Augustine Hailwood – 1922 Speech on Internal Currency

The speech made by Augustine Hailwood, the then Unionist Party MP for Manchester Ardwick, in the House of Commons on 24 May 1922.

I beg to move,

“That, in the opinion of this House, strikes, lock-outs, unemployment, distress, speculations, profiteering, bankruptcies, and stagnation of trade are caused by the fluctuating purchasing power of the Internal Currency being based on an article of no value like gold; that these evils, and their consequent cost to the State, can be almost eliminated by basing the Internal Currency on a commodity of constant, real and stable value like wheat, such Internal Currency to have a day-to-day exchange rate with our present External Currency based on gold for the purpose of foreign trade; and that the Government be asked to take steps to inquire into the best means of establishing such a currency at an early date.”

I do so with a feeling that I am asking the House to agree to a very big revolution in our monetary system, a revolution which will have far-reaching consequences in many aspects of political and social life. Yet I am convinced that this revolution will be brought about so gradually and in such a way that hardly anyone will notice that anything has happened. I am constrained to feel confident that the general body of the people would be only too glad to accept it. I wish to stabilise the currency of this country. I direct the attention of hon. Members particularly to the internal currency, as distinct from the external currency, which may be used for export and import trade. I believe that there are great benefits to be derived from stabilising our internal currency. I believe that nearly the whole of our industrial trouble arises from the fluctuating purchasing power of our internal currency, and that if we can stabilise that currency a lot of our trouble would vanish. It is within the memory of all of us how a rapid rise of prices, during or after the War, was the cause of innumerable strikes, when men were striving to keep their wages level with the ever increasing cost of living. We have only to look around to-day to see the appalling spectacle of 1½ million or 1¾ million or two millions of unemployed. I attribute the whole of this trouble to the fluctuating purchasing power of our internal currency.

This is a question which I find most people are somewhat frightened to discuss. It is looked upon as though it were a question of high finance, which must not be thought about for a moment except by those whose business it is to deal in high finance—as though it was something altogether outside the realm of ordinary individuals. I intend to speak in simple and direct language on this question, because it is the only language I know. I hope to show that this is a, question in which all of us ought to be deeply interested. From time to time we spend millions of money on various schemes to relieve unemployment, and we try all kinds of panaceas for settling wage disputes, when the essence of the whole thing is that the value of money has altered, and all the machinery is set in motion in order to bring about a levelling up of the purchasing power of the workmen’s weekly wage.

I want to base our internal currency on wheat. I move this Resolution because I believe that wheat is of constant and stable value as distinct from any other article. It is the most valuable of all articles that have a price. It is by the providence of Almighty God that He has always made the most valuable article the cheapest. The most valuable thing we know is fresh air. A man could live for about seven minutes if be were deprived entirely of air. The next thing is water. A man might live for seven days without water. But he could not live without food for more than seven weeks. Bread forms the most important article of the lot. It is described as the staff of life, but it is something more. It has a stable and definite value, in so much that in a country like this there is a definite quantity consumed, no matter bow prosperous or how poor the people may be. If we refer to other articles, whether clothing, or hats, or jewellery, we find that the quantity consumed or purchased varies to a great extent with the affluence of the people who make the purchases. No such condition ever enters into the brain of those people who purchase bread. They purchase a definite amount to satisfy their requirements, and whether they be in work or out of work, whether they be enjoying high wages or low wages, practically the same amount of bread is consumed. Therefore ‘bread has a definite value to the community with which no other article can compare.

I want to show how definite is the relationship between bread and wages. Let us go back to the period before the War, when wages were in the neighbourhood of 30s. a week. In this country bread was then about 5d. for the 4-lb. loaf. If we take the period when wages reached their highest point, somewhere in the neighbourhood of £4 10s., we find that the price of bread was 1s. 3d. Bread trebled in price along with wages. To-day we can state roughly that wages are in the neighbourhood of £3, and the price of bread is 10d. If you divide 30s. by 5d., or £4 10s. by 1s. 3d., or £3 by 10d., you find that in each case you get 72 as the resultant figure. That is to say, it takes 72 4-lb. loaves to furnish an average week’s wage for the community. In other words the real wage of the community remains fairly constant. Yet we have to go through all these interminable strikes and lock-outs and unemployment in order to adjust wages to this level, simply because the purchasing power of the currency has been fluctuating in the meantime. All of us are familiar with the Board of Trade index figure of the cost of living and we know the efforts that are made to put wages on a parity with the index figure. The hon. Member for the Stretford Division of Lancashire (Sir T. Robinson) was the first to introduce a sliding scale and to apply it to the workpeople under the Bradford dyers. That example was rapidly followed in branches of the cotton trade—bleaching, dying and finishing. In fact, most branches of the cotton trade have their wages regulated on the index figure of the cost of living. We all remember the railway strike in connection with which a settlement was reached on the basis, that the wages should be regulated by the Board of Trade index figure of the cost of living. I might mention many other trades which have established this custom of arriving at settlements with their workpeople.

The Board of Trade figure forms a very good index as to how wages should be regulated. I do not wish it to be inferred from anything I say that I wish either to press down wages or to raise wages. I am trying to look at the matter from an economic point of view, and these are considerations with which we must grapple. The difficulty in connection with the Board of Trade index figure is that it is several months behind the wheat market, and it is this period of several months which causes all the trouble in the matter of unemployment. I believe we have very little control over wages. We may have our well-organised trade unions, we may have our trade boards, we may have our Ministry of Labour, but all these have very little effect on the course of wages. Wages keep constant from one week to another, except that between one generation and another, as inventions are brought out, we find differences. We have coal, then steam engines, electricity, gas, up-to-date machinery, the better equipment of factories, better organisation, and so on, and all these things tend to the betterment of the conditions of the people, as between one generation and another. No one will contend for a single moment that people in the time of our fathers or grandfathers were as comfortable, or worked under such conditions, or enjoyed such wages as they do to-day. But no one would be stupid enough to contend that when wages rose from their pre-War level, in the neighbourhood of 30s. to their highest point which was £4 10s., that the working people were therefore three times better off. No one would be stupid enough today to say that the working people of this country, though their wages are twice what they were in pre-War times, are twice as well off. The real wage has remained constant throughout the whole period.

We cannot spur ourselves to the effort of bringing about brighter days better than by dwelling for a few moments on the miserable conditions of the past and present. I do not believe, as some people do, that we should fold our arms and say all this is due to the War, and in time everything will become right. There must be a cause for all this trouble in our land, and it behoves us to turn our attention to finding out that cause. It is quite a common thing among certain sections of the community to curse our present industrial system and to plead for a Socialistic era when Capitalism will be abolished. Although I am no Socialist, yet, if one stops to think, one must feel that there is a great deal in our present system of which we should feel ashamed. I believe our present system is right, generally speaking, but that in certain respects there is something radically wrong which should be adjusted in order that the difficulties under which we are groaning may be put right. Nor is it sufficient to say that it is because we have come through a war that we have all these troubles. I remember processions of unemployed long before the War. We had our periods of trade depression long before the War; in fact, when the Employment Exchanges were established, about 1910, we had a big percentage of unemployed, and the establishment of the Exchanges was one of the steps towards eradicating that evil. If this evil existed before the War, and if the Employment Exchanges and other attempted remedies have failed, I think it is time we set about getting at the root cause and endeavouring to eliminate it.

It is often said that the rise in wages caused the increase in the price of food. I wish to refute that entirely. The cost of food commenced to advance before any -movement in wages took place. Immediately after the murder at Sarajevo, several weeks before the War, the flour market began to rise, and it continued to rise, and eventually other things followed suit, and it was some time after before there was any movement to increase wages. In fact, employers of labour in the early days of the War, took rather the opposite course by dismissing numbers of their staffs and reducing expenses, thinking there would be no trade. We are all familiar with the ever-recurring strikes we witnessed in the course of the War in order that the people of the, country might wring from their employers something like an approximate wage compared with the ever-increasing cost of food. Like the swing of the pendulum, it is quite possible that the movement in this direction went too far. However, we know that at first the employers resisted these demands and strikes took place, but after a time the employers became so compliant that they granted demands for increased wages almost without any question, until the cost of production reached such heights that there was no market to purchase the goods. During all this period we had no such thing as -unemployment. The index figure of the cost of living was steadily rising. The wheat market was steadily rising. There was no unemployment, but we had strikes by means of which people endeavoured to keep wages up to the level of the cost of living.

I should like to point out another aspect of this question, namely, the terrible amount of valuable time wasted during the War in negotiating on, and trying to fix up, these wage disputes. People had to travel to London to attend Industrial Courts, and Conciliation Boards called together by the Ministry of Labour and the Board of Trade, and that must have entailed enormous expense both to the employers and to the employees. All this waste of time and money should be eliminated. The cost of wheat rose from 6s. 10d. a cental of 100 lbs. in 1914 to 16s. 3d. in June, 1917. After that, the Government stepped in and controlled the wheat and flour prices. It is very difficult to trace the progress of the wheat market until we come to June, 1921, when control may be regarded as having ceased. We do know that flour rose to the price of 86s. per sack, or something like 3¼ times its pre-War price. The index cost of living at the Armistice in November, 1918, was 120, but eventually it rose to 170 in October, 1920, and to 191, the highest point, in November, 1920. I want to impress this date particularly on the memory of hon. Members in this House—November, 1920—because it was the highest point in our cost of living, but it is memorable for something else. We passed an Unemployment Insurance Act in November, 1920, and we put 11,000,000 of people under the Act, as against something like 4,250,000 previously. We did this because it was foreshadowed that we were likely to have a very bad time in the industrial world, and that we were likely to have a very bad period of unemployment. Unemployment really commenced at that point. Just as the index cost of living had got to its highest figure, so unemployment on a big scale commenced from that particular date. The index cost of living fell from that time, and unemployment rose. In May, June, and July of 1920 the percentage of unemployed in this country was something like 2·6 or 2·7; in September it was 3·8; in November it was 3·7, but in December, immediately after the. Unemployment Act was passed, our unemployment rose to 5·8 per cent., and in January, 1921, it was 8·1 per cent. In February it was 9·5 per cent., in. March 11·3, and after that we entered on the period of the coal dispute, and I will leave out the figures for the intervening period and turn to September, when it had risen to 12·2 per cent., as compared with 11·3 in March. In October it was 12·8, in November 15·7, in December 16·2; in January, 1922, it was 16·2 again, and then it ceased to rise.

Now let us turn to wheat for something like the same period. In June, 1921, the cental of wheat on the Liverpool market cost 17s. 1d.; in August it had dropped to 14s. 7d., in September to 13s. 8d., in October to 10s. 7d., and in November to 10s. 2d. November, 1921, was the lowest point we have yet touched with regard to wheat since the War. As I pointed out earlier in my remarks, the cost of living figure is several months after the wheat market, and I will explain that as I go along. It takes at least two months before a fall in the price of wheat is really reflected in the index cost of living, and, as hon. Members know, the index cost of living forms the basis of wages in a good many industries. The index cost of living may not be published until the middle of the month, and an alteration in wages does not take place until the following month; consequently, there is another month gone before the figures reflected in the index cost of living affect wages. Again, it takes one, two, three, or four months to manufacture goods or a certain piece of machinery, and it is all these months more before the lower price of wages can be incorporated into a manufactured article that we are trying to sell. November, 1921, is just as interesting as November, 1920, insomuch as we touched the lowest point in wheat at that period, and after that it commenced to rise. Now it has fallen again, but even to-day it is higher than it was in November, 1921, so that we can regard November, 1921, as the steadying up of the heavy slump in wheat prices, and we might say that it corresponds with the increase of unemployment, because since the turn of the year the figures of unemployment have commenced to fall while the wheat market is tending to rise, and if we could eliminate the discrepancy of these few months between the price of manufactured articles and the price of imported wheat by altering our currency, I believe we should have solved the whole of this trouble. The cost of living figures commenced to decline after November, 1920, their highest point having been 191, and they have steadily fallen, except during the coal dispute, to January of this year, when the figure was 92, and to May, when it was 81, so that we can regard the index cost of living as having steadied up a few months after the steadying up of the wheat price, but, as I say, it takes two months before an alteration in the cost of wheat is reflected in foodstuffs, and another month before the cost of living is reflected in reduced wages, and the sliding scale Board of Trade index figure three months after the fall in wages.

When a merchant buys a cargo of wheat, he is buying nothing more nor less than a cargo of labour. Wheat comes from all the ends of the earth to such a port as Liverpool. We have wheat from Canada, from Australia, from Argentina, from Austria, from Hungary, and, in normal times, of course, from Russia, and we also have the home-produced wheat, so that really we get a test there of the price of labour from all parts of the earth in competition one with the other—the real test of what labour is worth at the moment—and it stands to sense that if a manufacturer or a shipper is trying to ship goods, and his costs are based on costs very much higher Which obtained for several months previously, he cannot sell his goods, and after all we import wheat into this country, we import foodstuffs, and we export manufactured goods, and the one eventually has to pay for the other. To my mind, it is because of this disparity between the two that we have this question of unemployment in our midst, and if we could so arrange that these two were always at a parity, I believe that trade would be far more regular and far steadier than it is to-day. We have various causes put forward as to why shippers cannot sell their goods, but I am quite convinced that the real reason is because to-day they are not of the right price, or, at any rate, they have not been in the months which have preceded. We are somewhat near the right price for selling. I was talking the other day to a merchant who told me he was nearly concluding very big transactions in the Eastern market, because his prices were very near the line of prices at which people could buy. I believe there is no such thing as the state of trade being in such a way that there is no market. I believe there is a market at all times at a price, and I believe that we ought to strive to have our goods constantly at the price at which we can export them.

The slump in wheat was arrested last November at 10s. 2d., and the cost of wheat now is 12s. 6d. If we compare the present cost with the pre-War cost, we shall find that to-day it is 81·7 higher than it was before the War, and that the index figure of the cost of living is a little over 81, so that the increase to-day in the price of wheat almost exactly corresponds with the index figure of the cost of living, and we must bear in mind that, perhaps, rent and some other things have not risen with the cost of living. But with these considerations, we might say the one thing exactly balances the other to-day, so that wheat does really form a true index eventually of the cost of living, only, as I say, it is two or three months in advance of the Board of Trade figures, and that is where all the trouble lies.
I may be criticised for wishing to alter the standard of our internal currency from gold to wheat, and no doubt a good many people do not know that gold has not always been the standard of our currency; in fact, I suppose that, prior to 1871, we were the only country in the world that had a gold standard, and it was not until after the Franco-German War, when the French peasants brought out the gold they had hoarded—and although the French Government did not pay it direct to Germany, but bought bills of exchange with the currency, and liquidated their debt to Germany—that Germany established her currency on a gold basis. Then France, and other nations in quick succession, followed, by establishing a gold basis. There is no doubt about it that when we were the only nation on the earth with a gold currency, we made very very rapid advance in our industrial life, and our trade boomed right up to 1871. It is very questionable, after gold became common in other countries, whether the advantages to be derived from the gold standard continued as they had done before, but I do not wish tonight to enter upon that question, because, after all, it really affects the external currency rather than the internal currency. The whole of my remarks have been directed to showing that it is the internal currency which is at fault, and I contend that we ought to arrange to have the internal currency based on wheat, and to leave the external currency based on gold as to-day, and to have a day-to-day rate of exchange between the two.

To some people it may seem somewhat appalling that we should establish another exchange in this way; but, so far as the ordinary people of this country are concerned, the people who draw wages and the people who do trade within the country, they would not know anything had happened. The currency would remain just as it is, and the people who conduct an export or an import trade are the only people who would have to take into account this day-to-day exchange. I think it quite possible to establish, we will say, the Treasury notes on wheat, and to leave the Bank of England notes based on gold, and to have a day-to-day exchange between the two, according to the rise or fall in the price of wheat as compared with gold. In this way we should stabilise the internal currency, and there is no reason on earth why the Government cannot substitute one article as well as another as a backing for their Treasury notes. As a matter of fact, of course, there is not the full value of gold in the Bank of England or at the Treasury against these notes. Before the War we had something like 52½ per cent. of gold against the notes that were issued by the Bank of England, and we know the tremendous rush when war was in the air to abstract this gold from the Bank of England. We know that it fell something like 14 points in the course of a week, and in the next few days it fell still further. Then our stock of gold was rapidly melting, and if it had not been for the Government taking the drastic step of declaring a succession of bank holidays, and issuing a big number of postal orders until we provided currency notes, it is quite certain there would have been no gold left in the Bank of England.

Fortunately for us, America in those days was a debtor country rather than a creditor country, or she would have abstracted the gold very quickly. Being a debtor, she was unable to do so. We successfully brought in currency notes, and no one ever doubted for a single moment the stability of those notes. No workman, when he is paid his wages in notes, has any doubt that a note is worth what it is stated to be worth on the face of the note. The only thing he knows is that all through the War he was able to buy less with those notes—that the purchasing power became smaller and smaller. But so far as confidence was concerned, no one for a single moment had any doubt about the stability of the Government, and of it being able to back up our Treasury notes. So that it is not a question of credit. It is not a question of confidence in the Government. It is question, after all, of what is behind the notes with regard to their real purchasing power. And it is just as easy if the Government at one time have gold behind the notes and at another time no gold, and nothing practically but credit. If they can do this, it is just as easy for them to put a definite article of value, like wheat behind the note and to say, “This note issued represents so many pounds of wheat.” Sup posing this change were made when wheat was in the neighbourhood of 10s. a cental, it would be possible to issue a Treasury note to say that this should always represent a cental of wheat, and then a rental of wheat could always be purchased by a Treasury note and 1s. could always buy 10 lbs. of wheat. Did we care to introduce the decimal system, such as is recommended by Mr. Harry Allcock, of the Decimal Association, and divide 1s. into 10 instead of 12 pennies, and incorporate the two at the same time by making a pound of wheat represent one penny, it would simplify a lot of calculations throughout the land, it would simplify the arithmetic in our schools, and another step forward would be taken. This is, of course, apart altogether from the policy which I am advocating, and it need not be incorporated unless any Committee which inquired into the matter decided that it should be done at the same time. How is it that a Treasury note at one time buys a certain quantity of food and at another time buys something quite different?

I have here a golden sovereign in my hand. I suppose that before the War no one doubted for a single moment that it represented a sovereign, and contained something like a sovereign’s worth of gold. If it had been legal to sell a sovereign it could have been sold for 19s. 6d. However, there is the sovereign, and it represents the labour employed in the mines in getting the gold out and other expenses of bringing it here and minting it. In other words, it represents right up to the hilt what it would cost to produce. If the Government had issued a Treasury Note or Treasury Notes corresponding to it, those Treasury Notes would have paid labour just as much as the sovereign did. How is it that things go wrong afterwards? While we offered a Treasury Note in 1913—supposing we had had them—and we could have got a man to get the gold out of the mine and this sovereign could have been exchanged for that Treasury Note, no one would contend that in November, 1920, when the cost of living reached such a high figure that the man would have worked to get the same amount of gold out of the ground for his Treasury Note! The reason is that gold may be produced at one time and may represent a coinage of five, six, eight or ten years later. Conditions may have wholly changed. Wheat is never hoarded during the whole length of that time, and wheat represents the immediate cost of labour at the time it is grown.

Suppose one hundred men produced wheat enough to fill a ship, and the cargo of wheat is bought for a certain amount of money in a certain year, say, in Liverpool. The following year there is something different in the harvest. If there is only half a shipload of wheat, these men have worked just as much as before, and you have to pay just as much for that half shipload as you have for a shipload. There has been the same amount of labour put into the matter in the half shipload as the year previous for the shipload. In other words, wheat always represents the labour that it has taken to produce it. Harvests may vary from one time to another, and in one part of the globe and another, but they have always got to be paid for, and the people who produce the wheat have to be paid for their labour irrespective of the quantity of wheat which may be produced. That is why it is wheat is a more stable article than gold. Gold, really, is of no value except its exchange value in the purchasing of commodities. Wheat is an article of real value. I think I have made out my case sufficiently well to impress its cogency upon hon. Members who have done me the honour of listening. At the end of my Resolution I ask that the Government should inquire further into this matter, in order to find the means of stabilising our currency by basing it on wheat. I quite see that this question will have to be inquired into by bankers, wheat brokers, millers, representatives of labour, and so on, in order that we should thoroughly understand the new system before it comes into operation. I have, I think, made out a case for inquiry.

There is another aspect which I want’ to put particularly before the Committee, and that has relation to our National Debt. To a great extent our National Debt was borrowed at a time when the cost of living was very high, when wages were very high, and when the currency was inflated more than it is to-day. Time goes on, and if the wheat market should come down to its pre.-War level, supposing wages fall to their pre-War level, we shall have a far more difficult job to pay off the National Debt than we have to-day. Say the Government borrowed money at 4½ per cent, or 5 per cent. and wages were in the neighbourhood of £4 10s., that would mean that a man would have to work a week in order to pay the interest on £100 of National War Loan. If wages fell back to 30s., to pre-War level, it would mean that a man would have to work three weeks in order to pay the same interest on the War Loan. I do not wish in any way to repudiate the National Debt, and I do not wish, and I would never advocate it, of reducing the interest on the National Debt. A bargain is a bargain. A contract a contract. They must be honoured. But if our currency had been based on wheat we could continue to pay the interest on the National Debt, and as the wheat market fell it would become easier and easier to pay that interest. The Government would gain on the transaction.

There is no reason why, if this policy he adopted, the Government should not refloat the National Debt when the new currency is established and refloat it on a new basis of paying off the National Debt with the new money so borrowed. The owners of bonds would be guaranteed their 4½ and 5 per cent. interest, as the case might be, and it would have a real stable value. They would always be able to purchase with that money the same quantity of foodstuffs or clothing, because all these things come into line. Again, let us look at the position of the Government in regard to taxation and the salaries that they have to pay to the Civil Service, the postal workers, and so on. The Government always manages to be several days behind the fair—if not several months! We know that when we have got through the boom, postal and telegraph rates, and so on, were put up at a time when the Government should have reduced those rates. We know the discussion we had last week with regard to the 5 per cent. off teachers’ salaries. We know that civil servants’ wages or salaries did not rise anything like as rapidly as labour outside. The labourer was the first man who was able to get his wages moving because he was on an hourly contract, he could move his labour and could take advantage of the rising market. There is no other Government that civil servants could be employed by and consequently they had to agitate, and it was not until after the War that they got anything like recognition, and for some years to come they will enjoy these higher salaries.

But if the Government base the currency on wheat as the wheat market fell so their costs would fall at the same time. Our exporters and manufacturers, although their costs would remain in terms of the internal currency just the same, they would pay the same wages and the same prices for raw material by the very fall in the exchange value of the internal currency on external, and they would be able to quote a lower price for shipment abroad, and automatically their costs would be reduced. To-day they have to call in the colliery proprietor, the trade union leaders and the various individuals from whom they buy raw material, and try to barter down the present-day prices in order to be able to export. Under this scheme their costs would be reduced while paying exactly the same for everything, and I believe it would tend to the abolition of strikes and to doing away with profiteering, because, after all, that is a sort of adventitious gain which comes through the difference in the value of money. It will do away with bankruptcy and heavy losses in business, because if this came about through the slump people cannot sell their goods, and I believe it would make us a far better country.

Just as we were the first to start a currency based on gold, I believe that if we based it on wheat we should make rapid strides because of the contentment of our people, and because our manufacturers would be able to quote more quickly up-to-date prices. Hon. and learned Members of this House who have had anything to do with deeds connected with land must have noticed from time to time how tithes are based on the cost of wheat, and how payments of certain kinds for land are based on the average cost of wheat for that year’s harvest. Consequently this is no new thing, because people of old knew what real values were, and we have now departed from that, and this has brought on a lot of industrial trouble. I believe that this change could be effected with great benefit to the community, and for these reasons I commend it with great confidence to the House.