Dáil Éireann debate -
Thursday, 30 Apr 1942

Vol. 86 No. 10

Public Business. - Central Bank Bill, 1942—Committee (resumed).

Debate resumed on amendment No. 2.

General Mulcahy

Last night I was stressing the point that the important thing at the present time is the question of the rates chargeable for credit —the price of money. The Minister for Finance intervened to say that they have to go to the public for their money and, if they do not go to the public for their money, where else will they go; that the alternative was to go to the printing press. He said he would like to hear some suggestion on the matter from us and I said I would try to make a suggestion. The Taoiseach intervening just at the end, said that he wanted to point out that they had these matters under discussion for some time and that they had tried in the direction in which we were searching for solutions but he said:—

"I have to admit that we have largely failed. We shall be glad to examine any solutions from anybody either in regard to rates or volume of credit."

I minimised last night the question of the volume of credit and I explained how difficult it was for me to understand in present circumstances the insistence on the part of the Taoiseach on the real importance of the relationship of the central bank with the control of credit. In referring to Deputy Dillon's allegory relating to the ratio between the amount of credit and its cash basis, I referred in a rough way to some of the details in the Irish banks' returns. I ran into the error of taking items which made the ratio look more the liquidity ratio rather than the cash ratio and for that reason figured it out as something like two or three to one. I want to correct that point. Like the volume of credit, the cash ratio is a thing that does not matter. Nowadays it just stays. The matter upon which the volume of credit is now built is not any element of cash. The traditional conception of the structure of the banks' assets was a pyramid standing on a definite basis of cash; that is, that the amount of credit in the banking system was standing on a definite basis of cash and that cash was a definite amount of gold, and the amount of credit was influenced either by the coming or going of that gold into or out of the country. Even when Great Britain went off the gold standard and until recently, whatever way the idea of cash was manipulated there, the idea of a certain amount of cash was the basis of the whole banking system.

The volume of credit in Great Britain is now solely influenced by the financial exigencies of the Government. Whatever definite volume of credit they want to carry out certain things, the volume of credit that is made available is related to nothing else in the world but the budgetary wants of the British Government. They still keep up the ratio of ten or 11 to one as between the volume of credit and the cash basis, and cash is created. But, so far being a cause, so far from the amount of cash so called that is in existence to-day being the basis of the volume of credit, it is the volume of credit that is automatically called into being by the requirements of the Government that is the cause of the amount of cash brought into existence. As to the influence of that on our conception of the cash basis to the volume of credit in this country, I do not think it would do any good to try to pursue it. It is completely in the realms of theory. I think that probably one of the things affecting the Taoiseach to-day is, as he indicated, his study of this matter for 20 years. He probably has got tied up too much in the bird-lime of theory. I think we have to step outside that Just as they have a monetary policy and practice developed and changed to meet the exigencies of the British people in their particular circumstances, so we have to see what the exigencies of present-day circumstances are to us. We have to mould our policy on the requirements of our people, and we have to face whatever reactions on our financial, monetary, or banking systems that it is going to bring. Our banking system ought to be as well able to meet whatever that situation requires as the banking system in Great Britain. That is why I say that we are not concerned so much about the volume of credit.

I think last night I made the statement that we could get a reduction of rates without an increase in the volume of credit. I am not quite sure whether that is so or not. But I said I would make a suggestion to the Minister as to the line upon which an examination might be made that would help us to deal with our present situation and, at the same time, begin a very definite reduction of our bank rates here, which I think is absolutely necessary. Let us look at the way in which money rates have gone during recent years. I am quoting from The Economist of January 11th, 1941. I have not any later figures. If we take the bank rate in Great Britain, in 1929 it was £5 10s. 0d.; in 1930, £3 8s. 5d.; and in 1933, £2 0s. 0d. It was £2 0s. 0d. from 1933 until 1939, when it was £2 5s. 3d. In 1940, it went back to £2 0s. 0d. So that the comparison was as between £5 10s. 0d. in 1929 and £2 0s. 0d. in 1940.

If we take short loans, in 1929 the rate was £4 12s. 3d.; in 1930, £2 9s. 6d.; in 1931, £3 0s. 10d.; in 1932, £1 15s. 7d.; in 1933, 15/5. Then for 1939 it was £1 2s. 2d. and for 1940, £1 2s. 3d. The London deposit rate in 1929 was £3 10s. 0d.; in 1930, £1 8s. 5d.; in 1931, £2 1s. 0d.; in 1932, £1 5s. 2d.; and in 1933, 10/-. It was 10/- all along up to 1940, with the exception of 1939, when it was 13/7½. So that since 1933, the deposit rate in Great Britain was 10/-; here it is £1 0s. 0d.

I do not think that, in our present circumstances, we can continue to bear the effect on the general bank rate throughout the country of a bank deposit rate of £1, nor do I think that we can continue to bear rates that are necessarily influenced by the banks having to pay 2½ per cent. for their consolidated loan. I think those are two things which form part of the foundations upon which the unnecessarily high bank rate of this country is built, and I think that both of those things will have to be tackled. The Minister thinks that he cannot go to the ordinary people, and get money at less than 3¼ per cent. If he cannot get money at less than 3¼ per cent. from the ordinary people, then the Minister has to go to some other branch of the financial machinery of the country, get money at a lower rate, and bring about a condition of affairs in which the people, if they have no industrial or commercial investments to put their money in, will be prepared to lend it to the Government of this country at the same rates as those at which the people in Great Britain in present circumstances are lending their money and will be lending their money for a long time to the British Government.

The Taoiseach indicated, in referring to rates, that he was not talking about the present war situation. I think that we have to talk about the present war situation. We cannot escape the effects of it at the present time, nor can we escape the effects of it in the future. The Minister for Supplies indicated to-day that a very considerable amount of unemployment was being caused by the shortage of petrol. It is only one of the many ways in which unemployment is being caused. As sure as unemployment is being caused through lack of supplies of one kind or another, as sure as the income of our people is drying up in that particular way, the Government must step in, and must increase in some way or another the income of our people if our people are going to live in any kind of health or in any kind of morale through the present situation. The Government will have to go in for further expenditure if our commercial and industrial life is to be prepared for the future. We cannot escape the necessity for borrowing money; we cannot escape the necessity for increased expenditure by the Government, and we cannot afford to have that expenditure carried out at 3¼ per cent. Therefore, I suggest that the Government have to go to the banks, whether through the Currency Commission, or whether through the Banks Standing Committee, or whether through the new bank when set up, and that they have to make some definite arrangement with the banks which will effect a change in what I consider to be the thing which is fundamentally wrong, that is the rate of interest being paid for the huge amount of money that is simply lying on deposit in the banks. That has to be effected, for one thing. I do not know whether it was through banking machinery or whether it was through Government policy of any kind that the rate in Great Britain was so substantially brought down, and is being kept down to the level of say, 10/- per cent., London deposit rate for, you might say, the last nine years, and, on short-term loans for a period of seven or eight years, to about 15/-, and now to £1 2s. 2d. Somebody with influence here will have to shoulder the responsibility for bringing about a similar situation in this country.

On that question of the rates. I should like again to refer to a matter which I brought before the House on a previous occasion. In The Economist of 23rd August, 1941, the following paragraph appears:—

"A bank is to an increasing extent becoming an institution which holds the current cash of the public and lends it to the Government. The joint-stock banks are approaching the state from which the Bank of England started: their main liability is the circulating medium of the public and their main asset is a fixed loan to the Treasury. That being so, the time is approaching when a recasting of the traditional structure of interest rates will be necessary. If it is argued that the rate of interest paid by the Treasury to the banks should be increased, because otherwise the banks will not be able to afford the costs that the holding deposits involves, that amounts to a claim that the State should subsidise the depositor. It would be far more reasonable to require him to pay the cost of the services he enjoys."

If the 1 per cent. rate for depositors is going to continue in this country, then an argument has to be made for it. I do not think that any argument exists, and I think it is one of the things that are definitely operating to create the objectionable state of the interest rates that we have here at the present time. I should like again, in facing up to this question of the rate in the way in which I suggest it could be dealt with, to refer to an article in The Economist of 29th March, 1941, on the question of the appointment of a new governor to the Bank of England. It says:

"If the governor nowadays should have one dominating interest it should rather be in the finance of British industry."

Again it says:

"In monetary affairs more than in most matters there has been a revolution in thought and practice in the past ten years."

And again:

"If our monetary policy is to have the elasticity it will need to seize every opportunity offered by a strange and turbulent world, it is essential that its supreme director should be a man whose mind had not been set before 1931, when the new monetary era began."

Again, it says:

"But in monetary affairs more than in most matters, established habits of thought have in the past been not so much convictions that could be abandoned when circumstances alter, as articles of faith to be carried to the grave. For any banker or financier whose mind was set before 1931 it is almost impossible to change such beliefs as, for example, that exchange stability in a free market is the only natural state of the foreign exchanges, or that dear money has a higher ethical justification than cheap money."

Mr. Hickey

Very interesting.

General Mulcahy

We have here to face up to circumstances outside. We have to adopt a policy which relates to the facts that are outside, and then we have to mould the operation of our financial machinery. We have to harmonise and look after the interests of both the banks and the depositors, their real interests, in a thought-out policy of one kind or another. But any policy involves taking action, and one action which it is imperative that we should take is to ensure that we will get credit so that the Government may carry on; that we will have credit so that the Government will be able to face up to the additional work that falls on them, to secure, as it were, the income of the people of this country during this emergency. They want money for that, apart altogether from the cost of the Army and apart from the other things that the Government will naturally have to borrow for in the coming Budget. There are likely to be growing calls and we cannot pay 3¼ per cent.

I want to suggest a line of action that might be pursued. If the returns of the Irish banks published by the Currency Commission are examined, a certain number of things will appear. First of all, it will appear that between September, 1939, and December, 1941, there was an increase in the cash balances held in London of £12,432,000, of money at call there, £6,528,000, and of Government investments in Great Britain, £27,569,000. That means that there was a total increase in the liquid assets of Irish banks held in Great Britain of £46,529,000. During the same period it will be seen that the net liabilities there increased by something like £22,397,000. There was, however, over the net increase in the liabilities of the Irish banks outside, an increase in their liquid assets of about £24,000,000 or £25,000,000. It is possible to turn that £24,000,000 into increased money in circulation here without undermining in any way the sterling backing of our Irish currency. It would be possible for that £24,000,000 to be transferred by the Irish banks to the Currency Commission; the Currency Commission could issue £24,000,000 in legal tender notes, and it would be possible for the Government to borrow that £24,000,000 in notes from the banks.

Before going into certain figures in that connection, I should like to describe what I want. I want it to be considered whether the Government could not tell the banks that they required a loan of £24,000,000 at a particular rate of interest. If the banks agreed and, eliminating the question of time so as to get a picture of the results of the transaction, if the banks transferred £24,000,000 of their liquid assets in Great Britain to the Currency Commission and handed over £24,000,000 worth of legal tender notes to the Government, and that money got into circulation, the result would be that four-fifths of that amount would find its way back to the Irish banks as deposits, and only one-fifth would remain in currency and notes. The Irish banks would then be in a position to surrender the four-fifths of the actual currency that was returned and retake possession of the notes or the liquid assets that they had made over to the Currency Commission. The result would be that the Government would pay the banks the interest on the £24,000,000 and we would have that increase in the circulation of money in this country.

I think I said that four-fifths would go back to the banks by way of deposit. What I should have said is that one-sixth would be kept in notes and five-sixths would go back, so that £4,000,000 would be the actual addition to the notes in circulation, and £20,000,000 would be the actual addition to the deposits. I want to consider the financial results to the banks as a result of such a movement if we were to do two things, first, pay them a low rate of interest and, second, in keeping with that, get them to reduce the rate on deposits from 1 per cent., as it is at the present moment, to ½ per cent., such as the British banks have been paying since 1933.

Let us take a position in which the Government borrows £24,000,000 at 1½ per cent., there being a reduction at the same time by the bank in the deposit rate they pay of ½ per cent. So far as the banks are concerned, on the £24,000,000 they lend the Government at 1½ per cent., they would receive £360,000. The amount of the deposits as compared with the money on current account is four-fifths. In the end of December the total amount of money on deposit and current account in the Irish banks was £139,000,000. Four-fifths of that would be £111,000,000, so that by reducing the rate from 1 per cent. to ½ per cent. on that amount the banks would save £550,000.

The Taoiseach

Somebody would lose, I suppose.

General Mulcahy

The depositors cannot afford to get from the people of this country 1 per cent., that is, twice what depositors in Great Britain have been getting for the last 10 years—at least since 1933. And, particularly, the people of this country cannot continue to pay bank rates that are high simply because of the fact that at the foundation of those bank rates there is that 1 per cent. deposit. I would like to tell the Taoiseach that I am indicating this as a line of thought to be pursued and a line of examination to be made.

I say that the income of the banks on £24,000,000 at 1½ per cent. is £360,000. What they would save on the £111,000,000 on deposit by a reduction in the rate to ½ per cent. is £550,000, so that the banks would get as the result of the transaction, £910,000. Now, the cost to the banks: assuming that the £4,000,000 ultimately surrendered by the banks was money that they had in Great Britain at 2½ per cent., it would cost them, to surrender that, £100,000. They would get £20,000,000 additional deposits on which they would pay ½ per cent.; that would cost them £80,000, so that the cost to the banks on the transaction would be £180,000. The net advantage to the banks would be £730,000. That would be approximately 3 per cent on the amount of money. In the meantime, the Government which paid £360,000 to the banks for the loan, would have surrendered through the Currency Commission the £4,000,000 at 2½ per cent. and they would get £100,000 on that, so that the net cost of the loan to the Government would be £260,000. I say, then, that the net result of the Government borrowing £24,000,000 from the banks at 1½ per cent., and having the deposit rate reduced to ½ per cent. at the same time, would be that the banks would get an annual advantage of £730,000 and that the Government would pay for the accommodation a net £260,000. If the rate paid for the loan were 1½ per cent., and the deposit rate only reduced to 3/4 per cent., then the annual advantage to the banks would be £415,000 and the Government would pay the same amount of money.

Mr. Curran

If a depositor said he would not allow his money at 1½ per cent.?

General Mulcahy

The depositor would soon realise where he stood. In Great Britain he would get ½ per cent. and that with a threat hanging over him—with the development of the situation there—of economists and financiers getting the idea that the banks would have to charge people for taking care of and securing their money rather than pay them the 1 per cent.

Mr. Hickey

That is so.

General Mulcahy

Or rather than paying them the ½ per cent.

Mr. Curran

I am glad I have not any.

General Mulcahy

If you wanted to adopt the British Government rate of 1? per cent. loan scheme with the ½ per cent. deposit, then the net annual advantage to the banks would be £640,000—about 2½ per cent.—and the net annual cost to the Government would be £170,000. If you made the loan 1? per cent. and the banks paid ¾ per cent. on deposit, then the net profit to the banks in the year would be £325,000 and the Government cost would be—£170,000.

The Government has to get money, and must face the price of money here. Some kind of scheme like that would influence the people that the Minister for Finance has in mind who are not going to part with their money for 3¼ per cent. The Minister has, on the one side, his difficulty of getting money for the ordinary running of Government—the extra cost for last year, this year and may be the year after. He has to face the increasing cost likely to come on him by a more complete realisation of the economic position in the country than the Government apparently have got up to the present. This scheme would step in between the difficulty of facing the exigencies of the situation here, on the one hand, and the tradition of people who want a high price for their money here on the other hand. He has no way out but to go to the machinery that holds the money here and discuss the whole foundation of the price of money and the kind of arrangements that can be made to see that the Government are provided with the money here, and at the same time to put us on a sounder basis of money prices for the future.

I think that it is important to have theory understood, so that you know whether you can afford to disregard it or not; but I do not think that we can be considering the volume of our money here in relation to our cash basis. If we expand the volume of our money here in relation to what we could call our cash basis, we could expand it very much more than it is at the present moment, but what "cash basis" is in modern terms I do not know. I indicated before that the gold backing of the British pound is something like one-tenth of a penny at the moment but, whatever it is, cash—whatever that is to-day—is being built up in Great Britain in relation to the quantity of credit that is available there, with the quantity of credit being the cause rather than the effect and with the quantity of credit depending entirely on what the Government has to do to carry on the work of government and war.

I do not think there is any solution of any of our financial or economic difficulties until we face up to this question of rate, and I would like to know what part of the functions of the central bank it is to consider the question of rates. In so far as we can understand it, from the exposition that has been given to us up to the present, this urgent problem is almost entirely outside the proposed central bank; but I think it is the thing which the people would expect, and we would expect, that the Central Bank Bill would plan to deal with.

Mr. Dillon

Admitting at once the importance of the considerations raised by Deputy Mulcahy last night and to-day, I am prepared to submit to this House that the whole concept of the Central Bank Bill cannot be envisaged adequately until we determine the question as to whose money credit really is. Deputy O'Sullivan formulated that question neatly and clearly when he said that the banks were engaged exclusively in the lending of money belonging to the shareholders and depositors to people who want the money. I admit that the depositors' money and the capital of shareholders play a part in the advances made by joint stock banks, but over and above that, the joint stock banks are lending money and being paid interest on that money which is credit money. It is right for this House, in the exercise of its sovereign rights representing our people, to determine to whom that credit money belongs and who should properly share in whatever advantages accrue from its use.

The reason I attach such importance to this is that, in an effort simply to communicate to this House the fundamental theory underlying the creation of credit money, I put on record what I described as an allegory. The Taoiseach is the head of the Government and, without any regard to his own personality, weight attaches to his words. He is an academically minded man, and, in common with many others, his interest has been engaged by the question of credit and economics, and he has applied his mind, as a bookish man will, to books relating to these problems. I heard him quoting, in the course of his allocution yesterday, passages almost verbatim from well-known elementary treatises on economics and banking. There is one treatise by an American named Rist, and I think I could point almost to the passage in that man's book which he quoted last night from his phenomenal memory.

The Taoiseach

I wish I had such a memory.

Mr. Dillon

If the Taoiseach could remember Rist as well as Machiavelli, he would do well.

The Taoiseach

I do not know Rist's book.

Mr. Dillon

I wish to bring in certain recognised authorities in this connection to rebut the evidence adduced. For me, in any case, the position occupied by the Taoiseach lends weight to his words, and for me not only the position but the person of the Leader of the Opposition carries very special weight in any representations he makes in this House. I find myself in a dilemma when I am in direct variance with him on fundamental facts affecting this question. My whole inclination would be to place myself in complete accord with his views, but in this matter I find myself unable to do so. I turn first of all to that gospel of conservative finance, the report of the MacMillan Commission, and I refer to paragraph 74. I make no apologies to Deputies if I have to detain them at some length in answering the Taoiseach, because in this House if the Taoiseach's thesis is successfully sustained, that credit money is the monopoly of joint stock bankers, the whole hope of reorganising the monetary policy of our community will be buried fathoms deep and will not be resurrected in our time.

The Taoiseach

Erecting a thesis that you want to knock down.

Mr. Dillon

I am going to read the extract from paragraph 74.

Mr. O Ceallaigh

To whom was that report presented?

Mr. Dillon

To the British Government, in June, 1931. It is the famous MacMillan Report.

Mr. O Ceallaigh

I know it.

Mr. Dillon

I do not know why the Minister asked that, because the most elementary student of economics knows about that commission. Let me proceed with the quotation.

Mr. O Ceallaigh

I wanted to follow that question up with another. Did they abolish the joint stock banks' control of credit money?

Mr. Dillon

Why should they? The commission included Reginald McKenna, a banker; Walter Raine, a banker; Cecil Lubbock, Professor Gregory, economic adviser to the Bank of England; Lord Bradbury, and others that I do not know. If I did know them I am sure they would have contact with joint stock banks in England. I am not trying to hold the bankers up as highway robbers or as villains. They have a certain use, and taking all things combined, a good standard. In this report they say that all other systems of credit control require restriction of individual liberty in order to make them work, following the antediluvian Manchester School of Economics which shrewdly suspected that God was not in heaven but that there was a £ sitting somewhere in the firmament which they immediately bowed down before and adored. They built their whole economic theory on this, that God consists of Bank of England notes. Some of them who are going round suggesting that Pope Pius XI was in favour of establishing a printing press are equally obnoxious to me. I am trying to find a middle path between these two kinds of lunatics. To that end I will read paragraph 74:—

"It is not unnatural to think of the deposits of a bank as being created by the public through the deposit of cash representing either savings or amounts which are not for the time being required to meet expenditure."

As I understood the Leader of the Opposition, that is the view he expressed. The report continues:—

"But the bulk of the deposits arise out of the action of the banks themselves, for by granting loans, allowing money to be drawn on an overdraft or purchasing securities a bank creates a credit in its books which is the equivalent of a deposit."

May I say that it is quite reasonable for the MacMillan Commission to make a simple thesis but when I take a simple illustration in Dáil Eireann the Taoiseach gets a fit?

The Taoiseach

Because it is absurd.

Mr. Dillon

When I am finished will the Taoiseach think it absurd? The quotation continues:

"A simple illustration, in which it will be convenient to assume that all banking is concentrated in one bank, will make this clear. Let us suppose that a customer has paid into the bank £1,000 in cash and that it is judged from experience that only the equivalent of 10 per cent. of the bank deposit need be held actually in cash to meet the demands of customers; then the £1,000 cash received will obviously support deposits amounting to £10,000."

Is not that what I said last night?

The Taoiseach

You went on from that to millions.

Mr. Dillon

This goes on, too. I am only one-third of the way through.

"Suppose that the bank then grants a loan of £900; it will open a credit of £900 for its customer, and when the customer draws a cheque for £900 upon the credit so opened that cheque will, on our hypothesis, be paid into the account of another of the bank's customers. The bank now holds both the original deposit of £1,000 and the £900 paid in by the second customer. Deposits have thus increased to £1,900 and the bank holds against its liability to pay out this sum (a) the original £1,000 of cash deposited and (b) the obligation of a customer to repay the loan of £900. The same result follows if the bank, instead of lending £900 to a customer, purchases an investment of that amount. The cheque which it draws upon itself in payment for the investment is paid into the seller's bank account and creates a deposit of that amount in his name. The bank, in this latter case, holds against its total liability for £1,900 (a) the original £1,000 of cash, and (b) the investment which it has purchased. The bank can carry on the process of lending, or purchasing investments, until such time as the credits created, or investments purchased, represent nine times the amount of the original deposit of £1,000 in cash."

Let us get that last sentence fixed in our minds:

"The bank can carry on the process of lending, or purchasing investments, until such time as the credits created, or investments purchased, represent nine times the amount of the original deposit of £1,000 in cash."

I hope, having read that paragraph, that the Leader of the Opposition will forgive me if I find myself at variance with him as to how banks make loans.

The Taoiseach

Wait until we see the millions. The Deputy has got from £1,000 to £10,000. We know that can be done by theory. Come along to the millions mentioned last night.

Mr. Dillon

Before I apply further medicine, does the Taoiseach admit at this stage that this bank creates £8,000 of money out of credit?

The Taoiseach

Long before the Deputy spoke, I mentioned that fact about ten times.

Mr. Dillon

The Taoiseach admits that. We are in agreement up to this point: Here is £8,000 created out of nothing and what I want Dáil Eireann to determine is: "Whose money is that?" Is it the bank's money or the people's money? My contention is that that sum of credit-money is the people's money. If it is being administered in the people's best interests by the joint stock banks at present, I am quite content. But what I want to ensure is that that £8,000 or £9,000 of the people's money is being used by somebody in the best interests of the people to whom it belongs—not to the detriment of the people and to the advantage of the persons who profess to have the ability to create it.

Mr. Hawtrey is Assistant Secretary to the British Treasury, and in an article in the Encyclopædia Britannica, 14th edition, volume 3, page 48, he says:—

"Banks create credit.... The statement that banks create credit has been the occasion of much unnecessary controversy. It does not mean that any bank can create any amount of credit at its sole discretion without limit."

The Taoiseach

There are no millions mentioned there.

Mr. Dillon

The quotation goes on:—

"The payments made by the borrowers out of the credit money placed at their disposal include payments to wage earners and others who have no banking facilities. In so far as these people spend what they receive, the money comes back to the bank and there is no loss of cash. But the presumption is that, when the outflow of money is increased some will remain out; the cash holdings of the community will grow and the cash holdings of the bank will be reduced.... Banks commonly aim at keeping their cash approximately in a fixed ratio to their liabilities."

Mr. J.M. Keynes in his Treatise on Money, says:—

"The rate at which the bank can, with safety, actively create deposits by lending and investing has to be in a proper relation to the rate at which it is passively creating them against the receipt of liquid resources from its depositors."

Here I invite the special attention of the Taoiseach, because Dr. Walter Leaf exercises a certain influence on his mind:—

"Practical bankers, like Dr. Walter Leaf, have drawn from this the conclusion that, for the banking system as a whole, the initiative lies with the depositors and that the banks can lend no more than their depositors have previously entrusted to them. But economists cannot accept this as being the commonsense it pretends to be.... The familiar controversy as to how and by whom bank deposits are "created" is a somewhat unreal one. There can be no doubt that, in the most convenient use of language, all deposits are "created" by the bank holding them. It is, certainly, not the case that the banks are limited to that kind of deposit for the creation of which it is necessary that depositors should come, on their own initiative, bringing cash or cheques."

I have read for the House paragraph 74 of the MacMillan report. I want to read an extract from The Functions of Money, by Dr. Leonard Alston, Cambridge University Lecturer in Economics.

"These current accounts are issued by the member banks... This fact is carefully disguised by the bankers —so carefully and effectively that many of them have honestly come to believe that it is not a fact at all.... The form of disguise adopted has been that of referring to the current accounts as ‘deposits' and the holders of them as ‘depositors'. These words suggest that the public are in the habit of taking money to the banks and depositing it there.... So persistent is the idea that deposit holders must, to some extent, at least, be the depositors of something that even leading academic economists—while themselves pointing out that the general public does not deposit money in the banks — continue to discuss the extent to which the ‘resources' placed by the banks at the disposal of industry and trade must correspond with the ‘resources' placed by the community at the disposal of the banks; these ‘resources' being pictured as the physical equivalent of the deposits—the amounts of raw material and the amounts of labour services that the total of the deposits will buy—and the ‘depositor' being depicted as abstaning from their use. The prior question to be answered... is rather: Does the community at the present day place any resources whatever at the disposal of the banks; and if so, are these resources passed on to industry?... The main function of the ordinary banker is to be perpetually creating money in the form of current account for individual business ‘borrowers'... Having borrowed £1,000 for six months, the borrower finds £1,000 added to his account. This sum is not taken out of a stock of loanable money kept by the bank, nor is it obtained from other depositors' stocks. It appears out of the void... The borrower has contracted to procure and hand over £1,030 of other people's deposit holdings six months later"——

I interpolate here: That is the good old 6 per cent. function.

"If he successfully spends the loan money created to suit his projects— in buying goods and paying labour to work them up into forms in which he can sell them at a profit—the £1,030 appears again in his account as the result of his customers' payments, these customers' accounts being, of course, depleted to the same extent. He then pronounces the formula: I repay the loan with the interest agreed upon. The banker wipes the £1,000 out of existence; it goes back into the void form from which it emerged. The £30 he strikes out of the borrower's page in the ledger; but counterbalances this by adding the same figure to another item labelled ‘other accounts'. In due course, this is again transferred to the bank's shareholders' current accounts when the bank declares a dividend."

That is a most excellent case. There comes out of the void £1,000. It remains in existence in the imagination of the bank and the community for six months. It goes back into the void from which it came. Is the community richer by the £1,000? Not at all. But a gentleman who lives in Lombard Street puts £30 into his pocket because, on the 1st January, he brought out of the void £1,000 that did not exist and returned to the void £1,000 which he purports to destroy six months later. For that service to humanity, he collects £30 from somebody, £30 represented by work, labour, industry, enterprise, in the intervening period. It may be right that for that credit there should be a charge. It may be right that for the ability to activate the labour, genius, raw materials, that enabled them to produce £1,030 worth of goods at the end of six months a payment should be made. But to whom should it be made? Should it be made to an individual who sits in Lombard Street or should it be made to us, the people, who have provided the framework and the means by which these things were brought together and that additional wealth created for the benefit of humanity?

The Taoiseach

I think we should be looking for some of Deputy Dillon's income too, on that basis.

Mr. Dillon

Do not you get a fair share of it?

The Taoiseach

We would get more than that, according to that basis.

Mr. Dillon

Do not we pay taxes except on what is called our Parliamentary allowance, which is not subject to tax but which may be after the next Budget? I am not concerned at this stage with the same difficulty that Deputy Mulcahy is dealing with. Deputy Mulcahy was dealing with the amount of burden on the loan. That is a very important question. I am dealing with the destination of the burden that has been imposed upon the loan.

Mr. Hickey

The power of controlling credit.

Mr. Dillon

I am saying that if the Government of Eire imposed the burden upon it my argument would be, are you asking too much or too little, but I could not challenge their right, if they produced the means whereby I made the money, to get their share of it. But why is the man in Lombard Street getting it? How am I beholden in any sense to the man who sits in a joint stock bank? What has he done for me that he tries to demand something from me for a service which consists simply in writing my name at the head of a page of ledger and, at the end of six months, drawing a line through it? What has he done which entitles him to levy a tax upon me? That is what I do not understand. Suppose the Taoiseach gets up and says to me that in fact he has done nothing except to act as the piece of machinery whereby the economic life of the country is enriched, that is a very good answer. All that would separate the Taoiseach and me then would be, if it is essential to the economic life of the country and this reward of £30 upon £1,000 is equitable and fair for me to pay, how shall it be equitably divided between the executive instrument, that is the banker, and the true source of the money, which is we, the people? I am not finished with the quotations yet. I have more.

The Taoiseach

What is the Deputy trying to prove?

Mr. Dillon

I am trying to prove that you are wrong.

The Taoiseach

The Deputy cannot prove that by any quotations.

Mr. Dillon

I think I will leave you with a doubt in your mind if there is not one there already.

The Taoiseach

The Deputy is trying to cover up the mistakes he made last night by quoting these things.

Mr. Dillon

I do not give two fiddle-dee-dees what mistakes I made last night, though I am certain I made none, but if it consoles the Taoiseach to believe that, as per usual, Dev. was right, he is welcome to that belief. What I am trying to ensure is that Dev. will be right so long as he is Prime Minister of this country, because he is capable of doing the deuce of a lot of damage if he is not. I am trying to teach him, while there is time to teach him. I do not give two fiddle-dee-dees whether I was wrong last night or not.

The Taoiseach

I learned what the Deputy is trying to prove to me ten to 15 years ago.

Mr. Dillon

You have learned it very badly if the fruits of your learning is what you said last night.

The Taoiseach

Read what I said. If the Deputy had attended to what I said, or if he reads what I said, he will find there is no need to read all these quotations.

Mr. Dillon

I listened for three-quarters of an hour. To tell you the truth, I went out to get a bit to eat.

The Taoiseach

There is no use in trying to prove to me that I did not know anything about it.

Mr. Dillon

I listened for three-quarters of an hour. I believe you talked for one and a half hours. It was very poor stuff, if I may say so with great respect, and without any intention of being discourteous. Irving Fisher, Professor Emeritus of Economics, in Yale University, says in his 100% Money, 2nd ed., 1936, pp. 7f, 58:—

"Under our present system, the banks create and destroy——".

The Taoiseach

Keep that word "destroy" well to the front.

Mr. Dillon

"——check-book money by granting or calling loans. When a bank grants me a $1,000 loan and so adds $1,000 to my checking deposit, that $1,000 of ‘money I have in the bank' is new. It was freshly manufactured by the bank.... Except for these pen and ink records, this ‘money' has no real physical existence. When later I repay the bank that $1,000, I take it out of my checking deposit, and that much circulating medium is destroyed on the stub of my check-book and on the books of the bank. That is, it disappears altogether.

Thus our national circulating medium is now at the mercy of loan transactions of banks; and our thousands of checking banks are in effect so many irresponsible private mints. What makes the trouble is the fact that the bank lends not money but merely a promise to furnish money on demand-money it does not possess. The banks can build upon their meagre cash-reserves an inverted pyramid of such ‘credits'—that is, check-book money —the volume of which can be inflated and deflated.... There is little practical difference between permitting banks to issue these book-credits which perform monetary service, and permitting them to issue paper currency.... Deposits are the modern equivalent of banknotes. But deposits may be created and destroyed invisibly, whereas banknotes have to be printed and cremated. If eight billion banknotes had been cremated between 1919 and 1933, the fact could scarcely have been overlooked.... So deposits are exploited by the bankers of to-day as their forefathers exploited notes."

All I am concerned to demonstrate to this House is that, whatever the volume, there is created by the joint stock banks of this country and by other banks in this country, working within the system we work within, a thing called credit-money, and that for the use of that credit-money a substantial charge is levied and that the issue of that credit-money to the individual citizen of this State is within the discretion of a series of bodies known as the joint stock banks, responsible to nobody.

The most deserving man in Ireland can go to a bank in this country, seek an advance and be told that he will not get it and, if he were so told, I know of no means by which he can get redress. It is unfair to lead people to believe that if you are refused an advance in one bank you can go to another because, so far as I know, the banks of this country operate the most water-tight monopoly of any monopoly at present existing within the country, through the Banks Standing Committee. On the whole, I think that the banks of the country act reasonably, and for that we may be profoundly grateful. But two questions fall to be answered. I often remember when the land war was won and we had cleared the landlords out of the country, people used to say to me: "So-and-so was a landlord and he was a very decent man. So-and-so was a landlord and he ruined himself looking after his tenants. He was just as anxious about his tenants as he was about his own children." I remember the leaders of the Land League saying to me: "We knew those men and we hated to see them go because we knew how good they were. It was not on account of those men we fought the land war. We fought the land war because the system was capable of such abuse. If we could have been sure that all landlords would always be like the good landlords to whom you refer, we would not have fought the land war at all. It was because we knew the system made it possible for a bad man to oppress the people that we had to attack the whole system, much as we deplored the suffering that it involved for some public-spirited men who were landlords in this country."

The question we have got to ask ourselves here is: Can we allow the absolute autonomy of the joint stock banks to remain in this country definitely, or should there be some degree of control on the lines suggested by Deputy McGilligan last night? I agree that there is an immense danger involved in anything approximating to direct control by a popularly elected Legislature of the issue of credit in this country or any other. I admit it is extremely difficult to devise a system of checks and balances that will effectively control the banks and yet not give rise to the evils of direct control. I am not sure that one of the best methods is not the method of in terrorem, of letting the present system operate and fixing those who operate it with due notice that there are certain broad lines on which the Legislature expects them to work and that, if they do not work along those lines, there will be legislation to compel them.

I am not advocating any radical or revolutionary change in the banking system because, as I have said on more than one occasion before, perhaps one of the best systems of control is the in terrorem system, a system by which you say to the banks: “So long as you play ball with the community, our inclination is to leave you alone. What we mean by playing ball falls within the four walls of this general outline, and if you consistently go outside it, there will be legislation to deal with you.” In that way, I think you can maintain an indirect control over the banking system from which we might advance, if the necessity arose, to the Electricity Supply Board kind of control to which Deputy McGilligan referred, holding still in reserve the threat that if that failed to achieve the purpose we had in mind, there was the still further step to which we could go of even more direct control.

I think when these four walls of proper practice came to be laid down for the banking system, the words uttered by Deputy Mulcahy would have to be borne fairly in mind, and the question at what rates money would be made available to the community would have to be considered. I think it is hard that a businessman who is working as industriously as he can and who has a current overdraft in the bank of £10,000, has to pay the first £600 of his profits every year into the bank for the privilege of getting his cheques cashed. Just for the sake of being able to pay his cheques, or paying his creditors with bits of paper, he pays the bank £600 a year before he has anything for himself. But these are matters of machinery and that is why I say that the other matter to which I referred is really the fundamental one. No matter how much or how strongly we feel on questions of machinery relating to credit, if it were once established that to interfere with the existing scheme was to expropriate the joint stock banks of some property that rightly belonged to them, we could not do it, because the law of God controls the legislation of this House, and legislation that runs contrary to that law is null and void. We have no right to take from any citizen that which belongs to him without fair compensation. If we were to compensate the banks for the right of creating credit, the bill would stagger the nation, because it must be the most important asset which any human creature in this country holds.

Therefore, I want to put in question the title of the joint stock banks to that credit money. I say that at best, they administer that immeasurable wealth as trustees of our people, and it is the right of our people to end that trusteeship whenever our people deem it prudent in the interest of the community to do so. Now, I am not saying—and I want to distinguish between the two things most clearly—that I think we ought to end that trusteeship or take over the control of credit by this House because I do not think it is expedient to do so, but what I want to establish is the right to do so. I say the declaration of that right is questioned by what the Taoiseach said last night.

The Taoiseach

Not at all.

Mr. Dillon

If I can get from the Taoiseach a clear declaration——

The Taoiseach

You will find it years ago in my statements on credit as a public asset.

Mr. Dillon

I can find lots of things in the statements of the Taoiseach years ago that I would not find in them now.

The Taoiseach

You will find them recently too.

Mr. Dillon

I want to hear it now. If I can get general acceptance from this House of the proposition that the right to create credit money belongs to the people, and that credit money belongs to the people then we have a foundation upon which we can build a satisfactory central bank and a satisfactory economic system in this country, but so long as that question is in doubt, then there are claims outstanding which cannot be reconciled with the satisfactory economic organisation of our community. I cannot too strongly deprecate any suggestion that there should be a wild or woolly remedy applied at the present time to the peculiar problems that confront us. In some ways I regret the decision of the Government to enter on a discussion of this Bill at this stage at all. They have left themselves open to the devastating criticism of Deputy McGilligan. He points out that the fiduciary position in Great Britain at the present time linked up with the central bank's obligation to exchange British currency for Irish currency, confers upon the banking authority in Great Britain power to inflate our currency indefinitely.

Now, that is really a transient and passing feature of the situation, but it is a matter for serious consideration which should be in all our minds in connection with the proposals for a central bank as drafted in this Bill at the present time. I do not know—I have not heard from the Government in the course of the speeches that their representatives have made during this debate—any urgent reason for implementing a central bank proposal at this particular hour.

Mr. O Ceallaigh

Deputy McGilligan said that he would like to have it soon.

Mr. Dillon

As far as that goes, I should like it to have been done before the war, but there is many a thing that you would like to have seen done which would appear to you in a very different light in an atmosphere of war and emergency such as we have around us at the present moment, and it is very hard to see these things in the light of permanency when, in fact, the whole world is in a state of chaos and when the institutions that we have seen grow up around us are now in a state of flux and impermanency. Personally, I think that this was an unfortunate time to embark on this measure, but do not let anybody fall into the error of imagining that our current credit troubles are susceptible of solution through some kind of manipulation by means of the Central Bank Bill. They are not. In fact, the Central Bank Bill has little bearing on our present economic problems, and the essential thing is to keep these things utterly distinct and separate. That is of vital necessity.

I am primarily concerned to determine the ownership of credit money, and if, as it now appears, the Taoiseach agrees with me that it is the property of the people, I want to ask the sponsors of the Central Bank Bill: Are they satisfied that the trustees appointed by the people for the administration of this vast wealth —and it is vast wealth—are entitled to its entire reward, or have the people a right to go to these trustees and say to them: "While allowing you a fair reward for your stewardship of these millions, the people who made and who own this money claim a right to employ at least a part of it, when that course commends itself, for useful public work or other employment, without paying a levy on it to anybody, whether bankers or otherwise"?

I should be glad to have the views of the Minister for Finance on that point. I should be glad if those whose views long experience has taught me profoundly to respect would say whether they can controvert the extracts that have been given and that have so powerfully influenced my mind in connection with this problem. Their rejection of the thesis, sustained by those extracts, was crystallised by the words of Deputy John Marcus O'Sullivan when he said: "This is not the people's money; it is the money of the depositors and of the shareholders of the banks." Do the Opposition Leaders adhere to that contention?

Mr. Cogan

The Tánaiste took me to task last night because of my attitude towards the suggested bank directorate, and because I supported the Labour Party amendment which aims at eliminating banking directors from the board of control. Now, we are asked why we should regard these people as possible opponents of the Government, but from the very fact that those men are engaged in a business which belongs by right to the people, who are represented by the Government, and that they have enjoyed that right for years, inevitably will arise the question whether they should be allowed to enjoy that right in the future or allowed to reap the enormous profits that they have reaped up to the present. That question must arise inevitably, and we must regard the representatives of the banks on this directorate as possible opponents of the Government. In addition, we have the Taoiseach's own statement that there may be a conflict between the Government and the banks in regard to banking policy. He stated, in effect, that we will seek co-operation, but if that fails there may be a conflict. Now, I think that no matter from what angle this question is viewed a conflict between the representatives of the people and the representatives of the small minority who have secured a monopoly in the control of credit and the issue of money is inevitable, and for that reason it is wrong, I say, to have on this board directors representative of the banking institutions. Banking, or the issue of credit, is a State service; it is a public service; and because it is a public service it should be administered by the servants of the people who owe no allegiance to anybody except to the people.

Nobody can dispute the fact that the creation of credit, or the issue of money, is a function of the people and that the title which the banks have obtained to the control of currency is merely a squatter's title—a title which has been gained, over a number of years, by practice. It is hardly necessary to quote authorities for that statement, but I shall go back, first of all, to an authority who is recognised as one of the greatest democratic statesmen, probably, of all time. Abraham Lincoln is not a very new disciple of monetary reform, but here are his words:—

"Money is the creature of law, and the creation of the original issue of money should be maintained as an exclusive monopoly of national government. The monetary needs of increasing numbers of people advancing towards higher standards of living can and should be met by the Government. The circulation of a medium of exchange issued and backed by the Government can be properly regulated, and redundancy of issue avoided, by withdrawing from circulation such amounts as may be necessary by taxation, re-deposit and otherwise. The privilege of creating and issuing money is not only the supreme prerogative of the Government, but it is the Government's greatest creative opportunity. Money will cease to be master and become the servant of humanity. Democracy will arise superior to money power."

That statement was made years before the oldest member of this House was born. I am quoting from a statement made by Abraham Lincoln, which was published in the Irish Farmers' Paper, and it is an extract from a lecture that was given by Mr. Anthony Vickers at a meeting of the Salesmasters' Association in London. I do not think anyone will doubt the accuracy of that statement of Abraham Lincoln, and neither will they doubt that it is appropriate to the present condition of affairs. It is as appropriate to-day and even more so, perhaps, than it was when it was made by Abraham Lincoln. He states:—

"The privilege of creating and issuing money is not only the supreme prerogative of the Government, but it is the Government's greatest creative opportunity."

Now, that is a suggestion which I would like the Taoiseach to ponder. To-day we here are faced with serious and overwhelming economic difficulties. We have the fact that a very large percentage of our population are unemployed, and because of that the additional fact that a very large percentage of the best of our people are going abroad. There is also the fact that a very large percentage of our people, though fully employed, are receiving remuneration altogether inadequate to supply their needs or enable them to use and consume the amount of goods necessary for their existence. In order to solve that problem, it is absolutely essential that the Government should be in complete control of money, and that money should not be the master of the Government. Perhaps I should quote another authority on this question. Mr. MacKenzie King, the holder of an important administrative post, states:—

"Until the control and issue of money and credit is restored to the Government and recognised as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile."

We cannot solve the problem of unemployment or increase the remuneration of those engaged in our primary industry and cannot prevent the emigration of our young men and women to Great Britain unless it is in the power of the Government to provide money for national development, and to do that at the lowest possible rate of interest, if not completely free of interest.

We can easily imagine what enormous development could take place in this country if it was within the power of the Government to obtain, free of interest, the money necessary to provide houses for all those who still require them, to plant all the lands which require to be planted, to undertake reclamation work, and to drain all the land that requires to be drained. We can also easily imagine how difficult it is for the Government to face such tasks if they are always faced with the obligation of paying high rates of interest on the money required for such works of national development.

If we take housing, for example, we find, in regard to houses erected either by local authorities or by the State, that more than half the yearly cost of each house is represented by interest charges. Therefore, if there was no interest charged in respect of the money needed for housing, it would be possible to let those houses at half their existing rents without imposing any burden on the taxpayers or on the community. That shows how far-reaching is the power for good which could be exercised by the State if they enjoyed the complete control of credit expansion.

In this Bill it is simply proposed to set up a body over which the State will have very little, if any, control, and to endow it with very limited functions. The Taoiseach has stated repeatedly that if this measure fails it may be possible at a later date to improve or change it by legislation. Of course, it will, but I believe that the time for introducing far-reaching reforms in the present monetary system is now when the world is in a state of flux, when old-established ideals are being discarded and old systems swept aside. If this state of emergency is allowed to pass we may have imposed upon us from outside some measure of control which does not exist at present. Our freedom of action may be restricted. If a business man happens to meet with a calamity in which his house is destroyed he will decide that is the most opportune time in which to make improvements in the lay-out of his business premises. To-day, the whole system of finance is in a state of flux, and now is the time to make the improvements which are so urgently called for. Mr. J.M. Keynes, who is now a director of the Bank of England, states:—

"It is a question of materials and man-power, not of finance. The humbug of finance is not what it was. It rears a very cautious and timid head to-day, and I don't believe it will be the obstacle it was in 1919 and the succeeding years."

We all have a very vivid recollection of what the humbug of finance did to the economic condition of this country after the last war. There is the saying that:

"When the devil is sick the devil a saint would be,

When the devil is well the devil a saint was he."

We all know what the devil of international finance and of the private control of finance did to the farming community in this country after the last war by restricting credit, thereby reducing the value of primary products to the lowest possible level. We farmers suffered through that time because of the action of our banking institutions in controlling credit circulation according to their own interests and not in accordance with the interests of the community. The farmers were the first to suffer, and after them came the workers who were thrown out of employment. The community in general suffered through lack of purchasing power and were brought to a condition of poverty during the period from 1921 to the beginning of 1939. Through all those years we had a steady decline in the value of the goods produced in this country. The one function of public control of finance should be to bring back prosperity to production, to give to the people who produce the goods which we so urgently require adequate remuneration for their labour.

It has been frequently stated that the price of primary products, such as agricultural products, should be governed by the law of supply and demand. That law can only be destroyed by putting the State in control of credit. In a properly governed country, in a country in which the State enjoys the control of banking and of credit, agricultural prices would be governed and governed solely by the cost of production, plus a margin of profit for the producer. That is the only system upon which our agricultural economy can be based and it is the only system upon which our national economy can be based. But that system can never be realised until we get complete control in the hands of the people of our banking system, and the sooner the Taoiseach faces up to that the better. In all his statements in this House on that question, and usually on other questions, too, the Taoiseach always seems to convey to us the impression of a good man struggling against overwhelming difficulties. I think that is a rather exaggerated impression or picture. I do not say that the Taoiseach's goodness is exaggerated, but certainly he does tend to exaggerate the difficulties with which he is contending.

We are a small nation with a small population and very considerable economic resources. We have therefore the power so to organise our national economy through the control of finance as to ensure that every section of our people shall enjoy a decent living in our country. Trade slumps such as have occurred in the past, increases in prices followed by depressions, should not or need not be allowed seriously to affect the people of the country if the control of finance were in the hands of the people and if it were governed by reason and not by the interests of a small minority. It would be a remarkable coincidence if the interests of a small minority coincided with the interests of the community. The fact of the matter is that the interests of this small minority who control the banking institutions of the country do not coincide with the interests of the people.

Some time ago Deputy Dillon made a very eloquent appeal for the nationalisation of the flour-milling industry, and he based that appeal on the grounds that we could not entrust to a small group of men the right to provide the people with bread, that it would be too serious a risk to entrust that right in the hands of a few people. Yet, here we are entrusting in the hands of a few people the power to create money out of nothing, out of paper and ink, and, through that power, having the right to deprive the people of food and clothing and other necessaries of life. We congratulate ourselves upon being a neutral country. Yet we have to face the fact that the best people in the country, the young people, the people who are on the threshold of life, are flying to a nation which is in the centre of a world-wide conflict. They are flying from a land of peace to a land where they are daily and nightly in danger of being destroyed by air or other attacks. Surely there is something wrong, something which could be remedied, and this Bill offers an opportunity for remedying it.

Mr. Esmonde

During the three days that this discussion has been proceeding I think it was perfectly obvious that a great number of the speakers thoroughly enjoyed themselves. It seems to me that a debate of this kind leads various members of the House to advance their own particular theories upon a subject which I know practically nothing about, and therefore I listened with great interest for the purpose of trying to ascertain some of the fundamentals in connection with this particular subject which we are discussing. It appears to me that the theory of credit, the production of money and so forth, as it stands, is only in its infancy. It is going through a revolutionary stage, and I do not think any of us really appreciate the real points involved. As an illustration, I would take the position with regard to money and economic existence of four different countries during the past ten years without mentioning names, but the countries I am referring to will be obvious.

We have the instance of a country which has been able to organise itself and prepare for a big war and to fight a war very successfully, so far, without any money at all. We have the instance of another country which was a victor in the last war and which insisted upon the payment of a great deal of the war indemnity in gold, but even then met with a financial crisis. Then we have the example of another country, again a very big country, which, having seen perhaps for 100 years gold won from the soil through sweat and labour, eventually brought it back to the soil and buried it in the centre of a desert guarded by machine guns. We have the fourth example of a country which has not been able in the past ten years to cure its unemployment problem, except by being a participator in a big struggle and sending the wealth of its mines to be dispersed in bombs, machinery, and so forth throughout the world. Under these circumstances, how can any body of thinking men form a definite theory that is capable of holding water in connection with this matter which we are discussing?

I agree with a great deal of what has been stated here with regard to the absence of credit and credit facilities in this country. I think that, particularly in an agricultural community, credit facilities are absolutely necessary. I blame the banks, I always have blamed the banks, for not having sufficiently loosened up credit. Undoubtedly, from what we have heard it would be possible for them to do so. In saying that, I do not want to see the banks abolished, far from it; I want to see them continue. I think some pressure should be brought to bear upon them, either through public opinion, through legislation, or by making the banks themselves realise that public opinion will attack them and do away with them, as was instanced by the tone of the speeches from certain sections of the House, unless they do what is an absolutely national service, in my opinion, and loosen up credit. I think the reason why they have not loosened up credit is that they have been driven from one extreme to the other.

During the last war it was quite a normal feature for the managers of three different banks to attend an auction of a farm of land, in order that their bank should have the privilege of lending practically the entire purchase price. Anybody who had anything to do with sales of land at that time will know that what I am saying is perfectly correct. As a result of that, a terrific amount of money was lent for the purchase of land, the price of land went up beyond its real value, and there was the slump of 1921 and 1922, with the result that the banks have now gone to the other extreme, and, while some people who are known as "creditworthy" are able to get credit, those who do not come within that definition are unable to get credit, and the ascertainment of what is or is not "creditworthy" is left entirely with the banks. I think it is obviously necessary that credit should be loosened up, and I believe that a great many of the speeches made in this House on the question of abolishing the banks, and on the question of objecting to bank directors serving on the board of this new bank, would not have been made and the question would not have arisen if the banks had loosened up credit.

To come back to the point which gave rise to this discussion originally, amendment No. 2, it is obviously impossible to discuss the question of the number of directors that there should be on the board, and whether it should include banking directors or not, without referring to the functions and the duties of those directors. I have been thinking the matter out, and it seems to me that the creation of this central bank, which is going to have the function of printing notes, is a very excellent thing. After the dawn of civilisation, when mankind started to organise itself, and when States were run by dictators, who subsequently assumed crowns and were known as monarchs, they had what was a very important power and a very important function, the power of creating credit, the power of creating money, and that power, as heads of States, they held on to until the very last moment. Let me take an illustration from the history of England. It is generally assumed that the Stuarts left the throne of England through some religious or political difference, but I think that the real reason—many historians allude to it, and there is a growing theory in favour of it—for the fall of the Stuarts was that they refused to surrender that power. To the great ducal houses which governed England either through their sons or their nominees under the title of Whigs and Torys, they refused to surrender that power which the monarchs had of creating wealth and creating credit, a power corresponding to the printing of our notes to-day. That caused the political struggle which put the Stuarts off the throne of England, to be replaced by William of Orange, and subsequently by the Hanoverians. That power which resided in the monarch—the power of ruining his country if he liked—was passed on to the people's representatives, and, in the ordinary course of legislation and so on, it eventually came here and resides in this Assembly.

What this Bill proposes to do is to put into commission the right to create a note issue, to balance the note issue in this country, and to create credit. Therefore, it is very necessary in those circumstances that there should be a properly balanced board of directors to look after that matter. I would assume that if this House is in favour of having a central bank which will have the function of printing notes and controlling credit, the directors will be of a type that will be fit to perform their duty. When I say "a well-balanced board" I think there should be on that board men who are efficient and skilled in the particular job which they are doing, balanced by representatives of the Executive in this country to speak for the House here. Therefore, the first point which arises is the size of the board of directors. I think that should be limited to as small a number as possible. The actual decision they are going to take is as to whether, with the nation's credit, they are going to pay ten chips or go banker at any particular time. It is very much better to have a small board to make a decision of that kind, and, therefore, I am in favour of one of the amendments we are discussing here. With regard to the other amendment, which deals with the exclusion of the banking directors, I say that, if for no other reason than that the banking directors are people skilled in their particular job, their presence is essential to the success of the central bank. They have a considerable number of years' experience behind them. They have expert knowledge. I go so far as to say that I believe the central bank would be a complete failure if there were no banking directors on its board. If the banking directors were not members of the board, that board, in order to be successful and in order to function properly, would have to obtain from time to time the expert evidence of representatives of the banks. Therefore, I think that, so far as the amendment regarding the size of the board is concerned, this House should support it. So far as the amendment abandoning the obligation to have bank directors on the board is concerned, I think that amendment should not be supported.

I want to say just one word in conclusion. I stated here on the Second Reading that I thought this was not the proper time to introduce a Bill of this character, because the world is in a very fluid state and we do not know what is going to happen from day to day. I think the fact that this discussion has lasted three days on the first two amendments is a complete vindication of that point of view. It seems to me that, with theories at variance here on a number of points, and certainly with issues being raised which I think were never intended to be raised in connection with the discussion on this Bill, it would be very wise indeed if the Government postponed the introduction of the Bill until times are more settled, as we hope they will be soon. However, as the Bill is before us we have to do the best we can, and I would ask the Minister to accept the point of view which urges a smaller board of directors, including a sufficient number of banking directors to give the board the proper technical qualifications.

Mr. Dockrell

This discussion seems to have taken an extraordinary turn in this section. It really seems to be too wide on Section 5 and too narrow on the question of credit. We have heard a great deal about credit. Some people seem to suggest that credit has been nobbled by the banks and is their exclusive prerogative. Someone else said that if it were not for the credit due to the State's financial position and ability, the banks would not be anywhere at all. It seems to me that if we had a few years of unbalanced Budgets we might reach a position in which the banks would have the credit and the State might have a difficulty in getting credit.

I have listened to the discussion on this question of credit and I do not propose to traverse a very wide field in that connection. Frankly, I think that a lot of the discussion that I have listened to is of the type that I do not understand. It seems to me that in earlier ages the world started on a system of barter. People then found that the tendering of money instead of barter meant a wonderful advance. Another advance was made when we came on to the credit system and joint stock trading. Now, credit is not the exclusive prerogative of the banks. Some speakers here, for instance Deputy Cogan, referred to the position of farmers who could not get credit.

If one assumes for the moment that a person cannot get an overdraft from a bank, that person can quite easily go around a number of business houses, including probably Deputy Dillon's, and seek credit; and if there happen to be farmers or persons in other walks of life in such a position, they can get credit if they are creditworthy. There is no doubt about it that, if the financial affairs of this country have been a trifle on the conservative side, we might quite easily change over to find that we had gone out of the frying-pan into the fire. It seems to me that it would be an extraordinary position.

We have had all this talk about the ten-to-one ratio. I listened with attention to Deputy Dillon last night. It occurred to me that it would not be very long before he became air-borne and I doubt if to-day, at times, we could do any more than hear the sound of his engines. Some of the other speakers, to my mind, strove to elucidate one section, and when you consider one section of this problem of credit in relation to others it is very hard to see how it is going to be solved along the lines they suggested. Deputy Mulcahy suggested that the deposit rate of the banks ought to be cut from 1 to 1/2 per cent. If that could be worked out, it would be just too easy. One wonders why the banks have not adopted it before now. I think if one endeavoured to cut the deposit rate of the investors one would find that the banks have reduced the deposit rate probably to the absolute minimum at which it would attract depositors. There are all sorts of ways that depositors could find in which to use their money besides putting it on deposit in the bank. They might lend it to commercial concerns direct, or invest it in stocks and shares.

That brings me down to the meat of Section 5. From the other side of the House I have not heard one word as to whether there was any skill required in managing a bank or whether bank directors are really required to manage the banks. In other walks of life, for instance in military circles, there have to be field-marshals, generals, colonels and captains. In industry there have to be directors and departmental managers. Nobody seems to suggest that they could be done away with. Are we going to find that a bank will really work itself? I suggest, as I did when proposing my amendment, that the Government should seriously tell us what they think about the proposals affecting the composition of the directors for the management of this central bank. Is there any justification for, as Deputy McGilligan indicated, putting a civil servant, or someone else such as that, on each side of a director in order to look after him? I suggest that the Government should get down to the realities of this section and tell us the number of directors necessary, in their view, to run the bank. I might also suggest that they should forget a lot of what has been suggested here in relation to credit, because credit is not the exclusive possession of the banks; it can be got in other ways by people who need it.

Mr. Cosgrave

Deputy Hickey and myself had some difference in connection with an incident that occurred in Cork, arising out of the Harbour Commissioners borrowing some money. I have looked up the minutes of the Cork Harbour Board and the first entry I have been able to discover is in the minutes of the 11th November. On that occasion the board directed that the Department of Industry and Commerce should be requested to make a harbour rates Order and an Order covering borrowing powers. This was a matter that they hoped the Department would expedite as much as possible. A borrowing powers Order was signed on the 2nd December and it set out that the commissioners might, for the purpose of harbour maintenance and for general harbour purposes, borrow, on the security of the reserve contingency, the insurance fund and the depreciation fund mentioned in Section 39 of the Cork Harbour Act of 1935, any sum or sums not exceeding in the whole £60,000. Notice was given on the 25th February of the consideration of a motion on the 3rd March to the effect that the Cork Harbour Commissioners should accept the offer of the Munster and Leinster Bank. The bank was anxious to accommodate the commissioners to the extent of £25,000 without security. Not alone is that so, but there was actually another bank in competition with this one over the same thing. Surely that bears out what I have already referred to as regards the Cork Harbour Board being able to borrow money?

Mr. Hickey

Is that all the Deputy is going to explain to the House about it?

Mr. Cosgrave

That is all.

Mr. Hickey

Then that is most unfair to the House.

Mr. Cosgrave

The Deputy may explain what he likes, but I have pointed out that the honour of advancing £25,000 to the board was a matter of competition between two banks.

Mr. Hickey

I did not say that.

Mr. Cosgrave

I said that.

Mr. Hickey

The bank refused us a loan of £50,000, and we would not even get that unless we put £37,000 invested funds to credit.

Mr. Cosgrave

That was in the earlier stages.

Mr. Hickey

Give the whole story to the House.

Mr. Cosgrave

Need I go over all that? There were negotiations between the bankers and the treasurer of the board. The agreements were that certain securities were to be placed, and ultimately it came to the point where all reference to the placing of securities was waived and they were prepared to give the £50,000 without that and no securities were asked for. Is not that so?

Mr. Hickey

Yes.

Mr. Cosgrave

I never mind the original story. Usually if a man looks for £100 for a horse, he ultimately sells at £95. The Deputy can have any praise he likes for his looking for big terms first and taking lower terms later on. I know very few people who stick to the first price. Some do, but nearly everybody is prepared to take a slight discount for cash. Deputy Norton is very much concerned about my living if there were no bankers or bank directors in the world. I have no interest at all in them, not even the prejudice that Deputy Norton has; I do not interfere with them or prevent their living. I have no particular objection to giving this board a majority of members sufficient to outvote the bankers. I do not think it is necessary to give them two to one. That is something which, to my mind, does savour slightly of the inferiority complex—we can only be sure of these fellows if we have one each side of them. It is not co-operation. It reminds me of the co-operation of the tiger and the lady from Niger, which ended very much to the inconvenience of the lady and the satisfaction of the tiger.

However, we have heard nothing whatever from the far side of the House as to why there should be nine directors. We have got the numbers there are on various banks, varying from 15 on one bank, to seven on others, nine on others, I think 11 on one and six on another. I want this money to be like money handled by the Currency Commission. They handled £20,000,000. The amount handled by the bank, with 15 directors, was £42,000,000 in deposits.

In the one case the bank directors have to consider applications from persons for advances; presumably they have to buy and sell securities—open market operations, to use the phraseology of the experts—and they have to provide for credits in London, and for several other things of that sort. While the responsibility of the members of the central bank directorate may be very great, their work is not considerable by any means. Their main consideration will be to keep a certain amount of money available in cash. Their investments are practically all in British securities, and they do not vary very much. They may purchase gold perhaps. Is that a series of different classes or categories of work which would require nine persons? I do not think so. No case has been made whatever for the nine, and the banks generally have very much more varied work to do than will fall on the shoulders of this directorate. In any case, we would be entitled to hear how many meetings were held of the Currency Commission weekly and how long they lasted.

The Minister in charge of this Bill, while confining himself to very few words on it, and particularly in respect of any amendments that are down, nevertheless, discovered for himself differences that there are on this side of the House. It is not so easy to find differences on the far side, for the simple reason that there are so many speakers? One thing rather peculiar about it is that the head of the Government has his eye on the Minister handling this Bill most of the time. He has his eye on him and he must speak to the line laid down for him. However, that is the Minister's responsibility. Whatever difference there is is only between the two of them.

The Minister thinks some of us are conservative over here—and others very radical. What are we concerned about? I suppose there is a general agreement in the House for cheap money. What is the contribution of the Ministry with regard to cheap money? Looking up the returns that are published in the Banking Commission Report, we find that there has been marked expansion of the capital and public reserves of the various banks in this country, from approximately £11.48 millions, that is, about £11,500,000, in 1910, to approximately £18,000,000 in 1936. This is for Deputy Hickey's information: the usual description that is given as regards capital employed is capital and reserves; they do not confine themselves to the original paid-up capital. The percentage which gross distribution bears to capital and reserves in 1910 was £7.7 millions, and the percentage in 1936 was £6.5 millions. An easier figure is the gross distribution by banks to shareholders. It amounted to £.885 of a million in 1910, when there were £11,500,000 of capital and published reserves on which the profits were made. Now, with practically £18,000,000 of gross distribution by banks to shareholders, it is £1.172 millions. With an addition of practically half the capital, the profits went up by approximately one-third.

In the course of the Banking Commission Report, reference was made to the necessity for profits. Although in the table which shows the percentage which gross distribution bears to capital and reserves there has been a tendency for a fall, there is a much more marked fall in the percentage of dividends which have been paid since 1936. It is so marked as to warrant some attention. If one were to place any great amount of credence on what we have heard from some speakers with regard to the power of the issue of credit, one would wonder why it is that, with such an immense and potential power, there has not been at least an effort on the part of the banks to keep up the profits that they were able to make some six years ago. There has been a fall of 1 per cent. in the dividend of one bank, ½ per cent. in the dividend of another, 2½ per cent. in the dividend of another, 2 per cent. in another and 3 per cent. in others. That is a very marked fall in profits. These figures are taken from the Irish Times or Irish Independent. We are told that cheap money is the principal consideration. What consideration is there in this measure towards cheap money? The Chair will see that we are expanding its patience very considerably, because most of the speeches seem to be Second Reading speeches.

An Ceann Comhairle

It was understood that all Deputies would be given equally wide latitude in discussing amendment No. 2, with which Nos. 3, 4 and 5 are being considered.

Mr. Cosgrave

The contribution which the Government makes in this measure towards cheap money is rather interesting. There is a fall in bank profits. So convinced are the Government that bank profits are unequal to certain demands in connection with expenses of the staff, that they allowed a further charge to be made on customers for keeping their accounts. The Government were satisfied that there is a drop in profits and that the banking system as such was not equal to the extra burden. What is their contribution towards it? Prior to the introduction of this measure there were £6,000,000 of an issue of notes which cost the banks £2 10s. per cent. per annum. If they have to purchase war loans or other British Government securities they will pay £3 5s. per cent. for what they were able to get for £2 10s. A sum of 15/- per £100 does not seem very much, but when one calculates the amount in respect of £6,000,000 it is a very considerable sum. Presumably everything counts in these cases. Let us compare what has to be paid here with what has to be paid in the North of Ireland. My information is that the banks in Northern Ireland pay in respect of any note issue 7/- per cent. We want public control here and certain Deputies desire to have still greater and still closer control. Do they also desire to make more money out of the institution? Is it not a concern of ours to see whether it is possible in the banking system to give cheap terms? Let us compare their terms with at least one Government institution. The average price—and it is not a level price—which transpires at paragraph 310 of the report shows that the price paid by customers to the banks was 4.39 per cent. A question was put down by Deputy McMenamin asking what price was paid to the Agricultural Credit Corporation, and we were told it was not in the public interest to give the information. We can get it out of publications but we cannot get it from the Minister about an institution in which there is public money. What price is charged by the Agricultural Credit Corporation that was set up to help agriculture? It was never comparable to the price charged by the banks.

I am prepared to condemn these bankers and rich institutions if a case can be made against them. But we cannot do so. We are asked to let those without political sins cast the first stone. Certainly none on the opposite benches will cast it. In what respect does the production of turf depend upon credit, upon currency and upon the banking system of this country? Is it in any way dependent upon it? I do not think so. A ton of turf in Dublin costs 64/- and it is not good turf. When we talk of every possible ill in this country being traceable to our banking system, are we blinding ourselves or trying to mislead the people? How is the £3 4s. per ton made up? Is it a fair or a just charge on unfortunate people in tenements or even on ordinary artisans? Is it fair to charge that price? Are they responsible for the queues outside the various bakers' shops looking for bread or for those outside the provision shops looking for butter? Is that the credit system? In my earlier remarks I confined myself to the principle of the number of persons to be appointed to the directorate of this bank. I was concerned to get the numbers down. We were told that a few thousand pounds do not matter. We are told that on every occasion and on every Estimate that a few thousand pounds do not matter, but when added up they amount to a great deal. We are concerned here with cheap money. There is no cheap money in this Bill. We are going to put extra cost on the banks. There is not a single note issue in future that will not cost approximately £3 5s. per cent. per annum. We are talking about expanding credit, while making very sure that the currency is not going to be expanded, unless the price is paid for it.

Mr. Hickey

At the behest of whom?

Mr. Cosgrave

At the behest of this House by this Bill, if passed. Prior to this Bill it was possible for the Currency Commission to issue over £5,000,000 of currency backed by domestic assets. That is no longer possible if this Bill passes in its pre sent form. This House does not consider, if it passes the measure in its present form, that Irish domestic assets are of sufficient good standing to warrant that ordinary notes people are going to use for a time will be backed by them. It is very difficult to understand the mentality that thinks we are to have an independent outlook in respect of anything, if we think that the ordinary liquid sound advances in this country—the necessary precautions being taken to ensure that they are sound—are not as good as those of a neighbouring country.

What is meant by good, sound advances? I will give one example. A man walks into any bank and puts down a certificate for £1,000 of National Loan, and asks for an advance of £500. That is what is called collateral. He gets the £500 of an advance. No bank will refuse it. It is a liquid, sound advance. That is not negotiable in future in respect of an issue of Irish currency. Strangely enough it appears from the Banking Commission Report that it has not been the practice of the Currency Commission to issue currency on such advances in the past. It appears that there has been some difficulty in discovering what are liquid sound advances. We are going to spend £7,000 on this board and it is their business to work that system—to work a system upon which portion, at any rate, of the currency would be backed by Irish domestic assets. Compare a bank operating only here with a bank across the Border, operating only there. What is the position of the two of them? Each of them has £3,000,000 or £4,000,000 in currency notes. One pays £3 5s. or possibly £3 10s. and the other pays 7/-. Which of these two banks is in the better position to afford credit to anybody requiring it? I should say the bank across the Border. If I am wrong I should like to have it shown to me how I am wrong.

I do not know whether or not I left the House under the impression that the three banks to which I referred had £12,000,000 more at the end of 1941 than they had in 1939. They had £12,000,000 more in deposits in a single year. If we take two years, the figure is £15,000,000. Some of them are banks operating both North and South. They are three northern banks, but I need not mention names lest there be any cause for complaint. At the end of 1941, they had £15,000,000 more in deposits than they had in 1939. They had about £3,000,000 more in 1940 than in 1939 and about £12,000,000 more in 1941 than they had in 1940. When we are considering the possibilities of credit expansion, we must look to the great potentialities in a case of that sort, where a bank has £15,000,000 more in deposits at the end of 1941 than it had in 1939.

That must be considered in relation to the need there is in Great Britain for providing the State with money and the opportunity there is for lending money, even if the rate of interest be small. The combined profits of these three banks are returned in the publication I have before me at £330,000 for 1939. In 1941 the profits amounted to £266,000. There is a drop in profits in two years of something like £60,000. These banks share an advantage which is not enjoyed by banks here, except they have branches in the North, in having available the currency issued under the Government up there at 7/- per cent. Yet, with an increase in deposits, their profits are down. If it is sensibly and honestly intended that this measure should be used to control credit, presumably it is meant that there shall be credit, when required, available at a fair price. We are not in a position to make comparisons with what the Government has done in connection with the Industrial Credit Corporation. We are in a position to do so in respect of the Agricultural Credit Corporation. We can compare the cost of the issues both north and south of the Border.

Only one other matter remains for consideration. It is provided in the Bill that, where a bank holds sterling assets in excess of a certain proportion of domestic assets, it may be called upon to lodge, free of interest, a specified number of pounds with the central bank. That is what is called a fine. We are given no information as to what is to be the amount of the domestic or sterling assets, or what the amount of the fine is likely to be. That is the contribution this measure makes towards what is called repatriation of Irish money. It is nonsense. It is believed to be nonsense now even by the two exponents of this Bill on the Government side—and there are only two. You cannot repatriate in this case. But there is something you can do which the Minister has not mentioned yet. It is open to a bank, if called upon to do what is provided here, to collect a number of its customers and offer, if they are willing to buy British equities, to advance 50 per cent. of the cost or more. It would be in the interests of the banks to see something like that happen. If that practice grows, you will create an orgy of speculation which will rival the land inflation of 20 years ago. It would be highly undesirable that anything of that sort should happen but, if and when that particular section is put into operation, I believe it will be not only the right but the duty of a public representative to call public attention to it and tell the people that they will have to look after their deposits.

Mr. O Ceallaigh

If one were to take the description of the work to be done by the central bank given by Deputy Cosgrave to-day and the last day he spoke, I think that not only could one convince oneself that five members would be sufficient for the board but that one person would be sufficient— even one automatic machine. If the work to be done is so light and if the responsibilities are so negligible as he suggests, a board would not be necessary at all. The work to be done is of a highly responsible and serious nature—as serious as that attaching to a central bank in any other part of the world in proportion to the resources of the respective countries. The House was told the other day that, in some countries, the Governments and Parliaments consider that, having regard to the responsibilities and duties of the directors of their central banks and having regard to the variety of opinions which would have to be consulted, they should put as many as 40 members on the boards of these banks. Our country is not so split up into classes and communities that we would require anything like the wide consultations that are necessary in the case of banks that have 40, 27 or 15 members, but I think that, taking into account the interests to be consulted, the responsibilities and the duties involved and the nature of our community, nine is a reasonable number. We could argue five, seven and nine. I know that people have different opinions in regard to the number. We will never get anything like unanimity on it. Having thought the matter out, having argued it and discussed it and consulted various people with experience and knowledge in financial and in public affairs, I am satisfied that nine is an equitable number, whatever the cost. Deputy Cosgrave, of course, as Leader of the Opposition, naturally, finds it useful to criticise the Government of the day for its expenditure. I am not finding fault with that proper function of a member of the Opposition. Every time finance is discussed in this House we hear exactly the same words as to the extravagance of this Government. We heard only a couple of hours earlier, from Deputy Mulcahy, that the Government will have to go in for increased expenditure and that it cannot escape increased expenditure. There, again, is an example of the unanimity we find running all through the arguments of the Opposition on this Bill as well as on other Bills.

General Mulcahy

It is the difference between expenditure and extravagance.

The Taoiseach

£24,000,000 was all the Deputy was looking for.

Mr. O Ceallaigh

All the Deputy wanted was a loan of £24,000,000.

Mr. Cosgrave

He would take £20,000,000.

Mr. O Ceallaigh

£24,000,000 is what the Deputy asked for.

Mr. Cosgrave

He is not a very hard bargainer; he will take £20,000,000.

Mr. O Ceallaigh

If I were a banker I would like to see what the £24,000,000 was going to be used for before I would give it and, of course, I would have to have some regard to the cost of it and who was going to pay it.

General Mulcahy

Has the Minister no idea of what it could be used for?

Mr. O Ceallaigh

I have, but if I got £24,000,000 to-morrow into my hand it would take me a long time to utilise usefully one quarter of it and the rest of it would be lying idle while somebody would be paying even 1 per cent. It would cost a lot of money. I would imagine it to be a foolish thing—with all respect to the Deputy—to go to the bank and ask for £24,000,000 or £20,000,000 or £10,000,000, until I had my scheme well worked out in advance and knew very well that the minute I got the money in my hand I could use fully, productively, employ it. Then I might go off—if I were thinking of what the Deputy possibly, has in mind —with a wide scheme of public expenditure and public utility—a variety of very good works. I am not suggesting that he would throw away the money, but I suggest to the Deputy that you would have to have everything in readiness. I have known cases where local authorities here have borrowed £1,000,000 or £2,000,000 and, having got the money in their hands, were looking for people to take half of it from them, because they could not use it for six or 12 months and interest would have to be paid on that and the ratepayers would have to be taxed to pay the interest on it for 12 months or two years.

Mr. Hickey

Public bodies?

Mr. O Ceallaigh

Public bodies, yes.

Mr. Hickey

£2,000,000?

Mr. O Ceallaigh

Yes.

General Mulcahy

And the Minister can see no way of avoiding that?

Mr. O Ceallaigh

I could, if I got time to do it, certainly, but it would take me a long time to find employment for £24,000,000. I could do it, I am sure, over a long period. I would be with the Deputy if he were asking for reasonable sums, but I suggest to him that he is out of all proportion in asking for a sum on which, perhaps, for at least 12 months—that is taking a very modest figure—maybe for five years, he would have to pay interest without having productively employed millions of that money. That is my suggestion.

Mr. Hickey

Shaw's definition of money is a very correct one.

Mr. O Ceallaigh

I got away from Deputy Cosgrave and the suggestion that we were taking away from the monetary authority the power to issue currency based on liquid sound advances. That power to issue credit on liquid sound advances, on the recommendation of the Banking Commission of 1926 was put into the Currency Act and Deputy Cosgrave evidently does not know that not one solitary penny was ever issued by the Currency Commission on the basis of liquid sound advances, under the power given in the Currency Act.

General Mulcahy

I wonder why?

Mr. O Ceallaigh

And Deputy Cosgrave was for five years, at least, head of the Government during the time that that matter was being considered carefully by the Currency Commission and they found it impracticable to use that power.

General Mulcahy

Impracticable?

Mr. O Ceallaigh

They found it impracticable, and I think the Deputy and his colleagues knew the people they put on the Currency Commission. They were sensible men, businessmen of experience. They got that power. They would have liked to have used it if it had been feasible, useful, practicable. Not one solitary penny was ever issued on that basis, and we are told we are doing something that is going to be disastrous for the monetary power if we drop that power from the new Bill. That is the fact. Early on, the Currency Commission considered what steps, if any, it might usefully take towards utilising liquid sound advances as protection for consolidated bank notes. It eventually concluded, after close analysis of bank loans from this particular viewpoint, that any attempt to assign the interest to the commission by way of cover for consolidated bank notes would serve no useful purpose. That was the opinion given to me by those who were entrusted with the power, by the Currency Commission. Deputy McGilligan is worried about that.

Mr. McGilligan

I want to know if the Currency Commission think that it will never be practicable to issue credit against liquid sound advances.

Mr. O Ceallaigh

I did not say that. How many years' experience have we had?

Mr. McGilligan

Five years—15 years all told.

Mr. O Ceallaigh

Fifteen years of a variety of circumstances, and it was not once ever used. The Deputy is terribly worried about it now. We have Deputy Cosgrave castigating us for not using a power with which these gentlemen were entrusted. The Deputy, I am sure, looked upon them as sensible, experienced men, and he must have been satisfied that they would use the powers given them discreetly, properly and prudently, to the best advantage of the Currency Commission and of the country. I am sure they did so but they did not find it practicable to use that power and never advanced a halfpenny. So much for liquid sound advances.

On the question of domestic assets, there still remains a power, that we are not proposing to eliminate for the Currency Commission. Even that power Deputy Cosgrave and his Government bound up with all sorts of restrictions. That is the power to issue currency on domestic assets. That power is contained in Section 3 of the Currency (Amendment) Act, 1930. In order to use that power, it is laid down that the Oireachtas should be consulted and the unanimous approval of the Commission obtained. We do not propose to take away that power and I suggest that restrictions might even be modified there. If the House desired it, further steps might be taken to make it more open for use if the board of the central bank so advised.

Mr. Hickey

Will there be a free vote on that?

Mr. O Ceallaigh

No. On no section of this Bill will there be a free vote. It is the Government and the Party's Bill. We stand over it and we take our responsibilities accordingly.

General Mulcahy

Have the Government forbidden discussion of the Bill by members of the Fianna Fáil Party?

Mr. O Ceallaigh

No. We have had a great deal of discussion on it.

General Mulcahy

Are members of the Party allowed to discuss the Bill in the House?

Mr. O Ceallaigh

They are. Every one of them can say whatever he wishes to say.

Mr. McGilligan

Was there much of a debate on it outside the House?

Mr. O Ceallaigh

There was, indeed.

Mr. McGilligan

They do not seem too anxious to debate it now.

Mr. Childers

There is plenty of time.

Mr. McGilligan

We have one entrant.

Mr. O Ceallaigh

Deputy Mulcahy urged, and I do not object to the argument, that we should get money cheaper. I would like to get it cheaper. I do not object in the least to his argument, but in pressing the argument, he referred to the present financial position of Great Britain during the war, when the Government has taken complete control and when for certain purposes and periods the Government is able to get money at a very low rate—1? per cent. In endeavouring to draw an analogy with conditions here, he thinks that we should be able to get money at the same rate for long-term loans for the big public schemes. For that kind of loan there is not very much difference between what the British Government is paying now, and what we paid for our last loan. The standard rate of the British Government generally for such loans is 3 per cent., and the rate for our last loan was 3¼ per cent. They have different kinds of loans. Loans have been on tap for unlimited amounts for the last 18 months or so, and the standard rate is 3 per cent.

Deputy Mulcahy also urges a reduction of the rate of interest on deposits. That would have considerable reactions for people who are now getting 1 per cent. on these deposits. The money which they get is passing into circulation. It helps them to live and it represents their savings. A number of them are people who have small amounts, from £100 to £500 on deposit. They know the rate of interest they will get. They know that their money is safe and the return which they get goes into circulation and comes back to us in a variety of ways. If it is reduced, the depositor loses that much of his income and his standard of living is reduced accordingly.

General Mulcahy

Would it not be as safe and far more profitable if it were invested in the Minister's 3¼ per cent. loan?

Mr. O Ceallaigh

Yes, but it would not be as readily available. The vast majority of the people who have that money on deposit, probably in sums of £300 or £400, want it readily available in case of accidents. Anything might happen for which they might require immediately £100 or £200. One of the difficulties of our loans generally is that they are not always liquid. They are at present, because people are looking for them. That is a difficulty that applies to all our loans. It is not a question of this Government or the last Government. Our loans have not been always liquid.

General Mulcahy

I thought the Minister was arguing that these people were living on the interest they got on these deposits.

Mr. O Ceallaigh

No. One per cent. would not keep them very long, but it helps. Even though 1 per cent. may be a small amount—the Deputy argues that it is too much—it is large enough to encourage these people to take that money out of the stocking where they used to keep it, up to not so very long ago, rather than entrust it to the banks.

General Mulcahy

It would be nearly time to encourage them to send it further.

Mr. O Ceallaigh

Well, in regard to the last loan we raised, I looked at the complete return to see how the total was made up, and in what sums the loan was subscribed. My recollection is that almost 60 per cent. of it was subscribed in sums of £500 and less, so that it was from the small people of this country, the people with very small savings, we got this money. It is a great credit to them and it is a credit to the Oireachtas and the State that these people should lend us these small sums, representing perhaps all their savings. It shows that they have complete confidence in the State and in the Oireachtas. The State is solid here and they know they will get their money back if they require it. They have done what Deputy Mulcahy suggests; they have sent their money further by giving it to the State. I quite agree it is wise to encourage that. We have gone a long way from the days when people in the rural community would not trust their money outside their own houses. These are the people who did most of the saving. Generally speaking, people in the cities and large towns are spendthrift in their habits— money comes in, and goes out as it comes in. The people in the smaller towns and rural districts are thrifty, and we want to encourage thrift, but doing away with the deposit interest would not be in that direction, although it might have other advantages, as Deputy Mulcahy suggests.

General Mulcahy

Has the Minister considered what effect that 1 per cent. has had recently on the moneys that agriculturists have to borrow?

Mr. O Ceallaigh

I have considered that, of course, but we have to find it in some way, and, if necessary, the State itself and the taxpayer would have to bear the cost. If it be proved to me, firstly, that money cannot be got for agriculture or any other enterprise, and that the money is necessary, and, secondly, that cheap money cannot be got otherwise, then the State and the taxpayer will have to bear the cost. If it were proved to me to be necessary that, in the best interests of this State, it was essential that cheap credit should be provided for any class of the community, then I should certainly put it before the Government that the State and the taxpayer should provide it, and that the Government should bear the responsibility for providing it. Deputy Mulcahy referred to the bank rate in England having fallen since 1929. That is so, but it fell here simultaneously. These are the Irish bank rates: 1929, 6 per cent.; February, 1930, 5½ per cent.; March, 1930, 5 per cent.; May, 1930, 4 per cent.; May, 1932, 3½ per cent.; October, 1939, 3 per cent. It is now half what it was in 1929. So that, so far as the analogy between ourselves and Great Britain is concerned, there is not much difference.

General Mulcahy

There is the 1 per cent.

Mr. O Ceallaigh

Even there, if the Deputy would read the Banking Commission's Report, on that subject, he would find a long explanation of the reason why there is a difference. I shall not trouble the Deputy by reading it now, as I presume he has read it himself.

General Mulcahy

I have read it and noted it.

Mr. O Ceallaigh

Well, perhaps the Deputy might read it again. On pages 197, 198 and 199 of the Banking Commission Report there is a long explanation of that matter, with which the Deputy might revive his memory. I do not think I need say any more on that. With regard to the problem that Deputy Cogan referred to, the problem of unemployment and emigration, Deputy Cogan says that it cannot be solved unless the Government is able to provide money at a low rate of interest or free of interest. The money problem is not the only problem in that connection, and will not, of itself, settle the question of unemployment or emigration. Of itself, it is impossible for money to solve that problem. You can take all the control you like of banking, or all the control that this Dáil can take of credit here, and we will still, perhaps, have a similar problem to face in that way. The United States has had it. Eight or nine years ago, the United States had to face a problem of 9,000,000 unemployed. The present Government in that country have spared no effort and no expense in an endeavour to find employment for these unemployed people. The New Deal that was to give employment to all these people did not succeed in achieving that object.

Mr. McGilligan

Did it put people back to work?

Mr. O Ceallaigh

It did put some people back to work.

Mr. McGilligan

But did it cause a flow from unemployment to employment?

Mr. O Ceallaigh

It put a great number to work, but at great expense.

Mr. McGilligan

And if the banks had their say there would be more than that number unemployed? At least, that is the argument.

Mr. O Ceallaigh

There were more than 9,000,000 unemployed, and the present Government there took all the power that was needed, in their view, to solve the problem of unemployment, but they have not succeeded, even with all the power and all the money that they needed at their control, and the reason they did not succeed was because there were other factors in the situation, just as there are other factors in the situation here.

Mr. Norton

The factors there are different from those we have here, are they not?

Mr. O Ceallaigh

Yes, they are different, but there was the money there and there were also all the resources of the United States awaiting development.

Mr. Norton

But is not the position of the United States that it produces, every six months, enough for its own consumption, and that an external market has to be found for the rest?

Mr. O Ceallaigh

Yes, the Deputy is putting his finger on the difficulty now. There are difficulties there just as there are difficulties here. I admit that our difficulties are not the same as theirs, but still we have our own difficulties, and you will not solve that problem of unemployment and emigration by the issue of unlimited credit.

Mr. McGilligan

Having listened to the Minister now for, I think, the third time, speaking on this Bill, I must confess that it would seem to lead to a great deal of anxiety and despondency with regard to the future of this country. It would appear as if the Currency Act of 1927 marked the end of worldly wisdom and that there could be practically no further development. That is a suggestion that I want to examine. We have been told, with regard to the people who were put to manage things then, and with regard to the Currency Act of 1927 and what was in it, that that marked the end of worldly wisdom and that there was no development in the world since 1927 or in the people who made that Act. Are we not an odd country? The Minister for Agriculture has gone out in this country and told us that, as far as he can see, the dairying industry has got to be killed, either during the war or, certainly, once it is over; and the Minister for Local Government and Public Health has gone out and told us that the cattle industry has got to be killed. The industrialists have more or less said, in regard to this particular Bill, that even though it will not do them any good it cannot do them any great harm, and that in any case they have to put up with it as it stands. That is what we hear from the industrialists, and all we get from the Government are whoops of despair about the future. The industrialists do not appear to recognise that they will get any help through the handling of the monetary resources of the country, and now we get this Central Bank Bill. We have listened to the Taoiseach twice on the question of the powers that will be given in connection with the central bank, and three things emerge. One is that the powers given to a central bank in other countries would be ineffective here. The second is that a central bank would have something to do with a rate of exchange. Now, I want to be told what section it is in the Bill, if there is one, which gives this central bank any powers with regard to rates of exchange. The third thing we expect from a central banking institution is: can it have any influence whatever on the rate at which money is loaned or borrowed? If there is any section in the 1927 Act, or in the measure that we are discussing, dealing with that I would like to have it pointed out to me. If there is a central bank which cannot have the influence that other central banks have upon credit, and if it cannot have anything to do with the rate of exchange, or with the rate at which money is loaned or borrowed, what is the good of it?

Then we come to the positive things referred to in Section 47 of the 1927 Act. Every time there is British money manufactured on the other side for motives that may seem good to them and wholly unsound to us: every time there is a pound of British money manufactured, on presentation to our central bank we must manufacture a legal tender note. We have not made a place for the Governor of the Bank of England on this board, but we might as well have, for he will operate according to English conditions. He will manipulate expansion or restriction of credit according to well-known machinery of credit making, for what is good for England, and be it good or ill for us we take it here. There is the old rhyme about opening your mouth and shutting your eyes and seeing what God will send you. We have the same thing here except that it is what the Governor of the Bank of England will give us. That is the central bank. These things were not in Section 47 of the 1927 Act. On the negative side, you have the three things that I have mentioned. That is what we get after spending three days discussing whether or not we ought to have bank directors or outsiders on this board.

An Leas-Cheann Comhairle

Is the amendment being withdrawn?

Mr. Norton

Is the Taoiseach going to accept the amendment? We have spent three days discussing whether or not there should be a statutory obligation to put bank directors on this board.

The Taoiseach

The position of the Government with regard to this amendment has been made clear both by the Minister for Finance and myself. We are standing by the Bill as it is there and, therefore, we are not accepting the amendment. With regard to the questions raised by Deputy McGilligan, I have referred to the peculiarity of our circumstances, due to the fact that we are a creditor country largely, and that our community through the banks have a very large amount of sterling assets which are available in liquid form, a large quantity of them can be regarded by the banks as cash. Therefore, any methods which they try in other countries to limit the power of expansion and of credit, by limiting the amount of cash available to the banks, goes by the board in our case. The power is not available here. Deputy McGilligan raised a point about sterling assets, but did not suggest how we should deal with it. The fact is that we have not got in this Bill provisions which are to be found in similar measures in other countries in regard to making the banks retain a certain amount of cash with the central bank.

The reason is that it would not be effective in our case because there will be available balances other than cash at the central bank. Assuming normal conditions, as long as we have these they will retain their value. These are the sterling credits that have been built up by the trade of this community in the past, and they can only be effectively brought over here by getting goods the equivalent of them. At the present time it is not possible to get these goods. The whole policy of this Government, since we came into office, has been to develop industry so as to get capital goods and transfer the sterling balances over there for them. There is no use in trying to blind ourselves to the fact that we have these sterling assets and that they are available as cash balances. The method by which they can restrict or expand credit in other countries is not available to us because they could circumvent it.

General Mulcahy

Would the Taoiseach deal with the difficulty that there is in expanding credit in any other way?

The Taoiseach

There is no difficulty in the way of our banks expanding credit except by the fact that they have not a useful way of employing it. As to the rates of interest, I have always said that one of our principal aims should be to try, if possible, to reduce the rate at which money can be borrowed by the Government.

Mr. Norton

Can this Bill do it?

The Taoiseach

This Bill was not introduced to make a new heaven on earth in this country. We never suggested that. The Labour Party are trying to make it appear as if the Government were saying that it was going to do that. This is a simple measure to enable us to exercise a greater degree of control than we have at present. That is all the Bill pretends to do. We have not gone out blowing trumpets and saying that it is going to put an end to all our problems here. We have made very modest claims for the Bill. The Minister for Finance did so in his introductory speech, and I have done the same in any statements I have made on it. I am not going to go as far as Deputy McGilligan when he said that it was no good. It can do good if there is proper co-operation between the Government on the one hand and the body of experts who will be looking after the interests of the community on the other.

Many foolish statements have been made in connection with this Bill. Deputy Dillon, for example, attributed statements to me that I did not make, and proceeded to rebut a case that I did not put up. It was a case that he put up himself so that he might have something to knock down. I did not at any time hold it to be true that the banks did not create credit, not did I say that there was not a social aspect to this. On many occasions I have said that there was a social aspect to it, and that it was right that the community as a whole, represented through Parliament, should be able to consider a matter which has great concern for them. In this Bill we are setting up machinery and moving in the direction of trying to do that. I think that I may dismiss Deputy Dillon on that. Both in the recent past, and in the more distant past, I have taken up the position that anything like the expansion or the creation of credit has a social aspect. There are those who say that when a bank gets £1,000 in cash, assuming that the ratio is one to ten, it can given loans and go on increasing it to £10,000. Suppose I get an advance of £1,000 from a bank by mortgaging my house or some other property, what the bank does for me is to liquify that property and make it available for me in the form of money by giving me the £1,000. But suppose I bought cattle with that from somebody else and gave him a cheque, that is transferred from my account to the account of that particular person. The £1,000 they gave me passes on to the credit of this other person. In the first case they were liquifying a house, so to speak. In the case of this other person, when he pays the £1,000 cheque into his account, it is an immediate deposit in the ordinary sense, so far as he is concerned. It would be extremely difficult to try and separate in banks' accounts what might be called the created section of deposits from what might be called the real section of them, because credit passes immediately almost from that peculiar position of creation, to the extent to which it exists, to the stage of an actual deposit by somebody of something which was his.

I do not want to go into the old question of limitations and so on. I spent a good deal of time on it last night. I would prefer to follow on Deputy McGilligan's point. The first thing I say to him is this. There are certain limitations in the nature of our position which prevent any central bank here from having an effective and immediate control over the expansion of credit by our banks. Deputy Norton's answer to that will be: "Then the State will have to take over the whole banking business itself." That is a logical position, a position I can understand being taken up by the Labour Party. I do not want to argue that position at the moment. That is much easier to talk about than to do. The moment you do it, it will have to be operated by civil servants, and one of the difficulties we have in business of that sort is the fact that the Civil Service, the whole State service, is not a service that is suitable for a purely business operation. You can imagine an Irish farmer coming up to a civil servant and asking him to grant a loan and, on behalf of the State, to take the risks there are in regard to a loan. You have only to think along these lines and you will see immediately that the whole question of nationalisation of banking is possible only when, you go a further step in regard to the whole regimentation of the community. You will have to have State control almost completely, and that does not, I think, fit in with the idea of the majority of the Irish people, which is to try so far as possible to use private enterprise, and to use State interference only to the extent to which it is necessary to control it in the interests of the public as a whole. As I say, I understand the Labour Party's point of view—nationalisation of banking, the complete business in the hands of the State, operated by State servants, which means civil servants, and so on. The other position of trying to exercise control is rendered difficult—I repeat it for the fiftieth time—and almost impossible in our case by the simple fact that we have those balances which are available as cash.

The next question I am asked is: Why should there be in the banks those foreign credits, why should they be available? If I wanted to discuss that, I should have to discuss the whole system of parity or the fixed rate of exchange, unless you are to have variable rates of exchange. That brings us to the next point raised by Deputy McGilligan about rates of exchange. There is no question of such rates of exchange because of the fact that we are operating on parity which excludes rates of exchange between ourselves and Great Britain for the moment. That is accepted as a policy simply because it is to our interest. I believe that that might have been approached from a slightly different angle in which the national element would not be brought in. I think it is a pity, for instance, that it should be put on our notes in the particular way in which it appears, that the note is redeemable for £1 in London, or something like that. I think that was unwise. I think it could be expressed in another way. I believe that parity is the best policy in the ordinary circumstances, but that it might be expressed in a way in which there would be no national misunderstanding about it. Parity with Great Britain was adopted as a policy and I am not shirking discussion of that question. I will come to it later. I am only saying that it is bound up with the question of exchange rates.

If it happened, as a result of the present situation, that the British £ had depreciated to such an extent in value that it was affecting us here, sending up prices, and having all the effects of inflation, that is one of the things in a war situation that the central bank, when it is set up, will be on the look out for. It will have to be on the look out for a danger sign in that direction. At present in Great Britain they are trying to prevent this expansion of credit from having the usual consequences, high prices, and all the rest. They are trying to prevent that by a variety of means.

Mr. McGilligan

By not letting it go into currency.

The Taoiseach

Not merely that; there are lots of things which they are trying. By the rationing of goods, quotas, and all these things, they are preventing the natural consequences of inflation. But there would be inflation undoubtedly with the limited quantity of goods available if they had this expansion of credit, and they did not take these measures to counter it. The question is whether they will be successful the whole time. Up to the present they have managed fairly well. They have learned how to operate various checks. They are very inconvenient for the public, but the public put up with all those things during a war situation. Deputy Mulcahy, for instance, spoke about the £24,000,000. I am not saying that he wants it brought over at once. I am simply saying that if you do it at once you immediately increase the volume of money available to the community. I think, at any rate—I would have to look at the ratio figures to be certain —that with the limited quantity of certain goods available here and our having money available, it would almost inevitably send up prices and have an inflationary effect, no matter how it was operated in connection with such things as public works and so on, unless we were able to increase the quantity of goods for which there was a demand.

Mr. Norton

Why do we impose in this Bill the liability to continue Section 47 of the Currency Act as a statutory obligation?

The Taoiseach

Which one is that?

Mr. McGilligan

The legal tender notes for British money.

Mr. Norton

Swopping for the British pound.

The Taoiseach

One of the reasons is to maintain the external value of the currency. That is one of the means of maintaining the external value of our currency. I am driven to deal now with this parity question against my will. The whole thing will come up again on another question. One of the reasons is to maintain the external value of the currency, to see that the Irish pound will be exchangeable for the English pound.

Mr. Norton

Supposing, through some change in the circumstances, British credit is expanding at a greater rate?

The Taoiseach

The Deputy may remember the statement I made. It is unfortunate, if you like, that this Bill was introduced at a time of monetary crisis, so to speak. We are not doing anything to deal with that particular situation in this Bill except this: we are setting up a body of experts whose business it will be to watch daily and hourly so that we will have expert advice. One of the things I expect from that particular body when set up is that the first moment it felt the national interest demands that we should deal with that particular position of parity, it will be done. In other words, if the Irish situation was being affected in an inflationary way to such an extent as to make it necessary in our interest to change that situation, that they would come along with the best proposals they could make to the Government to give effect to it. We are not anticipating that in this Bill, because if we were going to give in this Bill powers wide enough to enable them to do it we would have a lot of fears and anxieties created, and we would have objections from all quarters that this is a power which should not be given outside Parliament.

Mr. McGilligan

Does the Taoiseach know of any central bank anywhere which has not control over the rate of exchange? I do not.

The Taoiseach

Because there are very few places where there is such a volume of trade between two countries.

Mr. McGilligan

That is all very well for the moment. We are wiping out that which is an ordinary power of a central bank. Circumstances do not allow us to have it.

The Taoiseach

Exactly. That is all I am saying about it. I am simply saying that in our circumstances it would be a useless power to have if we are going to maintain parity. I am speaking as one who believes that the maintaining of parity, in ordinary times, is right. A situation may be created in which that would be wrong, in the interests of the country. If that time comes, the consequences to this country will be very serious, because when we come to argue this question of exchanges we will find that variable exchanges between ourselves and Britain will have to operate, with consequences which will not be very pleasant for our people.

That is one of the reasons why I should like to see this body set up, and set up quickly. I am sorry that we did not long ago, without waiting for any commission or anything else, set up a body of this sort. We are fortunate, on the other hand, that the Currency Commission has been there, that a number of its members have been acquainting themselves with and interesting themselves in those problems, that they will be there as a nucleus, possibly, for the new board, and that the experience which they have gained will be valuable. I should like the House to realise that this Bill is not brought in now to deal with the present emergency situation. To deal with that, we must have ad hoc legislation here if it is called for, and it will have to be done as a result of recommendations which will be made by that expert board. That is our whole mind on the matter.

As to the second question which the Deputy mentioned, that is exchange rates, I cannot deal with that adequately until we are dealing with the parity question. I do not want to be repeating the arguments over and over again. With regard to this expansion of credit, we admit that the banks theoretically have the power, but in practice, as I showed last night, it cannot be availed of to any great extent without harming the banks' own interest. If it is true that there is maintained a fixed ratio between their cash and their deposits, then the banks cannot expand at all. Is not that so? If there is a fixed ratio kept between the cash available and their deposits, and if the cash available is kept fixed, then it is quite obvious that they cannot expand any more. For a variety of reasons, Britain is in a much more independent position in regard to money matters than we are. They have a big money market, and there is a number of other ways in which their central bank is able to affect the situation. In their case, it is only by action by the central bank that their banks can expand, that is if they keep to the ratio. The central bank itself takes action almost always in conjunction with the Government.

That is why the really significant expansions have taken place. They took place during the last war and they are taking place at present. It is due to Government action, the central bank really acting more or less as agents for the Government. Although they are nominally in an independent position, their co-operation is such that they may be regarded practically as agents. If the Government is itself the means of expanding, it is able—under war conditions anyhow, which are the only conditions under which we see this thing operating on a large scale—to affect not merely the banks but the community as a whole. Every individual is taken possession of practically, as far as his non-spiritual activities, so to speak, are concerned. They get hold of the individual and of the institution in a war situation. They practically take hold of them completely and say: "You do this," and so on.

Amongst other things, they operate to reduce the rate of interest. With us here, I cannot see at the moment, except by this co-operation, a means of forcing the banks to lend at considerably lower rates than we are getting at the moment. I do believe that the rates are too high. I believe, for instance—I think it is also Deputy Mulcahy's view —in regard to those liquid assets which have been over there, that the urge of the banks should be to try to make those moneys available for development here rather than elsewhere. For instance, if there were Government operations which would bring any of those moneys over, and if there were to be a question of the transfer of ownership—because that is all that could be done; you could not get hold of those assets and bring them effectively over here—the banks' holdings could be transferred to the Government, to enable the Government to carry on, on the basis of them, certain operations here. It is only if those operations brought goods from the other side—metal, steel, capital goods or consumable goods of any kind—that you would have an effective bringing over. I think the tendency of the banks in this country should be to encourage industry here which would have the effect of bringing over those capital goods and making them available. I do think that one of the functions of this new bank should be to operate with the existing banks to try to make them available for Governmental purposes.

There is one thing that I think most people will admit, and that is, that it is a fallacy to talk about money being got for nothing, that is, at no rate of interest. In one way or another I believe that there is going to be interest. If somebody gives money to the State, charging no interest for it, then what happens is that that person is forgoing that interest. If anybody with £100 could have used that money otherwise, if he could have used it, say, in buying cattle, and got an increase on it, and if that person forgoes that and gives the money to the State without interest, then he is not merely giving the money to the State but, in addition, he is giving the interest which he could have gained, so that what the State is gaining the individual is losing. He is making a present to the State of the interest which he could have gained. If you do it by inflation, then every person who has a pound will get less goods for it than he could get before, and you will be getting your interest indirectly by the diminution of the purchasing unit.

Mr. Norton

But even if money is given to the State at no rate of interest or at low interest rates, as, for instance, the £25,000,000 lent to Britain at 1? per cent., is there any use in asking the banks here to lend at that rate to the State?

The Taoiseach

That is a point on which I think there is more agreement in the House than on any other matter, that in so far as those assets could be made available here they should be available when there is profitable use for them here, and in so far as it is consistent with a certain liquidity which I think the banks must have in their assets. The banks are liable for calls of various kinds upon them, and in order to be in a position to meet those calls they must have a considerable portion of their assets in liquid form. I said already that I believe there is an unnecessary amount kept liquid, and I do not believe it would be kept liquid if there were a profitable use for it from the banks' point of view. Why should the banks keep money idle if, in fact, it could earn a profit for them? The inducement to the banks not to leave their money idle is to show them that they can get a return for it. I think what we have to do is to show the banks that we can employ that money profitably, that we can use it in such a way that we can expect such-and-such a return from it.

There are a couple of fallacies running through the minds of certain people. These are the people who imagine that money power is almost omnipotent. It is not money that is preventing us from getting the goods. The goods are there, but we cannot get them; they are held up for a variety of reasons. It is not money that is preventing us doing a whole host of things. The only definite case is the cost of housing. Housing costs and the rents to be paid for houses do seem to have very considerably increased. There was a statement made by Deputy Norton or some other Deputy on his bench to the effect that prices had increased about 40 per cent.

Mr. Norton

At least that.

The Taoiseach

I think there is some mistake there. If you look at the interest rate, it does not appear that it would indicate an amount as big as that. The length of time of the loan would have a very big influence.

Mr. Norton

Take a loan at 4¾ per cent. for 35 years, repayable, say, at £6 13s. 4d. a year. The Taoiseach will discover that interest plays a very considerable part in determining the rent.

The Taoiseach

I hope the Deputy is not counting the interest in the way it was done the other day, when somebody added up the accumulating interest over a large number of years. If we all added up our salaries for the last 20 years we would have a tidy sum of money. You must not do things in that way. I have been impressed more than once by the extent to which the rate of interest affects the rents that have to be paid for houses. My first approach to that would be from the point of view of time. If I got 20 years to repay a debt, and if I was anxious to cut that period down to ten years, I would have to pay twice as much each year in order to cover the capital—and that would be irrespective altogether of the interest charges.

Mr. Dockrell

Are you not talking of the sinking fund as well?

The Taoiseach

I quite understand the sinking fund arrangement. I am merely pointing out that, in my opinion, the length of time has a big influence. It is a simple matter of calculation. In my opinion, the length of time has far more to do with it than the difference between 4 and 5 per cent. Suppose a house costs twice as much to erect now as it would ten years ago, then my rent straight off will be doubled. The cost of building the house, the initial amount to be borrowed and the time over which it has to be repaid, will have a direct bearing on the rent. The cost of erection and the period of repayment will have a tremendous effect. If you pass from 2 to 4 per cent., or from 3 to 4 per cent., I doubt if it will make anything like the same addition to the cost; in fact, I am almost sure it will not. I do not want to make light of this matter, but I think we are exaggerating somewhat in regard to interest charges. I know they are important, but I think we are exaggerating them.

Mr. McGilligan

Taking them as being of some importance, can the central bank operate in respect of interest charges?

The Taoiseach

It can only operate in the main through the method it has of influencing the direction in which the banks will use the money available for them. You have the open market operations which, to a large extent, determine nearly all the rates of money, even though they do not operate the minimum rate very much. But it does set a general headline for the rates which are charged. Even there in the nature of things I think the outside conditions, the trade and other conditions which make for a demand for money, would be likely to affect the rates at which money could be got, even in the case of England.

The position is that this central bank is not put forward by us as a means completely and absolutely of controlling credit. I believe there is no way in which to do that except to take over all the banks in the way the Labour Party suggest. If you attempt to do that you will have a host of difficulties which will be quite sufficient to prevent you proceeding along that course. What we are doing here is trying, by co-operation, to get the best experts we can to watch the problems that will present themselves and suggest to the banks and the Government the steps that at any particular time will be effective. It is necessary to aim at the closest co-operation between the board of the central bank and the Government. How are we to secure that? Deputy McGilligan suggested that it should be something like the Electricity Supply Board.

Mr. McGilligan

Some controlling link.

The Taoiseach

We had a long debate here years ago when the Deputy brought in some legislation to enable him to get power of that sort.

Mr. McGilligan

I was exercising that power at one time.

The Taoiseach

Was there not some legislation introduced?

Mr. McGilligan

The 1927 Act has the power in it. I had the power in advance and I exercised it on one occasion.

The Taoiseach

It was associated, to my mind, anyhow, with legislation of the same kind. Whether the legislation was brought in to enable the Deputy later to do it or not, I do not know. At any rate, there was a power of doing it. I think the Deputy will agree generally that it is a power one would be very loath to use and one of such difficulty that, if there were some other way of managing the situation, we would prefer to have it.

If there is pressure I do not know what the Minister for Finance may think about it. There is a general objection, on the part of a very large body of opinion, to allowing the Government of the day, particularly—even Parliament—to have direct influence on it. They say that those who are operating this are supposed to operate it generally in the public interest, and they would not be able to do so, according to their judgment, if you go so far in the direction of having power over them. The question is whether you will not be entering in directly or not. This Bill has been framed on a slightly different approach—the approach that we are looking for co-operation. We believe the body that will be set up will have due regard to the policy as indicated by the Government, that there will be consultation between the Minister for Finance and the Governor and members of the board. I do not know what machinery will evolve for that, and it is better to have it evolve than to set it down in the Bill now. We believe this will evolve in such a way that Government projects would be understood, that the financial obligations would be understood by the Government on the one hand, and that the social purposes towards which the policies would be designed would be understood by the financial people on the other hand.

I would like to make it clear that, in my view, money and the rest of it all should operate for the welfare of the community as a whole, and that that must be the aim, that any other aim must be subordinate to it and that financial policy must ultimately have that direction. I believe that, by proper co-operation between them, it could be brought about.

Mr. McGilligan

I have spoken very often already, but would like to make one last comment. The Taoiseach has answered the various points I made and his answers will bring a chill of despair——

The Taoiseach

Will the Deputy allow me——

Mr. McGilligan

I am appreciative of the circumstances and think that a lot of education could be done by better publicity of the things spoken of here, but the Taoiseach's speech will bring a chill of despair to people who thought the Central Bank Bill was going to give some relief to the country in its difficulties. The Taoiseach answered the points in regard to three things. As far as my remarks are concerned, he points out again the vast mass of sterling assets we have here in liquid form. I could understand that as a sign of the central bank wanting to extract credit, but I do not see it is any answer to the expansion of credit. One might ask: "What is the good of wanting further expansion, if you have too much money under your control?" Then it is a question of the use of it. As far as the rates of exchange are concerned, the Taoiseach then found himself in the position that he wants parity between the two countries, for some time. I think so, too, and most people who know anything about the situation think so also. But that situation may change, and the Bill makes no provision whatever for that.

The Taoiseach

It does not prevent it.

Mr. McGilligan

It does not, in the sense that the Dáil always will have an opportunity to bring in a new Bill, but this emergency should not be taken as continuing always. The third point was the rate of interest. He admitted again that, as far as the Central Bank Bill is concerned, there is no power given in any way to influence that.

The Taoiseach

It may influence it.

Mr. McGilligan

That is all by co-operation and by palavering. From the point of view of the Central Bank Bill, the further point is admittedly made here that, whatever be the powers or the lack of powers, the Government has none over the central bank. Once this Bill goes through, we decide that the governor be appointed for seven years, the bank directors are staggered out from two to five years, and we throw the whole job at them, and the only way we can get control—if we make up our minds that good use could be made of credit facilities through the central bank, if they did it—would be by a new Act. That is the situation, and we all should recognise it. Nothing has been so reviled by a lot of people, hoping for an easy pass to the new heaven on earth, as the banking institutions. Here we are going to hand over control outside this House to those people. I have not a clear idea as to whether we would want that link that exists in the Electricity Supply Board situation. I think there is a terrific danger there. However, rather than have the other amazing situation, completely turning our backs on modern practice, I would accept that danger. Speaking subject to correction, I think the tendency for central banks all over the world, in the last ten years, has been founded on the acceptance of the proposition that the provision of credit is a public function.

The Taoiseach

I agree.

Mr. McGilligan

And that the Government ought not to abandon its control of the public finance. We are abandoning that, except in so far as we can always come in with a new piece of legislation. Here is a quotation which no one will regard as Leftwing or Bolshie or that of a crowd of people who would hold up their hands in admiration of what has been done in New Zealand, as some of my friends here have expressed their admiration. The quotation is from the English Times, written about a month ago, in connection with the necessity for completely revising the attitude on monetary matters. The writer says:

"The economic problems of peace can be tackled with any hope of success only if we revise our economic notions and our ways of doing and financing business as thoroughly as our early disasters in the war are forcing us to revise our military conceptions and practices.

"In war time the only limits on production are those set by the available man-power and raw materials. It is financed by credits which, although they are issued by the banks in the form of loans, are really national credits owing their value, not to any stocks of bullion held by the banks but to the capacity of the country to provide the goods and services for which its currency constitutes a claim. We should, it is argued, avoid nightmares of depression and unemployment if we frankly adopted this principle in peace as well as in war, and made the consequential changes in our financial system."

The Taoiseach

One should add "in the whole social structure".

Mr. McGilligan

It would require that, undoubtedly. The writer goes on:

"In his ‘World Crisis', Mr. Churchill has described the situation at the end of the last war and the sudden change which occurred at 11 o'clock on November 11th, 1918:

‘A requisition, for instance, for 500,000 houses would not have seemed more difficult to comply with than those we were already in process of executing for 100,000 aeroplanes, or 20,000 guns, or the medium artillery of the American Army, or 2,000,000 tons of projectiles. But a new set of conditions began to rule from 11 o'clock onwards. The money cost, which had never been considered by us to be a factor capable of limiting the supply of the armies, asserted a claim to priority from the moment the fighting stopped.'

"This reversion to the traditional money criterion as a limit on production and employment for which the real resources of organisation, labour and capital equipment were available in plenty, was possibly the master blunder, from which have flowed in inevitable sequence all the frustrations and miseries of the past 20 years. We are not likely to solve our post-war problems unless we make up our minds to treat money as a book-keeping technique to facilitate the production and exchange of goods and services, not as something the supply of which sets a fixed upper limit to our productive activities."

Then the writer introduces an analogy which is not meant to be exact but is put in to show the allegory.

"It plays much the same part in economic life as railway tickets play in transportation. It is dishonesty, akin to inflation, to issue tickets for more trains than can be run. It is absurd to cut down the railway service because the ticket office has run short of tickets."

The Taoiseach

That is a complete exaggeration, in the end.

Mr. O Ceallaigh

Where is the quotation from?

Mr. McGilligan

The English Times of the 25th March last.

Mr. O Ceallaigh

I think I read it.

Mr. McGilligan

Let us consider that in relation to this country. Our real resources are capital, labour and organisation.

The Taoiseach

Organisation is the point.

Mr. McGilligan

Is there any impediment to the marrying of these three by the limiting factor of money?

The Taoiseach

I do not think so.

Mr. McGilligan

As far as that is concerned, we are told by the Taoiseach, that, far from that being the situation, we are bewildered by the amount of cash we have. There is an amazing situation. We have a completely under-developed country. The Minister for Agriculture says that agriculture requires to be completely overhauled, modernised and reconditioned that dairying is about to disappear, and the Minister for Finance says that capital must clear itself—I am sure after his association with his colleague in the Department of Agriculture. There is our position with regard to agriculture.

The Taoiseach

The point is the method by which you are going to recondition agriculture. The Deputy says it is for us to improve the organisation. The means are those by which you would do that.

Mr. McGilligan

I bring a case in point. If anybody wanted to set about the modernising of agriculture in this country, it would require a big amount of money. Supposing you get the individuals who are going to do the reconditioning to go to the banks and ask that they should get the money, they would not get it unless they could put up cover.

After they were at work, or someone for them, for two or three months, it would probably then appear that this was a good project, and that the results would be better than the type of agriculture we have been accustomed to. To start that, someone must go to the bank with 70 per cent. cover, and they are going to pay 5 per cent. for accommodation. It has been pointed out that if you have a banking system whereby there are cash reserves you can multiply credit by ten. I think that is agreed. If we have need for reconditioning and a multiplicity of cash reserves, somebody must start the process whereby cash will be made available for reconditioning.

The Taoiseach

It is easy to talk in general terms about reconditioning. You have to make this, so to speak, profitable for the individuals concerned and that depends on many factors which are not controllable by us.

Mr. McGilligan

Money is one.

The Taoiseach

No.

Mr. McGilligan

Money comes into it. I understand that the Taoiseach pins himself to that, that money is not the impediment.

The Taoiseach

That is my belief. I said so.

Mr. McGilligan

I challenged that from those benches. I took very much the same view as the Taoiseach takes, that no credit-worthy scheme ever suffered because of lack of money. When I came to examine that later, I found I was begging the question. A credit-worthy scheme is a scheme that would pay 5 per cent. when started. You could not assume that it would pay 5 per cent. at the beginning and you had to get someone with money to give it momentum. I know of schemes which, I think, had a fair prospect of paying——

The Taoiseach

In these schemes, the State on behalf of the community had to take the necessary risk.

Mr. McGilligan

That is what I asked. I asked whether the central bank would do that. Let us keep to the separation of functions. If the central bank is meant only to provide industrialists, with short-term schemes, with certain capital, this thing you are setting up will do that job but, if you are to do anything else, I think on account of the limitations now revealed it is not going to do it. I asked was it going to form a national investment bureau.

The Taoiseach

It might afterwards.

Mr. McGilligan

I have not been told that by anyone. The Taoiseach cannot say if that is so. Let us consider two undertakings, the Industrial Credit Corporation and the Agricultural Corporation. They are both failures.

The Taoiseach

I was in Clare when there was great talk on the part of the Government of the day about the Agricultural Credit Corporation that had been started, and I pointed out that at the rates indicated it was not a great advantage. It gave certain advantages in respect of long-term loans.

Mr. McGilligan

In so far as playing a great part in modernising agricultural conditions, it has done very little.

The Taoiseach

Very little.

Mr. McGilligan

What is to replace it?

The Taoiseach

Let us not minimise what it has done.

Mr. McGilligan

Let it get the credit due to it. The Banking Commission reported very favourably on it. As far as the big question is concerned and marrying together labour, capital and organised interests, things have not moved very much. They appear to be at a standstill, and the trouble is that we must cast aside one when trying to find excuse for the other. It is not a question of money.

The Taoiseach

I agree.

Mr. McGilligan

If it is not money, I do not think there is any necessity for the central bank. What good will it do? Exchange is out of its purview, owing to circumstances. According to the Taoiseach, it cannot do anything with regard to the expansion or restriction of credit. What is it to do? Why not let the Currency Commission carry on in the peculiar circumstances in which we find ourselves? Again, I come back to the other point. I wish somebody would enlighten us on it or explain it to the House, so that we would get the benefit. What is the difference between our situation and that of New Zealand? New Zealand finds itself embarrassed because it is a debtor community and not like us, a creditor community. We are choked with money, yet we find ourselves, as far as results are concerned, in very nearly the same position. The only thing is that we hold on to our credits while they are overburdened with debt. We appear to be as much hampered as they are. I never thought that I would come to realise that there are other ways of choking a dog than choking him with butter. Apparently, we are choked with credit. It is all still a mystery.

The Taoiseach

No.

Mr. Norton

In his last speech, the Taoiseach said that the Government never made any extravagant claims in respect of the central bank, that they were very modest about the central bank and knew that it had very definite limitations. If one is to judge by the Taoiseach's speech he gave the impression—I think it is a correct one —very clearly that having regard to the terms of the Bill that we could pass it, and that things would go on just as they have been going on for the last 20 years. The Taoiseach told us that it was very difficult for a central bank to operate in present circumstances vis-a-vis the joint stock banks. When asked what was the position of the central bank in relation to interest charges, the Taoiseach said that in fact it had very little power to influence interest charges, because of the fact that private banks had so much sterling assets abroad, which could be translated into cash and lent at rates of interest determined by them, and that in the circumstances the central bank could not use financial power to coerce the private banks to regulate their rates of interest. We must not expect the central bank to do much in respect of regulating interest charges in any direct way, although the Taoiseach thought it might have some little influence in that direction. So long as we cannot repatriate our sterling assets, and quite clearly we are not going to do so for a considerable time, if, in fact, we can ever do so, this central bank will continue to be a puny instrument in our credit operations. We have no power whatever to direct control of interest rates or to exercise any appreciable influence on such rates. As the Taoiseach has now discovered, and in fact as was frankly admitted, interest can play a very important part in certain types of activity. I quoted on a previous occasion the part interest played on house rents, and I showed the Taoiseach very specifically that the apportioning of house rents was directly due to interest charges. As the Taoiseach appeared to be in some doubt about the important part interest charges played on house rents, I should like to direct attention even to the Housing Act of 1932.

Under that Act, if a local authority built a house for a person removed from a clearance area—really a slum area—then that local authority got a subvention of 60 per cent. of its interest charges in respect of the cost of the erection of the new house. The effect was to enable a local authority to let at about 3/9 a week a house which, in ordinary circumstances, would, probably, cost 7/- a week. If they had to borrow money at 6 per cent., they would have to charge a rent of, approximately, 7/-.

The Taoiseach

Has the rate changed from 2 per cent. to 6 per cent.?

Mr. Norton

The local authority had to go into the open market and borrow money at 6 per cent. or obtain money from the Local Loans Fund at 5¾ per cent. Who paid the interest charges in the case of these houses? The community. The State, it is true, guaranteed to subsidise the interest charges but, in the main, the rake-off fell to the banks. The State borrowed the money from the banks and lent it to the local authority. The State was compelled to pay to the banks interest at the rate of 5½ per cent. or 6 per cent. when, in fact, it was getting only 2 per cent., because of its giving the local authority a subsidy of 4 per cent. That fact, which can be verified by reference to the Local Government Department, should convince the Taoiseach that interest charges play an important part in activities in respect of which it is necessary to borrow money.

On this Bill, we have a declaration from the Taoiseach that the central bank, to be created by the measure, will have very little direct influence on interest charges—in fact, that it will not be able to exercise any influence on these charges so long as we have those sterling assets abroad which cannot be brought under the control of the central bank. So long as these sterling assets cannot be repatriated, these private banks will be in a position of relative independence and will be able virtually to frustrate the best desire of the central bank to make money available for State or municipal activities at a low rate of interest. That is the first point that emerges from this Bill and the admissions of the Taoiseach—that interest charges will continue as if we never had seen this Bill. There will be no important change except what may be effected by taking the directors of the new bank out to dinner or tea and chatting with them as to the direction you would like them to travel.

I come to the second point. We had declarations by Ministers, when in opposition, as to the necessity for an independent currency. The present Minister for Industry and Commerce made a number of speeches on that subject in which he told us of the agony Ireland was enduring by reason of her financial subjection to Britain, brought about by the integration of our currency with sterling. The Minister for Local Government indulged in similar homilies throughout the country and suggested that he had a republican road to financial freedom. What are we doing in this Bill? We are taking over the functions imposed by law on the Currency Commission. Section 47 of the Currency Act, 1927, provides for the subjugation of our currency to sterling——

An Ceann Comhairle

The Chair prevented the Taoiseach and another Deputy from discussing the question of parity, which had not previously been raised in this debate. On an amendment standing in the name of Deputy Norton on that specific issue it will be discussed. Wide latitude has been allowed in the debate to allow Deputies to discuss issues raised by the Taoiseach. The question of parity was not one of those issues.

Mr. Norton

I do not want to pursue that point. In your absence, a reference was made to parity, as, I think, the Taoiseach will admit.

The Taoiseach

Only a passing reference.

Mr. Norton

I do not want to pursue the matter at any length. Here we have a Central Bank Bill which is going to have very little influence on interest rates, because we have an abundance of sterling assets.

The Taoiseach

Normally an abundance of sterling assets should make for lower rates of interest. The argument put forward was not on that basis. Abundance of money ought to mean cheap money.

Mr. Norton

Yes, if the same person had the abundance of money. Surely the case the Taoiseach made was that the central bank would be hampered by reason of the fact that the other banks had sterling assets outside the control of the central bank.

The Taoiseach

That argument was advanced in a different connection. It was advanced in connection with the question of having effective control of the volume of credit, because these banks could expand credit. The Deputy has been arguing in favour of the expansion of credit, not the reverse.

Mr. Norton

Not through the medium of this Bill. I was arguing in favour of expansion to meet economic needs but not through the medium of this Bill, because it could not be done. We have here private banks with the creation of credit under their control. They can do what they like with credit and we are now creating a position in which the central bank cannot exercise any appreciable influence on interest rates. That is a most unusual position for a central bank, but it is not the only unusual feature in respect of our central bank. Under this Bill, the central bank is obliged to take over the legal functions of the Currency Commission. One of the functions, imposed by statute, is the obligation to maintain parity with sterling. I should like to ask the Taoiseach if he knows of any other central bank in the world which is required by law to maintain a prescribed rate of exchange. That is not contained in the constitution of any other central bank, as far as I know.

The Taoiseach

The whole aim is to facilitate trade. Fluctuations of exchange would hamper international trade.

Mr. Norton

Whatever case there may be for maintaining a ratio as between one exchange and another, is there any case for placing on the central bank an obligation to maintain a fixed rate of exchange which can be altered only by amendment of the law; that amendment being effected by the passing of a measure through the two Houses of Parliament?

The Taoiseach

The Deputy was quick to see the difference in the case of the United States, but he would not see the difference in the case of New Zealand. We have peculiar circumstances which have to be taken into account.

Mr. Norton

Governments arrange these rates of exchange. The arrangement of them is not left to the central bank except as the agent of the Government.

The Taoiseach

That is so.

Mr. Norton

We have, under this Bill, directors of a central bank not responsible to the Government, and we are imposing on these directors the responsibility of maintaining a rate of exchange which may be ruinous for this country. The Taoiseach will admit that the central bank proposed, which is supposed to be best suited to this country, is one in respect of which there is a statutory obligation to maintain the link with sterling.

The Taoiseach

That is determined by Parliament itself. It determines the rate of exchange as parity. It is the State which is doing that and taking the power away from the central bank. The Deputy has been arguing that it should be left with the Government or with the State and that the central bank should not have the power. The State can do it at any time, but we are deliberately preventing the central bank from having the power, because it is usually exercised by States and Governments.

Mr. Norton

That is the most ingenious argument I ever heard the Taoiseach advance. In other words, he is keeping the central bank, from what? —from altering the rates of exchange.

The Taoiseach

From doing a thing which the Deputy has said is not done by central banks. He said that the exchange rates, and so on, are determined, not by the central bank, but by Governments.

Mr. Norton

Let us take it even on that basis. Is there any other Government in the world that enacts a Bill of this kind and definitely fixes in an enactment of this kind an anchorage to any other currency? Is it not done by administrative decree by that Government?

The Taoiseach

If we, in our circumstances, think it advisable—we will be arguing that at a later stage—that it should be done that way, why should we not do it?

Mr. Norton

I do not know whether the Taoiseach expressed himself on this question of exchange rates in other days——

The Taoiseach

I may have.

Mr. Norton

——but before the Minister for Industry and Commerce and the Minister for Local Government were let out to take Collooney by storm they ought to have been told all the advantages of a fixed rate of exchange, because the speeches of these Ministers then clearly indicated that that was the thing that was producing mass emigration, unemployment and that type of destitution which they had a special privilege to remedy.

The Taoiseach

It is possible the Deputy will make changes in his opinions if he gets further, closer-up, information about things. It is quite possible, assuming the Deputy has a mind to change.

Mr. Norton

Some of the Ministers never suffered from that impediment.

Mr. Cosgrave

The country is paying for their change.

Mr. Norton

We have got a proposed central bank now, with no influence of any importance over rates of interest, tied statutorily to sterling, and with a board which consists of a governor, three banking directors and five persons who may be non-banking directors, and there is no provision whatever in this Bill for compelling the board of this central bank to render responsibility to the Government for its actions. That board will have no responsibility to this Parliament or through this Parliament to the people. We have, therefore, a most unique central bank, with no influence over interest rates, a link with another exchange by statute, on a fixed basis, privately operated and privately controlled, having no responsibility to the Government, to Parliament or to the people. Is it any wonder that the Taoiseach said they made very modest claims in respect of this particular Bill? There is no reason why they should make anything but the most modest claim. In fact, there ought to be an apology for this Bill, judging by the declarations made by members of the present Government Party when they were in opposition. Our belief is that the only effective way in which you can deal with a situation in which private banks have a large volume of assets without responsibility to a national monetary authority is the very direct method of State control of credit. The nation is the security for credit and should control it. There is no reason in the world, nor did the Taoiseach discover one in the course of his objection to our point of view, why that should not be done.

The Taoiseach

I think I did. A civil servant would have to determine whether a loan should be granted. It is to a civil servant that a farmer or any private individual would have to go. That is what it would mean. When you consider the situation that would be created in regard to that matter you very quickly find the objections to it.

Mr. Norton

I cannot see the objections in that connection.

The Taoiseach

The Deputy can put on his blinkers, if he likes.

Mr. Norton

Let us pursue that aspect of the matter, if the Taoiseach thinks that is the only impediment.

The Taoiseach

I did not say that.

Mr. Norton

That is the only one the Taoiseach now thinks of.

The Taoiseach

No; I did not want to go into that. I left it aside for a future occasion.

Mr. Norton

In any case, that is the only one the Taoiseach gave in the course of his speech. I do not imagine the farmers of this country are so delicately skinned or so delicately minded that they would have any great objection to going to a civil servant and asking him for money. They pay their land annuities to civil servants, do they not?

The Taoiseach

That is a very different thing.

Mr. Norton

They interview various civil servants in the course of their careers. The Taoiseach prosecutes them through civil servants when they do not pay their land annuities. It seems to me the test is not the type of person you go to for a loan; the test is the basis upon which the loan is made available.

The Taoiseach

Exactly.

Mr. Norton

The type of person to whom he must apply seems to be a matter of very little importance to the farmer if he can get the money——

The Taoiseach

If he can get it— that is the point.

Mr. Norton

——if by going to a person described as a civil servant he can get money at a lower rate of interest than the rate at which he would get it by going to a bank manager. If that is the only objection that could be put up against nationalisation of banking——

The Taoiseach

Are you going to put on a civil servant the responsibility and give him the freedom of action that a bank manager has in regard to either granting the loan or not granting it and in determining whether it is or is not a loan that should be given? Under what conditions could a civil servant carry that obligation?

Mr. Norton

Surely that is a matter of routine in the administration of banking rather than a vital principle——

The Taoiseach

It is a practical one.

Mr. Norton

——upon which to base a change in banking policy. The Department of Supplies at the moment regulates almost everything a person does, from the time he gets up in the morning until the time he goes to bed.

The Taoiseach

Does the Deputy want to continue that all the time?

Mr. Norton

It is your baby now. You started this regulation and nobody else is going to carry it for you.

The Taoiseach

It is the unfortunate war situation, which we hope will ultimately clear up.

Mr. Lemass

Let the Deputy deal with the situation where the farmer is refused the loan.

Mr. Norton

Deputy McGilligan was on the same point. I do not want to travel over the same ground. There was a question to-day by Deputy O'Loghlen, in which he asked why a number of local authorities in Clare were suppressed, and the Minister for Local Government told us that the reason they were suppressed was because they would not pay their rates, they would not levy themselves for carrying out A.R.P. schemes, they would not put up mental hospitals because it would cost money and, generally speaking, they displayed an attitude towards these activities which, in the opinion of the Minister for Local Government, warranted their suppression. I do not imagine that the farmers or the ratepayers in Clare are any different from the ratepayers anywhere else. If I were to suggest that they were, the Taoiseach would probably say I was wrong. I imagine these people would have paid their rates promptly if they could pay them. I imagine they would have imposed reasonable taxation on themselves for municipal activities if the money was there to do it, but, as Deputy McGilligan asked, suppose, for instance, you wanted to carry out some kind of modernised methods of agriculture in Clare so as to enrich Clare by additional wealth-creating activities, and you had to make application to a bank for the necessary money, the ordinary Clare farmer would go into a bank and would tell the bank manager how he stood financially.

He would probably have a very short interview which would culminate in the bank manager saying: "No; nothing doing." You could not possibly finance a modernised scheme of agricultural economy in Clare without a State guarantee for individual farmers who want to borrow money. There are no means by which any of these farmers can get that money from private banks and there is, indeed, no likelihood that they are going to get it from the central bank. There is every probability, on the other hand, that if the State wished to regenerate Clare agriculturally, the best way by which Clare could be put in a position to pay rates would be by providing State loans to farmers for the purpose of promoting agricultural activity. A policy of that kind could be developed through a nationalised bank.

The Taoiseach

You could do it at present if there were a plan by which the State could get a return for the money.

Mr. Hickey

It will cost money.

The Taoiseach

You cannot avoid that.

Mr. Norton

You cannot do that under present conditions unless you get funds from the bank at the bank's rate of interest for a long-term loan. The Taoiseach knows what he would pay for that. It is because you have to pay that amount of interest that that kind of work, vital to the nation, would involve an additional effort to produce wealth to pay interest which the banks, who themselves live on that kind of interest, would undoubtedly charge for a loan of that kind. State activity in banking is not a new activity. The State here runs the Post Office Savings Bank, and I think a number of people go to the Post Office Savings Bank to deposit their money, feeling satisfied that they are not reckless or irresponsible in depositing money with the State bank.

The Taoiseach

It is a loan by the nationalised bank I have in mind, a loan to private individuals by the nationalised bank.

Mr. Norton

I do not believe that all the acumen in the country resides within the walls of a bank. I think it should be possible for the State to apply to applications for loans by farmers and others the same kind of tests and the same kind of checks that private banks now find it necessary to apply, with perhaps a rigidity that is quite unjustified.

Mr. O Ceallaigh

Suppose you had that State bank and that it was responsible to the Oireachtas in the way that the Deputy, I think, has in mind. Can the Deputy imagine a farmer in the country going to the local manager of the State bank, telling his circumstances to him and getting his loan, and then somebody getting up here asking questions as to how much he got, why he got it, how much he paid for it and castigating the Minister responsible for allowing that person to get a loan? Can you imagine the farmers of Ireland submitting to that kind of thing?

Mr. Norton

If that is the only difficulty——

Mr. O Ceallaigh

It is one.

Mr. Norton

Let us see how we could deal with that. Did the Minister for Finance ever hear questions addressed to the Minister for Industry and Commerce with reference to the affairs of the Sugar Company?

Mr. O Ceallaigh

I did of course; that is what I had in mind.

Mr. Norton

Did you ever hear the Minister refusing to give any information?

Mr. O Ceallaigh

Yes.

Mr. Norton

Would it not be possible to have in the constitution of the nationalised banking system, or written into the Standing Orders, a simple provision that the affairs of the bank in so far as they relate to customers' transactions are not discussable in the Dáil?

Mr. O Ceallaigh

How often has the Deputy and his Party protested against answers of that kind being given in this House when information of this kind was sought about the rates of interest of the Industrial Credit Company?

Mr. Norton

Of course.

Mr. O Ceallaigh

And there were similar questions about the Sugar Company and a variety of others.

Mr. Norton

The Minister is perfectly aware that it is one thing to ask the price at which the Sugar Company imports sugar and the price it charges for sugar and, generally, what are the profits made—to ask this out of season when there is no balance sheet available. It is an entirely different matter to ask when did John Murphy make an application for a loan.

Mr. O Ceallaigh

I have been asked questions of that kind about the Industrial Credit Company and there were protests made about the answer.

The Taoiseach

As to why Jack So-and-So was given a loan and Jim So-and-So was not.

Mr. Norton

I do not know anybody who asked a question of that kind.

Mr. O Ceallaigh

The Deputy can find that out from his colleagues or even from those on the opposite side of the House. Possibly, we would ask similar questions if we were in opposition.

Mr. Norton

Surely the Minister admits that that is a trivial issue which can be quite easily dealt with by a simple provision, either in the constitution of the nationalised bank or in the Standing Orders of the House?

Mr. O Ceallaigh

If you have control here, no matter what provision is made, that kind of demand will always be made.

Mr. Norton

If that is the only difficulty the Minister sees in the way of a nationalised banking system, I suggest that it is not a serious contribution to the case against nationalised banking.

The Taoiseach

It is a very serious matter. The whole administration of the system is involved.

Mr. Norton

Take the Swedish Central Bank. Under the Swedish central banking system, the entire capital is owned by the State, the control is exercised by the State and, in fact, effective control is regulated by a committee of Parliament. Yet Sweden manages to get on very well.

The Taoiseach

That is not the case which the Deputy is making at all. That is a case for having a central bank. The Deputy's case is for a nationalised bank, where every branch of the bank is a Government office.

Mr. Norton

Does the Taoiseach suggest that the possibility of a Deputy asking the Minister for Finance why John Murphy did or did not get a loan is a very substantial impediment to the creation of a nationalised bank?

The Taoiseach

That is one of the most serious aspects of it, that a civil servant would be called upon to discriminate between applicants. He would have to exercise his judgment in giving a loan to one person and refusing it to another.

Mr. Norton

That happens every day in the week in connection with the distribution of land throughout the country. A whole lot of people are looking for land, and some get it while others do not.

The Taoiseach

Yes, and multiply that a thousandfold.

Mr. Norton

That happens, undoubtedly. There is a certain amount of land available and there is a large number of people looking for land, but the Land Commission does not abandon its activities because it has to deny land to some people; it carries on. We, however, are not dealing with that situation here, because if a person makes an application for a loan, and if he is considered to possess qualifications entitling him to get a loan, he would get it from the State bank just as an applicant for an old age pension would get it from the State if he were adjudged to be entitled to it.

Mr. Hickey

And let us not forget that there is a very nice means test there.

The Taoiseach

Yes, and we know the difficulties that are involved there.

Mr. Hickey

But it is done.

The Taoiseach

You can multiply this by every individual in the community.

Mr. Norton

To come to the final point in connection with this central bank: it is a unique central bank; it has no power over interest charges; it is privately controlled; it is not responsible to Parliament; it is permanently linked on a parity basis with sterling. The Taoiseach may feel sure that if we pass this Bill he will not have infringed the copyright of any other country in the world. He will have a Bill of his own, and he can take out patent rights on it, if he likes. The thing that is really clear, however, is that if we pass this Bill, or a dozen Bills like it, the conditions that exist in this country at present will continue to exist; we will still continue to export tens of thousands of our people; we will still have our farmers struggling along; we will still have agriculture and other industries undeveloped; we will still have public amenities short of what they ought to be; we will still have a low standard of living —all the evils that now exist will continue, and those that have come into existence as a result of a world shocked by war will continue when the war is over.

The Minister for Agriculture, who frequently tells us that agriculture is our main industry, went down to Cork recently and sang a requiem over the agricultural industry, and the reason he gave was that, after the war, unless we are able to compete with every other country on terms favourable to us, we may face the complete extinction of the agricultural industry as we have known it in the past. Very few people would have any hope that our industrial activity after the war would be able to carry on without serious loss to agriculturists if even 10 per cent. of what the Minister for Agriculture said in Cork is likely to happen in respect of agriculture. These problems, however, will still be with us after the war. The stark realities of the present position will be with us after the war, and this Bill, certainly, will make no contribution towards meeting that situation. I wonder why, with so many other problems to deal with, such as emigration, unemployment, under-employment, the scarcity of commodities in every direction, and so on, the House should be wasting its time with a Bill of this kind, because, if this Bill is passed, it will certainly make no real contribution towards remedying any of our present economic difficulties.

Mr. Hughes

I had no intention whatever of intervening in this debate, and I intervene now merely to ask the Taoiseach a question, because this whole question of credit and credit facilities and the circulation of money is of such vital importance to the economic life of this country that I think it is a matter upon which every Deputy in this House ought to try, if possible, to glean any knowledge that he can. Having listened, however, with interest, to the debate now for three days, I think that confusion is becoming more confounded. I have no hesitation in saying that, undoubtedly, there is a lot of confused thinking on this matter. One thing that I am satisfied about, at all events, is that while a great many Deputies are concerned with credit and credit facilities, it has only been mentioned by a very few Deputies that the whole structure of banking and credit facilities in this country is based on the depositors' money in the banks. I think Deputy Cosgrave has pointed out that the average deposit in the banks here is somewhere in the neighbourhood of £250, and when we consider that some of the deposits are as much as £10,000 we realise the number of depositors who have a very small deposit in the banks. When I begin to think of the small amounts of money held by many of our people, and representing the sweat and toil of many of our hardworking farmers who have been saving for the purpose of doing the best they can for their families and for those who come after them, I am chiefly concerned with maintaining the stability and solidarity of the banking institutions of this country.

I think the Taoiseach is right—and I must say that this is the first time that I have admired him—in being inclined to be conservative in this respect. I think it is a matter upon which we ought to be very cautious. We have had examples from other countries of what has happened where they had bank crashes, where there was a feeling of insecurity and instability created, and where you had a run on the banks, creating bank crashes. Now, we do not want that situation to occur here, and I feel that there is a danger, if there is undue interference with the present operations of banking institutions, that that might occur.

We have listened to Deputy Dillon and other Deputies speaking about the unlimited amount of credit that can be created and multiplied by the banks. Of course, the obvious answer to that is that if that were so, why have not the banks availed of it and why is it not reflected in the profits of the banks? Obviously, there is something wrong about it. I do not know sufficient about the matter to give the reasons for it, but I feel that the acid test of the alleged extraordinary power of creating money, that we are told the banks have, is to ask why it has not been availed of by the banks to that extent, and why banking institutions here should not be extraordinarily wealthy and able to pay far greater dividends to their shareholders than they are paying at the present time, whereas it has been pointed out that the tendency in recent years is that the profits the banks have been making are being reduced year by year.

I have become rather uneasy about the whole trend of this debate because I feel that we have listened to a great amount of nonsense. We are living in dangerous and critical times, and when I look around and see the many other farmer Deputies in this House I cannot help feeling that in this time of emergency we might be better occupied in minding our farms and producing food for the people of this country than listening to a lot of tosh such as we have heard during this debate. We all appreciate the necessity for making credit available for industry and, particularly, for the agricultural industry and the modernising of agricultural methods in this country. I feel as strongly as any Deputy in this House on that matter, but I do not think the banks can be blamed in that connection. I hold that that is the full responsibility of the Government, and I feel that where any schemes are initiated by the Government there will be ample capital available if the schemes are productive. Obviously, we cannot invest money in anything that is nonproductive. The enterprise concerned must be productive. The capital must come from somewhere. Someone must provide the money, that money must be repaid, and it can only be repaid by a scheme that is productive and that is going to be profitable.

Now, in that regard, there is one question that we are entitled to ask, and that is why credit is not available at a lower rate than it is at present? Many of us have advocated the provision of credit for agriculture. I agree with the Taoiseach, too, that on the question of the provision of credit for agriculture you must exercise a due amount of caution because, if you make a considerable amount of credit available there will be a tendency towards inflation. Supposing, for instance, that you made available to the agricultural community £10,000,000 in any particular year for the purpose, let us say, of re-stocking land, we would immediately be creating a potential purchasing power of £10,000,000 that did not exist at all, with the result that there would be more competition for the animals offered for sale and an appreciation in the prices. Possibly when the animals came to be sold a year or two years later they might not show any margin of profit, or at least a sufficient margin of profit to cover the cost of the capital outlay, and then the trouble would start. These are all problems that must be considered in the provision of credit for the agricultural industry, or indeed, for anything else.

Deputy Norton and, I think, other Deputies have referred to the fact that our banking institutions have something in the neighbourhood of £25,000,000 invested in short-term loans in Great Britain, some of it at 2½ per cent. and quite a good deal of it at 1½ per cent. The question has been asked why is it that our banks are prepared to invest money at 1? per cent. in Great Britain, and are not prepared to make money available at the same rate here. What I want to ask is, can the banks help that or control it in any way? I believe they cannot. What is actually occurring at the present time is that we are exporting to Great Britain, in the form of agricultural produce, live-stock and live-stock products to a far greater extent than we are importing manufactured goods. We have been told that we cannot repatriate our sterling assets. In the same way, we cannot bring in any money for the commodities we are selling at the present time to the British. A farmer, say, exports £500 worth of cattle. He gets a cheque drawn, let us say, on the Manchester Bank. It is cashed here by the Bank of Ireland, the latter paying the farmer with our pound notes. When the bank pays, it creates a credit that accrues to the bank at the other side, and these credits have to be invested in something at the other side. Obviously, they are invested at 1? per cent. The banks have no choice in the matter. It is the particular type of trade that the banks are handling that brings about that situation.

It is ridiculous to criticise the banks of this country merely because they are forced to invest our credit assets, which are accumulating at the present time, at these rates of interest. They have to do that because we cannot afford to import goods and because the British have gone off the gold standard. The only way that situation could be corrected would be by bringing in gold bullion, but since there is no gold the only way left of repatriating these credit assets is by importing goods. But the goods, as we all know, are not available, and hence we cannot bring them in. Some of the live stock that we are sending out at the present time are paying for our imports, but the position is that quite an amount of these credit assets must be invested at the other side in the only loans available. Coupled with that fact, there must be some investments that are falling in which cannot be repatriated at all. These must be converted into short-term loans. That is why you have such huge investments by the joint stock banks of this country in British loans. I feel that the banks have no control whatever over that, and that they are forced to invest that money in the loans that are offering at the other side. I am asking this question because I think it is important that we should understand it. The exercise of this credit control is not as simple a matter as many Deputies appear to think.

There is one point that I would like the Taoiseach to clear up. He referred to the incomes of the banks and the variety of rates they charge. Some of the lower rates might not be a paying proposition, so that some of the higher rates—at 6 per cent., say—are made to balance out. If that is so, and if the banks are compelled to invest some of our money at the low rate of 1? per cent., what I am anxious to know is: will that mean eventually that some of the moneys loaned to people in this country will have to bear the higher rate of interest because of the fact that the banks can only collect certain sums on the lower issues? In my opinion, the man in this country who has had to face enormous economic difficulties —the farmer—is entitled to first consideration. He had to endure more than his share in the economic war and has had to weather many storms and difficulties. He has paid his way all along and may have some savings, no matter how small, to his credit. These represent his life savings and I suggest these ought to be secured to him. That can only be done by ensuring the stability of our banking institutions and seeing that it is not impaired in any way.

General Mulcahy

I do not want the suggestion I made this evening with regard to rates to go out in the morning with the sweepings from the corner in which the Minister for Finance threw it. Yesterday, he was anxious to get suggestions, but neither he nor the Taoiseach has dealt with this question of rates in a satisfactory way. They have asked for suggestions. At the outset, I wish to brush off a little of the dust that the Minister for Finance threw on my suggestion before he sweeps it out in the morning, so that it will be clear to members of the House. I do not intend to let the idea drop without seeing that it is thoroughly understood and investigated.

My suggestion is that the rate of 1 per cent. on deposits should be reduced to ½ per cent., and that it should be possible to arrange with the banks for a substantial loan on the figure of £24,000,000. There is reason to believe that that amount of money is available and could be transferred from Great Britain and used as backing for a loan to the Government here. Take, first of all, the question of the 1 per cent. There is a certain ratio between the amount of liquid assets held by the banking system against deposits. In Britain, the ratio of liquid assets to deposits was about 30 per cent. in 1937, in 1938 it was about 32 per cent. and in 1939, 31.8 per cent. It slightly increased after that. In October, 1940, it was 40 per cent. The reason for the rate, in my opinion, is that in Great Britain some things are being counted as liquid assets that, in fact, are not. According to the British financial statement published for 1942-43 the sum of £2,720,000,000 was raised by the creation of debt up to the end of March of the previous financial year. There is a total of £408,000,000 in Treasury bills, £22,000,000 in Ways and Means advances and £67,000,000. Treasury deposits by the banks, making a total of £497,000,000, drawing about 1? per cent. and that is regarded as liquid. But in fact the position is that when these come to be renewed they are very often added to. I stressed the point already that a substantial portion of these are likely to be turned into a consolidated loan. However, there is a ratio of something like 32 or 33 per cent. between the liquid assets held under the banking systems in Great Britain and the amount of the deposits.

When we look at the deposits here and find that the current, deposit, and other accounts held within the State amount to £139,000,000, and when we are told that four-fifths of that amount represents cash held on deposit upon which 1 per cent. has to be paid, it impresses me with this fact: that the ratio of liquid assets in relation to our deposits here must be substantially greater than 32 per cent. The greater the amount that has to be held in liquid form, the less money is earned by the banks on that, and it is a costly business in our financial system to have such a large amount of money held on deposit in the banks upon which the banks have to pay 1 per cent. Now the Taoiseach suggested that if you reduce the 1 per cent. on that you are doing some people out of money and the Minister for Finance indicated that it is the poor people who are likely to be hit. He suggested that something like £500 or £550, or some small sum like that, represented the average application for one of his recent loans. I do not know what is the average of the deposits in the banks. At any rate, by transferring these to the Post Office they could get 2½ per cent.

The Taoiseach

I wonder why they do not do it.

General Mulcahy

I wonder why they do not.

Mr. O Ceallaigh

Of course, they are limited as to the amount they can put in.

General Mulcahy

Five hundred pounds. If the suggestion is that these poor people who have small amounts of money want to keep them liquid and therefore have put them into banks—if we are dealing with small amounts—then they would be as liquid in the Post Office Savings Bank as in the banks.

Mr. O Ceallaigh

Not quite. They have to give three days' notice of withdrawal.

General Mulcahy

Yes. It is a queer situation that people who have £300 or £400 will be squeezed in regard to credit for the sake of three days.

Mr. O Ceallaigh

They cannot write a cheque.

General Mulcahy

It is an awful business if so many people are so close to the quick-moving circumstances of their lives that we have £111,000,000 on deposit in Irish banks because these people cannot wait three days to withdraw their money.

Mr. O Ceallaigh

These are the facts. Deal with the facts.

General Mulcahy

The only fact I know is that the deposits are there and that the banks have to pay 1 per cent. on them. I cannot conceive of its being anything but a clog on our whole financial machine that so much money is tied up in that particular way and kept liquid in that way. I cannot but believe that it is the substantial foundation upon which the high rates of interest in this country are raised. Therefore, I think there is one thing that has to be done, and that is that we shall have to get after the question of the 1 per cent. on the deposits. The next thing is, and I think the Taoiseach appreciates it sufficiently not to have to labour it, that I took the £24,000,000 because the £24,000,000 is a figure which can be easily handled.

In order to consider the effect of things you have to take a large amount and it was a handy amount to take. I should like to ask the Minister for Finance what kind of a hole the borrowing of last year, plus the borrowing of this year, will make in the £24,000,000. It is going to make a fairly big hole. The suggestion I make, if we have to face two or three years of an emergency, is that through the banking machinery the Government should get, at a very low rate of interest, the amount of money they want by way of loan, and that they should not go to the ordinary people except these people were prepared to give the money at the same rate here.

I gave figures as to what the various reactions on the banks would be from the point of view of their net income as a result of the transaction. I do not know whether the figures I have given would pay the banks for the handling of the particular type of loan. That is a question for investigation. It would be a very poor thing that would not pay them as well as they are being paid under the present situation, where they have such substantial amounts on deposit upon which they are paying 1 per cent., where they have placed such substantial amounts on loan in Great Britain, as well as having such a substantial amount as, say, £20,000,000 lying in cash in the banks and £14,000,000 at call and short notice. The question of the effect on the liquidity of the situation here of giving, say, a loan of £24,000,000 to the Government for a particular period is another thing which could be considered. But, if four-fifths of the money in current and deposit accounts is on deposit and there is, therefore, a substantial pinning of a large amount of our assets in a liquid state, then I think that there is a considerable margin there for the banks to tie up a larger amount of money in Irish securities than is tied up at present.

Again, I do not think we can get any distance towards any improvement of the financial situation here, or deal properly with our economic situation until we definitely tackle the position with regard to the bank rates and deal with it. I do not think that the Minister for Finance can afford to sweep that idea so easily aside.

Mr. Corry

I am only interested in this question from the point of view of credit for the agricultural community. I could not agree with the statement made that the banks could not help in that matter. The attitude of the Irish banks during the last 20 years has been definitely anti-agricultural. Any person who is not a farmer and who puts up any kind of hare-brained scheme could get all the money he wanted for it. But, if a farmer wants a loan, he has to bring in the deeds of his farm to the bank and also bring in two securities who have deposits in the bank to the amount of the loan and who will not be allowed to withdraw those deposits until the loan is paid off. That is the actual situation with regard to the banks. It is not true to say that the whole of the £490,000,000 mentioned by Deputy Mulcahy had been invested abroad since the war started; most of it was invested there before the start of the war. I want to know whether this new central bank will adopt a different attitude from that adopted by the Irish banks up to the present. That is the main thing that troubles me. I know that at the moment a farmer who wants a loan has to bring in the deeds of his farm, and also has to bring in two securities.

Those two securities must be people who have money lodged in the bank in excess of the amount which the farmer wants. That is the basis on which they deal with the ordinary agricultural community. Let us take the other side of the picture. I know one industry started in my own constituency into which the bank put £250,000, and to-day they would not get 250,000 pence for it. There is some security in the land after all. If there is, roughly, £129,000,000 invested in the Irish banks here at home, I think it would be a very good time to see some of that money devoted to schemes of employment, so that our young men could be kept at home. We are sending food out of the country for money which we cannot get back. We are creating credits abroad, and God alone knows whether or not they will be credits in 12 months' time. We are sending credits abroad, and at the same time our young men are going across to try to get some money to feed their families here. I do not think that condition of affairs should exist in a Christian State. My only interest in this new bank is in regard to what its attitude will be towards the agricultural community in the first place, and towards their investments abroad in the second place. Are the investments to be abroad, and are the credits to be abroad?

Mr. Hickey

The Minister tells us that the money will not be any cheaper.

Mr. Corry

As far as the money is concerned, it is very strange to hear about all the money that the farmers invested in Irish banks, and on the other hand the small amount that the Irish banks invested in farming. The agricultural community are able to borrow very little from the very same banks. Where have the banks invested the money which the farmers lodged with them? Is that gone over after the rest? Is it invested over in Britain or somewhere else? Unfortunately, the attitude of the banks in this country up to the present has been anti-agricultural. We are primarily an agricultural country, and, while I am prepared to admit that the banks, largely through their own fault, got their fingers burnt from 1917 to 1921, that is no excuse for their attitude towards Irish farming during the past 20 years. We hear a lot about the necessity for modernising farming and all the rest of it. Nobody can see ahead and determine what branch of farming he will turn to when this war is over, what he will produce, what he will do with his produce, or who is going to buy it. There is no good in planning ahead for agriculture unless we can plan ahead towards feeding our own people. I think it is a bad system that our Irish banks should have £490,000,000 invested abroad, and that we should continue to pile up credit every day in the shape of the food that we are sending over, while at the same time we cannot afford to give employment here to our own people or to feed our poor properly. I think the time of the Dáil would be far better occupied in looking at that aspect of the matter, instead of trying to decide which of the Shylocks will profit during the next term.

Question put: "That the letter and brackets (b) in line 39 stand part of the section."

The Committee divided: Tá, 61; Níl, 9.

Tá

• Aiken, Frank.
• Allen, Denis.
• Bartley, Gerald.
• Beegan, Patrick.
• Bennett, George C.
• Benson, Ernest E.
• Boland, Gerald.
• Brady, Brian.
• Brady, Seán.
• Childers, Erskine H.
• Cooney, Eamonn.
• Corry, Martin J.
• Cosgrave, William T.
• Costello, John A.
• Crowley, Tadhg.
• Derrig, Thomas.
• De Valera, Eamon.
• Dockrell, Henry M.
• Esmonde, John L.
• Flynn, John.
• Fogarty, Andrew.
• Friel, John.
• Gorry, Patrick J.
• Harris, Thomas.
• Hogan, Daniel.
• Hughes, James.
• Humphreys, Francis.
• Keane, John J.
• Kelly, James P.
• Kennedy, Michael J.
• Killilea, Mark.
• Kissane, Eamon.
• Lemass, Seán F.
• Little, Patrick J.
• Loughman, Francis.
• Lynch, James B.
• McDevitt, Henry A.
• McFadden, Michael Og.
• McGilligan, Patrick.
• McGovern, Patrick.
• McMenamin, Daniel.
• Meaney, Cornelius.
• Moylan, Seán.
• Mulcahy, Richard.
• O Briain, Donnchadh.
• O Ceallaigh, Seán T.
• O'Grady, Seán.
• O'Higgins, Thomas F.
• O'Loghlen, Peter J.
• O'Reilly, Matthew.
• O'Rourke, Daniel.
• Redmond, Bridget M.
• Rice, Brigid M.
• Rogers, Patrick J.
• Ryan, Martin.
• Sheridan, Michael.
• Smith, Patrick.
• Victory, James.
• Walsh, Laurence J.
• Walsh, Richard.
• Ward, Conn.

Níl

• Byrne, Alfred (Junior).
• Cogan, Patrick.
• Corish, Richard.
• Hickey, James.
• Hurley, Jeremiah.
• Keating, John.
• Keyes, Michael.
• Norton, William.
• Pattison, James P.

Tellers: Tá: Deputies Smith and S. Brady; Níl: Deputies Hickey and Hurley.

Question declared carried.

An Leas-Cheann Comhairle

I will now put the question on amendment No. 3, standing in the name of Deputy Cosgrave. The amendment reads:—

In sub-section (3) (b), line 39, to delete the word "three" and substitute therefore the word "two".

Question put: "That the word proposed to be deleted, stand."

The Committee divided: Tá, 47; Níl, 17.

Tá

• Aiken, Frank.
• Allen, Denis.
• Bartley, Gerald.
• Beegan, Patrick.
• Boland, Gerald.
• Brady, Brian.
• Brady, Seán.
• Childers, Erskine H.
• Cooney, Eamonn.
• Corry, Martin J.
• Crowley, Tadhg.
• Derrig, Thomas.
• De Valera, Eamon.
• Flynn, John.
• Fogarty, Andrew.
• Maguire, Ben.
• Meaney, Cornelius.
• Moylan, Seán.
• O Briain, Donnchadh.
• O Ceallaigh, Seán T.
• O'Grady, Seán.
• O'Loghlen, Peter J.
• O'Reilly, Matthew.
• O'Rourke, Daniel.
• Friel, John.
• Gorry, Patrick J.
• Harris, Thomas.
• Hogan, Daniel.
• Humphreys, Francis.
• Keane, John J.
• Kelly, James P.
• Kennedy, Michael J.
• Killilea, Mark.
• Kissane, Eamon.
• Lemass, Seán F.
• Little, Patrick J.
• Loughman, Francis.
• Lynch, James B.
• McDevitt, Henry A.
• Rice, Brigid M.
• Ryan, Martin.
• Sheridan, Michael.
• Smith, Patrick.
• Victory, James.
• Walsh, Laurence J.
• Walsh, Richard.
• Ward, Conn.

Níl

• Bennett, George C.
• Benson, Ernest E.
• Byrne, Alfred (Junior).
• Cosgrave, William T.
• Costello, John A.
• Dockrell, Henry M.
• Esmonde, John L.
• Hughes, James.
• Keating, John.
• McFadden, Michael Og.
• McGilligan, Patrick.
• McGovern, Patrick.
• McMenamin, Daniel.
• Mulcahy, Richard.
• Redmond, Bridget M.
• O'Higgins, Thomas F.
• Rogers, Patrick J.

Tellers:— Tá: Deputies Smith and Brady; Níl: Deputies Bennett and Hughes.

Question declared carried.

General Mulcahy

Does the Minister intend to take this Bill again on Tuesday?

Mr. O Ceallaigh

I cannot say, but probably not. I will be very busy on Wednesday.

Mr. Norton

That means it will not be taken next week at all. Wednesday is Budget day.

Progress reported, the Committee to sit again.