Oh, I know my hon. friends would like me to finish, but they will hear
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plenty more along the same line in this house; no matter whether they like it or not, they will hear it anyway. I came here to represent the people of the west, not to represent the opinion of one little party and just be a good fellow. I want to say a few words about western Canada. It is history that w*e have continually made attempts to convince this government that they have a responsibility with regard to relief payments on the part of the cities and municipalities. So far we have been unable to convince them of the need of centralizing this responsibility. Again, we have asked them time and again to relieve us of this burden of debt which is crushing the western provinces, and time and again in this house the west has been referred to as the pampered child of the east. The truth is that even in depression years the four western provinces annually buy between three and four hundred million dollars worth of goods from the east. The same goods might be purchased for twenty-five to fifty per cent less if tariffs were abolished. In other words, the western provinces have paid to eastern manufacturers tribute amounting to a hundred million dollars a year, even in depression years.
I should like to see a new set-up in Canada. I think the interests of east and west conflict too much. If this government finds that it cannot do anything for the west, then I would respectfully suggest that it leave the west to its own fate. Certainly we will never be any worse off. For instance, the four western provinces might well be given the power to create and regulate their own tariffs, and to operate their own money machine. We would be prepared still to remain part of Canada, still to come under the same administration of justice, still to take the same interest and the same responsibility with regard to defence, and the same responsibility with regard to postal and railway deficits and the national debt. But if you cannot find a solution, do not remain in the way of men who are doing their best. Step out of the field. Leave it to the west to solve its own problems. Give us our own financial autonomy. That is what we ask, and that is what will come unless we have a new deal for western Canada.
So, Mr. Speaker, I close with this one thought in mind. I believe that we are at the crossroads of our national destiny. I would suggest to some of the Quebec members, some of the eastern Liberal members, that they take a tour through the west and find out what our people are thinking and how they are living. Even their courage, great as it is, cannot forever keep their heads above the river of debt. I am pleading now
that the young men of this country be given a break. If they all feel as I do they are extremely tired of the slowness with which you move. We are tired of your apathy. We want action. These conditions confront us now; we must have action now, not to-morrow. So I would suggest that when the Liberals next get together in caucus they should show a little pioneering spirit. Do not be dictated to from the top down. Remember, your people sent you here; the youth of this country rely upon you, and platitudes will not solve our problems. They are real, even though the A plus B theorem may be wrong.
Right Hon. R. B. BENNETT (Leader of the Opposition):
Mr. Speaker, the reply of the Minister of Finance (Mr. Dunning) the other evening indicated that he had to rely on the advice of his technical advisers with respect to the highly complex monetary questions with which he was dealing. It was painfully apparent that he was reading an essay prepared by his technical officers, and he stayed very closely with the text. The occasional annotations, if I might use that word, are some of the matters to which I should like to direct attention.
At the same time I think it is a very bad practice for this house to follow the procedure of the congress of the United States and extend remarks on to the record in the form of written essays, as they do in the Congressional Record there. I recall securing one of Henry George's books in that way, as an extension of a speech that a member delivered in congress. The essay of the minister, delightful as it was, in my judgment added very little to the matters that were under discussion. But the annotations of the minister were interesting.
It might be well to remember that the central bank act was passed in i934 by the late administration, and that the passage of that bill was very strongly opposed by the chartered banks. It is true that the Liberal party had intimated that they would pass such an act if they came into office; but having regard to the statement made by the Prime Minister (Mr. Mackenzie King) that the most important matter which would engage the attention of this parliament was the battle with the money power, and having regard to the lack of any sign of battle with the money power since they came into office, it might be well to ask ourselves if we would ever have had a central bank in this country if the Liberal party had not found the legislation on the statute books when they came into office. The general consensus of opinion is that there never would have been
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central bank legislation passed by a Liberal government, having regard to the manner in which they have kept their promise to do battle with the money power.
Now, Mr. Speaker, I direct attention to the fact that this act was placed on the statute books by the late administration. The second point to which I direct attention is that when the present government came into office in October, 1935, it found in operation the central bank. The bank had been organized, the directors elected, the governor and deputy governor appointed, and provision made for taking over the offices of the receiver general in the several provinces, except in British Columbia, where a branch of the Bank of Canada was organized in the city of Vancouver. I point that out, because it is important in the light of what has been said on several occasions to-day and on Tuesday last.
The bank was in operation, and this government came into office and found it in operation. In addition to that it has been said that this was a private bank. I should like to deal with that for a moment. When the bill was introduced I went down to the banking and commerce committee and explained to' them the reasons why the bill provided for a private bank. At the same time I made it quite clear that, so far as the then government was concerned, it was quite content that the bank should be wholly owned by the people-a state owned bank. But the reasons I gave them were reasons that so impressed my mind at the time as to induce me to change my original conception of the bank.
When we determined to organize a central bank we intended, as I pointed out to the committee, to organize it as a publicly owned institution. But so strong did the pressure of patronage become before the bank had assumed form and before the statute was passed, and so many were the clamorous demands upon the various members of the house and upon the government to find positions for innumerable people, that we reluctantly provided that this should be a privately owned institution. If hon. members will turn up the records or minutes of evidence of that committee they will find that I told the committee there were four considerations which apparently governed men's minds with respect to appointments to positions in the Bank of Canada. One was the place where the man lived; the second was his religion; the third was his race, and the last was his fitness.
That is exactly the position, and I told the committee, as I fell this house to-night, that I did not think we could have successfully
organized that bank had we not taken the steps we did to try at least to keep it out of the slough of patronage into which it threatened to fall.
I said in the house, and I repeat, that the government was quite content, once the bank was organized, to make it into a publicly owned institution. I stated that frequently during the campaign of 1935, and I say it to-night. I say again that I think the manner in which this government dealt with the matter was extremely inept. They should have done as was done in New Zealand, namely taken over the private holdings, by expropriation, if necessary. There was no difficulty in doing so. The shares had a par value of $50, and they were selling at a premium. In New Zealand they took over a privately owned institution, or that portion of it which was privately owned, and that was the end of the matter.
The government have not accomplished the public ownership of this bank. They still leave it half public and half private, except that a trifling amount more than half rests with the government, which of course gives them control in voting power, and the selection of directors. But it does not place this bank in the category of a publicly owned institution-and this could have been simply accomplished. But it did more; it raised the capital to $10,100,000 and this bank, as everybody knows, has no use for that extra $5,000,000. That was just $5,000,000 upon which four and a half per cent is being paid to the country. The use to which this is put, may I point out, was first of all for bank premises. That is to be seen in the last report, and now the amount is on the way up to $2,000,000. The other was an item, to which I may have to refer, as indicating a loan for a purchase, shall I say, made by the Bank of Canada, of securities which never should have been acquired.
That is the position with respect to the matter when the late government went out of office and this government succeeded. They kept a promise by increasing the bank's capital to $10,100,000, and they left the margin of $100,000 more than half as an amount sufficient to create a majority of shares in the part held by the government.
But they have not changed the essential character of the bank. If the house is interested and will look at section 13 of the Bank of Canada Act, it will find these words:
13. (1) There shall be an executive committee of the board, consisting of the governor, the deputy governor and one director selected by the board.
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Then there is provision for a deputy minister to be a member of the executive committee, but without vote. Now, it will be observed:
(3) The executive committee shall be competent to deal with any matter within the competence of the board but every decision of the committee shall be submitted to the board at its next meeting.
The rate of discount and rediscount is settled by the executive when the board is not in session. Minutes are to be kept, and all actions must be concurred in by the governor or deputy governor before any resolution arrived at by the executive can be validly effective.
Bear in mind that that section has not been amended; it has not been varied. It is the section which governs and controls the operation of the bank; and that section confers upon the governor, the deputy governor, and that member of the board of directors selected by the directors, designated as the executive committee, powers completely to control the organization in the absence of action being taken by the board, which of course means but seldom, and results in the whole conduct of business being carried on by the executive committee.
Then there came in connection with this bank a further matter to which I think the observations of the minister necessitate my directing attention, and that is this: We provided for a twenty-five per cent gold coverage, and we also provided by the statute that the bank might, in addition, hold certain other forms of security. That is, it might hold securities of gold countries, exchange with the United States and the United Kingdom, balances at the Bank of England, balances in the Bank of International Settlements, and such other investments and securities as may be designated and regarded as the equivalent of gold.
That, of course, had the effect of broadening the provisions of the Dominion Notes Act. It will be recalled that the Dominion Notes Act, under which dominion notes were issued, provided for a coverage of gold to the extent of twenty-five per cent up to $120,000,000. It had originally been less than $50,000,000; then it was increased to $50,000,000, and then to $120,000,000. After that it was to be dollar for dollar. But in the Bank of Canada Act we altered that and provided that metallic coverage should be twenty-five per cent, without limit. The gold to be held by the bank was not only twenty-five per cent of its note issue but also twenty-five per cent reserve of its deposits. Those are the provisions, roughly, of the statute in that regard.
From time to time some of our friends wonder what value metallic coverage has. and why we should talk in terms of gold coverage at all. Some people assume that this country went off the gold standard in 1931 or 1932. As a matter of fact the Dominion of Canada was off the gold standard when the late Mr. Robb shipped $40,000,000 in gold to New York to meet obligations there. I did not intend to speak to-night believing that the Minister of Finance might return before I had time to say what I have said, but I remember distinctly the circumstances under which that $40,000,000 in gold was shipped out of this country to meet maturing obligations in New York. It was wrong to have done this and the effect of it was to throw us off the gold standard, having regard to the then provisions of our statute dealing with the issue of dominion notes.
I can recall-I can say this now-telling our hon. friends in caucus in 1930 that this country was in a rather difficult position and that we should not make any reference in the house to the facts to which I have alluded. Shortly after that the present Minister of Finance, who became Minister of Finance, having succeeded the late Mr. Robb, was confronted with just exactly what the caucus had been advised would happen. An enterprising man in New York acquired half a million dollars worth of Canadian bank notes. He proceeded to Montreal and converted them into legal tender at the chartered banks, into Dominion of Canada notes. He thereupon went to the receiver general's office, or had his agent proceed there, and demanded gold. To have parted with that amount of gold at that time would have been highly inadvisable and inconvenient and the-Minister of Finance made the necessary arrangements to meet the situation.
The basis of a country being on the gold standard is the interchangeability of its currency with gold. Those of us who recall going to the old country for the first time will remember that Bank of England notes were being converted into sovereigns, half sovereigns and silver currency. When a country can no longer interchange its paper for gold, it is no longer upon the gold standard. That interchangeability must be absolutely unlimited or you are off the standard. This country is off the standard to-day, and it must be a matter of amazement to some of our friends when they take a bill out of their pocket and see it stated thereon that the Bank of Canada will pay on demand ten dollars. What does that mean? You walk
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into the Bank of Canada with a ten dollar bill and you get two fives, five twos or ten ones, all in paper.
I pointed out last year that Australia, realizing this, had passed a statute by which the form of their bills or currency was changed entirely. Their bill states that it is a certificate; that it is legal tender for the payment of obligations, which of course is the proper method to pursue. As it stands now, Bank of Canada notes are legal tender, but Bank of Canada notes are interchangeable only for Bank of Canada notes. When you go to the bank you do not get metal as you would in a gold standard country, whether it be small or great; you get other pieces of paper issued by the same bank aggregating in the pieces the amount of that which you had presented to the bank for payment.
Perhaps this leaves a wrong impression on the minds of some people who secure our currency. The value of the gold standard, to which reference was made by the minister the other evening, divides itself into three. First of all, there is the old, traditional and historic value that attaches to it. It is not my purpose to-night to discuss how that grew up. The bankers in London were the originators of it, and it was because of the great commercial and financial power of England that they were able to impress that view upon all the nations of the world. It will be recalled that Germany did not adopt it until she had received the indemnity from France. That is the traditional and historic side.
Then you have the fact that gold has always occupied a peculiar position in the economy of the world. There is in the library a book dealing with this that makes strange reading. We little realize the extent to which that value attaches to gold as compared with the value attaching to any other metal. That aspect of the matter is important. Then there is the use of gold for the settlement of international balances. If this country in its trading account shows that it has imported more than it has exported, obviously it must settle its obligation with something which will be accepted by the country that we owe as being of value in the terms in which they have made their arrangements or contracts with us.
Of course that is the reason why the world is so disturbed at the moment. There is no longer a gold standard prevailing among all the nations of the world, and the settlement of accounts between nations becomes increasingly difficult because of the inability to secure the gold with which to make settlement. I think that is well known. I shall
give an illustration. WThen Russia needed gold with which to buy machinery for the purpose of entering upon industrial activities, she had to sell anything she could at a cheap price in order to secure the gold. That is why she sold wheat at sixty cents a bushel; that is why she sold various other commodities cheaply enough to secure the gold to enable her to make payment for machinery and her other necessary industrial requirements. But to-day Russia is the second gold producing country in the world and this year she may possibly reach first place. The result is that she no longer has to sell commodities at any price she can get for the purpose of obtaining gold. She has gold in very large quantities and, as I say, may become the first gold producing country in the world.
There is a matter arising out of this bank act of ours. Having dealt for a moment with the gold side of it, I should like to point out that we provide in our original act that a return shall be made by the bank every week. If any hon. gentleman will be good enough to look up section 33 of the Bank of Canada Act he will find these words:
(1) The bank shall as soon as practicable after the close of business on Wednesday of each week, make up and transmit to the minister in the form of schedule C to this act a statement of its assets and liabilities as at the close of business on that day.
(2) A copy of every such statement shall be published in the next succeeding issue of the Canada Gazette.
(3) The bank shall also as soon as practicable after the close of business on Wednesday of each week, make up and transmit to the minister a statement of the amount of its notes in circulation on each business day during the preceding seven day period.
Then there is provision for a monthly statement of assets and liabilities. Then subsection 6 reads:
The governor in council may from time to time, as he deems necessary, amend the form of schedule C to this act.
That form, schedule C, is the form which was adopted for the purpose of enabling the public to have complete knowledge of what the bank had been doing during the week or month, as the case might be. I hold in my hand a return made by the bank, being a statement of assets and liabilities as of October 23, 1935, that being as close as I could possibly get to the date on which the government assumed office. Bear in mind that that return is in the form provided by the statute. Let us look at the information which it gives. Under "assets" we find:
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Gold coin and bullion.
' Silver bullion.
Reserve in sterling funds.
Reserve in U.S.A. funds.
Reserve in funds of other countries on a gold standard.
2. Subsidiary coin.
3. Bills discounted:
(a) Commercial bills.
(b) Agricultural bills, etc.
(e) Dominion government treasury bills.
(d) Provincial government treasury bills.
4. Advances to:
(a) Dominion government.
(b) Provincial governments.
(c) Chartered banks.
5. Bills bought in open market not including
(a) Dominion government short term securities.
(b) Provincial government short tem securities.
(c) Other dominion government securities.
(d) Other provincial government securities.
(e) United Kingdom, other British dominions or U.S.A. securities of a maturity exceeding three months.
7. Bank premises.
8. All other assets.
That detail was included in form C of the act passed in 1934, and it gave the casual reader as well as the banker complete knowledge of the operations of the bank. It indicated what loans had been made to this dominion and what loans had been made to the provinces; for you will remember, Mr. Speaker, that difficulties arose because two or three of the provinces charged that the Bank of Canada had not been giving them the accommodation to which they claimed they were entitled.
With respect to short term loans, it will be recalled that at the last annual meeting the governor of the Bank of Canada indicated to the Canadian people that mostly they were dominion government treasury bills. He indicated also that the S86.000.000 included in the accounts were largely dominion government treasury bills.
The first sale of treasury bills in this country was brought about by the late administration. It was said to us that we were not able to make a market for treasury bills in Canada. We questioned that, and we began to make sales of treasury bills. It was extremely difficult at first, but as days went by treasury bills-it will be realized they are
for not more than three months-became more and more negotiated. I recall that the president of Barclays Bank, Mr. Goodenough, when he came over from London, told his bank here to take a substantial holding of treasury bills, and despite the fact that the Canadian bankers told me-I was Minister of Finance at the time-that we would not be able to establish a market for treasury bills, the fact remains that to-day we have $150,000,000 of treasury bills outstanding. That form of security has come about by reason of what was done by the late administration. And all that the present government did was to succeed to that practice. It was a small issue of treasury bills in the first instance, but it has gradually increased until to-day this country is borrowing $150,000,000 on its treasury bills. The governor of the bank a few days ago pointed out at the annual meeting that when you see in the return, as you do, short term securities, it has reference largely to treasury bills, and he gave the average holding of treasury bills by the bank during the year. He indicated also that the major part of the $86,000,000 was treasury bills of this dominion.
But mark you, in form C there was a provision, as it was originally framed, indicating what were provincial short term securities and indicating also the advances made to provincial governments. But, Mr. Speaker, you cannot get that information now. This government altered that form which had been provided under the statute. It had the power under the clause I have read, subsection 6 of section 33, to alter that form, and it did so, and I am presently going to point out why. See what the result was. I hold in my hand now a report of the Bank of Canada for the second day of March, 1938, and let us look at the change in the form:
Gold coin and bullion.
* Silver bullion.
Sterling and U.S.A. dollars.
Sterling and U.S.A. dollars, not separated, but linked together, by reason of an order in council passed by this government. It will be recalled that the reason why form C originally separated these two items was that the bankers of this country said that in the ultimate analysis you are trusting to a governor and his executive committee as to the extent to which they will buy either sterling exchange or United States exchange. And he said: Our deposits are there. That is the reason why this Dominion of Canada gives its guarantee with respect to these deposits.
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It is important to the bankers and to the public of this country that it should be known how much the Bank of Canada holds in value of sterling securities, on the one hand, and of United States exchange on the other, so that the banks may know as they read that return how the moneys of the Bank of Canada are being placed for the purpose of conversion into gold if the occasion should arise or the necessity should demand. Let us see what follows. I am quoting from the same report of the Bank of Canada, March 2, 1938:
Other currencies, of countries on a gold standard.
2. Subsidiary coin.
3. Bills discounted.
Now in the original form C, under bills discounted, we had no fewer than four divisions: commercial bills, agricultural bills, dominion government treasury bills, and provincial government treasury bills. All that has been wiped out. That information is no longer available. It is true, though-and I think one should say this-that the Bank of Canada has not rediscounted any bills to any extent during its existence, and I am going to point that out as being an exceedingly interesting fact, a most significant fact to every man in this chamber who is concerned about the question of currency. One of the great purposes for which a central bank comes into being is to afford an opportunity for rediscounting the banks' paper. That is, it contemplates such a move in business, such activity commercially, that money may be required to enable the banks to function with their customers, and to do that successfully they will rediscount their paper. Provision was made also for the kind of paper that might be rediscounted- commercial bills, agricultural bills, dominion government treasury bills and provincial government treasury bilk That wording has been changed under the order in council, and the wording now is merely: "Bills discounted." Then we come to No. 4:
4. Advances to:
(a) Dominion government.
(b) Provincial governments.
(c) Chartered and savings banks.
The word, "savings" has been added. Then you come to what were called open market operations by the Minister of Finance the other evening, namely, the purchase of bills in the open market, not including, of course, treasury bills. The growth of the bill market is one of the most interesting stories connected with the history of banking in England. The story of Lombard street is the story of the purchase and sale of bills.
Let me give an illustration. The great firm of Morgan's have a branch office in London, and they agree, we will say, to finance the operations of the International Harvester. The International Harvester will draw a bill on Morgan's; they will accept it. Then that bill will be sold openly on the bill market from time to time, and it is bought for the chartered banks, and in turn very often finds its resting place before it matures in the Bank of England. The bill market is the great method by which England carries on her commercial and financial operations.
A better illustration perhaps is that of one of our own banks down, say, in Buenos Aires. It makes a draft, with the insurance policy and bill of lading attached, on a cargo that leaves Buenos Aires for London. The draft is drawn upon the bank in London. The bank accepts it. Then the owners of it go out and sell it on the open market, the bill market. We have not developed that in this country, or in America; but in the old land it is the standard method of doing business, and the provision in our form C was to provide for bills bought in the open market. I only wish there were a demand for the purchase of bills here in the open market; that may come in time.
This comes through the matter to which I wish to direct particular attention-6. Investments. Bear in mind that the original form provided for five details being furnished, namely dominion government, provincial government, other dominion government than short term, other provincial than short term, and United Kingdom, other than British dominions or United States of America with maturity exceeding three months. How does it read now? What has been done with it by order in council, by this government that talked about orders in council? No matter. The Minister of National Defence (Mr. Mackenzie) smiles. It must make him think of days long since past. By an order in council they have now provided that instead of these details are the following:
(a) Dominion and provincial government short term securities.
(b) Other dominion and provincial government securities.
(c) Other securities.
There is no separation between the dominion and the provinces, no method by which one can ascertain the extent to which the bank holds securities of each of the several provinces or holds securities of the provinces as a whole. What is the reason for this? I fancy that every member of the government knows the reason. Perish the thought that there could be anything of this sort in a Liberal administration, anything where every member did not
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know everything about the transaction of business! Be that as it may, what are the facts? The facts are that Ontario was refused accommodation-that was known in the public press -and the premier of that province made fairly strong statements about it. But one province which I cannot mention to-night, the minister not being here, managed to get three million dollars from the Bank of Canada. Of course the money had to be paid in three months. It could not be paid, and there was only one way by which the bank could continue to hold it, namely, by converting it into an investment. It was no longer a short term security but an investment security. So about that time form C was changed, and no longer does it appear that there is an advance to a province of three million dollars. I cannot say how it stands at this moment; but there was a time not so long distant when they still held the three millions in the vaults of the Bank of Canada, earmarking it now as an investment, and assuredly it is an "investment." It is one of those long term " investments " with which we who live in western Canada are too familiar.
That is what has happened to our Bank of Canada since the government came into office, through order in council plus the legislation that I referred to, in 1936, by which the capital was raised to $10,100,000. The executive committee remains as it was created in the original statute. Now I put this to the government. Will they or any one of them say that their control over the Bank of Canada has been greater than was the control under the former administration? " Each looks at each and wonders why."
No. We are looking at the
right hon. gentleman.
Mr. MACKENZIE (Vancouver Centre):
There is no question about that.
Certainly there is no
question. The Minister of National Defence is right. There is no change. If there has been an interference, what is it? It is not upon the records. Is there an order in council we have not seen? "Eye hath not seen, nor ear heard." Nothing of that sort? Then I should like any member of the government to point out a single particular in which there has been any more or greater control of the Bank of Canada since October, 1935, than there was between March, 1935, when the bank was established, and October of the same year. It is true that the bank had then been in operation for only a short time; from March to October is not a very long time; but the essential fact is that the bank was controlled by the same men under the same powers except as the return was
modified by order in council to remove from the realm of public knowledge the details of the operations to which I have referred. That cannot be gainsaid.
Bear in mind something further that I wish to say with respect to the bank. The bank was brought into being by a former administration, and the officials whom the minister refers to as having been so excellent -with which I agree-were officials who in the first instance were selected by the government, to the extent that they had to do it, but they left the bank afterwards wholly responsible for their staff. Mr. Rhodes was then Minister of Finance, and I recall clearly and distinctly the form of letter that he wrote to various people, that we had nothing to do with respect to the staff; that this matter had to be dealt with by the governor and those associated with him, except to the extent, of course, that the go\rernment of the day had to assume responsibility for the appointment of the governor, and for the securing of the deputy governor, who was loaned to us by the Bank of England, Perhaps the Minister of National Defence will be able to enlighten us as to the extent to which, not his monetary policies have been carried out-oh, no, nothing of that sort- but the extent to which there has been a disregard of what was done in the days before October, 1935, what has been done by the new government that had not been done previously.
I am sorry, Mr. Speaker. I had not intended to speak to-night. I suppose I shall have to adjourn the debate.
On motion of Mr. Bennett the debate was adjourned.
At eleven o'clock the house adjourned, without question put, pursuant to standing order. Tuesday, March 15, 1938