Gold Standard Bill

May 4, 1925. House of Commons

I was greatly puzzled when I read the Order Paper at the

form of the official Amendment of the Labour party, and
now, having heard the whole of this Debate, I cannot say
that my bewilderment has to any very great extent been
removed. I have heard no case put forward of sufficient
weight and sufficient breadth, supported by arguments of
sufficient number and vehemence, to justify the very
serious step which they have taken in placing this
Amendment on the Order Paper.
When the present Opposition formed a Government, they
formally expressed themselves in favour of a return to a
gold standard at the earliest opportunity. The Prime
Minister of those days - I have the quotations here, but I
shall not trouble the House with them - announced that
policy of carrying out the recommendations of the Cunliffc
Committee, and returning to the gold standard at the
earliest possible moment - and then the Chancellor of the
Exchequer, the right hon. Member for Colne Valley (Mr.
Snowden), went further and was even more explicit, not
only in office but in opposition. He has repeatedly urged
upon the Government that the right policy for this country
is to return to the gold standard at the earliest possible
moment.
My right hon. Friend the Member for Hillhead (Sir R.

Home), in his most powerful and effective speech, a

speech which might almost have relieved me of the duty
of intervening at all in the Debate, dealt with the late
Chancellor of the Exchequer, and quoted the article which
he wrote, only two months ago, in the "Observer"
newspaper, and he pointed out that not only had the right
hon. Member for Colne Valley advocated a return to the
gold standard, but he had pressed it as a matter of haste
and urgency. He had pressed it as a matter so important
that, to quote his words
Risks must be run for the sake of the benefits which
success would bring. England could give a lead in this
matter which would result in a general return to the gold
standard.
Well, Sir, we have taken the advice of the late Chancellor
of the Exchequer, but we shall hardly be encouraged to
repeat the experiment, having regard to the treatment we
receive when we do fall in with his views. We have taken
his advice, we are actually on the gold standard, and what
does he do? Speaking with the full responsibility of the
official spokesman of the Opposition in matters of finance,
what is it he proposes that we should do? I quite
recognise the moderation of his speech, the restraint and
sobriety of all that he said on this subject, and on both
sides of it. But what is the course which he recommends
to the House of Commons this afternoon?

He proposes, now that we are on the gold standard, to

deprive us of the precautionary measures and safeguards
which, after long thought and patient preparation, we
regard as vital to the success of the operation which he
himself has counselled. Well, if you are looking for
grounds of opposition, you can nearly always find some
reasons, and so the blessed words "undue precipitancy"
have been discovered to bridge the gap between the late
Chancellor of the Exchequer's past and the views which
some of his supporters in his party hold at the present
time.
Undue precipitancy! I understand the difficulties to which
ex-Ministers and the leaders of a party in opposition are
subjected. I wish to make every possible allowance for
them, but I must say, speaking quite frankly, and, I hope,
without offence, that this incident makes it difficult, not
for the Government merely, but for the House, to place
full reliance on the character of the advice given by
responsible leaders of the Opposition in regard to grave
and complicated matters of public policy. They advise a
certain course publicly and repeatedly. We adopt the
course, we take a decision in accordance with their advice,
and then immediately they move an Amendment, not only
to condemn us for what we have done, but to deprive us
of those practical safeguards by which alone what we have
done can be carried through successfully.
One may approve of the principle, one may even agree as

to the urgency, and yet one may dislike the method. I

heard nothing in the speech of the late Chancellor of the
Exchequer which indicated any serious disapproval of the
specific method we have adopted. It is a method which
the highest experts have advocated. In carrying out the
policy recommended by the late Chancellor of the
Exchequer, we have taken every precaution which
forethought, and patience, and long preparation could
suggest.
Undue precipitancy! Where is the undue precipitancy in
acquiring discreetly, over a considerable period of time,
the 166,000,000 dollars required to cover our payments
to the United States for the whole of this year? Where is
the undue precipitancy when we began these
arrangements with the United States, upon which these
trans-Atlantic operations were founded, before Christmas
last year? There never has been any step of this character
taken by any Government which, so far from being
marked by undue precipitancy, has been more
characterised by design, forethought, careful and
laborious preparation.
Mr. B. Smith: See the results.
Mr. Churchill: The late Mr. Bonar Law once, in reply to an
interjection of that kind, made a very pertinent quotation,
and said: It is no use trying to argue with a prophet. One
can only disbelieve him.

Mr. Smith: I only said, Wait the results.

Mr. Churchill: There is perhaps one ground on which we
might have been accused of undue precipitancy. I was
waiting to hear the right hon. Member for Colne Valley,
whom I am glad to see in his place, perhaps say that he
would have approved of all that we had done but for the
fact that, instead of declaring last week that we would
return to the gold standard on the 31st December, we had
in fact returned to it at the moment of my declaration. It
is, of course, a question which requires careful balancingwhether you should give a long notice in advance, or
whether you should act instantaneously by giving a
general licence to the Bank of England to resume gold
exportation.
I was advised that, if we had waited the eight months
before the end of the year, before the expiry of the
present Act, everyone would have had all that time to
perfect arrangements for the export of bullion. Everyone
during those months could under the existing law, have
withdrawn and hoarded gold against the day when the
free export of gold became lawful, and all this pent-up
volume, which you could not measure, which might be
very small, or might be very large, but, in any case, would
have been uncertain, would have been awaiting the
automatic cessation of the existing law, and would have
fallen upon us on the 1st January, 1926. That is a season

when the normal demand for dollars is high, a season

usually unfavourable to our Exchequer, and at the
unfavourable moment all this pent-up strain would have
fallen upon our gold reserves. No one would have been
able to predict what would have happened. Personally, I
am not convinced that anything very serious would have
happened, but there are many people who would have
been alarmed, and these vague fears and uncertainties
affecting the whole position of our trade and finance,
would have been deeply detrimental to our material wellbeing.
If you are going to return to the gold standard, if that
principle is to be carried into effect at all, now is, from
every point of view, the moment which should be seized.
This charge of undue precipitancy has enabled the right
hon. Gentleman to present a consistent, or comparatively
consistent, front, but his argument as to undue
precipitancy runs counter to all the most solid reasons
which the Government can produce. I must contrast the
position of the right hon. Gentleman with the position of
Mr. Keynes, who is, I suppose, by far the most
distinguished and able exponent of the opposition to the
return to gold. He is the great advocate of a managed
currency, the most powerful and persuasive advocate.
While the right hon. Gentleman opposite was writing in
the "Observer" newspaper, articles demanding the return
to gold -

Mr. Snowden: Not demanding.

Mr. Churchill: Advising or suggesting. While the right hon.
Gentleman was writing in the "Observer" articles which
might easily have been interpreted to mean that he was
ready to approve of a return to the gold standard, urging
that risks should be run, and that no time should be lost,
Mr. Keynes was writing in the "Nation" a series of
searching and brilliant articles, formidable and instructive,
in favour of a managed currency. You could not have had
a greater difference than was exhibited between the
writings of the right hon. Gentleman and the articles of Mr.
Keynes.
What has happened in the event?

The right hon.

Gentleman, who advocated a return to the gold standard

at the earliest moment, when we return to the gold
standard attacks us. But Mr. Keynes says:
If we are to return to gold, and in the face of general
opinion that is inevitable, the Chancellor and the Treasury
and the Bank have tried to do so along the most prudent
and far-sighted lines which are open to them.
That is the statement which was made by, I say, the most
able, most powerful opponent of the return to gold. Here
is the right hon. Gentleman, who is one of the strongest
advocates of the return to gold, confronted with the same
facts as Mr. Keynes, accusing the Government of undue

precipitancy.
Mr. Snowden: May I also quote this from Mr. Keynes:
There remains, however, the objection, to which I have
never ceased to attach importance, against the return to
gold, in actual present conditions, in view of possible
consequences and the state of trade.
Mr. Churchill: Certainly, I say he is the most capable
exponent of the opposite view, and absolutely disagrees
with the right hon. Gentleman on the principle. And yet,
so fair-minded is he in judging this matter, that, apart
from the principle, if you are going to do it, he says this is
much the best way. What is the explanation of the
difference between the two? The explanation is that the
right hon. Gentleman, unlike Mr. Keynes, has to consider
party manoeuvres and party exigencies, and it is not
thought prudent, in regard to a matter of this kind, about
which many people entertain conflicting views, that the
official Opposition should take up any attitude which, if
unsatisfactory results accrued in the future, would prevent
them from being able to say, "I told you so."
The right hon. Gentleman is really in an excellent position.
He is, in sporting parlance, "standing on velvet." If
everything goes successfully, and no evil consequences
arise, not even temporarily; if there are no spasms of any
kind, he will be able to say, "Ah! we were always in favour

of the return to the gold standard; the Labour party in

office declared itself strongly in favour of it." If, on the
other hand, there should be, in some few months' time,
some spasm or some stringency, and momentary agitation
is raised in the Press, he will again be able to rise in his
place, or write another article in the "Observer," saying
that he had foretold it.
Let us see what would happen if the official Labour
Amendment were carried. We should find ourselves
deprived of every effective means of making the transition
safe. We should not be able to secure the credits in the
United States which are intended to warn off speculatorsin the excellent phrase Lord Oxford used last week, to
"warn off the international banditti of finance" from
making attempts to overturn our gold standard. If we
were left unprotected, and such attempts succeeded, we
should have to make very heavy shipments of gold, and
we should certainly have to raise the Bank rate.
At the very time that we were exposed to this strain, we
should, if the Amendment now before the House were
carried, have to pay out sovereigns from the gold reserves
to everyone who chose to ask for them, and, in order that
there should be no risk of a shortage, the Mint would be
under an obligation of minting into sovereigns all gold
tendered to it. I can understand condemning the principle
of a return to gold, but to approve the principle, and then
to leave this country defenceless in a vital matter of this

kind, when it is already committed, is a course which I am

quite sure very few responsible Members in this House will
care to support in the Lobby. I do not know whether there
will be a Division or not on this issue. If there is, well and
good, but if there should be no Division, on the whole,
possibly, some national, apart from party, advantage
would be gained thereby.
No doubt it is a serious matter for a Minister and a
Government to have to take the responsibility for a
Measure of this kind. I will tell the House quite simply on
what authority I base myself, and what reasons have
influenced me. I do not pose as a currency expert. It
would be very absurd if I did; no one would believe me. I
present myself here, not as a currency expert, but as a
Member of Parliament with some experience in dealing
with experts and weighing their arguments, as the
Minister who has behind him what, I believe, is, and what,
I daresay, the right hon. Gentleman believes is, upon the
whole the finest expert opinion in financial matters, in
Treasury matters, in the whole world. We have behind us
the unbroken opinion of every Government while it was
responsible. We have every Prime Minister and every
Chancellor of the Exchequer, except, with some recent
modification, the right hon. Gentleman. We have every
Committee and every Conference that has been held since
the War. We have the Currency Committee's Report, which
has been available for several days in the Vote Office, and
gives all our general reasons.

That is the basis and the foundation on which we rely, not

only as regards the principle, but generally as regards the
method. Apart from the principle, I had to rely on the best
expert advice I could get as to method and time. The
advocates of a managed currency say: "Why do you not
continue to manage the currency? See how successful it
has been. See how well it has been done. Why do you not
continue a managed currency?" I agree that the experts
at the Treasury and the Bank of England who have
managed the currency during the past few years have
been wonderfully successful. This is all the more
remarkable, because those years have been years of
violent political fluctuation and disturbance, in spite of
which they have managed to steer a steady course,
maintain a fairly stable financial policy, and promote and
enhance British credit.
That is a great achievement. But surely the experts, to
whom this achievement belongs, must be very high
authorities on the subject. Surely they are the people who
ought to know most about it. Surely their opinion counts
more than the clever arguments of academic theorists or
the interested attitude of party politicians. I, as Minister,
and the Government take full responsibility. I am not
setting our opinion up, but I am saying we are right to be
guided by the statements of opinion we have received
from them. Surely if you can rely upon a body of expert
opinion which has actually conducted financially the affairs

of this country with success, and tendered advice to their

Ministers-a long and changing succession of Ministers-you
are entitled to base yourself with real assurance upon the
advice you receive from them. When the men who have
managed the currency so well, according to the opponents
of the present Bill, tell me that they can manage the
currency no longer upon this basis, and tell me it would
have been impossible to have managed it so far as they
have unless they had always had the return to the gold
standard as a goal to steer towards, and that if we were
now to repudiate the gold standard, and introduce
legislation for the purpose of prolonging the embargo, an
immense injury would be done to the whole structure of
British finance, surely their opinion should carry great
weight. That is the advice upon which I have to rely, and
to which I am bound to pay the greatest attention.
I have endeavoured, of course, to the best of my ability to
think out the problem for myself, and I will give the House
a few non-technical reasons why I think we are bound to
take this step and take it now and take it in this particular
way. The first of these reasons is the position of this
crowded island, which could not support its present
population by the unaided exertions of its agriculture, its
manufactures, or even its shipping, unless these exertions
were supplemented by the world-wide interests of this
country in finance and business. The great working-class
population such as we have here requires, above all
things, and our economic problem requires, above all

things, close and continuous contact with reality. There is

no country in the world that can less afford to see its
policy diverge from economic facts than our own. If we
tried, whatever Government was in power, to inflate our
currency or credit in order to produce hectic expansion not
warranted by underlying facts, the consequence of that
action would be widespread misery among the population
and probably lasting injury, perhaps even fatal injury to
the structure of our trade.
We are often told that the gold standard will shackle us to
the United States. I will deal with that in a moment. I will
tell you what it will shackle us to. It will shackle us to
reality. For good or for ill, it will shackle us to reality. That
is the only basis upon which we shall be standing, and I
believe it to be the only basis which offers any permanent
security for our affairs. That is my first broad reason. The
foundation of Great Britain's economic policy must be, as
far as possible, based upon reality.
Now the second reason is one which I think the Labour
party, the official Opposition, might consider. We are not a
self-supporting country. We have this immense workingclass population. We have a population twice as dense as
that of France. These people are dependent mainly on
overseas food and our industries are dependent on
overseas raw material. What is one of their principal
interests? It is surely stability of prices. When prices
fluctuate violently, as in the year 1919, and when, as in

1920, there is a slump, the real wages of the work-people

are continuously affected and almost every step in the
wage movement either up or down is attended by
industrial fighting. This fighting wastes an enormous
quantity of wealth, and injures the whole community.
On the whole, when there is inflation and undue
expansion, I believe it to be true that wages follow with
somewhat slower footsteps the swiftly rising scale of
prices. Great disadvantage is caused in such
circumstances by the decline in the value of money. Great
strikes occur in the process of adjustment. Then when
prices fall, another set of quarrels begins, and serious
wage reductions are demanded which it is regarded as a
point of honour to resist. There, again, you get friction,
disturbance and sometimes the long arrest of production
in important industries. Some fluctuations are perhaps
inevitable, but we must reduce them to the minimum. We
should endeavour to keep as steady a level of prices as
possible, and we are far more likely to get that steady
level if we are not drawn into over-trading and inflation,
and we regulate our arrangements by one common
standard of value. Therefore, I say that what is wanted in
the general interest of the wage-earning classes of this
country is a steady, trustworthy, honest, and, if possible,
uniform standard of value.
What is my third reason? We are not only the financial
centre of the world; we are also the centre of a wide

Empire. If we detached ourselves from the great selfgoverning Dominions, which are nations in themselvesthe unique glory of this country, the like of which no other
nation has been able to show if we detach ourselves from
their movements, we run the great risk of becoming
isolated and loosening those bonds, the continuance and
the fortification of which are indispensable to our wellbeing.
Canada is already linked to the gold standard. South
Africa, independently of us, was about to return to the
gold standard. I received in the last few months frequent
inquiries from Australia as to what is our position, and
indicating what were their desires. If we had shown
ourselves incapable of taking up any position at all, the
self-governing Dominions of the British Empire might have
gone on to the gold standard by themselves, and the
Mother Country alone would have been left to pursue a
different policy. They would all have traded together, and
the inconvenience they suffered by reason of the
conditions of exchange would have been swept away, as
far as they themselves were concerned. Australia would
have traded with South Africa and all the Dominions would
have traded with the United States of America on a gold
basis, and it would have been a gold basis with the pound
left out; it would have been gold on the basis of the dollar,
not of the pound, and we should have been left on a
different foundation. That would have been a condition of
affairs disastrous from every point of view.

The same is true of foreign countries with which we deal.

We have immense dealings with them, and we must have
greater dealings with them if our prosperity is to revive. If
the English pound sterling is not to be anchored to the
standard which everyone knows and can trust, and which
everyone in every country understands, and can rely
upon, the business, not only of the British Empire, but of
Europe as well, might easily have come to be transacted
in dollars instead of in pounds sterling. I think that would
be a great misfortune, a misfortune which, if once
incurred, might continue. Those are the three great
reasons, economic, social and Imperial, which convinced
me that we should return without delay to an international
gold standard.
We are told, in the first place, that the gold standard will
be injurious to us, because America is in favour of it. It is
quite true that the universal or widespread adoption of the
gold standard will be of great advantage to the United
States, but, as my right hon. Friend pointed out, it by no
means follows that because it is an advantage to the
United States it will not be an advantage to us. The great
free trade economist Bastiat, in a celebrated sentence,
declared that all legitimate interests were in harmony, and
I see no reason why what benefits the United States
should not perhaps benefit us in our special needs as
much or even more.

We are told that the gold standard will put us in subjection

to the United States, that we shall be shackled to them,
and that we shall be bound hand and foot, and forced to
conform to the course of their affairs. We are reminded
that the United States have 800,000,000 of gold, half
the supply of the whole world. They have at present, in
the Federal Reserve Banks, 000,000,000 above their
requirements. Naturally we are told that if she is to use
this gold, her interest is to make it as available and potent
as possible. Naturally she will help us to make it the
dominant standard of value. I think that is a fair
statement of the argument.
What is there to say on the other side? First of all,
whether we go on the gold standard or not, our interests
are profoundly and intimately involved in those of the
United States, which is larger than we: in some respects
she is richer than we are. The two great communities are
woven together by a thousand ties of trade and finance.
We pay every year our 35,000,000 of war debt to the
United States, but that is a small part of our mutual
transactions. We have to buy from the United States the
greater part of our cotton, tobacco and a large proportion
of our raw materials and wheat. We purchased last year
240,000,000 of goods from the United States. Whether
on a gold standard or on a managed currency or on any
other scheme which can be conceived, her fortunes arc
bound to sway and influence ours whenever she booms or
slumps.

Before the War or after the War, whatever we do, our

prosperity was and is bound to be affected by conditions
across the Atlantic Ocean. Therefore it is not a question of
whether the return to a gold standard makes us
dependent on the United States, but whether it makes us
more dependent or dependent in an unhealthy and a
subservient manner.
I think that the answer to that question depends on
another. Shall we ourselves be stronger on the gold
standard or off it? If that great entity of the British Empire
united on this gold standard will be stronger, then we shall
be in a better position to hold our own in regard to the
strong influences which will sweep across our affairs from
the other side of the Atlantic. We are already very strong.
In spite of all our war burdens and the immense exertions
we and the exhaustion that followed upon it, we have
managed to maintain London as the financial centre of the
world. We have the control of a vast amount of the world's
business. We have a magnificent credit to which all parties
in this House have contributed. We have still, it is
calculated, 3,000,000,000 of foreign investments, the
interest on which is calculated at about 220,000,000 a
year. Even in gold reserves the position of the British
Empire is impressive. We have 153,000,000 here and
107,000,000 is held by the Dominions.
Then, also, the British Empire is the main source of the

world's gold supply. 60,000,000 of gold a year, or 70 per

cent, of the whole supply of the world, comes from under
the British (lag. Britain and her Dominions, standing
together united, are an enormous power, a power so
great, so intricate, so comprehensive that it is strong
enough to exist side by side in an amicable association
with even a larger economic and financial Power, without
being prejudicially affected in its own essential
independence. In this way it is true, I think, to say that
the interests of Britain are not dependent upon the United
States, but that the interests of both countries are
interdependent.
Let me deal with another of the elements of doubt which
have arisen. We are told of the 300,000,000 of surplus
gold that are lying in the vaults of the United States. No
doubt that gold will not move physically to any large
extent. But it is possible that, as a result of the wide
adoption of the gold standard in this and other countries,
that this gold, which is now inert, will gradually become
active. This gold will gradually serve as the foundation of
credit in many parts of the world. If that is so, there will
ensue a slow, gradual, healthy and perfectly legitimate
expansion of credit all over the world. We may enter upon
a period similar to that which we passed through in the
"nineties," when, without any violent fluctuations or
improper inflation, there was a general broadening of
credit due to the discovery of the gold-fields of South
Africa.

It makes no difference whether the gold is 4,000 feet

below the surface of the Rand, or 40 feet below the
surface in the vaults of the Federal Reserve Bank. It might
well inaugurate a period of healthy expansion during
which every one would be kept in check by continuous
reference to the same standard of value. It is quite a
different process to those processes of inflation caused by
setting the printing press to work to multiply the paper
currency, or by increasing the Floating Debt by selling
Treasury Bills. It is a process founded on solid facts, and
related at every stage. I do not care to prophesy whether
such a change will take place or not. If it takes place it will
certainly be accompanied by a gradual increase in the
consuming power of every branch of the world's trade.
Then we are told that this gold may come here in large
quantities. We may be "flooded with gold" as the right
hon. Gentleman the Member for Colne Valley says. That is
not precisely the problem that has most occupied the
minds of my advisers during recent months. In his
carefully balanced speech on both sides of the question,
the right hon. Gentleman contrived to throw doubts on
our policy, first of all by intimating how easily we might be
thrown into inconvenience by a drain of gold, and,
secondly, how easily we might be thrown into
inconvenience by being flooded with gold. It is suggested
that if gold became a plethora here, and is discharged
upon us in quantities which we could not properly absorb,

prices would be forced up, and we should have a serious

economic situation.
Such a situation, however fantastic, however unlikely to
arise, would leave us perfectly cool. The right hon.
Gentleman asked: Why have we not suspended the
obligation of the Bank of England to buy unlimited gold at
a fixed price? Why? If you are to maintain stability, you
must resist disturbing influences from both sides. Stability
is equally deranged by a too high exchange as well as by
a too low exchange. It is essential that the bank should
operate as a balancing instrument both ways-to buy gold
when it is tendered, to deliver gold when it is demanded,
always at a fixed, known, and previously declared price.
In this way alone can we create a financial pivot on which
the whole process of stabilisation will revolve.
We are in this country in a position, alone among the
countries of the world, to have no need to fear a violent
flooding with gold. By a judicious and far-seeing provision
inserted in the American Debt Settlement-a settlement to
which I think the right hon. Member for West Swansea
(Mr. Runciman) referred earlier in the Session-we have a
right to pay off the principal of our debt to the United
States at any time in gold. If, therefore, gold made its
appearance in this country in inconvenient quantities, and
tended to drive prices up, all the Treasury would have to
do would be to float an internal loan, purchase the gold,
and remit it to the United States in cancellation of the War

Debt. At every stage we should gain in this transaction.

We should be paying off our debt by the most
advantageous method, and we should be substituting an
internal debt for a vastly more burdensome overseas
external debt.
I do not, however, think there is any chance of this sort of
thing happening. That is the sort of thing that only
happens in heaven. I think the facts I have stated will
constitute an absolute answer to the particular set of
nightmares which are usually felt by those who fear we
shall be thrown into convulsions by American gold. We
have inexpugnable means of defence if such a situation
arose. But where will the gold, or the credit founded upon
it, go if it be released from the United States in future
years?
It will go, as we believe, to European countries and other
parts of the world, and in so far as it operates there, it will
tend to set them on their legs again. They will, of course,
be more intimately associated with the United States in
consequence of their loans, but a general revival is what
we have to base ourselves upon. A general revival of
consuming power all over the world is the hope that this
country must cherish. That growth of consuming power
internationally is bound to react favourably upon us. We
cannot live without exports to the markets of the world.
I must take one more point - if I am not detaining the

House too long - the question of the index figures. We are

told that there will be an immediate difficulty because the
British index figures are five points, I think, different from
the figures of the United States. My right hon. Friend the
Financial Secretary very rightly pointed out that these
index figures are not in themselves necessarily a complete
guide. They are based on different foundations in each
country- 150 articles here, 400 commodities there. These
figures are not an absolute guide. It does not at all follow
than an absolute equation of prices is essential to avoid
disturbance and adjustment when the gold standard is
restored. There is a certain degree of tolerance, as it is
called in engineering, which has existed in the past. It is
not a clear-cut mathematical calculation. Those who found
clear-cut mathematical calculations on these index figures
are likely to strain the figures further than they are
warranted, and to draw wrong conclusions.
We all lived through the year 1907. In that year the index
figures of the United States and of the United Kingdom
were on a certain basis, 116 and 106 respectively. We
were on the gold standard then. No violent convulsion
occurred. Matters adjusted themselves between the two
countries. In 1913 - which is often taken as a starting point-the figures were on the same basis, 123.5 in the
United States, and 116.5 for the United Kingdom - a
difference of seven points. The difference today is less
than five points. I do not see why there should be any
violent readjustments or fluctuations at the present time

on account of the difference in price levels of the two

countries. Those price levels have been steadily
approximating, and are now in a nearly harmonious
condition for the introduction of such a change as the
reversion to the gold standard.
We are told: "If you are wrong, if the strain is more than
this country can bear, if there is a drain of gold, if we
show undue weakness, there will be an increase in the
Bank rate which will check enterprise and increase
unemployment." I am not going to prophesy about the
Bank rate, but I will say this: that I do not know of any
immediate reason for an increase. Bank rates higher than
5 per cent have been known before the War, in the
autumn especially, when heavy purchases were being
made in the United States by this country. I am not
inclined to prophesy, but, certainly, nothing that has
happened in the week that has passed since we took the
momentous step of reverting to the gold standard brings
the prospect of a rise in the Bank rate any nearer.
One thing that would bring about an immediate increase
in the Bank rate would be the rejection of this Bill. It
would prevent our credits in the United States. It would
lead speculators to attack our parity. There might be an
immediate demand for sovereigns for internal circulation.
The only possible alternative to this Bill is a speedy and
serious rise in the Bank rate. If we are to adopt the course
recommended by the Labour party which I am sorry to

say they have persuaded the right hon. Gentleman the

Member for Colne Valley on his responsible authority to
father - if, I say, we were to adopt that course, there
would be a sudden and an immediate rise in the Bank
rate.
I know that there is not the least chance of the House
assenting to such an unwise proposal. At the same time, it
is worth noting, in view of some of the criticism and
attacks that have been made during this Session upon the
rise in Bank rate, the probable reactions which would
occur if the Bank rate were raised.
The first is that if prices have been rising unduly, if there
has been over-trading or inflation, prices are prevented
from rising further. That is the first reaction. Is that a bad
thing for the wage-earning classes? Since when has an
undue increase in the cost of living been a matter of
indifference to the wage-earners? The second reaction is
that speculation, as apart from legitimate business, is
checked, rings are broken, bubbles are pricked. If food or
raw materials are being held up in large quantities for a
rise in price, speculators are forced to disgorge, and the
commodities are thrown on the market at reduced prices.
Anything like a corner is prevented. Is there anything in
that contrary to the interest of the wage-earning classes?
What is the third reaction? The value of gilt-edged
securities, which varies to some extent inversely to

interest rates, is somewhat reduced. The right hon.

Gentleman the Member for Swansea (Mr. Runciman)
spoke with much reprobation, the other night, against the
rentier class. As the Bank rate rises, the rentier class, in
so far as they are owners of gilt-edged securities, will find
their invested capital priced somewhat lower. Is there any
reason why that should arouse the wrath of the Labour
party? We on this side of the House regard it as a
misfortune, but I should think it would make an appeal to
many of their most deep-seated convictions. There is a
fourth reaction which attends the rise in the Bank rate. I
mean the improvement or maintenance of our exchanges,
and particularly our exchange with the United States.
Conceive the importance of a stable exchange, a parity of
exchange, with the United States. When sterling equals
gold, or is on the same footing in relation to gold as is the
dollar, we are able to purchase the 240,000,000 worth of
goods that we have to buy from the United States on the
most favourable terms. We are able to make our debt
payment of 35,000,000 on the most favourable terms.
The same argument applies to a large portion of the
220,000,000 of interest due to us from our
3,000,000,000 of foreign investments. That is largely
payable in sterling, and when sterling is equal to gold we
receive that interest on the most favourable terms. The
same argument can apply to any payment that might be
made to us in regard to inter-Allied debts.

In so far as sterling lags behind gold, there is on all these

important accounts a heavy loss. If the pound dropped to
four dollars, as I am advised it might have done had we
definitely announced the incapacity of this country to
resume the gold standard, or as it might do now if the
House rejected this Bill, let us see what we should lose-I
do not say what we should lose indirectly, for that would
be far greater, but what we should lose that is traceable
and recognisable. My figures are very rough.
We should have to pay nearly one-fifth more on our
payments lo the United States, whether for debt or raw
materials and food. Similarly, we might lose one-fifth of
our 220,000,000 of interests on foreign investments.
That is, we might lose nearly 100,000,000 per annum on
our external overseas trading account, or nearly three
times the present debt we have to pay to the United
States. It is considerations like these which have to be
balanced against the many disadvantages which follow
when a rise in the Bank rate takes place.
These are not matters of theory. These are all matters of
recent experience. All these reactions took place when the
Bank rate was raised in March. The exchanges were
maintained and improved, the value of gilt-edged
securities slightly diminished, the cost of living was
slightly lower, real wages were slightly increased,
enterprise was slightly chilled. Most remarkable of all was
the effect upon speculation. The Federal Reserve Banks of

the United States form a system which, like the Bank of

England, is managed on the broad plane of public interest.
When the Federal Reserve Board raised the American
rediscount rate, it corrected and prevented unwholesome
developments of speculation. An important feature in this
speculation was an attempt to hold up the wheat supply.
What was the result of raising the rate? Wheat prices
dropped 30 cents in a few days. The Bank of England
acted shortly after in harmony with the Federal Reserve
Board, and in England the quartern loaf immediately fell in
price. Surely that is a matter of some consequence to the
Labour party. The right hon. Gentleman the Member for
Shettleston (Mr. Wheatley) made a most serious attack
upon the rise in the Bank rate. It was a most grave
attack. He suggested that it would double the cost of
building, and so add enormous burdens to the working
classes. Does he really think that I, as Chancellor of the
Exchequer, ought to have put pressure on the Governor of
the Bank of England, quite unusual pressure, to prevent a
diminution of excessive speculation, and a consequent
reduction in price of the loaf of bread?
Since I have been forced to deal at some length with this
question of the Bank rate, let me repeat what I have
already said, in order that there should be no
misunderstanding, that I know of nothing that would
justify an increase in the Bank rate in the immediate
future. On the contrary, the situation is stable. All the
evidence we have goes to show that the great transition

to the gold standard has been effected so far-I am not

going to prophesy about the future, not in the slightest
degree-has been effected so far with ease and with
success. I ask the House to pass this Bill, and to pass it
with all despatch, as a matter of high public interest. The
step we have taken of returning to the gold standard has,
for good or ill, been taken upon the responsibility, which
they do not shirk, of His Majesty's Government. We should
be mad and criminal if, having taken that step, we
deprived ourselves of any reasonable precautions which
all authorities, even those opposed to the principle of the
return to the gold standard, unite in regarding as
indispensable.
As to the future, that must make its own proof. It is a
decision and a policy which cannot be judged by the
incidents of a few months, which cannot be finally judged
even by the fluctuations of a few years. It may be that in
two or three years material for forming a just provisional
judgment will exist, and that the House will be able to say
to the Government, "You did right" or "You did wrong." We
have acted, however, with the utmost care and
forethought, we have acted after full deliberation, we have
acted with confidence, and we have certainly acted with
decision. I am glad to think that we possess sufficient
Parliamentary power to enable us to drive through any
temporary squalls or storms towards our destination, and
that we possess not only the power in this Parliament, but
the time to follow long views to tangible conclusions.