April 14, 1926

CON

Peter McGibbon

Conservative (1867-1942)

Mr. McGIBBON:

Is a federal reserve

bank not simply a bank of rediscount?

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Subtopic:   NATIONAL SYSTEM OF BANKING
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LAB
CON

Robert Smeaton White

Conservative (1867-1942)

Mr. WHITE (Mount Royal):

Will the hon. gentleman state how the resources of the Commonwealth Bank are invested, that is to. say, what percentage is invested in ordinary commercial loans?

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LAB

James Shaver Woodsworth

Labour

Mr. WTOODSWORTH:

The investments

are not in ordinary commercial loans, although during the war various producers' organizations were financed by the bank. With regard to the details I would refer the hon. gentleman to this memorandum, in which the whole matter is dealt with very exhaustively.

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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

Will the hon. member identify the memorandum so that we can find it in the library?

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LAB

James Shaver Woodsworth

Labour

Mr. WOODSWORTH:

League of Nations Memorandum on Currency and Central Banks, 1913-14, published at Geneva, 1925, to be found in the Library of Parliament.

I do not intend to make any plea whatever for the various suggestions which I have advanced. I know there are other gentlemen from the west and, I think, some from the east as well who are ready to take part in this debate. I wish simply to suggest that since other countries are moving along these lines and are finding success in various directions, there is no earthly reason why we in Canada should still be held in bondage to the old idea that we have a banking system which is the last word in the financial arrangements of the world. I know this is too great a subject to be disposed of in one debate. My hope is that the Minister of Finance (Mr. Robb) will see his way to refer this matter to the committee on Banking and Commerce, where we shall have an opportunity for much fuller discussion. I am sure the committee after consideration could bring in recommendations which would be much more valuable than those I have tried to lay before the House.

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PRO

Henry Elvins Spencer

Progressive

Mr. H. E. SPENCER (Battle River):

Mr. Speaker, I take great pleasure in supporting the resolution that is before the House. This is the fifth year, to my knowledge, that this all-important subject has been brought before the House and discussed very extensively. It is pleasing indeed to me to find that each year hon. members are taking a greater interest in it, the reason no doubt being that the subject has become one of some moment from one end of the country to the other.

The hon. member who introduced the resolution read one passed by a very large organization in Saskatchewan. I have in my hand a resolution passed by a similar organization in Alberta. It reads:

Whereas, it is desirable to secure decentralization in the private control of credit, and to this end smaller banks should be established, and Whereas, all currency should be issued by the government in the interest of the public, and Whereas, these and other desirable objects can be best achieved through the creation of a central bank;

Resolved, that this convention recommend that suitable steps be taken to establish and put into operation a central bank for Canada, and to provide that the policy of this bank may be controlled by, and in the interests of the people of Canada.

I understand that there is an organization called the Monetary Reform League in the city of Toronto, and that several eminent men who live in the city of Montreal are also lecturing on the subject. So we see that each year the subject is becoming more and more discussed, and it is only right that it should be brought before this House for discussion so that in time we may expect to have legislation passed with regard to it.

The hon. member who introduced the resolution said that the medium of exchange had made various changes from the time of barter, developing into coinage and then into notes, and later on very largely into what we call cheque money, based on credit, created as the result of security being lodged, with the banks, and used in 96 per cent of the cases in Canada-to facilitate the transfer of goods from the producer to the consumer. This is very well set out by Professor Soddy of Oxford University, who outlines the situation in the following words, which are endorsed by the Right Hon. Reginald McKenna and Major C. H. Douglas of London, England:

Another and most important fact to be emphasized, is that virtually all the money in the hands (or banking accounts) of the community originally came into existence in the form of loans from the banking system. It can come from nowhere else, nor otherwise than as loans. This fact, which reverses all the old concepts of loans as money taken out of pre-existing deposits, is demonstrated fully in Major Douglas's works, and, in fact, has since been endorsed by Mr. McKenna, the chairman of the Midland Bank. The order of procedure is as follows:

(1) Money is printed or written into existence by the banks:

(2) It enters circulation as a loan to somebody:

(3) It is then spent, and then becomes a "deposit" in the name of the receiver.

As loans are repaid a similar amount of deposits must be cancelled. It has been mentioned this afternoon that during the last twenty years or so there has been a vast absorption of various banks in this country until the thirty-four institutions which we had twenty-three years ago have been reduced to eleven. Of these eleven all except one, a small concern, have their head office in Montreal or in Toronto. This is not in the best interests of the Dominion. We have seen what absentee landlordism did for many years in Ireland, and we are witnessing what

National Banking System

absentee financial ism is doing for Canada. We find that the far eastern section of this country and the great west have suffered very largely from stagnation of business owing to this centralization of the control of credit. It would not be so bad if those who are interested in banking institutions were not also interested in other business, but unfortunately for the business welfare of Canada we find that apart from the officials of the bank, those who control these institutions-the directors-are interested in all of the country's industries except possibly agriculture, which I may say they certainly control. That being so, it can readily be seen that where there are interlocking directorates between the banks and other business concerns it is quite simple and easy as well as natural for the banks to feed certain businesses with credit while they starve Others in which they are not so closely associated. I have before me a chart showing the names of fifteen directors of banks, and so on, who are interlocked in sixteen corporations. This chart was placed before the House in 1022 by the then member for Brome. The businesses of these corporations include insurance, banking, implement manufacturing, textile, railways, light, heat and power companies, water-power, paper and cotton, and in all they control investments to the extent of $4,285,000,000.

The branch bank system has given a good deal of satisfaction in small, thickly settled countries such as Great Britain, but I have to admit that in Canada, with its vast territories and its thin population, the system has been a failure. You need, however, only compare the United States and Canada, one with a banking system providing for branches to meet local interests and the other with our highly centralized system, to see how great a development has taken place on the one hand and what stagnation there has been on the other. Banks are just commercial concerns like any other business. They are out for profit. That is their business and naturally they do not want competition. It is perfectly natural, also, that if individuals desire to get together and start any business of the type in which the various directors of these banks happen to be interested, it would be the part of wisdom, from the point of view of these directors, to prohibit credit being given to these pioneers. And that is being done every day. That is one of the main reasons why we claim it is unfair that the control of the major portion of the private credit of the country should be in the hands of private financial institutions. This control of credit is in my opinion by far the greatest power that exists, for governments themselves have not been exempt from its influence. I

will say further that there is not a man, there is not a member here, who can call himself free if he is indebted to these institutions. Whatever his security may be, if he has to go to a bank to get a line of credit on their terms, credit which can be cancelled any time they choose, then he is not a free man.

The second clause of the resolution I read calls for a monopoly of the issues of currency by the government as outlined by the hon. member who has moved the motion. Other countries have decided to monopolize the issue of currency through government control, but Canada is backward in this respect. I will not go into the details of this question inasmuch as the speaker who preceded me dealt with it fully. Private banking institutions in Canada-and they are the only type of banks we have here-are the only concerns I know of which as soon as they get their charter have the right to double their assets by the simple process of printing paper. They are the only people I know of who have the great privilege of charging interest on their debts. To put it another way, when they take a note, or a bill, or " a promise to pay," which is a debt, and pass it across the counter to the public, interest is charged thereon. Now, why should not this privilege be retained by the government itself, and the resultant profit devoted to lessening the burden of taxation?

I have before me some rather interesting figures with regard to our note issues. I will give only those for the month of January, 1926. The information is taken from the Canada Gazette of February 13, 1926. Dominion notes then in circulation amounted to $214,058,885, but of this total I find that the huge sum of $177,675,000 represented "legals" -notes of large denomination used between the banks. This leaves a balance of only $36,383,885, representing the note issue used by the public.

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PRO

Edward Joseph Garland

Progressive

Mr. GARLAND (Bow River):

Will the

hon. member give the quantity of gold behind that issue?

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PRO

Henry Elvins Spencer

Progressive

Mr. SPENCER:

I shall be very glad to

do so in a moment. With regard to the relative stability of a government bank and a private bank, there is no comparison in case of a financial panic due to war or other crisis. We know perfectly well) that the private bank cannot withstand a run on it by the public, such as occurred in 1914. On the other hand a government (bank has the prerogative of issuing notes which are legal tender, based on the assets of the whole country, and therefore it could meet all emergencies.

National Banking System

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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

Was not the greatest run

in history made on the Reich Bank of Germany, and did it not issue notes in such

profusion that at last they were worthless?

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PRO

Henry Elvins Spencer

Progressive

Mr. SPENCER:

So long as a bank issues

notes only to the amount of the deposits placed with it, those notes, will be perfectly good.

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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

Then you must impose alimit, and the moment you do so do you

not restrict the bank's operations?

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PRO

Henry Elvins Spencer

Progressive

Mr. SPENCER:

Any bank can be called

upon to pay in gold the last dollar deposited with it. That is impossible under our present banking system, because our chartered banks have not the wherewithal to pay their depositors in gold,.

The question, will probably 'be asked: What about the gold basis? I am not going to spend much time on that, except to quote a well known writer on financial reform. I refer to Mr. Arthur Kitson, who is chairman of the Banking Reform League of Great Britain. He has written many books on the subject. He is also a manufacturer in a very large way in both Great Britain and United States. Writing to the London Clarion on November 27, 1914, he-said:

Our bank rate jumped to 10 per cent in one day- higher than it has been in France, Germany or Austria just before or since the war. Every bank suspended payment, the gold basis collapsed, and, but for the common sense of the Chancellor in supporting the banks with the national credit-

I ask the House to note that, because we did the same thing and saved our banks at that time.

-the whole financial and industrial structure would have come tumbling down in the mire. Possibly we may to-day be able to create some public interest where we have hitherto failed; at any rate, it is well worth the effort. The lesson to drive into the heads of the community from what has happened is the fact that the so-called gold basis is a delusion and a snare -a legalized fraud, used to enable the financial classes to control and tax the industrial classes.

In my opinion, that information is just as important, if not more important, to the great manufacturing interests as to those toiling with their hands. For the benefit of the hon. member who sits near me and asked me a question a few moments ago (Mr. Garland) I would point out that according to the Canada Gazette of February 13, 1926, gold held by the Dominion in January, 1926, amounted to $127,380,217; and according to the Canada Gazette of March 13, 1926, gold held by our banks in the same month of January amounted to $43,154,000, or a total of $170,534,217. This reserve of gold was held against notes and financial credits to the tune

of $2,827,488,885-or a deficit in gold of $2,656,954,668.

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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

Does the hon. gentleman

even in the wildest flight of his fancy suggest that those are the only gold assets available?

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PRO

Henry Elvins Spencer

Progressive

Mr. SPENCER:

I should like to know

what other gold assets there are.

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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

As to the chartered banks, take the entire loans in New York, for instance, callable within twenty-four hours and payable in gold.

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LIB
PRO

Henry Elvins Spencer

Progressive

Mr. SPENCER:

I do not think that answers the question. I am sorry, Mr. Speaker, that the day is so short for this all-important subject. I have discussed it somewhat rapidly, and as I know other hon. members want to take part in the debate, I will conclude by saying that I shall be very glad to give my hearty support to the resolution before the House.

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LIB

James Alexander Robb (Minister of Trade and Commerce; Minister of Finance and Receiver General)

Liberal

Hon. J. A. ROBB (Minister of Finance):

Mr. Speaker, the resolution now before the House carries an implication that I should not like to go out to the world. In saying that I believe I voice the opinion of every hon. member, even that of the mover himself. He implies that Canada has not now a national banking system. I submit, Mr. Speaker, that we have a national banking system, that it is a good system, and that it meets the requirements of the country. As every hon. member knows, we are on a gold basis, and to-day our money is as good as the money of any other country. Indeed, only a few days ago the Canadian dollar was quoted at a premium in New York. The bank notes of any bank in Canada pass at par in any of our provinces, so I say we have a good banking system.

To those who were in the last parliament the question introduced and discussed to-day by the hon. member for Winnipeg North Centre (Mr. Woodsworth) is not a new one. This question was debated at considerable length in 1923 and again in 1924, not only in this chamber but also before the Banking and Commerce committee. Experienced bankers, both Canadian and those from other countries, were brought before the Banking and Commerce committee to give evidence, and I propose to place on record very briefly the opinions of some of those gentlemen. I have in mind Sir Frederick Williams-Taylor, general manager of the Bank of Montreal. I have never met a banker, either from Canada, the United States or the Mother Country, who has not acknowledged that Sir Frederick

National Banking System

Williams-Taylor is recognized as a good banker who understands well the systems of banking not only in our country but in the other countries of the world. The opinions of Sir Frederick Williams-Taylor will be found, if any hon. gentleman desires to look them up, at page 297 of the proceedings of the investigation of 1923. His opinion was that the system as it exists now in Canada meets our requirements and is very much better suited to those requirements than would be the federal reserve bank system of the United States.

That view was also shared by another eminent banker, Sir John Aird, who is not only a good banker with considerable experience, but is also generally recognized as an economist, and a gentleman with wide experience in the business, commercial and industrial life of Canada. No man understands better than does Sir John Aird the requirements of Canada, both for the moving of the crops and the providing of money for the carrying on of our industrial affairs. If hon. gentlemen will refer to page 363 of the report of the 1923 proceedings the evidence of Sir John Aird will be found.

We had before that committee still another gentleman, who is recognized as an economist and a man supposed to pronounce the views of western Canada upon this question. I refer to Professor Swanson of the University of Saskatchewan. Professor Swanson was more interested, I believe, in sound economics than in helping any theories. His evidence is found at pages 783 and 784, and I am going to quote it, because I propose in a few moments to accept a suggestion made by my hon. friend. [DOT] Professor Swanson also thought that the banking system of Canada was quite suited to our requirements.

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PRO

Henry Elvins Spencer

Progressive

Mr. SPENCER:

Is the minister aware

that Professor Swanson criticized the gold basis some years ago, before an open convention in Calgary, as readily as have some of the hon. members of the House to-day?

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April 14, 1926