Dáil Éireann díospóireacht -
Tuesday, 24 Nov 1953

Vol. 143 No. 4

Committee on Finance. - Vote 6—Office of the Minister for Finance.

Acting-Minister for Finance (Mr. Aiken)

I move:—

That a sum not exceeding £55,400 be granted to complete the sum necessary to defray the Charge which will come in course of payment during the year ending on the 31st day of March, 1954, for the Salaries and Expenses of the Office of the Minister for Finance, including the Paymaster -General's Office.

It is usual to debate with the main Estimate of the Minister for Finance all the other smaller Estimates for which the Minister is responsible. On this occasion there is, however, a motion to refer back No. 22, Universities and Colleges, and I think it would be as well, therefore, if what Deputies have to say on that particular Supplementary Estimate is reserved until we come to discuss that particular Estimate.

An Ceann Comhairle

No. 22 then is to be taken separately.

Mr. Aiken

It will be taken separately. One of the principal criticisms levelled by the Opposition Parties to the administration of the Department of Finance during the last year is that quite deliberately the Government, through the Central Bank, gives cheap money to England and demands a dear price from Irish institutions and local authorities for money lent for development purposes.

On the 24th October, Deputy Dillon went down to Ballybay and he said there: "Mr. MacEntee continues to pay 4¾ or 5 per cent. for the money he borrows while he lends over £60,000,000 to the British Government at about 1½ per cent.. All this seems daft to me." When he made that statement he was following the line that Deputy MacBride took in Ballybay a week or two before that. Deputy MacBride repeated in Ballybay an allegation that he has made here and elsewhere on several occasions, namely, that we are giving our money through the Central Bank for little or no rate of interest to the British, and that we are robbing our own people by charging them 5 per cent. or 5½ per cent.

Both Deputy MacBride and Deputy Dillon were merely following the line taken by Deputy McGilligan. Deputy McGilligan on 26th November, 1952, at columns 115 and 116 of the Official Report said:—

"The Minister has had to pay 5 per cent. to get people to lend him money and when the local loans go out the people who take them will be paying 5½, 5¾ or 6 per cent. Yet we have lent £54,000,000 in 1951 and nearly £59,000,000 in 1952 to England, while the Central Bank which is empowered to invest those assets have not yet put a £5 note into any of our securities or local authorities' securities."

Deputy Mulcahy was also eloquent on this subject. On 25th March, 1952, in the Dáil—Volume 130, column 405, Official Report—he said:—

"They were lending the money at less than 1 per cent. Our Central Bank was lending money at 1.1 per cent. to Great Britain.

During the war, while these banks were lending money at less than 1 per cent. to Great Britain, ourlocal authorities were being charged 4 per cent. for moneys which were being utilised to cut the emergency turf supplies for our people."

Deputy Norton was not to be outdone in this campaign. He went down to Baltinglass and, as quoted in the Irish Timesof 1st June, 1953, said:—

"The Government and the bank —that is the Central Bank— believed that the nation's salvation lay in continuing to invest their money in Britain, while much of it was lent to the British Government at 1½ per cent., although Irish farmers, industrialists, shopkeepers and house-purchasers had to pay 6 per cent. for money borrowed here."

All these gentlemen were very eloquent a couple of years after they left Government on allowing the Central Bank to invest money in Britain at ½ or ¾ per cent., or whatever it was. They changed the percentage the Central Bank was getting from time to time. I put them a question here on several occasions as to why, if these investments of the Central Bank were "wastepaper"—as Deputy McGilligan used to denounce them as before he became Minister for Finance—why they allowed the Central Bank to invest, between 31st March, 1948, and 31st March, 1951, an extra £36,000,000 in this wastepaper for which the Central Bank was getting only a fraction of 1 per cent. of interest. Not one single one of them ever faced that question and explained to the people why they did it.

On 31st March, 1948, immediately after the previous Government came in, the Central Bank sterling assets stood at £44.1 million, and on 31st March, 1951, they stood at £80.1 million, an increase of £36,000,000. Although I asked them several times in the House to explain to the country, when they were denouncing Fianna Fáil for allowing the Central Bank to continue to hold its sterling assets, why they allowed the Central Bank to increase its sterling assets, they were all mute on the subject. My belief is that the principal members of the Opposition and, indeed, a lot of other people whoare supposed to be responsible commentators on public policy in the country do not know the real nature and the function of the Central Bank's assets.

Before I go any further, I want to put this matter in its proper perspective. There are other countries that have Central Bank assets. I am translating a table which is in rupees and pounds and dollars into dollars for the purposes of easy comparison. I want to read this table to Deputies. At the last moment for which we can get figures for the Central Banks or the Exchange Equalisation Fund or equivalent institutions in other countries, they held the following list of gold and foreign assets, giving the sums in terms of dollars.

Mr. Davin

A sensible comparison.

Mr. Aiken

Australia held $1,112,000,000 worth of gold and foreign assets; India, the Reserve Bank, held $1,716,000,000; South Africa, $259,000,000; Canada, $1,771,000,000; Switzerland, $1,524,000,000; United States, $22,275,000,000; West Germany, $1,599,000,000; Belgium, $1,043,000,000; Netherlands, $1,099,000,000; France, $573,000,000; New Zealand, $271,000,000; Ireland — the Central Bank — $218,000,000; Great Britain, $2,486,000,000. Deputies will see that we are not alone when our Central Bank holds in gold and foreign assets the sum of $218,000,000.

General Mulcahy

Where are they held and what are they held in respect of?

Mr. Aiken

I gave the Deputy their value in units of dollars. It is £71,000,000. The Deputy should not at this stage be asking where they are held. We have a few million pounds' worth of gold. We have some dollars. For the most part it is held in sterling—about £71,000,000 or thereabouts in sterling.

General Mulcahy

The Minister has associated the idea of Ireland and its reserves in the Central Bank with the idea of other countries and their reserves in central banks. Will the Minister indicate for what purpose and inwhat way and in relation to what policy the various reserves are held by other countries?

Mr. Aiken

That is exactly what I am coming to. I want to deal with this once and for all, if I can, so that we will be discussing policy on the basis of facts. I want to get into the minds of the members of this Dáil and people interested, if I can, what is the nature and the function of external assets. All these countries feel it right or, whether they feel it right or not they, in fact, have these amounts in gold or external assets.

Mr. Rooney

Are they all creditor nations?

Mr. Aiken

France, of course, is not a creditor nation and France has still in gold and other foreign assets $573,000,000 worth.

It is not for fun that they hold these. It is not for fun that a number of those countries hold large balances in London. It is not to give cheap money to John Bull, as Deputy Dillon would put it. They are not all daft, as he would say.

Mr. McGilligan

Hear, hear, they are not.

General Mulcahy

Are those balances held in London?

Mr. Aiken

Some of them are held in London, some of them in New York. Some of them are held in the form of gold.

General MacEoin

That is the point.

Mr. Aiken

But the fact is this, that the previous Government during its term of office allowed the Central Bank to increase its sterling assets by £36,000,000, and it has never been explained.

General MacEoin

And we spent it as well and we reduced sterling assets.

Mr. Davern

The cat is out of the bag now.

Mr. Aiken

Deputies cannot have it both ways.

General MacEoin

Now you are talking and that is the truth.

Mr. Aiken

If the Deputies want thematter obscured and to create a fuss and put me off my stride I will take as long as it is necessary to get this matter accurately on record. It was not just for the sake of collecting waste paper that the last Government increased the sterling assets of the Central Bank by £36,000,000. I am perfectly prepared to admit that, and neither was it to give cheap money to the British. It is because external assets have a certain nature and a certain function, and that is what I want to explain.

Other countries have various institutions for keeping their external assets. Some of them have central banks, some of them have exchange equalisation funds or equivalent funds, but as long as they are external assets some institution or individual must hold them. For instance, if I have £100 invested in England and I want to take it back to buy something here, invest in Ireland, buy shares or whatever you will, I sell the £100 worth of stock in the London markets and the cheque is cleared through my bank here and the first result is that I am minus £100 worth of sterling assets but my bank has increased by £100. If I wanted to liquidate, on behalf of the nation, £100, the way to liquidate it is to spend it by giving it to some English person or institution for goods or services. Suppose we go through the exercises for the sake of clarity as to what would happen if the Central Bank were to realise the £71,000,000 or thereabouts of sterling assets that it holds at the moment and with the proceeds, and after going through all the rounds which I have described, bought £71,000,000 worth of Irish Government securities; the result of it would be that the sterling assets that are now held by the Central Bank would be transferred to the commercial banks. The Central Bank would hold, after that transaction was concluded: £71,000,000 less of sterling assets, £71,000,000 more of Irish Government assets, and the commercial banks would hold £71,000,000 more of sterling assets.

We take it the other way. Supposing that by law we compel the commercialbanks to reduce their sterling holdings, by say, £100,000,000 the result of it would be to increase the sterling assets of the Central Bank or some other institution by £100,000,000. Now do the Deputies—and here is a question I want to put to them to answer in this debate—seriously suggest that we should pass a law compelling the Central Bank to hand over its sterling assets to the commercial banks?

I do not think that that would be a good idea. The commercial banks may be as reasonable as a lot of people think they are, but I certainly would not like to trust them to the extent of putting the power in their hands of holding all those external assets, liquid external assets of this country; and I think it is a good thing that whether it is regarded as a backing for the note issue or as portion of the national reserve of external assets that the Central Bank in fact does hold £71,000,000 worth.

Other countries have proceeded differently from the manner Deputies suggest, namely, that the Central Bank should get rid of all these assets and invest in Irish securities. Other countries have prohibited the commercial banks from holding external assets of any kind. Even the American commercial banks do not hold gold or any more foreign notes than are necessary for their day-to-day business. All the American gold and the American foreign external assets are held by the Federal Reserve Bank.

Mr. Davin

Has Barney Baruch anything to do with it?

Mr. Aiken

No. They would not let Mr. Baruch hold them. They insist that the ordinary commercial banks should transfer their gold to the Central Bank. But if Deputy Davin or Deputy Norton or Deputy McGilligan or Deputy MacBride or Deputy Mulcahy were in America, and if they carried on the same sort of argument that they used around the country here they would insist that the American people should take this money from the Central Bank and give it all to Mr. Baruch and commercial bankers like him.

Quite recently the Australian Government passed a law in which they compelled all their commercial banks to hand over all their sterling assets to the Central Bank of Australia. The same thing obtained in Canada, where all the sterling external assets of the Canadian Bank are held not by the Central Bank but by a special Exchange Equalisation Fund which they have established. In England the commercial banks are not allowed to hold external assets. They are all held either by the Bank of England or by the Exchange Equalisation Fund. These countries set aside the external assets they hold, but they hold quite an amount of money—as much as they can get hold of—in liquid securities in New York. In respect of the last quotation I saw for short-term securities in New York the yield was 1? per cent. It is not to give cheap money to Uncle Sam or to the Americans that the British, the Swiss, the South Africans or the Belgians hold liquid dollar assets which are equivalent to our sterling assets. Over the last year or so these countries have not earned anything like the interest that our Central Bank is earning. Perhaps it is because it has so little of its reserves in the form of gold and most either in the form of sterling or dollar assets that it earned 2.1 per cent. on its money. The Canadian Central Bank earned only ½ per cent. Australia earned .8 per cent.

Mr. Davin

They are not profit-making banks.

Mr. Aiken

Not profiteering banks?

Mr. Davin

Not profit-making banks.

Mr. Aiken

The Central Bank is not a profit-making bank but it made 2.1 per cent., four times as much as the Canadian Bank and two and a half times as much as the Australian Bank.

General Mulcahy

Surely it hands over £100,000 per year in extra profits?

Mr. Aiken

Yes, but they have to make the profits first.

General Mulcahy

Then it is a profit making bank.

Mr. Rooney

Give us the average.

Mr. Aiken

Its function is to safeguard the currency and credit of this State, not to make a profit. If its purpose was to make a profit and not the functions which this Dáil imposes on it, it would invest its money in very many securities or shares other than the type of securities which it holds.

Mr. Davin

What is the Bank of England figure?

Mr. Aiken

I have not got that.

Mr. Davin

Is there any reason why you have not got it?

Mr. Aiken

This is the reason. The British Exchange Equilisation Fund does not publish its accounts. I tried to get the figure for the Deputies because I would like to have got it. I have not got it. I am giving Deputies all the facts as far as I could get them.

Mr. Rooney

Are those the only ones?

Mr. Davin

You want to suit your argument.

Mr. Aiken

The Deputies will not get away with it on this occasion. I open this debate with a challenge to them to deny, if they can, the true function and nature of the external assets held by the Central Bank. If we can get agreement upon that matter we might, perhaps, discuss the financial affairs of this country in a more intelligent way, and in a way that would draw the respect of foreigners who know something about this matter. The reason largely given for demanding that the Central Bank should get rid of its assets and effectively give them over to the commercial banks is because we want cheap money. There is no inherent conflict between the Central Bank investing its holdings in sterling assets either at a big rate of interest or a small rate of interest, and having cheap money here. We can have as cheap money as any other country in the world and still, if our balance of payments is correct, hold portion ofour sterling assets in the Central Bank as portion of our national reserve and as a backing for our currency.

Mr. Davin

Are we not always 1 per cent. above the British?

Mr. Aiken

I warned the Deputy that he was not going to put me off, as he usually tries to do by asking questions that are not to the point. If our desire was to get cheap money or money for nothing for State purposes we could have a fiduciary issue as has been done in other countries to a limited extent. The British have altered the backing of their currency, as the Deputy knows. They have a certain amount of gold but they have fiduciary issues and they issue hundreds of millions of pounds from time to time. That is one way we could do it. There is another way also. Instead of having a fiduciary issue by the Central Bank we could arrange that the Central Bank would buy either short-term or long-term Government loans. That is being done in other countries. We could do it here if it was thought wise.

What I want Deputies to discuss is the wisdom or otherwise, the limitations either upwards or downwards of that policy. We could as they do in other countries also, get the commercial banks either to invest in the longer-term Government stock or in short-term bills. In that way we could increase the volume of money. I do not want to go very much into the situation in other countries, but it is interesting to know that the holding of the French Central Bank of $573,000,000 worth of gold and external assets is a mere 8.3 per cent. of the total holdings of that bank. Other countries which can more readily meet their day-to-day bills coming in from abroad, such as Australia, hold 47.2 per cent. of their Central Bank assets in gold or other external assets. India holds 52 per cent. Switzerland has 96 per cent. of their assets, either in the form of gold or external assets in New York, London or elsewhere. The Netherlands hold 70 per cent. in that way, and New Zealand holds 54.9 per cent.

This is the conclusion I want topoint to at this stage. If it is cheap money Deputies want it can be got without touching the external assets in the hands of the Central Bank. It can be got in one of the ways I have suggested. But what are the limitations to the procurement of cheap money? There are some people who think the best way to run a country is to have no taxation and simply, by one or other of the methods I have outlined, to supply the Government with funds. It avoids the political unpopularity of taxation.

Notionally a Government with powers to procure money from the sources I have mentioned for its ordinary purposes need never tax. However, that has its limitations and creates its difficulties. It is, in fact, the worst form of taxation. When a Government imposes taxation in order to meet its ordinary day-to-day needs it places the burden upon the smoker, upon the person liable to income-tax, upon people whose backs are fit to bear the burden. Ordinary taxation is selective taxation, selecting the people who the Government thinks should contribute to the support of the State and its outgoings. Purely inflationary creation of money to avoid taxation is, as I have said, the worst form of taxation because it takes a chip of everybody's pound or shilling whether he is a poor man or a rich man.

Mr. Rooney

You took 2/6 from them in two years.

Mr. McGilligan

And from the bread eaters of the population.

Mr. Aiken

Deputy McGilligan and Deputy Rooney might as well keep quiet because I intend to finish this argument, and they need not think they will put me off.

Mr. Davin

Mr. MacEntee will murder you when he gets you.

Mr. Aiken

Deputy McGilligan, I see, has come in here with a lot of papers in order to reply. I want him to answer a direct question. If he thought external assets were wastepaper, if he thought it was criminal on the part of this Government to allow the Central Bank to lend money in England at 1 per cent. and charge 5 per cent. for money, why did he allow the Central Bank to increase those external assets by £36,000,000 when he was Minister for Finance? If Deputy McGilligan is not fit to answer perhaps Deputy Rooney would. A mere increasing of the volume of money to avoid taxation reduces the value of every person's shilling and pound whether he be rich or poor. It increases also the value in terms of our currency of the property of people who have a stake in the country. The value of their property would go up in terms of the Irish pound if we adopted the system of abolishing ordinary taxation and created money in order to meet the Government's day-to-day outgoings.

There are people in other countries who think that is the only way to govern. If a French Government cannot get approval to impose a tax bill for various charges they go to the Central Bank for the money. The result is that only 8.3 per cent. of the holdings of their Central Bank is in the form of gold or sterling assets. The rest is in the form of Government Bills. If we wanted to do it we could leave the Central Bank with the £71,000,000 of external assets in its portfolio and compel it to take £100,000,000 of Irish Government bills and we need have no taxation next year.

Mr. McGilligan

There must be a by-election coming off.

Mr. Aiken

Deputy McGilligan may not know much about finance but he has plenty of impudence. If there is anybody making a point or saying something he does not like he will always interrupt. The limitation to the creation of money is recognised by sensible Governments in other countries and that is why even though they have the power to create money they limit themselves. That is done where there is a responsible Government run by people who are trying to serve the long-term interests of the country rather than their own immediate political ends.

A few years ago you had the situation in England under a Labour Government in which with set purpose they went out to over-balance their Budget, to produce a surplus, because the great increase of the volume of money that had occurred in England after the war through the deficits in the British budget had created a situation in which their external assets were disappearing, and the time was approaching when they would have nothing left with which to buy their food. They would have had to go to somebody for the loan of dollars to buy it. Even though the British people were very strictly rationed to a small sliver of meat per week and an egg a month, the Labour Government took steps to have a surplus in their Budget in order to bring their external payments into balance. It is normally considered by reasonable people and wise economists that a surplus or deficit in the balance of payments is an indicator or a barometer as to the financial policy that should be followed by the Government and by the country as a whole.

When countries have a surplus in their balance of payments, or a near-balance, they can quite properly set themselves to follow an expansionist economy. It is proper then for the Government to borrow from the ordinary people or to borrow from banks in order to see that the economy does expand. But when you have a large deficit in the balance of payments, wise Governments try to meet all of their capital investment, or as much of it as possible, out of the current revenue, out of the current savings of the people.

I do not want to go into any budgetary statement at the present time or to deal with our particular situation. What I have tried to do is to show the nature and the function of the external assets and to challenge anybody in this House who wants to contest the arguments I have put forward or the statements I have made, to contest them here and now. This has not been sprung upon anybody. I have asked them time after time and I am getting an opportunity now of doing it at the beginning of this debate, so that no one can say that he had not time to answer, if they can be answered.

Mr. McGilligan

Many years ago, when I was younger, I was very fond of books by the Canadian humorist, Stephen Leacock, and enjoyed the jokes he used to make. My admiration for that author has gone up by enormous bounds this evening. He wrote a commentary upon the British people at one time and there was a picture which illustrated one of his books, describing a person as "operating like an English Peer who was thinking hard but not lucidly". The picture that showed that man thinking hard but not lucidly is one which can very well be got from this afternoon's debate by anyone with a facile pen or pencil and who could see the deputy Minister for Finance wrestling with himself trying to disprove things no one ever stated.

I have often argued that the assets of the Central Bank should not be held as they are and I will argue that again. I have also stated the position we found in 1949, when the commercial banks, which had their investment portfolios stuffed with foreign securities to the extent of £140,000,000 or £150,000,000 sterling, had only about £14,000,000 in home investments, Government or otherwise. That is a situation I have always deplored and I always thought we should change it. I had intended to change it; but I was in the happy position when I was Minister for Finance that there was no shortage of money. I had money—and money to spare. There was no plan we had for the development of this country that depended upon the provision of money and for which we failed to get proper assistance. We could get money in a variety of ways.

The Statisthas recently published a supplement, in which I want to turn to an article on: “Irish Banks and Irish General Credit Facilities”, which is written by Mr. J.P. Colbert, who certainly at one time was regarded by the present Government as the champion of their point of view on these matters. On page 92, in paragraph (7), these phrases occur:—

"It is suggested that the constitution and practice of the Central Bank of Ireland is sorely in need of reform. Its balance sheets show thatthe assets acquired through the issue of legal tender notes, of which it has a monopoly in the Republic, are represented by £2,646,033 in gold and the whole of the other assets by investments in securities and sterling cash or bank balances outside the State. The July Quarterly Statistical Bulletinshows notes outstanding of £63.6 million, against which the Bank held British Government securities of £60.2 million and other assets (gold and sterling) of £3.4 million.”

That is the amount of the legal tender note issue out, having put back very much the same—the sum difference in the issue. Here is Mr. Colbert's summing up of the position:—

"Nowhere in the world is there a parallel for such a position."

Does the Deputy-Minister want any reply other than that—"Nowhere in the world is there a parallel for such a position"?

Mr. Aiken

It is not correct, of course.

Mr. McGilligan

Is the Minister putting himself in the balance against Mr. Colbert?

Mr. Aiken

Yes.

Mr. McGilligan

I know where my money will be in that kind of contest. Mr. Colbert continued:—

"This is not to make a reflection on the board of the Central Bank, but on the ‘Red Tape' legislation under which it was constituted. An informed glance at any weekly Bank of England return will show that practically all its assets other than gold consist of domestic securities and short bills and advances. The same holds true for the United States of America Federal Reserve Banks and, indeed, for practically every other foreign Central Bank. There is no theoretical reason why the Irish Central Bank should not, similarly, be free to invest its funds in Irish Government and other securities at the discretion of its board."

Then he goes on to say why the Central Bank could engage in rediscounting as in the case of Central Banks in other countries.

Mr. Colbert holds up the position as "a picture without parallel in the world." I was advised along the same lines in 1949 when I first began seriously to consider the situation with regard to the investments of the commercial banks. In the autumn of that year I was told by those who were not merely entitled to advise me in the matter but who were experts and who had a right to advise, that there was no parallel in the world of banking for the practice of the Irish commercial banks in having virtually the whole of their securities portfolioed in foreign investments. Figures given to me in those days were:—

"The position at the moment is that, of a total security holding of £183,000,000, only £14,000,000 is invested in Irish securities, of which less than £9,000,000 are Government issues."

Then the contrast was made for me:—

"This should be contrasted with the position in Britain, where the London clearing banks against deposits mostly on current accounts of £6,000,000,000 hold investments of £1,517,000,000, virtually all Government stocks, in addition to Treasury deposit receipts of £44,000,000 and bills of £1,162,000,000."

That was the position I found, and such were the representations made to me, which I accepted, because I thought they were sound, that the position of the commercial banks in 1949 was "without parallel in the world." Mr. Colbert reports that with regard to the Central Bank at this moment.

Mr. Aiken

You want to add to the external assets of the commercial banks by forcing the Central Bank to realise its holdings.

Mr. McGilligan

I would not be guided by the Minister in any stupid, foolish policy of transferring assets.

Mr. Aiken

The Deputy is showing his stupidity.

Mr. McGilligan

I am meeting the point that the position with regard to the Central Bank is, according to one economist and financier, "without parallel". The same phrase was used with regard to the commercial banks in 1949 by people who advised me. At that time, in 1949, those who advised me also commented on the position of the Central Bank. After certain figures were given which showed the increase in the note issue and in the securities held against that note issue, the advice I got was contained in this phrase:—

"It is clear that by far the greater part of the notes outstanding will never be presented for redemption into sterling..."

It was pointed out to me that the legislation of this State, more particularly the Currency (Amendment) Act, 1930, laid down a procedure allowing assets other than sterling to be held as cover for the legal tender note issue. The comment was that that was a facility that had never been used by the Central Bank. The position, therefore, is that Mr. Colbert openly, before the public, indicates his view with regard to the position of the Central Bank. The Department of Finance advisers had the same point of view, not merely with regard to the Central Bank, but with regard to the commercial banks in 1949. I am sorry that that wizard in finance, Deputy Davern, is not here now, because I should like to test his teeth on this. Mr. Colbert continues at paragraph 8 of this article which appears on page 92 of The Statist,of the 24th October, 1953:—

"(8) The now totally unnecessary legislative provision to the effect that Irish legal tender notes are made payable on demand in sterling legal tender should be repealed. When originally established by the Currency Act of 1927, it had the definite practical meaning that a holder of Irish currency notes could use them to buy, as a statutory right, gold bars from the Bank of England at a price equivalent to £3 17s. 10½d. per oz. eleven-twelfths fine. Since the forced abandonment of the gold standard by Britain in September, 1931..."

Then he points out what happened—

". . . the holder became entitled only to a promissory note issued by the Bank of England which, though marked payable to bearer on demand, cannot be paid."

Mr. Colbert continues—and this is the test I should have liked to put before Deputy Davern. When he comes to understand this, he will be able to understand the fallacies of the Deputy-Minister's reasoning. Mr. Colbert continues as follows:—

"In other words, there exists the absurdity that an Irish paper money which is an unlimited legal tender for payment of all internal debts is made redeemable by conversion into an irredeemable external paper money over the issue of which there is no Irish control."

If I am asked what is wrong with the Central Bank, I say that it is mainly the legislation that was passed at the time of its establishment—legislation against which the people who now surround me on this side of the House fought during its passage through this House. We tried to get some amendments inserted. We tried to get some life into the Central Bank. We tried to get amendments put into the Central Bank Act which would correspond with the Currency Act—particularly the Amending Act of 1930—and which would give power to the Central Bank to invest moneys in home securities. I put it to those who were controlling the Central Bank in 1949 or early in 1950 that if they did not like to take the responsibility of investing some part of their assets in Irish securities I would take their responsibility from them: I would go to Dáil Éireann with amending legislation saying that the Central Bank, on the demand of the Minister for Finance, and after certain procedure, would have to invest some proportion of its holding in Irish securities.

Mr. Aiken

And that means to give them to the commercial banks, of course.

Mr. McGilligan

Sometimes when a dog cannot get a bone it can be played off with a dummy bone. TheMinister can play with his dummy bone for the rest of the evening.

Mr. Aiken

The Deputy is receiving an answer to his question.

Mr. McGilligan

Will the Minister keep quiet, like everybody else in the House? If the Minister wants to continue his speech for another while, I will give way to him and let him do so.

General Mulcahy

The Minister would want a back door.

Mr. McGilligan

I want to be allowed to make my speech in an orderly fashion and without constant interruption from the Minister. It is bad enough to have to impress facts on the unreceptive mind opposite but it would be impossible if I have to argue with the Minister in the course of an attempt to expose what he has been at. I offered to take the responsibility, if that was thought to be a good suggestion. If the Central Bank did not want to take the responsibility for investing in home securities I said that I would take responsibility to get the Act changed to enable a Minister for Finance here, openly and publicly before this House and, through this House, the people of the country to make the case that some proportion of the bank's holdings ought to be held at home and that we would even discuss in this House in what sort of home securities the moneys would be invested. That offer was not accepted. The bank has gone on. The Minister wants to know why the bank is compelled to do this, that and the other. It cannot be compelled unless the law is changed. It was set up as an institution by the Minister's group. Until the legislation is changed, it is futile to ask any Deputy: "Why did you not insist on the bank's doing this, that or the other?" I proposed to change it and I would have done it in due course.

Mr. Aiken

You did not, all the same.

Mr. McGilligan

I tried to get it changed in 1945 when it was going through.

Mr. Aiken

You had three years in which to do it.

Mr. McGilligan

I had no urge to do it.

Mr. Aiken

Did you not slash a lot of things for the lack of money? What about mining?

Brendán Mac Fheórais

You said we spent too much.

Mr. Davin

You said we squandered it.

Mr. Aiken

What about the Place Names Commission?

Mr. D.J. O'Sullivan

What about all the squandermania?

Mr. Aiken

A mere £4,500,000.

Mr. McGilligan

I did. If that is regarded as development—the Place Names Commission—then it is a crime on my head that I abolished it.

Mr. Aiken

What about the mining? The Deputy announced in his first Budget that he would save £94,000.

Mr. McGilligan

A mining scheme was started under the last Government. We found that we were mining under land that did not belong to the State. We had to buy out the land. These weak efforts at interruption by the Minister are not doing the Minister any good and are not putting me off my stride.

Mr. Aiken

These efforts at covering up are not shielding you.

Mr. McGilligan

The Minister's interruptions are not putting me off my stride. I can keep to the point all right. I had no urge to change the legislation at the particular time because we were in Easy Street as far as money was concerned in our time. So easy was the street we were in, that I was able to leave £24,000,000 of the American money behind me.

A Deputy

And took off £6,000,000 of their taxation.

Mr. McGilligan

I left cash to the extent of £24,000,000. The Minister's colleagues slashed that in six months.The Minister is anxious to know why that money was put into the Central Bank. That was the system that was adopted. If I had thought that an effort would be made, six months after I left office, to spend that money in that period, I should certainly have fixed it in long-term securities and tried to put a brake on the expensive career of the Minister for Finance who succeeded me.

Mr. Aiken

That is good.

Mr. McGilligan

Twenty four million pounds of the American money which I left behind was spent in the six months.

Mr. Aiken

Fifty-four million pounds?

Mr. McGilligan

I said £24,000,000. That cannot be denied.

Mr. D.J. O'Sullivan

That is sinking in now.

Mr. Aiken

Capital development.

Mr. McGilligan

We came last night to apparently a new policy with regard to development in this country. Another Deputy Minister for Finance went to the bankers' annual dinner last night, the Minister for Lands. Apparently he has the feeling that the banks may change their investment portfolios. He thinks it is right that the Government should expect, as time goes on, the enlargement of the banks' portfolios, so far as investment in Irish Government securities is concerned. He expects that to happen. I should like to stress that the Minister for Lands spoke at the bankers' annual dinner last night—in other words, the 23rd November, 1953.

The Minister for Lands who deputised for the Minister for Finance at this dinner last night said that the Government must get more money and the Government, apparently, having failed to get money, or having failed to get money from the community on their appeal through loan, are now going to demand more money from the banks. Why? Because, according to the Minister for Lands, deputising for the Minister for Finance, "the alternativeto a reasonable extension of credit facilities to the Government, particularly for increased national productivity purposes, would be to cut down the State capital programme which would not be nationally acceptable, for these works were desirable and indeed essential not only as a means of developing the neglected resources of the country but also as a means, on the one hand, of sustaining employment, and, on the other, of absorbing savings which would otherwise in all probability be diverted abroad." That was the Minister for Lands in a white waistcoat—he should have been in a white sheet. That is a complete recantation of all that he and the Minister who now faces me have been saying over the years.

Mr. Aiken

Nonsense.

Mr. McGilligan

The idea was to put your savings in foreign investments.

Mr. Aiken

Nonsense.

Mr. McGilligan

Let your savings go out of the country.

Mr. Aiken

Nonsense.

Mr. McGilligan

Was it only yesterday that the resources of the country were found to be neglected? Fianna Fáil became the Government of this country in 1932. Were the resources of the country fully developed then? They lasted until 1948. In between, did they do much to develop the neglected resources of this country? They have come back since 1951. What is their programme since then for the development of the neglected resources of the country? That a Minister of a Government which became such in 1932 should go to a dinner in 1953 and talk about the necessity for the banks lending money in order to develop the neglected resources of the country requires a brazenness, or else, a stupidity that is beyond any sort of explanation.

Brendán Mac Fheórais

That was their coming of age—21 years.

Mr. McGilligan

I went to some trouble here recently to find out what had the Government that held swayfrom 1932 done in the way of capital development. I take it that the speech last night means that capital development is again in danger, that our capital development schemes and projects are definitely in danger. There is apparent acceptance of the view that capital development is required, but that is joined up with this attitude that the banks are going to be forced to lend money. I want to know what is the money required for. I go back to find out what Fianna Fáil did from 1932 on and I take their "below the line" commitments in any of the years. I find that the permission they gave themselves for below the line spending was, in 1932-33, £1,124,000; in 1933-34, £980,000; in 1934-35, £1? millions; in 1935-36, £1,000,000; in 1936-37, £2,250,000; and in 1937-38, £2,200,000. It rose about 1939-40 to nearly £3,000,000 but lapsed again in 1940-41 to £2? millions. In 1941-42, it was down to £1,500,000 and it remained about £1,000,000 and under the £1,000,000 mark until 1945-46. In 1946-47, it reached the amazing total of £3,500,000.

These are the provisions made for spending below the line, but the actual expenditure was never up to the amount of money allowed. I think that over the years it is clear that there was not an average expenditure on this below the line type of service of £750,000 a year, except in one year, and that was the year in which a loan was floated, the Anglo-Éire Agreement Loan, in order to pay £10,000,000 to Britain. If that is regarded as development or a securing of a loan for capital purposes, have it; but the "under the line" servicing, the "under the line" arranging, never meant that there was more than £1,500,000 provided, and certainly there was not anything more than £750,000 spent.

There is another way of testing this. What moneys did Fianna Fáil borrow over the period they were in office? They floated a loan in 1933 for £6,000,000. The public took up less than £2,500,000 of it. There was a conversion loan some time later which I do not count because that was simply getting old money which had beenloaned—reloaned. There was no new service going to be financed by it. I leave out also the financial agreement loan because that £10,000,000 went in its entirety to Britain. In 1939, there was a loan floated for £7,000,000, to which the public subscribed £4,000,000 and, in 1941, there was another loan of £8,000,000, to which the public subscribed £7.3 millions. Altogether, in their period from 1932 to 1947, the Fianna Fáil Government borrowed £21,000,000. They got from the public £13,000,000 of that and the banks and departmental funds had to take up the rest. That is £21,000,000 over 15 years, and that is what is called capital development on the Fianna Fáil policy and basis. That is what has left the Minister who went to the bankers' dinner last night in a position to say that the country's resources were still in the condition in which they could be called neglected and, therefore, more money is now required from the banks in order to speed up what, of course, should have been done over the 15 years from 1932 to 1947.

After I had floated the first loan for which I was responsible, the £12,000,000 3 per cent. Exchequer Bonds, in 1948, I was told by my staff at the time that I was not to get light-headed about the amount of money I had to spend, because I had very little. I thought that meant that there was some debt of a couple of million pounds against the £12,000,000 I had borrowed and I asked if it was as bad as that. I was told it was and a good deal worse. I could not believe what was then represented to me and so little was I given to believe in the matter that I got the thing put in memorandum form to me. Here is the position I was left in in 1948, having succeeded in getting £12,000,000 from the public at 3 per cent., as shown by this memorandum. The memorandum ran in this form:

"DISPOSAL OF PROCEEDS OF LOAN.

Amount already received	£11,500,000
Final instalment due 9th June	£500,000”

That was the £12,000,000, and the memorandum continued:—

"The £11,500,000 received has been applied as follows:—

31st March—Exchequer Bills paid off	£1,450,000
April—Ways and Means Advances repaid	£10,050,000”

The whole tot was £11,500,000, but that was not the worst because this followed:—

"A further £804,500 of Ways and Means Advances has since been repaid, bringing the total repayment since the loan was issued to £10,854,500. The amount of Ways and Means Advances still outstanding is £900,000, due as to £700,000 to the Paymaster General and as to £200,000 to the Minister for Posts and Telegraphs."

Then, there followed this:—

"PURPOSES FOR WHICH REPAID TEMPORARY BORROWINGS WERE INCURRED.

The proceeds (£8,000,000) of the National Security Loan issued in November, 1941,——"

That is the last one of the three I referred to, the loan to which the public subscribed £7.3 million——

"——were exhausted in the course of the year 1942-43. In fact on the 31st March, 1943, Ways and Means borrowings attributable to the 1942-43 Budget deficit had already been incurred to the extent of £1,400,000. Subsequent net borrowings up to the 31st March, 1948, and the purposes for which they were incurred are shown in the appended tables."

Then there is a supplementary sheet showing the sources and the causes of borrowing and there follows this summary:—

"The total proceeds of the Exchequer Bonds issue (£11,500,000 to date) have been applied to redeem temporary borrowings—£1,450,000 Exchequer Bills and £10,050,000 Ways and Means Advances. Although borrowings are not hypothecated to particular purposes, it may reasonably be said that of this £11,500,000, £11,012,000 is attributable to Budgetdeficits incurred since the 30th November, 1942, when the National Security Loan was exhausted. Capital issues in the period 1st December, 1942, to 31st March, 1948, which amounted to £9,396,800 may be regarded as having been met as to £3,560,000 by net receipts from Savings Certificates and as to the balance by borrowings from the P.O.S.B. and repayments of previous capital issues. The position is summarised below."

Then there is a note from the chief official of the Department stating that there had been an earlier note sent into me and this was the significance of the note:—

"In other words, every penny we received so far (referring to the total above) from the new Loan has been used in paying off old debts. We have still to get £1,000,000 from outstanding instalments, also likely to be used in repaying old debts."

Mr. Aiken

Government borrowings.

Mr. McGilligan

We paid your old debts.

Mr. Aiken

You complain that we did not borrow enough. Now you are complaining that we borrowed too much.

Mr. McGilligan

Does the Minister know the difference between a Budget deficit and capital borrowing?

Mr. Aiken

What are you complaining about? You cannot have it both ways.

Mr. McGilligan

The table given to me showed total Budget deficits, not capital issues, up to 1945-46 at £10,155,000. The figures for 1947-48 are shown also. That is for Budget deficits or an accumulation of Budget deficits.

Mr. Aiken

You have been complaining up to now that we did not borrow enough.

Mr. McGilligan

I did not ever ask the Minister to borrow to meet Budget deficits. I have complained that the resources of the country were neglected, as Deputy Derrig, the Ministerfor Lands, proclaimed last night. You do not mend that matter by running into deficits over your annual Budgets and leaving it to other people to borrow to pay your deficits. Below this £10,000,000 of deficits are set out the capital issues amounting to £8,000,000 for that particular period. The £10,000,000 was regarded as the amount of the deficit.

In the journal of the Statistical Society of Ireland,volume 17, there is printed a paper read by Mr. Eason before that society which is described as, “An analysis showing the objects of expenditure and sources of Revenue of Éire during the financial years, 1929-30, 1939-40, and 1945-46”. There was a discussion on the paper and one of the points that emerged from the paper was that in the six emergency years, 1940 to 1946, there had been Budget deficits of £16,000,000.

It is not, of course, proper to add the £10,000,000 to that, because the years overlapped, but if I take out the amount of the Budget deficit for the last of these years and add what was accepted as being shown by Mr. Eason's paper, I get in the years 1940 to 1947-48 a Budget deficit amounting to £16,000,000, plus £3,000,000 or £19,000,000 Budget deficit. That has nothing to do with capital development.

Mr. Aiken

Using the same language, the Deputy left us Budget deficits amounting to £100,000,000.

Mr. McGilligan

The Minister is again thinking hard but not very lucidly.

Mr. Aiken

The Deputy may try to laugh it off, but it is on record. The Deputy is on record.

Mr. McGilligan

I should be glad if I could get the Minister to laugh off something instead of scowling over nothing.

Mr. Aiken

I am not scowling or laughing over anything.

Mr. McGilligan

Let us get back to the situation. Capital developmentdoes not mean running Budget deficits. It means meeting ordinary outgoings from ordinary revenue, and over and above that there is the policy that we adopted on borrowing money—trying to get the savings of the people, trying to get money even from the banks and trying to use departmental funds for capital purposes. We inaugurated a programme of big scale capital development. So far as I was concerned, I was in Easy Street for money. I want to repeat that once more. I had the savings of the community given to me. I had departmental funds. I had the American money, and over the three years we were in office we did skim off some £16,000,000 of the money we had as profits on the sale of goods that came from America and we left behind £24,000,000 to our successors.

We had a big programme of capital development. It was objected to, objected to fiercely. We were told that we were putting the country in pawn. The hoardings of this city were disgraced with all the comments that were made by Fianna Fáil propagandists. Splashed around the insignia of the pawnbrokers' trade, under the three golden globes, were statements that we were putting the country in pawn. I forget on how many platforms we asked the people who were opposing us what, if any, of our projects met with their disapproval.

We pointed out that we were putting money into house building, into school buildings, into the development of land, industrial development, harbours, ships, afforestation, electricity and turf. We asked which of these was not a proper objective in the line of national development. We asked, further, what was wrong with the programme, if the objectives were good, or did they object to the method we had adopted of getting money. There could not be any objection to the rate of interest. Early on, we borrowed at the rate of 3 per cent., raised for a later loan to 3½ per cent. There could not be any objection to the use we made of departmental funds. In fact, better use was made of them for the three years we had control than was ever made before or since. I do notthink there was any objection to our using American money. If the Minister knows what he is talking about in regard to the money going into the Central Bank and swelling external assets, does it not mean that we were not spending the American money fast enough? I am sure the talk was about how fast the money could be spent when they got their hands on the money which was left.

What objection was there to the programme we had? In Budget speeches made since the present Minister for Finance has said that he did not entirely approve of the things that were classified as capital services but that he was not going to make any objection. He has come here with two or three Budgets since, and year by year he has accepted schemes to which we were applying this money, saying that they were proper to be carried on and he would carry them on as long as the people gave him their money. But he did something wrong. He went for a loan at a particular time and offered a higher rate of interest than had been offered for money in this country for many a year. Mr. Colbert commented upon that in paragraph 6, on page 92 of this article:—

"Further to the question of house purchase finance, there now exists an unfortunate situation brought about by the fact that the Government mistimed a National Loan issue, which was made last year (September) at one of the outstanding peak periods of the long-term interest rate for more than a century. The issue was for £20,000,000 in 5 per cent. Stock at par (with option to redeem in 1962). Many competent judges felt that an issue for such a large amount should have waited for the inevitable fall in the long-term interest rate, meanwhile raising essential immediate requirements by means of short-dated Exchequer Bills."

That is the comment which is made: that there were a mistiming of the issue of the loan which the present Government went for, that the time they chose was one of the outstanding peak periods of the long-term interestrate for more than a century and that competent judges felt that they should have waited for the inevitable fall in the long-term interest rate, meanwhile raising essential immediate requirements by short-term financing of the ordinary type. He finishes the paragraph by saying:—

"The repercussions were farreaching, not the least serious being in the realm of borrowings by local authorities and consequently in house purchase finance."

That is what happened after we left office. When I faced this House in 1951 with a Budget I announced openly that we were going to have both a conversion loan in 1951 and another approach to the public by way of a national loan. Comments were made afterwards in this House which had as their object the making of excuses for the present Minister for Finance in not facing the public in 1951. We were told that we were quite injudicious and wrong in looking for a conversion loan and a national loan at the same time. All I can say in answer to that is that I met in connection with that matter bank representatives on two occasions and on both occasions the considered advice of the bank representatives to me was that it was a good thing, having got the conversion loan out of the way, to go for a national loan at not too far distant a date in months from the conversion loan.

What happened? The conversion loan was a success. The people did convert their money although the interest rate was very much reduced from the various holdings that had to be converted, and that was claimed by the Minister for Finance in his next Budget to have been a success.

Why did not the Minister go to the public in the Autumn of 1951 for the loan? The answer is now clear to us of course. He succumbed to the temptation that he had £24,000,000 of cash ready to his hand and he spent it and did not look to the public for anything in that year. Amongst the many expert performances in the way of destruction that Fianna Fáil have carried on, I regard that as one of the worst. If the Minister had not knownwhat the plan was for the use of that money he could be excused, but it had been explained to him on occasions in the two years before, what the plan was. I suggest it was a good plan and one which he should have followed, and that was to keep that money in reserve, that it could be filtered in £5,000,000 or £6,000,00 here and there as required, that it could be held as a good reserve against an occasion when the public did not respond as well as they might be expected when an appeal was made to them to put their savings in a national loan.

The worst feature of getting rid of that money was that it put the Minister under the control of the banking institutions. As long as he had that reserve of £24,000,000, it was a very potent thing to have in the background. He could use it as an argument, and if the banks tried to twist up the interest rate, as apparently they did when it reached 5 per cent. two years ago, he could have responded by saying: "I will take my chance with some lower rate and, even if the money does not come in, my projects will not fail because I still have this vast sum of money to draw on in whole or in part." In 1951, was the Minister for Finance intimidated by the banks and not able to make his appeal to the public for his savings? The result was, anyhow, that the next year he had to go for a loan that was double what ordinarily might be asked for and his reserves were gone and these reserves never can be remade.

Now I fear the worst from what the Minister for Lands, Deputy Derrig, said last night to the banks. This is the opening shot, I suppose, in a new campaign of putting it to the banks that they must give the Government more money. I do not object to anybody saying to the banks that they must give the Government more money —that should have been stated long ago—but I want to find out what the money will be used for. We had capital projects that were often given scrutiny. They bore the jealous scrutiny of the people who have succeeded us, and they have not been able to cast any of them overboard. Despite theirdisparaging comments that they are not wholly approved of they are still retained. What is now being added? The resources of the country, according to the Minister for Lands, Deputy Derrig, were neglected up to last year. What are the new projects which the present Government have to substitute for our ones that they disparaged or to add to the projects that we had? I know of only three. One is the Dublin Castle project, the second is the vast expenditure of money on a stretch of road near Naas, and the third is the ordinary old-time relief business of pouring money out hand over fist.

General Mulcahy

Do not forget the Constellations.

Mr. McGilligan

I think we have killed them.

Mr. Aiken

You sold them for good sterling assets.

Mr. McGilligan

Will the Minister, when replying, tell us what are the projects for which Fianna Fáil require the assistance of the banks? If they despair that, even at 4¾ or 5 per cent., citizens will not lend money, are they as Deputy Vivion de Valera said, frightened because the people are going to the well too often? I wonder did the senior Deputy de Valera recollect that phrase from his son when, on the eve of the last loan, he announced to an astonished public that there had to be a national loan every year, and went on to say that if we did not get freely some of the savings of the people in this way by means of a national loan there will have to be adopted other and less desirable methods of finance. Is this the other and less desirable method of finance that the Taoiseach forecasted when speaking, I think, at Deputy Derrig's coming of age party in his constituency? Is this the new and less desirable type of finance?

I move to report progress.

Progress reported; Committee to sit again.