8.—3.

But the prices of our exports in sterling rose rapidly when the sterling policy indicated that that course be taken. During the war for instance ? —Yes. Lately the sterling policy has been deflationary and, as a result, our price-level has fallen ? —Yes. So that what has controlled the prices of our commodities has been the sterling policy ? —Yes, through the trade ; but not by any conscious control over our banking operations. I consider we could not have avoided that effect no matter what monetary system we had had. Who or what is it that controls sterling policy ? —You mean the monetary policy ? Yes ?—Largely the Bank of England within the limits of their statutes. Largely the Bank of England ? —Yes. The British Government prescribe the monetary standard. In 1925 Mr. Winston Churchill, as Chancellor of the Exchequer, reverted to the gold standard ? —• Yes. And operating on that the Bank of England adopted the gold-base policy for sterling ?—Because they had no option. They were placed on that basis by law, and it became their duty to hold the currency to that basis. Subsequently in 1931 Mr. Winston Churchill stood up in the House of Commons and said what I thought was a particularly brave thing, he confessed openly that that was the mistake of his life ? —Yes. And he explained that he had acted on the advice of his experts. Who would be the experts ? — That I do not know. It was stated at the time that it was the Treasury officials ? —A step of that kind, I should say, would call for a field of consultation wider than the Treasury officials. About that same time the Governor of the Bank of England said that the difference between the Bank of England and the Treasury was the difference between Tweedledum and Tweedledee, so we get back to this same idea that, although the British Parliament ordained the return to the gold base in 1925, the presumption is that that was done on the advice of the Bank of England ?—lt is a natural presumption, yes. We therefore come back to this idea : That our destiny here is being controlled and has been controlled by the Bank of England through its control of sterling policy since 1931, when it was ordained that the gold base should be departed from, and there was no other base substituted for it ? —No. The policy of the Bank of England is to lift sterling to some undisclosed point above gold ? —That is the declared policy of both the Government and the bank, as I understand it. , But there is no limit. There are no legal limits at all now, apparently ? —No. They can go up or down ? —Yes. And whether they go up or down really decides the general price-level ? —Yes, in so far as it is possible for monetary action in the short-run to lift prices. That is a matter upon which there is a good deal of diversity of opinion. It seems to me that a central bank is much more effective in stopping a rise than in starting a rise. The Bank of England being a central bank ? —Any bank can stop a rise by cutting off supplies of credit, but a bank, when a depression has run its course, with all its attendant psychological reactions, is largely impotent to start the forward movement again. They have far less power for positive action. Stopping a rise is done by positive action of the bank, but the bank's action can only be negative when it comes to starting things. You know there has been some very severe criticisms of the Bank of England and its policy in recent years ? —Yes. Lord Beaverbrook launched a campaign and is still fighting it and insisting that the Bank of England must be brought back to its position as a servant, and not the master of the nation. Mr. McKenna has also drawn attention to the matter not once, but in almost all his annual speeches to the Midland Bank. I have here a copy of what he said in January of this year in connection with the matter, dated 26th January, 1934 : — Our daily operations are directly influenced by the policy of the central bank, and the whole trade of the country is deeply affected by it. Then he refers to the shares of the trading banks. He goes on, — It is entirely beyond their power to vary the sum total, which is controlled by the Bank of England. The influence of the quantity of cash reserves on banking operations can hardly be overstated, for not only are these reserves the active element in a bank's daily business, but in their totality they govern the aggregate volume ot bank deposits. The primary effects of central-bank policy on the joint-stock banks are, however, of less importance than the secondary effects, which result from its influence upon the trade and industry of the country. It is now well recognized that an adequate supply of money is essential to sustained business activity. Nothing in monetary practice is more certain than that contraction of the volume of money, or even failure to secure an adequate increase, tends both directly and indirectly to put a brake upon business of every kind, and to produce the very troubles —unemployment, unremunerative commodity prices, unbalanced budgets, and general depression—which have been apparent in almost every country in the world in the past four years. With expanding population and production, we need some expansion in the supply of money, or it will inevitably follow that consumption will not keep pace with production. There may in any circumstances be temporary maladjustment between production and consumption of individual commodities; but if the supply of money is adequate the price-level of all commodities taken together will be kept approximately stable, and general consumption will be maintained. It follows, then, that the policy of the Bank of England is of the utmost concern to every one, for no one escapes the effects of general depression, and not one of us fails to benefit from sustained prosperity. The main point to be considered at this stage is the question of control. You will agree that the Bank of England is a private corporation, privately controlled ? —Yes, except that it has evolved to a stage where it might rightly be considered a national institution in that I think the question of profits has become very subsidiary indeed. lam not talking of profits ; control is far more important than profits. It would be possible for the controllers of an institution like the Bank of England to take no profits from the banking operations,

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