Supplies and Services Bill 1951 - Second Stage; December 13 1951: I am glad that Professor O'Brien spoke early in the debate yesterday, because in the course of his elegant and well-phrased remarks he said many things well worth saying, and that will save me the necessity of saying them. I think that and Supplies and Services Bill is one that has been rendered necessary by the continual state of emergency in the rest of the world and, therefore I think I would be in order in addressing myself both to the internal situation and the external circumstances that render a Bill of this kind so unpleasantly necessary.

I would like first of all, though, to clear up some of the obscurities that may have remained in certain people's minds even after the admirable exposition by Senator Professor O'Brien.

We have had a good deal of talk here and elsewhere about repatriation of external assets, inflation, excess imports and what not Of course, the Minister for Industry and Commerce is perfectly right in saying, as he said in the other House, that external assets can only be repatriated in the form of imports and in the form of excess imports at that. But, I think there has been a failure to realise, not only on the part of speakers here and elsewhere, but also in the Central Bank Report and in the White Paper, certainly a failure to make clear, the elementary economic fact that capital can be imported not only in the form of capital goods, but also in the form of consumer goods.

I would like to illustrate that in as simple a way as I can. Suppose that an Irishman owning £10,000 worth of British securities sells out these securities and proceeds to establish a factory, shall we say, in Santry, for the manufacture of milk bottle caps. In the course of his expenditure of that £10,000 he pays various workmen and foremen, and so on. They go about spending that money and that money goes through the general circulation and some of it is spent on home-produced goods and some of it is spent on imported goods. Those goods, whether imported or home-produced, are, so far as the consumption of the workers is concerned, consumer goods but they are in process of being transformed into a permanent capital asset which is native to the country.

To make the matter even simpler, we may suppose that the foreman's wife has a child and that he feels the necessity of celebrating the event with the help of champagne and he buys a few bottles of champagne. Remember, all this purchasing power originated in the sale of a capital asset in London, and part of that capital asset comes over to Dublin and is consumed in the form of champagne to celebrate the birth of the foreman's baby, and perhaps at a later stage a baby carriage is imported from the same source and paid for in the same way.

The new factory is a capital asset, but part of the resources for building that new factory have come over to us in the form of an import of consumer goods.

The matter, I think, is of sufficient importance to justify one or two more illustrations. We have the Shannon scheme and in the balance sheet of that scheme you will find that its capital assets are said to he worth some £20,000,000. Now, the Shannon scheme took many years in building but if you go through the import list for those years I doubt if you could add up the value of the actual capital goods in the form of generators, girders, and what not, imported in those years, to anything like the value of £20,000,000. In other words, an important part of the present capital asset which we call the Shannon scheme consists of the consumer goods which were used by the workers during the many years which we spent in building that scheme.

In fact, if you take it the other way, you can export capital in the form of consumer goods. In fact, all through the war we were exporting capital, £160,000,000 worth of capital, but it did not go out in the form of capital goods; it went out in the form of cattle, eggs and to a certain extent, I suppose, Guinness's stout.

We must not then he alarmed by the fact that so tiny a proportion of our total imports takes the form of what are technically known as capital goods. Consumer goods can also be a desirable and even a necessary part of that process of economic development involving the construction of expensive capital assets at home.

These excess imports arise because we are at the moment engaged, and have been for some years, in building up important and extensive new capital goods: housing, hospitals, factories, extensions of the electricity supply, turf development and what not. The reason why excess imports have taken place is that these new capital goods enterprises have not been fully financed by internal saying.

Assuming that the Budget is balanced, if you try in any economy to build up new capital assets beyond the measure of internal saying, you are bound to have excess imports or else inflation, but in our circumstances as we have the possibility of financing considerable excess imports by reason of our considerable external assets, we can avoid the worst aspects of inflation by an increasing volume of excess imports.

I am willing to agree as a matter of theory that in normal times and in normal countries it would be highly desirable that all capital developments within the economy should be financed by internal saving, but we are not living in normal times and this is not a normal country. What is needed is abnormal capital development of both agriculture and industry. Therefore, there may be a prima facie case for some use of our external assets as a means of financing that desirable abnormal development. If we seek to have an abnormal programme of capital developments and at the same time are reluctant to procure the additional resources necessary for that development by drawing on on external assets, then we must in one form or another depress the standard of living at home.

There are various ways in which this can he done. For example, there is the method hinted at by the Minister for Industry and Commerce. If we think people are not saying enough, we can increase taxation and bring about forced savings in the form of a budget surplus. I would like to underline everything that Senator O'Brien said about the undesirability of any such procedure as a means of trying to acquire the additional savings necessary to finance these new capital enterprises, but I think it is hardly necessary to stress that point. Such forced savings procured by such means would he politically unpopular, and the Minister, I hope, is not in a position to be guilty of any such unwise procedure.

On the other hand, the other alternative method of bringing about what amounts to forced saving and what might appear to make less necessary the item of excess imports would be to proceed as the Minister for Industry and Commerce seems inclined to do, by having an ambitious programme of constructing new capital assets while at the same, time restricting the total volume of imports in order to diminish this excess balance which worries people so much.

I doubt whether, in practice, it would be possible to achieve that result. Assuming that it is possible that it would succeed in restricting the volume of imports and, at the same time, you put in circulation a vast amount of money to pay for new capital assets beyond the measure of internal savings, you will start a definite inflationary force internal to the economy, in addition to all the inflationary forces from outside. That method of restricting imports, while at same time increasing the circulation of new money by having an ambitious capital programme beyond the limits of internal saving, would depress the standard of living by the inequitable method of inflation rather than the fairer method of increased taxation.

Another point I want to deal with is that of excess imports. However much of a problem they may constitute in other respects, they are, so long as they are available, a positive dis-inflationary factor in our national economy. They provide the goods which help to mop up the surplus money put in circulation in the process of financing internal capital development. If you do not have those excess imports, the home price level will rise above the outside price level and you will have a most objectionable internal inflation. The problem is not, in theory, a problem at all. If you really want to reduce excess imports in order to make your balance of payments on current account balance, and have no capital transactions on either side, all you have to do is to balance the Budget - which is not an insuperable obstacle in our case - and cut the programme on capital expansion both private and public to whatever level think desirable.

As for balancing the Budget, I should like to re-echo what Senator Professor O'Brien has said about the desirability of looking very closely into the question of subsidies. We are spending, I think, some £15,000,000 a year on subsidising various articles of food. That has introduced an element of artificiality into much of our economy. Personally, I think there is no sense whatever in subsidising the necessaries of life to at least 50% of the total population who are well able to pay the full economic cost of whatever bread, butter, flour and so forth they eat.

If a method could be found whereby all these commodities which are subsidised at present could be sold at the economic price and the poorer classes of the community compensated by an increase in their money -including, especially, pensioners and those in receipt of unemployment assistance - that would balance the additional cost of paying the full economic price of the commodities that are at present subsidised, as much as £5,000,000 a year would be saved which is now wasted on subsidising food eaten by the more well-to-do classes and that would go a long way towards balancing the Budget.

There has been a lot of talk about sterling assets. Our sterling assets are a valuable and, indeed, an enviable possession. There is a right way of using them and there may be various wrong ways of using them. May I illustrate what I regard as a right way of using those assets? I am aware of a certain 65-acre farm in the Midlands which, five years ago, was practically derelict. It supported perhaps 20 cattle in the summer mouths and none at all in the winter months. I doubt whether the total output of that farm at that time was as much as £300 a year. About five years ago a man of capital and enterprise acquired the ownership of that farm. He levelled it, drained it, improved it and built cattle houses. With his own hands he built a hay shed on it last year, being able at that time to acquire the material though he was not in a position to get the labour.

That man has probably spent out of capital and income considerably more than he got in the last five years by way of sales and production from his farm. In doing so, he was doing his part towards bringing about this phenomenon of excess imports. However in the present situation, he is now able to feed 40 cattle all the winter on silage, beet tops, barley, and other produce of his own cultivation, in addition to selling large quantities of beet and wheat.

The output of the farm must now he of the order of £1,000 a year compared with £300 a few years ago. That was achieved because the man had capital and because the nation as a whole had sterling assets which he helped to withdraw and transform into that different form. I should like to think that that procedure was typical instead of being exceptional. It would be a fine thing for the country if it were typical and if we were in a position to proceed along the lines taken by that man, namely, to withdraw a reasonable amount of our external assets in order to improve the fertility and productive capacity of our agricultural industry.

However, having said all that, it still remains true that we need to have and to keep a nest egg of external assets, principally because we need it to support the external value of our currency. The external value of the currency of any country depends primarily on the demand for that country's money in payment for that country's exports. Therefore, the external value of any country's currency depends on export capacity which, in the long run, depends on productive capacity.

We are fortunate in having had, over a number of years, surplus export capacity which has been crystallised in another country in the form of our existing external assets. These assets are available at a moment's notice to support the external value of our currency. So long as we have a reasonable amount of these liquid external assets and our export capacity is maintained and improved we need have no permanent worry about the future value of our national currency. I am not in the least worried about our ability to keep the Irish pound at par with sterling.

I am worried about the future of sterling itself, because that depends on factors outside our control. It depends on the chances of peace and war in the course of the next few years or the next few months. It would be no harm to point out some of the factors that arise in that connection. If we look at the world as a whole, we must realise that Britain is no longer complete mistress of her fate. She is in a very active partnership, the managing partner being the United States of America.

I have great admiration and regard for Americans They are a generous and enterprising people - indeed, we have every reason to appreciate their generosity - but one can say they have that quality which Shakespeare describes as 'modest stillness and humility'. At some risk of replacing Senator Stanford as the victim of Myles na gCopaleen, I would be inclined to say that I do not agree with Myles gCopaleen's obvious opinion that verily they are the people and wisdom will die with them. They are not disposed to learn from other nations who, in these delicate international matters, are older and perhaps wiser than they.

In fact, then, we have two mighty empires who are arming for self-defence. No nation ever arms for aggression, but each accuses the other of aggression. The Communists are certainly not pacifists. If they see a tottering capitalist economy, weak and unarmed, they might be tempted to give that capitalist economy a little push and bring it down. From that point of view, a moderate degree of rearmament has much to be said it, so as to remove that temptation. In my opinion, the best defence against Communism is a sound national economy, embodying the principles of social justice, which are being increasingly implemented in appropriate social institutions. The danger is that the economic strains imposed by the present degree of rearmament may weaken and bring down those economies without any world war at all.

In yesterday's Times it was stated in the leading article that rearmament on the present scale has traditionally led to war. We are vitally interested in whether a third world war should take place or not, because that must make a tremendous difference to the value of our external assets, and the right way of using them so long as they still remain.

As to the whole policy of Containing Communism by rearmament and, if necessary, by war, I want to remind the House that after the first world war one-sixth of the world became Communist; after the second world war one-third of the world was Communist. After the third world war what proportion of the world will probably be Communist, no matter who wins or loses?

The fact is that rearmament is imposing an intolerable strain on capitalist economies and they may be reduced to the state in which they would collapse without any external pushing at all. The danger of war arises from many sides, partly from human nature and partly from the mere fact of rearmament.

In this connection, may I make a comparison between a typical communist economy and a typical capitalist democracy? A communist economy is one which is completely controlled both in economy and in politics by an authoritarian Government. It is conceivable that the rulers of such a State should, after cool calculation of all the pros and cons, deliberately embark on war, but no part of their deliberations would be in any way influenced by any motive of private profit that may be made on the business of rearmament, because in a communist economy there is no private profit in rearmament or anything else. On the other hand, capitalist economics are somewhat untidy in their political set-up and political-economic structure.

There are what could be described as barnacles that gather on the ship of State in a capitalist economy, and these barnacles sometimes get in the way of the steering gear and influence the decision of the man on the bridge. In other words, there are in capitalist economies, as the Minister knows, private interests not necessarily in conformity with the common weal, and which are irresponsible, but nevertheless they influence the decisions of Governments. There is always the possibility that in a capitalist democracy, regard for these private vested interests of one kind or another may make Governments arrive at decisions about war and peace which are not really defensible from a strictly public point of view.

At the present moment the total national income of the United States of America is 260,000,000,000 dollars or more - I forget the exact figure. Of that national income, some 60,000,000,000 dollars is being set aside for rearmament. That is a terrific proportion of the total national income. Can you imagine what would happen if that 60,000,000,000 dollars suddenly ceased to be spent on the purposes of rearmament? Is there not there the danger of a tremendous disequilibrium? Can you not imagine a situation arising in which influential interests might see no easy way out except war and say: "Better a third world war than a second 1929 depression."

That danger exists owing to the very nature of capitalist democracy, and owing to one of the qualities of it which make it most admirable in time of peace, namely, the very spontaneity and autonomy of the various parts of the economic system, which make it less readily controllable in the national interest in time of emergency. In fact, if a large scale rearmament drive continues too long, it is apt to produce a kind of Frankenstein monster who takes control of the whole situation, with devastating results.

Although it may he that in Communist countries there are professional interests which are engaged in finding the most scientific methods of killing people, there is an even greater danger of irresponsible vested interests influencing the decisions of government in a capitalist country rather than in a Communist one. In fact, there is always the danger that the dragon's teeth may he sown, and when they have been sown the husbandman is apt to lose control and the crop will harvest itself - and that will be a bloody harvest, indeed. As I see the world situation at present, only a long period of peace can save capitalism, freedom and democracy and the other values to which we attach fundamental importance.

Now, any reader of the current British economic periodicals must have seen signs of strain and stress in the British economy lately. May I quote from a pamphlet by Professor Cole, of Oxford, called 'Weakness through Strength', in which he develops the theory that Britain's excessive burden of rearmament has weakened her rather than strengthened her in relation to world dangers and difficulties? He says:

"Mutual suspicions, and the conflict of Communist and capitalist philosophies, make it exceedingly difficult to persuade the ruling groups in either the Soviet Union or the United States that in arming madly against each other they are doing anything other than each is forced to do by the attitude and policy of its antagonist. But we in Great Britain, and with us the peoples of Western Europe, have nothing to gain by war and have the strongest reasons for knowing both that if it comes it is likely to be utterly disastrous for us, whichever side wins, and that a prolonged condition of near-war will wear us out long before it has exhausted either the Americans with their vast productive power or the Russians with their immense capacity for enduring hardship. I am quite unable to believe that either the American people or the people of the Soviet Union want war or would willingly resort to it unless they had been induced to believe that there was no other way open to them of defending their several ways of life."

Then he concludes. "May it not be that the social discontents which will he created by the economic upsets of rearmament will leave us not stronger but weaker in facing the perils of a divided world, from whatever quarter they come? If armies march on their bellies, so do whole peoples. A weakened economy, rent by internal dissensions can be no good case either for preventing a war or for fighting one."

May I go on to quote an article which appeared in the New Statesman of the 17th November of this year, entitled 'Dollars for Defence'. It reads:

"In ten months since the Brussels Conference which fixed national contributions to western defence, America's two chief European allies have been brought to the edge of economic collapse. The fact that the pace of Atlantic rearmament has undermined the recovery achieved under the Marshall Plan and thrown Britain and France back almost where they were in 1947 is frankly admitted Washington and Paris."

He goes on to imply that the stability of sterling now depends on a reduction of the rearmament drive or increased dollar aid. May I conclude these remarks by quoting from an article in the Economist which appeared on the 6th of October of this year?

Speaking of the military's natural tendency to overdo armament preparations, The Economist wrote:

"They were encouraged to do so last winter by the almost universal conviction in America at that time that full war was imminent. In large measure, the present American programme is designed for fighting Russia, not for staying at peace by deterring a Russian aggression... When one hears talk of an air force of 140 groups, it is difficult to believe that it is not being overdone.... It it not safe for the world for either side to he overwhelmingly stronger than the other - even if it is our side and inspired by the most pacific of intentions. Good men are not exempt from temptation."

You may remember that some time ago Mr Attlee made a speech in which he said that it was wars were occasionally the result of the actions of blazing idiots in high places. Are we quite sure that all the blazing idiots are on the other side of the Iron Curtain, and that none of them is on the other side of the Irish Sea or the other side of the broad Atlantic?

In normal times, the stability and international value of sterling depends on a triangular trade relationship between Great Britain, on the one hand, the rest of the sterling area on the other hand, and the United States of America or the dollar area, on the third hand. Normally, Britain exports a surplus to the rest of the sterling area; the rest of the sterling area exports a surplus to the dollar area; and the dollar area exports a surplus to Britain.

That is all right, that triangular pattern reasserted itself for a year or so about 1949 or 1950 and everything appeared to he going back to normal, back to a stable world, but, unfortunately, since then, the whole situation has been changed. Japan has been revived and is now being built up, and is in process of taking over the trade of South-Eastern Asia, which Britain formerly depended upon so much for her international solvency, and, on the other side, Western Germany has been built up and is now selling the steel and other products to various countries in Europe which Britain used to sell.

In the final result, the British economy is now in deficit with the rest of the sterling area, and, more important still, is now in deficit with the European Payments Union, so that far as one can see the lynch-pin has been taken out of both wheels of the chariot of sterling, and, if present forces continue, nothing can prevent a serious collapse in the international value of sterling. In fact, so far an I can see, the present situation can only continue if Britain either gets vastly increased help from the United States or cuts down very considerably her large programme of rearmament. That in not a very cheerful outlook, but I do not want to end up on an entirely cheerless note.

What are the chances of peace? In that connection, I should like to remind ourselves of some of the outstanding events in our own national history, as well as in the history of Europe. There have been conflicting ideologies in the world before. I can hardly imagine anything more irreconcilable on the intellectual plane than the respective ideologies of the Protestant and Catholic Faiths and there was a time in the history of Europe when people killed one another for the love of God because of these conflicting ideologies, but they have long since learned to live and let live in an atmosphere of Christian charity, so far as that is concerned. Equally in our own country we have had conflicting ideologies.

I remember 30 years ago, when the Sinn Fein movement was still comparatively young and when one was conscious of the conflict of outlook between the old Irish Unionist mentality and the new Sinn Fein ideology, hearing in some of the circles in which I moved: 'The only good Sinn Feiner is a dead one.' Some of the people still alive who were saying that kind of thing 30 years ago have since become some of the most fervent admirers of the present Taoiseach and his associates, and that, I think, is a tribute to the fact that, in an atmosphere of live and let live and of Christian charity with which we have been confronting each other for many years, and especially since the establishment of the new regime down here, these ideologies, which are irreconcilable on the intellectual plane, have become reconciled on the emotional plane.

I should like briefly to throw my mind back over the past 40 years. I began my interest in public life by an appeal for non-violence in connection with the Ulster Volunteer movement which began about the year 1912. You know what happened then. You know how the Ulster volunteer movement ended and how a European war began which some people say may have had some slight relation to the events which took place in Ulster at the time. A lot has happened since 1912 in Ireland and in the world. No northern politician would ever openly admit that they made a mistake. Still there may he a feeling in their consciences that they are not entirely happy about the part played by the Ulster volunteer movement in bringing back the principle of violence and, perhaps, setting a match to the train of a European war.

If we could roll back the scroll of time to 1912 and if our Ulster friends with complete foreknowledge of what has happened in the last 40 years, had to make the same choice again that they made in 1912, 1913 and 1914, they would perhaps choose the method of peace and not the method of violence.

They are fundamentally a good-hearted, kindly people and, in their personal relations to each other, they display an attitude of Christian charity and it is only in their public relations to 'the other side' that they attribute diabolical things to one another. If we could have the same friendly relations between groups in the North as in the South, we would go a long way towards solving the one remaining problem of our national life.

In this festive season it is well to remember what the Prince of Peace said: "Render not evil for evil but overcome evil with good." He did not say: "Overcome evil with atom bombs."

May I say, with all seriousness, that the correct Christian outlook on the Communist world is to regard Communists as erring children of a common Divine Father, who might yet be led into the way of truth but will not be converted by atomic bombs. If the Christian world commits itself to a policy which may mean the wholesale murder of millions of men, women and children in countries beyond the Iron Curtain, then it is possible that Communists will not appreciate the superiority of the Christian ethic. In fact, only the spirit of the Prince of Peace, which is commonly called pacifism, can save the world from its present deadly peril.

The British no longer claim the moral leadership of Western Europe, but they still have considerable influence in the British Commonwealth. The House may remember that about a year ago a Commonwealth conference was held. Strengthened by the moral support of that conference, Mr Attlee went to Washington and succeeded in persuading the Americans not to drop the atomic bomb on the Chinese just then. If they had dropped the atomic bomb, it would most certainly have precipitated a third world war. He saved world peace by a hair's breadth then but the situation is still somewhat precarious. The whole situation, in fact, is so precarious that, although we have no great influence or power in the political, military or economic spheres, we will have to use whatever power we have - and that is more than we realise - in the moral and spiritual spheres on the side of peace and on the side of a policy of live and let live.

We have perhaps no locus standi in international affairs, having left the Commonwealth and not having been admitted to the United Nations. I personally regret the fact that we are no longer members of the Commonwealth. Although we are not members, we are still part of the Western world and part of the Christian conscience. We have a right to express our opinions about these matters in every legitimate way. I, personally, express the view that, apart from Korea and Formosa, which are still danger points in the Far East, the greatest immediate danger to world peace is the proposed rearmament of Nazi Germany. That is one of the sensitive spots in the minds of the rulers of Communist Russia. If that rearmament programme goes through there will he the certainty of a third world war. We should throw our weight, however light it may be, on the scales in favour of a peaceful approach to present world problems. All our problems derive ultimately front the present unsatisfactory world situation.

What about our sterling assets? If we think that war is in any way unavoidable, then we may as well realise that our sterling assets, and a great many other assets, will go up in radioactive smoke, some of which will he wafted over here. On the other hand, if peace is maintained, the then there is every reason why we should economise our sterling assets and make the best use of them. It is most important that we should realise the true nature of the present conflict that is going on in the world. It is not a conflict between the people on the East of the Iron Curtain and the people on the West of the Iron Curtain.

It is not a question of being all black, or all red, or all white. It is a conflict between the spirit of the Prince of Peace and the forces of evil in the hearts of everyone, high and low, in every country in the world. We will have to make up our minds on what side we will be in that conflict. Above all things we should work and strive for Peace on the only realistic basis - the basis of live and let live in a spirit of good neighbourliness and in accordance with the parable of the Good Samaritan.

Meanwhile, we as a nation should take neither hand, act nor part in the present rearmament craze which is bringing the world to destruction. I say that with reference to a Republic of 26 counties and I would say it again, with equal vehemence, if we were a Republic of 32 counties.

Some navigational notes:

Copyright Dr Roy Johnston 1999