to begin with, that as a very young Member of another place I was opposed to our return to the Gold Standard in 1925, at the pre-war parity of exchange. I entirely agree with what the noble Lord, Lord Citrine, said the other day: that that return to the Gold Standard at the wrong parity was responsible primarily for the General Strike of 1926, and then for massive unemployment for a period of very nearly 15 years.

The return to the gold standard at the pre-war parity of exchange was recommended, I regret to say, by an uncle of mine, the late Lord Cunliffe. He was an irascible old man and I was a very impertinent young one. I remember dining alone with him one night, and we had the usual argument about the fatality of our going back to the gold standard in 1925 at the wrong parity of exchange. Then he suddenly turned round to me and said, "I have a problem on my hands". I asked, "What is that?", and he replied, "During the war"—this was immediately after the war—when I was Governor of the Bank, I had as a director of the Bank a brilliant man with a commanding personality and his name was Montagu Norman. He had a nervous breakdown and he went to Switzerland to consult a psychiatrist whose name, I think, was Jung. I do not believe in psychiatrists, and I did not believe that that was the answer to Montagu Norman's career, which could be a brilliant one; so I ordered him to come back from Switzerland and become assistant to the Deputy Governor of the Bank of England. But my problem remains". I asked, "What is that?", and he replied, "If he ever does become Governor of the Bank of England—and he must do in this situation—he will never give it up; and that must lead to the nationalisation, inevitably, of the Bank of England, of which I should strongly disapprove". That, of course, is exactly what happened.

I opposed in another place Norman's policy of deflation during the 'twenties and 'thirties which led to the massive unemployment, and which was originally caused by our return to the gold standard at the wrong parity. But then, in 1934, President Roosevelt raised the price of gold to 34 dollars an ounce, and that began the haul out of the deflationary process and led to an increase in employment, both in the United States and in this country. The only other point I want to make about the background is that I moved the rejection of the Bretton Woods Agreement in another place in 1945, on the ground that it fixed the price of gold at a ludicrously low level—the 1934 level, in fact and also exchange rates in a world of chaos. The Bretton Woods agreement is now in ashes.

The truth is that two-thirds of the world believe in gold and no one believes in anything else, least of all in the dollar. People do not believe in S.D.R.s either, which they think are phoney gold—which is what they are. The fact is that we have at present no working international monetary system. At intervals, the central bankers go to Basle like agitated hens and come back with nothing. Why? Because of the insensate refusal of the Americans to raise the price of monetary gold, and their persistent attempts to demonetise gold altogether.

I suggest to your Lordships that it is time, and high time, that we told the United States where they get off. They are not in very good shape now, and it might be a convenient moment to do so. We should certainly have strong European support. Mr. Rueff has never changed his view that gold must be the basis of our monetary system, and he was supported throughout by General de Gaulle. At this moment, the monetary price of gold is fixed by the United States at about 40 dollars an ounce. The price of gold bullion on the free market is well over 100 dollars. I submit to your Lordships that this is a ludicrous situation. Gold will go on from strength to strength, and will come back to form a key part of the international monetary system; and the sooner the better, it is argued by the anti-gold lobby in the Congress of the United States that this would be of great benefit to South Africa and to the Soviet Union. It would be of some benefit, but not so much as we think. Costs and wages are rising in both of those countries, industrial demand for gold is increasing, and they can always sell it on the free market. So I do not think that raising the price of monetary gold will be of very much benefit, either to South Africa or to the Soviet Union. And if so, why not? The South African Government would mellow under the influence of prosperity. And the Soviet Union would find it easier to buy American corn.

What am I asking for? I am asking that the price of monetary gold should be raised to a realistic level; and that the leading currencies of the world should be made convertible, with more flexible exchange rates—wider margins. This would bring us two great advantages: first of all, an automatic curb on the raging inflation which at present affects us all; and, secondly, adequate liquid reserves, if wisely handled by the central banks, to finance the increasing volume of world production and trade which undoubtedly confronts us during the next decade. In short, my assertion is that the amount of liquid reserves in the free world is totally inadequate for our requirements over the next ten years.

Some years ago I made a speech, either in this House or in another place, on the subject of goods versus gold. I came down in favour of goods. because the true measure of a country's wealth is the gross national product, much of which in our case has to be exported. But I went on to say, as Keynes did, that there must be a stable measuring rod of value, at the right price. Gold, my Lords, is that measuring rod. It is the one and only firm point of reference so far as value is concerned, and there is no other. Therefore, I say that we must face up to the realities of the present situation, recognise the true value of gold, and make it the true measuring rod of value. Until we do that, we shall go on and on in the chaos in which we now find ourselves. My Lords, I beg to move for Papers.

3.20 p.m.

THE EARL OF DUNDEE

My Lords, I merely wish briefly to inquire from my noble friend the Leader of the House, who is to reply to this debate, whether the Government are hoping for, or trying to bring about, a substantial or significant increase in the total amount of international currencies which can be used for settling trade balances as between one country and another; and I strongly agree with the noble Lord, Lord Boothby, when he says, as he did just now, that the total of our liquid reserves is quite inadequate. That is at the bottom of many of the greatest world economic problems. Of course, there are many ways in which you can achieve the object of increasing your liquid reserves. One of them, as the noble Lord, Lord Boothby, has just argued in his most interesting speech, would be by raising the monetary price of gold to a level equal to its price as an ordinary commercial commodity. I would gladly welcome that, if I thought we were likely to get enough international agreement, but I doubt whether raising the price of gold would do enough in itself to solve the problem. My noble friend Lord Jellicoe will correct me if I am wrong, but I think that he told us not long ago, in reply to a Parliamentary Question from Lord Boothby, that the Treasury did not consider this was a good thing to do in present circumstances.

Of course, this has not always been so. I remember that in 1960–61, when I was a member of the then Conservative Government, some of our Treasury advisers were strongly in favour of raising the price of gold, but they were stymied by a public declaration by President Kennedy in the United States, who solemnly promised that the monetary value of gold would never be raised in relation to the dollar, which I think was a very great pity. The noble Lord, Lord Boothby, has referred to this, and he suggested that, in spite of American opposition, we should go ahead. I do not want to make any comment of my own about that, but I should be interested to hear from my noble friend how much international agreement he thinks would be necessary if we were to proceed on those lines.

But, of course, there are other ways of reforming the basis of our international currency and of increasing its quantity. I do not think the noble Lord, Lord Boothby, has ever been accustomed to express loud admiration of Her Majesty's Treasury—

LORD BOOTHBY

Terrible !

THE EARL OF DUNDEE

—but he will remember that during the war Sir Richard Hopkins, who was then the Permanent Head of the Treasury, acquired a great admiration for the late Lord Keynes, and Lord Keynes was sent as the chief British representative to Bretton Woods, with the full hacking of Sir Winston Churchill's Coalition Government and of the British Treasury for his proposal to create, I think it was, 25,000 million dollars' worth of new international money, created out of nothing, in units to which he proposed to give the rather unlyrical name of Bancor.

LORD BOOTHBY

My Lords, may I interrupt the noble Earl for just one moment to say that Lord Keynes was hopelessly defeated at Bretton Woods by Mr. Vinson and Mr. Harry Dexter White.

THE EARL OF DUNDEE

That I know only too well, my Lords. I think it is worth first saying that in my own view, and I think very likely in that of Lord Boothby, if this proposal, sponsored by the British Government at Bretton Woods and conceived by Lord Keynes, had been agreed to by our Allies at Bretton Woods, then the economic progress of the free world since the war, and particularly of the undeveloped countries, would have been very much faster than it has been. But, of course, our proposals were not agreed to. Lord Keynes was, I think, prevailed upon to accept a very poor compromise, which I think he persuaded him, self might be just good enough to work. It is a thing we all often do when we find that nearly everybody else is against us and when we are very anxious to find some kind of working compromise. Anyhow, he agreed to the substitution for his proposed "Clearing Union" of the present International Monetary Fund which subsequently turned out to be much tighter in the supp;y of money than Keynes thought it was going to be. Lord Boothby was one of the few people who, when this proposal was presented to Parliament, opposed it, and I am bound to say that I think the noble Lord was right. As for Lord Keynes, in the opinion of at least one of his biographers Keyne's bitter disappointment after the war, when he found that this compromise which he had been prevailed upon to agree with was not going to work as he had hoped it would, was one of the causes which led to his untimely death in 1946.

My Lords, since that time there has been very considerable economic progress in the Free World, particularly among the more highly developed countries; but that progress has been continually retarded and sometimes frustrated by balance-of-payments difficulties which, in my submission, have been entirely unnecessary. These balance-of-payments difficulties were not caused, in the main, either by incompetence or by extravagance, or even by industrial strife, although industrial strife sometimes did aggravate them a little. The inconvenience and the damage was caused simply by this continuing severe shortage of international currency, which had the effect of making what should have been a small, almost a negligible, temporary deficit in the balance-of-payments, which must happen every now and then, into a really serious matter. That was entirely due to the tightness of the monetary organisation under which we had been living.

There have been two attempts to ameliorate it, both of which were fairly trivial. When Reggie Maudling was Chancellor we had the general agreement to borrow; and then, a few years later, when the Labour Party was in office, after the discussions at Rio and Stockholm, we had the special drawing rights, which I think, and probably the Government would agree, are upon much too small a scale. They do a little good, but not nearly enough. But, my Lords, having got the principle of these special drawing rights established, I wonder whether that might not be the best line to work on. In discussing these matters with our friends in the Common Market or in the O.E.E.C., we should no longer have to argue with them about the principle of special drawing rights, because that has been established. All we should need to do is to say, "You have agreed to this in principle; let us do it on a very much bigger scale". I may be quite wrong, but that would seem to me perhaps the most hopeful way of getting the international agreement which we shall need.

There is one other consideration which I would mention to my noble friend. We in Britain are now entering upon what appears to be both a trade boom and an industrial production boom—the signs are apparent. But, my Lords, supposing that, let us say, the United States, who for the last 25 years have been doing far more than their share in the defence of the Free World and in giving aid to under-developed countries, were to have a really serious balance-of payments crisis which, in their view, compelled them to adopt drastic measures to protect their currency, might not this have the effect of putting our British industrial boom, on which we have set so many hopes, into reverse and spoiling its progress? That is one more reason why the Government should treat with urgency the objective of reforming and increasing the quantity of our international currency.

3.31 p.m.

LORD FRASER OF LONSDALE

My Lords, I congratulate my noble friend Lord Boothby on his good luck in winning the ballot and his good judgment in choosing the subject, and also upon his speech. I agree with almost all of it. I do not intend to look backwards or to discuss what should have been done by X, Y or Z, but shall rather affirm what in my opinion should be done now: to-day and tomorrow are important; yesterday can take care of itself. It is my opinion, and I submit it for what it is worth, that international currencies should all be free to buy and sell, should all be floated and should remain floated. I will give one or two very brief reasons.

It is my opinion that gold should be free to buy and sell at the market price. I affirm that currencies and gold are commodities in the sense that men buy and sell them for their private purposes or for their business purposes, and that the most reliable price in the long run for currencies and for gold is the market price rather than any other fixed price or adventitious price. And now my right honourable friend the Prime Minister, in a speech in the country only a day or two ago, said that he thought a settlement must be reached or will be reached in Europe amongst the bankers and financiers whereby currencies would be fixed but would be movable over wider limits than hitherto. Perhaps that is the only thing he can do with general agreement. I am sure he knows better than I do and I may have to submit to his judgment, but it is my belief that if possible Britain should try to persuade the other nations of the world to float all currencies, to expect to continue to float them, and to float gold and let it rise to whatever price the market thinks is the right price. That will probably be the market price rather than the monetary price, but whatever it is let there be one price.

My Lords, I have often told the House that I am interested in South Africa, and I want to deal with two prejudices which my noble friend Lord Boothby touched upon: one, the American prejudice that if you recognise gold you diminish the status of the dollar—"the dollar is as good as gold", and all that. Well, history has answered them; they were wrong and history has proved them wrong. The dollar is not as good as gold, but that prejudice held the world back from a sensible arrangement for ten or twenty years. I mention these prejudices because I think in this matter we must try to rid ourselves of prejudice—difficult as I know that to be. Then it is said by the Americans and by some of us that if we raise the price of gold we benefit the Russians. Why on earth should not we benefit the Russians if thereby we can benefit the world? The idea that you must withhold a benefit from somebody lest it should offend your susceptibilities to your predilection or the bee in your bonnet is too ridiculous for words. We want to trade as freely as we can, wherever we can and to make as much money as we can for Britain; and all the good that Britain can do in the world will be enhanced if she herself does well in the world. The idea that we must hesitate to do anything, to raise the price of gold, for example, because it will benefit the Russians, to my mind is quite ridiculous. There might be some sense in stopping trading with the Russians, as is advocated with South Africa, in order to teach them, like Rhodesia is being taught, how to behave but there is no sense, if we are going to recognise Russia and trade with them, in saying that we will not raise the price of gold lest we benefit them. If to do so is going to benefit us and the world, we should do it.

Turning to South Africa, there might be some sense—although I do not say it—in ostracising South Africa, putting it "in Coventry", shutting it up like Rhodesia and saying that we will not trade with South Africa or do anything because of this or that. There is no sense in that, not even from the point of view of helping the black men. There is no sense that I can see in refusing to do a thing that should be done for the world's benefit simply because it may benefit South Africa. All the better if it does—it will benefit all of us as well. So can we try to get rid of these prejudices, because they are stultifying reason?

My Lords, another prejudice which has been believed for a long time and which was probably stated at Bretton Woods, and by Keynes before that, is that stability in currencies would arise out of fixed currencies. This is the only observation about the past that I am going to allow myself—history has proved that to be wrong. I think four or five times since Bretton Woods we have had currency crises, and every time Ministers, including Sir Stafford Cripps whom I greatly admired, have had to come down to the House and indulge in terminological inexactitudes to try to mislead the Front Bench on both sides of the House, and the country and especially foreign people and speculators. Of course he failed. They always fail, and in the end they devalue under great pressure with an enormous upset to everybody. That is the main argument for floating because the thing moves up and down gently, a cent at a time or whatever it may be, and you do not get the crisis, the tension, the pressure. So the prejudice in favour of fixed exchanges because of the stability that they will bring to the subject has proved to be a broken reed. In a sense my right honourable friend the Prime Minister is going back to a kind of Bretton Woods with just a little bit of easement—Bretton Woods, plus the movement up and down. I hope he will find that that is not necessary or that he and the Chancellor of the Exchequer will be able to prevail and do what I recommended earlier in my speech.

My Lords, my last comment is this. Of all the unreliable people in the world, I think that the politicians are probably the most unreliable. The reason is that they are subject to the pressures of the electors, the voters, the great British public which is very ignorant indeed of many matters—naturally—and is swayed by sensational stories in the media which are often devoted to sensation and circulation rather than to a sincere judgment and appraisal of the facts and the consequences. In so far as we can take control of the world currencies out of the hands of the politicians, and in so far as we can avoid them being tempted to use the currency rate as a political lever, or as a political tool in their own Parliamentary situations or their own electoral situations, so much the better. That is perhaps the main reason for establishing a float of both the currencies and also of gold—and I would repeat that—so that these things take care of themselves and are to the largest possible extent not subject to the whims and fancies and political gambits of the politicians.

3.41 p.m.

LORD BARNBY

My Lords, amidst all the arguments about the cause and cure of inflation there seems to be little realisation that in a world of universal paper money issued by monetary authorities we should be wise to assume that continuous inflation seems to be here to stay. I would suggest that inflation means an economic situation when the prices of everything in daily demand—food, consumer goods, property, land, et cetera—rise proportionately. But controls of any kind do not dispose of or cure inflationary conditions; they produce only a temporary appearance of stability. Those are the introductory thoughts which generate the few remarks I wish to make. I am grateful to the noble Lord, Lord Boothby, for bringing up this very timely subject for discussion. The noble Lord, as I know, has consistently advocated that gold should hold a proper price in the monetary arrangments of the world. I share that view. I recall that he and I sat in another place together, and I remember now his consistency. Well, my Lords, we have had recent crises, as the noble Lord said. The Bretton Woods Agreement has broken down. Inflation is with us, whether the money supply is adequate or inadequate. Some may think it was inadequate before, but it certainly appears to be adequate now. But there are widespread doubts about whether an incomes policy, which would mean and does mean bureaucratic direction, properly replaces independent, individual initiative.

The I.M.F. procedure at the Smithsonian discussions urged strongly the case for S.D.R.s. My noble friend Lord Dundee expressed his strong support for them. Undoubtedly there is a useful place for them. At that time, at the Smithsonian discussions, there was an appearance that gold was to be removed from its former position, but of course the absurdity of the suggestion is apparent. As my noble friend pointed out, to have two prices, so wide apart is in itself ridiculous. To try to hold down the price of gold when every other commodity in the world is rising and has risen, likewise the purchasing power and standard of living of the world, establishes a greater demand for the manufactured products of gold.

The dollar, a previous anchor for comparison of values, is now made inconvertible. There has been historical opposition in the United States to devaluation of the dollar; likewise opposition to an increase in the price of gold. Then came the devaluation of the dollar in 1973.

Well, my Lords, in having doubts about supplementary things like S.D.R.s, I am going to presume to follow the example of my noble friend Lord Boothby and, with the indulgence of the House, give a personal experience of danger of impolitic change. In 1925, the year to which the noble Lord referred, it happened that I was President of the then Federation of British Industries. That was the time when we went back on to gold at its pre-World War I values, raising the value of our currency by some 13 per cent. There was a vehement denunciation of it by the F.B.I.

I remember being sent for to the Treasury by Sir Winston Churchill, who was then Chancellor of the Exchequer. He had with him Sir Philip Cunliffe-Lister then President of the Board of Trade. We were given a very severe dressing-down for presuming to differ from the then official view that we should return to the gold standard, which crucified the main exporting industries, coal, steel, iron, textiles and shipbuilding. How could you raise the value of the currency by 13 per cent. at one stroke and expect not to have unemployment? My noble friend Lord Fraser of Lonsdale inferred two things. He rather believed in a general float of all currencies. That may be all right if there exists adequate exchange rate cover. But he also referred to South Africa. There the South African Minister of Finance, Mr. Diederichs, has consistently opposed the Smithsonian Agreement and all other Agreements which disregard the dominant place that gold ought to have. I sometimes wonder whether it was not owing to the general slant of disapproval of South Africa that the world failed to realise the stupidity of disregarding the appeal he rightly made. Surely, in view of the commercial demand this was a false assessment of gold.

In all this situation the influence of Britain must be great. At present many people have misgivings about the high expenditure in the public sector. Certainly it has involved "printing money"; that is, putting more money into circulation. That must necessarily lift the price of all commodities in relationship to money, and therefore inflation follows. There can be no surprise that inflation is with us. This high expenditure in the public sector is, I believe, expected to reach £4,000 million more than the taxation intake. That, of course contributes to our inflation. It all means more Treasury Bills, and that in turn puts more money into circulation. That brings with it high interest rates. The Chancellor hopes to fund these by selling this debt to the public sector. I congratulate him on the success of his first tranche. Some £400 million worth was readily taken up by the public. Let us hope that the next offer of £600 million worth will be as readily accepted. But high interest rates puts a heavy burden on posterity. I would urge in this connection—and I hope that my noble friend the Leader of the House will again give thought to this point—the procedure that public bodies will finance by direct application to the market and not by relying upon the Consolidated Fund.

Naturally the terms of trade must move against us. The era of cheap food is past. Our adverse balance of payments rises, as it must. In spite of what my noble friend Lord Fraser said of the hope of a universal floating of currencies, historically there has been a misgiving that it might well contribute to high interest rates. Government credit of over 10 per cent. seems alarming. How is it possible for long to have buoyant trade in these circumstances unless it is contemplated that progressive inflation will cause such erosion that by the time the debt matures the actual rate will have been appreciably reduced.

I am going to make a suggestion which I hope my noble friend who is to reply will consider. It is to draw attention to the suggestion of the eminent banker, Sir George Bolton, that, somewhat on the lines of what the French Government did some time ago when they tried to issue a gold clause, we should now consider tying national obligations to some flexible and moving formula such as "the wholesale price level" or "the cost of living index".

My Lords, may I turn again to the U.S.A.? The 80 million Eurodollars which are reported in circulation must be having a demoralising effect among overseas owners of movable balances. But I recollect that when, 18 months ago, there was strong pressure on the dollar, there was a demand from the world that they should do something to correct their balance of payments and they threatened to put on a surcharge. How unfair is this criticism of the U.S.A.! Their balance of payments position was so bad largely because of their defence posts all over the world, securing the free world and their vast expenditure on troop maintenance together with a gigantic outpouring of overseas aid (a lot of it squandered) but I feel the United States was unfairly criticised for what produced this adverse balance of payments.

My Lords, I want to conclude with one thought. Recently we have read much about the energy crisis in the world. We realise that the Arab countries of the world are sitting on vast reserves of oil. I am told that Germany, for instance, draws over 50 per cent. of her total oil requirements from Tripoli and that in the case of Japan the proportion is perhaps even greater. We know that oil supply from the Middle East plays an important part in our world political strategy. But whatever may be the thinking as to the extent by which the consumer countries should increase payment for oil to the oil-producing countries, one thing is certain: that all energy demands for the world are going to continue to expand and demand for oil likewise. The wealth of those Arab countries will progressively accumulate. We recently had an example where the swing in one direction to the deutschmark of vast free funds in the world added intensely to the currency crisis in which we ourselves were sufferers. Your Lordships will have read of the tremendous sums which, by the end of the 1980s, it is considered will have been accumulated by these oil rich countries. So however these sums are used S.D.R.s will not be freely accepted and their demand will in addition to other tangibles be for gold.

4.1 p.m.

LORD WIGG

My Lords, I had not intended to put my name down to speak to-day, but I was astonished to find that there were so few speakers. When I saw the list, I surmised some of the things that would be said and I thought the House would bear with me for a few moments if I expressed my views on this subject. I was most interested to hear Lord Boothby's opening speech and, like other noble Lords, I express my gratitude to him for putting down the Motion. He drew on his memory: he reminded your Lordships that all the years he has been in politics he has been an opponent of the return to the gold standard and an opponent of Bretton Woods, and that his position to-day is a logical outcome of that situation. I was not a Member of the House of Commons at that time; I was not in public life. I was, however, a victim of the return to the gold standard, and a victim, as were millions of others, of the policy of the Conservative Party. I find it slightly hypocritical (I wish the noble Lord, Lord Boothby, were present to hear my words) for him to make a meal of his opposition to a return to the gold standard without facing up to what was involved.

The return to the gold standard in the early 'twenties was a political decision by a reactionary Conservative Government to return to the conditions—and they believed that they could succeed—that appertained in 1913. They wanted another world of friendly country houses. They did, but I did not: because for me the world of my youth was a world of poverty, of stunted opportunity; a world of war, which had not been fought in my interests or the interests of those for whom my strength was drawn. I am glad that I delayed what I wanted to say to the noble Lord, Lord Boothby. He was a supporter of the Conservative Party. Therefore the fact that he opposed a return to the gold standard in the 'twenties and in 1931 does not absolve him from the responsibility of the logical outcome of Mr. Churchill's decision—a political decision by the Conservative Party for which they must take full responsibility.

For the noble Lord, Lord Boothby, it was a very pleasant decision: it was a world of country houses, a world of plenty. But in 1931, when a National Government were formed, in order, your Lordships should note, to save gold, to keep us on the gold standard, they were forced off by the actions of some sailors in Invergordon, and would have found themselves, as would the present Administration, out on their backsides but for an involuntary act which they could not escape. They came off the gold standard in 1931, and this Government a year ago was forced to devalue. But what did it mean to me? It did not mean dinner with the Governor of the Bank of England. I was a sergeant, and my pay was 9s. a day. I had 10 per cent. Knocked off immediately. My marriage allowance was 7s. a week: I had 10 per cent. of that knocked off. The noble Lord, Lord Boothby, stayed in the Conservative Party; all the years he sat in the House of Commons—and when the war was over I helped to get rid of them.

LORD BARNBY

My Lords, I should like to remind the noble Lord that Sir Winston Churchill often publicly said that the return to the gold standard at that moment was one of the greatest political mistakes of his life.

LORD WIGG

My Lords, I admit that it was a political mistake of the first magnitude. I agree with what the noble Lord, Lord Boothby, said. It forced the General Strike; it led to the shade of events which brought Hitler; it may have been one of the causes of the Second World War.

LORD BOOTHBY

My Lords, perhaps I might interrupt the noble Lord for a moment. I was a Member of Parliament in the other place for 34 years. I was a Conservative. I attacked the Conservative Party for 34 years without a moment's pause or hesitation: and that is why I held my constituency.

LORD WIGG

My Lords, it is not enough to have done that. The noble Lord was a Member of the Conservative Party. He must therefore, by his membership, accept responsibility for it.

LORD BOOTHBY

No.

LORD WIGG

I am sorry, but there is no escape from it.

LORD BOOTHBY

I had no responsibility.

LORD WIGG

My Lords, I will read out where it led. This is a fact that is constantly overlooked. This is what Sir Winston Churchill says in his volume on the Second World War; and he is writing of events in November, 1940: The President sent a warship to Cape Town to carry away all the gold we had gathered there. The great British business of Courtaulds in Amercia was sold by us at the request of the United States Government at a comparatively low figure and then resold through the markets at a much higher price from which we did not benefit. I had a feeling that these steps were taken to emphasise the hardship of our position…". Those are the facts. What is the good of noble Lords coming down to the House to-day and saying that we have a position of great influence in the world? What piffling nonsense! We have no influence in the world—none whatever. What is happening about the dollar at the present time is a decision for the United States, and our views do not matter. They were whittled away by a Conservative Government before the war, which led to our gold reserves being taken away in an American cruiser, and our great assets being sold at a lower price than they should have been, and then subsequently taken on the market and some American making a profit.

LORD SHINWELL

My Lords, if I may interrupt my noble friend, I am afraid he is not following the noble Lord, Lord Boothby, very closely, because, as I understood Lord Boothby's speech, put shortly, it was this. What he is suggesting to your Lordships' House is that the monetary price of gold should be related to the bullion price of gold. Quite frankly, although that means that we might be on the gold standard, we are not necessarily on the gold standard for the purposes of trade and commerce. Nevertheless, I cannot see anything radically wrong with relating the monetary price of gold to the bullion price of gold.

LORD WIGG

My Lords, my noble friend, in the truest sense of the word, must join one of my seminars on economics and I will explain to him privately why he has been misled by this propaganda—because propaganda it is. It would have justification only if some one was a bull in the gold market, because it has no basis in fact at all.

At the present moment, the Americans have what gold they have buried away in the Fort: they are not going to release it, and they are not going to alter its price. At the present moment—and the noble Lord, Lord Boothby, is fortunate in having this debate at this time, when the price of gold is going roaring up—

LORD BOOTHBY

It is all going my way.

LORD WIGG

I think it is. This is the difference between us. I think the price will go to 150 dollars.

LORD BOOTHBY

So do I.

LORD WIGG

The Americans do not mind it going to that price. The interesting thing is why? It could be the result of pure speculation. That I do not believe. It could be the result of the action of the Americans in South Africa. I do not believe that. I believe that this is due to the oil sheikhs, who no longer trust America. They cannot get into deutschmarks; they cannot get into yen. What can they do with their money? They are buying gold and they are buying it as fast as they can go. It is equal nonsense to imagine that there is any possibility of getting a parity with gold. We cannot do that, because every currency in the world (and not least our own) is bogged down with debt. We talk about inflation as if it is something in a bottle or something that, if we pray hard enough for the workers to accept a 10 per cent. cut in their standard of living or accept Phase 3, will go away. But of course it will not. We have got a rip-roaring consumer purchasing spree in this country, and it expresses itself not only in terms of increased wages but also in terms of increased credit facilities. Your Barclaycard, your Access card, your extended credit—every single one of these is a way of increasing purchasing power. The Government, with all their might and main, back their Press friends and campaigns on TV. The cry is, "Buy, buy, buy!" This stokes up the fires of inflation.

We are in a very bad position, but the Americans are in a much worse one—or better, according to the point of view. What has happened in America? I spent some time there this year, not in the plushy hotels but getting around among ordinary people, and there the inducement to buy is present during all one's waking hours. The young man and woman who get married start off by buying a house. They have a couple of cars, a refrigerator, a deep-freeze, power machines to clean their teeth and to mow the lawn; they have holidays abroad—and all this is done on credit. The man has to work and the woman has to work; he has to get a second job and so has she. There are only 168 hours in the week, and so inflation gets to the point when it starts to express itself nationally, and there is a water shortage and a fuel shortage. There is pollution to an indescribable degree, with millions of cars choking up thousands of miles of road. This is what has happened in the United States. They have hit on a noble operation. It is a logical extension of what Roosevelt did in 1940. They are exporting their inflation. Now you can get all the dollars you want. The Japs have all the dollars they want—

LORD BOOTHBY

More!

LORD WIGG

They have more than they want. They have more than enough, and so have the Germans. So have we—if we had any sense. But we have a deficit of £4,400 million which we are going to finance with Eurodollars. I say in passing that I was a pioneer in this field, because when I was Chairman of the Levy Board I am pleased to say that I managed to build up Sandown Park and I did it with deutschmarks. I borrowed the deutschmarks, and then I got out of them before it was too late. But in fact industry in this country and all over Europe—and indeed all over the world—is being mopped up now by dollars exported from the United States. The United States is in a dominant position. I had thought, following the President's re-election with a mammoth majority, that the market would break in June of this year because I thought he was bound to deflate. Now the President's political position is so appallingly weak that he cannot deflate. So I am frightened about the future. I see it like an avalanche hanging over a village: some time it is going to come down. It may happen because somebody speaks with more than a soft voice, or it may be set off artificially. But the world stands poised; and this country, not wholly but very largely due to the mistaken policies of Conservative Administrations and their City friends, is in an overwhelmingly weak position. This is because the Americans will not alter the price of gold. They want to demonetise the price of gold. They will leave it where it stands because as long as it stays where it is they can come in here, they can smash Rolls-Royce or they can buy it for a song.

The only people standing out against this situation are the French, and the French have adopted an exactly opposite policy. My French is not very good but I read an article in the issue of Paris-Match for April 21 which I would commend to the French scholars in this House. The magazine produced an abridged version of the Hudson Institute Survey for the Common Market. Its forecast for Britain was extremely pleasant, because they forecast Britain's position in the late '80's as being—and I quote—"the red lamp area" of the Common Market. That is a very pleasant prospect! In my judgment we are moving to the position where we need the good will and understanding of all elements of our society, because the danger is very great. There is an overall danger in the international field.

I think that the Kaiser—and later Hitler—misread the situation so far as we were concerned. They misread the strength of a democracy when it faces a challenge. It may be that the Russians could be induced, by looking at the economic and political disarray in the West, to undertake adventurous policies which they would not undertake were it not for these fundamental weaknesses. There can be only one answer for a democracy, and that is what saved us in 1940. The great mass of our countrymen do not understand what it is all about. They need to be told the truth, by the Government and by the Opposition. Let me say at once—I have to say this—I am not in favour of Coalitions. They do not work; or, if they do, they work only for a limited period. I do not believe in Coalitions but I do believe in Governments taking responsibility for their actions and that it is the duty both of the Government and of the Opposition to tell their fellow countrymen the truth about this country's economic position in international affairs, so that in due time out of political discussion can come sound policies which are understood and can be applied.

I do not believe, as some other speakers do, that the dollar, has been (in the phrase which I believe was used) "bested by gold". Nothing of the kind. At the present time the American dollar stands absolutely supreme.

LORD BOOTHBY

Nonsense!

LORD WIGG

It stands absolutely supreme, not in terms of prestige but in its ability to lap up all the major assets the Americans want. The industries of all the countries in the West have been penetrated by American money. When the truth is understood, as it was in Australia, the position is reversed; but generally it is too late. By the time the Americans want their repayment and the interest on the capital they have invested, there is talk about the influx of capital into that country. This has been talked about in France. Here, I regret to say, the Government seem to think it a welcome sign of strength that the dollar has come here. The dollar has come here because the Americans go wherever they can go, and surely it is far better for the dollar to come in and get a slice of one of our major industries than for the dollar to try to enter Germany or Japan, or even to stay deposited in a bank in New York.

I am grateful to the noble Lord, Lord Boothby, for raising this debate because he has quite rightly put on the Record the things that he has said in the past. I want to put on the Record the things I believe in, and have believed in all my life; and I believe in them still more at the present time. The days of uncontrolled capitalism, the days of laissez faire as it was once supposed to exist, have gone for ever. We are not going to put things right, or even attempt to put them right, unless there is an effective diagnosis and an understanding of what it is all about.

4.20 p.m.

THE LORD PRIVY SEAL (EARL JELLICOE)

My Lords, on the last occasion we debated this matter in your Lordships' House it happened to be on a Motion tabled by Lord Boothby. The noble Lord concluded his speech with these prophetic words: …and one day, my Lords, you will listen to me on the subject of the price of gold.". This great day has dawned, and the noble Lord told us that it was for the fifth time during his membership of your Lordships' House. We have all listened with great interest to his golden words. Perhaps there was, a certain familiar ring about them. My noble friend Lord Barnby referred to Lord Boothby's consistency in this matter. Not only is his eloquence undiminished, but his convictions—powerfully held, pungently expressed—are unaltered. My Lords, we all know the great causes which the noble Lord so persistently advocates. Europe, the herring and gold. His championship of the cause of European unity is well known. And the outcome is emerging for all of us to see. His advocacy of raising the monetary price of gold is equally well known. I must say I have reason to doubt—but let the noble Lord have his opinion—whether his glittering vision will in this area see the light of day; but we shall see.

I should like to make it clear in any event that the underlying objectives which I discern the noble Lord has in mind in making his proposals are ones which we can all endorse. He wishes to see an expansion of trade. He wishes to see a rational monetary system, an end to monetary crises and a curb to world inflation. He looks for a system that will promote the flow of resources from developed to developing countries. These are the objectives the Committee of Twenty has also set itself in tackling the task of reform. They are the objectives of the European Community. They are likewise the objectives of Her Majesty's Government.

But, my Lords, the basis for reform must be equitable if it is to endure. It must be concerned not only with the provision of liquidity but with the control of liquidity. It must be concerned not only with the convertibility of currencies but with the means to sustain that convertibility. Above all, the working of an orderly and stable system must ultimately rest upon the continuing co-operation of the international community—on a real consensus of international opinion if this can be obtained.

I am not sure that I detect all those elements in the noble Lord's prescription. It is bold, simple and direct—like the noble Lord. I grant therefore that it has a certain appeal. I will explain in a moment why I personally do not favour it. Before I do so however it might be helpful if, briefly, I were to recall the background to the reform of the monetary system to which the Committee of Twenty has set its hand. The noble Lord, with other noble Lords, has suggested that the Bretton Woods system has broken down. Well, so be it. I think that it is important to remember that the arrangements and institutions established at Bretton Woods, for all their imperfections, did not serve us too badly until recent years. The post-war period has witnessed an unprecedented expansion in the history of world trade. Between 1950 and 1970 world exports increased five-fold in value from 60 billion dollars to roughly 300 billion dollars. During the past 12 years they have been growing at an average annual rate of 10 per cent. Indeed it is this same expansion, the growth and the increase in prosperity that has in large part led to the pressures on the system to which we are subject at the present time. For these years have seen profound changes in the structure of international relationships and shifts of balance of economic strength within the free world.

Like my noble friend Lord Fraser of Lonsdale, I do not wish to job back unduly. I shall not seek to express an opinion as between my noble friend Lord Boothby and the noble Lord, Lord Wigg, as to the precise question of the noble Lord's political accountability over the 34 years in which he was a Member of another place. But the facts of the matter are plain to all of us. The United States economy is no longer overwhelmingly pre-eminent in the world today. Within the Free World we have seen the emergence of the European Economic Community and of an immensely powerful Japan. All this, and much else, has created a situation for which Bretton Woods has not adequately provided. It did not answer in sufficiently clear terms the criteria by which balance-of-payments adjustments should take place, or to what extent these should be a matter of domestic fiscal and monetary policies or exchange rate change. And assuming equilibrium could be achieved, the system did not satisfactorily provide the liquidity to finance the growth in world trade which we have witnessed since the war. We all know that the pressures have become intolerable. There was the monetary crisis on August 15, 1971. I remember it vividly; I happened to be on holiday in Bermuda at the time. I suppose that island is as sensitive a barometer of the international monetary climate as one can find anywhere in the world.

The Smithsonian Agreement of December, 1971, represented a move towards more realistic exchange rates. But pressures built up again in the exchange markets, and the further adjustments which we saw in the early months of this year proved necessary. These pressures did not derive primarily from a shortage of liquidity—and here I part somewhat from the point of view taken by my noble friend Lord Dundee. If anything, the reverse happens to be the case. The extent of the movement of funds, this swilling around of funds in the monetary system, reflected, if anything, an excess of reserves, but reserves held in a currency that had come under fire. The events earlier this year therefore emphasise what has been evident for some time: that we are facing not a single problem, a liquidity problem, but also an adjustment problem. Each problem has a number of aspects, and the two are closely interrelated.

Let me now turn to the recipe proposed by the noble Lord, Lord Boothby, a recipe which was attractively packaged; namely, a substantial increase in the official price of gold. He referred to the vast increase in international liquidity that such an increase in the official gold price would create. This would indeed be the case. At the present official price, there is some 43 billion dollars worth of gold in international reserves. If the official price were to be increased to the 100 dollars per fine ounce (I use "100 dollars"; I know that it has gone past that at the present time, but it is an easy calculation) reached in the free market for the first time this week (and I am not quite sure what the market price might be a year from now on; I notice the bet which the noble Lord, Lord Wigg, has placed with himself), this would increase the value of gold in world reserves by about 60 billion dollars. If the value of Special Drawing Rights and Reserve Positions in the Fund were also to be increased in line with the increase in the gold price, this would add another 25 billion dollars to international liquidity. The question we must ask ourselves in considering the proposition of the noble Lord, Lord Boothby, is whether an increase in international liquidity of 85 billion dollars at one stroke (to use the immortal phrase) would be helpful, or whether it might not be damaging.

The noble Lord has argued that the post-war period has been characterised (I think this underlay his argument) by a real shortage of international liquidity and this has restricted the growth of world trade and world incomes. I am not absolutely certain whether I accept this proposition, at least as stated baldly. In the last few years—and this underlay the remarks of the noble Lord, Lord Wigg—the United States' deficit has added 40 billion dollars to world reserves. The ratio between world trade and world monetary reserves is also becoming more stabilised. It is a matter which I noticed, in preparing myself for this intricate subject, my noble friend Lord Dundee referred to in his speech in your Lordships' House in 1969. In 1967 world reserves stood at something near 74.3 billion dollars and world exports at 190 billion dollars. Since then world reserves have increased to over 150 billion dollars—156.7 billion dollars—and this has more than kept pace with the growth of world trade. Indeed, I think there are many who would argue that the increase of world liquidity during this period has contributed to the pressures of world demand, to the pressures on available productive capacity, and to the world inflation which we are now experiencing. In fact, it is usually those who see grave danger in this expansion of international liquidity who call for a return to the gold standard (to use shorthand).

The noble Lord, Lord Boothby, almost in the same breath has referred to the discipline a gold standard would impose. I would suggest it is a little difficult to have it both ways. Is he saying that our problem is one of excesive international liquidity which has led to too high a level of world demand and contributed to the inflation which he deplores, as we all deplore it, or has there been a shortage of liquidity which has restricted the growth of world trade and, as he might say, forced us to deny much needed aid to lesser developed countries? In any event, my Lords, Her Majesty's Government believe that the answer lies neither in the massive increase in liquidity—the really massive increase in liquidity—at one stroke, that the increase in the gold price that the noble Lord proposes would create, nor in the severe and, we believe, unnecessarily disruptive discipline of a return to a commodity standard.

We learned I think from Lord Keynes (we always speak of Lord Keynes when we debate these matters) how to manage the domestic economy when we are on form so as to match the demand for goods and services to our capacity to produce them. Now we must seek to match the growth of international liquidity more closely to the needs of world trade. Lord Keynes gave us the benefit of his wisdom on this. I should like to quote, if I may, the words which the noble Earl, Lord Dundee, quoted four years ago to your Lordships, because I think they are worth requoting. In his plan for a Clearing Union which provided part of the foundation of the present I.M.F., 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 currencies, but which is governed by the actual current requirements of world commerce and is also capable of deliberate expansion and contraction to off-set deflationary and inflationary tendencies in effective world demand. My Lords, I believe that that is the basic task confronting us and confronting the world to-day; and I am glad that we are moving towards a new and truly international reserve asset, the Special Drawing Right, which the noble Lord, Lord Boothby, does not like. I think we can look forward to this developing into the world currency which Lord Keynes has in mind—here I am absolutely at one with my noble friend Lord Dundee—and the International Monetary Fund developing into a sort of World Central Bank, of which the noble Lord has in the past been a champion. I am very glad that we as a nation under successive Governments, successive Chancellors of successive Governments, have played a very large part in getting this system into operation.

There are other technical difficulties which the adoption of the proposition of the noble Lord, Lord Boothby, would entail. I will touch on them briefly. For example, what price would the noble Lord choose which would prevent us again from being faced with a new disparity between the official and the free market price? This is a very fickle market, as events this week—and I congratulate the noble Lord, Lord Boothby, on his skill in the ballot, his timing—are demonstrating. I believe that the behaviour of the market this week has shown how impossible the task would be to set an official price that would remain for any length of time in line with the market price. Four years ago the noble Lord proposed 70 dollars an ounce. If the official price had been increased then, would the noble Lord again be calling our attention to the increasing disparity between the two prices to-day?

LORD BOOTHBY

Yes, my Lords, I should.

LORD FRASER OF LONSDALE

My Lords, would my noble friend forgive me if I asked him to comment upon my suggestion that the price of gold be the market price—one price, not two, and it takes care of itself?

EARL JELLICOE

Yes, my Lords, I think I should. I think this is an ingenious suggestion. Again, it has the merit of outward simplicity, but to me—and I speak here very much as an amateur in these deep professional monetary waters—it seems to have two basic disadvantages. First, it has the disadvantage, which I have already touched on, that it would create a vast increase in international liquidity with the implications for inflation which that would carry with it at one stroke—the same disadvantage as the proposition of the noble Lord, Lord Boothby, would carry with it. Also, I believe that, as it were, pegging the official price to the market price would import an inherent instability, as I see it, into the whole system. I think the technical inconveniences of this—and I speak here with all diffidence and subject to every form of reserve and qualification of my personal inadequacy in these deep seas—would be very great indeed.

My Lords, this brings me to a further disadvantage which I see in the approach suggested by the noble Lord. This is the uneven and inequitable distribution of the benefits that would result from an increase in the gold price. I am not going to point fingers across the "Iron Curtain" (or whatever we now call it: the Soviet Union) or southwards to South Africa in this matter. I would only say that of the official reserves of gold in the world to-day, 91 per cent. of the total are held by 25 developed countries, and 90 developing countries hold the remaining 9 per cent. I should have thought it would hardly be consistent with the noble Lord's desire, which I share, to improve the position of the poorer countries for the benefit of any increase in international liquidity to fall so largely into the lap of the developed world. Also I do not think we can rely on being able to redistribute these benefits, as it were, after the event. I believe it is much easier and much better to attempt to do this in a way in which the creation of new reserves is firmly under international control.

Finally, an increase in the price of gold on the lines suggested by the noble Lord would appear (at least to me) to jeopardise the opportunity, which I believe could be within our grasp, of moving fairly quickly towards a more rational monetary system. It is to the objectives of those discussions which are now in train that I should like to turn in my concluding remarks. The basis for a solution was first conceived, I think, by the I.M.F. as long ago as 1967, at the Rio Conference, and this alternative mechanism for increasing international liquidity was instituted formally by the creation of S.D.R.s in 1969. The Committee of Twenty, representing all members of the I.M.F., has been considering all aspects of the international monetary system, and I should like to refer briefly to the communiqué which the Ministers issued at the end of March, after their meeting on March 26 and 27, setting out the position which they had then reached and the further work which they were putting in hand.

In brief, a general consensus was reached that we must strive towards a better working of the adjustment process, in which adequate methods to assure timely and effective balance of payments adjustment by both surplus and deficit countries would be assisted by much improved procedures for international consultation within the orbit of the fund. It was also agreed that the exchange rate régime should remain based on stable but adjustable par values, but that floating rates could provide a useful technique in particular situations. In addition it was agreed that there should be a better international management of global liquidity, that the role of reserve currencies should be reduced and the S.D.R. should become the principal reserve asset of the reformed system.

In addition, the Deputies were asked to study further the conditions for a resumption of general convertibility, including questions relating to the consolidation of existing reserve currency balances and to methods of settlement. They were also asked to study the means of dealing with the problems of speculative capital flows—problems which are not inconsiderable at the present time.

Finally, the Committee recognised the interests of the developing countries, and affirmed the desirability on the occasion of the reform of promoting economic development and the flow of real resources from developed to developing countries. The Deputies are meeting in Washington next week to carry forward what I think, even in the bald terms in which I have stated this, your Lordships will agree is a very wide-ranging programme, and their objective will be to submit a report to the Ministers of the Twenty later in the summer.

This is not the occasion—indeed, it would be quite wrong—for me to try to develop the detailed issues that remain for consideration in the forum of the Twenty and which are now being considered within this framework. But I am myself clear—and I say this with conviction—that it would be neither wise nor desirable to jeopardise progress towards a lasting and equitable arrangement for the conduct of international monetary affairs by reverting to a system based on gold.

I have thought it right to-day to recall some of the background to the requirement for reform of the monetary system and to say something, however cursorily, of the objectives and work of the Committee of Twenty. I do not for one second underestimate the technical complexity of the task the Committee is undertaking or the political determination that its resolution will require. But I believe that an important degree of consensus on the approach to these questions has already been achieved.

I have tried to make clear why the solution advocated so eloquently and so consistently by my noble friend Lord Boothby would not, in my view, be satisfactory. As I see it, the technical objections are overwhelming. Somehow, I very much doubt whether I have convinced the noble Lord of this. But I am clear that his solution would be quite inconsistent with the approach taken by my right honourable friend the Chancellor of the Exchequer to these questions, and the approach which in general has been endorsed by the Committee of Twenty. Perhaps I might refer to the speech which Mr. Schultz, the Secretary to the American Treasury, made to the I.M.F. last September. I will quote part of that speech: The rigidities of a gold-based system, subject to the uncertainties of gold production, speculation and demand for industrial uses, cannot meet the needs of today. The noble Lord, Lord Boothby, disagrees. He may, just conceivably, be right—sometimes he is. I believe, and the Government believe, that he is wrong. And I have adduced a number of technical reasons to support that belief. Even granted that he were right, and granted that he could convince Her Majesty's Government that he was right, it is clear to me, looking at this matter as one of practical politics, that the view which he advocates would have no chance of prevailing in the counsels of the Twenty. In sum, I do not believe that the noble Lord's proposals, advocated though they be with all his skill and consistency and humour, are those which I can commend to your Lordships' House.

4.48 p.m.

LORD BOOTHBY

My Lords, I should like to thank my noble friend the Leader of the House for his extremely interesting and courteous reply. This has been a useful debate. I think I am right, and Mr. Shultz is wrong, and the Treasury is wrong. I have believed them to be wrong for the last fifty years. They have never done anything right yet that I am aware of, and I do not think they are doing anything right now. The noble Earl has not dented my conviction that gold is the essential basis of a satisfactory working international monetary system; that gold will come into its own; that it will go on from strength to strength, as it is doing now, and that one day (I hope before I die) I shall be able to say to the noble Earl, "I was right and you were wrong". My Lords, I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.