Orders of the Day — Gold Standard.

– in the House of Commons on 5th August 1925.

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Photo of Mr Hastings Lees-Smith Mr Hastings Lees-Smith , Keighley

Leaving the general discussion on unemployment, I wish to raise a subject which, in my personal belief, is more the cause of the increase of unemployment in the last few months than any other, and a cause for which the Government are directly responsible. Three months ago the party on these benches moved the rejection of the Gold Standard Bill. Everything that has occurred since—I speak for myself on this—is evidence to me personally of the deplorable results which have followed the error made then by the Chancellor of the Exchequer. The opinion that we expressed three months ago is now ratified by Sir Josiah Stamp, who, in his capacity as one of the members of the Committee dealing with the coal trade that the Government appointed about a fortnight ago, added a note of his own, stating that this increase of our external prices was in itself sufficient to account for the special evils which have within the last few months driven the coal trade into its present position.

I find supporters of our party in the country are beginning to realise that their lives, their homes, and their wages are controlled by those who manipulate the financial and the credit and the currency policy of this country. In order that the Chancellor of the Exchequer may deal with this subject, may I summarise Sir Josiah Stamp's argument, which really repeats what was said in these Debates three months ago? His argument is this: We have by this policy raised the value of sterling in dollars from 4.40 to 4.86— from slightly under 4½ to slightly under 5, a rise of 10 per cent. What does that mean? It means, putting it simply, that before this rise took place a British exporter was able by selling articles in the United States for a little under 4½ dollars to obtain £l. As a consequence of the rise, in order to obtain £1 he must now sell those articles in the United States for a little under five dollars, a rise in price of 10 per cent. Therefore, the result of the policy that has been followed is to make it necessary, if we are to receive the same returns as before, to increase our prices in foreign markets by 10 per cent.; but the fact is that in order to remain at the same competitive level as our rivals we cannot increase prices by 10 per cent., and we have to charge the same prices as before and take 10 per cent. less in receipts. Sir Josiah Stamp's argument is that the policy the Government have followed has meant that the coal trade and all our export trades, in order to hold their own, have to reduce their takings by 10 per cent. He points out that the coal trade were working on a margin of only 2 or 3 per cent., and that reducing that by 10 per cent. turns the margin into a loss of about 8 per cent., which the employers have tried to get back by a corresponding reduction of wages. That is the argument. What applies to the coal trade applies also to the iron and steel trade, to the engineering trade, to all the export trades, so that the result of the policy is to deliver a special attack, to inflict a special injury, upon our export trades, on those very unsheltered trades in which the bulk of the unemployment is centred at the present moment.

Photo of Mr Archibald Skelton Mr Archibald Skelton , Perth

May I ask whether the argument applies also to export manufacturing trades, the raw material for which is brought from abroad?

Photo of Mr Hastings Lees-Smith Mr Hastings Lees-Smith , Keighley

I was coming to that point in a moment. I will get to that point. I cannot state everything all at once.

Photo of Mr Archibald Skelton Mr Archibald Skelton , Perth

I only rose because the hon. Gentleman stated the argument quite categorically and incorrectly.

Photo of Mr Hastings Lees-Smith Mr Hastings Lees-Smith , Keighley

I shall come to that point. I was stating that there has been a rise in our external prices. I am coming to the internal prices.

Photo of Mr Archibald Skelton Mr Archibald Skelton , Perth

I am afraid the hon. Gentleman does not apprehend my point. He has just said that all export trade is injured by what has happened. I ask him, does he think that statement applies to the export trade in manufactured goods the raw materials for which are imported from abroad?

Photo of Mr Hastings Lees-Smith Mr Hastings Lees-Smith , Keighley

I will answer that, specifically. The effect would not be so serious on, say, the cotton trade, because they import a large quantity of material; but the effect is serious on the coal trade, because beyond pit props and a few articles of that sort, the imports for the purposes of the coal trade are comparatively insignificant. I hope I may pursue my argument, as I wish to give the Chancellor of the Exchequer time to reply.

That is the position, and that is why the Government must answer the charge that the policy they pursue has been the final policy which has led to the increase in trade depression and to the industrial dispute to which that trade depression has given rise. I wish to put to the Chancellor of the Exchequer one or two questions about the future. The perils of the future—in order to carry his policy to a conclusion—are more formidable than those which have already come upon us. He has decreed that coal trade exporters shall have a reduction of 10 per cent. in their receipts; but in the case of a trade like the coal trade, which does not buy much from abroad, but makes its purchases at home, they are not being relieved by any corresponding reduction in home prices. There is this reduction in external prices, but the corresponding decrease in internal prices which is necessary to carry out the policy of the gold standard has not yet begun, and it is very clear from what is happening in the City, from the policy of the Bank of England, that they do not venture to take the steps which its beginning will necessitate. The position broadly is this, that as a result of this rise in external prices there is a tendency for gold to flow abroad and for the reserves of the Bank of England to be depleted.

Photo of Mr Fredric Wise Mr Fredric Wise , Ilford

We are not on the gold standard yet.

Photo of Mr Hastings Lees-Smith Mr Hastings Lees-Smith , Keighley

If the hon. Member will allow me, he will see that I am about to cover that point.

Photo of Mr Fredric Wise Mr Fredric Wise , Ilford

A very important one.

Photo of Mr Hastings Lees-Smith Mr Hastings Lees-Smith , Keighley

There is a tendency for gold to flow abroad and for the reserves to be depleted. If we were on the gold standard the proper remedy for that would be to raise the Bank Rate, but that is not being done. Instead, the Bank of England and the Treasury between them are having recourse to a series of temporary artificial expedients which, I believe, are quite without precedent in our financial history—I may be wrong, but I think they are without precedent. First of all, in order to pre vent gold from going abroad we have placed an embargo on foreign loans and on Colonial loans. As everybody knows, the Australian Government were told to raise their loan in New York, and not here. In addition to that, in order to bring gold into this country the bill rate is one per cent. higher in London than in New York. I do not know what the figures are exactly, but I am told on good authority that that in itself has attracted about £50,000,000 in gold from New York here. We have not returned to the gold Standard, we dare not return to the gold standard, we dare not carry out the policy to which it would lead; but in order to avoid doing so we are adopting these expedients, which means, practically, they this country has been turned in a few months from a lending into a borrowing country.

The question I wish to ask the Chancellor of the Exchequer is this. Within a few months, probably not later than autumn, unless American prices rise, these temporary expedients will break down, and he will have to adopt the ordinary policy which was explained to us as accompanying the gold standard— the maintenance of gold in this country, when necessary, by raising the Bank Rate. What is going to happen then? That is why I say this question is a serious one in view of recent events—I think a terrible one. What is the result of a rise in the Bank Rate? The Prime Minister dealt with this very question about three months ago, and said that his critics were over-emphasising the effects of a rise in the Bank Rate. He said it amounted simply to this, that if a business borrowed £100,000 and the rate were raised by 1 per cent., that business would have to pay £1,000 a year extra, and that, he said, was quite inconsiderable in a business of the magnitude that such a business would be. That is true, but that is not the injury which is caused by a rise in the bank rate. The injury is this, that a rise in the bank rate is an evidence of the fact that the Bank of England and all other banks are adopting a policy of restricting credit. Restriction of credit means that manufacturers, employers—all business men depend upon credit—have to restrict their expenditure, there is a fall in the demand for goods, and that means a fall in prices; and in this case, in order to bring our internal prices on to the level of our external prices, it means a fall of about 10 per cent. What does the fall in prices mean? It means that every manufacturer is given notice that his stock is going to depreciate on his hands. It means that every man who is going to buy on a large scale will find it worth while to wait until the fall has taken place. That means unemployment, and in addition to unemployment and the fear of unemployment it means, as in the coal trade, that employers whose prices have been reduced by 10 per cent. will attempt to adjust the situation by a corresponding forcing down of wages. That is what we are faced with, and that is why the argument is that this whole movement has been premature.

The Chancellor of the Exchequer, in his Mansion House speech, said it was topsy-turvey of his critics to want to maintain depreciated exchanges in this country when every other country was trying to get rid of thorn. If we were in a period of expanding trade we might take these dangers in our stride, but our argument has always been that at this moment to adopt a policy which means bringing down prices by about 10 per cent. will lead to a series of indirect results, trade stoppages, and so on, which will involve a far greater loss than any gains from the immediate return to the gold standard. The fact that the Bank of England and the Treasury are not willing to complete the return to the gold standard, but are adopting these make-shifts in its place, is a proof of the truth of the fact that the critics of the Chancellor were right and that the consequences of this policy cannot be faced. But they will have to be faced. And what is going to happen a few months hence if they are faced? That is why we say the future is more formidable than what we have experienced up to the present. In view of what happened last week, the Chancellor of the Exchequer cannot brush our predictions aside as they were brushed aside three months ago. We hold that it will become increasingly clear—opinion is moving to these views, more and more papers, supporting the Government, are taking the view that there has been a mistake—that the recent increase in trade depression, and the trade stoppages which have followed, are the result of a policy for which the Government are directly responsible.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

The hon. Gentleman who has just sat down has made an interesting speech in which he has given a. personal view, but it is not the official view of any party in this House. It is a view which no doubt he has formed himself, but it is not the view put forward by any responsible political organisation represented in this House at all. Considering the influential propaganda which has been continually at work against the policy of returning to the gold standard, and considering the broad and crude misrepresentations published so widely, it is remarkable that no formal challenge should have been made against the principle of returning to the gold standard by any political party. No responsible leader at the time of returning to the gold standard expressed his opinion against it and no member of either branch of the legislature voted against it. It is true that the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) has lately expressed himself as being opposed to the gold standard, but when the matter was being discussed in the House he never gave us the benefit of his convictions on the subject, but remained in gloomy silence. He did not even justify in the Lobby his opinion or warn his fellow countrymen of the peril they were incurring, but remained absolutely silent.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

The party to which the hon. Gentleman belongs did not vote against the gold standard. They adopted the line which would give them the benefit of both sides of the argument. They said, "We are not opposed to the gold standard; what we are opposed to is the premature and precipitate action of the Chancellor of the Exchequer." Consequently they were in the position that, if at any time events were not prospering, they could say, "We always said that the return to a gold standard was premature," and when there was any favourable turn in our affairs they could say, "We were always in favour of a return to the gold standard." That is the attitude they adopted. I say that the principle has not been challenged, and I await its being challenged by any responsible party. As to the time, I gave to the House at the moment of announcing the decision of the Government, the full reasons why, if the change were to be made, it should be made at that moment. There was the position of the exchange, the favourable position and the conditions of the spring as against the less favourable conditions of the autumn. There was the fact of the expiry of the law and the necessity of passing a new law repudiating and reversing the old policy, which for five years and four successive administrations has moved steadily towards the resumption of the gold standard. Lastly, it was the case that if we had not taken this action the whole of the rest of the British Empire would have taken it without us, and it would have come to a gold standard, not on the basis of the pound sterling, but of the dollar. There were these reasons, and they have not been challenged by any responsible body of organised opinion in this country. There are a great number of financial experts and currency experts who have expressed themselves in this direction or that, but I notice that these great authorities nearly always disagree amongst themselves as to what the proper course would be or what relative emphasis to attach to the various conflicting causes which are at work.

The hon. Gentleman complained that foreign loans are being restricted. It is quite true that they have been dis- couraged. The result of the discouragement of foreign loans during this period when otherwise we should be lending more than we could afford to lend, more than we have to lend, has been that a much larger fund has been liberated for capital issues for domestic purposes. The capital issues for domestic purposes for the first six months of this year have been double the issues for similar purposes in the first six months of last year.

The hon. Gentleman says that this is the cause of the trouble in the coal trade, and he calls as a witness Sir Josiah Stamp, who has lately joined the ranks of the currency experts. May I point out that the Committee on which Sir Josiah Stamp sat took no evidence on this subject. It is true that he himself gave us a personal opinion, but once you get currency fever you immediately attribute to it almost every human disaster and every human advance. I must say that I think this was very far outside the scope of the question with which that Committee were dealing. Sir Josiah Stamp himself signed the Report of the majority of the Committee, and that Report gave numerous reasons for the existing depression and crisis in the coal trade. In effect they are: the cessation of the Ruhr stimulus, the recovery of French mines and the development of new mines, the depreciation of foreign currencies against gold, the drop in consumption owing to the development of oil fuel and electric power, the poverty of our pre-War customers, and the large stocks of coal now on hand—for example, there are ten million tons in the Ruhr alone.

All these very serious and solid reasons were brushed aside, and the resumption of the gold standard was said to be the cause of all the evils which have arisen in the coalfields up to the present time. Of course it is very easy to use what is called the post hoc, ergo propter hoc argument, because the gold standard unquestionably affects everything to a certain degree. Therefore, it can be argued that every evil which has happened since the gold standard was resumed is due to the gold standard. As so many people are quite unable to understand currency theories, such a theory is very consoling, and it affords a very easy and comforting explanation of all the evils and sufferings of humanity.

His Majesty's Government, however, remain entirely unrepentant. The great step which has been taken in returning to the gold standard was a step of a permanent character, intended to affect definitely the whole basis on which our finances stood, and it must be judged not by the fluctuations which occur in a few months, or by the conditions which may be traced in this industry or in that. It can only be judged over a period of years by a general view of the long interests of the country, and of the interests of the country as a whole. It has fallen to us to carry to a definite conclusion what has been the consistent policy of every Government, and we have done it in a manner which has been attended with a considerable amount of success. We believed that immediately after the return to the gold standard sterling would recover its approximate parity with the gold dollar, and that expectation has been realised, because sterling immediately went above the gold export point, and it has remained there ever since, not even falling below it during the very grave anxieties caused during the last week. We were led to apprehend by the advice of many experts that a large exportation of gold would be forced upon us, but that did not happen. We made preparations against that contingency, but it has not happened. On the contrary, considerable quantities of gold have flowed into the Bank of England, which now commands £8,000,000 or £9,000,000 more than when this step was taken.

Photo of Mr John Jones Mr John Jones , West Ham Silvertown

Can we have some over here?

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I will convey the hon. Member's suggestion to the proper authority. We wore told that it would be necessary to raise the Bank rate and we were prepared to do it, but that has not taken place, and we have not found it necessary to use the very large dollar credits on the other side of the Atlantic. General money rates have eased since the gold standard was adopted. In May the average weekly Treasury bill rate was £4 9s. 8d., in June it was £4 8s. 6d., and in July it was £4 6s. 6d., and last week the actual rate was £4 5s. Equilibrium has been established with the Australian and South African exchanges, which now stand at par with us instead of at a heavy premium and the general tendency in foreign countries towards stabilisation in gold has been increased. For instance, India has been considering at what sterling rate she can stabilise her rupee. In France they are endeavouring to arrive at stabilisation and they have based the new gold loan not upon the dollar but upon the pound sterling. Lastly, the tendency which existed in April for the United Kingdom and the United States wholesale prices to approximate has been emphasised and confirmed. In April the United Kingdom figure was 162.5 and the United States 156.2. In June the United Kingdom figure was 157.7, and the United States 157.4. All these are solid and remarkable factors which should be taken into consideration in any attempt to appraise the immediate consequences of the very considerable financial step which the Government and Parliament decided to take.

8.0 P.M.

Of course, however, in any immense argument, in any very complicated and technical argument, it is always possible for ingenious minds, for powerful writers and eloquent speakers, to put forward very effective counter-cases; but let us see what it is that these inflationists and manipulators of the currency have in mind. I would particularly say, let the Labour party make a very careful searching of their own hearts as to where the real interest of the working classes lies in this matter. I take Professor Keynes as the best equipped of all the unorthodox school. He is a master of every aspect of this question, and discusses it with the utmost fluency and effectiveness upon all occasions, seasonable and unseasonable alike. What, really, is the policy which he has in mind, and which, if I can judge from the speech of the hon. Member for Keighley, he himself would support and would desire the Labour party to support?

Mr. Keynes tells us that a manipulated currency is the best shock absorber for the fluctuations of world trade. That sounds very well. "Shock absorber" is a very euphemistic expression. Let us see exactly what it means. Currency is to be the medium of adjustment—the shock absorber. How foolish to have any disputes with workmen about their wages! All you have to do is to inflate, to manipulate the currency. Immediately you depreciate the exchange, immediately you give a bounty on exports, immediately prices at home are raised, and what does that mean? The hon. Member for Keighley was deploring a fall in prices, but what does a rise in prices mean? It means a rise in the cost of living, and what does that mean? It means a diminution, in exact mathematical ratio, of the real wages which are received by the working classes. We are told that by this famous method of shock absorption you will be able, simply by a process of depreciating the sterling exchange, to reduce the wages of the working classes, almost without their being aware of it, to what is considered the requisite point by the currency manipulator.

One admires the plan for the frankness with which it is stated, but one must also admire it for its facility. You can apply it to some other branches of our affairs. As an illustrative exercise, take the case of the grocers, a numerous and worthy class of citizens. They have been doing very badly, they find it very difficult to make both ends meet and to make a living. Never mind! They need not reduce their incomes, they need not reduce the wages of their assistants; all that is necessary is to alter the weights a little bit. Take an ounce off the pound! The public will hardly feel it, and, if they do, what are they going to do about it, anyhow? Again, take the case of the drapers, a very important and valuable class in our country. If they are in difficulties, why go through all the laborious business of economising, of seeking further efficiency in their methods, of trying to save here and there? Not at all. Let the Government come to their aid, and snip an inch off the yard! You would hardly miss it. It would be spread over such an enormous area that you would hardly be conscious of it at all.

All I can say is that these processes of credit inflation and currency manipulation, however unpalatable it may be to those who advocate them that I should say it, all partake of the same nature as these perfectly crude, simple methods of altering the weights and measures to which I have referred. They are altogether out of harmony with the sound and rugged principles on which British financial policy has been built up. The view of His Majesty's Government is that, whatever our troubles may be, it is much better that all classes should face them with open eyes, that they should know the truth about what is taking place. That is what the gold standard does. It shows you exactly where you stand; it shows you what are the issues involved in any measures that may be proposed, and what the cost of those measures will be. People talk about the subsidy on coal. It is very objectionable, and everyone knows it is very objectionable, but, objectionable as it may be, it is greatly to be preferred to a veiled subsidy on exports achieved at the expense of the whole community, achieved by a deliberate depreciation of the British exchange, achieved by the sacrifice of the interests of the much larger purchasing classes, the importing classes in this country. At any rate, you know exactly where you are.

A manipulated currency sounds very well, but it is capable of being used, and misused, and abused, to the injury and detriment of every honest, solid interest, be it Labour or be it Capital, in the State. In the hands of an unscrupulous capitalist administration—if such there should ever be—a manipulated currency could be continuously used to undermine by the most subtle means the standards of wages and living of the masses of the working people. In the hands of an unscrupulous Socialist administration—if such there should ever be—a manipulated currency could speedily be used to liquidate every form of property in the land. In the hands of an incompetent administration—and, after all, every administration in this country is considered to be incompetent by those who do not form part of it, or who no longer form part of it—in the hands of an incompetent administration, a manipulated currency would provide infinite opportunities for a series of weak compromises the result of which would infallibly be meaningless and purposeless fluctuations in the exchange, leading to uncertainty and waste, to the detriment of business in every form.

Photo of Mr John Jones Mr John Jones , West Ham Silvertown

No wonder they found you a job!

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

After all, what an absurdity it is to fix a standard of value and then to use that standard of value as the very means of procuring adjustments and fluctuations! The object to be sought, in establishing a standard of value, is fixity and stability. That is why you choose it. Of course, you cannot get absolute fixity in this world, but, as far as is humanly possible, gold, much more than any commodity that we know, gives fixity and stability in regard to the currency and the transactions which are related thereto. Is it not almost a contradiction in terms to use this standard, when it is established, as it is, as the moving part in every change and fluctuation? That which was chosen for its fixity is to be made the very essence of fluidity, so that it is not a gold standard that they seek to establish, but a quicksilver standard.

Photo of Mr John Jones Mr John Jones , West Ham Silvertown

Of course it is. You are mercurial.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I am very anxious to catch anything that falls from the hon. Gentleman whether wise or witty or otherwise. Of course, it is a commonplace that a depreciated currency, while it is depreciating, will stimulate your export trade. It is equally true that an appreciated currency, while it is appreciating, will pro tanto diminish and depress your export trade. If, instead of restoring the gold standard, we had regulated credit with exclusive regard to the interests of industry, without troubling at all about foreign exchanges, we could, no doubt, have kept our expo it trade continuously booming at a loss, until one exchange crisis after another had so undermined our international credit as to send the pound in the same direction as that in which the old German mark has gone. We have chosen a different course, and we await the day when any responsible political party will challenge the soundness, justice, and prudence of our decision.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Leicester West

We have heard from the Chancellor of the Exchequer the speech that we all expected— a speech which fascinated the House, which, no doubt, will fascinate a large part of the country, but which, nevertheless, will not, in consequence of that, be true in fact; and, not only so, but it will not bring back into employment the 300,000 men who have lost their jobs, and it will not restore prosperity to trade. The Chancellor of the Exchequer has a very easy task in the method of argument which he adopts. He puts up a number of quite absurd propositions, and then proceeds to knock them down. He attributes to his opponents ideas which are wholly ridiculous, and then shows how foolish they are, The persons whom the Chancellor of the Exchequer is stigmatising in this way contain among them, first of all, Mr. Maynard Keynes, the leading economist of to-day; secondly, Sir Josiah Stamp, the leading statistician of to-day—a man so important and so far-seeing that the Government themselves put him on this Court of Inquiry; and, thirdly, you have the statement of the Federation of British Industries, in which they say perfectly definitely that we are now experiencing the effects of the last appreciation of the pound, which has moved up some 10 per cent. in relation to the dollar during the past year, while the necessary counter-balancing reduction in costs in this country has not yet been completed. The Chancellor of the Exchequer throws all these eminent people into the position of ridiculous persons who do not know what they are talking about.

The view he puts forward that they and we are advocating limitless inflation, o) inflation at all, is absolutely false. What we are asking for is stability. Then he stated that Sir Josiah Stamp had no evidence before him in coming to the conclusion to which he came. That is absolutely untrue. The coalowners gave evidence that the restoration of the gold standard had lowered the international price of coal by 1s. a ton. That is a piece of definite evidence, which I presume the Chancellor of the Exchequer had not read. I have very little time left, and I only want to say this: When we put this forward three months ago we could only talk about tendencies, because we did not know exactly what would happen, but we said that the tendency of this operation would be to injure trade and create unemployment. We have now the definite effects before us, because what we prophesied has actually taken place, as has been recognised by these people. It is perfectly true that it is too late to restore the position as it was before. We do not suggest that we can go back from such a gold standard as we have to having none at all, as was the case at that time; but we do say that, first of all, the Chancellor of the Exchequer made a very grave mistake in choosing that moment for the restoration of the standard where. price levels did not justify it, and when the lira and the franc were depreciating, and therefore aggravating the evils that it has caused. He admitted himself today for the first time that the temporary effect, at any rate, has been to injure the export trade.

What we say to him now is this: "You have got this, and you cannot go back on it, but there is no reason why you should make the situation worse by continuing the embargo on foreign loans and by continuing the high rate of discount, thereby still further injuring the export trades of this country. Now that you have restored this gold standard into being, the least you can do is to put it into being in a proper way. In that case you will induce the Bank of England and the financial authorities to remove the embargo on foreign loans, and you will not insist upon the discount rate being higher in this country than elsewhere." The result of that will be, of course, an outflow of gold, but that outflow of gold will be an adjusting force, and will tend to bring about equilibrium.

Bill accordingly read a Second time. Bill committed to a Committee of the Whole House for To-morrow. — [Commander Eyres Monsell.]