The Report of the Tribunal, the evidence, and the debate of yesterday and today have been very interesting, because they have revealed the way the Bank of England system works and the relationship of the Bank of England to our economic system, and it is that to which I want to draw the attention of the House tonight.
I listened with great interest to the speech of the hon. Member for Bath (Mr. Pitman) yesterday afternoon. It was very illuminating and informative and I greatly enjoyed it. I also listened to the speech today by the hon. Member for Somerset, North (Mr. Leather) and found it another illuminating and interesting speech. I must admit that I learned a great deal from both contributions.
I want to refer to what the hon. Member for Bath said about the difference between the Bank of England before and after it was nationalised. He said:
Before nationalisation, responsibility, in the final crunch, lay with the Court of the Bank of England. It and it alone was finally responsible for Bank Rate.
Later he made this observation:
By nationalisation, the situation was reversed. In the final crunch, responsibility alone lay in a direction from the Chancellor of the Exchequer."—[OFFICIAL REPORT, 3rd February, 1958; Vol. 581, c. 914–5.]
I shall not challenge the theoretical truth of those two observations, but in practice during the last six or seven years the theory has not been followed. Paragraph 11 of the Report of the Tribunal says:
Any decision to change the Bank Rate is taken by the Bank of England whose constitution is governed by the Bank of England Act, 1946. Since under that Act Her Majesty's Treasury may give directions to the Bank, it
is the practice for the Governor to ascertain in advance whether the Chancellor of the Exchequer agrees with the proposed change.
That is a very illuminating paragraph. There we have in broad outline the established practice since 1946. The fact remains that if that paragraph is correct it is the Bank of England which makes the policy. The Chancellor may appear to have the final word, but the decision is that of the Bank, and there is a tendency for the Chancellor to be nothing but a rubber stamp.
It may be argued that the Bank of England Act was a Labour Measure. That is true, but the point is absolutely irrelevant. The purpose of the Act was to bring the Bank under public control in order to serve the national economy. If it has failed to do so in practice it simply means that the Act needs revision in certain material particulars. Hon. Members on this side of the House have always believed that the initiative should come from the Treasury, but the Report has revealed that the initiative comes from the Bank and distils itself down to the Treasury.
It is very noteworthy that after the resignation of the former Chancellor the chairmen of the joint stock banks almost unanimously complimented him upon his courage and tenacity, and upon the soundness of his policy. Why? Simply because the Chancellor was carrying out the policy of the Bank. His policy and that of the Bank were identical. It is our case that that policy was and is inimical to our economic welfare.
There was a crisis last August and September. We had entered into the second half of the year—a year which was claimed to be a prosperous one by recent standards. The trade position was fundamentally sound, according to speeches from the Government benches—and I accept their diagnosis of the situation. Our trade balances were substantially higher last June than they had been twelve months previously. Import prices were falling, and we were deriving benefit because we were able to obtain the raw materials for our manufactures 10 per cent. cheaper.
Then into that situation of relative buoyancy in our economy there suddenly came this financial crisis. How did the Government react? They reacted by adopting the policy of the Bank and the City. The gravamen of our charge is that the Government adopted a financial solution to the problem rather than an economic one. It is very often true that the policy of the financier can be in direct conflict with that of the economist.
The Bank's answer was the classical, mechanical and automatic one of the manipulation of the Bank Rate and the application of the quantity theory of money. According to the evidence in the Report there was no suggestion of any attempt being made in the City of London to discover a constructive answer to our economic difficulties. The answer we got on the Floor of the House was that the volume of money would be reduced and its supply restricted.
That is the answer to the wages question. It is said that there must be higher production before there are higher wages. Nevertheless, the policy of the Government is to produce less. That is the object of the credit squeeze and of the high Bank Rate. The desire is to restrict production—and that policy is coming into effect today in South, North and North-West Wales. There is unemployment in the South Wales brick and tile works and in my Division, and these works are closing down. Quarries in North-West Wales are going on short time. All this is a direct result of the bankers' remedy, which is no remedy at all.
The picture we get is one of paradoxes. When the trade position was improving, balances were increasing and the economy of the country was buoyant we had a slump in the £. No one can deny that statement. On the other hand, when the bankers' policy was adopted by the Treasury and brought about restriction, a tightening credit squeeze, an increase in the Bank Rate, lower production and a swelling of the ranks of the unemployed, when there was a restriction on our economy and our production was strait-jacketed, the £ leapt in value. It is a very strange world, and I want to speak of the angle from which we on this side of the House view these things. It might make sense to the banker, the City and the speculator, but it will not and cannot make sense to the producer who is driven to the employment exchange because of this silly policy.
What more does the Report reveal? Here was a crisis brought about exclusively by foreign speculation upon our currency. Foreign speculators caused our difficulties. They caused a loss of confidence in sterling. They expected the £ to follow the franc. It was not our fault. It was not the fault of the working classes of this country, although their wages were being blamed. It was not the fault of the wage earners. We were confident in our solvency and our economy. There is no evidence that any effort was made during the crisis to retain the buoyancy of this country and at the same time to sting the speculator so that he might learn a lesson he would never forget. All we have from this Report is evidence of telegrams being sent. We hear about Canada and about Hong Kong; about interviews, and comings and goings, and shooting on grouse moors. That was what was happening. Finally, there is a decision to put further restrictions on the economy of this country.
To hon. Members on this side of the House it is an old story, the story of looking at our economy through the spectacles of finance. It happened between the two wars, when we were looking after the prestige of the £, and 2 million people were unemployed for nearly 20 years to keep its prestige up.
I will conclude by referring to a story which we used to read in school about the farmer who was jealous that his neighbour had a better set of harness for his horse. The farmer thought he would have harness which was just as beautiful as that of his neighbour. But he did not have the cash to buy it and so he decided to get the cash by economising on the feed for his horse. Eventually he got the cash and he bought a most beautiful set of harness, but when he came to put it on the horse the animal was too weak to wear it. That is the position we are coming to. We are starving our economy to keep up the £. I am of opinion that the time is coming when we should link the £ with the economy and not the economy with the £.