Orders of the Day — Fiduciary Note Issue

Part of the debate – in the House of Commons at 12:00 am on 5th April 1960.

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Photo of Mr David Ginsburg Mr David Ginsburg , Dewsbury 12:00 am, 5th April 1960

I propose to make an appropriately brief intervention this evening, first, because the Treasury Bench has had a very heavy time of it today, and, secondly, because the problem we are discussing is a difficult one from the point of view of the rules of order. I hope, Sir Gordon, that you will be charitable with me, and perhaps charitable to the Government spokesman who will have to put forward some arguments in reply.

I will content myself by making three points. First, I wish to draw the attention of the House to the significant rise in the note issue which has taken place over the years. Secondly, I should like to invite the observations of the Economic Secretary about the nature of Government thinking on this phenomenon. Thirdly, I should like some assurance that in this policy the supremacy lies with the Government and not with the Bank of England.

It is no exaggeration to say that there is considerable public concern about the continued rise in the note issue. My hon. Friend the Member for Lough-borougth (Mr. Oronin), who is a member of the medical profession, has described the note issue as "the thermometer of inflation". Though neither he nor I would wish to over-simplify the problem, we realise that there is, as he mentioned, the question of the bank deposits. My hon. Friend went into that at some length, but there is also the equally important problem of the velocity of the circulation of money.

Presumably the Government are concerned not merely with the note issue but with the total amount of money available. Presumably they are also concerned with the velocity at which this money circulates. May I interpose here that it is very unsatisfactory for hon. Members that the Government have still not been able to provide statistics about the velocity of the circulation of money? Had those statistics been available, it is arguable that my hon. Friends and I would not have had to pray against the Order this evening. However, those statistics are not available and we are bound to say that the trend of the note issue is an upward one.

That upward trend must be of greater concern to hon. Gentlemen opposite than to hon. Members on this side of the House, because it is from the benches opposite that we have consistently heard the cry that this country must not print its way into inflation. Given that point of view, I put to the Economic Secretary, diffidently and provisionally, a paradox about the statistics of the note issue, because it has intrigued me and I would welcome his comments.

Over the period 1945 to 1951, when my hon. Friends were in office, the note issue rose by about £25 million. During the period 1951 to 1960, the period of the present Government's stewardship, the note issue has gone up by over £700 million. That is a large and serious sum, sufficiently serious for the Radcliffe Committee to have commented upon it in its observations.

It is even more intriguing, if one breaks down the £700 million, to see that it is shared out quite impartially between the respective Chancellors of the Exchequer of the day. The Home Secretary heads the list. Under his stewardship, the note issue went up by as much as £400 million. When the Prime Minister was Chancellor of the Exchequer, the note issue went up by £150 million. It even went up by a modest amount when the right hon. Member for Monmouth (Mr. Thorneycroft) was Chancellor of the Exchequer and it has gone up by a further £150 million under the stewardship of the present Chancellor. This appears to be an inexorable trend. My hon. Friends and I would appreciate the Government's comment on that phenomenon.

We would also like to hear something of the Government's viewpoint concerning the note issue and whether they regard it as a serious instrument of economic monetary policy. It may not be easy for the Economic Secretary to reply to my question owing to the rules of order. Nevertheless, the Radcliffe Committee took the view that note issue policy was closely linked with the whole complex of monetary policy. Indeed, it stated that the Government's monetary policy must be viewed in relation to the general objectives of the Government's economic diagnosis in a particular situation.

With those words in mind, I should like first to take up the Government's thinking on the question of the note issue and to make two brief quotations from the Report of the Radcliffe Committee. In paragraph 100, the Committee stated: The authorities have explained to us in evidence that they do not regard the supply of bank notes as being the only, nor nowadays the only important, supply of money, and that the Government's function in issuing notes is simply the passive one of ensuring that sufficient notes are available for the practical convenience of the public. In paragraph 348 the view is again expressed, but in rather stronger terms. The Committee stated: As was made clear to us in evidence, this control is a vestige of an earlier, more significant control, dating from the time when the note issue was mainly backed by gold and the danger that the authorities might abuse the power to issue fiduciary notes was taken sufficiently seriously to warrant close Parliament scrutiny of the exercise of that power. Therefore, my hon. Friends and I have no apology to make for bringing this matter before the House. We do, however, ask the Economic Secretary whether the Government still subscribe to the view which is expressed so felicitously in the Radcliffe Report.

It as interesting that, in the very short conclusions of the Radcliffe Committee, no mention whatever is made of either restricting or increasing the note issue as a weapon of monetary policy. It is a quite passive instrument which has no significance. If that is true, and if that is the nature of current thinking, I should like to put this question to the Economic Secretary. Are he and his right hon. Friend the Chancellor happy at the continued expansion of the note issue having regard to their own policy, first, with regard to the raising of the Bank Rate in January, and secondly, in regard to what the Chancellor said about credit restriction in his speech yesterday?

I quote in particular from columns 45 and 46 of the OFFICIAL REPORT. The Chancellor said yesterday: But, equally, we must be careful not to allow credit expansion to prejudice stability in the internal economy or balance of payments."—[OFFICIAL REPORT, 4th April, 1960; Vol. 621. c. 45–6.] So much for the question of the narrow problem of the note issue. But there are certain wider considerations. The House cannot really decide whether the Government are right in bringing this Order forward at the present time without relating their action to a very modest and tentative diagnosis of the economic situation.

My hon. Friends and I would like to ask the Economic Secretary whether the Government's monetary policy is operating under a diagnosis that we are in an inflationary situation or under a diagnosis that we face a difficult balance of payments crisis. The reason that I put this to the Economic Secretary is that my hon. Friends and I are very confused on the matter because we have had confusing statements from Government spokesmen.

To begin with, we had the original statement from the Bank of England in January when the Bank Rate was raised. It was then stated that the Bank Rate was being raised because of the inflationary situation in the economy. Subsequently we had the statement of the Chancellor on his monetary policy to which the Order relates. This was on 28th January, when the Chancellor pinpointed the danger that the country faced as a balance of payments crisis. On 11th February we had the Liverpool speech of the Governor of the Bank of England, when he stated that the main problem that the economy faced was the menace of inflation. I put some Questions to the Economic Secretary last month, and yesterday the Chancellor, referring to his monetary policy, said that his increase of the Bank Rate, to which the note issue is related, was designed to deal with a balance of payments crisis.

I will leave that aspect of the problem at the present stage, and simply say to the Economic Secretary that this is too bad and extremely confusing. If the House is to pass the Order, we should like to know what sort of economic situation the Government feel that they are facing at the moment.

I come to the last point which I indicated to the Economic Secretary I would raise. It is the view of my hon. Friends and myself—in this view we are reinforced very strongly by the Radcliffe Committee—that in monetary policy primacy should rest with the Government of the day and not with the Bank of England. I have just briefly quoted certain indications of divergencies which exist in the views of the Government and the Governor of the Bank of England. This is very unfortunate, not because they differ but because we in this House cannot cross-examine the Governor of the Bank of England on any particular aspect of monetary policy. For better or ill, we can cross-examine only the Government of the day. Therefore, it is right that the will of the Government of the day in these matters should prevail, because it is the Government of the day which is alone answerable to this House.

I hope that in the course of this debate we shall get some reasonable reassurance from the Treasury Bench on these very weighty and important matters.