Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.

Donate to our crowdfunder

Orders of the Day — Clause 13. — (Short title, interpretation and repeal.)

Part of the debate – in the House of Commons on 22nd May 1928.

Alert me about debates like this

Photo of Sir Alfred Mond Sir Alfred Mond , Carmarthen

I do not want, at this stage of the proceedings on the Bill, to detain the House for very long, but I do think that it is important that one of the joint signatories of the resolutions which were passed by the Industrial Committee of the General Council of the Trades Union Congress and the committee of the employers' group, who are now considering the important question of the relations of labour and capital, should emphasise the memorandum which they submitted to the Chancellor of the Exchequer some time before the Bill was introduced. The hon. Member for Keighley (Mr. Lees-Smith) laid great stress on a point which also formed the subject of our concurrence and of our joint resolutions. The resolution at which we arrived was: That under the special conditions in which the gold standard operates at the present time we are not convinced that it is either practicable or desirable that the credit policy of the country should be determined more or less automatically by gold movements as in pre-War days.That it is highly undesirable that the Bank of England should be so tied down by the provisions of a gold reserve law as to be unable fully and freely to co-operate in the plans adopted by this country and the rest of Europe at Genoa in 1922, for international co-operation in economising the use of gold, regulating its distribution, and preventing undue fluctuations in its value in terms of wealth.That it is therefore essential to hold a full inquiry into the best form of credit policy for this country before steps are taken by the Government. The Government in their wisdom have chosen to present this Bill, and it will undoubtedly be passed. All of us are, of course, well aware of the necessity for settling the currency question. The resolution which I have just read represents a very carefully considered opinion, and one which I think is unique, for I think that this is the first time that representatives of employers and workmen have considered a question which used to be regarded as the sole prerogative of financial experts and bankers, and have deliberately laid down their view that it is necessary, having regard to the state of industry, to inquire fully and completely into the whole of our banking system and the operation of the Bank Charter Act, 1844; and I hope that the Government will reconsider the view that they have taken on this matter. I heard it suggested during the Second Reading Debate that, if we began to throw doubts on the operation of the gold standard, we should begin to throw doubts on our financial stability, but I think that that is a very foolish kind of fear for a financially powerful nation like Great Britain to entertain in connection with a matter that is most vital for the solution of our industrial difficulties and social problems.

Perhaps only slowly, the realisation has come to those who have had to deal with these difficulties, and with all the questions connected with the expansion of trade, the relief of unemployment, the regaining of markets, and all the operations of commerce, which are inextricably bound up with the financial policy pursued by the central institution, the Bank of England; but it is useless to ask the employer or the technician to reorganise his works and improve his processes, and it is perfectly idle to ask the worker to make sacrifices or to redouble his efforts, if, every time a movement comes along or an improvement is made, there are people who, as the hon. Member for Keighley has just said, visualise the matter from an entirely different angle, who seem to be possessed rather by a terror of improving trade than by a desire to improve it, and you find credits contracted just at the time when they ought to be extended. That renders it almost impossible to conduct a policy with any continuity. I certainly think that an inquiry should be held into the whole question of the constitution of those who control what is, after all, the nerve system of industrial and commercial life.

The Chancellor of the Exchequer, in his Budget speech, did refer to the greater elasticity which this Bill would allow, and I take it that he was then referring to Clause 3 of the Bill, which does allow the holding of securities by the Issue Department to a value sufficient to cover the fiduciary note issue for the time being. I see that in Committee on the Bill some discussion took place as to what the term "securities" meant, and from the Government side the statement was made that mercantile bills would be included among those securities. I think it is extremely important that that statement, which was made in Committee, should be repeated by my right hon. Friend when he speaks on the Third Reading in this Debate in the House. It is an important point which to some extent goes to meet some of the criticisms which have been, not unfairly, lodged against this Bill on the ground of its too narrow measure and its too great exhaustion of our gold reserves, and that statement, which was made by a representative of the Government in Committee, would come with much greater force from my right hon. Friend on the Floor of the House. It has some hearing on the statement made by the hon. Member for Keighley with regard to the question of the future size of our gold reserve. It is obvious that, if an increased fiduciary note issue were covered by securities which were not gold, it would automatically increase our gold reserve.

During these Debates, as is not infrequently the case when matters are very much interwoven, there has been at times some mental confusion on the question of credit based on gold reserves and on the question of currency restriction. Of course, they are not the same. Currency restriction may be an inconvenience, but it does not necessarily mean restriction of credit. Credit undoubtedly, under our present system, which many of us think is little adapted to our present commercial life, depends upon gold reserves, and the more, therefore, the fiduciary note issue is increased, thereby bringing into play securities in place of gold, the more the gold reserve is increased, and, therefore, the more credit the Bank has at its disposal, and the more easily it is able to withstand any drain of gold. It does seem extraordinary that, with a commerce extending into thousands of millions, we should be discussing in this House to-day the question of £10,000,000 more or less in connection with the note issue. It is out of all proportion to the commercial transactions that we are undertaking.

I am glad that the Government have not seen their way to accept some of the Amendments which have been put down, particularly those which appear to suggest the limitation of the fiduciary note issue at a point even below what experience has shown to be necessary. We can only hope that the assurance which has been given that the Bank will consider an application for permission to increase the fiduciary issue will not be looked upon as some exceptional and quite extraordinary occurrence, which is only to be used in a time of great crisis. By doing that we are more likely to produce a crisis. We hope that this power will be used in such a manner as to meet the necessary requirements of the banks for currency needs.

Although this Bill will undoubtedly go on to the Statute Book, it cannot be the end of this great problem, nor can the Government entirely disembarrass itself of responsibility on the matter by handing it over to the Governor of the Banff: of England. I am by no means an advocate of government interference in business matters, but this is not a matter of private concern; it is a matter which really goes to the root of our whole commercial existence, and, although nominally the Bank of England is a private corporation, which makes profits in the ordinary way, and although it is inadvisable for many reasons that the State should be a bank, the relations between the Treasury and the Bank of England are as a matter of fact notoriously so close that it is quite impossible to regard them as in fact two entirely separate entities. I, therefore, hope that, before we part with this Bill, the right hon. Gentleman will be able to give us some kind of assurance that this very vital problem is not going to be lost sight of, and that we need not be afraid, as many seem to be, that our financial structure is so weak that anything that may be done in this direction will cause a panic. It is most vital that there should be such elastic conditions as will enable the Bank of England to play its proper part in what we all hope to see coming, namely, revival of prosperity in the industries of Great Britain.