July 15, 1942

LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

Oh, no; I will tell my hon. friend what happened in 1934, and he can look it up. All we did was to say to the chartered banks, who had enjoyed much greater freedom in issuing their own bank bills, that each year thereafter they had to decrease the issue of their own bills by 10 per cent. We did nothing else. We never stopped their writing entries in books and creating paper money by credits of that kind. We never stopped their taking these bonds, keeping these interest coupons for ten or twenty years, as the case might be, and fattening on this procedure. My hon. friend may say something about the great debts that are being created. With dominion government bonds outstanding now amounting to $5,866,000,000, according to the budget; with provincial interest-bearing securities amounting to a large figure, and municipal securities, the public debt of Canada to-day amounts to $10,016,000,000. That is a terrible load; and the interest we are paying to-day on bonds

of just this kind, which are largely held by banks, trust companies, trust estates and the wealthy people of this countiy, is shown in the budget as $170,000,000. If we issue the additional $1,850,000,000 of bonds which the minister says we shall have to raise by borrowing this year, we shall add to that amount of interest another $55,000,000, so that next year we shall be paying $225,000,000 in interest on debt created in the way I have indicated. In ten years that yearly interest payment will amount to $2,250,000,000, which we shall have paid on debt-bearing securities of the dominion government alone.

Can we stand that sort of thing, or should we stand it any longer if there is another way of doing it? Surely I have shown that there is no more inflation, and that you have not given the working people of this country any more money to spend, because you give the bank this bond and let it have the interest for nothing, than when you issue this bill. It is nonsense to let anyone tell you otherwise. If that be so, what would be the harm in doing as I have suggested? Where is the evil in it? I should be glad to be shown. I think it is time we called a halt. I have just about concluded if my hon. friend is protesting.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

No, go

ahead; this is most interesting.

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

I am sorry; I thought my

hon. friend was protesting. Lest anyone here should have any doubt about my interpretation of the law-though I am sometimes wrong in that-I should like to give an authority that probably will not be questioned; I refer to Mr. Graham Towers. Before the standing committee on banking and commerce in 1939, at page 76 of volume 1 of the proceedings, the hon. member for Vancouver-Burrard was examining Mr. Graham Towers, and I might read half a dozen questions and answers in order to set any doubt at rest:

Mr. McGeer: Am I right in savins that a hank deposit can be created in this way? A banker can purchase a dominion government bond by accepting from the government, we will say, a bond for $1,000 and giving to the government a deposit in the bank of $1,000?

Mr. Towers: Yes.

Mr. McGeer: When a bank takes a bond from the government, what the government receives is a credit entry in the banker's book showing the banker as a debtor to the government to the value of $1,000?

Mr. Towers: Yes.

Mr. McGeer: And in law all that the bank has to hold in the way of cash to issue that deposit liability is 5 per cent?

Mr. Towers: Yes.

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Mr. McGeer: You are aware that our banks now hold one billion four hundred odd million dollars of municipal, provincial and dominion securities?

Mr. Towers: Yes.

Does my hon. friend still suggest that that has been altered since 1939? I have made vigilant search, and it has not. I think he was thinking of the issue of notes.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

I admit that.

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

I have gone on much longer than I intended, Mr. Chairman. But let me show you what we have been doing under this frenzied system since 1910. This picture is a vivid one because I am speaking only of dominion debt, and leaving out provincial and municipal debts. In 1910 our dominion debt amounted to $341,000,000; in 1920, $1,935,000,000; in 1930, $2,261,000,000; in 1940, $4,062,000,000; and in 1942, as set out in the appendix, $5,866,000,000. Where do we go from here?

Someone may suggest, "Oh, if you issue national currency you are going to give the workingman of this country pockets full of money." Does anyone suggest that when the workingman gets through paying his taxes under this budget he is going to have too much money to spend; that he is going to become reckless Li his expenditures after paying these taxes? This budget is going to be a financial strain. It is going to be the toughest budget the Canadian workingman or anybody else ever tried to bear up under, and yet they are going to take it, and take it with a cutting down of their expenditures on luxuries and all that sort of thing, which the Minister of Finance is very properly advising us all to cut down on.

I want to say this, that rather than deprive the soldier of the $50, and the married man of a decent allowance to support his wife and children, I would raise the income tax a little higher on incomes in the upper brackets -raise the taxes on the men who have as against the men who have not. I am prepared to support that proposition if needs be. The minister seems to be amused by my language, but I tell him I am sincere in making this suggestion. My hon. friend the leader of the Cooperative Commonwealth Federation group has said more than once that it is not what you tax a man that counts but what he has left after he has paid his taxes, and surely that is good gospel in war time. I would impress upon the minister in the most sincere way, if he feels that to meet the increases I have spoken of, because of the losses that will follow them, he must raise

more money by borrowing, not to do so, but to issue national currency instead. We have outstanding now in national currency $515,000,000, and that is all. That works out at $43 per head for every man, woman and child of our eleven and a half million people. That $515,000,000 is made up of $470,000,000 of paper currency and $45,000,000 of silver and copper coins, because we have no gold coins now, and that $515,000,000 is all the national currency we have outstanding. The United States with their tremendous wealth and greater population have outstanding in national currency an amount which works out at $88 per head of their 130,000,000 people. That is the situation in the United States, so there is no parallel whatsoever.

Somebody says, "What is the harm in issuing a lot more debt for Canada to pay out?" I give credit to the Minister of Finance for doing this, that he has got the debt owed by this country into the hands of Canadian people instead of into the hands of people in New York and London. That was a wonderful thing to do; the debt is nearly all now in the hands of Canadian people.

Somebody says, "If the Canadian government collects from the Canadian people $1,850,000,000 by way of bonds, with a yoke of interest to pay for twenty years, then the Canadian people own $1,850,000,000, and all is well. Everything is all right; you have done no harm to anybody." But that dog won't bark, and for this reason. I have some figures dealing with the distribution. I am sorry I do not have them here, but I got them from the authorities. The Minister of Finance recognizes the problem of where the interest-bearing debt obligation is owned and held.

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?

An hon. MEMBER:

By the chartered

banks.

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

In large part, yes. Out

of $3,922,000,000 of bonds issued, the chartered banks bought $1,254,000,000. But there is another way in which they do business. Anybody who wants to buy a bond can go to a bank and pay in $10, and the 'bank will advance the rest to buy a $100 bond for him.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

They will go 100 per cent sometimes.

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

That is a very laudable

thing to do. But just get the figures of Canadian bonds which the chartered banks are holding to-day. In the last victory loan the Minister of Finance, with the aid of all those men who rushed in to help him, got

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a wonderful distribution of the loan. I did not mention, in connection with the 155,000,000 of increased interest, that it will cost us at least eight or ten millions more to get it, because that is the expense of raising victory loan money. Somebody objected last year to SS,000,000 as being too much.

I do not think it is. But that is a part of the burden you have to carry if you go on the debt-issuing principle instead of on the currency-issuing principle.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

Would

the hon. member put any limitation on this method? What would he do with foreign obligations if our money became depreciated?

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

If it became depreciated?

If the countiy were blasted to pieces with a volcano, what would any of us do? Let my friend show me how this money will become depreciated. I am suggesting a national currency, which does not mean debt, instead of debt-bearing obligations. Suppose a foreign country is looking at Canada's financial position and Canada's bookkeeping. Do you think that Great Britain or the United States will think less of Canada if she increases her national currency by $1,200,000,000 in one year, instead of increasing her national debt by $1,200,000,000 of bonds, plus $55,000,000 of interest-bearing coupons every year? If you were a country merchant and you were looking at a customer who had an obligation of a straight. $100 to pay at some time when his creditor pushed him, would his credit be any worse than if he had an obligation of S100 at 3 per cent interest for twenty years, which would make his total debt $100, plus three times twenty, or a total of $160? There has been a lot of bogeyism about this matter and a lot of well-meant nonsense.

There have 'been many false premises; there have been many unsupportable statements; but I challenge anyone to show me where there would be inflation by the same issue of national currency, if carefully each year you take care of your maturing bond obligations that mature in that fiscal year. We started off under a foolish policy, and we cannot ruin the insurance companies and the banks by shutting them off and giving them just cash when we require to renew our obligations as we do year after year; I want to protect them. When you have done what I suggest, and if I am right in saying that we have maintained control over prices, that we have maintained rationing of goods, then every proper reason that has ever been advanced before in Canada in support of this debt-increasing burden falls to the ground.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

I very much regret the

speech that has just been made, because I think it will do a great deal of damage. It is made at a time and in an atmosphere when seeds of that kind will, I am afraid, fall on fertile ground. I ask the hon. members of this house to give me a chance to answer this, because I feel a deep responsibility at this moment, and I am going to do the best I can to answer what my hon. friend has said. At a time when we are passing through great disasters we are asking the people of the Dominion of Canada to bear great burdens. We have laid down a basis for our fiscal policy. We did that before the war, and we reasoned these matters out with great care in speech after speech that I and my colleagues made. We examined carefully the proposals that my hon. friend has made-he has not made them, so far as I know, until now, but others have been making them from before the war in practically the same form- we have had committees on them, and we have looked at them from every point of view. We came to the conclusion

in this we were agreed with by the experts of the dominion government, the United Kingdom government, the government of the United States, the governments of the other dominions and, so far as I know, the governments of every democratic country-that by all means the fairest way of financing the war was by taxation and by borrowing. We have given our reasons why that is so.

If a country devotes its assets, devotes its resources, human and material, to the carrying on of a war to the greatest extent to which it is capable, the real costs of that war are not monetary; they are costs in men and property which the country has devoted to the carrying on of the war. The more of their output that they put into war, the less there will be for the people who stay at home. That may become less and less, and the standard of living of the people may go down and down. How will that go down? In what way will that burden be apportioned? There is no escape whatever from the burden. When the country produces as much as it can, if it devotes 46 per cent, then 50 per cent, then 60 per cent of that output to the war, the proportion left for the people at home goes down, and an ever-increasing burden is placed upon the backs of the men, women and children of the country. That is inescapable. We are talking about realities. This is not a question of money at all; it is a question of things and people. It is elemental. We are just confusing it if we think it is a question of money.

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SC
LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Will my hon. friend please

keep his peace? I asked' for that courtesy when I rose. I want to make a good job of this, because I feel that it would be a calamity if my'hon. friend's views gained any foothold in this country. It is all very well for the group in the corner to be talking. There are not a great many people who take them seriously; but if a powerful speaker such as my hon. friend is going to disseminate this kind of doctrine throughout Canada and it is taken seriously, then of course it upsets the very fundamentals of our whole scheme of financing this war. It destroys it.

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LIB
LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

If my hon. friend believes

that, then he has no confidence in the financial policies of the administration. He should not be a supporter of the financial policies of the administration, because his attack is upon fundamentals.

Let me come back to what I was saying. The question is how to distribute this burden, because a burden there will be. There are three ways in which to do it. The first is by taxation; the second is by borrowing, and the third is by inflation. We can adopt that policy, and it will be easy for a while. My hon. friend is not the first to suggest it. This is not the first century in which clever men have risen in their places in parliaments and advocated this kind of thing. Let the hon. gentleman read the debates of the constituent assembly at the time of the French revolution. The finest economists of France were advocating this thing. They were advocating the issue of a few million more of money, then a few million more and then a few million more until their currency was entirely destroyed. It has been done time after time.

My hon. friend says to-night that we should finance this war by the issue of a billion dollars of what he calls national currency. I gathered from the latter part of his remarks that by national currency he meant Bank of Canada notes, because he told the committee of the hundreds of millions of dollars of Bank of Canada notes that are outstanding. Let me lead the committee through the three kinds of borrowing that there might be. The most simple way of putting into the currency of this country a billion dollars of Bank of Canada notes would be to borrow a billion dollars from the Bank of Canada. We would be borrowing from our own institution, and the effect would be precisely the same as if we had issued this amount. We cannot issue it because we have not the power, but it would be our bank that would be issuing it for us.

If they issued and lent the money to us, that is an issue of a billion dollars of national currency. That is the most natural thing.

There are three kinds of borrowing. First, we can borrow from the public; second, we can borrow from the chartered banks and, third, we can borrow from the Bank of Canada. That is by far the most inflationary method of the three. If the government borrows $100,000 from my hon. friend, his bank account shrinks by $100,000 and the Minister of Finance's bank account increases by $100,000. There is no difference in the total of . the deposits after the transaction from what there was before. I think that is clear. That is the first method of borrowing.

The second method that I mentioned is to borrow from the chartered banks. I go to some bank and ask them to let the government have $100,000. If I followed what the hon. gentleman said, the government would be doing just exactly -what the hon. gentleman says they would do. They simply credit the government with $100,000, and the total of the bank deposits of the country have increased by $100,000. In other words, that transaction results in there being in existence $100,000 more new money than there was if I had borrowed from my hon. friend. To that extent it is $100,000 more inflationary in its eSect than the other method. That is the reason why we shy off from borrowing from the chartered banks, why we strictly limit our borrowings from the chartered banks, keep them down to the irreducible minimum. That is why we keep on with these campaigns throughout the country and pay millions in advertising. That is why we have 22,000 workers for the national war finance committee all over Canada trying to get the people to lend their money to the country so that the government will not have to borrow it from the chartered banks. That is the second method.

The third method is the method suggested by my hon. friend to-night, borrowing from the Bank of Canada or issuing of more currency. That is several times more inflationary than borrowing from the chartered banks.

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

What do you mean by inflation?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

It is more inflationary than if we borrowed from the chartered banks, for this reason. We are borrowing real cash then; we are borrowing something which, when it goes into the chartered banks, serves as cash reserve. Everyone familiar with the working of the banking system knows that, the moment the banks get their hands on additional cash-

I mean by that Bank of Canada notes, or deposits by the Bank of Canada which are

Income War Tax Act

convertible into Bank of Canada notes-when the banks get those reserves in their hands, powerful forces are set in motion to get the banks to buy securities themselves, to make loans themselves, so that the deposits of the chartered banks will be seven, eight, nine or ten times as great as their cash reserves. That lies at the base of their whole profit-making activities; the way they make money is by lending more money than they have. What they have is their cash reserves; and unless a bank has out several times-six, seven, eight, nine or ten times-its cash reserves, it is not being profitably or, from a banking point of view, properly conducted. Therefore, if we create, as the hon. gentleman has suggested, a billion dollars of new money, government money, Bank of Canada notes or deposits, and put those into circulation, we have set loose inflationary tendencies of terrific power. That is the reason why we keep away from borrowing from the Bank of Canada. We would borrow from the chartered banks before we would borrow from the Bank of Canada even though we had to pay a little interest to the chartered banks but not to the Bank of Canada, or if we did pay interest to the Bank of Canada we would be paying interest to ourselves. That is the reason for our / borrowing from the people of Canada and, if vre have to, even from the chartered banks, but not at all from the Bank of Canada if we can avoid it. My hon. friend says that is all right under normal conditions.

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LIB

Gerald Grattan McGeer

Liberal

Mr. McGEER:

I did not say that that was all right at any time.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

He is advocating the issue of a billion dollars of Bank of Canada notes; that is what he is advocating. He says that, whatever may be the situation normally, you have now a wartime prices and trade board, which will hold prices down, and you can put your money into circulation without forcing prices up because you have the price ceiling on. Well, my hon. friend has the most sublime faith in the price ceiling. I wish I had as much faith in the price ceiling without that billion dollars as he has with that billion dollars.

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July 15, 1942