Seanad Éireann debate -
Thursday, 24 Sep 1942

Vol. 26 No. 25

Central Bank Bill, 1942—Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. Baxter

When the House adjourned last evening I was attempting to address myself to certain clauses in Section 7 dealing specifically with what may be done by way of making provision for local authorities to procure credit for the promotion of whatever schemes they may regard as wise and necessary within the ambit of their control. I was trying to point out what seemed to me to be a definite restriction on these bodies being able to procure that money; in the first place being able to procure it at all, and, in the second place, being able to procure it at the price at which money must be obtained if the particular point to which I made reference in my opening remarks yesterday is to be the aim behind the introduction, the passing, and the operation of this particular measure. Before it is possible for money to be forthcoming for the promotion of necessary schemes, the stock has to be quoted on the stock exchange, and the lending public have to be tested as to what their attitude is towards the value of the particular enterprise for which the money is required. I submit that there is a great deal of work of national importance to be done in this country to which we cannot point as holding the possibilities of being a profitable undertaking inasmuch as it will be able to show a surplus in cash return after certain necessary expenses have been met that are part of the scheme as a whole.

We may have within our municipalities a demand and a necessity for works of reconstruction of various kinds. It may be that the national good and the welfare of the people as a whole would be served by the carrying out of such works. But the people who are going to provide the money which will make these schemes operative are going to stand back from such propositions to see whether they will provide such revenues as will justify them in making an investment. I believe that that restriction on the reconstruction effort is going to hamper all sorts of schemes which are essential for the nation and which would be beneficial for the people. I could point out that we have had such experience in the past.

Why must our central bank be placed in the position that, only when judgment has been passed by our commercial banking institutions and by a very discerning public—not by the persons who will deposit a couple of hundred pounds in a bank and be satisfied with 1 per cent., but by men who read the newspapers and who day after day turn first of all to the Stock Exchange list and who must be satisfied as to the return they are going to get from such an investment— is it going to decide whether schemes can be proceeded with at all or not? I am convinced that that is an entirely wrong attitude for us to adopt with regard to the powers we are giving to our central bank. Why can we not be straight and courageous about this step, and give this bank power to issue to these bodies or even to issue direct to the Government the moneys which are necessary for the promotion of sensible schemes of reconstruction, rather than having the central bank awaiting criticism, and having to approach people who all the time have looked at money as a commodity which must be used for the purpose of making profit? Why that must be the attitude here towards the central bank surpasses my imagination. I think it is a definite restriction and that we ought to remove it as it does not exist in other countries where central banks have been established. To me it indicates a lack of confidence in ourselves. Some Senators expressed the view yesterday that it was good to have this central bank in a position where it would be free from too much Government interference, but it is going to be in the very peculiar position that beyond it there are the commercial banking institutions as the first outpost to be passed, before the central bank can do anything.

I listened to Senator Sir John Keane telling us what the commercial banks here are prepared to do. That may be the position, but their preparedness never brought them to the point of doing a number of things this country wanted done. In the past these commercial banks pursued a policy that has resulted in £300,000,000 being invested outside this country which could very well have been utilised here, and which was absolutely essential if we were to have the progress and development which patriotic people aimed at and hoped would come with national Government. Senator Johnston says that is not their fault. I might go into a long examination of that point, but I am satisfied that they played their part not alone in transferring and holding funds outside this country but in creating an attitude of mind on the part of our people which has had that effect. We know quite well that many of the investing public are influenced by the advice their bankers give them. We know that many people before they take a decision with regard to whether they will subscribe to a particular flotation consult the banks with which they deal and that the matter is determined in that way. In the future we are, apparently, making no change in that respect. The commercial banking institutions are going to be able to determine whether or not moneys that are essential for national development will be made available. Whether they approach it sympathetically or in another frame of mind, they are to determine whether progress can be achieved or not. That is a restriction on the central bank that is really deplorable. I feel that it should be possible for the central bank to lend to the local authorities and to lend to the Government.

Looking back over a number of years and speaking to Ministers in the other House, and in this House for a shorter time, I remember that we asserted on various occasions that we were not afraid of the particular Minister in office at the time, but that we were taking steps to guard ourselves against the radicalism of his possible successor, whoever he may be. It seems to me that our Ministers are growing more conservative, one after another. If these powers are given in this Bill, to enable the central bank to make money available direct to the Government, at the Government's price, for schemes of reconstruction that are necessary and that can be carried out with the labour and raw materials available, I have not the slightest fear that Ministers for Finance or Governments will make extravagant demands on the banks. That fear may have been justified some years ago, but our political education is proceeding apace.

We are in the position to-day that various schemes of reclamation cannot be carried out. Over 12 months ago, when the first Order was made in regard to turf schemes and bog development, I put down a motion in this House, and it was debated before the Minister's predecessor, who, I must admit, showed very little knowledge of his subject. One of the points I made was that I could not understand why it was necessary, in the conditions through which we were going to pass, that schemes of turf development were possible only when the people who wanted to cut the turf went to the bankers to get credit or cash to carry out the operations, paying 4½ or 5 per cent. on that money, which would have to be repaid by the poor, who had to purchase the turf at a price out of all relation to its value.

Sir John Keane

I do not like to interrupt the Senator, but I would like to ask him if he is sure of those rates —4½ or 5 per cent.?

Mr. Baxter

I think the rate of borrowing for local authorities for that purpose was 4½ per cent.

Sir John Keane

Perhaps the Senator would check up on that sometime?

Mr. Baxter

My information is that it was 4½ per cent. If I am wrong, I can be corrected. I have made inquiries about it, and that was my information.

Sir John Keane

I think the Senator is wrong.

Mr. Baxter

The minimum was at least 4 per cent. I want to know why we cannot produce the goods essential to the maintenance of the life and health of our people—aye, essential to the maintenance of peace and order— and why we cannot provide ourselves with the mechanism to produce them, without going to the banks to borrow from them and paying 4 per cent. on the tickets which they give us to enable us to keep life in the people who are doing this job over a period of two or three months. It does not make sense, it is economically unsound, it is putting the burden on the consumers, and it is immoral in the conditions through which we are passing.

Sir John Keane

What rate would the Senator suggest?

Mr. Baxter

I would suggest the lowest minimum that would pay for the job that the clerks must do in keeping the accounts. If I could not get one set of people to do it, I would set up another body that would do it. I would take from the people who are in possession, and whom the community have permitted to remain in possession, the privilege they enjoy, if they are not prepared to give the service so essential to life. I would find a body of people to do it, and I would find a way; and I would be perfectly justified. I know something about the bogs, and how little the people on them get for their work; I know of other people in our towns who are trying to get fuel, and of their inability to pay for it on account of their low incomes and on account of the drop in the purchasing power of their money; and I say that it is most iniquitous that, as a sensible body of people, we should have tolerated a system like that, especially in these days. How can Senator Sir John Keane stand over a doctrine like that of 4 per cent. for the production of turf, when the people in England day after day can borrow at 2 per cent. or 2½ per cent.—which is probably the maximum—and get any money they require to make all the inhuman mechanisms that the brain of man can devise to destroy the beautiful things of the earth?

Sir John Keane

Does the Senator know the rates which local authorities in England are paying for borrowing? I do not think he has got his basic knowledge right at all. Is he suggesting that local authorities are borrowing at 2 per cent.?

Mr. Baxter

I did not say anything of the kind. I said—and let this be remembered—that the State, in this matter of turf production, delegated borrowing powers to the local authorities. I accept it that the rate was 4 per cent., as Senator Sir John Keane has not contradicted that. I ask why it should be necessary that local authorities or the State should have to go to commercial banking institutions and give them £4 for every £100 used by them to produce turf in the bogs? That turf is produced for the poorest of our community, with very low standards of living indeed. Yet, in the same world and within the same banking system, the Government in England can find all the thousands of millions necessary to destroy the most beautiful things of life at 2 per cent., or 2½ per cent. at the most. I cannot understand that; it does not make sense to any normal mind. There is something wrong in the world where these things continue and something wrong with the human mind which understands them and permits them to continue. However, there are ways of ending these things, and if they are not ended through some normal process and through the wise judgment of the men who legislate, then the men who ignore legislators will end them in another way and at another time— and we may not have to wait too long.

I now come to another point, on which there was a certain amount of discussion yesterday: it is this question of parity. I believe that in this Bill power should be given to the central bank to alter the parity position when they deem it necessary and believe it to be in the best interests of the community or, as it is put, "the dominant aim shall be the welfare of the people as a whole". I am convinced that these powers should be taken. Yesterday Senator Sir John Keane questioned some of the speakers as to altering the parity position. He asked Senator Campbell, I think, if he suggested that he would appreciate or depreciate the value of our £ in relation to the British £. Some people like to acclaim the fact that the British £ is always stable and that you know just what it will do. I want to assert now that that is not the fact. You may know approximately what it will do. I have stood in fairs—and I presume the Cathaoirleach has done so, too—and I know that, when you stand in one fair to-day and another to-morrow, you find your £ buys a certain amount one day and a different amount the next day. In relation to goods, the value of the £ is up and down. It is not something definite and fixed.

If we are questioned as to what we would do, I submit that it is wise to give the bank powers to alter the relationship of our £ to the British £, when the welfare of the people would be served by so doing. If I were asked was I going to appreciate or depreciate the value of our £, I would say if we were to do as the Danes or the New Zealanders did after 1932, and depreciate the value of our £, I know that it would have certain advantages for me as an exporting farmer but I say that no one under present conditions can give any decision as to whether you would appreciate or depreciate the value of your £ in relation to the British £ because there are all sorts of other factors to be taken into account, and these other conditions would have to be altered before you would decide to alter parity.

On the other hand, I would ask the Minister to tell us why the powers should not be taken by the central bank, in view of the fact that Section 5 (s) of the Bank of Ireland Act, 1929, says:—

"to take, or concur in taking, all such steps and proceedings (including the undertaking of any obligation, monetary or otherwise) as may seem best calculated to uphold and support the credit of the bank or to obtain, maintain, or restore public confidence, and to avert or minimise financial crises or disturbances which might directly or indirectly affect the bank or the business of banking generally."

Sir John Keane

Would the Senator mind repeating the reference?

Mr. Baxter

Section 5 (s) of the Bank of Ireland Act, 1929. If that is the law, there is power in that Act far greater than anything we are conferring upon the central bank which we are setting up under this Bill—far greater—but that was done in the interests of the bank, and we are saying we are going to do things for the welfare of the people as a whole. I do not know whether a bank and the interests of a bank are of more importance than the welfare of the people as a whole but, in my view, the welfare of the people comes first. In any case, apart altogether from these powers that are apparently possessed by the Bank of Ireland, my opinion is that the powers ought to be given to the central bank to do these things if the central bank believes it is in the interests of the people as a whole that they should be done. We know you can come to the Oireachtas and do them, but things can happen in these days and the passage of a Bill takes a certain amount of time. If these powers are not required, they need not be used, but they would definitely strengthen the position of the central bank and the central bank ought to have them.

There is another point—the convertibility of our £. That is naturally a somewhat technical question, but I think what it means is generally understood. But, is it not a fact that this convertibility is a rather one-sided bargain? While we are obliged to produce £1 or £1's worth of Irish goods against every British £ put before us, is there any reciprocal arrangement whereby we can have similar accommodation on the other side?

Sir John Keane

Yes.

Mr. Baxter

Whether that is so or not, we have a position at the moment which I regard as being very unsatisfactory. When I spoke at one time about credit and more credit for agricultural purposes, the Minister's predecessor warned me of the dangers of inflation, and Senator Sir John Keane backed up the Minister. In the present position of the convertibility of our pound, there are inflationary possibilities to which I think we are closing our eyes. In the other House the point was raised and discussed at length that there is an influx of money to the Twenty-Six Counties as a result of internal conditions here and of conditions in the Six Counties and in England that are unfavourable to the position which our £ occupies here in relation to goods. I know that in my own town, at any fair a farmer is as likely to be paid in Bank of England notes as in Irish currency. In any of the banks he is as likely to be paid half in Bank of England notes and half in Irish currency. We are very near the Border, and that money is crossing and recrossing, and making claims on our goods day after day. We have been pursuing, I say, a deflationary policy. Numbers of our people who could be employed in this country have been permitted to leave. I listened to Professor O'Rahilly's classic example of the situation which we are creating in this country by this position of convertibility. Professor O'Rahilly was addressing a gathering in the Mansion House. I think I saw Senator Sir John Keane there. I do not know whether he remained for the entire lecture, but he did grace the gathering with his presence.

Sir John Keane

I heard quite enough in part of the time.

Mr. Baxter

Professor O'Rahilly, in my opinion, in his book on money has done more to stir up interest in this question and has done more in the way of educating our people who are interested in this subject than anybody else—certainly far more than Mr. Geoffrey Crowther or any of the other authorities that have been quoted in the debate on this Bill since it was introduced. Professor O'Rahilly told us of people who were employed on bogs in County Cork, who were paid 30/- or 35/- a week. They had a certain number in their households and this wage was not sufficient for their needs. On this wage they were able to provide about 1 lb. of butter in the week whereas they would have been able to consume much more. They left that work and went to England and were able to send back to this country remittances to the extent of £2 or £3 per person per week. As soon as the money orders came here they were exchanged into good Irish £s and these good Irish £s were a claim on the goods of the community here. When they were in receipt of 30/- or 35/- a week for work on the bogs they were producing about 30 crates of turf per week. Because we could not pay them more, they went to England and were then in a position to remit £2 per week to their people here and that money was used here to buy bacon, butter, and all the other commodities essential for the maintenance of the homes that they had left. But there were no goods being produced here against the £2.

That is happening day after day in this country. People are being shipped off; they are toiling and slaving in England under dangerous and difficult conditions while there is work for them to do in this country and possibilities for the production of goods by their labour. We are not producing but we are taking moneys in and there is a process of inflation as a result of the policy we are pursuing, a policy which does not reveal imagination in the matter of development. When we do try to develop a plan we find we cannot operate it as long as we are side by side with people who in the position that the people of England are in to-day, are prepared to issue any amount of currency, with no backing whatever, and to pay people any amount of money in terms of notes and then restrict the manner in which this money may be used. There the money is, but it is not of very great value to many of the people who get it. I think myself that is all wrong. Again, I think that does not make sense. If the situation were reversed, I think we would hear a great deal from Senator Sir John Keane about the dangers of inflation. If we were going on with a policy of development and were issuing currency without any backing, as the British Government are doing, we would be told of the dangers, and very little consideration would be given to the good that was accruing from the employment given to men and women, keeping them in the country where they would consume the goods we were producing, and thereby enabling them to marry, settle down and build up happy homes. I go back again to that point in the Bill, and say that, if we mean this, that is something we must do.

Senator Sir John Keane yesterday referred to what was done in New Zealand. From the manner of his approach I was not surprised at the way he put it. It had been referred to earlier by the Minister for Finance himself. The reference was that, as a result of the policy pursued by the Government of New Zealand, the representatives of that Government had to go hat in hand to the British Government. What did surprise me was that the statement should have been repeated by Senator O Buachalla, because I would have expected a somewhat different approach to that matter from him. I think it should be put on record that the statement made does not represent a full and a fair presentation of the facts. In my view, when such statements are made all the information ought to be given. The situation in that country, as I understand it, was something like this. A Labour Government came into office in New Zealand in 1935. It inherited the debts of its predecessors. The interest alone on these debts amounted to something like £14,000,000 per annum. One particular loan was falling due in January, 1940. It was to be paid off in London in sterling. Mr. Nash, the Labour Finance Minister, went to London in 1939, and put two very sensible plans before the people there. The first was that Britain should accept New Zealand's surplus wool, butter, and mutton and that the sterling paid for them should be utilised by the Government of New Zealand to repay the loan. The second proposition was that the British Government would make a loan to the Government of New Zealand to enable it to repay the old one and convert it into a new loan. The British Government decided on the second course.

I think that, when statements are made about foreign countries, we ought to make an attempt to present the facts fairly. I have given the facts as I know them. As a result of the policy pursued by the Government of New Zealand they succeeded in immensely increasing the country's total agricultural output. They succeeded in raising the status of their farmers. From being practically bankrupt slaves on their holdings, they were put in a position to earn 4½ per cent. on their capital, and as a minimum were able to earn £4 per week per person in the family, and a much higher figure in proportion to the area of the holding. The wage of the agricultural labourer was raised to £3 per week. That is the other side of the story of what happened in New Zealand. When we talk about that country or other countries it is important that the whole story should be put on record.

Liam O Buachalla

Is it not a fact that the Finance Minister there did have to go to London to seek this money?

Mr. Baxter

Yes, and Mr. de Valera and other people had to go to London.

Liam O Buachalla

That is beside the point.

Mr. Baxter

People when they want to borrow money from a bank have to go to it to seek accommodation.

Liam O Buachalla

So that no misstatement was made.

Mr. Baxter

My point is that we ought not to talk about the Finance Minister in New Zealand having to go to London hat in hand. That, I think, ought not to be said, and in my opinion a statement of that sort ought to be deleted from the records of the House. If we read in the records of the New Zealand or the Canadian Parliaments a statement of that kind about our Finance Minister, then, no matter what side of this House we sit on, it would not please us. So far as I am concerned, I am of opinion that we ought to observe a sense of decorum in our attitude towards the statesmen of other lands who are trying to do their best for their own people in their own way and in their own time.

I come now to another point which seems to be one of very considerable importance. I refer to the constitution of the board of the central bank. Already I have pointed to some of the faults and weaknesses that I see in the Bill as it is before us. With regard to this institution, we either mean to do something through this Bill or we do not. If we mean to do something, we must have all the means necessary to do it, and when you have them, we must get the men to operate the machine.

Let us see what is being proposed. We are going to set up a board in a particular way. We are going to draw upon the commercial banks, and on others, to man this institution. I submit this is to be a national institution. It is to be a new institution. The job of the board ought really to be to look out and see what kind of an Ireland they would like to make of the new Ireland because the old one has got to change. At any rate, we cannot go along progressively decaying as we are. If that be our purpose, we must ask ourselves what manner of men are to be entrusted with this task. Frankly, I am perturbed by the consideration that we are drawing to such an extent on the personnel of the commercial banks. Far be it from me to cast any aspersion on the integrity or the honour of the men who are directors of our commercial banking institutions in this country, but when you are going to do a job of work you must ask yourself what sort of approach is going to be made to it by the type of men selected. Apparently the intention is that our banking nominees are going to be put on the board because of their technical knowledge. If that be the idea, then I think we are drawing the circle too tightly. I had the privilege of sitting for a number of years on the Board of the Agricultural Credit Corporation. We had on that board three very distinguished and competent representatives of the banking institutions in this country. Two of them were bank directors. One was an official who had climbed up from the lowliest post in the institution he had entered as a boy to the highest rung of the ladder.

I found that man's point of view, his knowledge and ability of immense value. His approach was rather different from that of the man who was always, so to speak, at the top and was not accustomed to dealing with people coming in to discuss their difficulties with the manager across the counter or in the secrecy of his ante-chamber. If you are going to seek your banking knowledge and experience from the limited number of persons who man the boards of our commercial banks, you will not give yourself a fair chance. Who are these people? Nationals, no doubt, but no man can become a director of any of these commercial institutions unless he has got a certain amount of worldly goods. I think that that is the main type of measurement applied, that it counts more than his intellectual capacity as a test. I ask the Minister how many of those who sit with him in the Government or how many of his predecessors in office would be able to qualify as directors of any bank. There are many able and patriotic Irishmen who cannot possibly attain to that rank. All these people are to be excluded. If you want to get on this board men with technical banking knowledge, you must widen the circle of choice. There must be amongst the staffs of the banking institutions a number of men with considerable competence to whom this position ought to be thrown open. They would bring to bear on the judgments and decisions which the new central bank board will have to take knowledge and information which are, possibly, possessed by very few of the directors of the banking institutions. You want to get the best and you ought to make it possible to get the best.

I know Senator Sir John Keane for a long time and I have great respect for him. I know him longer perhaps than I know any other member of this House but, listening to his point of view with regard to credit, as explained yesterday, I was appalled at the type of decisions the central bank board would take if they were to be influenced by the considerations he would put before them. He spoke about the amount of currency available and he said that there was a 50 per cent. increase in our currency. I have not examined the most recent figures of currency circulation in Britain and here, but I think the increase in Britain is out of all proportion to the increase which has taken place here. The Senator went on to say that the banks had never hesitated to lend where the security was satisfactory. I want the House to examine that statement from our point of view because some of us want to get things done. "Where the security is satisfactory," the Senator added, "the banks will lend to credit-worthy borrowers." It would be difficult to convince me that Senator Keane's idea of the credit-worthiness of a farmer would be the same as mine. The Senator would look at the matter solely from the point of view of whether the borrower would be able to repay the principal and pay the interest on the nail. I would look at it from that point of view, too, but I would take other considerations into account, too. I am a farmer in a small way. I am not a lazy farmer, though I say so myself. Let us suppose that I went into the bank early this year to borrow for the purpose of carrying on my farming operations, that I believed I was able to take a certain amount of money, use it well and, as a result of putting a little muscle into farming operations, losing some sweat and spending a few tired nights, be able to honour my obligations. When I came away from home the other day some of my oats was uncut. As somebody wrote in the Independent on Sunday, it was “plastered to the ground”. That was not because I had been sitting at the fire or my men had been idle. The crop was uncut. None of my grain has been gathered, neither has my hay and I am better off than many of my neighbours.

We hear talk about a bountiful harvest. Perhaps it will be bountiful in certain parts, but I am afraid the returns from our harvest will not come up to expectations. Suppose I am to repay the bank when the corn is threshed. We have put a labour content into our farming operations out of all proportion to what should be required for the job. If, when the harvest is gathered, I put on one side the produce, and on the other the demands against me. When rates, rent, and other demands which cannot be sidestepped, are paid, I may be at my wits' end to honour my obligations to the bank. That is no fault of mine. I worked very hard, but I was working against conditions over which neither I nor other farmers had control. The result may be that a number of farmers will not be able to honour their obligations to the banks. If we do not do so, we shall not be regarded as credit-worthy, and we cannot go back to the bank when the spring work comes to be done. There will be no consideration for the fact that we have homes to maintain, and children to educate, and that our labourers are in the same position. That is not a consideration for the commercial banking institutions, which are looking to their profit, but it is of vital importance to the nation that these homes should be maintained and that our children should be educated.

These things are vital to the future of our national life and, when asked whether a man is credit-worthy or not, I would not answer in terms of the amount he is able to pay by way of principal and interest. I should have to look at other things, and I believe that Senator Keane would not take these other things into account. Unless they are taken into account by the men who sit on the board of the new central bank, the policy to be pursued will not be in harmony with that vital portion of Section 6 to which I have repeatedly referred.

Senator Sir John Keane made another point towards the end of his speech. He talked about the American banks. I have not got a very clear note of what he said, but the impression he left in my mind was that, with regard to their lending, there was not a proper ratio between their assets and their loans; in other words, they went on lending, and the backing was not what it ought to have been. He indicated that in this country we were much wiser and in Britain they were wiser, and he left it to be inferred that because the American banks pursued that policy they, to use an Americanism, went broke. I think the real reason why the banks there were broken was because of the policy adopted by the various financial interests. They were so interested in revaluing money that they altered completely the value of goods, and the people who had produced goods on credits which they had obtained from the banks found, when they produced the quantity of goods which ought to have repaid their loans, that they would require to have twice and three times the complement of goods in order to repay the banks.

The bankers, by reason of deflationary methods in order to keep the position of the money changers safe, decided that it did not matter what happened to the farmers and to agriculture, and it did not even matter what happened Governments, so long as those in control of finance could maintain their ascendancy over producers everywhere. The consequences were disastrous for America. The banks failed and thousands and thousands of farmers were affected. There were millions of unemployed left. They had themselves in the position in America that, while they possessed 50 per cent. of the gold of the world and millions of bushels of wheat, they could not sell the wheat and there were some 11,000,000 or 13,000,000 people starving or on the bread line. That is what they achieved in America, and it was not because they gave out too much money, but because they tried to get back too quickly what they did lend. It meant that people had to realise on all sorts of goods, the markets were unable to absorb those goods, and millions of human beings were broken in the process.

The Senator made a statement with regard to the methods adopted by banks in the making of loans. I am not satisfied that what he said represents what actually takes place. This Bill has evoked a great deal of discussion in the other House. I would like to put a note of interrogation with regard to some of the statements made relating to that discussion. I regard that discussion as magnificent. I think it was rather a surprise, and perhaps the Minister was considerably surprised and enlightened by it. I do not know that we ought to find fault with the Deputies who displayed so much industry in their study of this very intricate problem, this all-absorbing and vital problem from the point of view of the future of the nation. I think those Deputies have done the State a great service. They did all they could to make this a much better Bill. I should like to see the Minister taking his courage in his hands, now that the Bill has come before the Seanad, and making some effort to improve the Bill. What do we owe to anybody? We have a big claim on people outside this country and I am not satisfied that it is going to be honoured and that the position in the future will be much the same as that to which we have been accustomed in the past.

Some time ago I read of financial experts dealing with the capacity of Britain to borrow and to have a national debt to the extent of £10,000,000,000 and it was suggested that that would not impose any greater burden upon them than was imposed by the debt which they incurred in the last war. Is it safe to suggest that their national debt will stop at £10,000,000,000? To me it looks more like being £20,000,000,000. In such circumstances our £300,000,000 will be a very small proportion of the total claim against the goods and services of the people of Britain in the future, a future that at the moment looks very gloomy. I suggest that in circumstances like these we ought to establish our own currency on the soundest possible basis, on the faith of our own people, on our belief in their physical vigour, in their intelligence and their capacity to do a good job in their own country. I believe that if we build on that foundation we will be working along the proper lines.

I believe there has been a considerable misuse of the powers which commercial banking institutions have been privileged to enjoy here over many years, a misuse from the point of view of our national development. A Government may make mistakes, but the people have the power to alter that. Any Government that proposes to spend money for the purposes of national development must get credit for having good intentions.

I suggest that the Minister has a chance now of doing something that ought to have been done in the Dáil. It would be much more becoming that the Minister should make the necessary changes in this Bill, that they should be the effort of the Government rather than that the responsibility should be placed on individual Senators. In all sincerity Senators will put down amendments, only to be shown that these amendments will not fit in with the sections of the Bill or of the Currency Act. I think the Minister ought to reconsider the position and bring in amendments so as fundamentally to alter the character of the Bill and make this central bank a really effective organisation.

Mr. Honan

I have no intention of following on the very extensive lines adopted by Senator Baxter. The Senator has given a very excellent exposition as regards our financial position. I wish to interest the Minister and the House in what has been a pet subject of mine for some time. If we could envisage that the central bank will take up the question of the financing of public bodies, that in itself would justify the creation of such a bank.

What I have in mind mostly is the heavy burden placed on local authorities by the vast sums they have to pay by way of interest and sinking fund on moneys borrowed for works of national importance, such as housing, sewerage and water supply schemes. Unfortunately, most of the money was borrowed at a time when it was dear. On the local authority in which I have a personal interest the oldest loan was issued at a rate of 3½ per cent. From that onwards the interest gradually increased until you now have it ranging as high as 5¼ per cent. That, to my mind, is a burden which local authorities, if they are to make any further progress, cannot continue to bear.

My suggestion to the Minister is that, on the establishment of this central bank, he should take into consideration the possibility of funding the existing loans of public authorities and re-issuing them at a much lower rate of interest. I am well aware that money must be borrowed from the public and that you cannot buy it at a very low rate of interest, but at present a great quantity of sterling exists in the country which could be borrowed and re-issued to public authorities at a rate of interest not exceeding 3½ per cent. If that were done, it would relieve public bodies of a very big burden of repayments annually and encourage them, when this crisis has passed over, to re-start housing and other essential reforms which had to be laid aside during the crisis. I am sure that the Minister, who is a pioneer in the matter of rebuilding for the working classes, will be glad to give every consideration to this point and will see to it that these heavy burdens on public authorities are relieved to some extent.

Rehousing in towns and cities is one form of investment from which the Government or the people can never look for a suitable return by way of interest; because if you got money for nothing at present you could not build houses which could be let to the working classes at a rent they could pay. Under previous schemes, the Government gave a subsidy of approximately two-thirds, and, even on the basis of the one-third for which the incoming tenants were liable in order to meet that part of the debt for which the local authority was responsible, the rents in respect of the working classes who were earning 35/- or £2 a week came to 5/- or 5/6, and that is as much as ever they could pay, so that it must be borne in mind that, whatever about other investments, housing must be subsidised. All the other points have been ably discussed by other Senators, and I hope the Minister will bear in mind the point I have put to him.

Mr. Counihan

As all the experts have now spoken, I should like to say a few words before the Minister concludes. I support the Bill, but I am very disappointed that it contains no provision for the loosening of credit or for the control in any way of interest rates. There is no reason for the bankers to be alarmed by the provisions of the Bill, which does nothing to interfere with our monetary system. When passed, it will simply leave us where we were, and the only reason for my supporting the Bill is that I can see possibilities of further development in Section 6.

Like Senator Foran, I approach this discussion with some diffidence because I have been always led to believe that banking, finance and currency are matters which are understood only by the select few with special training in these subjects. I believe now that that was all propaganda, and I am convinced that the ordinary commonsense man with business experience has as much knowledge of these subjects as the majority of bank directors, and for that reason I cannot see why there should be such anxiety in respect of the banks and the Government having such a number of directors on the central bank. One of the amendments I intend to move, when the time comes, will be one setting out a direct instruction to the Minister to appoint at least one representative of agriculture who shall be a practical farmer.

The Labour Party blame the banks for many things. They blame them for the flight from the land, for unemployment, for emigration, for ruining the farmers and for all the misfortunes we have suffered for the last ten years. I should like to tell the Labour Party that the majority of these misfortunes are due to one cause—to the economic war and to the Fianna Fáil Government's policy of which the Labour Party were such ardent supporters. Although many of the charges made against the banks by the Labour Party are much exaggerated, they are not all groundless. We all know that the farmers have had a raw deal from the banks during the last 20 years. We all know that our main industry is left undeveloped for want of credit and I can positively say that so far as agriculture is concerned the banks have fallen down on their job. We all know that we could increase our output of agricultural produce by 25 per cent. if working capital were available for farmers from any source, and we all know that, in respect of the little accommodation which farmers could obtain from the Agricultural Credit Corporation or from the banks, the interest charged was entirely too high, and that, when they got a loan, when interest and charges were paid back, the farmers in a good many cases were only working for the banks and these other institutions.

The Minister was asked in the Dáil why the banks always charged 1 per cent. more than the Bank of England rate. The Minister's reply was that he did not know. I suppose he thought it was tradition.

Sir John Keane

Would the Senator be more specific as to what he calls the Bank of England rate? I should like if the Senator would say what that really is, and how it stands in relation to the ordinary lending rates.

Mr. Counihan

A question was asked in the Dáil as to why it is that the Irish banks always charge on overdrafts 1 per cent. more than the Bank of England rate. I will give way to Senator Sir John Keane if he wishes.

Sir John Keane

That rate really has no relation to lending as the Senator thinks of it. It is the discount rate, that is, the rate at which the Bank of England discounts fine trade bills, of which there is practically none in this country. It is not the rate applicable to agricultural advances in England. If the farmer in England wants to borrow, he will pay more than 1 per cent. over the Bank of England rate, I can assure you.

Mr. Counihan

In looking up the ordinary papers, and looking at the Stock Exchange, as I occasionally do, though I have very little interest in it, I see first the Bank of England rate and then the Irish rate at 1 per cent. more. Senator Sir John Keane says that that is not so, but in every return or report you will see that quotation, and if it is not correct some authority on behalf of the banks should contradict it.

Sir John Keane

That is the rate we charge for fine trade bills, but practically none of them exists in this country. The Senator bases his case on agricultural advances. In the case of agricultural advances we do not charge 1 per cent. more than the English banks.

Mr. Counihan

I only based my case on the question asked in the Dáil and the reply given by the Minister. If that is a tradition, I think there should be some provision made in this Bill to break that tradition. It is nearly time we finished with a tradition which is so injurious, even in the case of fine trade bills. I do not intend to go into a discussion on the Bill. I do not think there is any necessity to say a whole lot about it. I know that, as far as the farmers are concerned, something should be done to loosen credit, and to induce the joint stock banks to adopt a different policy and a different attitude in regard to agriculture.

It is now almost 20 years since I was first elected to represent agriculture in this House. Since that time, I have continuously advocated better credit facilities for the development of agriculture. I have succeeded in getting the Seanad to agree to and recommend some of my proposals, but the banks have always blocked the way; they are not inclined to do anything about proposals which, if carried into effect, would facilitate the farmers and be of monetary advantage to them. I will not develop that point further, as I intend to move an amendment on the Committee Stage to give definite instructions to the board of the central bank to make arrangements to provide money for the development of agriculture on long-term loans at a low rate of interest. Before I conclude I should like to say that during the 20 years to which I have referred I have got more consideration and sympathy from the present Minister for Finance than I got from any previous Minister, Fine Gael or otherwise. He seemed to be more sympathetic towards the farming community than any other Minister of whom I have had experience since I came into this House. But the farmers want more than sympathy, and I hope the Minister will fulfil the promise he has made in this House to do something to provide extended credit for them in the immediate future.

Mr. Goulding

This discussion has been interesting and informative, and has left very little for me to say. This Bill, I think, is the first effort made towards providing an institution in the country which will stand apart from the existing financial institutions, and it may well be the beginning of what is generally known as monetary reform. In the past few years, quite a considerable amount of literature has been built up around this question of monetary reform, and some very able men have contributed towards it. Now, it has been described as bad finance. In normal times, of course, the system to which we have been accustomed has worked fairly well. In this country, the issue of credit for commercial purposes has been in the hands of what are really private moneylenders. The joint stock banks are moneylenders. They are not philanthropic institutions at all; they are business undertakings, and are simply there to make money for their shareholders. That is putting the thing very bluntly. We have heard, in this debate and in the Dáil, complaints about the banks, and persistent calls for some other means of providing credit for the farmers and business people of the country. Surely all those men who have been calling for monetary reform all those years were not fools. Is there a way out of this difficulty? Is it possible to provide some scheme by which credit could be obtained on different terms from the terms provided up to the present by the financial institutions? I am not a financial expert. One of the charges made against the joint stock banks—it has been refuted by Senator Sir John Keane—was to the effect that the banks create money out of nothing; that against deposits of £1,000 they lend up to £10,000.

Sir John Keane

Who said that? Does the Senator suggest that I said it?

Mr. Goulding

I was pointing out that one of the charges made against the banking institutions by the monetary reformers is that they create money out of nothing; that on deposits of £1,000 they lend up to £10,000, £9,000 of which is created out of nothing. I referred to the fact that Senator Sir John Keane had refuted that charge.

Sir John Keane

Certainly.

Mr. Goulding

I am not competent to deal with it, but practically every writer on monetary reform has made the same statement. I have at the moment before me a book written by Mr. McNair Wilson making the same claim.

Sir John Keane

Perhaps the Senator would let me see the reference privately afterwards.

Mr. Goulding

Whatever the reason, we have the complaint all over the country that the joint stock banks, not alone here in Ireland, but practically all over the world, are a hindrance to progress, and that when credit is needed for the development of industries and the improvement of farms, the banks deliberately withhold that credit. I leave it to the banking men to fight that out. The point I am anxious to make is this. In normal times the system worked fairly well. The joint stock banks, if I accept Senator Keane's statements, do not create fictitious credits. They use the money that is deposited with them to lend to borrowers, and on the interest obtained on these loans, the banks, to put it in a plain way, make a living. We are approaching, in fact we are actually going through, abnormal times. As a result of the extraordinary expenditure incurred by the warring nations, and its inevitable reaction on all countries, we shall be in for a very difficult time when the war ceases. We know what happened in other countries after the last war. Those who speak of the creation of credit sometimes forget what happened in Germany. It is very easy to print bank notes, quite a simple thing. All you require is machinery and engravers, but remember what happened in Germany as the result of the printing of bank notes. The banks here could circulate a considerable amount of paper money and, in a short time afterwards, find themselves in the position in which the Germans found themselves after a few months with all their paper money practically worthless. We have to be very careful not to adopt experiments of that nature.

On the other hand, we are going to face a very difficult situation after the war is over. We shall have to face unemployment, and although I am very loath to interfere with orthodox finance, if orthodox finance cannot help us to meet with the extraordinary situation with which we shall then be faced, I think we shall have to try something else. I am not going to suggest what we should do, but I am quite at one with those who have suggested that something will have to be done, whatever that is going to be. If orthodox finance under the present system cannot cope with it, then some system will have to be instituted to meet such an extraordinary situation. The making of money and the interests of money makers are not sacrosanct. The wellbeing of the people of the country takes precedence, and even though it may create financial difficulties and hardships for people who are financially well off, I hold that every effort should be made to look after the interests of people who are not well off. At whatever cost to the financial interests of this country, the welfare of the people must come first. I am not going to suggest how that should be done. Perhaps I am going outside the scope of the Bill at the moment, but banking being the force that is supposed to control the money of the country, the money that has to be used to carry on the business of the country, and to provide for the welfare of the people, I think I am justified in pointing out that if the system at present in force in regard to the use and distribution of money cannot meet with the situation that is going to arise, it will have to be changed.

I hope this Bill is only a move in that direction. I do not want to create chaos in this country, nor do I wish any situation to arise that would lead to chaos, but if we do not make some effort to meet the abnormal situation that may arise in the near future, the very danger which we are seeking to avert, may be precipitated.

Minister for Finance (Mr. O Ceallaigh)

I have listened with deep interest to the many speakers who addressed themselves to the subject under discussion. Some of them, of course, went a little outside the actual terms of the Central Bank Bill. They discussed a number of other matters, some of them of a very important nature, but the discussion to me, at any rate, was very interesting. I think Senator Hayes was correct in saying yesterday—I am not using his exact words—that the Bill does not propose anything revolutionary. It is not a Bill intended to deal with extraordinary times, not a Bill drafted with special reference to the emergency situation and the financial consequences of the situation we have known since war began to rage around us. A Bill of the kind, a Central Bank Bill, was contemplated long ago, long before I, at any rate, thought that we were so soon again to witness another world conflict. When we first took office in 1932, one of our first thoughts was on this question of monetary reform and central banking. The question of central banking had been under discussion in many countries before the last war and during the war, but particularly since the end of the last war, following the financial chaos that arose out of the war in some countries. Everybody interested in public life in any country had to take note of the financial and economic difficulties with which countries and Governments in particular were faced, owing to the economic and financial changes that developed arising out of the last war. I think I said in my opening speech that in the years between 1921 and 1936, 21 States set up 21 separate central banks. The subject, therefore, was very much in the air and very much discussed during the period that elapsed from the time that this State was set up up to the time we took office.

It was not surprising, therefore, that we, like other peoples, thought of the necessity of looking towards the coordinating of our system of our finances with a view to getting some further control over organised financial institutions in the country. With the same object in view, the last Government set up a commission to examine into the question here in this new State and, arising out of that commission, presided over by a distinguished American financier, the Currency Commission was set up. It was thought at that time that that was as far as it was desirable to go and that the powers that we then gave by Act of Parliament to the Currency Commission were sufficient for the time, but some Senators who are familiar with the reports issued at that time will remember that at any rate some members of the commission, a minority, held strongly that it would be necessary to review the decisions of that commission at the end of a period of five years or so, and that further advances and further steps might be necessary to take in the direction of getting further control of our finances here. Well, the opportunity, perhaps, did not present itself to the last Government, but when we came in we certainly had in mind the setting-up of a central bank, and we discovered that certain promises had been made that no great changes would be made in the constitution of the present Currency Commission or any great changes made towards getting more complete organised control of financial institutions in any way here without further expert examination.

With that in mind, this Government did set up a commission. The names of the members of that commission are well known to Senators. They were a body of as distinguished men as could be got, mostly from inside the country and a number from outside— a number of experts, men who had devoted their lives to a study of the question of finance. I believe that it is true that the big majority of the men who sat on that commission who did such good work, and issued that very valuable and instructive report, were probably not men—I speak of those who were nationals, of course—who would have been regarded by any of us as enthusiastic backers of the Government. The majority of them were not, and I think it speaks well for the Government that they were prepared to give to a body of that kind, the majority of whom were not friendly disposed towards the policy of the Government, a free hand —as they practically did, the terms of reference were very wide—to examine the whole economic affairs of the State; and included in that, naturally, was the policy of the Government, economic and financial.

It happened that we were going through a period of economic stress, grave economic stress, during practically the whole time that that commission sat, and it must follow, of course, that the minds of those sitting on that commission were affected by the economic conditions that they found operative around them. It is true, as was pointed out here yesterday by Senators, that the report, in many of its sections and in some of its recommendations, would appear to be condemnatory of, at any rate, some aspects of the Government policy of that time. That was the view of these men. The views, in a number of cases at any rate, where that body did give its opinions on the policy of the Government, were opposed to that policy and condemned it in certain measure in some instances. With such views, as expressed the views of the majority, I did not find myself in agreement, nor do I find myself in agreement now. I am not going into the details of that, but I do agree with what some Senators said—Senator Johnston for one, I think—that it was in some respects an implied criticism and in some other respects more than implied.

However, be that as it may, I say that the report was a very excellent document, into which an enormous amount of work was put by distinguished men, and we should be grateful to them for the work they did. I, personally, say that we should be very grateful to the chairman, who devoted such time and energy, as well as his long experience and great intelligence, to the formulating of that document, which has received, as far as I am aware, nothing but praise, at any rate, in any place in the Press that I have noticed where it has been commented upon. That report, however, did recommend the setting up of a central bank, and we took a good while to bring the Bill arising out of the recommendation to fruition. The Bill was put before the Dáil seven months ago, and we took a long time to discuss it.

Central banking is a matter about which there is a variety of opinions in every country and in every Party. It was most noted in the Dáil that those who did express opinions held a variety of opinions. I know that it was true of my own Party that there was a variety of opinions. It is certainly true that in the Dáil there were at least three strongly differing lines of thought in the Party with which popular opinion, may I say, associates the name of Senator Baxter. Three strongly different lines of thought and different lines of recommendation were made to me, and I am speaking now of members of the Front Bench. No two of them agreed as to what line we ought to adopt, and there are similar differences of opinion here. That is not unnatural on a subject of this kind. There are no two central banks alike either, of all the central banks that there are. There are no two of them alike, or approaching alikeness, anywhere.

There is no constitution of a central bank that one can take up and say: "Well, there is a constitution of a central bank that has received approval and blessing and has been adopted by a number of countries." There is no such constitution that one can take. Senator Campbell said yesterday, if I understood him aright, that all the central banks of the world have power to control the rate of exchange. There is not one that I can recall, except New Zealand.

A lot of loose talk goes on about the powers of central banks, what they can do, and so on. Some people imagine that central banks, if their powers are wide enough, and if they are used, can almost create a new Heaven and a new earth. I do not know that that has been tried anywhere. The nearest approach that anybody has suggested in any of the debates so far has been New Zealand, which has been held up to us as a great example of what could be done by a central bank.

The New Zealand central bank has not been so long in existence. Senator Baxter to-day talked a great deal about the power we should have and must use to alter the rate of exchange. The Reserve Bank has that power, but never used it. I think that is too important a power to give to anybody but the Government, and that if there is any necessity for altering the rate of exchange it is the Government ought to do it. In actual practice, it is the Government in New Zealand that has that power, but has not used it, because the central bank is a Government institution, a Civil Service body. According to the amended terms of the Act setting up the New Zealand central bank, the bank must take dictation from the Minister of Finance, must do whatever he wants. The central bank there has the power which certain Senators here and members of the other House are demanding that we should have, but has never attempted to use it. The matter was debated up and down, in and out; certainly it was not ignored by the Government when we were considering the Central Bank Bill. There were certain people, who held the same view as Senator Baxter, advocating that we should have powers like that. The Government deliberately, after full examination, decided that the democratic way was to leave that power in the hands of the Government——

Professor Johnston

Surely that power is in the hands of the Oireachtas.

Mr. O Ceallaigh

——to leave that power in the hands of the Government which is controlled by the Oireachtas. The Government is subject to the Oireachtas, but the central bank will not be subject to the Oireachtas except in a very indirect way. That is a matter of very grave importance. The altering of the rate of exchange affects the whole of the economy of the country. The smallest farmer, who may not have even a cow or a bullock to sell, but has a calf, is affected the minute you make any alteration in the rate of exchange. You should not give power to anybody to play ducks and drakes with a matter of that kind so vitally affecting the economy and the finances, you might say, of every individual citizen in the country. But if anybody is to do it, the people to do it, to have the final word in the matter, are the elected representatives of the people and not as Senator Baxter and Senator Campbell would have it, to give that power to bureaucrats. I have often heard in this House and in the other House criticism of the power of bureaucrats to-day. We are told that they have too much power, that they control the Government, control the Dáil and the Seanad and the Oireachtas and, as a matter of fact, that they are the real rulers of the country. That is an exaggeration, a gross misstatement.

I often find it hard to understand the mentality of some of the people, particularly on the Labour Benches in the Dáil and in the Seanad, when they ask for more and more power to be given to individuals in offices, to civil servants, to control this, that and the other business. We are all perhaps, even myself to a certain extent, though I try to watch out for it, affected by the mentality of the times where everything, even in the most democratic countries, is developing towards dictatorship. More and more power is being given into the hands of individuals to run the lives of the citizens of the State as they please. Perhaps that is unavoidable in war time, but that propaganda is going on and that kind of mentality is being developed. So far as public expression is concerned, I find it more developed in the minds of those on the Labour Benches in the Dáil and Seanad than anywhere else. We want to be careful. One expression of it is what Senator Campbell proposed yesterday, that we should give power to alter the rate of exchange to a bureaucratic body, the board of the central bank, and also, going a step further, that we should give that body the power to break the link with sterling. That link with sterling was an arrangement deliberately entered into by the elected representatives of this State, and the elected representatives of the people, acting through the Government, can break it any day they wish at 24 hours' notice. There is no national humiliation if it suits us, if it is to our economic and financial advantage, in associating ourselves with sterling.

Senator Foran last evening stated that this Bill would not give us power to do the things that might be necessary, one of them being to take part in the big world reconstruction that will be necessary after this war. It is not intended that it should. Therefore, it should not be criticised along that line. I think the Senator suggested that we would have to be associated in some way with the big movement towards reconstruction, rebuilding and uplifting that probably may result out of this war, and that the central bank should have that power. Small as we are, we were associated with one big block of financial aggregations through the link with sterling. That link with sterling covered over two-thirds of the globe, so that by our association with the sterling block, which we believed suited us and which we entered into voluntarily, with our eyes open, we could trade with more than half of the countries of the world, and did so, without any variation of the rate of exchange. We knew exactly what we would have to pay for coffee if we bought it in any of the countries associated with the sterling group, or for tea or rubber or timber, or the thousand and one other things necessary for ourselves that we purchased in these various countries all round the world that were associated with the sterling block. There was no humiliation in that. There was nothing we need be ashamed of. It was not a matter about which people in this country or any other country associated with that group felt they were humiliating themselves in joining with these other countries and arranging that their currency should have a similar value everywhere. That was all that was in it.

Where was the humiliation of the United States, of France, or of Britain in 1936, in making a tripartite agreement, that their currencies should have exactly the same value and be on the same basis wherever they went? Was the United States humiliating itself towards its own citizens and towards Britain in making a free and voluntary arrangement of that kind? Was France, one of the surest financial countries in the world up to the recent disaster, humiliating itself because it agreed to a gentleman's agreement—or whatever kind of agreement it was—of that kind? It was to some extent a gentleman's agreement and to another extent partly a written one. They agreed in 1936, for business purposes, that their currencies should have the same value and be on the same basis. If it was no humiliation to France, to the United States or to Britain, why should we be told that we were nationally humiliated because we made a good business arrangement that suits us and that we could tear up to-morrow? I have great respect for Senator Seán Campbell, who is an old and dear friend, but he ought not to let himself be "codded" by shibboleths or catch-cries of that kind. I hope the sensible men in the Labour Party here will not allow themselves to be led astray by that kind of codology. There is no humiliation, national or personal, in making a business arrangement that suits, and that is profitable to us. When it does not suit us, or is no longer profitable, we can get rid of it. The Seanad could call the Government to order and say: "Look, this is no longer a good bargain for us; get rid of it." Even before it becomes necessary for the Seanad, watchful as it might be, or the Dáil, to call on the Government to do that, the central bank board, whose job it will be to safeguard the monetary unit, will keep a watchful eye on all matters appertaining to the country, and to its finances, and will see to it, so far as its advice goes, that the Government will also safeguard the interests of the country, and the interests of the ordinary people, so far as the monetary concerns, and finance in general, come within its purview.

There was a great deal of talk yesterday about the things that ought to be done in this country in the way of solving unemployment, and getting rid of social injustices. I admit that the men I know in this House, some of them on the Labour Benches for a very long time, are earnest, sincere men, anxious to remove social injustices and to get rid of poverty so far as they can, but I do not believe— and I do not think they claim—that they are any more anxious to do that than I am, or than Senator Hayes who also spoke on the subject, or members of other Parties here. If I could imagine any constitution of a central bank that would bring us even another few hours nearer the achievement of the abolition of poverty and hunger, and the ending of unemployment, I would be very happy to be able to get such a constitution and to bring it before the Seanad as part of the Oireachtas. I would be very happy if anybody on the Labour or other benches would point out how this Bill could be amended to do the things that they want done. I put up the same challenge to the Labour Benches in the Dáil. I have not got any help so far to amend the Bill in that direction, and I do not think I could. The central bank is not a body to stop unemployment and no monetary manipulation is going to be able to achieve that end. No amount of monetary manipulation by a Government, no more than a central bank, is going to be able to abolish unemployment, and to achieve a new heaven on earth, socially speaking, that some people have been advocating as a thing to be brought into existence in this country. Monetary action alone cannot offset various other forces which operate on the economic system. Even the most active and ultra-liberal central banking system will not and cannot of itself dispel economic depression and unemployment with its attendant ills. If a central bank could do that, it would be done long ago. Some people fondly imagine that a central bank could with safety, provide superabundant funds for social schemes of all kinds. They think that by some kind of monetary manipulation it would be possible to solve all social problems, particularly that of unemployment. That is a dangerous attitude to maintain. It is not the job for a central bank.

The central bank's primary function is to safeguard the integrity of the national monetary unit, and wholesale credit creation would inevitably impair the integrity of the monetary unit and might bring about serious social injustices. Monetary manipulation might have, and in some cases has had, the effect of making the social conditions worse.

Mr. Foran

For instance?

Mr. O Ceallaigh

There is one example that those who read the ordinary newspapers must be familiar with, where a big effort was made through monetary manipulation to end unemployment—that was the principal aim—and to improve other social conditions as well. That was in the case of the United States. There was no power that the present President of the United States—President Roosevelt— asked for or needed that he did not get, in his effort to end unemployment. He got all the money and power he wanted. Before the war he spent more than eight years in trying to end unemployment, and I think the last state was almost worse than the first. At the end of eight years he had not got anywhere, and there were still millions of unemployed. The only country I know of where unemployment was cured was Germany—and you know how it was cured.

Mr. Foran

And Italy.

Mr. O Ceallaigh

Would Senators like to see those methods operate here? I think things were improved socially for agriculturists and others in New Zealand. Mentioning New Zealand again, might I say that, in my reference to New Zealand Ministers, I had no intention of being discourteous to anybody? I would very much dislike being discourteous to much less important people than Ministers of New Zealand or of any other country. Discourtesy is not a thing that I like; certainly I detest it in myself and dislike it in anyone else. I have no intention of being discourteous to the Minister for Finance in New Zealand. It has been known in our history in the last century that people from Ireland had to go hat in hand to England. However, I deny that the Finance Minister of New Zealand got any concession from Great Britain. He had to repay his loans. He got a new loan and he had to pay dearly for it. He was put in the position of having to go for a loan and of being obliged to accept onerous terms, because of the financial and economic crises brought about owing to the changes which had been operative for a few years since the Labour Party got into power in New Zealand and put the country in a bad way financially. They used up all their sterling reserves at a much greater rate than they intended. Then they found themselves in financial difficulties, and to get those difficulties resolved they had to go to the only place open to them. They got no concession, no debt wiped out, no interest on their debt wiped out, and they had to pay prevailing rates for the new loan granted to them.

Senator Johnston said yesterday that this central bank of ours was the swan song of orthodoxy. Even if it were, that would not upset me. I am no disciple of orthodoxy: I have not been one in political matters, and I would not be tied for all time to orthodoxy in economic or financial matters. I think the Senator holds that this Government has been most unorthodox in its economic and industrial policy. I hope it will continue to be equally unorthodox. It will be for the good of the country if the present policy is continued, in the better conditions which will exist, I hope, when the emergency ends. I hope we will not recede one iota from that industrial and economic policy. I do not agree with Senator Hayes that it has done harm to the country. I think it has done infinite good and that, if it had not been for that policy—which, as Senator Hayes reminded us, the Labour Party wisely helped to put into operation—we would be in a very sad state to-day and our people might be without sufficient food.

Mr. Foran

What about the old age pensions?

Leas-Chathaoirleach

There are a great many things relevant to a Central Bank Bill, but I doubt very much if the matter of old age pensions is one of them.

Mr. O Ceallaigh

Our economic policy was deliberately adopted and it has stood the test of time. Certainly, it was well that it had been developed to such an extent. It would have been developed much further but for the opposition we met in the Dáil and in the Seanad. It has gone a considerable way, I am glad to say, for the benefit of the country, as it has turned out, especially during the war.

Mr. M. Hayes

The opposition made it less harmful.

Mr. O Ceallaigh

I do not think so. We would have made great strides industrially and found employment for many more thousands of our people, if we had got help instead of opposition.

Professor Johnston

Surely the Minister enjoys opposition.

Mr. O Ceallaigh

I do not object to it at all. I like a good speech when I hear it, and if I can answer it and get my own back I am glad, and if I cannot I remain silent. Senator Johnston complained that the central bank was not set up long ago, and said that, if it had been, we might usefully have borrowed more millions. I thought the complaint from the Opposition Benches generally was that this Government borrowed too much and spent too much. As a matter of fact, in six years we borrowed £48,000,000 and spent it on the development of the country. That is a considerable sum, which was spent usefully. To a certain extent, it meant the reduction of our external assets, but as these had grown to a large extent they could usefully be reduced, without any disadvantage to the country.

Mr. Foran

Especially now.

Mr. O Ceallaigh

Yes, if we could get the goods.

Mr. Douglas

"If."

Mr. O Ceallaigh

The sterling assets would be most valuable to us.

Mr. Douglas

"If."

Mr. O Ceallaigh

We are getting some.

Mr. Douglas

Some, yes.

Mr. O Ceallaigh

We are getting millions of pounds' worth, even now.

Mr. Baxter

We could do with a little artificial manure.

Mr. O Ceallaigh

Even now, we are getting millions of pounds' worth. If we take the figures of the value of exports and imports in the years 1939, 1940, 1941 to the 31st July, 1942, we find that in these four years £140,712,000 worth of goods were imported and, in the same period, exports amounted to £110,406,000. There was an excess in the value of imports over exports of £30,306,000. That is being paid for out of our sterling assets.

Mr. Baxter

What were the figures for the completed year 1941?

Mr. O Ceallaigh

Imports amounted to £29,537,000.

Mr. Baxter

So we were building up sterling assets in that year?

Mr. O Ceallaigh

Yes. The value of what we imported in 1939-40 exceeded the value of exports by £13,816,000.

Mr. Baxter

How were the figures proceeding in 1942?

Mr. O Ceallaigh

I have not got them. These external assets are not to be despised, but I would be happy if we were getting more capital goods in and not building them up even at the rate we are building up sterling assets now. Senator Johnston and Senator Baxter both thought that the central bank should have greater power to lend directly to the Government and to local authorities. Well, there is certain limited and restricted power for the Government to use the central bank for the raising of funds indirectly—limited power, admittedly— and there is power in the Bill to rediscount bills of local authorities, and that power can, I think, be used to assist local authorities in raising money. I believe that there is certain power in the Bill to help all concerned to raise loans perhaps at more advantageous rates of interest than have operated up to the present—limited powers, admittedly, and restricted powers—but there are powers there that, wisely used by prudent men on the board of the central bank, can be of infinite advantage to the country.

Senator Johnston wanted to know if the central bank can prevent inflation. Well, that is not the job of the central bank alone. The Senator will admit that. The job, primarily, of the central bank is, as I have said already, to safeguard the currency and the monetary unit.

Mr. Baxter

Is that not done by preventing inflation?

Mr. O Ceallaigh

The main operative acts necessary for that are the function of the Government, not of the central bank. The central bank has certain limited and restricted powers, but it is the Government's responsibility to prevent inflation, and it is only the Government that could have the power and could do the acts necessary to prevent inflation—a very difficult thing, in our circumstances at any rate. We have not completely prevented inflation. Inflation, to a certain extent, has gone on despite the best we could do to stop it.

Mr. Baxter

Is not that the trouble —that it is a gradual process?

Mr. O Ceallaigh

The trouble is that, in our circumstances, we could not have such complete power, we could not cut ourselves off so completely from economic circumstances surrounding us, that we could avoid completely inflation in this country.

Mr. Baxter

By a form of exchange control, could you not manage it?

Mr. O Ceallaigh

No, you could not. Try every avenue you like, stop every door you wish, in the economic circumstances in which we have to live and move, with world conditions such as they are, having to import so much as we have to import, conditions being as they are, conditions that we cannot control, a certain amount of inflation has gone on and, I am afraid, is likely to continue despite all our efforts. I think I have dealt sufficiently with the link with sterling and the rate of exchange that was discussed at such length.

Senator Cummins said that this Bill preserves the status quo. That is not so. As Senator Sir John Keane told us last night, there are new powers taken in this Bill that did not exist before and which, in the view of some people—Senator Sir John Keane and others—are too great powers, too wide powers, to give to a central bank here. I do not think it is true to say that the Bill preserves the status quo. There would be no use in bringing it in if it were only to preserve the status quo—it would be a waste of time, a waste of energy and a waste of money. From a purely banking and financial point of view and perhaps from an economic point of view, there are certain powers, in Section 7 alone, that will be given to the central bank that have not existed before. They are powers that are to be found in a number of central banks all over the world and that would give the board here power to do things that, I believe, will materially affect the financial and economic system here. Senator Cummins and, I think, others said that the monetary authority will not be amenable to the Oireachtas. I think Senator Sir John Keane is of the opinion that it will be too amenable to the Oireachtas. I think that the constitution of the board is reasonable.

We are taking over the idea from the Currency Commission of having three banking directors and I hope the directors selected by the banks will be as experienced and as prudent as we have had heretofore on the Currency Commission. Senator Baxter was at pains to tell me what I would be missing in not making certain that I would get amongst the bankers on the board men who had risen from the ranks, who had gone through the banking profession, if we may call it so, from the lowest grade to the top. If I know anything about banking in Dublin, there are some such men amongst the directors. We have never been without one such man and we have had two such men for the greater part of the time on the Currency Commission. Since I became Minister for Finance, I have frequently met delegations from the Banks Standing Committee and on all these deputations were men who had come right up from the lowest ranks of the service and who were as experienced bankers as could be got in any country. In the case of some of them, they had knowledge of every county in the country. Almost every bank that has a board of directors has some man of that type on it. It is not true that I have restricted myself in such a way that I may not have the benefit of advice of men of that type. Even as it stands, the Bill does not say that the persons to be selected by the banks must be directors of the banks. The persons selected could be officials who had never sat on the board. That is a matter for the banks to decide. I hope that I shall continue to have the help of such experienced men on the board of the central bank.

The monetary authority will not be directly subject to the Oireachtas, as Senator Cummins said, but, as others pointed out, a majority of the board will be nominated by the Government. I do not know that we can claim to be wiser or more experienced in these matters than the men from many countries who sat on special councils to deal with this and other matters. An economic and financial council was held at Brussels in 1920. Representatives of peoples all over the world there recommended very strongly the setting up of central banks which would not be subject to political influence, as such influence would not tend to make them more efficient in attending to monetary affairs. Two years later, there was an international monetary conference at Genoa and that body recommended the setting up of central banks which would not be immediately subject to Government control or political influence. A world economic conference met in London in 1933. No definite resolution was passed but the general tone of their report favoured the setting up of central banks which should be free from political dictation. The individuals composing those bodies were, at least, as experienced as any of us here in financial and monetary affairs and in the government of States. One should not pass over lightly advice of that kind. The Government examined the matter carefully and my strong recommendation was that direct control of the board of the central bank or direct interference in its affairs by the Government was not desirable.

Senator Cummins said the board would be "amenable to outside influence or control over which we have no control." I do not know what the Senator had in mind, but I cannot imagine the board being controlled from outside. Nobody outside the Government will have any right to control the board in any degree. Any control there is is very indirect and modest. There were great complaints in some sections of the Oireachtas that the control was not more direct and immediate. The control will be of a remote kind. The Minister can call on the governor or the board to discuss matters relating to finance with him whenever he thinks proper. He can ask them to advise, but he has no power to dictate to them, though he can terminate the office of members when the proper time comes if he is not satisfied that their advice or management was sound. Senator Cummins' suggestion, that one of the functions of the central bank should be to increase the population, amused me. That came well from the Senator, and I was glad to note even his belated interest in increasing the population.

Senator Keane said that there were a number of matters which required amendment, particularly relating to the powers of the board, which he thought went too far and might interfere with the commercial banks. We shall have an opportunity of hearing the Senator on these matters later. As I see it, I do not think that any power set out in the Bill goes beyond what is wise or prudent in our financial affairs at the present time. I was pressed, and pressed very hard, in a number of directions, even before the Bill saw the light of day, to go much further. I was pressed very hard in the Dáil to take much greater powers. I have gone pretty far in the direction of control and interference with the financial institutions of the country in the Bill as it stands. If, as I said earlier, any body in this House has any constructive amendments to put forward, especially the Labour Party —I put that challenge up to them— that will make this Bill a more useful Bill to achieve the aims and objects that they have in mind in so far as any central bank can do these things, I will be glad to consider them.

Mr. Foran

To consider them only?

Mr. O Ceallaigh

Certainly. What else does the Senator expect?

Mr. Foran

To adopt them.

Mr. O Ceallaigh

To buy a pig in a poke. I would never accuse Senator Foran of buying a pig in a poke. I did not like to put it that way, but I do not think the Senator ever found me such a "gom" either. Senator Counihan has, as we all know, one particular item that he raises here every time he gets the Minister for Finance in front of him, and that is the question of agricultural credit. I did not, I think, make a promise to the Senator that I was going to bring in a measure or do any specific thing in relation to agricultural credit. I did promise him that I would have the matter examined. The Senator knows that the matter has been examined and is still under examination. As members of the House know, a new commission has been set up to consider matters relating to agriculture, and one of the first things it has to do is to examine further the question of agricultural credit. Every suggestion that can be put before that commission to improve agricultural credit, will, I hope, be put before it. As I have said more than once before, I am prepared to examine sympathetically whatever reasonable propositions are put up to me.

Mr. Counihan

Two years may pass before this commission reports.

Mr. O Ceallaigh

I hope not. I cannot control it, but I hope that it will not sit as long as, say, the Banking Commission.

Liam O Buachalla

Will not the commission issue interim reports?

Mr. O Ceallaigh

I hope it will. I want to assure the Senator that my promise to him is to examine this matter and try to get some practical recommendation that I could adopt, and that would be helpful to agriculture. If I get that I certainly will lose as little time as possible in helping agriculture all I can.

Mr. Counihan

Thanks.

Mr. O Ceallaigh

In that connection, there is in the Central Bank Bill power to issue notes on domestic assets. That is a point that Senator Baxter was interested in. In the Dáil also a number of Deputies were deeply interested in it. Again, the phrase "national humiliation" was used, not here, but in the Dáil, and it was said that we could not issue notes on domestic assets. That kind of mentality was pretty prevalent in the Dáil. As a matter of fact, any country that can afford it has its currency backed either by foreign exchange or gold. All the big wealthy countries of the world, if they could afford it, would not dream of having their currency backed by domestic assets.

Mr. Baxter

What is the need for backing at all? Has Britain a backing for all the currency she is issuing?

Mr. O Ceallaigh

Of course she has.

Mr. Baxter

At present?

Mr. O Ceallaigh

Of course she has backing. Even America, wealthy as it is—and it is not nearly as wealthy as Great Britain—has its currency backed to 200 per cent. by gold and not by domestic assets. Great Britain had her currency backed by gold. It is true that she went off the gold standard, but still she has a pretty solid amount of gold and other assets, not necessarily domestic.

Mr. Baxter

Did I understand the Minister to say that America has her present currency backed——

Mr. O Ceallaigh

To 200 per cent. by gold. Is that clear to the Senator? The actual fact is that the more really independent a country is the less it is disposed to resort to the use of domestic credits as cover for its currency. That is the experience, and these are the facts. In the United States, the Federal Reserve system has its notes covered twice over by gold. They have no use for domestic assets as backing for currency. Switzerland and South Africa hold gold to an extent far in excess of their note issues, and until the disturbance created by the war, the Netherlands Bank was in the same position. Egypt, Argentine and New Zealand follow the same course, the figures of the Reserve Bank in New Zealand for recent dates showing holdings of gold and sterling approximating closely to the amount of the notes outstanding. So that even New Zealand does not rely on its domestic assets. It has sterling as backing for its currency.

Mr. E. Lynch

Is not the gold backing in America a fortuitous circumstance arising out of the present war conditions and also the last war conditions?

Mr. O Ceallaigh

I do not know about the last war, but I know that they have always gone in for gold in the United States. I have often been in the United States, and I know that the first time I went there, I saw gold in ordinary circulation, people buying and standing drinks and paying for them in gold dollars.

Mr. E. Lynch

Since the last war I think one may say that America was in much the same position as the boy in school who won all the marbles.

Mr. O Ceallaigh

This may interest the Senator. A century ago the fact that bank note issues were used for domestic credits had become a great public evil and necessitated in Great Britain and Ireland the legislation of 1844 and 1845, which put an end to this system. An obvious defect of it was, that if domestic credits could be provided by note issues, it might be difficult or impossible to achieve the essential requirement of effective limitation of the volume of notes. The mere fact of having to tender gold or foreign exchange in order to procure an issue of notes provides a limiting mechanism which is absent if issues can be made by way of domestic credits. There is power in the Bill, in more than one section—it might not be wise that the power should be used too extensively—to issue notes on domestic assets. It will be for the board, which will have the responsibility of guarding our currency, to decide if and when that power shall be used.

I recommend the Bill to the House, but it is not the last word by any means on central banking. It is an important and a big step in the direction that all countries have gone during the last quarter of a century to control their own credit and currency. This step is not being taken because of the emergency; it is a step that in any case would have been necessary. I think it will be helpful to us in the emergency and give us powers that will, to some extent at any rate, help us to get over the financial difficulties that may arise when the war ends. It is not the last word, and the Minister for Finance may have to come back to the Oireachtas many times before we get the ideal central bank that some members are looking for.

Mr. Campbell

The Minister made a statement which I think was quite unintentional and which was not deliberately made. He accused me of suggesting that we should have a central bank set up outside the jurisdiction of the Oireachtas. He accused me of something which I did not suggest. What I did say was: "I am opposed to this Bill because it makes no provision that the monetary authority established under it will be amenable in reality to the authority of the Oireachtas." I do not think that justifies the statement made by the Minister.

Mr. O Ceallaigh

I have no desire to misrepresent the Senator. I think he is aware that he would probably be the last person in the world I would misrepresent. I was under the impression—I gather now I was wrong— that the Senator wanted to give the central bank board power to alter the rate of exchange. Is that not so?

Mr. Campbell

Subject to the authority of the Government and the Oireachtas.

Mr. O Ceallaigh

Oh, now! The Senator wanted power given to the board to alter the rate of exchange. The board will, to a limited extent, be subject to the Oireachtas, but the Senator wanted the board to decide if and when the rate of exchange should be altered. I understood that was what the Senator said.

Mr. Douglas

That was the impression I got also.

Mr. Campbell

What I said was: "In so far as I understand it, if there is one function more than another that is performed by central banks everywhere, it is the control of foreign exchange, the determination of the exchange rate between home currency and foreign currency. That function, however, is denied to the proposed central bank in the Bill before the House. Our exchange rate is fixed by statute—it is fixed by Section 47 of the Currency Act of 1927—so that, strangely enough, we are, I think, the only people in the world who fix by statute the rate at which our currency will exchange with that of another country. New Zealand and Australia have long since scorned the notion that their currency should be linked to sterling on a parity basis, or that their exchange rate should be settled by statute." I do not know how the Minister got the impression he did get, but I did not suggest that the central bank by itself should have that power. That power will be subject to the Government and the authority of the Oireachtas.

Mr. O Ceallaigh

I understood that the Senator wanted the Bill to contain a section similar to what is in the New Zealand legislation. The New Zealand bank has power to alter the rate of exchange without reference to anyone. It has that power and it can do that. I understood the Senator advocated giving similar power to the central bank board here.

Mr. Campbell

If I gave that impression, it was not my intention to do so.

Mr. O Ceallaigh

If I have misrepresented the Senator, I am very sorry.

Question put.

The Seanad divided: Tá, 32; Níl, 5.

Tá.

• Baxter, Patrick F.
• Blaney, Neal.
• Butler, John.
• Colbert, Michael.
• Concannon, Helena.
• Conlon, Martin.
• Corkery, Daniel.
• Counihan, John J.
• Douglas, James G.
• Goulding, Seán.
• Hayes, Michael.
• Hayes, Seán.
• Healy, Denis D.
• Honan, Thomas V.
• Johnston, James.
• Keane, Sir John.
• Kehoe, Patrick.
• Kennedy, Margaret L.
• Lynch, Peter T.
• McEllin, Seán.
• McGee, James T.
• McGillycuddy of the Reeks, The.
• Magennis, William.
• O Buachalla, Liam.
• O'Callaghan, William.
• O'Donovan, Seán.
• O'Dwyer, Martin.
• O Máille, Pádraic.
• Nic Phiarais, Maighréad M.
• Rowlette, Robert J.
• Ruane, Thomas.
• Tunney, James.

Níl.

• Campbell, Seán P.
• Cummins, William.
• Foran, Thomas.
• Hogan, Patrick.
• Lynch, Eamonn.

Tellers:—Tá: Senators Goulding and O'Donovan; Níl: Senators Campbell and Hogan.

Question declared carried.

Committee Stage ordered for Wednesday, October 7th.