March 8, 1938

SC
LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

My hon. friend is not asking a question; he is making a speech. I understand that he is on the speakers' list, and he will be able, of course, to make any explanation he wishes. I am endeavouring to state the Douglas theory without quoting at great length from all the Douglas books and to state what I think anyone will agree with, namely, that Major Douglas' theory on which, he states clearly, his whole program must stand or fall, is this "A" plus "B" theorem or analysis. There is at first sight an air of plausibility about it, and, particularly when it is stated in the mathematical terms of the so-called "A" plus "B" formula, a superficial mind like

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mine which has forgotten its algebra is likely to >be awed into an acceptance of it as a mathematical truth. Particularly in times of severe depression it is likely to win unthinking acceptance, because in such periods, as we have already noted, there is likely to be monetary and credit deflation. This temporary deflation of money and credit demands an appropriate remedy in the type of monetary policy which I have previously discussed. But the error of Major Douglas is that, finding this type of temporary deflation in the immediate post-war depression when he began his investigations, he was led to erect a general theory which contends that there is always and inevitably a deficiency of purchasing power created by the working of our present system.

The falsity of his analysis has been exposed time and again by economists-not only the orthodox economists but even including such an unorthodox one as the communist John Strachey in his book on The Nature of Capitalist Crisis-and those who have time to go into it in more detail should read one of these exposures-for instance, Gaitskell's chapter in G. D. H. Cole's volume on What Everyone Wants to Know about Money. But let me indicate briefly a few of the major errors underlying the analysis. In the illustration I used of the -pair of shoes costing ten dollars, payments amounting to four dollars were assumed not to go to individual consumers -but to other firms and organizations. Most of this, say three dollars, would represent payments made for the purchase of raw materials such as leather, etc., and it does not take long to realize that the three dollars recovered ,by the shoe manufacturer as part of the sales price of ten dollars for his shoes goes to pay wages and salaries of the long line of people making the leather and other materials purchased by the manufacturer in order to make his shoes. But, says Major Douglas, this argument disregards the element of time. The money received by the farmer who raised the live stock -and the tanner who produced the leather, etc., has been paid out in the past in an earlier stage of production, and so is not available in the present when the pair of shoes has to be purchased by someone. But obviously this attempted rebuttal entirely overlooks the fact that industry is a continuous process and that at all times producers and industries are operating side by side in all. the various stages of production. It is evident, therefore, that industry as a whole is making available purchasing power equal to the total "A" payments made and these in turn will equal the cost of production of all consumer goods

produced. Were it not so, our economic system would have broken down completely long years ago and we would now be operating on an entirely different type of system.

It is true, of course, that a deficiency of purchasing power may arise if there is a breakdown in the continuity of the productive process, and these break-downs do occur. But these periodic break-downs are what we mean by depressions and they call for their own appropriate remedies. They are not the phenomena which Major Douglas is attempting to analyze and prescribe for.

Another error which the social crediters make is to overlook entirely the fact that consumers do not buy the whole product of industry. A very substantial proportion of the total product of industry consists of producers' or capital goods-machinery, tools, equipment, etc.-which never come into the hands of consumers and which they never have to buy. The firms which are producing these capital goods pay wages, salaries and dividends which constitute purchasing power in the hands of consumers for the purchase of consumers' goods produced by other industries. It is, therefore, absurd to contend that sufficient money should be placed in the hands of consumers to enable them to purchase the entire produce of industry.

Finally, the social crediters overlook, in my opinion, the importance of the velocity factor to which I was referring a few minutes ago. They appear to forget that a dollar may turn over fifteen to twenty-five times in the course of a single year and thus do the money work of S15 to $25. Thus in 1929, when the total volume of business transactions in Canada amounted to fifty-two and a half billions of dollars, the total volume of money and credit in circulation was estimated at less than two and a half billion dollars. Would the sponsors of this theory contend that the volume of money and credit should have been increased to fifty-two and a half billion dollars, in order to provide purchasing power in the hands of consumers for all of the transactions which took place during the year 1929?

So much for the false foundation upon which, in my opinion, the social credit program rests. What about the program itself? It is impossible here to go into the myriad complexities and variants of the program; but as one would expect, it involves an attempt to provide a compensation for the supposed chronic shortage of purchasing power in the hands of consumers, which Major Douglas has been at such pains to demonstrate.

Most of the positive devices which are suggested will be recognized by all as frankly inflationist. This applies particularly to such

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suggestions as social credit dividends of 825 per month, payment of old age pensions by so-called monetizing of the national credit, and other devices of a similar nature. But the main part of the program as expounded by Major Douglas does seek to avoid inflation by providing for a reduction of prices by a certain proportion by government decree. How this proportion is to be arrived at is a technical problem and remains a mystery. Producers who sell at the lower prices once they have been established become entitled to credits supplied by the government equivalent to the difference between the old and the new prices in respect of each article sold. Ho interest is charged on these credits and no security is required therefor-they are really subsidies based on the national credit. The theory, of course, is that as a result of these credits or subsidies producers will find themselves as well off as they were before their prices were lowered, while consumers have obtained the benefits of the lower prices and are able with the same money incomes to buy more goods. It is evident that the total amount of these credits or subsidies given to producers involves a huge total; for they are designed to make up for the shorts age between the cost value of total consumption and the money value of total production of the country during a given period, say one year, and the estimates made by social crediters indicate that only from two-fifths to one-ninth of the total production of a given period is consumed. It is apparent, therefore, that the new purchasing power thrown into the monetary system would be of colossal proportions.

It should be obvious, from what I have previously said, that this program would involve inflation on an enormous scale, with skyrocketing of prices and all the maladjustments of an artificial boom.

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

Will the minister permit a question?

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

My hon. friend was

courteous this afternoon and I do not mind if it is a question, though I should like to get through to-night.

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

I wonder if, while I ask the question, I may inquire whether the Liberals will show us the same courtesy we showed them. The question is this: Will the hon. gentleman tell us where he has got all this information in regard to the two-fifths and one-ninth? What authority is he quoting?

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

What authority?

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

What social credit authority is he quoting for all this?

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Well, I have had the benefit of reading, as my hon. friend has had. I shall not say that I have read as widely as he; but one thing I do not do, and that is to pick out a quotation from a man's book in order to back up a point I am making, when I know that the trend of the whole book is directly against the theory I am advocating. I do study these matters; I have to do so in my capacity as Minister of Finance. I discuss them frequently with my technical officers, and endeavour to shape my own views and the views of the government, in so far as I can influence them, with respect to monetary matters, and I may tell my hon. friend that ever since this session opened I expected to have to face this question in parliament and have been very carefully preparing myself for it. Moreover, I have been very careful to-night to stick as closely as possible to the text because, as I said at the outset, I have a very deep sense of responsibility with respect to the influence, not on my hon. friends, but on the credit of Canada generally, of anything which a man occupying the position of Minister of Finance says with reference to such matters.

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

May I ask another question?

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Certainly.

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

I am wondering why the Minister of Finance cannot tell us where he has got his information with regard to the figures he has quoted.

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

In quoting the Douglas theory I have attempted to condense within a narrow compass my conception of it from what Major Douglas has written in many books, and from what my hon. friends have been saying in the house during the last two or three years. It is my own opinion. If my hon. friends believe that I am wrong in any particular, if is their privilege to point out, after reading in Hansard what I have said, wherein I am wrong. That is the privilege of debate. It is by that method that we all endeavour to arrive at the truth. I am endeavouring to state what is my opinion, what is my conception of the thing I am talking about.

To continue, if the program were continued, this inflation would be progressive and cumulative, and before long the experience of post-war Germany would have little to teach us. Of course, Major Douglas says that at the first sign of rising prices no more new money would be created.

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SC

Victor Quelch

Social Credit

Mr. QUELCH:

He never said that.

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LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

If this promise is to be taken literally, then the social credit program would be at an end, and presumably we would have to worry only about the effects of the first dose of inflation. I am afraid, however, that under a social credit regime the promise could not be taken literally, and at the best we would find continuing doses of inflation on an enormous scale with attempts by the regime to counteract the effects of inflation by the fixing of maximum prices. This would lead inevitably to the assumption of control over all industries, trades and economic activities and the complete regimentation characteristic of an authoritarian state. Moreover, as history has shown repeatedly, for instance in the fiat money period of revolutionarjr France and in the hyper-inflation period in post-war Germany, the attempts at fixing maximum prices, regulating wages, and so forth, would be futile and ineffective, even though the death penalty were imposed against offenders.

I have dealt all too briefly with the positive program of social credit, but I think the members of the house are sufficiently aware of the nature and implications of the program to make a more detailed appraisal unnecessary.

In conclusion, I have traced the history of our monetary policy in the last few years, and have tried to show, I fear at too great length, the reasons why I believe that this policy, in the recent past at least, has been well considered, and why some of the alternative policies which have been suggested should not be adopted. Our policy has been and is an easy money policy which has resulted in an expansion of our credit base and of the volume of credit in use at a rate which is believed to be in harmony with the best interest of the economic life of the nation. It is a policy which recognizes the part which monetary weapons can usefully play in stimulating and supporting business recovery, but not one based on the belief that monetary factors are the sole factors to be considered. It is a policy which has retained the confidence of the business man and the private citizen, not one which has created fear or uncertainty. It is one of the factors responsible for the fact that our economy has shown a consistent, and indeed rapid, recovery; not one characterized by fits and starts.

Of course much remains to be done. One of our important industries has been prostrated by the recurrent ravages of drought Unemployment has declined substantially, but we still have employable persons who are unemployed. These and other problems must be attacked on many fronts. Fundamentally our need is an actual increase in material wealth, not a different yardstick with which

to measure it, or the deliberate ruination of one class for the imaginary benefit of another. Such an increase in material wealth can be best secured by facilitating the production of the many commodities which Canada is best adapted to produce, and by exchanging these products on as large a scale as possible for products which Canada cannot advantageously produce, receiving in return for our exports, as much rather than as little as possible. Monetary policy will continue to have its part to play, and I am confident that the administration of Canadas monetary policy by the Bank of Canada is in capable hands, and is directed to the single purpose of promoting the best good of all Canada in so far as monetary policy can be effective to this end.

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SC

Archibald Hugh Mitchell

Social Credit

Mr. A. H. MITCHELL (Medicine Hat):

May I say to the Minister of Finance (Mr. Dunning) that I did enjoy his essay. It will be necessary to read and study it in order to deal effectively with it.

May I say also that when I came to this house I had some fixed ideas and some firm prejudices. One of those prejudices was political; another was perhaps against individuals. There have been times when I actually doubted the integrity of the Minister of Finance and the men who control finance in Canada. But I should like to say that as I have come to know them better, I came to understand my prejudice more, and I think what we have to say can be more useful according as we lose our prejudices.

In seconding the motion of the hon. member for Lethbridge (Mr. Blackmore), my leader in the house, may I say that I believe this government is actually in a negative position. It is in the strange position of having a leader who stated in the house, while in opposition, that usury once in control will wreck any nation. Now, Mr. Speaker, I agree completely with the right hon. gentleman in that statement. But I have not seen any evidence that he or his government has done anything to free this country from that condition.

Let me explain exactly what I mean. I was so impressed by that statement that usury, once in control, will wreck any nation, that I looked up the definition of the word "usury". The first definition I saw was, "the fact or practice of lending money at interest". I looked in six different dictionaries in the parliamentary library in order to see whether there was any disagreement, and I found they agreed in the definition that the fact or practice of lending at interest is usury, with

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the added meaning especially in later use, of "the charging or taking of excessive or illegal rates of interest."

In the light of what I have found since I discovered the meaning of that word "usury," and in view of the statement I have quoted as to its effect when in control of a country, the striking thing is that the effect of lending principal and recovering interest is the accumulation of a tremendous debt, which is growing rapidly. When principal only is borrowed by a borrower, and principal plus interest is repayable at maturity, the principal and the interest are of exactly the same material, namely dollars. If I borrow $940 and repay $1,000. that is, if I borrow at six per cent discount, I am returning $60 which I did not receive. If every person who borrows a sum of money, when he makes repayment repays the principal plus interest, then surely, since the material which he uses for repayment is the same as what he borrowed, he must be repaying with part of someone else's principal. Therefore it is not surprising to find that usury-or use the term interest if you like

the payment of interest for the money which we have to use to exchange our goods and services, is part and parcel of an idea which is in control of this nation. That fact I would say is the pons asinorum of the new economics.

Every time principal is lent money goes into circulation; every time loans are repaid money comes out of circulation. But since principal only is lent, and principal plus interest repaid, more money must come out of circulation than went in, which is nothing more or less than impossible. The result is debt. So I say that if the Minister of Finance has successfully disposed of the "A" plus "B" theorem, we have yet to hear how he is going to dispose of the debt problem, which confronts individuals, businesses and governments, whether provincial, municipal or federal.

It is like a gigantic poker game. I happen to know something about the game. I know that the man who runs the game is called a banker. That may be a coincidence. The banker "drags" each pot; it is only a small drag, hardly a percentage of the pot each time; but as the game goes on and the banker keeps dragging, if the same players stay in the game, eventually the banker must have all the money. Unless new players come in, eventually all the players, or at least some of them, are bound to be in debt to the banker. That is the way it operates.

Now, when money goes into circulation as debt, and like a comet returns bringing with

it a tail of interest, the busier and more productive we are the more money is borrowed, the more principal is used up in paying interest, and necessarily the more debt must accrue. The fact has been borne out by the findings of the Bank of Canada in connection with provincial operations in the three western provinces, and because of it, if not because of the "A" plus "B" theorem, if your personal difficulty and that of all the people whom you know, or know of, is lack of money, is it not obvious that the central national difficulty is but the aggregate of the difficulty of all the citizens, and that the scarcity of money is our paramount national problem?

Those are not my words, Mr. Speaker. I have quoted from the foreword to Professor Irving Fisher's book One Hundred Per Cent Money, which was. written by Robert H. Hemphill, formerly credit manager of the federal reserve bank of Atlanta. He goes on to say:

We have ample producing and distributing facilities to supply everyone with an abundance of the essentials for a high standard of living, and we are desperately anxious to produce, but we haven't sufficient money to effect the exchange of our goods and services.

We are dependent for sufficient money upon the judgment of a few men, whose integrity I am not questioning for one moment, although, as I said to the Minister of Finance, there was a time when I was narrow enough to have done so. It is hardly possible to conceive of the effect of compound interest. It is impossible to pay simple interest. How are we going to pay it when you compound it?

So, Mr. Speaker, the technique which is suggested by Major Douglas deals with that phase of the difficulty. The growth of debt may be judged by the fact that in the seventeenth century world debt increased forty-seven per cent. At the end of the eighteenth century world debt had increased 466 per' cent. At the end of the nineteenth century world debt, public and private, had increased 12,000 per cent. Professor Rauten-strauch, of Columbia university, taking 1800 A.D. as the year of origin and one hundred years as the unit of world debt, says that world debt is now increasing as the fourth power of time-of time, not squared-in spite of the bankruptcies, the various repudiations, writings down and so on. That is an appalling fact, and it requires some solution. The "A" plus "B" theorem has not been disproved to my satisfaction by the Minister of Finance, and there are many other points he made with which I am not going to take time to deal; but that does not by any manner of means dispose of the problem. It is a fact that

The late Peter Sinclair

history shows that when debts become unbearable, a means is always found of repudiating them. In France it was revolution; in Germany it was inflation, and in Russia it was both.

The position of this government is a negative one, because on the assertion of the minister himself, the government with parliament holds the means of correcting or finding a solution to that problem, which lies in the source of money and the means by which people obtain it; for now it comes only as a flow of principal through production. With the complications of mechanization and all the other complications such as unemployment and so on, it does not carry the burden it is expected to bear. I should like to quote the right hon. Prime Minister (Mr. Mackenzie King), who said in the house:

Once a nation parts with the control of its currency and credit, it matters not who makes the nation's laws. Usury, once in control, will wreck any nation. Until the control of the issue of currency and credit is restored to the government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of parliament and democracy is futile.

Has this government shown evidence that it has accepted its most conspicuous and sacred responsibility? I am sure that at the moment the position of the government in that regard is negative. It has stopped Alberta from trying to exercise sovereignty; but nothing is done to apply the sovereignty of the dominion over money power for the benefit of the people of Canada, except in the opinion of those who control the Bank of Canada, the Department of Finance and so on. Certainly something more is needed than reliance on exporting to foreign markets. Alberta has been stopped from trying to find a way out along the path of social credit. All right; the responsibility then is upon the dominion government to achieve better results.

Money technique and an accurate accounting system are required, not a poker game complete with banker. The government may feel satisfied with the results that are to be seen in the trade statistics, where Canada is shown to be exporting more than ever to the markets abroad. This is not a proof of anything except that we in Canada deprived ourselves of 86,000,000 worth of our own produce. Did we do so because no one here was hungry, because all the people were warmly housed and well clothed? No, Mr. Speaker, we did not.

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LIB

Walter Edward Foster (Speaker of the Senate)

Liberal

Mr. SPEAKER:

Eleven o'clock.

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At eleven o'clock the house adjourned, without question put, pursuant to standing order. Wednesday, March 9, 1938


March 8, 1938