HL Deb 23 July 1985 vol 466 cc1095-7

2.50 p.m.

Lord Beswick

My Lords, I beg leave to ask the Question standing in my name on the Order Paper. May I point out that a printer's error appears to have crept into the Question as it appears on the Order Paper? The reference in the second line should be to "money supply", and not "money supplied".

The Question was as follows:

To ask Her Majesty's Government whether, in view of the fact that the money supply has increased by 101.9 per cent. in the 5-year period to mid-April and that only 5 per cent. is accounted for by the increase of state minted coins and the printing of currency notes, they will now state by whom the remaining 96.9 per cent. of money was created and under whose authority.

The Chancellor of the Duchy of Lancaster and Minister for the Arts (The Earl of Gowrie)

My Lords, the correction makes all the difference!

My Lords, the additional 96.9 per cent. represents new bank deposits, created in the normal course of banking business. No Government authority is necessary for this.

Lord Beswick

My Lords, I thank the noble Earl for that reply, the implications of which are of course very far-reaching. Would the noble Earl not agree that at one time it was clearly understood and firmly enforced that the only authority in the country which was empowered to create money, either by printing notes or minting coins, was the Government of the day, the state? Now that credit transactions have largely superseded minted money and paper currency, is there not some reason for asking for an authoritative and objective commission to consider this matter and to see who is getting the benefit of this enormous amount of extra money that is being created each year?

The Earl of Gowrie

My Lords, the noble Lord makes an interesting suggestion, though, as he has said, for Question Time it is perhaps a little far-reaching in its implications. It seems to me that on the whole the economies of the Western world are benefiting from these new monetary habits.

Lord Tranmire

My Lords, are not the figures for the increase in bank credit and money supply disturbing when compared with the annual increase in output of 3 per cent? Will my noble friend have a look at this, as suggested by the noble Lord, Lord Beswick, and have an inquiry made into how money and credit come into circulation and the consequent burden of the increase in our national debt as a result?

The Earl of Gowrie

My Lords, the Government keep a very close watch on monetary aggregates, as the House would expect. I agree with my noble friend that there have been some rather eccentric movements in M3 recently, but I am glad to tell my noble friend and the Opposition that M0 has been behaving impeccably.

Lord Barnett

My Lords, can the noble Earl tell us what has been happening to M1, M2, M3, PSL1, PSL2 and PSL3, and which of them the Government think is right?

The Earl of Gowrie

My Lords, the Government think that the monetary aggregate indications of the present rates of inflation are broadly right and are a great deal better than the behaviour of any of the monetary aggregates when the noble Lord was Chief Secretary to the Treasury.

Lord Bottomley

My Lords, is the noble Earl aware that during the last war Government policy was fully to employ labour and materials to win the war? This was done with a modest increase in inflation. Can the Minister say why the present Government do not follow a similar policy to win the peace?

The Earl of Gowrie

My Lords, I shall be saying something along these lines in a very few minutes, when we come to debate the Finance Bill, but the situation has changed a little since the 1940s.

Lord Beswick

My Lords, would the noble Earl be good enough to draw a distinction between the Question which I asked and the one asked by my noble friend on the Front Bench? I am not querying the amount of money that has been created under these different guises. What I am asking is: who is getting the benefit of it? As things are, it would appear that it is the private banking institutions, and not the Government. In view of the fact that the Government have this enormous problem in public sector borrowing, would it not be right to have this matter more carefully assessed?

The Earl of Gowrie

My Lords, of course I am glad to acquit the noble Lord, Lord Beswick, of low political behaviour. The fact of the matter is that he is sceptical of whether the banking institutions should be the proper sources of supply in this area, and we are less sceptical. As I say, it is a somewhat knotty issue to take up in a question and answer session.

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