On the last day the Committee were discussing amendments Nos. 2, 3 and 4 which deal with the number of directors, and particularly with the number of banking directors. On that amendment a Second Reading debate originated. Many of the points at issue will and must arise on subsequent sections, points dealing with general functions, parity and note issue on sound liquid advances and so on. I would suggest that the discussion now should be confined to the actual section before the Committee, and the other issues can be raised on the appropriate sections. That course would obviate a triplicate debate.
Central Bank Bill, 1942—Committee Stage (Resumed).
I suggest that, except we follow out the discussion in the form in which the Taoiseach approached this particular amendment, and reach a definite conclusion, the discussion of the various amendments later to be considered will be almost unintelligible. The Taoiseach dealt with this amendment on the Committee Stage without having addressed himself to this matter of a central bank on the Second Reading. He indicated that he wanted a radically different type of bank originally, but that in some way or another he met with arguments and facts, and certain reasons were put before him to which he could not but bow his judgment. He made a statement running into one hour and 25 minutes——
Twenty-three columns of the Parliamentary Debates.
The Taoiseach raised certain points in the statement he made to the House, but we did not get from him a list of the increased functions that he thought the central bank ought to have over and above what this Bill provides, nor did he put before us any of the reasons or the facts that persuaded him reluctantly to alter his judgment. In discussing such an important matter, which the Taoiseach indicated on several occasions bore vitally on the economic and social position of the country, I think the House ought not to be left without some understanding of the additional powers which the Taoiseach thinks should be in this Bill and which, because of certain reasoning and argument, have been dropped.
I think Deputies are entitled to know the reasons and the arguments that induced the Taoiseach to present the Bill in its present form. If we are to have a reasonably good, crisp discussion on the amendments put down to the Bill, we should have those reasons and arguments submitted to us. Taking the position as it stands, I think it will be necessary for us to pursue the line of argument adopted by the Taoiseach on the last occasion. Deputies should have the additional information to which I have referred in order to let them know exactly where they stand in the discussion of these amendments.
Section 5 is under consideration. If the Deputy will look at Section 6, he will realise that it affords every opportunity for raising the wider issues.
May I assume that the Chair will allow us to deal with the many big issues raised by the Taoiseach?
On Section 6.
Why not on the section on which the Taoiseach was allowed to raise those issues?
Section 6 is surely wide enough and the discussion would be quite relevant then.
The members of this Party deliberately refrained from putting down a large number of amendments. They put down a small number for the purpose of raising a few of the issues covered by the Taoiseach in his lengthy and interesting speech. Seeing that the Taoiseach was allowed to deal with these matters on Section 5 those responsible for putting down the amendments will surely be permitted to cover those very issues on the same section?
Deputies may do so on the next section.
The Chair invited me to look up Section 6. Let me direct attention to the Parliamentary Debates, 23rd April, column 1124, where the Taoiseach said:
"In fact, it is almost certain that if the Currency Commission had not been formed in the way in which it is formed",
—that is, if there were not bankers on it—
"and if we were beginning de novo with a central bank idea, we would not have them here, even to the extent of allowing them to send up a panel from which the Minister can appoint.”
In his statement, where he went into certain aspects of the functions of a central bank, the Taoiseach indicated that but for the historical growth of the Currency Commission, he would not have bankers on it at all. We are discussing an amendment dealing with banking representation on the board, as well as, and flowing from that, certain other matters that, if they are going to be attended to at all, require the technical attention of bankers. We are also concerned with the question, if they are to be attended to by bankers in their technical aspects, whether they are going to do some of the things the Taoiseach suggests they may do. What really has happened is that we have been brought into the Second Reading atmosphere again.
On all sides of the House.
That is a matter which can be looked into. The outstanding thing that happened this amendment was that the Taoiseach came into the House and made a pronouncement on the Bill itself, and on lots of things outside the Bill, which radically changed our whole approach to it. We should really have had an opportunity to consider the Taoiseach's statement and our reactions to it, and we should have had time to ponder over them between the Second Reading Stage and the Committee Stage. If it is suggested now that we cannot continue the discussion in the form in which it has begun, then the Committee Stage should not be proceeded with until we have had a further opportunity to consider the Taoiseach's statement, on the understanding that the implications of it can be discussed on the amendment and the sections subsequently. I believe it would be more satisfactory, since we have run into this type of discussion, to finish it and, on leaving that behind us, to deal with the other amendments as they come along, in the light of such information as we can extract from the Taoiseach and the Minister for Finance now.
I feel that it is a pity, in one way, that the Taoiseach did not keep right on to the end of the road, because you are inviting us, in regard to the discussion that has been started by various Deputies—as you say, on both sides; we will not say who started it—to reserve the rest of the discussion for Section 6. I would like to point out that, if that is done, we will have burnt our boats on Section 5, since in that we are discussing the control of the banks. The Taoiseach suggested that he did not want a Government bank and that he did not want various other kinds of banks, but what he did not tell us was why he is taking the control of the bank from the people most qualified by experience to carry out these functions.
It seems to me that the Deputy is now replying to the Taoiseach.
And more power to his elbow!
I started by saying I was sorry that the Taoiseach did not keep on to the end of the road, and then I pointed out that, if we wait until Section 6, we will be told that the die is cast, the directors are decided and any eloquence that is put forward will have absolutely no effect on the control of the bank, which is where we are most anxious that it should be exercised. The relevant discussion on Section 5 was as to who was to have control of the bank, and I would like to point out that we have heard very little as to why the people who have spent their lives in the business should not continue at that.
That is quite a different point, one which he mentioned would be relevant on Section 5. Other Deputies, however, have expressed a desire to debate very different issues. My suggestion is that the question of parity will inevitably arise later, as well as the question of note issue, and the matter of Section 6. If the debate continues now on the lines suggested, will it not be repeated on Section 6, and in regard to these individual issues on individual amendments?
In reply to that, I would draw attention to column 1124 of the Official Debates where the Taoiseach said:
"We shall have in the board of the central bank a body of people whose sole business, whose duty, it will be to influence in so far as they can the use of the volume of credit in the interests of the community."
Not "the use of the volume of credit." That is not correct. I may have said that, but I distinguished between the influence on the volume and on the use that would be made of the volume of credit.
One of our difficulties is that, when the Taoiseach was speaking the other day, he mentioned the influence which the bank would have on the volume of trade. On that important point I tried to question the Taoiseach, but I now find in the report that it is the volume of credit that was discussed. If I may finish the quotation, the Taoiseach said:
"If we think in advance that they will not do this, we ought to show why we think so."
If we are going to discuss this bank on the basis that the board will influence the use of the volume of credit, then it might not be necessary to have bankers on it. Therefore I think we should clear up some of the things that the Taoiseach spoke to us about the other day as, until that is done, nobody could make up his mind whether there should be bankers on the board or not.
I find it difficult to ascertain what exactly Deputies wish to discuss on Section 5. The consideration of the constitution of the board does not prevent the board's powers being raised. But it would arise again on the next section.
Could we not bid the devil good-morrow when we meet him?
On this amendment, the Taoiseach dealt with the various functions of the bank.
Which functions are at issue in No. 6.
He dealt with it on Section 5.
Why not reply on No. 6?
I think a matter that has been raised on No. 5, and raised in such a peculiar way, is so important that we should have an opportunity to clear it up on No. 5.
The Taoiseach was allowed to speak for an hour and 20 minutes, and so I presume he was in order and, being in order, it must be relevant on Section 5, and a number of Deputies on this side think that it is relevant, to this extent, that Deputy Norton, speaking the last day, indicated that he thought this Bill was no use. There is, then, the point as to why we are wasting time discussing the numbers. From the point of view of a number of people, whether or not you have bankers on the board depends on the matter of the Bill. In order to put himself in order, as I presume he was, he brought the discussion around to show the importance of the Bill and what was in it and what was not in it. I had a number of hours' work in a different capacity to-day, and I tried to read through the Taoiseach's speech and found it very difficult, but I am assured that the Taoiseach was in order.
The Chair has not stated that the Taoiseach or Deputies were in order in everything said.
Are we now in Committee or in a preliminary stage?
We are in vacuo.
May we now proceed into Committee?
It is suggested that this renewed debate should go on for days and be reopened on subsequent sections.
You cannot blame the Opposition.
The Second Reading of this Bill was a disappointment to me. I thought it would have lasted much longer and that we would have heard many more expressions of opinion. Many Deputies did not avail of that opportunity and, on the last day that the Bill was before the Dáil, we had, with all respect to the Chair, another Second Reading debate inaugurated.
The Chair has so stated.
Might I suggest that we should get on to the Committee Stage now? God knows there is a variety of sections, and amendments enough to allow every Deputy full scope to deal with any aspect of the Bill.
It is not in accordance with the traditions of this House that the Vice-Taoiseach should censor the Taoiseach.
As far as I am concerned anybody the cap fits can wear it.
I asked the Minister for Finance if he will explain why the Taoiseach spoke so strongly about it.
Are we to go on with the Committee Stage or not?
The Committee Stage is being resumed.
Possibly we are on the threshold of a discussion which we hope will be useful.
On Section 5.
The Taoiseach's statement took 23 columns of the Official Debates and he will not get away without a reply.
There will be ample opportunity for that on Section 6.
Deputy Dillon may want to reply to the Taoiseach but I want to ask a few questions. I should like to ask why the Minister suggests that Deputies neglected their duty to discuss the Bill on Second Stage.
I did not say "duty". I said "opportunity".
We came here on the Second Reading to hear what the Government had to say with regard to this measure.
That applies to this Party also.
It has been suggested that discussion of the measure was disappointing. The Taoiseach did not explain on Second Reading why that was so. He explained that he was disappointed that it was not up to his standard. He suggested that the House could give consideration on the amendments to the numerous arguments and reasons that were put forward. I think we should not proceed with this section until we hear some of these reasons.
On Section 5.
I am prepared to meet the Minister on Section 5.
Amendment No. 2 to Section 5.
I listened very attentively to the lengthy and very interesting speech of the Taoiseach, and I read it very carefully again this morning so that I should not forget what was said on Thursday last. When I voted for and recommended my constituents to vote for the Constitution at the last general election I realised what was in Article 45:—
"That the ownership and control of the material resources of the community may be so distributed amongst private individuals and the various classes as best to subserve the common good."
That is something that every Christian man could be expected to subscribe to.
Did the Labour Party vote for it?
I voted for it and I recommended my constituents to do so.
Did the Labour Party vote for it?
I am a member of the Labour Party and I voted for it. Is the Deputy challenging that statement? He seems to have some funny idea about it in his skull. The same section states—and it is to some extent repeated in the Central Bank Bill:—
"That in what pertains to the control of credit the constant and predominant aim shall be the welfare of the people as a whole."
I am of opinion that this Parliament, including Deputy Brady, will not get an opportunity to discuss any other Bill, during the lifetime of this Dáil, and perhaps for many years to come, which will be as important to the citizens of this State as the measure now before us for consideration. The amendments to the section with which we are now dealing are regarded by the Labour Party as vital to this section. A small group, representing 102,000 electors, sat and discussed solemnly whether or not to submit a large number of amendments, and finally it was decided to submit a limited number which in my opinion were fundamental to the most important section in the Bill. The Taoiseach made a number of very interesting statements during the lengthy speech he made on Thursday night. He said:—
"You cannot by any central banking arrangement effectively control the volume of credit here."
Later, dealing with the same matter he said:—
"This Bill is not put forward as a Bill that will enable the banks or the Government effectively to control the volume of credit."
These are two very serious statements and they go to show quite clearly that the Taoiseach and the Government are deliberately handing over control of the monetary policy to an outside authority at the most critical period in the history of our country. That has been done quite deliberately as, when questioned by Deputy Hickey and others, he said the Minister for Finance would watch carefully the working of the central bank and in case of conflict or lack of cooperation powers to take the necessary action would lie in the hands of the Government and in this House. When the Taoiseach said that any central banking arrangement could not effectively control credit here, I wonder had he studied what has been done by the State banks in New Zealand and in Portugal. I feel certain that the Taoiseach is well informed of the operations of State banking policy in New Zealand, a country that is comparable in many respects with this country with unlimited resources for development. I am certain that the Taoiseach and the Minister for Finance had a long conversation with the Minister for Finance in New Zealand when he was here a few years ago and that he furnished them with valuable information.
Is the Deputy not repeating his Second Reading speech?
I do not think so. I would not deliberately attempt to do so.
It is a Second Reading speech.
I am endeavouring to deal with points raised by the Taoiseach on Committee Stage.
What about amendment No. 2?
I have quoted what I regard to be relative extracts from statements that were made.
In relation to amendment No. 2?
I do not, know how I can deal with points that were raised.
I suggest deferring them to Section 6.
I am endeavouring to do so when discussing Section 5. I will not trouble the House with many remarks on the remaining stages.
That does not bind other Deputies.
I think the same will hold for my colleagues. I do not want to repeat any of the statements I made already.
Will the Deputy deal with Section 5, amendment No. 2?
I will sit down if the Chair wishes.
May I raise this point: that the Taoiseach made a speech on this section, and that any Deputy is entitled, with all respect, to reply? If the Taoiseach was in order so are they.
The Chair has not ruled that he was quite in order.
The Taoiseach was allowed to make his speech and was not interrupted.
Was not interrupted?
He was not interrupted from the Chair, and as far as I can see from the Official Reports I must presume he was in order.
I would hesitate to prevent the Deputy from pursuing that line if it were not that he will have a full opportunity of doing so on the next section.
So had the Taoiseach.
Since my name has been introduced into this discussion, may I offer an explanation? In regard to this Bill, it was obvious that, on a variety of sections, these general questions would arise. They had already arisen out of the remarks made by the mover of the amendment—the leader of the Labour Party—and I felt that, if we were to deal adequately with the question whether there should or should not be bankers on this controlling body, it would be necessary to go into the whole matter of what was hoped to be achieved by the central bank. I think that everybody will agree that the next most important thing to the question of the powers of the bank—in a certain sense, it might be said to be more important—is the constitution of the board to control the bank. These two things—the individuals who would constitute the controlling body and the powers of the bank—appeared to me to be so important that different members might weigh their importance differently and that, therefore, we might as well take up a question that would arise on Section 6 as well as the question which arises on this section. I followed on the general lines that had been suggested. I think I said at the beginning of my speech that it was almost inevitable, in discussing matters of this kind, that general, underlying principles would arise. I think that the Bill is peculiar in that regard. It is not the usual type of Bill in that respect. I did not know whether or not I would be permitted by the Chair to deal with it in that general fashion, but I think that dealing with it in that fashion was justified if I was to meet all the arguments put forward by the Deputies who were moving the amendments.
The Taoiseach has put more ably than I could the case I desire to put forward—that the speech he made was necessary and that it was strictly relevant to Section 5. If what he said was relevant then the reply to what he said must be fully relevant.
Do I understand that the Taoiseach is pleading for a clearing up of this discussion at this particular stage? If he is pleading for a clearing up, I should like to add my voice to his in a particular way. We are discussing a very important matter. It is very desirable that we should discuss it on its merits and that the facts which we shall have to discuss should be made clear. Since we reopened this discussion, it looks as if the facts were going to be obscured by half-suppression and half-irritation on the part of the Tánaiste. It is very desirable that this element of irritation should be left out if we are to get the facts as clearly as possible. I think that the matter could be more satisfactorily cleared up at this stage, since we have entered upon it, than it could be at a later stage. Even if you, a Chinn Comhairle, have your susceptibilities hurt by the way Parliamentary business is being done and even if we have to spend a little more time than we might otherwise have to spend, I think the work is well worth doing, because this Bill will have certain social and economic effects.
Deputy Davin.
On Section 5?
The Deputy will have to be allowed the same latitude as has been accorded to other Deputies.
I am anxious that we should get on with the business. On the last day, by general agreement, the Chair gave a certain latitude which, in its discretion, it was entitled to do. A Second Reading debate was inaugurated and carried on. The opportunity given was fairly generally availed of from different parts of the House—not by the Taoiseach only. The Opposition took full advantage of the opportunity and we had a Second Reading discussion. I suggest that we should forget that now and get on with the business.
Is the Minister aware that the Taoiseach finished his statement, lasting an hour and 25 minutes, at five minutes to nine, which left 35 minutes for other Deputies who desired to follow? In a House containing so many Deputies who are interested in this matter, 35 minutes were insufficient for discussion of the important statement made by the Taoiseach, lasting an hour and 25 minutes. The Minister must excuse some of us if we think that the time allowed was not reasonably sufficient. I had no opportunity of intervening in the time available.
Your colleagues had, and used it.
There are things troubling my mind regarding this measure that my colleagues have not been able to clarify for me. I am expecting the assistance, in that regard, of all the members of this House, including the members of the Front Bench and also some back bench Fianna Fáil members who appear to have considerable interest in other quarters. I am anxious to hear from them how some of the difficulties and doubts in my mind can be softened.
Will the discussion be reopened on Section 6?
No.
If you were to decide that business must go on in the usual way henceforth, I think that we would make progress and that there would be no necessity to stop anybody, because all the members will have a full opportunity of developing their views on the sections or amendments with which we shall have to deal.
Is the House agreed that, if the discussion be pursued now, it will not be repeated on Section 6?
I have certain amendments down to Section 6 and the Leader of the Opposition has a rather sweeping amendment down. If a certain amount of repetition is incurred on Section 6, I think the situation is sufficiently important to warrant it.
So far am I from objecting to the intervention of the Taoiseach, that I think his intervention was most useful. What we should like would be further intervention on the part of the Taoiseach because, with all respect to the Minister for Finance, it is the Taoiseach who gave us the information we have at present.
If any points arise on Section 5 which require elucidation, that elucidation will, no doubt, be forthcoming, but why seek, in advance, elucidation of points on later sections?
I appear to be strictly in order on the section. I have amendments down about the number of the directors and I gave my views in proposing the amendment. I am anxious that the reply to my amendment to Section 5 will not be postponed to Section 6 because it seemed to me, as we got involved in a general discussion, as if the tendency was to reply to our amendments on the next section. By that time, our boats will be burnt.
Deputy Davin, on Section 5, amendments Nos. 2, 3 and 4.
I was attempting, but you did not allow me, to proceed to relate anything I was going to say to the major amendment we have down— No. 2—to this section. I can assure the Tánaiste, who seems to be under a wrong impression, that no attempt is going to be made by anybody sitting on these benches to obstruct the passage of the Bill.
I am not suggesting it.
I want to raise a matter. I am sorry. Deputy Davin wishes to continue.
I am not sure where I am. I was endeavouring to point out to the Minister responsible for this measure that the proposed central bank under the Bill as it now stands will certainly have no power other than the powers that are at present held by the Currency Commission, but I am definitely challenging the statement that was made by the Taoiseach to the effect that you cannot by any central banking arrangement effectively control the volume of credit here. That might be quite true in relation to the framework of the Bill as it now stands, with the representatives of the joint stock banks on the board, and without any power whatsoever being given to the Minister for Finance to interfere with the policy of the board. It would be quite true to say that in such circumstances.
Why does not the Deputy put down an amendment?
The amendment that we have down to cut out representation of the joint stock bank directors is the most effective one we could get in as an amendment within the meaning of the Bill as passed on Second Reading. I am sure the Taoiseach knows that pretty well. I would like to have a sub-section in this Bill such as is contained in Section 10 of the State Reserve Bank Act in New Zealand, but I was assured, when an attempt was made to get such a section into the Bill, that such an amendment would be ruled out of order.
I think there is an amendment, No. 10, by Deputy Norton, which is something like that.
If a sub-section similar to that contained in Section 10 of the State Reserve Bank Act in New Zealand were contained in this section or any other relevant section of the Bill, I would not be occupying the time of the House on the question of whether or not the joint stock banks should have representation upon the board of the proposed central bank. I assert that the Taoiseach is not correct in stating that it is impossible to control the volume of credit under any central banking arrangement. I ask him to seek advice on these matters. I am sure he could get very sound advice from persons who are in close contact with the administration of the New Zealand Labour Government. I listened last night, quite accidentally, to a lecture on the operations of the State Reserve Bank in New Zealand, the rates of interest charged, the kind of schemes financed under the powers of that bank since the Labour Government came into existence, in 1935. I hope it may be possible—I think it will—to have the terms of the lecture printed and a copy sent to the Taoiseach.
I will be very glad to get it.
Do not doubt that he has digested it.
This lecture was delivered by a personal friend of the Minister for Finance in the New Zealand Government, who has been living in New Zealand for a number of years and who has up-to-date information and experience of the working of the banking system in New Zealand.
The Deputy might send me a copy when he is so generously sending them around.
I will see that a copy is sent to the Minister for Finance. The operations of the New Zealand Labour Government on housing and the nominal rates of interest charged would be very interesting to the Minister for Finance.
Also the farm credit system. The Deputy should provide a pamphlet on that also.
I think a study of the operations of the Portuguese Government would provide very valuable information for the Taoiseach and his Ministers in connection with the effective control of credit. I heard the Taoiseach making very complimentary reference to Dr. Salazar on a recent occasion when a question was raised by Deputy Dillon. I have before me a statement made by Dr. Salazar in 1936, dealing with the issues that are raised in this kind of Bill. He said: "In spite of the crisis, we have no unemployment." That is in a country where they have complete governmental control of the banking system. "There should be no limit to the improvement of the standard of living of all who work. Wages should not have a maximum limit but a minimum should be fixed so that they should not fall below the standard necessary to sustain life or dignity." That statement, made by Dr. Salazar in 1936, does not fit in very well with the policy enshrined in Order 83, and its double brother, Order 166, recently issued by the Government here.
They are not in Section 5, surely.
We cannot get any of these things done in this country under the terms of the Bill as it now stands. There is no hope in the world of getting any effective thing done so long as you have representatives of the joint stock banks on the board of the proposed central bank. Whatever chance there might be of having some of these things done that would help to implement the Articles of the Constitution which I have read out will be greatly reduced if you have these three representatives of the joint stock banks on the board.
The question of the rates of interest charged to private persons, to public authorities and to the Government, for loans, was dealt with by the Taoiseach during his speech. It is a most important matter, affecting the work of the Government of this country. I cannot see how the Fianna Fáil Government, with the best will in the world, can bring their policy of self-sufficiency into effective operation so long as there is a continuance of the restriction of credit and money which has obtained in this country over a long period. If there is no restriction in the amount of money made available at reasonable rates of interest for credit-worthy persons and credit-worthy schemes, why is it that we are in the position we are in to-day, with, roughly, 100,000 unemployed and the best of our able-bodied men and women leaving the country at the rate of 2,000 or 3,000 a week? There is plenty of work that could be given to the people here. If there has been money in plenty since 1938 or 1939, why is the transport system of the country in a state of collapse to-day?
The Deputy is outside the section and the Bill now.
It has a bearing upon the restriction of credit and the cost of money and these are matters that were dealt with by the Taoiseach in his speech on Thursday last. Dealing with the question of interest he said:—
I, for one, have not been happy at all about some of the rates that have had to be paid."
In column 1134, he more or less modifies what he said originally. He says:—
"I have been informed by persons who have no interest in telling me untruths, that the rates at which money is made available in this country—whether for private or public purposes—are far lower than the rates at which other countries have been able to get money."
Does not the Taoiseach know perfectly well that the rate of interest charged to private persons and public concerns for loans which they may be lucky enough to get in this country is 1 per cent. higher generally than the rate of interest charged to persons or public concerns looking for loans in Great Britain? Has not the Minister for Finance admitted that when replying to the Second Reading discussion on this Bill?
I have not admitted it.
And did he not more or less apologise for the existence of such a state of affairs by saying that this was tradition, and tradition was a very hard thing to beat down? You will not kill the tradition that is responsible for making our people pay 1 per cent. more for their money by having three representatives of the joint stock banks on the board of the proposed central bank. It is an absolute certainty that they will stand on that board for what they have been able to get away with for many years before and since our own Government was established in this country. Does the Taoiseach know that under the terms of the State Reserve Bank Act in New Zealand money has been made available, since 1936, at a rate of interest, with few exceptions, of about 1¼ per cent.?
The Tánaiste and the Taoiseach, as well as every member of this House, will realise what that means in the case of working-class houses built either by private persons or local authorities.
The Tánaiste admitted during the discussion on Second Reading that half the economic rent of houses built by local authorities represents interest on money borrowed. I am aware of a case which cropped up recently—I shall give particulars if they are required—where a public authority secured the sanction of the Minister for Local Government for a loan of £17,000 for the purpose of erecting 40 dwelling-houses. What is the amount of money that will have to be repaid at the end of 35 years for the services which the bank gives in that case? A sum of £35,920. Of that sum, £17,000 represents the cost of acquiring the land upon which the houses are to be built, labour, material and architects' and engineers' fees, and the remaining £18,920—what? The cost of changing a figure once a year in the ledger of the local branch of the bank.
Compare these conditions with the conditions operating in New Zealand or with the conditions existing in Great Britain before and since the war. The banks are supposed to have done their business very effectively and efficiently. That must be admitted, if you think of the business of the banks from the point of view of service to their shareholders. Between 1925 and 1941 the directors of ten of our Irish banks have done so very well that they have paid £22,400,000 to shareholders who have themselves subscribed a capital of only £9,000,000. Where did they get that money? From the soil of this country, which is not worth a brass farthing to any of our joint stock banks as a security for an advance of money. If the land plus the signature of the farmer concerned is worthless to a bank director as security, what in the name of goodness is anything worth, if we go into the question very deeply and seriously?
I am the eldest son of a family of ten reared on a farm of £40 valuation. In addition to that, I am in constant touch with the position of farmers because fortunately or unfortunately——
The Deputy might indicate how that is relevant to the Bill.
I am talking about interest charges and the cost of money, which was also dealt with by the Taoiseach.
The Deputy is purporting to reply to what was said by An Tánaiste on Second Reading.
I am pointing out that if you are going to bring the joint stock bank directors on the board of the proposed central bank, you are going to introduce a very bad principle into the membership of that board which will not help the Government to do the things they want to do themselves. I take it that the Taoiseach is quite sincere in endeavouring to put his own policy into operation, a policy of self-sufficiency, a policy under which he proposes to provide work for every able-bodied citizen in the State, so that every citizen will get a fair share of the goods which the country can produce. The question of getting cheap money has everything to do with the development of the resources of the country and this bank, with the three directors of joint stock banks on its board, is likely to prevent such development. I was just referring to the point that the bank directors had done their work well in the interests of their shareholders. I wonder is the Taoiseach aware that our Irish banks between September, 1939, and December, 1941, lent to the British Government on terms not exceeding 2 per cent. a sum of £27,500,000 while during the same period their holdings in Irish Government securities reached a figure of only £2,750,000? Is that the kind of activity you can control under any powers under Section 5 or any other section of the Bill? Can you alter that state of affairs by any of the powers you have in that Bill?
The powers are given in Section 6. The Deputy, apparently, wants to roam over the whole field of credit and national development, industrial and agricultural, and justify himself by referring occasionally to the three banking directors.
I am seriously suggesting that whatever chance there might otherwise be of doing the things which the Government may require, or of providing the money which may be required by the Government to do its job on behalf of the people, there is no chance of that job being done any better than it is being done at the moment if these joint stock bank representatives are put on the board of the central bank. The Taoiseach, when he was talking about the availability of money for credit-worthy persons or schemes, apparently ignored the fact that large numbers of industrialists in this country have been unable to get money which they required badly in 1938 and 1939 to purchase raw materials to keep our industries going. If there was plenty of money in this country, apart altogether from any question of the Government using its influence to get money for such people who needed it, surely it was the duty of the banks to provide whatever money was required to enable our industrialists to get the raw materials they required for their industries?
Does the Deputy not know that those gentlemen over there would not allow them to bring in the raw materials they needed?
Is it not a fact that representatives of the biggest transport undertaking in the country appeared before a tribunal early in 1939 and gave evidence on oath disclosing a very serious lack of coal and other materials? They pointed out that they had no money to purchase coal, which was badly needed at the time to keep that particular transport concern in existence, although coal was cheap at that time. One of the directors got up before a recent meeting of the shareholders and admitted that they could not get money. He said they had not made any representations on the matter, but I am relying on the evidence of the principal officials of the same company given before the Transport Tribunal in 1939. I make the point that money was available in plenty if the banks had been willing to advance it to enable the gentlemen governing the affairs of these particular industrial concerns to get these raw materials.
Would you have lent your money to the Railway Company at that time?
The head of the Government is sensible enough to know that it is desirable to keep the principal transport concern of the country working during the period of the emergency or indeed during any other period. If that concern was in a state of financial chaos or had not the necessary security—and mind you there were five banking directors on the board out of a total of seven—it was the duty of the Government to go to the banks, where there was plenty of money, and to get that money for the purchase of those raw materials.
Hear, hear!
I read a statement made by the chairman of the Federation of Irish Industries at the last annual conference—I think the Taoiseach was present—where he said that a certain Minister of this Government had refused to receive a deputation of the officers of that body, who wanted to meet him for the purpose of getting the necessary State assistance—guarantees, I suppose—which would enable them to purchase the raw materials that were then available. If we had plenty of money during the last few years, or since this Government came into office, why was not some effort made to purchase the ships that were then lying in every harbour in the world, and which could be got cheaply, for the purpose of bringing in these raw materials, which could be purchased if we had the money?
The Deputy is again indulging in a general discussion.
If there is a large acreage of arable land not under tillage to-day, it is due mainly to the fact that credit is not available for the farming community, for the working farmers. I heard somebody here—I think it was Deputy Cosgrave—talking about plenty of credit being available for credit-worthy persons. Now, farmers, generally speaking, are a hard-working body of people, and if they are not credit-worthy on particular occasions it is not due to their own fault, but probably to misfortune that they meet with from time to time, putting a bad year against a good year. If the father of a young farmer of to-day has had a bad time during his life time and hands over his farm to his son, and if the farm is in debt, it is not due to his own laziness or failure to work the farm, and I am sure that you would not say that the son who takes over the farm in such circumstances is not a credit-worthy person.
The Deputy is too discursive. He is not keeping near the Bill, not to mind the section.
I am trying to relate this——
And failing in his endeavour.
—— to the statement made by the Taoiseach that there was plenty of money available for credit-worthy persons and credit-worthy schemes.
That does not justify a long speech on credit.
I am not attempting to make an hour's speech on credit. However, it is very difficult to proceed under the limited rights which you, Sir, appear to think we are entitled to in discussing this amendment. May I put this to the Taoiseach, as it will be a very serious matter for the next year or two? Can he hold out any hope that, under the terms of the Bill as it now stands, more credit will be available for the farming community in the critical years that are coming? Can he hold out any hope that the land of the country will be regarded by the people who control banking policy in the future as a good security for loans at reasonable rates of interest? I know of cases where farmers could not get loans at any rate of interest unless they had the signature of some person who had a deposit in the bank, whereas some bankers at present will take certificates for rubber shares, oil shares or tin shares, held by people in this country, and which are a speculative kind of proposition. They would take these shares as security, whereas they would not regard the land of the country as security.
This is not an inquiry into the conduct of the banks.
Very well, Sir, I shall not proceed further.
There is a number of amendments before us, with one of which, of course, I agree. I argued that before with the Taoiseach, and I would ask him once more to reconsider the amendment standing in Deputy Cosgrave's name, in Connection with the number. I think that you will get more efficient management if you have a small number. Advice can be got from other quarters, but there will certainly be more business-like discussion if the number is small. Coming now to the second amendment, I have listened with a certain amount of interest to Deputy Davin's speech, and apparently—although I have no particular brief for these people—all the evils of this country are due to the bank directors. That was the whole gist of the Deputy's speech. I should like to put this to the Taoiseach as a matter upon which, possibly, he can give us information, and leaving out for the moment what I think does require a certain amount of attention, namely, putting the land of the country into proper fettle, while money, possibly, is cheaper than it may be in the future, and while it may be a good investment from the national point of view—that is an argument that I urged on a more appropriate occasion the week before last—is it a fact that there are such almost countless opportunities of development in this country, the starting of new industries of all kinds, and so on, and that the only thing that stands in the way of establishing these industries is, first, the amount of money that is available and, secondly, the rate of interest? I am not sure that Deputy Davin kept the two things apart in his speech. Is there such a large number of cases where plans were put forward for the starting of new industries in this country and where these industries have not been started merely because of the lack of money?
Take the number of industries to which the State itself advanced credit. These, I presume, were the most likely industries to succeed. Has the experience of the two Governments been such as to lead one to the conclusion that the sole obstacle in the way of the success of industries in this country is due to the scarcity of money or the difficulty of finding money to finance these industries? I should like to have a definite statement from the Government, merely to enlighten the House, as to what, in their view, are the facts of the situation, because unless it can be shown to be true that industries on a large scale have not been established in this country owing to lack of credit, then I suggest that the whole bottom falls out of Deputy Davin's case in connection with this amendment which the Labour Party is putting before the House.
In the midst of a speech devoted mainly to the question of credit, there were several references to the banking officials. Now, I remember a time when I heard the banks being blamed because they did give credit. In fact, they were accused of practically tempting the people to get loans, and I have heard them severely condemned for that particular practice. I think that is the experience of anybody who has been in this House.
I doubt if there is any Deputy in this House who has not been approached by at least one of his constituents, complaining, first of all, of the ease with which he did get credit from the banks. Now, the question of providing credit is one thing, but it seems to me that the rate of interest is a much more practical question, and how that is to be dealt with I am not quite sure, but the idea that ran through Deputy Davin's speech also was that the only interest that bankers had was in the provision of dividends for their shareholders. I suggest that they have another interest also, and that is the safeguarding of the moneys, which do not belong to them or to the country, but to the individuals who entrusted that money to the banks. I am sorry to say that my dealings with bankers are purely on the negative side and have been so for a number of years, and I have no particular sword to draw either for or against them, but I must say that I think it is useful, surely, to avail ourselves of the services of men who are trustees for a large portion of the actual property of the people of this country.
Now, to a person like myself, who is completely a layman in these matters, it seems to me to be a reasonable procedure on the part of the Government and of this particular Bill to try to get the advice and decision of people of that kind, unless a case is made against them. I do not think that anybody who has listened to Deputy Davin's speech could suggest for a moment that such a case has been made or that he has put forward any reasoned argument for the removal of this type of man. If an argument is brought against a particular type of board, it would be altogether in favour of a purely expert board, removed altogether from the bank, but Deputy Davin has not urged that case. He did bring forward, I admit, one example that, for a moment, did suggest that there was a certain lack of foresight on the part of the banks, but he blew that sky-high, if I may use the phrase, a few moments afterwards; that was in connection with the provision of coal for the Great Southern Railways.
He pointed out that credit was refused for that particular purpose—to provide coal—but then he pointed out immediately after that it was the Government's business to step in where the banks had failed and supply the money in face of the crisis that was coming. What is he now proposing to do to save you from the wicked bank directors who so failed to endanger, as they seemed to think, the money that people had entrusted to them? To put in their place Government control—the people who failed in that crisis to meet what was a national emergency.
The Government had not control then.
Deputy Hickey is taking up the line that the Government had not the power at that time to give the money to the Great Southern Railways to purchase coal.
I did not say that.
At any rate they did not do it.
Were they asked to do it?
I am putting a value on Deputy Davin's argument.
The Government has not the job to inquire into everything that takes place.
On certain matters the Government can pretend to be ignorant when the occasion requires. I am not now going into the conduct of the Government on that occasion, nor am I going to repeat what I have said ad nauseam in this House that never has there been any foresight shown on the part of the Government. I suggest that is no reason for giving the whole control of this matter into the hands of the Government. On the contrary, if there is an atom of reason in what Deputy Davin has said, they are the last people a matter of this kind ought to be entrusted to.
Will it be the business of the board of the central bank?
I am now opposing Deputy Davin's amendment because I can see no reason for doing what he proposes. You have a number of people conducting what is a successful business, people who know that particular business. They may not be running it along the lines that Deputy Davin would wish. Again and again I have heard the Deputy refer to the people's money. He avoided the phrase this evening. It is a most insidious catch-word. The money is not the people's in the sense that it is national property. It is the people's money in the sense that it is the money of John Murphy, of Timothy Sweeney, and so on. It is their individual property. Deputy Davin's attack on the banks year after year seems to be based on that assumption, that it is the people's money, that you can use the word in two different senses but that it means the same. It does not.
Is it right that the Deputy should be allowed to deal with what I did not say?
I have said that the Deputy has been attacking the banks for using money that is not theirs. Again and again I have heard him refer to the people's money. If he withdraws that now I am quite satisfied. The most extraordinary piece of conversion that I have seen up to the present has been Deputy Davin's conversion to the semi-Fascist type of Government of Dr. Salazar. The enthusiasm with which he spoke of Dr. Salazar pleased me because I am not a bigot in these things. But, remember, if they have control of money there, I suggest that they have control of a great deal more than money. If, in all these countries, there is no unemployment, and if they control money in them, remember, as I say, that they also control a great deal more than money as Deputy Davin and the rest of us would find if we were to migrate to these countries. Therefore, I am afraid it is not altogether the control of credit that is responsible for the lack of unemployment in these countries because the Governments in them have control not merely over money but over individuals as well. I can see no reason for putting forward this particular amendment.
With regard to the other amendment, I think a great deal can be said for it. It would be wise I think if the Taoiseach were to reconsider his decision about limiting the number. I do not think a large board is more efficient than a smaller one. The Taoiseach himself gave the example of the Government. Well, apparently, its business is not of as great importance as the business of the board of the central bank will be because seven is all that is required in the case of the Government. The board of the central bank is, apparently, more important, because the number there is to be nine. Will its business be more important than that of the Government, or perhaps there is only one decisive voice in the Government——
Hear, hear!
——and that the rest is a debating society. I would say this for the Taoiseach, that not merely can he come to decisions, but he can occasionally provide the whole debating society himself, and, if nobody else is willing to take part in the debate, can duplicate and triplicate himself.
And a very good debater he is.
The way that he can convince himself in debate is extraordinary.
The Deputy is analysing himself now.
I am opposed to this amendment. Even with the limited opportunities that Deputy Davin had of dealing with the matter, I heard no reason urged in favour of it.
The Deputy is getting away with it well.
No. I am pointing out that I see no reason for excluding men who have a particular knowledge of one side of the business. I do see a reason for cutting down the number. Therefore, I cannot see my way to support the amendment as it stands. May I say that I would like to be put wise by the Government, from the information that it has at its disposal, as to how far the mere lack of credit has been responsible for the taunt that has been levelled about the emigration of 30,000 people? I would like to know whether that is more than a catch-cry, and whether, if you had the money in the morning, you could start all sorts of industries to employ the large numbers of unemployed people that we have in the country. If you are going to invest money at the present time—and I think that is a matter for the State—I think it should be put into land improvement—to improve our agriculture. I think there is not enough use made of money in connection with agriculture either by the farmers themselves or by others. In the ordinary case the industrialist or the businessman goes to the bank for money in order to develop and to increase his business. If we could get a spirit of that kind into the farming community, with the help of the Government, I think it would be remarkably useful, but it may take a long time. That is one aspect of credit that I am particularly anxious the Government would examine. As to the wild statements I have heard here, I must say that they have everything else except a convincing quality, and for that reason I cannot support amendment No. 2.
I think the amendment is all cod. We all know that it is just like the amendment that was put down to refer back the Estimate for the Department of Agriculture. It is put in to have a shot at the heads of the bankers. I have no objection to the Government putting bank directors on the board unless the Government make the representation that they are putting them on as experts in banking, and if that case be made I want to say that damn few bank directors know anything about banking. It seems to be one of the main qualifications for a man to become a bank director in this country that he should not know anything about banking. If a man allows the general manager to run the bank, then he can be pretty sure of re-election on the board. If he adopts any other attitude he is pretty sure to be black-listed. The dumb bank director is the most popular of bank directors in this country. I would like to see the whole crowd of them— decent, honest, respectable men every one of them—put in serried ranks and submitted to an examination on banking of the standard of, say, a second year economics student in University College, Dublin, and I venture to say that if they were so submitted I would sink seven-tenths of them.
You would want to be the examiner.
No, I would not.
When you say that you would sink so many I thought you meant by marking them down.
I do not get the Deputy's point. I hope no motive of professional jealousy moves him. Notwithstanding the Deputy's professional qualifications, I have no doubt that if I were asked to conduct an examination with him my common sense would be a better judge of the proficiency of the candidates than the Deputy's academic approach. The solicitude which Deputy Davin expresses lest the Taoiseach had not adequately considered the New Zealand experiment amuses me. We hear he has been burning the midnight oil for five years to see if he also could not work out a plan to produce 9d. for 4d. along the lines so brilliantly blazed by the New Zealand Labour Government. Everybody knows that the New Zealand Labour Government by their antics during the years before the war had burst themselves wide open and that the New Zealand Minister for Finance was in London begging for money to float himself again when the war broke out, and the British Government then directed the London bankers to give him all the money he wanted.
He was trying to pay the debts of his predecessors.
I know that Mr. Walter Nash was looking for money in London, to pay for the tomfoolery of the New Zealand Labour Government in the previous five years. I do not propose to go into a long discussion of that Labour Government's antics in New Zealand for the five years before the war now, but I would be glad to do it on some future occasion. I have no doubt that Deputy Davin will produce the voluminous pamphlets of Dr. Such, who is the economic adviser to the New Zealand Government, but that gentleman will have written many pamphlets before he covers up the plain fact that at the end of his five years as economic adviser the New Zealand Government was as bankrupt as it was possible for a Government to be.
Why was it re-elected?
Why was Fianna Fáil re-elected in this country?
You got them elected.
I did my best to put them out. Deputy Norton was always protesting that he did his best to put them out but he failed.
If you withdraw, we will put them out. But, so long as you are here, they are safe.
Why is there no unemployment in New Zealand?
If the Chair would permit me to engage in a discussion on the economic history of the New Zealand Government for the five years before the war I would be glad to do it; but I do not think it would, and I do not intend to have my case half-stated and then get stopped. I want to join issue now with the Taoiseach and Deputy O'Sullivan, with whom I find myself very rarely at variance. The Taoiseach stated, as reported in column 1123 of the Official Report:
"Will Deputy Davin or anybody else point out to us how you can definitely affect the volume of credit through the central bank?"
Deputy Davin has not accepted that challenge, but somebody else is just about to do so. In the course of accepting that challenge, I want to join issue with Deputy O'Sullivan when he said: "Deputy Davin is quite wrong in describing some of the money handled by the banks as the people's money." I think that as to nine-tenths of it it is the people's money. I will recite a little allegory in order to bring home to the mind of Deputy Hickey the dangers that beset his unwary feet as he walks through life. That allegory is designed to show the Taoiseach how the central bank can control the volume of credit in the country. Deputy Hickey goes to his stocking and, having satisfied himself that years of industry and prudence have accumulated £100 in that stocking, he comes to the conclusion that that is no longer a safe place to keep it. He proceeds to the National Bank to deposit the £100, gratefully accepting the assurance of the bank that they will pay him £1 per annum interest on his deposit. Fortified by the knowledge of this, Deputy Hickey goes about his way, only to be followed into the bank by Deputy Murphy, who proposes to borrow £1,000. The manager of the bank contemplates Deputy Hickey's deposit of £100 and says: "Inasmuch as I have a deposit of £100, it is now safe banking practice to advance £1,000." He bestows on Deputy Murphy the kindness of lending him £1,000, for which he announces that he will charge him £60 per annum. Deputy Murphy speeds off about his legitimate business and, approaching Deputy Corish, says to him: "I owe you £1,000; I am glad to be able to pay you and I thank you for the accommodation you gave me." Deputy Corish says: "I always knew you to be an honest man." He takes the £1,000 and deposits it in Bank B. Immediately after, Deputy Norton goes into Bank B. and says he wants a loan of £10,000. Deputy Corish will get £10 a year on his deposit. The bank lend Deputy Norton £10,000 and tell him that they will only charge him £600 a year. Deputy Norton gratefully accepts the loan and hurries away to meet Deputy Davin, from whom he buys a nice house and grounds for £10,000. Deputy Davin deposits the £10,000 in the Provincial Bank.
Is this a fairy tale?
This sounds incredible, but my serious submission is that this is going on. On that £10,000 deposit, the third bank is prepared within sound banking practice as at present understood to advance £100,000 to the next borrower. That borrower makes a deposit of £100,000 and on that deposit the bank may further build £1,000,000 of credit. That astonishes the Taoiseach. At this stage the last borrower comes, with £100 of the credit created for him, into the National Bank where Deputy Hickey made his first deposit. Deputy Hickey, hearing for the first time of this astonishing pyramid of money that is being built up on his original deposit of £100, filled with righteous indignation starts off to College Green to withdraw the £100 and by pulling away the foundation of this pyramid to put an end to what seems to him to be a financial scandal. Filled with rightful indignation, he goes to the counter to put an end to this financial scandal, only to discover that the borrower who borrowed the £1,000,000 had just deposited £100 out of the £1,000,000. So that although Deputy Hickey withdraws his £100, the other fellow can put in £100 and the whole pyramid is still standing.
Is not that the people's money? Is there any responsible Deputy or expert who will get up and challenge that in true banking theory the operation which I have described is impracticable? I am not saying that in actual daily banking practice that exact series I have described in fact takes place, because it must be manifest to everybody that parts of these borrowings and lendings operate to cancel one another out within the banking system and that is why the practice as announced by the banks of a ten-to-one ratio is safe. But the present banking theory would permit of a series of transactions of that kind. The astonishing part of it is that, having had its root in Deputy Hickey's original deposit of £100, either in gold or legal tender, the time can come when the part of the advance made on the basis of his original deposit can be employed to take the place of his deposit, and I should like anybody in this House to tell me whose money is that then?
The Deputy is completely misstating the whole thing. He does not even know the theory of the ten-to-one ratio. The Deputy's statement has been 1,000 to one, as far as I can see, and even more than 1,000— there is no limit.
The Taoiseach has not told us anything to put it right.
I would be a long time before I would go to the Taoiseach for instruction in the theory of banking. The Taoiseach is all right so long as he is spinning Constitutions, but he has the type of mind that I would not put in charge of a chandler's shop. He knows nothing about banking, except what a few highly efficient officials will pump into him during the course of the debate on this Central Bank Bill. Each stage of the Bill will be digested by high-powered officials, who will write memoranda for him, and when he has read them the Taoiseach will send for the officials and discuss the matter with them up to a point, but it is not good politics to tell the Taoiseach that he is incurably ignorant on this.
It would be a very good thing if the Deputy had some official to tell him he is completely wrong now.
It may not be so good for me, but it would be very good for the Taoiseach. Let the Taoiseach review this matter, because I assert that what I now say is true. I have been careful to add that, in practice, certain parts of each of those transactions cancel one another out within the banking system. The theory of the operation that I have described is unknown to most of the people in the community, but is unquestionably the theory on which modern banking practice is operated. As I have described it, that is undoubtedly true. Now, I ask Deputy O'Sullivan, when the original deposit of £100 made by Deputy Hickey is withdrawn by him, and its place is taken by the deposit of another depositor who in fact is depositing borrowed money, whose is all that money? Is not all that money credit created by virtue of the security established by the society in which we live, and is that society not based upon the loyalty of the people to established law as represented by a legally constituted Government?
You are coming along now.
The difference between the Deputy and me is that I am going to suggest machinery that will work in order to make tolerable the credit system.
You are very near me now.
Well, I might be in a worse place. It is one thing to be sunburnt, but it is quite another thing to have scarlatina, and to the inexperienced eye they look very much alike. I am going to suggest a possible remedy for what I have always regarded, since I entered public life, as quite an unjustifiable situation. I cannot see why any group of men who simply operate a joint stock bank should be free to deal in that commodity called credit without considerable supervision from the State, and without permitting the community, whose ordered life creates the thing in which they deal, to share in some degree in the advantages to be derived from prudent handling of credit. Therefore, I say to the Taoiseach that if this ten-to-one ratio be in fact banking practice, as I believe it to be, or if this ten-to-one ratio is correct banking practice in any sense, it would be perfectly legitimate for the central bank to require the joint stock banks of the country to estimate what the total of their deposits is for the purpose of considering the limit of safe advances. That estimate must be made from time to time by the banks in order to determine the state of their own liquidity, and I have no doubt that it would be one of the functions of the central bank, if they were to see a joint stock bank in this country acting in a reckless way, and making advances far in excess of what their deposits would appear to justify, to intervene, to point out that that was a dangerous course of action, and to bring pressure to bear on the bank to bring its affairs into line with sound and safe practice, lest by precipitating a disaster an individual bank should shake the whole banking system of the country. Therefore, I am quite convinced that this statistic is readily available, and I think it would be perfectly justifiable for the central bank to be authorised to impose upon the joint stock banks of the country an obligation to advance to the Government, at whatever rate of interest the bank was itself paying on deposits, three-tenths, or some other fraction of the total sum on credit that established banking practice deemed to be safe having regard to the amount of deposits held at the relevant day by the bank in question.
If bank A deemed itself to hold deposits value £10,000, and therefore felt free to make advances of £100,000, I think it would be quite reasonable for the central bank to say to bank A: "You will place at the disposal of the Treasury credits of £30,000, either free of interest or at 1 per cent." Let us assume that they were ordered to place at the disposal of the State £30,000 free of interest. That means that they still would have the right to advance £70,000 to their customers at 6 per cent., if present rates were maintained, thus deriving an income of £4,200 on their advances in respect of deposits of £10,000 on which they would be paying £100 to their creditors. Now, I do not regard those fractions as unalterable. Probably an inquiry would have to be made into the expenses of bank management, and so forth, before determining what would be a fair percentage to be requisitioned by the central bank for the Central Government, but surely the Taoiseach would agree with me that, if a proposal of that kind were incorporated in this Bill, the volume of credit in the country at any moment would be very materially affected through the central bank. Note this well, and here is where Deputy Hickey's paths and mine part. I am sufficiently conservative to wish to keep that variation of the volume of credit circulating in the country at any given time within the recognised limits of what is at present considered safe banking practice by the most conservative bank director. Deputy Hickey has frequently seemed to me to suggest that on top of the banking credit available in the State the Government should start creating additional credit.
I did not suggest any such thing.
Maybe I misunderstood the Deputy's statements. The whole business of credit creation is kept within the narrow scope of what merchant bankers think at the time is a safe margin of credit, not from the national point of view, but from the point of view of their own liquidity. I am putting in the Government's hands a power no greater than the power that at present rests in the hands of the bankers. At any moment the bankers may make advances equal to ten times the amount of the deposits, and nobody will prevent them. During the period when Deputy O'Sullivan says they lent too much to the people, that is the very thing they did. In a period of acute inflation they lent the people vast sums of money and then, in a period of acute deflation, they proceeded to get it back again and in the process they bankrupted half our farmers.
I am not now suggesting that the Government be authorised to build up a pyramid of new credit. All I am suggesting is that where the banks are inclined, on the security offered to them by their customers, to advance no more than 60 per cent. of the total volume of credit that the deposit situation would appear to justify, the Government should be entitled to requisition three-tenths of the total volume of credit that the merchant banks might prudently create and use it for any purpose that they thought fit. Suppose, at a later day, the Government felt that private enterprise was taking up the slack and that it might be expedient for Government institutions to draw it back again from public enterprise of one kind or another—in fact, if a time came when employment would boom and there would be something approximating to a labour shortage, then the Government might say to the banks: "Although we have a right to demand from you to the extent of three-tenths, we are not going to exercise it. Lend it to your customers, to private persons who want to erect houses, develop railways and engage in other undertakings that will mean the employment of men and, so far as borrowing from you is concerned, we are out of the picture. Lend the money to your customers and we will not press you."
Suppose, at a later day, the Government felt that the banks were once more engaging in the follies of which they were guilty years ago, lending vast sums of money, when inflation was on the rampage, and the Government thought that a check might profitably be administered—in fact, that the volume of credit should be controlled through a central bank—then the Government might say to the central bank: "The time has come and on the 1st of June next we are going to acquire credits from the banks, representing two-fifths of the total volume of credit they are able to create. Warn them that they will have to draw in their horns and call in some of the credit that they are extending to their customers, because the Government are going to exercise their right." Does the Taoiseach not agree with me that that will have the effect of controlling the operation of credit? Does he not agree with me that that is a power which would be cognate to this bank which we now envisage?
Does the Taoiseach deny that it is fair and just that the community should have some share in the profits to be derived from dealing in the credits that the people have created by reason of the fact that they obey the law, by the fact that they constitute a stable community? Remember, it is money that we, the people, could destroy over-night by turning to anarchy and disorder. Have the people no right to share in those profits? I think they have. I have often said here that as a Legislature we should never give to rioters that which we would withhold from peaceful men. If we have considered a proposition in this House and turned it down, we should instruct the Army to shoot down any mob which seeks to intimidate the Government If we are not prepared to instruct the Army to shoot down a mob that riots for a particular concession, we should make that concession, whatever it is, before the mob gathers.
If ordinary people knew that the banks were trading on the ten-to-one ratio, would they stand for it? I do not think they would. I am quite prepared to stand on this thesis, that the joint stock banking system, as operated in this country, is a good system. I am prepared to stand on the thesis that until someone can propound a better system, the joint stock banking system is good and should be maintained. I am prepared to defend that thesis in public or in private. But we should not be afraid to qualify the system so as to make it a system that we are prepared to defend on moral grounds from which no one can shake us. I do not think, in face of the ten-to-one ratio, we are on moral grounds from which no one would shake us. I want to get on to such moral grounds and I do not think we ought to wait for Great Britain or the United States of America before we have the courage to do it for ourselves here. Suppose the British Government did that to-morrow, how long would this country wait before it was done here? Not 24 hours.
We are lagging a lot behind them at the moment in interest rates and things like that.
Suppose the British Government decided to do it, how long would we wait? Not 24 hours. If it was wrong, if it was unjust, if it was expropriation, if it offended against the moral law as the seizure of another man's property without compensation would offend against the moral law, we would not follow Great Britain or the United States, even if they did it. But everyone here knows that it does not offend against the moral law. The only thing one can say is that it offends against banking law. I say it does not offend even against sound banking law. The only thing it offends against is the right of bank shareholders or proprietors and servants to some extent to enjoy unfair profit. Look at the position of banks in this country to-day. Go into any town in Ireland, go down the main street and observe the largest house in that street. Is there any Deputy who has to ask who owns that building? It is obviously the local branch of a bank. Go into any country town and look at the accounts of the three banks and find out what valuation they put on bank premises. The valuation of bank premises in many of the bank balance sheets in this country would not cover the city branches, never mind the country branches at all. This represents one of their concealed reserves. Who is the richest man in any country town, who is the richest professional man? Is it not the bank manager? I think it is. The bank officials are in a privileged position. The banking system of this country is one of the wealthiest institutions. I do not believe in grudging to any man what his ability secures for him, but it does certainly turn my stomach when, at a time when everybody else in the country is put to the pin of his collar, they can come and demand increased charges from their customers.
And get them.
And get them, from the body into whose hands Deputy Hickey wants to confine the entire control of credit.
It does not mean that.
It seems to me that the joint stock banks, operating this ten-to-one ratio, are making out of the people's money a margin of profit that none of us would justify, if the ordinary people fully understood the system. I want to correct that in an orderly, just, fair way, without feeling of jealousy or desire to injure in any way those who are prosperous or have done well in our community. Far should we dismiss any such feeling from our minds. I do not know the bank directors—any of them—but I do not think it is possible to have any reason to doubt them, because they are decent men and their names are held high in the communities where they are well known. As somebody said of his relatives: "They are decent men and come of decent people." The vast majority of them deserve the highest tribute. I do not believe they know much about banking, but maybe they are as well off for that.
I have no feeling of personal hostility and no desire to excite any feeling of vengeance or recrimination against them. Nothing could be more unfortunate or more wrong; but one's complete disinclination to indulge in any activity of that kind should not deter one from saying, quite clearly, what might sound heterodox in some ears, and that is that it is time this ratio came to be changed, not from the point of view of the bank's solvency— experience has indicated, from that point of view, that it is sound and good—but from the point of view of how the legitimate profit out of dealing with the people's money—created credit—shall be apportioned between those who administer the deal and those who create the credit. In my submission, the true creators of credit are we, the people, who obey the law, who established this State and who, by the standard of conduct maintained in our community, create the confidence which makes it possible for credit to exist amongst us.
I congratulate Deputy Dillon on coming so soon to the view I have for a long time held on the question of money and credit. I did not hear him accusing me this afternoon about the printing press. I never had anything in my mind about printing presses, but had in my mind something which Deputy Dillon had in his mind about the question of credit and how credit is created. Some Deputies said the Labour Party think bankers undesirable citizens, but I do not think they ever said anything against the bankers. What Deputy Dillon said in the opening of his speech was far more serious against the bankers.
He said they were a lot of popular duds.
I did not. I said they were decent men and came of decent people.
And I have the same thing to say, too. I have nothing against bankers as individuals, but I am against the system they operate. One of the reasons why we are against the placing of bankers on this board is the clauses in the Bill which state that no change can be made in the question of credit or currency except by a unanimous decision of the board. I find that Deputy Cosgrave is especially desirous that that should be inserted in another clause. I am not at all surprised that we have all this talk about printing presses, when we hear what Deputy Dillon has said about the banks creating £1,000 or £100,000 out of nothing, by simply a stroke of the pen. I will give an instance of that for Deputy Dillon. If a public authority goes to the bank and says: "We want to build a couple of hundred houses and need £100,000 from you to build them", they simply put that figure into the bank's ledger and, as time goes on, they issue cheques, and after 12 months a couple of hundred houses are built, on the mere fact of the credit, and the collective security and credit of the people of that locality. I wish to say to the Taoiseach and the Minister for Finance, that I am opposed to any Government going to any other body to borrow money on the collective credit of the nation—outside of the constitutional authority of this country. I do not agree with Deputy Dillon on the question of sharing the interest charged on this created money. If we have any decent guidance at all, and any talk about morality, we must bear in mind that His Holiness the Pope states that:
"The State ought to be the supreme arbiter and should rule in kingly fashion far above all contentions of parties. It should consider nothing but justice and the public good. Instead, the State has become the slave, bound over to the service of human passion and greed. It is obvious, in our day, that wealth and immense power have been concentrated in the hands of a few. These few exercise, in the economic sphere, a domination that is despotic."
Surely that, coming from the Head of the Church, should be sufficient for Deputy Dillon, or any other responsible Deputy. There should be sufficient confidence in the representatives of the people to rule over the currency of the nation. I was listening to Deputy Cosgrave the other day speaking of banks who never refused credit to a credit-worthy body.
Did I not say that that was said by the Banking Commission?
I would not like to misrepresent the Deputy, but I understood he said that the banks never refused credit to any credit-worthy object in the country.
I think I said the Banking Commission reported that.
I will accept that. The Taoiseach made it very plain that there was no shortage of money for any credit-worthy scheme. I wish to tell the Taoiseach that we were held up for two years in Cork Corporation, trying to get money, and could not get it at 5 per cent. Eventually, last year, we had to pay 5¼ per cent. for it. We have a scheme in Cork drawn up by the corporation for the last six or seven years, a sewerage scheme. That is held up because we cannot get money. I was one of a deputation of 12 which came before the Minister for Finance, just before the present Minister came into the office of Minister for Finance, and asked for a loan of £50,000 for Cork Harbour Commissioners.
I suggest that the port of Cork, from Cobh to Cork, is sufficient security at any time for a loan of £50,000. I want to tell the House that as far back as 1893 Cork Harbour Commissioners had loans from the public amounting to £393,000, all of which have been repaid, with the exception of £80,000, and £40,000 of that is available. After three months' consideration of a request for a loan of £50,000 a reply was received from the Minister stating that he was not prepared to give it. We then went to our bankers and they stated that they would consider the request for a loan, but that they should first get State security. We knew where we were when they talked about State security. Later, the bankers wrote that they were prepared to consider granting a loan if the commissioners got an order from the Minister for Industry and Commerce, stating that the money they had invested would be earmarked against the £50,000. That meant that the commissioners were to look for permission to spend their own money. I objected to that. They also demanded that the Harbour Commissioners should get legal advice as to their borrowing powers. I also objected to that. Everybody knows that the port of Cork was sufficient security not only for £50,000 but for treble that amount. I look upon the port of Cork as the most important one in the nation. Notwithstanding Emergency Order 83 the Minister allowed invested sums amounting to £37,000 to be set off against the loan from the bank. Here we had the stones, the sand, the gravel, the lime and cement available, and idle men waiting to be put to work, but it could not proceed because of this group who control what is known as the paper money. Eventually we got £25,000 without any security.
I want to impress upon the Taoiseach and upon the Minister for Finance that there are several other schemes which could be undertaken if the people had control of credit. Does the Minister really suggest, or could anybody contradict what Deputy Dillon said, that banking practice is otherwise than as he explained? How is it that with a paid-up capital of £9,000,000 the ten banks in Éire and Northern Ireland were able to make net profits of £22,406,000 after providing for all bad and doubtful debts? Does Deputy O'Sullivan think that was from money invested by depositors? I have not the least intention of interfering with the security of depositors. We want to see control of credit and currency in the hands of the central bank, and that will not be gained by having three directors from the commercial banks on the board, with a clause in this Bill that there must be a unanimous decision before any change can be made.
Deputy Dillon said that he did not intend to support the amendment, but in my opinion, he made a very strong case for it. He stated at first that this section would make it obligatory to have bank directors who had no knowledge of banking, and in the second place he demonstrated that at the present time banking institutions have almost unlimited powers for the creation of credit out of nothing. He mentioned the ratio of ten to one, and stated that if £100 was deposited in a bank they would lend £1,000, or that if £1,000 was deposited they would advance £10,000. That chain could be followed to an unlimited extent and eventually it would be found that banks have unlimited powers for the creation of credit. Deputy Dillon was right when he said that all credit was based on the ability to maintain ordered conditions. If we had not settled government money would be worthless. The ability of the community to work and to maintain order is the security upon which banks operate and have made enormous profits. The Taoiseach mentioned that it was not intended to disturb the present system in this Bill, and that what he hoped to see is co-operation with the present system. Co-operation is a very good thing provided it is between two parties recognising the same law. If for example, a stranger with his wife and family come and occupy my house I could not co-operate with them. The position of the banks is that they have taken over a function which belongs to the State and the community, and until the State asserts its rights and recovers that function for the use of the people, there cannot be any basis for co-operation.
With regard to the Taoiseach's anxiety for co-operation, he also mentioned that if co-operation failed it might be necessary to have a fight with the existing banking system. If there is going to be a fight it is desirable that there should be some voice in selecting the time for the fight. If the Government intends to co-operate with the banks until such time as the banks decide to have a fight with them, they may find that the banks will choose a time when the advantages may not be as great for the State as they are at present. I believe there is no time more opportune than the present for the State to take complete control of credit. It can only achieve that object by having control of central banking directors, who will be directly responsible to the Government and not to any outside body. If there is to be something in the nature of conflict or competition between the central bank and the joint stock banks, it is most important that the Government should have in control people upon whom they can rely and not people who are in the camp of their opponents. It has been suggested that a smaller number of bank directors would be sufficient. By accepting the amendment there would be a smaller number, which would be quite sufficient. I think Deputy Dillon has made a very strong case for the amendment and I am surprised that he is not prepared to support it.
The answer made to most of the comments in respect of this section and the amendment was simply to point out that nobody understood the immense difficulties created by the superabundance of sterling in the country. I should like to have that explained, if it has any bearing on the situation.
Does anybody else wish to speak?
We want to hear the Minister.
I shall wait.
A responsible Minister in charge of an important Bill!
If nobody else desires to speak. I shall put the question.
We shall have it all over again on the next section.
A few points were mentioned by Deputy Hickey to which I should like to refer. He mentioned on the last day on which we had this Bill under discussion that Cork Harbour Board were unable to obtain a loan of £50,000 from the banks unless security was forthcoming. I thought I had explained that, so far as I was aware, a local authority, in order to borrow money, had to get the sanction of the Ministry of Local Government. That is all that was asked in this case.
A harbour board is not the same as a public authority.
Unless I am much mistaken, it was possible for the harbour board at any time to change their treasurer and leave with the treasurer with whom they had been operating any overdraft they might have. That was the rule with regard to treasurers generally.
We did that. We went to another bank.
The harbour board could have changed its treasurer. That treasurer would have no action against the harbour board in respect of an overdraft unless it had been sanctioned by the Ministry of Local Government. If that is so, it is only fair it should be stated. When I had anything to do with local government, it was open to a local authority to change its treasurer, with the sanction of the Ministry. If the local authority had an overdraft with the bank and left the bank, the bank had no case and could not recover the money from the local authority if the sanction of the Ministry had not been given. The reason for that is clear. A local authority is supposed to have a life of 12 months—the rating period. It is supposed to balance its accounts within the 12 months. If a local authority were to conduct its business on the basis of an overdraft, it might raise no rates at all in a particular year and simply carry on the overdraft.
According to the opinion given in the Banking Commission's Report, it is not the business of the banks to lend money on long terms. That is not banking practice. If it is intended to make it banking practice, then let it be done by law and give the banks a lease of whatever deposits they have got, so that they can extend similar accommodation to the borrowers. If banks are liable to be called on to pay out their deposits at short notice, it is obvious that they cannot lend for a longer term than the term on which they have got the money. I am not an exponent of banking policy, and I hold no brief for the banks, but do not condemn an institution which has no power to do the things which Deputies expect it to do. The banks have not got the power certain people think they have to expand credit.
I am not bringing an accusation against the banks. What I say is that we should not be suffering from this disability.
This matter should be dealt with by some other means than criticising banking practice here. The banking system here has something of our own; it is the property of the people of the country. It is in their interests that it should be a sound system. According to the report of the Banking Commission, it compares most favourably with the banking systems of other countries. It has not got greater power than banking systems in other countries have. We have seen the dangers that can arise from banks departing from their traditional methods of doing business. In America, 4,000 or 5,000 banks closed. The banking system there admirably suited that country and was largely responsible for its great development. That system would not suit here.
It is claimed by some speakers that it would be better for the State to get control of the whole system. I do not know whether that is advanced or normal socialism. I heard a Deputy who generally speaks on behalf of farmers say that we should nationalise the banking system. The same Deputy would, I am sure, object to nationalising farms. In the region of politics, there is a tendency, when a thing is done, to go on and do other things in the same fashion. According to the report of the Banking Commission—I have no information except what I get from the report—a sum of £37,000,000, the property of farmers, is on deposit with the banks. Approximately, 135,000 farmers own these deposits. On the other hand, about 125,000 farmers were indebted to the banks for, approximately, £12,000,000. On balance, that industry has been able to do more than finance itself.
On the last occasion on which we were discussing this amendment, reference was made to the interest which had to be paid for moneys lent by the banks. Anybody who wants information on that question will find it in paragraph 310 of the report of the Banking Commission. I am speaking from memory—I think my recollection is fairly accurate—when I say that the commission set out three different sets of borrowers, the sums amounting to a fraction less than £50,000,000. The rate in one instance is as low as 2½ per cent. while, on the other hand, it is as high in another as 5½ per cent. The average works out at something under 4½ per cent. per annum. That rate is compared either in that paragraph of the report or in a succeeding paragraph with the interest rates in England and in America. While the rate may not be as low as that of London, it compares very favourably, according to the Banking Commission, with the rate in those towns outside London which are of comparable size with our cities. The same may be said, according to the report, of the rate in areas outside New York when compared with the rate in districts of the same type here. Speaking again from recollection, I should say that, according to the Banking Commission, the interest charges here are lower than in comparable cases elsewhere.
Why do they lend cheaper to the British Government?
Why? Now?
Since the war?
The Deputy is asking me a question about which possibly he has more information than I have. I have only the information which is in the Banking Commission Report and in other publications of that sort. I find in one of the Dublin newspapers— I cannot remember the name of the newspaper—that in the Irish banking year there is a big jump in deposits. Again taking for our information those banks which should be in a favourable position to lend to the British Government, I find that, comparing the year 1939 with 1941, three banks, one of which operates only in Northern Ireland and two which operate both in Northern Ireland and in Éire, had approximately £12,000,000 more in deposits in 1941 than they had in 1939; that their advances are approximately £2,000,000 less in 1941 than they were in 1939; and that their profits were down. They show an aggregate profit for the three banks of about £330,000, which represents a decline of approximately, £25,000, although they had £12,000,000 more on deposit in 1941 than in 1939. I have listened to those who are perhaps more acquainted with the expansion of credit and the possibility of employing money which is left on deposit at nine times its multiplication.
You missed Deputy Dillon on that.
There are £100,000,000 to be lent, according to this expansive method of developing banking business. Assuming for the moment the rate of interest was at the low rate Deputy Davin has in mind, that it was lent to the British Government at 1 per cent., that would represent £1,000,000 in profits over those three years. That does not appear on the balance sheets. It does not appear in the profits. There is something wanting in all this magnificent demonstration of expert banking knowledge.
You missed Deputy Dillon this evening.
I am not dealing with Deputy Dillon. I would like to have heard him. He is always interesting on these subjects.
He was after you this evening.
There are £12,000,000 and, according to Deputy Cogan, it is possible to expand each million that you get by a certain multiplication.
Notwithstanding all these millions, our children and our women can afford to drink only 16-25ths of a pint of milk.
Why attribute the entire fault to one section of the community?
I am not.
The Deputy is attributing it entirely——
To the monied section.
Is there no other section to blame?
And the people who tolerate that.
I put a sound business question to the Deputy. Would he, if he had entire control of his country, a la Stalin or any of his confreres on the Continent, expend on this institution the amount of money that it costs? Does he think that the country gets value for the expenditure of the money that is required for this, as a body of shareholders running the country?
We will not go into that question.
That is not the money system—one of our idiosyncrasies. We can go on from that to various other things but let us understand that the money system alone is not responsible for all the evils which Deputy Hickey thinks this country has, unfortunately; inherited.
It is what you do with the credit and currency of a country that matters, rather than the volume.
Assuming we take that as so, has there been any limit to the amount of credit available in the United States of America, which is a great country?
Not now, anyhow.
Is there any limit to the credit they could employ? Have they been able to solve in that country all these evils to which Deputy Hickey has referred here? Is there anybody hungry in America? Anybody short of employment?
Of course, there is.
Is there unequal distribution of wealth? There is a democratic system in perfect order, working for 150 years.
Perfect order?
Yes. What would happen if Deputy Hickey were to turn his attention to international affairs? He is dissatisfied with everything. I would advise him strongly to look more favourably on humanity, with all its defects——
That is what I am doing.
And devote some of his time towards that constructive line of policy rather than to the destructive criticism which is, apparently, going to be taken up by Deputy Hickey and his friends and which was formerly taken up by gentlemen on the opposite benches, who have found out that all these theories they were so eloquent about some years ago are falling one after another, until they have learned that they must earn their bread by the sweat of their brow.
The men and women of this country, not the magnates of the banking system, occupy the first place in my mind. If this House and the banking system were to disappear, the people would still go on.
Precisely.
And they would produce goods and services even if we were never here and if the banking system never existed.
Precisely, and an alteration of the banking system by Deputy Hickey would make the position very much worse.
Deputy Hickey knows that the banking system and the money system have taken boots from the feet of the children and food from the consumers.
Did Deputy Hickey ever examine the other side of the question and see how far that particular system has been responsible for the success which has attended so many industries in this country?
By their fruits we shall know them.
Certainly, if we are going to get another shower of theories in this country, we are in for a very bad time. There are examples all over the world of the various theories we have heard here about reform of money. You have them on the Continent. There is scarcely a country that has not had its difficulties enhanced, emphasised and increased by these "reforms". I think people ought to exercise much more discretion in speaking on this subject. There were utterances from the far side of the House and from the Labour Benches in connection with steps that might require to be taken in the near future to deal with this matter.
Remember, similar reformers tried this on the Continent in the last 20 years. It was attempted by the politicians in Switzerland, and what happened? It would be rather interesting if Deputies would turn their attention to that. Almost overnight, there was a complete exodus of gold from Switzerland and of credits, and so on. That has followed nearly every one of these scares. The discussion here leads in that direction. One might very rapidly change the destination of credits. You will not change —as is expected to be done in this measure—sterling assets into domestic assets by an Act of Parliament. I think that, at least, the Ministry has learned that much, however reluctant it may have been to come to a conclusion on the subject in the beginning.
The particular section we are dealing with here, which has occasioned such a wide discussion, deals with the number of persons who are to be on the central bank board. Deputy Norton's amendment is directed towards removing the condition that three of them should be banking directors. My amendments deal with reducing the number from nine, in all, to five. The Government's case is a case in which they seek to get, as they describe it themselves, by co-operation, what Deputy Hickey would like to get by other means. The manner in which they achieve that co-operation is by appointing two non-banking members to each banker. There must be some desperate feeling of terror amongst Ministers regarding the powers of banking nominees on this board when they have to put two men to outvote, to use their own description, any single banking representative on the board.
Apart from the single member who has been on the Currency Commission for a number of years, there is no other person who has experience in connection with this currency and central bank business now available except one member who was not reappointed to the Currency Commission. What is the necessity for adding six non-banking directors to the three banking directors? At one time a membership of seven was deemed sufficient for the Cabinet of the United States. Recently the Government themselves in reconstructing the board of the Great Southern Railways appointed a board of only five persons—one chairman and four others.
And only one of them has any power. The others are office boys.
Why does the Deputy take such a delight in belittling people who hold responsible positions?
I said that there was only one of them who had any power.
Does the Deputy want the five of them to have equal powers? Does the Deputy conclude from that that the Government are only giving six persons power here?
It is quite different here.
Is it necessary to have a majority of two to one against the banking nominees? I have the gravest possible doubt that, in any divisions that may take place on the board, the banking directors will all be found on one side and the six other directors on the other. Banking business is not done in that way. Why it should be necessary to have nine people to do what five have done for quite a long time past has not been explained and I think it is due to the House that the Minister should explain it. The appointment of additional directors will involve the expenditure of a few thousand pounds more and there is no indication whatever that we are going to get any value for that additional expenditure. No information is given to us to show whether the persons appointed in addition to the service directors will be qualified persons. In fact the Minister can appoint any four persons he wishes. Under the Currency Act of 1927 three of the nominated commissioners had to be people experienced in business, industry or trade. It is quite true that the Banking Commission recommended that that principle should not be insisted upon, but I think that it would be better to have at least three people who would be experienced in business, industry or trade. We have got no explanation in the world as to why this board should consist of nine persons rather than five.
I imagine that Deputy Cosgrave would be a very unhappy man indeed were he to live in a world in which there were no banks or in which there was not some complicated system of finance manipulated by banks. The Deputy has averred on a couple of occasions that he does not speak here for the banks. Of course, everybody accepts his declaration in that connection, but unconsciously the Deputy is arguing that there should be no change whatever in the existing banking system and in existing banking practice. Any restriction on bankers, by putting on the central bank board non-bankers in greater strength than bankers, is something which Deputy Cosgrave apparently abhors. The Deputy apparently has some deep-seated abhorrence of bankers being outnumbered on the board, but he did not tell us in what way the stability of the country would be seriously impaired by having bankers in a minority and non-bankers in a majority on the board. I think the Deputy has not attempted at all to deal with the basic problem confronting this country to-day, just as it confronts many other countries. If anybody suggests interfering with the present banking system the Deputy's usual line is: "Do not rock the boat; leave things as they are." But the Deputy would not at all think of getting a new boat or setting the State to sail out in a better type of craft than that in which it has been sailing up to now. I think the Deputy left completely untouched many vital matters which are wrapped up in our amendment to Section 2 with which is interrelated our amendment to Section 6.
On the last day on which we discussed this Bill I was quoting the case of a person who went to a bank and wanted to get money for a certain enterprise, to wit, a casino, and I suggested that he would be likely to get all the money he asked for, so long as he was able to show that the casino would yield a substantial profit and pay interest to those who sell money at the highest possible price. I then cited the case of another person who went into a bank for the purpose of getting money to work a coal mine, and who at the same time intimated that the chance of getting substantial dividends was very small, and I pointed out that that person would very likely be disappointed in his efforts to get any accommodation from the bank. The Taoiseach got over that situation by stating that the remedy was to close the casino, as if that would induce the bank to lend money to work coal deposits which were not likely to yield dividends to maintain the present stiff rates of interest. Surely the remedy does not lie there. Our view is that this is an absolutely worthless Bill from the point of view of altering the economic life of the people of this country and that after the Bill is passed, or even a dozen Bills like it, we shall still have unemployment, emigration and low prices for the bulk of our agricultural produce. We shall still have a relatively low standard of living for our people. We believe this Bill will, in fact, do nothing whatever to remedy any of these evils notwithstanding the belief of certain members of the Government, a belief expressed before they came into office, that once we got an independent financial currency in this country, then, and only then, could you deal with problems of unemployment, under-employment, low prices, emigration and a very low standard of living in very many areas throughout the country.
Our view in connection with the Bill is that it will in fact make no contribution whatever to a solution of any of our economic problems or produce any economic resurgence in this country; that, as the London Economist, and the people who express the viewpoint of the money-holders and moneychangers in Britain said, this Bill, in fact, makes no changes whatever. It is merely, as the Economist said, rechristening the Currency Commission and calling it a central bank. Any simple person throughout the country who imagines that banking practice will be disturbed in this country by the passage of this Bill in its present form is certainly hugging an illusion which will be found to be more mythical, probably, even than the person at present believes.
Our view is that credit is of vital concern to the people of this country; that it enters into their daily lives at every point of their lives; that it regulates the standard of their lives; that it regulates their degree of comfort; that it regulates their national and domestic activity, and that it reflects the entire activity of the State. I think that few people will question that description of currency and credit in this State of ours or in any other State, and if that position be accepted I do not think it can be challenged: why, then, should we create a central bank consisting of a governor, three compulsorily appointed directors of existing banks, and five other persons, with no responsibility whatever, under statute, to the Government, and with no responsibility whatever to the House? We are setting up this autocracy—because that is what it is—to control banking in this country, and we are not making it in any way responsible to the Government, to this House, or to the people. I do not know on what grounds a Government which held other views in other days can possibly justify the creation of an institution of this kind, and why a Government should give such wide powers to individuals who, in turn, render no account of their stewardship to the Government or the people, passes my comprehension.
I said, in an earlier discussion on the Bill, and I repeat it now, that so far as the Labour Party are concerned they believe that credit and currency represent such a vital factor in the lives of the people that currency and credit ought to be a national institution in this State, owned by the State, and operated by the State through the elected Government; that its management or government, if you wish, as a matter of convenience or a matter of banking or legislative tidiness, be exercised by a body appointed by the Government but responsible all the time to the Government, the Government, in turn, being responsible to Parliament and, through Parliament, to the people. At a time like this, when pre-conceived notions of currency and credit have simply toppled to the ground. I cannot see any reason in the world why we in this country would not recognise that a change of that kind would best suit our development here. As has been said by some previous speaker, if Britain were to change to-morrow its method of control over banking and over credit and currency, we would be dragged willy-nilly after Britain. We hang on to the present method to-day because Britain hangs on to it, and if Britain were to change to-morrow we would get a thousand reasons why what cannot be done to-day should be done because Britain had changed its attitude in respect of currency and credit.
Deputy Cosgrave told us that many people have endeavoured to regulate currency according to different conceptions as to the manner in which currency and credit ought to be regulated, but merely desiring a change in the present banking methods and in the method of control and issue of currency and credit is not in itself essentially wrong. None can say that it is wrong when you view the conditions which exist to-day under what Deputy Cosgrave would say was a very sound banking system. We have had enough experience for the past few years to realise that other Governments have felt that circumstances compelled them to alter their whole credit and currency systems. At one time, of course, it was believed that currency should be anchored only to gold. Does anybody believe that now? Does anybody believe now that currency ought only to be anchored to gold, the scarcest commodity in the world? It may have suited certain nations to keep the currency and credit system anchored to the scarcest commodity in the world because they had access to gold deposits, or it may have suited these nations to continue that practice because their commercial position and their military position in the world enabled them to get access to substantial gold deposits, but is it our business here, in our circumstances, to link currency only to gold?
Will not the Deputy have an opportunity of discussing that particular matter on a later amendment?
Are you referring, Sir, to amendment No. 6?
Possibly to Deputy Cosgrave's amendment as far as I can recollect.
There is a group of amendments here, and I understood that a decision on one will cover the others.
Nos. 2, 3, 4 and 5.
Yes, and probably No. 6 to a very large extent. It is admitted by everybody that Germany, Russia, Britain and Italy—and I think it is becoming increasingly so and will become increasingly so in the United States—have long ceased to anchor their note issue to gold. British financial papers have frankly admitted that Britain is creating credits on a colossal scale. These credits and the currency which Britain is issuing are not anchored to gold and do not even purport to be anchored to the securities of any other nation. Britain is issuing these credits against her war productivity. British currency, which is being issued to-day, is being backed by bombing planes, by guns, by ships, by every device of war, and if Britain, which was once thought to be the most conservative country in the world from the standpoint of its financial methods, can issue currency and credit against such worthless things as implements of war, which have no permanent value and which may be perfectly worthless the moment the war ends, surely we in this country ought to give some consideration to the creation of a currency and a credit system which would enable us to issue credits and currency against substantial national assets which, in turn, would be reproductive and which, in turn would repay any credits issued in respect of them.
Let us take housing, for example. It is a well-known fact that probably 40 per cent. of the rent of a house goes for the payment of interest charges. In other words, if you erect a working-class house, costing about £500, by the time the loan is repaid, probably about £900, in the long run, is repaid. If the State were to create credits in respect of housing and were to eliminate the exorbitant charge of 4 per cent. and 5 per cent. for money borrowed for housing purposes, houses could be let to people at substantially less than these houses are being let to-day. Would there be anything seriously wrong if the State, requiring £2,000,000 or even £5,000,000 for housing purposes, were to issue State credits against the erection of houses? The credits, in due course, would be repaid by rents received from the houses, but there would be no necessity in the meantime to keep in existence a banking institution which would rake off 5 per cent. of the money invested in the houses, nor to keep employed money which might be devoted to other purposes, and on which the owners of that money rake off 5 per cent. of the State's investment in housing activities.
Deputy Hickey has quoted, I think, a case of considerable substance, the case of the Cork Harbour Commissioners. He has rightly pointed out that, assuming that the nation would survive, Cork Harbour would survive. Yet the Cork Harbour Commissioners could not get a loan from the private bankers of this country unless that loan were to be underwritten by the Government, through the Local Government Department or the Department of Industry and Commerce, and the fact that the port survived and was a hive of activity, that it had an honourable record, that it had evidence of future prosperity, meant nothing to the bank. The bank was only concerned with getting a guarantee from the State that the money would be repaid and, not merely repaid, but that the bank would get its interest on the money advanced as well.
Is the Deputy quite right about that?
I do not think Deputy Cosgrave questioned it.
I do now.
What does the Deputy question?
I question that the Government was asked to guarantee the loan. It was asked to sanction it.
The Cork Harbour Commissioners are not the same as a public body. The corporation have to get sanction first. They have to get permission under an Emergency Powers Order.
I think if Deputy Cosgrave examines the position he will find that to be correct. As was pointed out before, credit in this country can only survive on the basis of the industry, character, and goodwill of our people. The banks, when they issue credit and charge 5 per cent. for doing so, in the main issue that credit because of the fact that they are satisfied that our people have the character, industry and goodwill which permit and facilitate the issue of credit under present circumstances. The banks trade on all these qualities. We are openly giving our approval, by our present banking practices, to a scheme by which the banks trade in a commodity which the people require, thus enabling them, as has already been pointed out, to make very substantial profits out of a condition of affairs for which they can claim very little credit, and for the existence of which they have very little responsibility.
I am not one of those who blame the banks for everything. So far as bank directors are concerned, I do not want to make any reflection whatever on them personally. They may, as I have said before, be very estimable people. That is not the point at issue, nor is the present banking system, if understood, necessarily wrong—if you understand that the banks hold other people's money and are concerned to safeguard it in spheres of activity directed to that end. What I want to ensure is that the banks, when they get other people's money, do not go into domains which do not properly belong to them. I want, instead, to create in this country a banking system under which the State will be the owner of all deposits by the people: that these deposits belonging to the people of the State should be utilised by the State for the purpose of financing whatever worth-while activities require to be financed within the State: that, in respect of the depositor, the State should act with scrupulous fairness and scrupulous honesty, that the State's concern should be to ensure that these money assets are employed in the best interests of all the people while accepting as its paramount function its responsibility to those who deposit the moneys.
But, over and above the deposits in a State bank, I would like to see the State recognise that, in certain spheres of activity, such, for instance, as housing, or perhaps afforestation, or certain types of mineral development, instead of borrowing money even from its own depositors or elsewhere, it should create credits for the purpose of financing activities of a kind which would create reproductive assets for the nation that would be capable of extinguishing the credit which was in the first instance created.
Would the Deputy develop his point about the creation of credit, and say how he proposes to do it?
I see no difficulty. Let us take again the case of the Cork Harbour Board as an example. If it required £50,000, and you had a State bank in the country, there ought to be no difficulty in that State bank issuing a credit to the Cork Harbour Board for £50,000. In other words, the Cork Harbour Board could write cheques to the extent of £50,000 on the State bank, the board recognising that they owed that sum to it. The instalments on the loan would be paid by the Harbour Commissioners out of their income from the Cork port, so that, in the course of time, the loan to the State would have been repaid, the credit issued by the State would have been cancelled, and the Cork Harbour Board would have got the money necessary to develop the port. The State would have given money to put people into reproductive employment. At the end of the period, everything having been fixed for the repayment of the loan, the position would be as before the loan was borrowed, and nobody would have raked off £30,000 in interest charges, which would happen to-day if the board had to go to any of the joint stock banks to borrow the money. I see no difficulty whatever in doing that. I cannot see that you must, essentially, have in this or any other country a scheme by which you can only borrow money if somebody else is going to rake off interest on the deal. I might also borrow £100 from Deputy Cosgrave and repay him the £100 ten years hence. There would not be anything immoral in that transaction, or anything calculated to upset our personal relations.
No, except that it would be impossible.
It would not if the Deputy had sufficient hundreds.
If things had an indefinite value there would be no value in anything, but they must have a limit.
What must?
These pounds that you are multiplying.
Apparently there is a community of interest between the Taoiseach and Deputy Cosgrave.
There is a community of interest if it is to seek the truth, wherever it may be.
I hope the Taoiseach will agree on the unit of truth.
I suggest to the Deputy that he should borrow the £100 from him.
I do not think I would get it too easily. My suggestion to the Taoiseach and Deputy Cosgrave is that they are suffering considerable mental anguish for those who live in the world of banking—for those who speak in terms of 5 per cent. interest.
The world the Deputy is picturing is very different from the world we are living in.
I want to repeat that I cannot see any vital necessity why our people or indeed people elsewhere should have to live in a world in which there are certain banking institutions in existence which do not produce one acre of food, build one house or plant one tree. They do not dig up one shovelful of coal, yet, as Deputy Dillon has rightly said, they are the wealthiest institutions in this country because they are able to borrow money on credits which they issue but really cannot create. That is my complaint against the present banking system— that it is being used for a purpose it was not intended to be used for, and that we are relying on it to an extent that we ought not to, and that, generally speaking, it has long ceased to serve the needs of our people. Because I hold these views on banking, I do not want to see the control of our currency and credit system handed over to private directors not responsible to the Government or to the people. For that reason, we have put down an amendment proposing to delete the mandatory obligation of appointing three bank directors.
As I said, if the Minister for Finance wants to appoint three banking directors, that is his own business. But, if he is going to appoint those directors, there is no reason why he should be statutorily compelled to do so, and there is no reason why he should saddle every other Government with the responsibility of doing so. During his time as Minister for Finance he can appoint them every time he likes, but why should everybody else be coerced into appointing banking directors under a statute of this kind?
Earlier in the day I tried to induce the Ceann Comhairle to give me an opportunity of concluding what I might call this Second Reading debate, but the Ceann Comhairle did not agree.
The Ceann Comhairle had to allow Deputies the same latitude.
Whatever you do, Sir, is right.
I do not hold that.
We have to agree that it is right.
Lest the Minister might believe he is concluding, I would mention that Deputy McGilligan also rose in his place.
No, I have lost all hope of that. I have, however, been here since 3 o'clock and I should like to get out for a few minutes. I did hope that we would perhaps make more progress if we kept within the ambit of the amendments, but that apparently was not possible. It is far from me to wish to limit the discussion on this subject in any way, and in suggesting earlier that we might confine the debate on Section 5, I realised that very likely we would have a wide discussion on every section of the Bill and every one of the 67 amendments to it; so that, although it was not my intention, if I wished to restrict the discussion it would not have been possible for me to do it. The discussion on the last day and to-day wandered over the whole ambit of currency, credit, credit control, banking, and a variety of other issues. I am interested, as a great many people in this House have been interested, in this subject of money, currency and credit control. I have tried for some years to read a considerable amount of the controversial literature published on the subject. I have the idea that money ought to be much more easily and freely got.
But when, as Minister for Finance, I had to come down to the hard fact of putting a Central Bank Bill before my colleagues and having it discussed and hearing their views, a number of their views coincided with my own as to what we would like to do, but we had to have regard to what was possible as well. I do not want to go into all that in detail all over again. I went into it very fully in opening the discussion on the Second Reading and also in closing it. But I do want to say that in this country, in view of our special position, and in view of our financial history, it is not an easy thing, if it is possible at all, for any central bank to have complete control of our credit owing to the position in which our banks are with regard to their big assets outside the country. I think that is a question Deputy McGilligan was interested in this afternoon.
Merely reciting the difficulty does not explain it.
It does not. The difficulty is there.
What is the difficulty? The Minister is now repeating what the Taoiseach said last week, that there is a difficulty created by the fact that there is this immense holding of liquid assets of the sterling type outside the country. How does that create a difficulty? That is what we are anxious to know.
These assets are not within the control of the central bank. They are outside the country and they cannot be brought back here except by way of goods. Whatever the sum is, whether it be £50,000,000, £100,000,000, or £200,000,000, how can you take it back here by order of the central bank, by order of any Government, or by order of any authority here? Unless by bringing goods into this country, I cannot see any other way.
In other words, you more or less have taken a concrete proposal out of Section 45. On that statement, Section 45 now really goes by the board.
No.
Very nearly.
No.
It is immobilised for a good while.
Not at all.
Except for the fine.
We will not be always in that position here. Even to-day there are goods coming in to some extent. Before the war there were goods coming in to a larger extent, and that money was being repatriated at a much more rapid rate than ever before in our history, because we were developing industries. It was being repatriated. It is not being repatriated now, because we cannot get the goods, but that situation will not always exist.
It is being added to now.
Perhaps.
Twenty-five millions extra, approximately, since the war started.
The last century here has been a century of unparalleled advancement in commerce, industry, international trade, and improvement in the standard of living, particularly of the poor. That has gone on here as it has in other countries, but to our own knowledge it has been improving rapidly here. That has arisen, not entirely, but largely because of the banking system that we had here and its technique of credit and deposits. The successful development of banking technique here enabled our community as a whole, without any reference to Government action, to improve and advance. That is to the credit of the community, but largely to the credit of the banks and the banking system.
How does the Minister reconcile that with the declaration of his predecessor?
I am speaking here from what I know of banks, of what they have done, and how they have contributed to the improvement of conditions here. I know that many people in this country, including all the members of the Labour Party, are by no means satisfied with the conditions; we ought to be better off, and the poor ought to have a much higher standard of living. But we have, as I said, improved and advanced to a very great extent over the last 100 years. Look at the standard of life of our people in 1942 compared with 1842, and see what the difference is. We certainly have kept pace, generally speaking, with the other countries of Europe.
Has the population increased?
I do not know what period Deputy Hickey was referring to when he talked of the banks making a profit of £22,000,000.
1925 to 1941.
I have not got the figures of their profits for those years, but I know that for a long period they have been making considerable profits. In recent years, at any rate I think in the last ten years, those profits have been continually decreasing. If they were able to create money out of nothing at the rapid rate that Deputy Dillon indicated, why their profits ought to be tenfold what they have been. There was nothing to stop them from making hundreds of millions.
But the Minister forgets that, in a loan transaction, you need two parties; in addition to being willing to lend you must find somebody willing to borrow.
Of course, but the Deputy did not suggest that in drawing his picture of the untold millions the bank could create and lend—and were doing it.
Oh, now, that is a little bit you put in yourself.
The Deputy put no limit to the amount they could create.
But the Minister said "and were doing it". I did not say they were lending to the limit of the ten-to-one ratio at all times. They must find somebody willing to borrow.
That is a limitation which the Deputy might reasonably have mentioned, because if money was so freely available, costing so little——
Six per cent.—you call that little?
It cost the bankers so little to produce it, that there should be nothing whatever to prevent anybody with any kind of a proposition getting money from the banks.
Except 6 per cent., the want of adequate collateral security.
Even 6 per cent., or 5 per cent., which, over the last 25 years, was probably nearer the truth——
The Minister can deposit Government security as collateral. I cannot. I have only got my good name.
The Minister perhaps, but not Deputy O Ceallaigh. At any rate, the picture that the Deputy drew is a figment of his imagination.
Do you believe that?
I do.
Then you are an innocent man.
Well, I have perhaps a little longer experience—perhaps not as intimate experience—of bankers than the Deputy, and any experience I have or any little knowledge I have of how they work certainly teaches me that there is nothing like the picture that the Deputy painted in existence here or I doubt in any part of the world as far as the banks are concerned. On the last day here the Deputy said:
"As I understand the situation, in addition to the capital and the deposits over which the banks have control, the banks themselves have determined by long experience that they may also deal in a sum represented by a figure of ten times the amount of their deposits."
I suggest that that contains a serious fallacy.
That is what we should like to hear about.
Exactly. What is the fallacy?
In fact, the additional credit which Deputy Dillon has in view could only be brought into existence and maintained as a banking asset on the basis of a simultaneous and equal accretion of bank deposits. The Deputy left out bank deposits.
What does the Minister mean by bank deposits? Come on, tell us.
Does a loan come back to the bank in the form of a deposit?
If I borrow £1,000 and pass it on to the Minister, and the Minister passes it into his bank, is not that a deposit?
It is.
And around and around the mulberry bush. Off we start again.
It does not go very far around it.
That is one of the practical obstacles which prevent banks from increasing profits indefinitely in the easy fashion suggested by Deputy Dillon. They cannot go on indefinitely.
How long do they go on?
That is where I suggest the practical banker comes in who has to look at the proposition. When I go to a bank looking for loans, though I might be a credit-worthy person, or the proposition that I have may be a good one, I have to stand examination by the banker as to my credit-worthiness, my other liabilities, and my securities. If it were a small amount I might get it on my face value; if it were a large amount I would have to produce collateral, or have property that I could mortgage, or something of that kind. That is where practical banking comes in that is where I suggest that there is a limitation, and that they cannot go on and do not go on indefinitely in the fashion which Deputy Dillon suggested.
May I put the Minister a formal question? Would the Minister say, what, to his knowledge, is deemed sound banking practice in the following situation? If a banker on a given day determines that the deposits in his bank amount to £100,000, what is the limit beyond which he will deem it unsafe to authorise advance or overdrafts to his customers?
That I cannot say.
That is the whole point.
That is a proposition for the practical banker, with his deposits of £100,000. He has deposits there, and he will lend money, but to what extent will depend on his judgment of the propositions that are put to him and the securities he will get.
Will he limit himself to lending £100,000?
He may not.
He may not. He may lend more?
He may lend more, dependent on the propositions that are put up to him, and the securities and collateral that may be offered to him.
He may lend more?
He may.
That is all I wanted.
The Deputy developed his theory without interruption.
I apologise to the Minister if I interrupted. I wanted to ask him a formal question.
Deputy Davin talked of the position in Portugal. He inquired about the central bank of Portugal. Its capital is owned entirely by private shareholders. The governor and two vice-governors are appointed by the Minister for Finance; the other ten directors are elected by the shareholders. That does not bear out the Deputy's claim that banking in Portugal is completely controlled by the State.
What about New Zealand?
I know that New Zealand in these matters is Deputy Davin's bible.
Oh, no.
Deputy Dillon told the Deputy what the position of Finance Minister Nash was immediately before the war. I referred to it when we were discussing the Bill some time back.
He was pulling other people's chestnuts out of the fire.
He was dealing with the financial situation in his country.
As he found it.
Yes, as he found it, but the fact of the matter was——
May I interrupt the Minister to say that individual Deputies may dwell on the shortcomings of a Minister for Finance, whether in Éire or any other country, but for a Minister of State here to refer in such terms to the Minister of a friendly country is, I suggest, scarcely expedient, to say the least of it. For instance, if we read in the newspapers that Minister for Finance Nash was describing the follies of Minister for Finance O Ceallaigh in Éire——
The Chair did not hear the Minister say anything derogatory, and the Deputy's plea for courtesy in referring to friendly States is commendable.
Far be it from me to say anything against the knowledge or the power or the activities of Minister for Finance Nash of New Zealand. He knew what he was doing for his own Government, and I am sure that, whatever he did, it was done in the best interests of his Government. I did not criticise him in any way. I was only dealing with the situation in New Zealand as he found it.
The Minister said that he went cap in hand to London.
He had to go to London to ask for money to get New Zealand out of a bad financial hole, and he was kept waiting in London for months.
If he had been in our situation, and had any amount of sterling assets, he would be in an equally embarrassed position.
I disagree with the Deputy there; he would not be in an equally embarrassed position. He would be in a country with big credits behind him.
And he could go in for a policy of expansion?
He could, and did.
What is the value of our big credits now? We cannot get coal, or petrol, or tea.
We are still getting a number of things that we otherwise would be very badly off for. It is true that we cannot get a sufficiency of coal, or a number of other things, but, if we had not these credits that are there now, a lot of our people would be worse off.
How did New Zealand get out of the big hole?
The war came and solved their difficulties. The screw was put on in order, much against their will, to get them to adopt a different policy, but it had to be unloosened because England needed their exports. Deputy Davin referred to cheap money in New Zealand. I looked up the Budget statement that was presented in New Zealand—somebody very kindly sent me a copy of the Budget statement of the Minister for Finance, presented in December, 1941. There is a reference there to the prospectus of a national development loan. What is the rate of interest? It is 3¼ per cent., the same as for our own loan of last year. Their loan was a 3¼ per cent. loan issued at £97 5s. As a matter of fact, they had to pay more in New Zealand for the national development loan than we paid last year for ours. If the Minister for Finance there is giving out all the cheap money that Deputy Davin suggests, then the taxpayer must be paying for it; it must be subsidised.
I mentioned that it was money for housing.
Whatever the purpose, the loan the Minister was looking for, the New Zealand National Development Loan, was a 3¼ per cent. stock issued at £97 5s. We did a little bit better, 3¼ per cent at £99.
What are the dates of the two loans?
I have not the exact date of the New Zealand loan.
The date might solve the difference in the price, because money got cheaper.
I think both loans were issued about the same time. As to banking directors being put on the central bank board, I think that it is a good thing for this country, for the credit of the country, that we have banking institutions and banking directors possessing the confidence of the people. They have controlled and safeguarded the savings of the people of this country over a long period with credit to themselves. The directors are men of great experience and financial knowledge and, generally speaking, they have the confidence of the people, especially the depositors, those who leave their savings in the banks—and they include poor people as well as rich people. As Deputy Cosgrave reminded us, quoting from the Banking Commission Report, there are £37,000,000 in the banks of this country representing the savings of the farming community. That shows what confidence the people have in these banks and in the directors. It would not be wise, in my opinion, to ignore that fact and refuse to give to the bankers adequate representation on the board of the central bank.
Does the amount mentioned by the Minister represent time or account deposits?
It represents deposits—£37,000,000.
Surely they do not describe the current account deposits as the savings of the small farmers?
I did not mention current accounts; I mentioned deposits.
What does the Minister mean by deposits?
Money on deposit receipt. I used the word that appears in the Banking Commission Report— there are several paragraphs there dealing with it. I think that is a good and sufficient argument for having bank directors, representatives of the joint stock and commercial banks, on the board of the central bank. We want to have the co-operation and goodwill of the commercial banks and the joint stock banks in the running of the new central bank, in guiding it, particularly in its earlier stages. I am not suggesting that the banks insisted on their representatives being on the board in order to secure their hearty co-operation. We would probably get that even without their representatives —I believe we would—but it makes it more secure and certain that we will have that co-operation and the benefit of their knowledge and experience in dealing with the important affairs that the central bank will be entrusted with.
Deputy Cogan said the Government should put people on whom they can rely on the central bank board. Having regard to the successful way in which the banks have controlled and safeguarded the financial affairs of our people for so long, I think there is no doubt that we can rely on them to control and safeguard the financial interests that will be controlled by the central bank just as well as they controlled and safeguarded the moneys entrusted to them over such a long period. I do not know what Deputy Cogan meant by suggesting that the Government should not put on their opponents. The bankers could hardly be regarded as the opponents of the Government or the central bank or the people in a matter of this kind. They have shown by their excellent management in the past, by the way they safeguarded the people's money for such a long period, that the utmost confidence can be reposed in them.
Did the Taoiseach not mention the possibility of a fight with the banking system?
Of course, a crisis might arise at any time. Looking at the question of opponents, regarding bankers as opponents is, I think, entirely unjustified. There might be people on the central bank board who were never inside a bank, even as borrowers, who might have different views from those of the governor of the bank or the majority of the bank, and the laymen on the board might be the ones who might create the difficulties that the Taoiseach had in mind. It does not follow that the bankers would create them.
Deputy Cosgrave, like a loyal father, is loyal to his own child—the Currency Commission. He does not see that there is any reason for any change. No matter what the changed conditions may be, and no matter what different powers the central bank might have, he is satisfied that, when it was set up a commission of seven was a sufficiently large body, though he thinks five may be more efficient as a body to run the central bank. It is suggested by Deputy Norton this afternoon that Deputy Cosgrave does not like any kind of change, that to him "all in the garden is lovely"— why change the numbers on the board or why change from the Currency Commission at all, or why have a central bank? That probably would truthfully represent his attitude, but, as several Deputies have already reminded us during the course of this debate to-day and last week, things have changed in recent years, and have changed rapidly, in the financial world, and there are likely to be greater changes still in store for us in the future. It is well for us to be provided with a machine that will, in our view, be competent, by advice and assistance in our operations, to tide us over the difficulties that are there and the greater difficulties that may arise.
On the question of the number of bank directors, I find that the Bank of Ireland has 15, the Hibernian Bank 7, the Munster and Leinster Bank 7, the National Bank 11, the Royal Bank 6, and the Provincial Bank 9. I am not comparing the central bank and its duties and responsibilities with any of these banks. It will have different business to perform, generally speaking, from that which those ordinary commercial banks have to perform from day to day.
It seems to me that the number decided upon by the Government—nine —is a reasonable one, and gives opportunity for the fair representation of different points of view. There are bound to be different points of view in regard to the operations of the central bank and the duties and responsibilities that will devolve on the board. A number of that kind is a safeguard. It is hard to know the ideal number and, if it were put to this House, there would be found as many points of view regarding the number as there are Deputies in the House. I think nine is neither too many nor too few, and gives scope for the expression of variety of points of view—of theorists and practical men, bankers and businessmen, commercial men and men who have experience of life in general and who will be able to advise and consult with the Government on the special problems which will arise in the years to come.
While I was interested in and glad to listen to the wide discussion that took place on this matter, I found it rather difficult to reconcile the views expressed by different members of the Front Bench of the Opposition on the matter. As I have said, Deputy Cosgrave's views are pretty well known. He is conservative and dislikes change, he thinks of what is good, and that anything which goes away from that is likely to do more harm than good. Nevertheless, he has 15 amendments down to the Bill— which some people in this House, notably the Labour Party, think is entirely too conservative. Deputy Cosgrave has some amendments down that are certainly more radical than the proposition they seek to amend. On the contrary, there are other amendments that, if adopted, wish to stop any kind of progressive attitude. The same applies to some amendments of a different type in the name of Deputy Mulcahy. If I understand Deputy McGilligan aright he is more or less on the side of the Labour Party.
Ask them if they recognise that.
That is how I read Deputy McGilligan's attitude. He takes Deputy Norton to his bosom and thinks that is the position.
I will say this, that I would not go as far with him as New Zealand.
Will the Deputy go as far as Australia?
That is very doubtful.
A part of the road?
I will go as far as England.
That is not far.
Modern practice there is beyond your banking experience.
I am getting more enlightened. The Deputy then does not agree with Deputy Cosgrave?
It looks like that.
Then I do not know where we are.
The Minister never knew where he was.
Is that the Deputy's explanation of his own position? I think it is the explanation of his Party's position, that they do not know where they are. There are the two extremes. Deputy Cosgrave wants no change and Deputy McGilligan would like to see a good many changes.
I am waiting for a lead from the Minister for the last three-quarters of an hour.
I am replying to points.
Apart from that you have not said much that is comprehensible.
The Deputy is always very complimentary.
I wonder could the Minister say what interpretation was to be placed on a reply which stated that Deputy Hickey objected to the price of money and that he was quite right in doing so.
I have often come to the same conclusion myself. There is nothing original in that statement, even from Deputy Cosgrave or Deputy Mulcahy.
Can the central bank do anything?
I hope so.
I want to see the section.
The bank directors will propose a reduction in the price immediately they come in.
I would not be surprised. It might be a very useful thing for them to do.
Very sensible anyway.
That is the position with regard to the Opposition; they do not know where they are. They are trying to have the benefit on both sides. Deputy Cosgrave wants to be able to say afterwards: "This Party stood for safety; this Party stood for no change; this Party wants no monkeying with the banking system; this Party wants nothing done in financial matters that will bring any risk of any kind to the people or the State." Perhaps when challenged in Cork by Deputy Hickey, as he was challenged here to-day, about the difficulty of getting money, he could say how much better off we would be if we had central banking, and could point to the amendments that were put down, and to what Deputy McGilligan said. They want to have it both ways. If they can get away with it, well and good. When I put the Bill before the Dáil I knew that many people would not be satisfied. I knew that it would not be a machine that would go anywhere near effecting many of the things that members of my Party, and certainly the Labour Party, and numbers of the Opposition, thought a central bank ought to be able to do. It would not do these things, perhaps, for good and sufficient reasons. We asked for suggestions. I put it to the House that suggestions should be made and amendments put in if Deputies felt that the Bill could be amended.
I am not going to discuss the amendments now. Some of them I am prepared to consider, believing that if adopted they might help to make this a better Bill. I am glad of these suggestions. The Bill is not by any means the last word in central banking machinery. There will be plenty of opportunities in time to come to assess the work and the experience gained of central banking here. The Bill is largely but not altogether based on the recommendations of the majority of the Banking Commission's Report. We departed from the recommendations in a variety of ways that we believed would make it a better machine, to operate more successfully in present conditions. I certainly approached the whole thing in a spirit of being willing and anxious to get suggestions that might improve it, and make it a more efficient machine for the better control and safeguarding of the currency and credit of the country.
I mean no discourtesy to the Minister's statement when I say that I have got very little enlightenment from him on this matter. I think this is a very serious and difficult matter. It is one that is by its nature repellent to most people, and when they intervene they are shooed off by the people in charge. The Minister is entitled to his comment regarding myself that I do not know where I am in regard to this Bill. I do not know that in respect of the Minister's attitude on the Bill. I do not know the Government's attitude in regard to currency, the creation of credit and the control of credit. I find myself at a distinct loss to find out, not so much on this section as on later sections and on the minor amendments the general policy of the central bank that is to be instituted.
I am certainly not going to suffer under the criticism that I want things left as they are. I do not think that anything could be worse than that. I think that some move is required and that we are almost entirely out of step with other countries in the modern attitude they have adopted in respect of this matter of credit control, credit expansion and so forth. I think that it is possible to relate the general tone of the debate to the amendments here. The Taoiseach has made the only answer yet made from the Government side on the net points before us—(1) why you should have bankers at all on the board of a central bank, and (2) what is the optimum number to have on the board, whether nine, as now, or five or six or seven to which some of us would like to have it reduced. On the question of having bankers at all—representative of the joint stock banks— on the board, the Taoiseach takes up two lines—(1) we found them on the Currency Commission and, therefore, we started off from that, and (2) we should like to have co-operation. These are the two points which he put up. Immediately after he spoke about co-operation he got on to another argument:
"I think we would be very unwise to cut down the number to five or to a smaller number. It may be even questioned whether the number, nine, is sufficiently large. If you want to maintain a balance and to make quite certain that it cannot be said that the central bank is being run by the commercial banks in the interest of the commercial banks, and you take three as the basic number, I do not think you can have the number less than nine. Whilst, in our circumstances, it is right to have the commercial banks represented on it, I think it would be unwise to give them such a preponderance on the board that there would be any suspicion that the decisions of the central bank were taken solely in the interests of commercial banks. When you weigh the various balances, I think the House will be satisfied that the number, nine, as the maximum—the Minister is not bound to fill the whole number if he does not choose—is not too high."
That is the attitude: We must have bankers, because we found them on the Currency Commission; we must have them so well packed with other people that nobody can say that the commercial banks, in whom the Minister for Finance believes so much, are having a preponderating influence on the board of the central bank. That is a mixed view as between co-operation and suspicion. You want them on and you want co-operation. You want, as Deputy Cosgrave pointed out, to see each banking director flanked by two non-banking directors lest the public should think that the commercial banks are having a preponderating influence. The Minister for Finance, referring to the commercial banks asks: Have not the farmers £37,000,000 of deposits with them? I do not know whether he meant that as an argument on this section or on the points he was stressing. At all events, it does not appeal to me. The farmer may use these institutions because he has no better institutions. But I do not think that any farmer has sat down and considered the personnel of the banks and passed a vote of confidence in their boards.
Nine is to be the number of the board. You want to have six non-bankers to three bankers and the start off of all this was the finding by the Government of three bankers on the Currency Commission. It started with that and now we have the proposal before the House. This question of the number and strength of the banking experts on the board to the others can only be discussed in relation to function. In relation to function, the Taoiseach said:—
"It is really for the general direction of the credit policy of a country that a central bank is set up."
Later, he said:—
"The Government are accepting, in general, the doctrine that the volume of credit in the community is of such importance to the well-being of the community that it is a matter of great concern for Parliament and for the Government. I say that there is nothing in this Bill, in fact in the nature of things, on account of the sovereignty of Parliament, there could not be anything which would deprive Parliament of the power of dealing with that business any more than any other. The power is always there."
There are a few words then about the sovereignty of the Oireachtas, which we all accept. The Taoiseach went on:—
"The creation of credit, even for public purposes, would have, and could not fail to have, an influence on the whole question of prices, the whole question of the relative position of different prices to the community. The exercise of the powers affecting that credit from day to day is a work largely for experts, people who understand it and know it thoroughly, and who see all the implications of any particular proposed action. Therefore the Government, if they were directly and immediately to exercise it, would have to exercise it through a body of experts. They would, in fact, have to be, so to speak, civil servants if you wish."
There we have the recognition of the value of a central bank as an institution; there is involved this question of credit in the community and the question of prices. There is an expression of opinion by the Taoiseach that great responsibility—he used that word in another column—is being put upon the people who will be members of the board of this central bank in relation to credit. How am I to relate that to another statement of the Taoiseach:—
"When you start from the general theory on which central banks are being and are founded, you will very quickly realise that the circumstances of the different countries affect the general conclusions very seriously and that the conditions here are in a way exceptionally peculiar; that the powers which they give to the board of a central bank in other countries would be ineffective in what would be one of its chief functions, apart from the maintenance of the soundness of the currency, that is the control or—if I might put it in a wider form—the influence on the volume of credit in the community."
The main function there is credit. The Taoiseach expresses himself in terms with which everybody will agree who has studied the matter—that some body should exercise control in regard to credit. But he has previously destroyed that structure by saying that the conditions here would render ineffective one of the chief functions of a central bank—the function of influencing the volume of credit in the community. He said:—
"The methods by which that influence can be exercised effectively in these other countries cannot apply here and would not work here. If you want to get quickly the reason for that you will find it in the fact that here our commercial banks have an exceptionally large volume of sterling assets in a liquid form immediately at their disposal, so that the methods which would be used in other countries, where their commercial banks were not in that position, would not be effective with us at all."
That does not relate to repatriation of outside assets. Our banks have a large volume of sterling assets at their disposal, so that the ordinary function of a central bank—looking after, controlling and expanding credit—is, according to the Taoiseach, beyond our control. I want to have that explained. I do not understand it and I should like to have an appreciation of what this difficulty is. I suggest that this is a completely different matter from that dealt with in Section 45—external assets—and the fumbling efforts made, through that section, to get those brought home.
On the question of credit the Minister for Finance seems to doubt completely and entirely the ten-to-one pyramiding theory spoken about by everybody here. I may add as hurriedly as I can that I do not accept the superstructure raised by Deputy Dillon—the allegory, as he called it—as completely correct. Let us get common ground. I have a book here written by the Editor of the Economist. In a foreword he says that the book is mainly due to the encouragement given him by a citizen of our own country—a person who is, I think, regarded as being rather conservative in outlook on most financial and banking matters. The author says:—
"For example, if the central bank increases its assets by £1,000,000 (by buying securities or granting a loan to that amount) the cash of the member banks will also be increased by £1,000,000. But if the member banks preserve their cash ratio of 10 per cent., they will proceed to expand their assets (other than cash) by another £9,000,000, thus increasing their total deposits by £10,000,000."
Can we get accepted from that simple statement that this ten-to-one ratio works? The Minister spoke about the way in which practical bankers dealt with the situation. I suggest that the way in which they have dealt with this has resulted in this 10 per cent. being accepted.
Do the Government accept it?
The Deputy will have a chance of speaking later.
We have shown us, in a very simple phrase, how assets can be expanded and cash increased. Is this power subject to any limitations? There is one limitation:—
"If the central bank allows the deposits with the member banks to increase, the public will begin to draw out correspondingly larger amounts of currency (i.e., central bank notes). Consequently, the member banks will demand larger supplies of notes from the central bank. The central bank must bear this in mind when it starts to ‘expand credit' and, if the total amount of notes it may issue is limited, its powers of expanding credit are also subject to an ultimate limit."
That is chiefly the limit that is being put upon that power to expand. Let us apply that to the central bank in this country. Is there any restriction imposed upon the total amount of notes which the central bank in this country under this Bill may issue? There is, but it is not under the control of anybody in this country. Section 47 of the Currency Act of 1927 is left alive. I am not going to read the details of it, but that means that if and when anybody presents what is known as British money—that is the term given to it in this Act; that is, anything that is legal tender in Great Britain—if anybody presents British money to the central bank, the central bank must proceed to issue legal tender notes for it. That means if there is any limitation put upon the note issue here, it is not a limitation in the control of anybody except the Bank of England. Is that a situation we want? The Minister for Finance has said that the expansion of issue is not unlimited. It is not, but we are tied now by that to what the Governor of the Bank of England may decide to do at a particular moment.
No.
The Taoiseach shakes his head. Sub-section (2) of Section 47 of the Currency Act, 1927, says: "...that if and whenever any person applies to the commission at the place in Dublin appointed for the purpose by the commission for legal tender notes and delivers to the commission at such place and in accordance with the regulations in that regard made by the commission... gold bullion... or money (in this section called British money) in any form which is for the time being legal tender in Great Britain for unlimited amounts, the commission shall issue to such person legal tender notes of an amount equal (as the case may be) to the value under this section of the gold bullion or to the nominal amount of the Saorstát gold coins or to the nominal amount of the British money so delivered..."
It is necessary to consider in that connection what has been the expansion. What has been, say, the growth in deposits in England? I have not recent figures, but I want to give this as one example—it is a long time back. At the end of 1913, the total of British bank deposits was £1,142,000,000; at the end of 1920, seven years later, it was £2,739,000,000. It had almost trebled in seven years. What it is now, of course, is fantastic.
£4,073,000,000 at the moment.
And every single legal tender note of that that could be presented here imposes, under our Act, on the central bank the necessity of issuing legal tender notes against it. In some way, it does not seem right that we have these embarrassing difficulties from having too much wealth in our possession. There has been a lot of comment, and critical comment. Most of the critical comment I would agree to with regard to the New Zealand position, because everybody knows that the New Zealanders found themselves in extreme financial difficulties, that they were dependent upon the London financial market. It is something that requires an explanation, that we are going to be just as embarrassed as the people in New Zealand, but from a different cause—because we have too much in the way of sterling assets at our disposal. There is something, at least, to be explained. There seems to be an amazing contradiction between these two positions—one country finds itself in difficulty because they have not enough sterling assets at their disposal; we find ourselves put in the peculiar position that the central bank is going to be deprived of one of the duties of a central bank because their powers would be ineffective owing to the fact that our commercial banks have too much in the way of sterling assets in liquid form.
Not deprived of them, as far as the Bill is concerned. There is no positive deprivation as far as the Bill is concerned.
The Taoiseach has said that one of the reasons why the central bank is not put in the position that central banks are in elsewhere is because those powers would be ineffective.
Because the powers used elsewhere could not be so effective in our circumstances. You can give them to the central bank but they will not be effective.
This is a Bill made, not in the last two years, during a period of inflation or during a period in which inflation is certainly advancing, but made with no limit of time upon it, and we are told that at the present moment, because there happens to be a peculiar situation with regard to sterling assets, certain powers that other countries can give would be rendered ineffective here. Is that any reason for not putting them in?
Which of the powers does the Deputy want?
I am talking of those the Taoiseach said could not be given to a central bank.
I am speaking of the effective powers they would have.
At column 1115, the Taoiseach said:—
"The powers which they"—
that is the people
—"give to the board of a central bank in other countries would be ineffective in what would be one of its chief functions, apart from the maintenance of the soundness of the currency, that is the control—or if I might put it in a wider form—the influence on the volume of credit in the community. The methods by which that influence can be exercised effectively in these other countries cannot apply here and would not work here."
I take it the Taoiseach, when he spoke those words, had something in his mind which he thought people comparing central bank functions elsewhere with those given under this Bill could easily discover. I want to find out what are the functions he was referring to and why is there this taking away of these functions from the central bank here. I think it is important to have our attention directed to one or two simple points. There is a simple point that stands out and emerges very clearly from this Bill. If the creation, expansion, control of credit is an important thing to give to a central bank in any country, then let it be recognised. The Taoiseach has here publicly announced that the powers which central banks ordinarily have would be ineffective here, that one of the things in particular that they would be ineffective about would be looking after the volume of credit in this country.
Remember that, not merely are we in that position, but we have gone to this other point that, in so far as calling for the issue of legal tender notes in the country is concerned—and we might as well be honest about it, and there must be argument put up for it—we quite clearly are committing ourselves to this, that every time there is an expansion in currency on the other side there can be induced here an expansion of a similar type. Whether the people in this country want that credit expansion or not, whether it is dangerous or good for the community here, we are so inextricably entangled by trade connections with Great Britain, that is just the position we have to accept, but it ought to be said that that is the position and we ought to be told that we cannot get out of it immediately, whether it would be for our benefit to steer such a course that, eventually, we could get out of it and whether it might be a thing that would have to be done over a period of years.
I suggest that that is one of the things that come with searchlight clarity out of this Bill. When I think of that I begin to ask myself, is it worth while bothering about whether you have banking members on this board at all; is it worth while arguing whether there should be nine, or seven or five, if we have a plain statement here that some functions of central banks elsewhere are functions we cannot give to a central bank here, because we are so tied up with trade connections with Great Britain. When I see that with regard to such a thing as expansion of credit, I think the restriction would go the same way. There is another section, that people who want to withdraw money can demand payment in British money and must get it. If we are handing over these two important functions to somebody outside the country, does it matter whether there are nine on the board, or seven, or two, or one; whether they are civil servants, outside people, bankers, or what they are?
I am trying to think of this in terms of a central bank with real powers. I have asked the Government to take a period for reflection and to make up their minds on this whole matter. I do not want to go to the New Zealand or Australian positions. The position in Sweden offers us an analogy. We have not exactly copied what they were doing in respect of the development of electricity and the control they have established over it but their viewpoint had considerable influence over us. As far as banking is concerned, they have a central bank, with a board of seven. Six of them are appointed by the Parliament. The Minister for Finance has to accept responsibility for them. They report, at times when they are called in to report, to a special banking committee set up by the House and that banking committee directs the policy of the banks through the nominees that are on it, and they do that because they have recognised as the root principle upon which they operate that the provision of credit is a public function and not under the control of the central bank. I do not know whether we could, without danger, go into that position.
We are taking the completely opposite point of view. We are going to appoint certain people—nine is the number provided for in this Bill, three of them bankers—and the moment they are appointed this House and the Government lose all control over the functions of the bank. Even if they are going to have something to do with credit, its expansion or restriction, if they are going to have anything to do with the rate at which discounting can be carried on or the rate at which money can be borrowed, they will do that independently and the only way the Government can influence them is by a change in legislation. I have suggested that the Government might adopt the scheme in existence in regard to the Electricity Supply Board, whereby the Government, being dissatisfied for reasons stated to the House, can dismiss all the members of the board or such members of the board having different views from them as to what is required for the good of the community. It is an impossible position I suggest in these modern times for this House to take up, that they are going to appoint a group of nine people—and I do not know how they are divided as between experts and non-experts—and having appointed them, allow them to remain there for seven years, as far as the governor is concerned, and varying periods as far as the others are concerned. So far as there is any question of the central bank having anything to do with credit, interest rates or discount rates this House not only has parted company with them, but leaves them to operate on their own devices.
The Minister for Finance said that they could influence them in different ways, but there are no ways of influencing them unless this Bill is not a true picture of the scheme which the Government intended to operate. If some link is going to be preserved between the Government and the board it had better be done openly, so that if anything does emerge as a dangerous matter hereafter or if any disaster occurs we shall know at least where the responsibility lies. I have suggested that we should not bother very much about the question of the numbers of the board. What we should bother about is the link between the Government and the bank in reference to such questions as the provision of credit.
I wish the Deputy had suggested the particular type of link he wanted, so that we could discuss that.
I suggested the Electricity Supply Board link.
I shall not get on to that at the moment, but I shall consider how the link would work in this particular period. Anybody who has given any attention to this matter at all is at some stage or other driven back to the question of the power of banks to create or expand credit. Unless we can see what that power consists of and what are its limitations, we shall get nowhere. We shall have people on the one hand saying that they cannot create credit, that it is absurd to suggest that they can. I think on the last occasion on which this controversy arose a person such as the head of the Westminster Bank—I am talking now only of a footnote I saw in a book I was reading—held to the end that in fact banks can only lend the money of their depositors. He practically denied, when it was the subject of controversy, the proposition held and stated clearly by the Chairman of the Midland Bank, Reginald McKenna. Here you have two practical bankers, two men who understood fairly well the theory of banking, and they differed so completely on this particular matter that one man was certain to his death I think, although he was aware of the criticism, that no such thing happened, while the other man asserted equally strongly that in fact it did. That is the position taken up by Crowther in the book about which Deputy McGilligan has evidently been talking.
I have been interested in this subject for over 20 years, and my difficulty in regard to the whole matter was that there were theories and theorems stated in regard to it that left us in this position. It was obvious to anybody who studied it that there was no complete demonstration of the truth of what was stated. On the other hand, it was very difficult to put one's finger exactly on where the fallacy or where the mistake was. On one of these—I think it was on the Douglas A plus B theory—I asked quite a number of economists what their view was and they told me that they felt it was not true and they gave the impression of knowing why it was not true. I asked them to be good enough to give me some memoranda that would dispose of it at least as far as my own mind and the minds of some other people were concerned. I have to confess that over a long period of years I did not get a satisfactory demonstration showing that the proposition was not true. I did get one that approximated to that but I did not find anything like convincing proof in regard to that A plus B proposition. However, that A plus B proposition has been responsible for a great deal of controversy and assuming, as I believe, that it is fundamentally untrue, it gave rise to a great deal of wrong thinking and wrong theory in regard to that question of the operation and the circulation of money and the contention, which was a fundamental thing, that industry does not give back to the community enough purchasing power to meet the cost of manufacture.
Then there is this other question about the power of banks to create credit and of the extent to which they can do it. In its most absurd form, what I regard as a completely ridiculous form, it was stated by Deputy Dillon. I asked to get a copy of his statement so that I should not misrepresent him.
I spoke of an allegory.
This is the Deputy's statement and the House can take it for what it is worth. He talks of Deputy Hickey going to his stocking and
"having satisfied himself that years of industry and prudence have accumulated £100 in that stocking, he comes to the conclusion that that is no longer a safe place to keep it. He proceeds to the National Bank to deposit the £100, gratefully accepting the assurance of the bank that they will pay him £1 per annum interest on his deposit."
The first step is that Deputy Hickey takes his £100 from the stocking and puts it into the bank. Having come from a stocking, it is either gold, that he may have been amassing for some years, or some other form of cash.
Gold or legal tender.
Gold or currency. It might be silver. Now that is cash, what the banks will call "bank cash". We now know that that £100 cash has come into the bank. Deputy Dillon continues:
"He proceeds to the National Bank to deposit £100, gratefully accepting the assurance of the bank that they will pay him £1 per annum interest on his deposit",
—and a further assurance, no doubt, that they will give him back his £100 when he asks for it.
Provided he gives notice.
The question of notice is another matter, but in any case, if he wants his £100 back, he is assured that he will get it.
If he wants it on demand, he will get it?
I do not know about that. The real point is this; that it is a liability on the bank and that the bank will pay him that £100 if he comes along and wants it. Deputy Dillon then proceeded to say:—
"Fortified by the knowledge of this, Deputy Hickey goes about his way, only to be followed into the bank by Deputy Murphy, who proposes to borrow £1,000."
Now, Deputy Murphy goes to the bank and says: "I want £1,000."
"The manager of the bank contemplates Deputy Hickey's deposit of £100, and says: ‘Inasmuch as I have a deposit of £100, it is now safe banking practice to advance £1,000.'"
Now, again, I shall have to interpolate a little before quoting further from Deputy Dillon. Here, then, comes in this 10 per cent. ratio, and let us understand what it is actually that the bank takes as this ratio: what we mean by this accepted ratio of 10 per cent. If you take up, generally, the deposits of a number of banks and look at them, and look at the cash that they have, you will find that there is a fairly fixed ratio between the deposits and the cash. That ratio is not exactly 10 per cent. It changes somewhat, but in or around 10 per cent. is accepted as a fair ratio for safety; it gives them a fair margin of safety. That is based on the fact that, statistically, they know that a demand is not likely to be made upon them which will need cash to meet it to a greater extent than about 10 per cent. of their total liabilities — that is, their deposits, because they have to look upon their deposits, from the bank point of view, as bank liabilities. Now, that is a statement of that fact. The accepted statement of it is—different banks working through slightly different ratios—that if we take a large number of banks, the ratio between the total deposit liabilities and the cash reserves which they would have to meet these liabilities may be taken, roughly, as ten to one. There might be a little difference one way or the other as between one bank and another, but that may be taken as a fair statistical average to give them their safety.
Accordingly, to understand that, we have to state clearly what it is: namely, it is the ratio, I repeat, of the bank's deposit liabilities to the cash that is immediately available to meet them. That cash, in the case of countries with central banks, say, in Britain, is made up of two main items. One item is the amount of currency that they have ready and immediately available in their own premises, and the second item is their balances with the central bank, the balances with the central bank being so readily available and convertible into any form that any customer of the bank might want that it is immediately available. Now, we must not turn that into something quite different, but it does mean, undoubtedly, as I understand the matter—I am not setting out to pontificate on this matter, but am speaking as a student trying to understand it—that if by any means the bank has its cash resources increased, it is thereby put into the position, without varying its power or the likelihood of its power to meet the demands made upon it, that it can increase these loans, if that is for other reasons found good, to ten times the amount of extra cash that has come its way.
Now, Deputy Dillon—coming back to him—has given us this position: that £100 cash has come into the till of the National Bank as the result of the "stocking" savings of Deputy Hickey. According to this, unless he sees extra cash coming in, in some other way, the banker cannot extend his deposits or his loans to a greater extent than ten times that, and therefore the utmost limit, in accordance with that accepted statement, is £1,000. If I were to continue the argument along that line, Deputy Dillon can come along and run it up to £1,000,000, and there is no reason why you should not continue with it and run it up to £10,000,000 or even £100,000,000. In fact, you can go by the Deputy's process, and increase it indefinitely, and by a statement of that very sort he reduces the thing to an absolute absurdity. Deputy Dillon then goes on to speak about Deputy Murphy paying the £1,000, which he has borrowed from the bank, to Deputy Corish, to whom he owed it, and that then Deputy Corish deposits the £1,000 in the bank: in other words, that Deputy Corish goes back to the bank and that that which is really a liability, from the bank's point of view, can be taken as a credit, and so on; but Deputy Corish has to put into the bank something which will increase the bank's cash, and the Deputy there has not increased the bank's cash by handing it back one of its own cheques.
I do not want to interrupt the Taoiseach—he did not interrupt me—but if he is conducting an argument with me, I must not be taken as accepting what he says.
Well, I hope I have demonstrated to every thinking man in this House that the Deputy stated his proposition about this 10 per cent. ratio in an absurd form. It would lead to obvious absurdity and, unfortunately, these absurdities are responsible for a great deal of the loose thinking. If I were to follow out that absurdity, it would lead to such an expansion of credit that money could be got practically for nothing, and, as I said to-day earlier, if a thing is so plentiful that everybody can get it easily, it loses its value. Air is a most important thing for us, but because it is plentiful and we can get it, we do not pay anything for it, but if we were to be put into a closed chamber and the air extracted from it so that we were gasping for breath and wanted air, then it would have value, and it is obvious that if money is to be given in exchange for goods it must have its value, and its value in terms of these goods; otherwise, it will not be exchangeable for them. I want to put an end to that part of the argument, but if you multiply that indefinitely, it means that money loses its value in terms of goods, and that, of course, is the whole question of inflation: that when it is increased in that way it becomes relatively less and less valuable in terms of the things for which it can be exchanged. All I want to do, at the start, is to get down to the right foundation, and I do hope that I have made it clear that Deputy Dillon's statement with regard to that is completely false and absurd because of the things that would follow from it.
Let us get down now to what is done, or to what is the theory of those who write on this subject or those who have considered it, and talk about this 10 per cent. ratio. Now it is a ten per cent. ratio of cash to deposit liabilities. The cash is the currency which the bank has in its tills and in the balances to its credit at the Bank of England. Even that very tidy power of expansion, taken alone, would be a matter of considerable importance. Any institution in a position to expand the volume of credit and the amount available for the community to purchase goods will again, as I have pointed out, determine the value of the particular units employed in terms of goods. If you multiply the number of pounds employed in buying goods, and continue to do that, it is quite obvious a time will come—experts may differ as to the exact point at which it will arise—when the value of the unit, and what it can purchase in other goods, will go down. Therefore, you will have depreciation of the unit.
Why is it then, if this power can be exercised without very serious limitations, that banks, which are out to make profits do not go out and do it to such an extent as to give themselves more and more profits? There is one limitation which I have pointed out: that when you expand like that a time comes when the volume of units you have got to purchase in goods will go down. You have got depreciation, and everybody who has money will find that its value is taken from him. As I have said, I am only trying to give my own attempts to understand this. Those who have money, in the main have numbers—say the number is 400 plus units. The number remains no matter how the unit changes. If a man has £400, and if to-morrow its value was reduced because he wanted ten of these units to buy goods which previously cost only one unit, he would still have only the number 400.
Take the case of a person who has savings which are registered by these numbers. The number remains with him, but the value of the unit changes. Therefore, his possessions diminish the moment you change the value of the unit. That is common sense, but it is well worth while remembering. People speak of figures in books. The figures remain in the books, even though the unit to which they refer changes in value. If, by expanding the volume of credit, you make money free amongst the community, everybody, I think, will admit that, if you go far enough in that direction, you will undoubtedly come to the point at which you will have depreciation.
Will the Taoiseach say what he means by everybody?
All those who have considered this matter and have tried to get to the bottom of it. After all, we all know what the general purpose of money is, and if we understand what the banks do, and what their practice is, it ought not to be beyond the power of any Deputy to understand this completely and thoroughly. I think any Deputy who wants to try and understand it can do so. There will be controversy about certain points, but as far as understanding the mechanism of this goes, it ought not to be beyond the power of any Deputy. It will be obvious, therefore, that the banks cannot go on expanding. If they were to do so their action would have very serious consequences immediately with regard to the value of their own resources. That is the first limitation —the knowledge that the moment they go beyond a certain point it is going to affect prices, their own holdings and so on.
The next limitation will be immediately obvious if you put yourself in the position of the banker who has to deal with the various things that come his way during the day. He has a cash ratio of 10 per cent. He looks at his total deposits, which are his liabilities and which, of course, are increased every time he gives an advance. When he gives an overdraft, the moment it is operated upon it increases his liabilities. Suppose a banker gives me an overdraft of £500, there are two ways of dealing with it. One is to put the £500 to my credit and charge me interest on the whole of it. That is what happens in England, but here, when you draw the amount of the overdraft, you will have it debited to your account. The point is that the banker will not increase his liabilities to such an extent that they will go beyond the particular ratio to which he is working, which very often is more than 10 per cent. Taking the Irish banks, with all their deposits and cash resources, I should say that the ratio is well beyond 10 per cent. I have not the exact figure before me, but I am sure that the ratio in their case is very much higher than 10 per cent. I would ask Deputies to remember that I am talking now of the case where you have a central bank established, and where you have deposits with it which represent cash. In the case of the Irish banks, if you were to take into account their sterling assets, which are immediately convertible into cash, you would find, I think, that the ratio between their cash resources and deposits is very much more than 10 per cent. Let us see what these other limitations are. I pointed out one limitation and that is the obvious one, that if they go too far there will be immediate depreciation with its effect in the rise of prices and so on.
You were about to deal with the question of an overdraft.
I only mentioned an overdraft as being one of the items which would expand a deposit and, therefore, would tend to get it beyond the 10 per cent. ratio, unless the cash was increased at the same time.
Would the second bank treat the cheque as cash?
It would not. It would ultimately be a clearing matter between it and the other bank. It would not be regarded necessarily as meaning an increase in cash. If it were actually paid in coin or in notes, then it would be regarded as such. Of course, in all this we have to be careful in considering the case of an isolated bank. It would be better if you were to take the banks altogether. However, the main argument will be clear by dealing with one bank. The only thing that is important in the case of other banks is that the fact that there are other banks is a further limitation to the power of expanding, because when this cheque comes back from another bank, the first bank must be in a position, if it has to make a settlement by cash, to do it. It might come back in that way. If you take all the banks together, that particular difficulty does not arise.
What becomes of the £500 which you borrow and spend?
If the Deputy will let me finish my argument, I will come back to any particular aspect he wishes and explain it so far as I see it. If there is some hole in my knowledge, I will be very glad to have it pointed out and to get further light upon it, because I assure you that I have only come to my present position in regard to it as a result of considerable thinking and a desire to get at the bottom of this, which was annoying because it turned up in so many different forms and places, and it was as well to lay the ghost. I hope every individual will try to do it in the same way. Dealing with the limitations, I pointed out the obvious one, that if you go too far, you will have inflation and depreciation of the currency in terms of goods.
Supposing you produce goods and services?
I will deal with that wider aspect afterwards. This is a fairly difficult matter and I am only trying to get Deputies to think along with me, so that we will be thinking together. I am assuming everybody here wants to understand it. Deputy McGilligan issued a certain challenge to me. I am trying to answer Deputy Dillon who raised it first on the Money Resolution and repeated it to-day. There are other limitations. The practical banker has to spread out his risks. Not every loan that he makes will be a good one. He will have bad debts. There will have to be a certain margin of safety. If you look at the balance sheet of any bank you will find that the assets are grouped in a special way. Now, loans are generally the most valuable of a bank's earning assets, and this 5 or 6 per cent. is usually the particular part of its business on which it gets the biggest return. In Deputy Dillon's business, for instance, there will be certain items on which he will have a considerable profit. If you were considering what would be the likely income of the Deputy and were to take one particular item out of his whole business and to say: "Deputy Dillon ought to be a Croesus by now, he has made so much on candles," or some item like that——
I sell them at 2d. and they cost me 2¾d. You fixed the price.
Probably I have chosen a bad example. I need not go into detail. I would have to go into all the Deputy's trading and see what are the items on which he had the most profit. At any rate, it is obvious to everybody that I would give a most unfair picture of Deputy Dillon's profits or likelihood of profits if I were to take particular items in his business which yielded the greatest return and to say: "Deputy Dillon is going to have all these. These are all his profits," and forget to take any note of the fact that Deputy Dillon had to keep a house, pay rates and rent, employ a staff and all the rest of it. I certainly think that would be a very false picture of the situation as it actually is. The fact is that Deputy Dillon has some articles on which he makes practically no profit and which he only keeps because his customers want them and he wants to be in a position to supply them. On other things he can make a better profit. He has a whole gamut running from something like zero upwards.
From lipstick to Indian meal.
I do not know on which he would make the most—the lipstick or the Indian meal. There is a whole list of articles which he sells. There are some on which he has practically no profit and some on which he has a very tidy profit. All I say at this stage is that it would be most unfair to take the article on which he would have the biggest profit and to try to give a picture from that. You have to get at some mean if you want to know whether Deputy Dillon is making a great deal out of the public or not. What you will have to find out at the end is what is his total year's profit; not what was the rate of profit on some particular thing, but the total amount of his year's profit, and how that compares with the capital invested and with the turnover of his business and so on.
I think that if you were to go on that basis in regard to the banks, a person who wanted to carry out a fair examination would not say that the profits were extraordinary. Certainly, there is nothing in the picture, if you approach it from that point of view, which would suggest this unlimited power of making profit that Deputy Dillon seemed to suggest by that allegory of his at the beginning. Taking the amount of the original capital is hardly a fair basis either, because the shares have changed hands. The amount that you will pay for, say, £100 of stock will depend on the yield at the time and the profits at the particular time. You will find that those who have shares are not by any means getting extravagant rates of interest. Is not that so?
Well, it is so, but what about the fellow who——
I am only trying, a priori, if you like, to get your mind ready to find out where the fallacy is. I want, first of all, to get you into the frame of mind in which you will try to find out where the fallacy is, so that you will not approach the matter from the point of view of Deputy Norton who thinks that the banks are making exorbitant profits, that they are living on the community, that they are parasitical, and so on. I only want to show at the start that the picture is not like that. In fact, if you look at the rates, you will find that they do not differ very much from the rates paid to investors who become shareholders by purchasing shares on the market. Those people are not getting for their money very much in advance of what is paid on what are generally called gilt-edged securities.
I am concerned about the control which the bankers have.
We will come to that too.
It is a most important thing.
I want to lay one ghost at a time.
That is a very solid ghost you are dancing with now.
I have at least disposed of Deputy Dillon's myth, I hope. I hope later on to show that this power of expanding credit is not so extensive as may appear from a one-sided statement. The other half of the picture should be given side by side with that. You do not hear many people say that, when I go in and get £100 in notes or cash from the bank, I am thereby depleting their cash resources. The result of my taking that out—if they want to preserve their cash ratio—will be a depletion of their power of lending. We hear only one side of this thing, whereas in the daily business of the bank both transactions take place. It is not only one side of the transaction that will occur. You have the two sides, and by examining—not in very great detail but in general—how the bank operates, I will show that there is not in fact that expansion. I am talking now of normal times. If you want to deal with war situations, we can deal with those too.
In the ordinary day to day working of the bank there would be outgoings and incomings, and you have to calculate the excess of one over the other. On one day, when the bank examines its position, it will find that it has less cash resources than the day before. If it were to keep its ratio, the tendency would be to say: "We will have to look out to-morrow, and take care not to extend our loans and so on." It is through loans that it earns. The tendency of the bank is to give loans to the fullest extent, but obviously it will require repayment at some time. Consequently, the first thing a bank manager has to do is to satisfy himself that the people to whom he is going to lend money are people who will return it and pay the interest which they contract to pay. Therefore, no matter how desirous he may be to lend money at profitable rates of interest, he is limited in that by the necessity to find people who are credit-worthy, people who will pay back the money, and pay the interest they contract for. There is that definite limitation.
If you look at a bank's business you will find there are some of its items on which they will have a big rate of interest, loans and so on. You will find others, such as short-term loans, where there is a very small rate. If you look at the various items on a bank balance sheet, you will find that the rates of interest would vary from the 5 per cent. we have been talking about here on loans down to practically nothing. Remember, they are getting no interest whatever on the money they have in their tills, and no interest whatever on that which they hold as balances with the Bank of England, or with the central bank, to generalise the term. You have there at once an asset equal to one-tenth of the total of their deposit liabilities on which they are not earning any money at all. That is completely immobilised from the earning point of view, so that any earnings that they have must be on the remaining assets. If you look at those remaining assets, you will find that some of them are earning say, I per cent., some of them 1½ per cent., some perhaps 3 per cent., and that 5 per cent. would be the utmost. They have to balance those, and, in the nature of things, the more liquid the investments are, that is the more readily they are convertible into cash so as to meet any demands there may be upon the bank, the smaller is the rate of interest. The banks have to be very careful in regard to the tying up of their resources in long-term loans and so on. As I say, you will find that, in practice, there is a series of limitations on this theoretical power of expanding credit.
Whilst it is true that, if £100 cash comes in, and they preserve the ratio, they can lend £1,000, you must remember at the same time that it is just as likely that £100 would be taken out, and if you want to calculate in that way you would have to calculate on the net result at the end of their operations. If you want to see finally what is the total result of all this, get the bank's accounts, see its total profits, see whether those profits are unreasonable in relation to the money that has been invested by the shareholders and in regard to the total turn-over. It seems to me that they are not unreasonable, thinking of the banking business as we think of any other business. There are, I am sure, in every community, a number of important businesses which yield a higher total remuneration on the money that is invested than do the banks, but, looking at the sheets, the banks do appear to give not an exorbitant, but a fairly substantial rate of profit. I do not know that I can go any further in showing the working out of this 10 per cent. ratio.
I just want to ask the Taoiseach one question. The one in ten is got from statistics?
In the main, yes.
Were the limitations taken in, in drawing the conclusion from the statistics? You see what is in my mind?
The point is: are we doing the thing twice?
Precisely.
I do not think so. I would have to go more or less into the history of banking, and I do not want to do that. There is another point about this ratio, which I did not mention before. Remember that this has been a gradual process.
Quite.
It has been gradual and, if you look at the deposits to-day and compare them with the deposits of 100 years ago, you cannot say that this ten to one ratio was built up overnight. It is a relative matter; it is the excess of to-day over yesterday and, at each particular time, it is on the excess you have to count. With regard to the 10 per cent., I do not think there is any duplication. I think that the 10 per cent. is roughly a statistical basis, just as in the case of insurance.
There is a kind of correction from the actual figures to the 10 per cent.?
This is simply an empirical fact arrived at by just looking at it. There is discovery and rediscovery in some of these things. Something in the history of banking shows that this thing was discovered long ago, that it did not wait until 1920 to be discovered; but, on account of literature and the thinking of economists, it has come into special prominence since that period. I do not think I can explain the limitation any further, but I wish to say to Deputy Hickey and to others who are interested in this matter, that the best way they can convince themselves that this extraordinary power of making a profit by the banks does not exist—the power may exist, but it cannot be done in practice—is to take the total yearly profit of the banks and compare it with the capital. Perhaps, as representing the profits of the existing shareholders, that is not a fair basis either.
There is another aspect to be considered. The banks have considerable reserves which are kept for the purpose of meeting certain contingencies, such as a series of bad debts and so on, and to maintain the general credit position; that is, the credit position of the banks in the esteem of the community. You must remember that if you were trying to determine the rate of return the shareholders get, it would be diminished if you take the reserves into account. I do not think the attacks made on the banking system, on the ground of making excessive profits or battening on the community, are justified by the figures of the total profits in the year. Therefore, I think the general conclusion can reasonably be arrived at that this power of expanding credit is not normally availed of by the banks, not because they do not want to make money, but because consequences would flow from their attempt to do it which would defeat their purpose in trying to get more money. They would lose rather than gain by proceeding along that line.
There is another thing that worries people who try to think this out. In wartime there is a certain expansion. We experienced that expansion in the last war—and to some extent in this war—an expansion of credit or purchasing power indicated by the currency which is about or the deposits in the banks from which the community can draw and which may be regarded as available and as purchasing power for them. That is pointed to as a positive proof of the power of banks to create credit. I have not denied that they can do it. I have said that in practice they do not find it expedient to do it in normal times because of the consequences that would flow to themselves. But in time of war there is a new situation created for the banks. As a rule, ordinary control is taken away from them; the Government step in and it is generally due to the direct action of the Government of the day. We have an example in England and other countries. I have not studied the situation carefully with regard to other countries. Literature did not happen to come my way easily and what I had to browse on was from the English point of view, with some references to what is done in other countries.
What I should like to point out to the Labour Party and to others is that that expansion of credit which is indicated in the bank deposits is due to direct Government action for war purposes. It is not an unnatural thing for a person thinking of what is done in wartime to say that if we can do things in a war situation, why not at other times regard ourselves as engaged in a war, say against unemployment, or a war against poverty and so on. That is a very natural attitude to take up. If in times of vital importance it is possible to increase credit and, as a result, to pay high wages and get work done, why not extend that process and make it available in time of peace just as in time of war? You could do it if you were prepared to face all the consequences. There is no doubt that a Socialist Government could do it when they would take complete charge.
Talking of Sweden, I think that, in the main, it is a Socialist Government there, though I do not know to what extent it is Socialist in the true sense. My general impression was that it was a Socialist Government, and when Deputy McGilligan spoke about the Government nominating a number of members on the central bank, I took it that that was part of the general Socialistic policy of nationalisation. Of course, bank nationalisation is not the same thing as complete Government control of the central bank. Nationalisation goes very much further.
In time of peace, if a community were prepared to act according to what are commonly called the tenets of Socialism, they could do so, but see what it involves. In time of war, there is practically a dictatorship, and individuals are no longer free to go into businesses they would go into, and there are other limitations imposed—individuals are compelled to risk their lives in fighting for the country, and so on. There is common agreement and common acceptance of that regimentation by the community as a whole in time of war, which our community here and most other communities would not be prepared to accept in peace-time. During the war, then, there is an exceptional position, in which the Government takes control of the individual and his liberties and dictates what shall be done and what shall not be done. The state of general restraint brought about is one that most communities are very glad to get out of. There is a feeling of relief and freedom the moment the war situation is over. A lot of adjustments have to be made to bring that situation back to normal.
Those who believe in the power of credit to effect all sorts of things are wrong. It is not merely this power of expanding credit that is involved: it is the governmental power. It is generally on the initiative and through the action of the Government, compelling the banks, in its own way, to do certain things, that you have the expansion, rather than the desire of the banks to make profits. Taking the profits test again, even in wartime, and seeing the expansion of deposits, it will be found that, whilst deposits may have increased two and a half times, the profits have not gone up two and a half times, or anything like it.
In the case of the last war—and speaking from recollection—while deposits may have increased two and a half times, there was only a 50 per cent. increase in profits. From the purely banking point of view, there is a depreciation in value of the unit which this represents. However, that has taken place over the community as a whole, and perhaps we should not differentiate between the purchasing value as a unit in the case of the banks' profits any more than we should in the case of the community as a whole. My conclusion, as an honest seeker after truth, is that those of us who take up, purely and simply, this 10 per cent. ratio are completely misled, and we have to check ourselves by asking why this extraordinary profit has not ensued.
Then we see that we are looking at only one side of the transaction in which, as Deputy Dillon said, there is an increase of bank cash—that would be the strict way—and on the other side, as in ordinary business, there is a decrease. It must be taken over a period, in order to see whether there is a real increase or decrease. Over a period of years, of course, there must be an increase as, if not, any development in our powers of production and so on, in our power of industry to give goods to the community, would bring about deflation, and the community would be considerably hampered in not having sufficient money.
Up to the present I have dealt only with the remarks of Deputy Dillon, on the one hand, and to a certain extent, Deputy Hickey and his friends, on the other. I approach this as one who would have wished to find in monetary control a power of effectively influencing the welfare of our community. I have come to the conclusion that, whilst it is valuable, there is no doubt it could be harmful if badly managed. To the extent to which it is well managed, it can be beneficial. At the same time, it is very far from giving us the means to cure all our ills, as Deputy Hickey thinks it would. If the Deputy were over here, without going the distance Deputy Norton would be prepared to go in nationalising the whole banking system, he would find the power would be very much more limited than he imagined at first sight, and that he could not have a further regimentation of the community. He could not say to them: "There is work over there and we cannot bring the work to you: you must go to it." Control of credit will not enable us to make the adjustments necessary to deal with some of the evils which we all admit are in the present system. It is a question as to whether the suggestions would improve the situation or do something different. Of course, if the community wished, they could put in a Government with absolute power over money, but to cure the ills we want cured it would have to do many other things and might introduce a number of other evils.
Unfortunately, the evils of an existing system are always felt—they pinch and hurt—while the evils of a system which is only in the imagination are not felt at all, as the scheme is only being worked out and is an experiment. People who project the community into the newest position must seriously think of the evils likely to follow, and if they conclude that the evils which follow the new system would be worse than under the existing system, it is only commonsense not to change. No one would disagree about that.
In other countries, central banks have a power to affect the volume of credit which we, in our situation, have not. I said that that was due to the fact that our commercial banks have a considerable quantity of sterling assets in liquid form. In other words, there is a certain embarrassment of riches, if you put it that way. Deputy McGilligan suggested I had not made that clear, and I would like to do so. We have a situation now where the power to expand credit is limited by the cash resources—the reserves which are immediately or readily convertible into currency or its equivalent. Let us take the case of Britain itself. The Bank of England—the central bank— controls the volume of credit in a variety of ways, one of which is by influencing the amount of cash available to the banks and the amount generally available. It does that by what are generally called open market operations, by buying bills and by loans which it gives to the banks. The individual banks themselves are limited by the credits which they have with the central bank and by the amount of currency available. They have nowhere else to go. If the Bank of England reduces the amount available for a particular bank, it limits the power of the bank to expand, by limiting its cash, and thus limits its total power to give credit, assuming that it works on a fixed ratio, and the commercial bank does not fix its own ratio.
The power of the commercial banks as a whole, in Britain, to expand credit depends upon the action the Bank of England takes so as to change the amount of balances which the commer- cial banks hold with it. Supposing we had here a bank which tried to do the same thing, and supposing that we had commercial banks which had certain balances with our central bank, and that the central bank changed these balances the commercial banks could say: "Well and good, we have not to go to you for loans." They could say to the central bank: "We can provide the money immediately just as well as you can and make available our sterling balances, because they could be converted immediately into Irish currency." That is my answer to Deputy McGilligan, that they would circumvent— that is the word that was used—any action taken by our banks, by simply going around and getting the whole of the sterling assets which they have in liquid form and using these as a basis of their cash, and therefore as a basis for the expansion of credit. How would you stop that? I think it was suggested by Deputy McGilligan in some form that you might try to do it were it not for the link with sterling. That was suggested, because we have the British £ convertible into the Irish £. He went on to say that that was a very dangerous position, because the value of our currency is determined by the value of British currency. If you do that you are going to have a whole series of other conflicts. You will have to argue that out fully on the parity question.
At this stage I do not want to enter into a discussion of the parity question. Deputy McGilligan raised that in connection with the influence of sterling assets upon the power of our commercial banks to circumvent any action that might be taken by the central bank corresponding to the action taken in other countries in altering balances of the commercial banks held in the central bank. I do not think I need discuss that at this stage. There is a question of the power to convert certain assets of the commercial banks into cash and to regard them as cash owing to the existence of the link with sterling. The general argument in connection with the link is on a different basis. There is undoubtedly a certain connection between them. I do not think it would be fair to the House to continue on that now. There are books and books dealing with the subject of banking and credit and chapters dealing with the various aspects of the subject. They are important topics, and if I had to take up each topic we could have a long discussion on each one. All I hoped to do so far was to point out that there are in practice serious limitations to the expansion of credit. It cannot be carried out as Deputy Dillon stated. That is a pure myth.
The other point I want to deal with is in answer to Deputy McGilligan as to how it is that Irish banks can circumvent the action of the central bank here in a way that, for instance, the commercial banks in Britain could not circumvent the Bank of England. Perhaps I had better leave that at this stage, and if there are any further discussions we can have them at another time. Although this has been necessarily a very lengthy discussion, and although it does mean difficulty for the Tánaiste, who has to try to get the Bill through, and as a lot of other work depends on it, on the whole, some of the time spent on this will be very valuable from our point of view here, and perhaps in so far as there may be discussions in the country upon it, trying to separate truth from falsehood. For that reason I think time has not been wasted.
I appreciate the Taoiseach's concluding remarks as to the usefulness of spending time on this question. I also appreciate that it is difficult for the Tánaiste at this time with his Budget responsibilities to deal with this matter. It only emphasises how absurd it is that it is to the financial period of the year we usually leave some of the most important pieces of legislation to be dealt with. We are dealing with this Bill now. It has been interesting to hear the discussion on the volume of credit, but I suggest that as we go along we might consider whether we are not almost medieval in the amount of attention we are giving to the volume of credit, and whether we are not missing what is a most important consideration at the moment, that is the rate at which money can be borrowed. I do not want to say that that is the most important question, because the most important one is the amount of productive work we can have and the amount of income our people can have. On the question of the ten to one ratio, I want to suggest, as the Taoiseach suggested, that if there is reference to the position of the Irish banks, and if they are in the position that owing to the new trend in the distribution of their assets and the fact that they have to hold a large amount of these assets in British Government securities, that are small interest-bearing, and with very large sums of money in the banks in Great Britain not earning any interest at all, as a result of which their profits are down, if ever there was a time when it would be useful for Irish banks to increase their deposit by increasing depositors' advances, now would be the time to do so.
If we look at the bank returns published by the Currency Commission, showing the position of the banks for the September quarter 1939, and compare what we might call their cash with their deposits we can see how far the ten-to-one ratio is working. It is not very easy to do that in view of the fact that the operations of the banks cover two different States and to see what we ought to equate. There is sufficient detail in the figures to enable people to work out how far we are from the ten-to-one ratio. In September, 1939 the total amount of cash and balances with London agents and other banks was £14,000,000, money at call and short notice, £7,000,000, investments here and in Great Britain £67,000,000 or a total of £88,000,000. Under liabilities the total of current deposit and other accounts was £156,000,000 and notes in circulation £9,000,000. If we look to the December quarter of 1941 we find that the total cash balances here and in London amounted to £31,000,000, money at call and short notice, £14,000,000, Government investments here and in Great Britain £98,000,000 of which £91,000,000 is outside this country. That total is £143,000,000. The notes in circulation amount to £15,000,000, current deposit and other accounts to £194,000,000 or a total of £209,000,000. The ratio has fallen from about three to four. Other things might be added in but it seems to me that the ratio of cash to liabilities is somewhere between three and two-to-one rather than ten-to-one.
Can you give the reason for that?
I suppose the reason for it is that ten-to-one does not work.
The natural tendency would be to earn more.
I am making the point that the natural tendency of the banks would be to earn more, if they could, but, then, you come against the quantity theory of money and the limitations that are suggested by that. In many cases, the banks may want to create or lend money, but they may get nobody to take it. In the book from which Deputy McGilligan quoted, it is stated, in page 136, that the modern tendency is to discard the old notion of the quantity of money as a causative factor in the case of business and as a determinant in the value of money and to regard it as a consequence. The modern theory of money is that it is a by product of some other causes, that it is not a causative factor in the creation of business or industry and that it is not even a determinant of value. You may have an increased quantity of money and you may not have an increase in prices in the same ratio, the reason being that the quantity of money is brought into existence by certain facts, and that what affects prices is expenditure rather than anything else. It is pointed out that you may have, at the very bottom of a slump, the same quantity of money in circulation as you had at the top of a boom that immediately preceded it and that the difference between the boom and the slump is the difference in the volume of income that obtains.
We need only look at the amount of money available without going beyond the two-to-one or three-to-one ratio. Additional money might be created but we need look only at the cash that is available. So far as the quantity of of money is concerned we have, apparently, no difficulty. The quantity of money can be turned out any day it is wanted. It is quite possible that, at present, we have a greater quantity of money than is useful or than is actually being used. The chairman of the Central Savings Bank Committee, in a statement to his committee in October or November last year, pointed out that, of the amount of money lying on deposit in the banks, something like £30,000,000 could be regarded definitely as savings that were going to be almost indefinitely there, and that there was an amount of money in the Savings Banks, in Saving Certificates and trustee Savings Banks which could be utilised for lending to farmers at 3 per cent. or even less than 3 per cent. That money is lying there in a kind of stagnant way. A lot of it is being allowed to lie dormant or is invested by the banks in Government Securities in London earning from 1? per cent. to 2½ per cent. The quantity of money is not our great problem. That is what disturbs me when we consider the presentation of the Central Bank Bill and its functions put to us by the Taoiseach on the last day on which he addressed himself to this question.
Deputy McGilligan quoted certain remarks of the Taoiseach and I should like to make a quotation which was not referred to by Deputy McGilligan:
"We shall have in the board of the central bank a body of people whose sole business, whose duty, it will be to influence in so far as they can the use of the volume of credit in the interests of the community. If we think in advance that they will not do this, we ought to show why we think so."
The volume of credit is emphasised there. The volume of credit was emphasised in the first quotation which Deputy McGilligan read in which the Taoiseach said that what a central bank was really for was control of the volume of credit. If anything has been demonstrated by what the Taoiseach said, it is the impossibility of the central bank controlling the volume of credit here. Those who have gone to Great Britain to work are sending home money in substantial volume. A sum of £2,000,000 a year is probably coming over here and is being added to the money in circulation here. That has an inflationary tendency.
I do not think we need exaggerate our fears with regard to the future, but the fact is that the total amount of money in Great Britain has been expanded by £2,042,000,000, an increase of about 100 per cent. since 1932. It is quite likely that there will be a substantial addition to that during the coming year. At present, they are preventing a certain amount of that money from being spent in Great Britain. A certain amount of it is being held idle there and, when the war comes to an end, they will again be endeavouring to prevent the expenditure of that money. In dealing with certain aspects of this matter before, I quoted indications that, during the last war, there was a substantial increase in the amount of money in Great Britain. They tried, after the war, to reduce the amount of money in circulation, but they were not able to do so. For every £1 extra created, they were able only to withdraw 2/10½d. By analogy with the last war, and by examination of what the British monetary and Government authorities want to do in the circumstances they seem to foresee after the present war, it seems to be their intention to keep the newly-created money in existence. If they keep the newly-created money in existence, and there is a tendency to spend it, you may have post-war inflation of a serious nature in Great Britain. If they are not allowed to expend it there, there is a danger that a very substantial amount of it will come over here to be expended.
As the Taoiseach indicated, there is no machinery for preventing that. I do not know how it can be avoided.
We have had various political and economic difficulties between ourselves and Great Britain, and I think it would be a tragedy if any serious economic difficulty of this particular kind were to arise between us. We hope we can escape it, but we can do nothing at the present time to plan to avoid it except to try to get clear as to what are the important factors in the situation. The Taoiseach, referring to rates, said, at column 1134:
"The rates at which money has been available here, both for private and public purposes, compare favourably with—speaking in the weakest form or, in a much stronger form, are much lower than—the rates abroad. As I say, a general statement of that sort is difficult, and unless you get facts you have to take the information."
Deputy Childers then asked was that up to the war or including the war and the Taoiseach said:
"I am not talking of the present war."
Deputy McGilligan mentioned a distinguished economist attached to the National University here whom Crowther, the author of the book from which the Deputy quoted, said was responsible for his writing his book, The Outline of Money. He said on one particular occasion that financial strategy is in danger of proving futile if it is modelled on precedents that bear little relation to present realities.
Was it Crowther or the professor who said that?
The professor said that financial strategy was liable to be futile if it was founded on precedents that had no relation to present realities. In the matter of the rates of interest that we have to pay, we have to face present realities. The present realities are that the country with which we are linked by parity, whose money can be exchanged £ for £ to unlimited quantities for our money, is getting huge sums of money, from the public at 2½ per cent., and from the banks at 1? per cent. They are apparently determined that not only are they going to continue their present war expenditure at such rates of money, that they are going to keep low rates after the war, but they are encouraging and assisting local authorities and public utility societies to go for conversion loans where the dead burden on them at the present time, which may be redeemed at the present time, is 4 per cent. or over. They have arranged certain facilities for local authorities for converting their loans to smaller rates of interest. Where people who have loans to local authorities want to redeem their loans rather than take a conversion issue, the Government are advancing to local authorities the money to pay off these loans. In at least one public utility society recently, where they have debentures to the extent of £2,000,000 odd, at 5 per cent., the society has offered to redeem that at 102 per cent. at the present time or to turn it into conversion loan at 2¾ per cent. In the face of a movement of that particular kind, where people are reducing the income that capital can earn under present circumstances, in the same way as other incomes have been reduced, where, looking to the future, they are reducing their dead burden, we, in this country, cannot afford to lag behind. When the Taoiseach stresses the importance of the control of credit and the volume of credit as the chief and almost the sole duty of the central bank, I want to ask, before we pass from the present discussion, what power the central bank is going to have to deal with rates.
Of course, volume and rates almost directly affect each other.
I do not believe that the volume of money and rates affect each other.
If these balances were not available, you might not be able to get money as easily.
As a matter of fact, I believe there is a considerable volume of money in this country that is not being used at the present time because the rates are high, because the foundations upon which the rates are based are high. I believe there is a considerable amount of money in this country locked up in the banks on almost permanent deposits at 1 per cent.
But is it not obvious, from a business point of view, that if they could get what they would regard as credit-worthy borrowers, they would lend?
But they do not.
The point is that if business turns up and they are able to get a fair return for it, if it were to stimulate business, it would be to the interests of the banks to lend, assuming that the people they lend to were credit-worthy. They would get a good return.
They will not lend at 2 per cent.
Would the Deputy not agree that supplies and materials have a lot to say to it?
Surely. We have a very considerable volume of money here, so much that we have increased the amount of money in Great Britain since the beginning of this war, the amount of money that is lying in the banks, the amount of money in Government Securities, by about £46,000,000. Some of that is due to increased liabilities in Great Britain but, over and above the increased liabilities of our banks in Great Britain, they have added about £26,000,000, from between September, 1939, and to-day. That money is earning nothing in the banks there or it is earning 1? per cent., while our Government here is borrowing money at 3¼ per cent. and our local authorities are borrowing at 4 per cent. to do turf cutting. Urgent emergency work of all kinds is required for increased production here. Our increased agricultural production is bearing a burden of perhaps 5 or 6 per cent. Why should a particular section of the volume of money that is available in this country, that will be sent over to England to get the rate operating there, be saddling itself on the taxpayer here, on the ratepayer here, on the agricultural producer or the person who buys from the agricultural producer, at rates from 3¼ to 6 per cent?
We have to ask ourselves, with regard to the central bank, is it going to be of any help to us in scaling down our rates for the present and for the future. The same scaling down of rates of interest that is required at the present time, that there is every justification for, and that there is no logic in avoiding, when we consider what Irish money is earning in Great Britain, will also be required in the post-war emergency.
We are not going to get through the present emergency without the State and local authorities incurring debts. It cannot be done. The income of our people, measured in terms of money, is decreasing day by day. The petrol restrictions that are being imposed as from to-morrow are going to decrease the income of our people still further. Many other things are tending in the same direction. Local authorities and the Government must try to maintain the income of our people at a particular level so as to avoid serious poverty and depression, and the money necessary must be either created or borrowed. In my opinion, there is no necessity at all to create it. It can be made available on the ordinary foundation of cash or credit already in existence, but if it is not made available at rates somewhat analogous to the interest rates at which money is being made available—and Irish money too—to Great Britain for the purposes for which the British Government and local authorities are at present using money over there, then we are going to saddle our people with an intolerable burden of debt, and we are going to start off on the economic international post-war struggle, heavily burdened with overhead charges.
I shall just give an example of how our agricultural industry is likely to be affected after the war in relation to the agricultural industries of other countries. That is a matter of prime importance for us here. It is of particular importance that the productive capacity and efficiency of our agricultural industry should be maintained at parity with those of the agricultural industry in Great Britain. In The Times of April 27th we read the following:—
"Several thousand people gathered at Witley Park, near Godalming, last Tuesday and Wednesday for the demonstration of new machines and new methods at the invitation of the Surrey War Agricultural Committee. This was an ambitious affair, staged with the help of Imperial Chemical Industries, Limited, and covering a wide field from hedge clearing with a powerful American tractor and "bull-dozer" to silage making, setting tractor ploughs, wire-worm control, mechanical potato planting, straw pulp and re-seeding pastures. The effect on the mind was indeed rather confusing and the visitor needed to be very clear-headed to find out what really concerned him. But this first big demonstration showed how much scope there is for such educational work on the practical side... Every county war agricultural committee has now set up a demonstration sub-committee which includes practical farmers, members of agricultural education staffs and members of agricultural firms who are accustomed to dealing with the farmers' problems."
Money is being devoted to all that sort of activity and it is money which is made available at low rates of interest.
What rate of interest?
The British Government, I see, is borrowing itself for war purposes at from 1? to 2½ per cent.
1? for a six months' loan.
Will the Minister not realise that the amount of money that is being borrowed in that particular way, at an alleged six months' rate, runs into hundreds of millions and the way they redeem it is that they go out at the end of the period and look for a bigger sum? They are going to reach the end of the war with hundreds of millions, which have been taken from the banks in that way, outstanding. They are going to make all that into a consolidated loan which will be floated at a rate not very much bigger than 1?.
We do not know what it will be.
If the Minister is listening to what is being said, or takes any notice of what is being written, he must have a fair idea of what is likely to take place.
If they go to consolidate it later on and to get a big loan it will certainly not be got at 1?.
I would advise the Minister to get on to what some of the foremost and most realistic thinkers and writers on monetary matters are saying.
It is not with the writers and the thinkers we have to do in these matters of interest rates. We have to be realistic. When you want to get a loan whether of £1,000,000, £10,000,000 or £100,000,000, it is not to the writers or the thinkers you go.
That is correct.
I would imagine that the banks and the officials and directors of the banks in this country are opening their eyes now and are doing some realistic thinking.
I hope we are all thinking, but suppose we want a loan, perhaps this year, of another £7,000,000 or £8,000,000, like that which we raised in the last year, we should have to go to the public and the public will see what we are offering them. If we make them a fair offer we can get our loan, but if we do not, most of it will be left with the underwriters.
I hope that is not the only answer I am going to get to my question as to what the functions of the central bank are going to be, and what its powers and possibilities are in relation to rates of interest. On the question of rates of interest, at any rate, where a local authority in Great Britain has a loan in a redeemable state at 4 per cent., it is being given power to issue a conversion loan, and if the people want back their money the Government are coming forward and saying: "We shall give them back their blooming money." Here, nothing of that kind is happening, or anything that is being done in that way is being done at substantially higher rates of interest than those at which similar transactions are being carried out in Great Britain. If our agricultural industry hopes to be able to maintain any kind of parity in efficiency and productive powers with the agricultural industry in Great Britain, either during the present emergency or after the present emergency, local bodies would have to be assisted in a similar fashion. I simply want to ask what are the possibilities of the central bank influencing rates of credit, and if the answer is that which the Minister for Finance has given me now, then I think it is up to the Government to give us some opportunity of discussing their responsibility for reducing the rates we are paying.
There will be plenty of chances of discussing it later on this Bill.
I hope there will. I hope in the meantime the Minister will think a little more over the suggestion he has made, that they are going to offer a particular rate to the public. We are simply doing nothing to help ourselves in this most important matter.
If we do not get it from the public, where else are we going to get it? Are we going to turn on the machine as Deputy Hickey suggested?
He never suggested any such thing.
I beg the Minister not to answer too quickly.
I should like to hear a suggestion from the Deputy.
I am making a suggestion. I am anxious to help the Government.
It will be the first the Deputy has made to-night. I would be glad to hear it.
I made this suggestion, that it is medieval to be talking, from the point of view of practical purposes, about the volume of credit as if the volume of credit were the important matter, when other matters that were mentioned show that we can have no real control over it at all either during the present emergency or immediately after it. I think the suggestion we made was that we should move away from a discussion of the volume of credit.
I might point out to the Deputy that we have considered that matter and we have tried, in the direction in which he is searching, for solutions, but I have to admit that we have largely failed. We shall be very glad to examine any solutions from anybody either in regard to rates or volume of credit. In regard to volume of credit, it is necessary to safeguard the currency but if anybody can put forward suggestions in regard to that we shall be glad to have them.
I move to report progress.
Progress reported, the Committee to sit again.
The Dáil adjourned at 9.30. p.m. until Thursday, 30th April, at 3 p.m.