When I came to the House first, I was told to specialise. The problem is that my particular interest is the balance of payments.
When I talk about this theme, I am reminded of the story told by Dean Acheson facing an accusation by an hon. Member from this side of the House that the Americans were completely preoccupied with Communism. He told the story about the three young ladies who were interviewed by a psychiatrist. The psychiatrist pulled out a handkerchief and threw it into the air and asked the first young lady what it made her think of. She replied, "The leaves falling from the trees". The second told him that it made her think of paratroops falling from the skies. The third young lady was more of an extrovert and she said that it made her think of sex. He asked, "Why sex?". She replied, "I never think about anything else". I have reached the point that, whenever I come through those doors, I think of a balance of payments crisis. It makes me a little morbid, or makes me want to give a lecture. I apologise, but there it is.
I come now to the question of import controls. I attach great importance to what the Government propose for import control, and I begin by putting, in parenthesis, a point to my hon. and learned Friend the Minister of State at the Treasury, who is in loco parentis on the Front Bench at this moment. Over the past two years, I have put down several Questions, and I have discussed with a number of Ministers, albeit junior Ministers, the desirability of introducing tie type of import control now decided on by the Government. I mean not physical import controls such as certain of my hon. Friends advocate but the prior deposit scheme.
For my last Question, I adopted the strategy of indirect approach, addressing myself to that Department which has endeared itself to us all, the Department of Economic Affairs. I thought that I might get some come-back from that quarter, if only for the reason that, in a sense, I viewed that Department as a countervailing power vis-à-vis the Treasury. I asked whether the D.E.A. would make a study of this import control scheme. I received an abrupt negative answer—"No"—not even "No, Sir". I do not take affront at that sort of thing, but it seems a little remarkable that, once again, having been told that this or that is impossible or impracticable, one reads in the newspapers almost the next morning that that very solution is to be the answer to all our hopes and prayers. I suppose that Governments cannot bring back-benchers too much into their confidence, cannot even demean themselves to discuss particular points or possible policies with members of their own party.
In this case, while I welcome the prior deposit method as distinct from any other method of import control, I want to know whether the Government have thought it through. I see all the arguments against import controls of a physical quantitative nature, and I consider that some of my hon. Friends below the Gangway—they are not all Left-wingers—would have not only to decide on the actual way in which physical import controls would operate but would have to decide the question of principle. Are we as a nation to opt out of the international economy, are we prepared to use physical controls as part of the apparatus of, if not a siege economy, at least an economy which seeks to go it alone much more than this nation can afford to do? That is the basic principle involved.
Let us come back to the prior deposit scheme. I do not want to give a lecture, but I point out that it has the obvious advantage that not only does it check imports but it is at the same time deflationary. All import controls must be inflationary, but this particular type of import control will impose a measure of deflation on the economy which will more than cancel that out.
Take it a stage further. Let us accept that there is a quite powerful element of deflation. What will happen as the mechanism begins to operate? Can enough evasive action take place to prevent the scheme from becoming effective? We know that, immediately, a good many people, especially the small businessmen who, quite rightly, are very much in the hearts and minds of hon. Members opposite, may be faced with a fairly critical situation. We know also that private enterprise has great capacity for adaptation to difficult and changing circumstances. It may well be that businessmen will look around, will begin to raise money in the secondary money markets from friends, from here and from there. They may even withdraw some of the liquidity which they have transferred into Deutschemarks. [Hon. Members: "Oh."] I thought that that might awaken some hon. Members opposite. I was trailing my coat in that observation.
In so far as this new money is available to frustrate the intentions of the Chancellor, my right hon. Friend must take it into account. Not only will it increase the supply of money but it will increase the velocity of circulation of money and, therefore, potentially, the supply of money available to get round the difficulties.
But what about the situation when individuals and companies, small companies in particular, begin to liquidate their national savings? In so far as they insist on this particular procedure, they will create a state of affairs in which the Government will have to increase their net borrowing requirement, and they will increase their net borrowing requirement through the use of Treasury bills. If they do that, they will again offset the deflationary aspect of the prior deposit scheme.
Let us go a stage further and ask what will happen if the banks, in order to adjust their asset position, begin to sell off their holdings of gilt-edged securities. Here, I think that the Chancellor has not told us of all the likely implications of what he is doing in this context. If that takes place, the Government will face a dilemma. They face a dilemma not because someone is talking about the theory of the matter but because they have had already to act in terms of the emerging situation.
Will the Government offset the decline in the gilt-edged market by sending the broker in to buy up gilt-edged securities? Obviously, they have decided to do that. In other words, they have created a situation in which the deflationary effects which are likely to stem from what they do could be offset and will be offset by reintroducing further liquidity into the system.
In part, these are all academic points. But if the Government accept the logic of the situation in the sense of being prepared to face a continuous decline in the price of gilt-edged securities, and the concomitant, a continuous rise in the rate of interest, where do we go from there? Are we to see the rate of interest rising to 8 or 9 per cent., or will the Government opt out of the situation and keep the rate of interest at what they feel to be appropriate in the circumstances?
It does not even stop there. If the rate of interest rises in that way, we once again become a magnet for all that hot money which is the delight of hon. Members opposite but which is anathema to me. Like many of my hon. Friends, I like to see the reserves of this country growing, but we cannot finance our trade in this way. Not only are we crucifying ourselves by servicing this short-term external debt, but we are also increasing the sensitivity of sterling.
This, too, may create a situation in which the deflationary effects which the Chancellor hopes to introduce will be offset by a situation which he is allowing—the financing of at any rate part of these prior deposits with money from across the exchanges. Of course Germany, with her enormous liquidity, will be quite willing to make this sort of financing operation possible if we have an interest rate of 8 per cent. or 9 per cent. in this country.
What about the Euro-dollar market? I know that the Bank of England has been given certain instructions that its permission must be sought before there can be borrowing in the Euro-dollar market for conversion into sterling for bridging operations of one sort or another in this country. The dollars go into out reserves, but at critical moments, when there is a flow back across the Atlantic, they leave the reserves and create these problems. What will be the attitude of the Bank of England? Why did not the Chancellor say that we cannot borrow from the Euro-dollar market for these bridging purposes?
I re-emphasise the importance of the problem of imports to the country. This is the Achilles heel of the balance of payments. For a long time we should have been giving much more attention to it. Whatever the Brookings Institute say, we have this secular growth in our propensity to consume. We have, superimposed on the steady growth of our imports, a cyclical import curve which creates very great problems.
If this imposition, whether it works or not, has drawn to our attention more forcibly than ever before the significance of imports to our country, then it will have served its purpose.