May 11, 1944

NAT

Harry Rutherford Jackman

National Government

Mr. JACKMAN:

If the hon. member for York South (Mr. Noseworthy) wishes to justify his remarks he is entitled to do so at some other time, but for the present I challenge his statement.

Therefore the industrial development bank, like the Ontario hydro electric commission, may very well find itself perfectly safe and free from politics for a number of years; yet almost inevitably there comes a time when the

Bank Act-Mr. Jackman

most vital force in our community, namely the political force and the attainment of power, overrides all other considerations. What was the situation in Ontario? For a very short time during the depression we had a temporary excess of power, and the contracts we had with Quebec power companies were cancelled by the then premier and the then attorney general, now the hon. member for Trinity (Mr. Roebuck). If these contracts had not been made originally; if the power companies had not been developed to the extent they were, our present war effort would have been greatly handicapped. So that it is not only likely but inevitable in connection with some of these public institutions which should be maintained under a private system-true, under government regulation where necessary -that when they come under government administration temporary political considerations will outweigh economic planning which is designed only to serve the people and not to wrest power for some political purpose.

So much for political influences. One fears for the life of this industrial development bank because it is so entirely under the control of the government. But just as the government cannot argue both ways, so the C.C.F. cannot argue that the financial system of this country- has battened on its ill-gotten gains- which I do not admit for one moment-and at the same time argue, like the devil citing scripture for his own purposes, that the financial system is no good because in a time of stress the government had to give it assistance. The leader of the C.C.F. made much of the order in council which was passed during the depths of the depression and which established conventional values for certain securities held by some of our large institutions. The purpose of this order in council was, of course, that public confidence should not be lost; and these conventional values which were established, at a level somewhat higher than market values, were more representative of the inherent value of the securities themselves than were the market prices, which were merely the prices in the open market at a particular time. It is very much the same as wheat selling at forty cents, when every hon. member knows that is by no means a fair price for that commodity and does not represent the inherent value of it. As was pointed out in the house the other day, the government also had to come to the assistance of the wheat pools because the initial payment was larger than the price to which wheat subsequently fell. I was amused to hear the statement made that the bankers had wrongly advised the heads of the cooperative pools by telling them to make a larger initial payment than

fMr. Jackman.]

they should have made, and that when the market fell below the amount of the initial payments the bankers drove a hard bargain. ,1 can scarcely imagine that any member of the C.C.F. party would have advised a smaller initial payment than that which was made and which was recommended by the chartered banks, according to what I have heard.

The C.C.F. cannot at one and the same time say that the financial system is an octopus which feeds gluttonously, and then say it is so weak that it needs a blood transfusion. The only purpose of the order in council establishing conventional values was to endeavour to reestablish confidence on the part of the people; and the fact that the order in council was needed merely goes to show that finance suffered during the depression just as much as did business or labour. It has been pointed out also that the people who make up the financial community are drawn from all classes in this country, the same as with most other occupations, and that they are motivated by the same reasons. Indeed I have found little difference in human nature wherever I have come in contact with it. Everywhere there are good and bad; everyone must be responsible to some higher authority, just as parliament must be responsible to the people. I believe I heard the leader of the C.C.F. party quote Lord Acton in these words:

All power corrupts, and absolute power corrupts absolutely.

The banking system is not only responsible to parliament; it is responsible also to relentless and inexorable economic laws.

At six o'clock the house took recess.

After Recess

The house resumed at eight o'clock.

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NAT

Harry Rutherford Jackman

National Government

Mr. JACKMAN:

Mr. Speaker, before the dinner recess I had made reference to the order in council which was passed by the Conservative government in 1934 and which established conventional values for securities. Since then my attention has been directed to certain matters concerning that order in council. I was familiar with the effect of the conventional values on the securities held in the portfolios of the insurance companies, but not with the effect on securities held in bank portfolios.

I find that contrary to the inference, if not the direct allegation, of the leader of the C.C.F., that order in council had little or nothing to do with the financial crash of 1929 and 1930. If I recall correctly, his inference

Bank Act-Mr. Jackman

was that the order in council had to be passed to save the banks because of the failure of some brokerage house in this country.

The actual facts are that England went off the gold standard and the order in council was passed establishing certain values for the securities held by the banks, which values applied only to government and municipal securities and not to such securities as might be expected to be held in speculative accounts. Furthermore, the conventional values applied only from October 27, 1931, until the following March.

We see that the assistance given at that time by the government to the banking system had no reference at all to speculative excesses, but on the other hand what happened was due entirely to the terrific impact of Great Britain going off the gold standard with its resultant effect on investment values which caused a shattering of investment confidence. I am in the financial business and I well recall the night England went off the gold standard. I was telephoned at two o'clock in the morning by a gentleman who was once a member of the cabinet of this country. Those of us who realized that the financial world was built around sterling credit and the gold standard felt that anything might happen because of the terrific impact this would have upon public confidence. It was solely to restore confidence in some measure that the order in council was passed.

To get back to where I left off in the main body of my remarks. The hon. member for Rosetown-Biggar (Mr. Coldwell) stated that bill No. 91 omits to provide for economic expansion and full employment. Undoubtedly it does. According to my thinking, it was never the intention that the Bank Act should be the sole means of regulating our economy and maintaining our national income. There are many other means. Anyone who will consult the Winnipeg charter of the Progressive Conservative party will realize that definite measures are proposed, particularly with relation to agriculture and labour, having to do with the maintaining of full employment and the maintaining of our national income.

The C.C.F. leader suggests that full employment is impossible under the present Bank Act, or even under the proposed amendments now before the house. How then does he explain the present prosperity and the full employment which now prevails under present banking practice? It would seem to me that his argument must fail when one considers the situation which now obtains under the present law. Certainly banking is not the be-all and end-all of our economic regulators.

While all of us like to give as much service as possible to the slogan and to endeavour to'make ''financially possible that which is physically possible," nevertheless we must not confuse that statement, as apparently some hon. members to my left have, with the following statement, namely, that that which is financially possible is also physically possible. The two are entirely different.

Then the members of the C.C.F. have charged the present banking system with being a monopoly. We hear that in practically every speech and we read it in every circular they put out. They say that while it is true that the banks compete for loans, they charge the same rate of interest, pay the same rates on deposits and have an association like any other industry or body of workers. I should like to ask the leader of the C.C.F. if the farmers and business men do not compete when wheat or any other article they may produce is sold at an open or market price? Competition may be on a price basis or it may be on the basis of service. All through the development of industry we have seen the reduction of costs through efficiency and the lowering of the price of the finished article. Nothing could illustrate this better than our automobile industry. Does the leader of the C.C.F. want to have price discrimination between banks and between industries? There is no greater weapon of unfairness than price discrimination when improperly used, the quoting of one price to one man and another price to another man.

The C.C.F. charge that the banks prevent competition by the closing down of branches. I think it is the opinion of most hon. members that the banks should close branches where there is unnecessary duplication over and above the needs of the community. This is exactly what the C.C.F. argue for most strenuously when they say, "Why should there be two, three or four bread and milk wagons covering the same route?" Under their system they are going to consolidate; everything becomes a monopoly; the people are to be served by the one instrument.

Undoubtedly unnecessary duplication means unnecessary waste, but the C.C.F. cannot favour competition and at the same time shout the virtues of state monopoly. State monopoly would do away with all duplication and competitive practices; yet competition has within it the seeds of efficiency as well as apparent wastefulness. If the C.C.F. theory were carried to its logical conclusion, we would find ourselves eating in community kitchens and sleeping in community barracks. Undoubtedly that would be more efficient and

Bank Act-Mr. Jackman

less costly and would effect a saving of manpower, but there are things to be prized more highly than a mere material civilization.

The two key speeches of the C.C.F. which endorse the remarks of the minister in regard to increasing representation on bank boards by small business men and agriculture and labour should not give rise to too great exception. No great exception need be taken to that. However, one wonders whether the interests of small business men, farmers or workers are in the least prejudiced by the present set-up, because the men who are now on the boards of the various banks are those who for the most part, probably ninety per cent, started in business in a small way and, because they followed successful practices, grew large and became members of the boards of the various banks. It would seem to me that these men who were able to apply successfully the principles of business in their own field are in a position ably to administer larger affairs. Yet at the same time I think it would be a very good thing if our chartered banks invited representatives of labour, of agriculture, and if you like, of small business too, to sit on their various boards, for nothing tempers power quite so much as responsibility and a clear understanding of the problems of the whole community.

In an endeavour to support his charge of banking monopoly the leader of the C.C.F. says that no new chartered bank is likely to come into existence. But the Bank Act as it now stands, and the amendment also, provide specific means whereby a new bank may be brought into existence. But why, if the ordinary commercial needs of the community are well served by existing institutions under existing law, should there be a further waste of man-power by setting up a new competing organization with branches from one end of the country to the other? If there is room for another bank because it can provide a better service or the same service at less cost, then obviously it will be possible and worth while under our open competitive system to obtain a charter and to set up a new chartered bank. With the imposing array of other directorates held by bank directors, which was so amply demonstrated in previous speeches, it must be obvious that one of the chief sources of revenue of the banks is the interest and service charges paid by the companies represented by the very directors who sit on the boards of the banks. If one were to examine the extent of the directors' shareholdings in the banks as compared with their financial interest in their own companies, which are customers of the banks, one would soon find whether the directors' shirts or their coats were closer to their backs. If these men thought for one

TMr. Jackman.]

moment that their banking needs could be provided more cheaply by setting up a new and competing institution it would be done without another thought. Under a socialized banking system business men would have no alternative. They would have to deal with the state bank irrespective of the charges made or the srevices rendered.

The hon. member for Rosetown-Biggar endeavoured to make a point of the fact that the banks depend now to a large extent on the government to keep them going. Be that as it may, it is little wonder that under a war economy, with the government spending well over half of the nation's income, much of the banks' business is concerned with war production for national account. How could it be otherwise? Production of new civilian goods has been rightly stifled in order that as much as possible may be produced for war. If there is any complaint in this regard it is that civilian consuming standards have been allowed to increase as they have, when further restrictions might shorten the war and save the lives of those who are preserving liberty for us.

The C.C.F. continually raise the point that bank dividends are relatively high in relation to subscribed capital, and they refuse to apply the dividends as a percentage of the paid-up capital plus reserves and ploughed-back earnings. If in the course of the life of a bank its shareholders wish to withdraw in the form of dividends only part of what their investment has earned, and to plough back the remainder in order to strengthen the security behind the depositors as well as to provide reserves against emergency, surely they are as much entitled to an income on those ploughed-back earnings and reserves as they are to an income on the par value of their original subscription. Indeed, if one traces the history of bank subscriptions, one will find that in a great many cases not only was $100 paid for a share of . $100 par value but that a premium of twenty-five per cent or more was paid and the shareholder only got back the $100 certificate, the $25 additional that he paid going to constitute a reserve to provide further security for the depositors and for the whole banking system.

There is no guarantee under any system that the money put into a business will be maintained intact. Every new venture faces great economic uncertainties and those which are successful must be used to offset those where-

The best-laid schemes o' mice an' men

Gang aft a-gley.

One cannot help being a little amused at the leader of the C.-C.F. who says:

We never consider ourselves on the defensive; we are on the offensive, and when an attack of that sort is made, we shall act upon that offensive so far as our opponents are concerned.

Bank Act-Mr. Jackman

That must be a very comfortable policy of self-deception. Apparently the hon. member feels that there is something in the slogan "on the offensive", even though everyone knows that in the present instance he is clearly and admittedly defending his political theories against an attack by the Minister of Finance, for I hold in my hand a reprint of a recent speech of my hon. friend given in this house entitled, "We are on the offensive." May I express the hope, however, that his party is not still indulging in the mercenary practice followed when his speech on the Aluminum company was reprinted and sold at a profit of not less than 150 per cent.

It is true that the bank shareholder, through his directors, has the right to declare all earnings in the form of dividends, but if he chooses to plough back part of the earnings as a further safeguard for the depositors or as a reserve out of which dividends may be paid during difficult times, that is surely his business.

May I remark here that the banks sometimes find a pressing need for reserves, and in 1933, in order to rebuild their reserves, they wrote off from their published statements no less than $29,500,000 in one year to properly adjust their published reserves. So that in the banking business there is risk to be borne as there is in practically every industrial and commercial business, and it is necessary to have some good years to make up for some of the lean years, to say nothing of those years in which circumstances are well-nigh calamitous.

The contention of the leader of the C.C.F. was that this method of augmenting the capital of the banks by the ploughing back of earnings tended to increase the capital of the banks, and he was against that because he felt that it led to concentration of the ownership of bank shares. But his argument falls entirely to the ground when everyone knows that bank shares are purchasable on any of the . leading stock exchanges of this country by anyone who desires so to invest his or her money and become the owner of a bank's stock. The banks are required to file a list of shareholders with the government, and anyone who wishes to see how broadly and in what unconcentrated form the shares are held may do so. Ploughed-back profits and original capital set up as a reserve are properly combined with the par value of a stock when percentage earnings are being calculated. This procedure is not to be compared with the so-called unearned increment which attaches to the increased value of urban

real estate or homestead farms, classes of property which are held by a very large part of our population.

I might make a suggestion, however, to the Minister of Finance with regard to the popularization of bank shares and the spreading of their ownership more generally. At the present time bank shares have a par value of $100 and sell for an3'where from S125 to $250. If an amendment to the Bank Act required that these shares, in place of having a par value of S100, were to have a par value of $25 or even $10 they would become much more popular mediums of investment than they are at the present time, and I believe one would find that their distribution would become even wider than it is to-day. There are fashions in investments as there are in everything else, including governments. There was a time when a $100 par value share was looked upon as a standard of investment. That day has long since gone by, and no one but a very well-to-do person wants to buy shares costing $100, much less $200 each; they want to buy a number of shares at a smaller price. It amounts to the same thing in the end; there is no difference; but this happens to be the fashion, and fashions are sometimes compelling. Therefore I suggest to the minister that consideration be given to causing bank shares to be split, so that they will be more available to and popular with a much larger part of our population.

It was not unnatural that the C.C.F. should seize upon the ill-advised and capable-of-being-misinterpreted statement of the Minister of Finance when he said that Canada had experienced between 18S8 and 1924 1-86 years of prosperity for every year of depression, as against a slightly less favourable record for the United States. Since he no doubt has the document available from which the figures were taken, together with the supporting information, I hope he will give some further explanation of what was meant by "prosperity'' and what was meant by "depression", because I can see that statement being published from one end of the country to the other. We all know that during the period under discussion, 1888 to 1924, there was a tremendous growth in population in the United States and also a substantial increase in material prosperity, and the same conditions applied to Canada. So that I feel that the terms which he used, "depression" and "prosperity", are somewhat technical terms, which mean something to an economist but are by no means the same thing as understood in the popular mind.

It is not to be thought that the Progressive-Conservative party holds any brief for a

Bank Act-Mr. Kinley

static system of finance. The Bank of Canada was first established under a Conservative government, and this was a step forward in placing the control of currency and credit under a government-sponsored institution. To learn nothing from experience is to shut one's eyes to all progress. We believe in reform but not in revolution. The Progressive-Conservative party retains an open mind on all questions of national interest, and has only one objective, the common good of all the people. Unlike some other parties, the Progressive-Conservative party has a disposition to preserve what is good in the old as well as a capacity to improve.

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LIB

John James Kinley

Liberal

Mr. J. J. KINLEY (Queens-Lunenburg):

Mr. Speaker, once in every ten years parliament is called upon to consider the law relating to banking and commerce as it refers to the chartered banks of Canada, and with the passage of time we approach another occasion when we must give heed to this duty. Accordingly, the Minister of Finance (Mr. Ilsley) has introduced a bill which is now receiving the consideration of hon. members. Ordinarily we who support the principle of the bill would allow it to go to committee and there discuss its provisions and see to it that the rights of the public are properly protected. But the bill has been seriously challenged by an amendment which would disturb and almost destroy the whole economic set-up of the country, and it therefore becomes my duty as a member of this house to give some reasons why I support the principle of the bill and refer to some of the things which have been said in this debate.

It seems to me that, whatever our opinions about finance, this is not an opportune time to occupy the time of parliament or disturb the people with any serious change in the banking system. Canada, with the united nations, is engaged in a war overseas which is perhaps at its gravest period. We at home should be united in our domestic affairs and postpone changes until such time as we are secure.

I do not believe that any government or any parliament should endeavour to change the Bank Act to the extent of socializing the banking system without a mandate from the people, and I am quite sure that neither the Liberal party, the Progressive Conservative party nor any other party has a popular mandate to make so drastic a change.

The duty which we are now asked to discharge is a recurring one, and to my mind this fact must have a salutary effect on the bankers and must bring confidence to the people, because it shows that always in the minds of those who make our laws finance is

regarded as a progressive science, and that changes must come from time to time. Those who came before us made provision for that in seeing to it that a review of the banking system should occur every ten years.

We have heard a great deal of discussion and some criticism of the banks of Canada. Some people think they earn too much money, that they are too prosperous and too efficient. It seems to me that that is one of the penalties of being successful. Power and responsibility come with success, and our great concern should be how the banks use this power and how we as members may see to it that they carry on in a way which is beneficial to the country.

It is generally recognized, I believe, that in the world of finance Canada has a high place and is eminently efficient. We have the admiration of the people of the United States and of Great Britain as well for the manner in which we have carried on, for we have done all those things that were necessary for an all-out war effort, which has been financed so successfully by the people of Canada. In that effort the banks have played a large part, and if there is one thing in which we excel in Canada, in comparison with the great free nations of the world, such as the United States and Britain, it is in our banking system. The Canadian people are proud of the banking system of this country. They look to the United States and remember the things that happened to the banking system there in the not too distant past, and they recall that our banks here carried on, and continued successfully. The Canadian people have paid their obligations, so that at this moment Canada has borrowed no money from anyone outside the country in order to carry on our war effort. No lease-lend comes to Canada. On the other hand, Canada, with a comparatively small population, gives lease-lend to many rich and populous countries.

The banks are closely linked up with the capitalistic system. I am in favour of the capitalistic system. I do not say it is perfect, but it is the best thing that has yet been devised for carrying on in an orderly way the business and the social advancement of the dominion. It is the system that is in effect in the countries of our great allies, Great Britain and the United States; it is the system in countries where there is the highest standard of living in the world, and where the greatest freedom and happiness are to be found.

We are living in a competitive world, and when we are inclined to hold the view that we are not in such a favourable position by comparison with other countries, we have only

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to stop and think to realize that we are infinitely better off than most people in the world, and for that we should be thankful and give credit to the institutions that helped to bring about that condition.

The virtue of the capitalistic system is that it works. We were told some years ago, when we had a depression, that the capitalistic system would not work, that it was dying. Well, we have gone through nearly five years of war and have made an effort that has surprised our neighbour to the south. It has enlightened the people of our own country, for many of us never thought we could make such an effort. It shows that the capitalist system can work and is now working, and working better than it has ever done. The system has never worked better than it has worked during this war, and it has done so because, with taxation, we have had a redistribution of wealth, whereby the people generally have received much of the money that has been in circulation, a greater proportion than ever before. That has had a great deal to do with the smooth working of the banking system of the country.

Money is not wealth; it is a demand on wealth, and what concerns us is not so much the money, but how much the money will buy. For that reason it must be carefully controlled and its value carefully guarded. In the highest sense, money is the economic blood stream of the nation. It is the force which keeps business alive, the force which creates the transportation of goods and services from one person and nation to another. It is a circulating force that makes for a happy, prosperous and industrious people.

We are told that the love of money is the root of all evil, but that does not mean that money is bad. It means that we have that human characteristic called greed, and it is not money that will ruin a nation but greed, and greed is something which must be and is being controlled and in the future, we hope, will more or less disappear. AVe do not hear very much about scandals in this war. We do not hear much about people wanting to get rich. They are working for the nation, and the reason is that it is not possible to get rich. We also know the government has so arranged that the money is taken out of circulation for war services so that no one can get rich even if he wanted to do so. Therefore the incentive for greed is gone and, with that incentive gone, so are the scandals that might come in war-time spending.

There is an old proverb, "Heed what men say, but watch what they do." I was interested in the speech of the hon. member for York-Sunbury (Mr. Hanson). He said that the Bank

Act was a serious and important piece of legislation and that it should be treated in that way, but I think he went out of his way to make a personal attack on the Minister of Finance, who has been working hard and successfully in the interests of the people. I cannot understand why so eminent a member of this house, in a matter of this kind, should make a political attack on the man who is responsible for bringing this bill into the house. He even went into the minister's own constituency and he talked about the closing of banks in Canada. He said:

I think this position could be illustrated in almost every constituency in Canada from east to west. Eight in the minister's own constituency there was closed not so long ago a branch bank in the little town of Middleton, which has had a bank for some considerable time.

What would you take from these remarks? That there was no bank in Middleton, Nova Scotia. Middleton is in the minister's constituency, not very far from my home, and I know that town very well. It is a small town in a farming community, a fine town. I thought it was strange that there was no bank there, and I went to my room and looked up the telephone directory. I saw there the Royal Bank of Canada, Middleton; the Canadian Bank of Commerce, Middleton; then I looked further and I saw that in Kingston, a few miles along, there is another bank, and a few miles further on, in Bridgetown, Nova Scotia, the Royal Bank of Canada.

What was the reason the hon. member wanted to have this house think there was no bank in Middleton, Nova Scotia, right under the eyes of the Minister of Finance? This matter of closing agencies is a business matter. The world is getting smaller. There are better roads, with better transportation, and quicker movements of people from one point to another make it unnecessary to have so many banks close together. I am sure the bank that remains in Middleton will be able to look after the interest of the people there and save overhead for the banks, and the people will be well serviced. I cannot see why this should be made a point of attack on the minister in this house by an hon. gentleman who should know better. However, he will likely vote for the bill. The proverb said: "Heed what men say, but watch what they do. Most of the attack in this debate has been academic and by people who have had very little experience.

However. I think of the party to the left, the Social Credit party, and I realize that they did have some experience. We watched what they did. Not long before they came into power in Alberta they promised the people a bonus of $25 a month, saying that

Bank Act-Mr. Kinley

they would pay that amount to every citizen in the province. I must say it is to their credit that, after they were elected to power, they did not do that, Then they did something else: they repudiated their debts. They owed bonds of that province to the people of Canada, and they arbitrarily reduced the rate of interest.

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An hon. MEMBER:

That is not right.

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LIB

John James Kinley

Liberal

Mr. KINLEY:

If it is not true, I rest on the judgment of the house. Then, after complaining about the banks they came here and a few years ago introduced a bank bill. They are not content to abide by the Bank Act, but wanted special privileges. They wanted to be able to issue currency which was being depleted in the other banks. That bill was not accepted, because they are not willing to come under the general laws of Canada respecting banks and banking. This year they have brought in another bill-a much better one, I must confess. They preach the gospel of social credit. In other words, they would water the money. That is not something peculiar to them alone. Go to St. James street, Montreal, the home of sound business, and you will find corporations which water their stock. There you will find company stock watered. There is no difference between people who water money and other people who would water stock. Both of them want something for nothing, and want somebody else to give it to them.

What would we think if to-morrow morning a farmer, who had a market in town for 100 quarts of milk, found upon milking his cows that he could get from them only fifty quarts, and in that situation said, "Oh, I will put it under the pump, pump in some water, and then I shall have 100 quarts." Yes, he will have 100 quarts but, not only will he be cheating his customers, but, if found out, will be branded a criminal. There the principle is the same. Dilution never made strength. It will make quantity, but not strength. The same is true of money.

While we are talking about the provinces, let me say this: In my view any drastic change in the Bank Act such as suggested by the amendment would affect the property and civil rights of the provinces. When banking and commerce were placed under the control of the federal government, I do not think it was ever intended that its jurisdiction over banking and commerce should affect property and civil rights in Canada. Before parliament enacts any such legislation, of a type which most certainly would affect property and civil rights of the people in every province, we should consult the provincial legislatures.

Then, this thought occurs to me: when we hear talk about the monopoly of banking we should remember that there is no banking monopoly. Any province can start a bank of its own-and I am not so sure it would not be good business for a province to go into the banking business, with the federal government controlling the Bank of Canada and the issue of currency and credit.

Now we come to the Cooperative Commonwealth Federation party, the party which would nationalize the banks of Canada, and thereby make of them a monopoly. In my view a government monopoly is just as dangerous as an industrial monopoly.

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?

An hon. MEMBER:

Far more dangerous.

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LIB

John James Kinley

Liberal

Mr. KINLEY:

Speaking the other day, the hon. member for Weybum (Mr. Douglas) said that the minister could not have his cake and eat it too. The hon. member said that the minister had adopted socialism in banking because of his sponsoring of a bill before the house to create an industrial development bank. Well, Mr. Speaker, competition is the life of trade, and we believe in free enterprise. Even the Right Hon. Winston Churchill, speaking over the radio some time ago, said that in the future it may be that we would have two kinds of business side by side, a certain portion of public business and a certain portion of private business. He thought it only natural that we would have both kinds. But when the minister creates an industrial development bank to take up the lag in industry, the uneconomic part of the banking system which needs attention, and may be termed economic research or experiment, he is told that he is tainted with the virus of the C.C.F. I do not think that can be true- although I was always taught that wherever a serious minded body of men got together there was a degree of truth. But there is error, also. I would not say for one mim.te that everything said by the C.C.F. is untrue, or that everything they say is in error. But truth is mixed with error, and there is so much error that the truth forms only a minor part of their argument.

The hon. member for Weybum also said that the Bank of Canada did not control the issue of currency and credit. He said that there was no way whereby they could get money into the hands of the people. I say that the Bank of Canada can do this in two or three ways. They can buy or sell securities. If they sell securities they will reduce the amount of money in ciroulation, and if they buy securities they will put more of it

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into circulation. Then, they can fix the rediscount rate-and that rate was lowered as late as February of this year. "Canada at War" of April 1944 contains this:

Bank of Canada rediscount rate charged on advances to chartered or savings banks reduced from two and a half to one and a half per cent, effective February 8.

That is what is called an easy money policy.

But, it is urged, the present system does not get money into the hands of the people. It does. It has been found to work satisfactorily. Furthermore, if it comes to an emergency, the government can set up a public works programme. We may have to do that in the future, to develop and improve the country, and to give work. In that way money can be put into the hands of the people.

We hear talk about the banks being a monopoly. The fact is that there are a number of banks in Canada. And do not forget that there is the clearing-house. Each morning the banks of Canada must face the clearing-house, and show that their positions are secure. If we had a government-controlled system of banking-which would be a monopoly-there would be no clearing-house, and the banks could do almost anything they liked. Let us suppose that I, as a business man, need money. I go to the government bank, and they refuse to let me have any. There is no other place to which I can go. Now I can go from one bank to the other; the banks are competitive, so that I have that freedom, which all citizens enjoy. Who in this house, be he Liberal, Conservative or anything else, would want a bank run by a party he did not support? I would not want the Tories running the banks of this country, and I am sure the Tories would not want the Grits to run them. Our banks should be operated by men not particularly interested in political affairs but interested in business matters, in giving the best possible service and facing the competition which we think is the life of trade.

We believe in free industry; our friends believe in socialism, in state control. I do not object to government industry, but as practised it is not free industry. Every time one of these new ventures is started they want to get free from payment of taxes; every time something supposed to be of the new order is commenced you find them coming to the government asking for privileges; they do not want to met their obligations to this country in the way of taxes. Look at the wheat pools in the west, about which we have been speaking for years. They have so arranged their structure that they do not have to pay income tax. Only the other day the government of Quebec took over a great public utility. I

am not discussing the merits or demerits of that action, but as a result the exchequer of Canada will lose millions of dollars of taxes in this time of war. That is the difference between private industry and so-called public industry. We believe in free industry, a free road and no favours, with everyone meeting his obligations and paying his share of the taxes. Then, when that is done, let the best man win.

The other night we heard a speech by a new member down in the corner who said he was not so much interested in where the money came from as he was interested in jobs and wages, and I think that was a good contribution to the debate. I am an employer of labour; I have been associated with labour all my life, and for the life of me I cannot see what labour has in common with C.C.F. socialism. Labour is a part of the capitalistic set-up; labour gets more as industry achieves greater success. Only the other day in the magazine Time I read a warning given by the president of the Boston chamber of commerce, who said that if employers and labour would cooperate and get along together they would be free, but that if they fought one another the state would control them and they would be slaves of the state. That is my conception of capital and labour; we should endeavour to get along together, each doing his part and each getting his share according to his contribution to the success of the enterprise. We have heard so much about the schoolteachers, that they are educated people and are not properly paid. I will admit that schoolteachers are not paid sufficiently in this country; but they work for the public; they do not work for private industry. This is an example of what we would get if the whole thing were mixed up under C.C.F. socialistic control. The community pays the schoolteacher, and he is the lowest paid man of education we have. So that while hon. gentlemen in the comer talk about private industry, here is an indictment against community effort.

The other evening my eloquent and good friend the hon. member for Vancouver-Burrard (Mr. McGeer) took part in this debate and said that the only fundamental change in this Bank Act was the raising of the rate of interest on loans to the poor men from seven per cent to 92 per cent. My hon. friend, who is an eminent lawyer, knew that statement was not fair. He knew that under the present Bank Act the maximum rate of interest is seven per cent, and that under the proposed amendment it will be six per cent. Let me say a word right here to those who think the ' banks are prosperous and that there should be more control over them. We could bring about all the changes they desire by changing just

Bank Act-Mr. Kinley

one word in the act; that is, by changing the "six" to a lower figure. That would change the whole aspect of the situation. My hon. friend knew that the banking and commerce committee had before it at a previous session a bill dealing with small loan companies. After discussing that matter for two years, we came to the conclusion that these companies ought to be allowed an interest rate of two per cent a month in order to permit them to carry on business, and that was made their maximum rate. But we said we would do something to try to meet this situation when the Bank Act came up for revision, and as a result the minister has placed in the bill a provision under which the discount rate on short-term loans is five per cent, which would figure out at 9| per cent for that kind of business, which formerly cost the people of this country as much as two per cent a month. And let me say that as far as the cooperatives are concerned, their interest rate is much higher than 9J per cent. Nowhere in this country can you do this kind of business at this rate except with the banks; and while I question the advisability of tying the banks up with this dangerous kind of propaganda business, I say that provision was inserted as a service to the needy people of this country, though it is not always the poor people who borrow and repay in instalments.

Then the hon. member for Parry Sound (Mr. Slaght), also an eminent member of this house, had something to say about this bill. He wanted debt-free money and said that the right to issue currency should be taken away from the chartered banks. In the early days of this country, in the Yukon and other places of that kind, the right to issue bank currency was a great help in facilitating business. But we are doing, in a progressive manner, just what the hon. member said should be done; so why make that an issue in this debate? Then he said that we should have inflation. Let me say that inflation never succeeded anywhere it was tried. It was tried in Mexico some years ago, and the situation became so bad that the only money people would take was American cheques. Those doing business had American cheques, which were used as currency, passing from one person to another. That inflation almost ruined the business of that country.

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SC

Ernest George Hansell

Social Credit

Mr. HANSELL:

Who wanted inflation?

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LIB

John James Kinley

Liberal

Mr. KINLEY:

The hon. member for Parry Sound.

. Mr. HANSELL; He did not say that.

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LIB

John James Kinley

Liberal

Mr. KINLEY:

Let me tell the hon. member that he said that if the minister went down to the bank with a million dollar bond-he

rMr. Kinley.]

may have mentioned a greater amount-at three per cent, the banker would say to him, "I will give you a million dollars, but you must pay me three per cent for a period of twenty years." The hon. member knows that the Minister of Finance would not do anything of the kind. He would go to the bank with a treasury bill and he would get the money for three-eighths of one per cent. That is less than the cost of doing business, because we are told that the cost of operating private banks is about three per cent. Also the minister might offer a short-term bond which bears interest at one and one-half per cent. It seems to me that that is what he would do because it is the sensible thing to do.

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SC

Ernest George Hansell

Social Credit

Mr. HANSELL:

What has that to do with inflation?

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LIB

John James Kinley

Liberal

Mr. KINLEY:

If my hon. friend will listen perhaps he will find out. I said that money in its highest sense was the financial blood stream of the nation. Suppose the Minister of Finance goes to the Bank of Canada and says, "I must have a million dollars without interest." I think the hon. member for Parry Sound said that he would pay interest to the bank, but he would be paying it to himself so that it would not cost anything. It does not cost the Bank of Canada anything to do business!

If that million dollars is put into the financial blood stream of the country, what happens? A good test would be to ask, "How much will it cost to get it back?" The only way to get it back would be to impose taxation or to issue bonds, long-term bonds at three per cent or short-term bonds at one and one-half per cent. Let me tell the house what would happen. This money would go into the economic blood stream of the country and would finally reached the chartered banks. According to our set-up in Canada they could use that as a means of increasing their credit reserve. Can hon. members say that there would be no inflation because of that? I believe that if the Minister of Finance did that he would seriously impair if not entirely destroy the functions of the Bank of Canada which has been set up to control credit and currency.

Let me give a homely illustration. A man has a store, and he also has a wife and a daughter. His wife and daughter come to the store and they say, "We want this; we want that." Then the wife may go to a neighbour and say, "My husband has a store; I went down there, took what I wanted and it did not cost me anything." It has been my experience that many splendid merchants have been forced into bankruptcy because their families

Bank Act-Mr. Fraser (Peterborough)

took away goods which they thought belonged to them and which they thought it did not cost anything to take from daddy's store.

Credit is another matter. Credit is a matter of confidence and integrity. It depends upon the confidence you have that somebody else will pay you when you trust him. The average storekeeper is able to give credit many times the value of the goods in his store provided that he has a quick turnover. This all depends upon whether the people pay him. If they do, and the wholesaler trusts him, he is able to carry on and grant credit. As I say, credit is something that depends upon integrity and confidence.

Let us not forget that our banking system has a great deal to do with export trade. The banks act as missionaries in foreign countries. Canadians should be proud to know that Canadian banks are doing business in some of the largest countries in the world, and they are doing it successfully. They are there to help carry on our foreign trade, a trade which will be of great importance in the future. The fact that they are there denotes that they are efficient. I think our banks have proved themselves capable of competing in the markets of the world. They are there as outposts for the future benefit of this country.

There is to be an international bank composed of five principal shareholders-the United States, Soviet Russia, Great Britain, China and Canada. Canada is the fifth partner with the other large nations of the world. These countries are going to deposit so much money in the pool, and the basis of that money will be gold. Canada will deposit gold in order to become a partner in the bank. If we have inflation and our money does not buy very much, it will cost us more to put that gold there. We must not forget that Canada is a gold-producing country and we should be loyal to the exports and products of our country. We in Canada should favour sound money and a condition that prevents inflation, because this country is a producer of a material which will be the basis of credit in the international world when this war is over.

Canada has shown herself to be a big nation financially. She has reached that position because there is confidence in her financial institutions and in the industry of her people. We hear much criticism from people with no experience, people who in an academic way talk about something that must be applied in a practical way in order to see how it works. For the benefit of this country we should travel and improve the road that has made this country great in the past.

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NAT

Gordon Knapman Fraser

National Government

Mr. G. K. FRASER (Peterborough West):

Mr. Speaker, I should like to thank the hon. member for Springfield (Mr. Turner) for granting me this time because I understand he is to speak next. I do not intend to make a speech, but I wish to have a little information on one or two subjects. I think the hon. member for Queen's-Lunenburg (Mr. Kinley) has made a very good speech. I am a member of the banking and commerce committee and I generally listen to the hon. member when he speaks, and sometimes support him. I should like to ask the minister a question in regard to section 89, subsection 4, paragraph (b) of bill No. 91. This reads in part:

Every sale of live stock shall be made by public auction not less than five days after publication of an advertisement.

If live stock is sold by a bank at public auction there is every likelihood that the minister's department will step in and say that the farmer owes income tax on the proceeds of the sale. Proceeds from sales of livestock are considered to be income under the income tax act. Where a farmer sells cattle at auction, will that be considered income and come out of the farmer's pocket? Or the farmer might have live stock, perhaps breeding stock, which he did not want to sell but which he puts up as collateral to tide him over a difficult time. Then something happens and he cannot meet the note. The bank takes over his stock, sells it and gets $5,000, we will say, on the sale. If they got that much it would mean that the farmer would have to pay some $2,300 in income tax. I think the minister, when he is making his statement to-night, should say something in regard to that and tell us whether that is to be regarded as income or not.

In his speech the Minister of Finance (Mr. Ilsley) had this to say, as reported at page 2559 of Hansard:

In the case of the industrial development bank you only require to have ten or twelve branches all over the country and you can handle it without trouble.

What I should like to know is why the minister did not put it in the bill if we are to have ten or twelve branches of the industrial development bank. How does he know we are to have ten or twelve branches, and if he does know, just where are these branches to be? I feel, and I think I am right in this, that the minister should have told the house about these branches, where they were to be, and what was what. Mr. Towers, governor of the Bank of Canada, in answer to a question, said that the industrial development bank would likely use the managers

2830 COMMONS

Bank Act-Mr. Fraser (Peterborough)

of the chartered banks as its agents. If that is the case I do not see why we need twelve branches across the country.

Another thing which does not bother me very much personally but which does bother people with poor eyesight is that some chartered banks' notes of different denominations are the same in colour and are hard to distinguish. Take, for instance, a five dollar bill. I believe that the Bank of Canada five dollar bill is blue in colour, but the ordinary five dollar bill of the chartered banks is green in colour and looks very much like the green one dollar bill. The minister would be wise to see that all the banks, the Bank of Canada and the chartered banks, have one colour for one denomination, and that there be not the variations there are at the present time. I know that would help people with poor eyesight very much.

The Minister of Munitions and Supply (Mr. Howe) told us that the industrial development bank would look after financing returned men who were seeking to set up their own private air lines, and that information was sent out by the wartime information board in a bulletin dated April 21, not only throughout Canada but, I understand, to South America, the United States and other allied countries. As I look at it, that information is absolutely wrong and the minister should have it corrected. It is a case where the Minister of Munitions and Supply did not know the set-up proposed for the industrial development bank. However, I believe that the minister should see to it that the industrial development bank, by a change in the set-up, can look after all these loans.

I would ask the Minister of Finance whether he believes in the kind of bank that the Cooperative Commonwealth Federation are advocating, what is really called the old-sock bank. According to the Calgary Herald here is a statement from a C.C.F. pamphlet being circulated in the west:

Your money is not safe in a chartered bank during a depression. During the next capitalist depression you had better hide your money in an old sock. It's safer.

Under the heading "Vicious C.C.F. Propaganda" the Calgary Herald goes on to say that that statement is as false as it is vicious.

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LIB

Thomas Reid

Liberal

Mr. REID:

Who said that?

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NAT

Gordon Knapman Fraser

National Government

Mr. FRASER (Peterborough West):

The C.C.F., in a pamphlet being circulated in the west.

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CCF

Clarence Gillis

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

Mr. GILLIS:

Likely by the bankers'

association.

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NAT

Gordon Knapman Fraser

National Government

Mr. FRASER (Peterborough West):

I have been talking to a few people who live in the riding of Lisgar in Manitoba, who were told by C.C.F. men in that part of the country that the sock was the safest place to put their money.

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LIB

George Taylor Fulford

Liberal

Mr. FULFORD:

If I may interrupt the hon. member I have a photostatic copy here of exactly what the C.C.F. said. May I read it:

During the next capitalistic depression you had better hide your money in an old sock. It's safer.

Is that not fine propaganda to put out? It is undermining the confidence of the people of Canada in their established institutions.

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NAT

Gordon Knapman Fraser

National Government

Mr. FRASER (Peterborough West):

I do not want to be too hard on the C.C.F., because only the, other day I was told by a Progressive Conservative member of the Ontario assembly that the C.C.F. opposition in the Ontario house was a model opposition.

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CCF

Clarence Gillis

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

Mr. GILLIS:

Surely.

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May 11, 1944