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."
"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."