In any case, I want to call in evidence facts which appear to me incontrovertible to prove the thesis which I invite Dáil Eireann to adopt. When the Taoiseach was commenting on my statement, he quoted me twice at column 1278, and, at column 1281, and having got himself into the most extraordinary tangle, he said:
"If I were to continue the argument along that line, Deputy Dillon can come along and run it up to £1,000,000, and there is no reason why you should not continue with it and run it up to £10,000,000 or even £100,000,000. In fact, you can go by the Deputy's process, and increase it indefinitely, and by a statement of that very sort he reduces the thing to an absolute absurdity."
Let me read for the Taoiseach in his absence what Mr. Hyde, General Manager of the Midland Bank in England, said in describing exactly the procedure which I described to this House. On the 7th day of the inquiry, 9th January, 1930, as reported in volumes 1-2 of the evidence before the Committee on Finance and Industry, at question 900, Mr. Hyde, General Manager of the Midland Bank, is reported as follows:
"Let me explain what I mean. At certain seasons of the year money comes out from the Bank of England by reason of the Government borrowings, or possible by the Bank of England entering into certain transactions which put more money into the market."
I have quoted Deputy Hickey as the source of the additional money; Mr. Hyde mentions the Bank of England. He goes on to say:
"That money, when it comes into the market, increases our cash. We, in common with the other banks, get our share of whatever money comes into the market. When we lend that money,"
—this is the bank in which Deputy Hickey deposited his money, lending to Deputy Davin, as I described—
"or when we employ it in buying bills, or investments, or whatever else we do, the money is still in the market, that is we lend it to A and A pays it to B"
—that is Deputy Davin borrowing it and paying it to Deputy Corish in discharge of his debt—
"and B pays it back to us again; so we have increased our advances but we have also increased our deposits, and if that additional abundance of money remains in the market as a base for a little time the deposits of the joint stock banks in the aggregate will increase to about nine or ten times the amount of the additional money that is at their disposal as their cash base."
Is that what I said in this House three weeks ago, when it was described by the Taoiseach as fantastic and absurd? At question 906, the members of the commission pressed Mr. Hyde further to elaborate this section of his evidence. A member of the commission asked:
"The operations of the Bank of England as the central bank responsible, of course, for the ultimate supply of credit affect you as the distributor of credit?"
Mr. Hyde replied:
"It affects our base, and, as we are always striving to keep 11 per cent. of cash against deposits, if you increase the total of cash by £1,000,000, we should go on lending or buying bills until we have increased the deposits by £9,000,000 and the £1,000,000 has been absorbed."
Is that what I said in this House three weeks ago, or is it not, except that I stopped at £100,000 and Mr. Hyde, of the Midland Bank, does not stop until he gets to £10,000,000, and goes on to say that, if £20,000,000, where put into the money market by the Bank of England and the joint stock banks in London could find solvent borrowers, they would create £200,000,000 of credit money, or at least, I should say, for the sake of accuracy, £190,000,000 of credit money. The Leader of the Opposition says, first, that that is not true at all, that the banks do not lend anything but the money actually passed into them across the counter; and that if they do they always have collateral deposited with them, which, in his judgment, in some way negatives the creation of credit money. That is not my experience. I would not cite my experience against the opinion of the Leader of the Opposition, but I do venture to quote the general manager of the Midland Bank in England, who must be a man of very considerable experience of joint stock banking, against the opinion of the Leader of the Opposition. At question 891, Mr. Hyde was asked if they stipulate for collateral security in respect of all their advances. He replied:
"We do not discriminate against advances which are unsecured; we are just as ready to lend to a customer without any security as we are to lend against collateral, provided we are satisfied as to the ability of our customer to repay the amount. If he were a trading customer we might ask to see his balance sheets for a number of years or make other investigation as to the business he was doing, and if we were satisfied we would be just as ready to lend without security as with."
Later on in his evidence he says that in London almost all the loans would be made on collateral security, but that, in the provincial branches, about 50 per cent. would be made without any security at all. That is what really matters. That is all that is left that matters. Deputy McGilligan has pointed out in a series of contributions on the Committee Stage of this Bill that there are virtually no other vital functions which this central bank is capable of discharging, and the Taoiseach and the Minister for Finance have been obliged to confess that, in the exceptional circumstances in which we find ourselves vis-á-vis Great Britain, that is true. The minor functions of a central bank are not operable by a central bank functioning in this country so long as our external assets and trading position remain what they are. Deputy Norton and the Labour Party are inclined to tilt against wind-mills. They want, by legislation, to declare that we are about to do that which everybody knows is impossible for us to do. I think it is much wiser to take up the position of the Taoiseach and the Minister for Finance and say: “Even though we would wish to be able to do those things, they cannot be done.”
Nobody has ventured to come to me and say in respect of the credit money created by the joint stock banks: "There is nothing we can do about it," because there is. If this House would only make up its mind as to who owns that money, we could proceed, equitably and prudently, to deal with it. I do not want to create the impression that there is something disreputable or shameless about the creation of this credit money. There is not. It is a most excellent thing that this credit money is created. If it were not created, the condition and standard of living of our people would, probably, be much lower than it is. When I speak of this credit-creation, the Leader of the Opposition takes up the balance sheets of the banks and says: "There are the balance sheets of the banks and this ten to one ratio is not to be found in them; that is evidential of the fact that the ten to one ratio does not exist." It is not that the ratio does not exist at all but rather that the circumstances of our banks are such that they never come near the ten to one ratio, not due to any reluctance on their part to approach it if it were physically possible for them to do so but because more than one factor must operate before it is physically possible for the joint stock banks to reach that ratio. They want to reach it because, the nearer they get to it, the more profit they will make but, in order to reach it, they have not only to be willing to lend but they must be able to find a customer who is solvent and willing to borrow.
In the City of London, where there are 8,000,000 people and the greatest mercantile community in the world, there is nearly always—though not always—a demand for accommodation greater than the banks are in a position to supply. Occasions have arisen, as Mr. Hyde, the General Manager of the Midland Bank said, when even so great an institution as the Midland Bank found itself for some days in the extremely embarrassing position that their ratio had gone beyond ten to one and had reached about 9 per cent. He said he spent anxious days drawing in money from the bill market to restore his cash position. There is no banker in Ireland who would be able to get himself into the 9 per cent. position unless he called in tramps and lunatics and lent money to them. If the banks here were to lend freely, authorising sample overdrafts to every solvent customer they had, they could not get enough people to draw money out and pay interest on it to enable them to reach the ten-to-one ratio, not to say exceed it. I imagine that that is due to our peculiar economic set-up.
Ten minutes ago, I was referring to the rural mercantile community on the small farms who, I believe, make the most substantial deposits of any section here. These deposits are in a form ever present to the mind of the Leader of the Opposition. These are the people who go in to the banks with bundles of notes and bags of gold coin, hand them across the counter to the cashier and ask that he keep them safely for them. We have a very large volume of those time-deposits but, not having a large money market functioning and not having a large industrial organisation, it appears that the demand for accommodation is not as brisk as the credit base we have here could easily support. The fact that the demand is not so brisk does not mean that the credit base does not exist. Even though the banks in this country are only operating on a ratio of 5 to 1 at present, it is still proved by banking experience that, could they find solvent borrowers, they might safely operate on a 9 to 1 or 10 to 1 ratio. That is where the functions of this central bank come in.
While I think it is correct to say that that ten-to-one ratio argument is unanswerable, we have to qualify it thus far: all the joint stock banks are continually emphasising the necessity for short-term investments. They are continually emphasising that their funds are not available for loans designed to provide capital over long periods, that what they want is to lend money for short periods, have the loan extinguished and then consider another proposition. If we were contemplating any plan whereby the joint stock banks would place at the disposal of the community at advantageous rates a part of the credit money available to them, we should have to bear in mind that that money would have to be advanced by some method which would preserve the liquidity of the banks' funds and secure them against the possibility of collapse, consequent on a run by their depositors. The fact that that difficulty exists should not deter us from facing the problem and calmly determining what we are to do. The fact that there are difficulties should not induce us to go on rambling about in the dark. If I could be persuaded that the members of the Government understood this thing and, having understood it, were resolved on a certain course of action, then I would know where we were. At this moment, I do not believe that they do understand it. I believe that they are in a state of bewilderment on this whole matter of credit-money and that they are still thinking in terms of the Taoiseach's observations in column 1281 of the Official Report when he said that, if you went on in this way, the thing would turn into absurdity, and not in the terms of Mr. Hyde who went as far as I went—and a good deal further.