November 6, 1941

NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

I was just feeling my way. I do not know any more about it than the minister-a good deal less.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

I do not say that the leader of the opposition argued for piecemeal price fixing. He was simply asking the government to give its reasons for taking one method rather than the other-and I am going to give those reasons to-night. But, in the first place, I want to say briefly just exactly what a price ceiling is and what it involves, and what the whole policy is; for it is a pretty comprehensive policy.

I take it for granted that all members are aware in a general way of the price control policy which has been announced by the government and which is to take effect a week from next Monday. I should like to emphasize, however, that this price control measure is part of a comprehensive plan involving three major elements: (1) the placing of a ceiling on the prices of all goods and rents and services, with certain minor exceptions, based upon the maximum prices prevailing during the four-week period from September 15 to October 11; (2) the stabilizing of wages by the extension of the principles of P.C. 7440 to all industries on a mandatory basis; and (3) the supplementing of agricultural income by the payment of new acreage bonuses in western Canada and by a reduction in the cost of feeds to farmers of eastern Canada.

This programme should be thought of as a whole. Price stability was its objective. We were determined to stop the continued increase in prices that was taking place, and this type of control was, we were convinced, the only effective way in which it could be done. However, it was only possible if we secured stability of wage levels and if we could at the same time assure the farmers of a reasonable level of income.

The War-Finance-Mr. Ilsley

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

May I ask the minister at that point whether the government in considering and enunciating that policy had in mind the unevenness of price levels, especially with respect to foodstuffs?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

The unevenness is not as great as the hon. gentleman might think.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

It is quite great.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

That can all very well be taken into consideration, and I will come to that.

I should like to give briefly the reasons why we thought that a universal price ceiling was preferable to selective price control. First, it could be most quickly applied, and as I have already indicated, the rate of increase in the price level in recent months made it imperative that action be taken quickly.

Second, a general price ceiling is non-dis-criminatoiy. Where is the justice of selecting for special treatment fifty or a hundred commodities out of tens of thousands? It has been said that thirty thousand commodities can be found in the mail order catalogues and that the total number of commodities may run as high as between one and two million. I think an estimate has been made of 1,800,000 commodities.

Third, in spite of appearance to the contrary, a general price ceiling involves fewer and less difficult administrative problems. Control of only one part of the economy leaves the forces making for an upward rush of prices to operate solely on the uncontrolled part of the field. Price increases in the uncontrolled commodities would be encouraged in anticipation of and in order to forestall later control. Rises in costs would take place and other disturbances would be set up which would make it necessary constantly to revise the prices fixed in the controlled field and constantly to broaden the controlled area. But this process would never go on rapidly enough to keep up with the inflationary forces that would be at work. Such is the interrelationship of all prices that it would be impossible really to control one group while another group was left uncontrolled.

Fourth, the selective approach would require a thorough investigation of individual industries or commodities and the arbitrary fixing of prices for these individual products, while the ceiling method, subject to minor adjustments from time to time-and of course there will have to be adjustments-accepts the relationship between the prices of various commodities and services determined by supply and demand in the basic .period. Under the selective method the onus would be on the members of the board first to make a thorough

investigation of individual industries, and then to justify discriminatory action against them if their prices alone were to be fixed. Under the general ceiling method the onus is on the manufacturer or distributor to justify to the board concessions in his favour.

Fifth, the general ceiling on prices is the only method of price control which really makes it possible to justify the stabilization of wages and of many other payments, such as the payment of pensions, dependents' allowances, and so forth.

Sixth, and finally, the fundamental reason is this. The piecemeal method of selective control would not prevent the inflationary spiral from developing. The general ceiling method is really the only one that will accomplish the purpose we had in mind. I think at this stage I will quote again from Mr. Baruch's submission to the congressional committee because he puts it very well indeed. He says:

While not perfect, and it is less so on account of this delay the overall ceiling plan raises fewer obstacles than .any other that has been brought forward. To fix prices in piecemeal fashion one by one is to invite trouble, possibly interruptions in production, for it means you fix the return to some specific manufacturer while his costs are left to rise. It is impossible just to fix a few basic prices and let the others go free. We tried that in the last war and found we were being driven steadily to consider an enormous extension of the pricefixing field.

Piecemeal price fixing will not halt inflation. It allows the general price level to run wild, while dealing with a few individual prices. It is like commanding a moving regiment, "Regiment halt: but all soldiers except that fellow

No. 4, that fellow in the first rank-keep marching."

As inflation occurs, the prices that are fixed soon become out of date and must be adjusted upward. Irregular rises in prices destroy the relationships between various costs, requiring even greater adjustments.

Since the goal of price control is to maintain a stable, balanced relationship between all prices, why no.t keep a balanced stability when you have it? Why permit the "norm" when the law of supply and demand was working to be disrupted and then scramble wildly to recapture piecemeal what we had in the first place? The question is, shall .prices be determined by an administrator working under every conceivable pressure, or whether congress, by placing a ceiling as of a given date, shall keep prices at a level earlier established by supply and demand?

Under the overall ceiling the price level is treated as an organic whole, with only exceptional adjustments here and there. That method stops a runaway and keeps the whole team in line. The piecemeal method submits to the runaway and then tries to keep some of the horses from running faster than the rest. The overall ceiling does not mean that the producers of agricultural commodities or labour would get less. If the cost of all things were kept down, they might get more. Everyone knows that

The War-Finance-Mr. Ilsley

-after the war it will be impossible to maintain excessively high prices without debasing the purchasing -power of the dollar. Agricultural prices and probably wages will fall further than other prices-they always do.. If prices are allowed to skyrocket now,, the post-war disparity between various groups will be far greater than if all prices are kept at a low level now. I have particularly in mind the unhappy plight of the farmer in .the years following the last war. .

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

What was the date of that submission?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

This submission was made in September of 1941, September 18 or 19. Now it may be said that these views of Mr. Baruch have not been accepted in the United States, that all the control the United States is considering-I do not know what stage the bill has reached-is a price control bill based upon the selective principle. But a report had been made to -the president on the Canadian price-ceiling plan, which received full publicity in the papers, and which pointed out the differences in the situation in the United States and in Canada. It pointed out that what was not or might not be desirable in the United States might very well be possible and desirable in Canada. In Canada we have had in operation in a great many industries of this country, since December, 1940, the cost of living bonus principle with regard to the wages of labour, a principle which was fair to labour, we believed, and I think labour generally believes, and fair to industry; and as the principle became more widely understood and more widely accepted it became possible more and more to apply that principle, as we are doing under this policy, to the industry of the country generally. Thereby we were enabled to stabilize-not fix, not keep wages from rising at all, but stabilize-wages. That is an essential element of a -price-ceiling policy. If agricultural prices and wages are left uncontrolled we might just as well stop thinking about a price-ceiling policy. There must be some control there; otherwise the whole thing

will just be an abortive attempt. But we had that to work on in the Dominion of Canada, which they did not have in the United States of America, and it is a -basis which, as I have said, is fair, in my opinion and in the opinion of the government.

There were other reasons given in the report to the president, indicating that this might very well be a good policy for Canada even though it might not be for the United States. But I will not go into this further at the moment.

Now, certain questions have been asked, and more questions undoubtedly will be asked in committee, but I am going to ask and answer a few of the more important and searching questions which have been asked about this policy.

First, we have been asked, why, if this was a good thing to do, was it not done before? Why select this particular period in the war to impose a price-ceiling policy? Well, I think this is the proper time to introduce the policy, for two or three very good reasons.

I have here a chart which I cannot show to hon. members, but I will keep it before me and try to describe it to the members of the committee; I will see that it is put on Hansard, and I hope that everybody will look at this chart in Hansard and undertake to grasp its full significance. It is a chart showing the trend of wholesale prices between 1914 and 1921, and the trend of the cost of living during the same period; it also shows the trend in wholesale prices between 1939 and 1941 and the trend in the cost of living during the same period. The last war began in August, 1914; this war began in September, 1939; and, allowing for that one month's difference in tbe date of the commencement of the war, the year 1939 may be taken as comparable with the year 1914, the year 1940 may be compared with 1915, 1941 may be compared with 1916, and, by keeping these years in mind, we can determine the stage at which the last war was as compared with the stage that we have reached in this war. This is the chart:

The War-Finance-Mr. Ilsley

The War-Finance-Mr. llsley

Now this chart shows that, at this stage in the last war, which would be the fall of 1916, the rise in the wholesale price level was about the same as it is to-day-a little, but not very much higher. I should qualify that by saying that the statement I have just made is true as of July or August of this year. The rise in the price level was about 26 per cent; the wholesale price level stood at about 126, as compared with the beginning of the war, in July or August, 1916. What happened then? If hon. members will look at this chart they will observe that the wholesale price level turned abruptly and made a tremendous rise. It went up very steeply and rapidly until by the summer of 1920 it stood at about 256, or somewhere between 255 and 260, an enormous increase in the wholesale price level. Now this was the stage of the last war at which that started'-right now, or a little earlier than now.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

The minister suggests that this is the psychological moment?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Undoubtedly this is the

psychological moment. The same is true of the cost of living. The cost of living lags a little behind the rise in the wholesale price level. It has now risen 14-6 per cent over August, 1939. It was something like that at this stage of the last war-15 or 16 per cent -and immediately after that in the last war it took a sharp slant upwards and in the summer of 1920 reached about 198. In the summer of 1920 both levels broke, the wholesale price level and the cost of living level. They simply dropped down to the earth and ruined hundreds of thousands of people. That laid the basis for all kinds of trouble in the future, and the occurrence of that event in this and other countries was undoubtedly the cause of momentous changes for the worse.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

The same thing happened in 1929, did it not, though not perhaps to the same extent?

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LIB
NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

Not to the same extent, but there was certainly a drop.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

I would point out that, so far as I can see, the same forces that operated at that time are at work to-day, only in greater degree, because in that war we spent only 10 per cent of the national income, devoting one hour in ten to the production of war materials and supplies. Now we are getting to the point of nearly 40 per cent of the national income being devoted to production of war supplies, and there is no question at all that unless we take hold of the situation at this 14873-2621

moment and deal with it vigorously we are going to be confronted by a rapid and long price rise such as took place between 1916 and 1920. In fact, it may be very much worse for the reasons I have stated, because the forces now are much more powerful. In my opinion we would have now a much higher increase than we had at this stage in the last war if it were not for the severity of our taxation policy, which undoubtedly has restrained prices, and our selective price controls, which have existed over quite a broad field. The forces at work to-day are more powerful as a result of the greatly increased amounts we are spending and the greatly increased proportion of the national income we are devoting to war purposes. For these reasons the forces to which I refer are more powerful in this war than they were in the last. That is the reason why in my opinion this is the proper time.

The second reason is that we could never have imposed a price ceiling until we had given agricultural prices a chance to rise. Agricultural prices were very low before the war; I do not dispute that for a moment. But on the basis of percentages there has been a tremendous increase in everything except wheat. I am going to give some percentages, and I want it clearly understood that I am not expressing approval of the level of agricultural prices in August, 1939. Here are the figures between August, 1939, and September, 1941, giving the prices of the commodities stated: Oats, 80 per cent; barley, 66 per cent; butter 57 per cent; eggs, 33 per cent; cheese, 51 per cent, including bonuses; cattle, 58 per cent; hogs, 40 per cent; whole milk, 14 per cent.

On the whole, with the exception of wheat and certain less important products, the former disparity between prices of farm products and other prices has been very largely corrected. Broadly speaking, retail food prices now bear about their normal relation to other retail prices. The importance of this recovery of food prices to the cost of living is shown by the fact that of the increase of 12-8 in the cost of living index between August, 1939, and 1941, over 53 per cent is due to increases in the prices of food. With regard to wheat, there has been very little increase, but it must be borne in mind that the price established in August, 1939, was a government-established price, not a market-established price. That price has increased 8 per cent and is still a government-established price, but the open market price of wheat being very low in August, 1939, has increased by a much larger percentage- something like 40 per cent. There is no point in saying that; it has no significance whatever in the matter, but I am point-

The War-Finance-Mr. Ilsley

ing out that there was a government-established price both times, and therefore the increase in the cost of wheat has been slight on a percentage basis. We must, however, realize that wheat producers now receive a number of other payments in addition to the price paid for wheat, and these other payments are intended to raise their income to a reasonable level without adding to the wheat surplus, as a higher rate would do. That is the second reason for waiting until now to impose a ceiling.

The third reason is one to which I have already referred, namely, that the principle of P.C. 7440, that is, the cost of living bonus, a principle which is an essential feature of this policy and which would have to be an essential feature of any policy before we could ask labour to forego increases, has become fairly widely understood and fairly widely accepted.

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CCF

Alexander Malcolm Nicholson

Co-operative Commonwealth Federation (C.C.F.)

Mr. NICHOLSON:

Before the minister

leaves that point, will he tell us what his authority is for the statistics to which he refers? Are those from the bureau of statistics, showing increases in farm prices?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

I shall have to get the exact authority for them; I cannot answer the question offhand. These statistics are most carefully checked by my officials before they are given to me and I cannot say what their source is. I will, however, get that information for the hon. member. I am willing to wager that there is no mistake about them; if there were, it would be the first time. Perhaps it might not be inappropriate if I quoted, with regard to the policy and its relation to labour, what a member of the British parliament, Mr. George Isaacs, Labour member of parliament for Southwark, London, had to say. He is the president of the printers and operators union of Great Britain, and he was in Canada on October 30, when he gave an interview, in which he is reported as follows:

Mr. Isaacs called the price and wage fixing "a courageous piece of legislation, which I would like to see enacted in Great Britain." What complaints could labour have, he asked, when prices as well as wages had been fixed? If the cost of living does go up, provision is made for a corresponding wage increase, he pointed out. "I know for a fact," he declared, "that our people would willingly accept that legislation. To-day in Britain we have ceilings on rationed goods only. This has resulted in a thirty per cent increase in the cost of living while wages have only gone up fifteen per cent."

Another question that has been asked is whether the staff required to administer this policy will not be out of all reason, it will be so large. I do not know what staff will be required. The war-time prices and trade board has been working day and night getting the

organization together and is making very good progress in having it in readiness for dealing with applications for adjustments, enforcement and so forth. But having in mind certain estimates of 10,000 employees and so on, I think I should say that the requirements have been considerably overestimated, at least for the initial stages.

Then a question has been asked, what about imports? If the cost of imports goes up and the imported articles are used in the production and manufacture of goods in this country, how can we keep a ceiling over the price of the finished product? That is a matter which has been considered; in fact, all the questions I have been asked are questions which I have considered. There is not a detailed answer to these questions, but the general principles have all been considered. I do not know exactly what will be done in the case of imports, but it may well be that many of the imports will have to be handled by import boards, who may buy them at the prices they are obliged to pay abroad and1 sell them to manufacturers or producers in this country at a loss, which in effect would be a case of keeping the cost of goods down by bonuses or subsidies. That is and has been for a considerable length of time the procedure followed very largely in the United Kingdom; probably the leader of the opposition was told or knows about that system.

What about exports? If the price goes up abroad, are we to let all our goods go out of the country? If so, what about our own requirements? There again it may be necessary, although I do not say it will be done, to establish export boards which will have some control over exports.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

Does the minister say the import question has been settled, or is being considered?

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LIB
NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

There is, of course, another method.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Well, perhaps we had better not get into that. What about increased cost? We have a great many applications now by those who submit that their costs have increased and that they have not adjusted their selling prices, and they want an adjustment. All I can say on this point is that an attempt will be made to meet and obviate real injustices. But I would say that we should not allow a puncturing of the price ceiling unless real attempts are made to reduce costs, which can, I think, be done in a great many cases.

The War-Finance-Mr. Ilsley

Then, why was the ceiling imposed by order in council instead of being submitted to parliament? That question was asked here by those speaking on behalf of the Conservative party and the Cooperative Commonwealth Federation party. The answer is that we could not afford to wait; we could not run the risk of waiting. There were three dates or periods which had to be fixed with complete definiteness: the first was the base period, that is the period represented by the time between September 15 and October 11; the second, the date of the announcement; and the third, the effective date. During the period between the announcement and the effective date, which is November 17, the setting up of an organization would be necessary and, in fact, the setting up of an organization is necessary. Once you start to set up an organization, secrecy becomes absolutely impossible; everyone in the country knows what you are doing or trying to do. But if we had not fixed these dates definitely they would not have known what the base period was; they probably would have thought that when we got ready to freeze the price level, when parliament fixed it, if it were fixed by parliament, they would fix it as of the date the act passed, or something like that, and there undoubtedly would have been an upward adjustment of prices from the Atlantic to the Pacific. Everywhere people would have been putting their prices up, and the effect would not have been anti-inflationary but inflationary-and in a big way.

In parliament itself there would have been some delay-I do not say there would have been unreasonable delay-and the possibility of a long debate in parliament would have meant that the effective date could not have been fixed in advance. It is very important that there be not too long a time between the announcement and the effective date.

In short, it is one of those things that simply had to be done by order in council if it were to be done effectively. There is nothing unconstitutional or illegal about doing anything like this by order in council. The committee should not forget that the War Measures Act was passed by this parliament giving the executive authority to do what it was necessary to do to carry on the war, and this in our opinion was one of those things. It merely carried out a price policy that had been established during the last year or two; it was a very long step in advance of a selective price policy, but the powers to be exercised by the war-time prices and trade board were powers they already had.

With the Germans at the gateway of the Caucasus the situation was too serious to

run the risk of delayed action or ineffective action when prompt and effective action could legally and constitutionally be taken.

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November 6, 1941