Mr. T. C. DOUGLAS (Weybum):
Mr. Speaker, the remarks I wish to make on this measure will be purely extemporaneous. I have not the advantage of the Minister of Finance (Mr. Usley) who read a carefully worded essay on to the record the other day. I do not know by whom it was prepared.
As was said this afternoon by the leader of this group we had intended to have merely one statement from this group in order to facilitate the passage of this measure to the banking and commerce committee as quickly as possible. But the minister took a strange attitude in introducing this important piece of legislation. He reminded me of nothing so much as of a man out on the butts doing bayonet practice on straw men. After having a little bayonet practice, the minister felt that he had succeeded in knocking down on the ground the three or four straw men that he set up.
He set up four basic arguments for the socialization of the banking system, and then proceeded to demolish them to his own satisfaction. I would ask the house to look at those four arguments.
First of all he said that those who urged the nationalization of the banking system did so on the ground that it would give more effective control of currency, credit and prices. The minister argued that since the country now owned the Bank of Canada we now had effective control of currency and credit, on the theory, as stated at page 2543
of Hansard, that since the banks must base their loans on their cash reserves, and since these cash reserves are controlled by the central bank, the government has power, by either expanding or contracting those cash reserves, to control the amount of credit which is in existence at any given time.
What I would point out to the minister is that, while it is true that under the Bank Act the federal government has power to prevent undue expansion of credit, it has no power to prevent undue contraction of credit. That is, it has power to create extra cash reserves but it has no power nor the machinery to see to it that the extra credit is placed in the hands of the consuming public. So that while it is true that the Bank of Canada serves a useful function in being able to prevent undue expansion of credit, it has no power to prevent a rapid contraction of credit such as we had during the early thirties.
The minister argues on page 2543 of Hansard that what he calls "the spur of cost and self-interest" will force the banks to lend to the full capacity of their cash reserves. May I point out that the spur of cost and self-interest was present from 1929 to 1933 and that during that period there was a tremendous deflation in the Dominion of Canada, because there was nothing the government could do to prevent the banks from calling in their loans. It could prevent the banks from extending their credit beyond a certain point, but it had no power to prevent them from calling in their loans. The minister's argument is upset by his own remarks at page 2540 of Hansard, where he says:
The banks, of course, were not blameless, either in respect of the policies they followed in the boom years of the late twenties, policies which involved the granting of too much rather than too little credit, nor in the policies they followed with the onset of depression when faced with the necessity of saving their own institutions they may have aggravated the deflationary process which the antecedent inflationary boom had made inevitable.
Again, on the opposite page, 2541, dealing with the banks during the depression, the minister says:
The banks, however, were private, .profitmaking institutions and it was only natural that the automatic working of competitive, commercial forces should not always coincide perfectly with the broadest national interest.
There is the complete demolition of the minister's own argument. When the safety of the banking institutions was at stake as compared with the national interest, the minister says it was only natural that they should think in terms of their own safety and their own shareholders; and if the banks
Bank Act-Mr. Douglas (Weybum)
again find that, in order to safeguard their own interests, a period of deflation must take place, there is nothing in this bill and nothing the minister has suggested that would prevent such a deflationary process from taking place.
Subtopic: CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS