Commonwealth and International Economic Problems

Part of the debate – in the House of Commons at 12:00 am on 2nd December 1958.

Alert me about debates like this

Photo of Mr John Tilney Mr John Tilney , Liverpool Wavertree 12:00 am, 2nd December 1958

The hon. Member for Ashton-under-Lyne (Mr. Rhodes) paid a most graceful compliment to my right hon. Friend the Member for Thirsk and Malton (Mr. Turton). He said with what pleasure he had followed him more or less round the world. It is with pleasure and a little alarm that I follow the hon. Gentleman who, unlike some at least of his colleagues, speaks with authority and common sense. I find myself largely in agreement with everything he has said. He made a most remarkable contribution to the debate, and I am glad that he dwelt for a time on the commodity prices aspect of the Communist economic danger.

I believe that the Government, certainly in the last few years, have done a fine job in improving the standard of the £ sterling in the international currency markets. Our reserves have risen, but we have done it because the terms of trade have turned largely in our favour, which may well mean that the trouble has merely been deferred. It will be difficult to sell our manufactures in our old markets of New Zealand, Australia, India or West Africa.

Because commodity prices have fluctuated so violently in the past, I am a little surprised that all that we decided to do at Montreal was to examine that problem and no more, because the effect of low commodity prices on our trade is bound to be detrimental in the long run if they continue to go down, whereas if they remain reasonably low and stable enough for our clients in different parts of the world to buy our goods it may be good for everybody. What we want is the expansion of world trade. It is a British interest just as much as it is the interest of Japan. It is essential that world trade should be expanded, and even if there were no Communist economic drive that would still be true.

The United States has endeavoured in the last year or two to spend herself out of her depression, and it looks as if she is going to succeed. That may give us a little time to think and to make preparations for the coming years, but there is still a lot of unemployment in America and a lot in this country in various pockets and pools. Suppose things go wrong with the Free Trade Area and the Common Market. Suppose Australia puts on more import controls, as she is threatening to do. I wonder whether our trade will expand as we all hope it will.

I had the pleasure last Thursday of going with some hon. Members opposite and some of my hon. Friends to look at the new nuclear power station at Brad-well, on the Essex Coast, and there we saw looming up in the fog a number of ships laid up which should have been used in trade. I am told that they are a few fewer than a month or two ago, because there is less loss incurred by the shipowners if they charter them at current rates than if they lay them up, but it is still a substantial loss, whereas one would hope that these ships would be trading at a decent profit for all concerned.

May I stress what I consider to be three fundamentals for our trade policy? The first is that our currency should be acceptable in the international markets, and that it should be broadly based. I agree that that has been helped by the decision to expand the International Monetary Fund and the World Bank which was taken at Delhi. Our currency has a backing of dollars and gold and of other currencies which can be readily interchanged.

The second point we must always remember is that if we ever get out of step, if our raw materials cost more than those of other nations, we will become what the Prime Minister described as an island of inflation in a deflationary world. Immediately, we would get a balance of payments crisis.

The third vital thing for this country, as a great trading community of 50 million people, is that we must still be able to buy in the cheapest markets of the world for our raw materials; otherwise, I do not see how our manufacturers can compete.

How can all these fundamentals be adjusted against this Communist economic attack, especially in Asia and Africa? The Vice-President of the United States spoke to us the other day about the victory of plenty. It is a splendid conception, but it is only the intention, like a paragraph in Army Regulations and what we want is the method paragraph on how to achieve it. We must, somehow or other, help the primary producers, and whereas we, vis-à-vis America, want trade rather than aid, the same thing applies to us much more in regard to the underdeveloped countries of the Commonwealth.

May I get back to the base of our credit policy—currency and gold? The creation of extra currency without real wealth leads to disaster. I was much interested, talking to the atomic scientists last week, to understand, possibly for the first time, that we have virtually found the philosopher's stone. It is now possible to change one element into another —uranium into plutonium and thorium into uranium.

How many years are to elapse before we make synthetic gold, and, then, will gold be the real base for the expansion of our trade? Is it the real, proper standard of value? Only the future can tell, but it has not always been all that good. In the days of Elizabeth I there was too much of it, and not enough wealth. Today, either because of political decisions there is a need, unfulfilled, to put up the price, or because there is not enough of it it is still not the ideal standard.

Hon. Members opposite and myself have our own individual balance of payments problems. So do companies, but when we consider whether we are solvent or not, what does a bank which is asked to lend a little money consider? It considers what investments and cash we may have, or, in the case of companies, what stocks they have, to weigh up what the net assets may be.

I cannot understand why that same argument that is applied to companies big or small cannot also be applied to countries. I do not understand why the central banks, as well as having their currency backed with gold and with dollars, marks and Swiss francs, might not to a certain proportion have currency backed by imperishable commodities as well. I know the old argument that bad money drives out good and that if one had too much of anything at a rigid price all the good backing of the currency would go and the world as a whole would become frightened; and that is one thing which must be avoided at all costs.

What my right hon. Friend the Chancellor of the Exchequer has done par excellence in the last year is to establish a £ which is now almost supreme in international markets. It is so much so that the premium of the dollar, which was at one time up to 15 per cent., is now a negligible fraction of 1 per cent.

I hope, therefore, that my right hon. Friend will look into the scheme of Mr. St. Care Grondona, the economist. This is not an airy-fairy scheme, as many people might think. It is backed to my certain knowledge by directors of many very large companies in this country. It is commended by other economists such as Mr. Roy Harrod. What Mr. St. Clare Grondona wants is some form of price stabilisation corporation for commodities. I must confess that when I first heard his speech and first read his book about it I did not like the scheme. I thought that it would prevent our buying in the cheapest market, that it would cost too much and therefore affect our balance of payments and, above all, interfere with the free market which I believe is also essential.

But it does none of these things. If I may take up the time of the House for a few minutes, I should like to describe very briefly what the scheme is. It is that at a given date that statutory body, the price stabilisation corporation, should announce the price at which it would buy a given amount or block—and only in substantial quantities—of a particular commodity. That amount might be one-eighth of our annual consumption or one-sixteenth, or whatever Parliament were to decide.

I admit that the formula is complicated. The datum price would be calculated on either the price ruling at a given date, the average of the last year, or the average of the last two years, whichever was the lowest. Then the price at which it would be financed, that is, at which the corporation would buy the commodity, would be 21¼ per cent. below that datum. It would be a rather low floor, and once one block of that commodity had been bought another could be purchased only at 5 per cent. lower. Therefore, it would not be a rigid floor, such as we had in the Tin Agreement, or a partially rigid floor as in the Sugar Agreement. It would be more like a series of terrace steps, up or down, as against either a shute or an escalator.

Surely, one of the major jobs before the Western world is to try to let primary producing countries see ahead the prices of their commodities so that they can adjust their economies to what is likely to happen, not suddenly but over the months. If one has this wide commodity point of about 22½ per cent., against the very narrow gold point, that price stabilisation corporation might well make a major profit in the course of years.