August 11, 1956

CCF

Colin Cameron

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

Mr. Cameron (Nanaimo):

Yes. They clearly indicate the necessity for some sort of action, whether or not one agrees with the action taken or whether or not one agrees it is an effective action. The increase in the consumer credit from March 31, 1954, to March 31, 1956, shows that the trend is accelerated. From March 1954 to March 1955 there was an increase of $109 million, but in the next year, March 1955 to March 1956, there was an increase in certain selected items, as they were called, of $352 million. When we compare that with the figures for increase in labour income for approximately the same period, we can see that there is something very dangerous in our economy.

I am sorry that I have not been able to compare it with the same dates, but the statistics do not allow that. From May 1955, . from $637 million of labour income, the increase to May this year was only to $676 million, some $39 million. Those two sets of figures compared show that at least in one sector of our economy we are entering very dangerous grounds, but perhaps more dangerous still is the field to which the minister made reference in his remarks earlier this afternoon. That is the field of general bank credit issued in those periods.

I see from the Bank of Canada's report that the total of bank loans in January 1954 was $4,096 million, and in January 1955 there

was actually less, $4,050 million, whereas from January 1955 to January 1956 there was a climb to $4,884 million, or an increase of $834 million, some 20 per cent. When we take the increases after that period, for the rest of this year, we see them climbing even more rapidly, so I think there is perfectly plain evidence that some action ought to be taken by the financial and monetary authorities of this country.

I agree with the hon. member for Eglinton that there are certain weaknesses in the method used. I am not sure that other methods could have been used, but certainly those that have been used have been inevitably used in an indiscriminatory manner so that we have the general curtailment of credit all across the field. Where in many instances it might be certainly to our social advantage to have it curtailed, there may be other areas in which it may not well have been increased. That, of course, is the inevitable result of the set-up of our financial institutions in Canada.

There is, of course, another method that the Bank of Canada uses on occasion to attempt to curb such a period as we appear to be going into. Mr. Coyne told us in the banking and commerce committee that it was, by and large, the most effective method, apart from consultation with the chartered banks; and that is, of course, the method of open market operations. However, he denied the suggestion of some of us on the committee that there was inevitable conflict in the purposes of the bank in open market operations, a conflict between the aim of curtailing inflation and reducing total money supply and the position of government bonds, that that conflict was always there and largely hamstrings the bank when it attempts to deal with the situation by that method.

I would suggest that sooner or later in Canada we are going to have to take some very drastic steps with regard to the channeling of investment in this country. We have all observed the attempts by the government to channel investment into the fields that they think are socially and economically desirable. We have seen the rather desperate efforts to channel it into housing and the various roadblocks they have met in different places, because in the last analysis this government and this parliament has no control over the fields of investment in which those who have control of pools of capital place their funds.

I suggest that the step that was taken- and, I gather, rather deplored by the hon. member for Eglinton-with regard to the Bank of Canada is a step which eventually they are going to have to take with regard

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to the whole of the banking system of Canada. We cannot any more say that it is feasible to operate the central bank on a part publicly owned and a part privately owned basis. Sooner or later we are going to have to face the facts that the chartered banks and the central bank are parts of one integrated monetary and financial system and that they also must be placed under one control and under one policy. It is useless charging the chartered banks, as I have heard them charged in recent days, with failing in their social duty, because they also have a conflict in duties. When I hear members, as I have heard them, charging the chartered banks with having failed dismally in entering into the necessary field of consumer credit, I am rather astonished, because those same hon. members would be the very first to object were it proposed that the public authority should tell some of the privately owned institutions what particular business it should engage in, which particular line it should drop and which particular line it should continue.

We can only expect that those who are responsible to shareholders of private institutions, such as the chartered banks, are bound-in fact, it is their duty-to maximize as well as possible the returns to the shareholders of those institutions.

I suggest that we are going to have these conflicts, we are going to have these rather ineffective attempts to control inflation in our economy, so long as we have this rather anomalous situation of an important, perhaps the most important, part of our monetary system and our financial institutions, held in private hands by people whose interests are bound inevitably on occasion to conflict with the public interest. But I for one am very glad that the Bank of Canada has taken this action. I am doubtful as to whether it will be very effective, but it certainly is a warning to the country of the great dangers that lie ahead, a warning that we all ought to heed very carefully. Whilst these increases in total bank loans may not yet, as the hon. member for Eglinton pointed out, have caused any increase in the cost of living, by the time they are realized in investment we may very well be facing a very severe rise in the cost of living and very dangerous inflationary tendencies.

My complaint would be that the Bank of Canada delayed too long in this action and allowed the situation to get too far out of hand before attempting to curb it.

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SC

John Horne Blackmore

Social Credit

Mr. Blackmore:

Mr. Chairman, we Social Creditors are not desirous of participating in the discussion of this particular item until we have heard what the other members

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have to say. I think there are some other hon. members who desire to speak.

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PC

George Stanley White

Progressive Conservative

Mr. While (Middlesex Easl):

Before we go on with the other items, there are one or two things I should like to draw to the attention of the minister. Each time there has been an increase in the central bank rate of interest the accompanying news item in the paper always says this is done to prevent inflation. I suggest that you cannot prevent a disease which you already have. Inflation has gone on to such an extent that our dollar of 1900 is now worth 12J cents. We are therefore starting rather late in the day to prevent inflation that has now reduced our dollar to that extent.

I do not want to go very deeply into the question today, in view of the rush of business, but I want to bring to the attention of the Minister of Finance some remarks made earlier this session dealing with the five day 40-hour week for employees in veterans hospitals across Canada.

As reported at page 5863 of Hansard, he indicated that he expected to deal with the matter on his estimates. So before he has sealed up the thing entirely I want to have him give it the thorough consideration that he should before making a final decision. I know that governments are prone to refuse to review a decision once they have made it and it has become public. Then as reported at page 7072 of Hansard of August 6 the Minister of Justice had this to say, when he was dealing with the pay and pension rates of the mounted police, in replying to some questions asked by the hon. [DOT] member for Prince Albert. Speaking to the hon. member for Prince Albert he said:

Should he become a member of the government with a government member's responsibility, he would realize then if he does not realize now that you cannot pick and choose in your treatment of those who are paid with taxpayers' money.

In other words he could not discriminate. When you come to veterans hospitals-

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LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

Mr. Chairman, what has this to do with finance?

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PC

Harry Oliver White

Progressive Conservative

Mr. White (Middlesex East):

It has this to do with finance; as reported at page 5863 of Hansard you stated that you would deal with the matter. That is what it has to do with it.

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PC
PC

Harry Oliver White

Progressive Conservative

Mr. White (Middlesex East):

Yes; on your estimates. I am leaving it right on your doorstep. If the department want to deal with the employees of veterans hospitals in a way that is different from what the Minister of Justice said they must do with those who are paid by taxpayers' money in the R.C.M.P.,

that is their mistake. I am pointing out this inconsistency to them, and I hope they will act accordingly.

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PC

Gage Workman Montgomery

Progressive Conservative

Mr. Montgomery:

Mr. Chairman, the other evening, on the discussion of the tariff, the matter of potatoes came up but I was unavoidably absent at the time. At the same time, in reply to a question asked recently, the Minister of Finance indicated that he would be making a statement on his estimates. I presume that I am not out of order in speaking to that matter now. I do not want to take very much of the time of the house, but I should like to refer to the statement made by the minister the other evening as reported at page 7017 of Hansard, because I think it can be misleading.

In discussing the question of the consideration of the Canadian potato growers in this application first, I think, to his department, concerning protection against potatoes, and second in their petitions to the tariff board, the minister said:

This request of the Canadian potato growers' association was simply that they might have access to the United States without paying anything whatever for the concession under the general agreement on tariffs and trade.

I do not think that is just the interpretation or at least that-

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LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

Mr. Chairman, may I interrupt my hon. friend by saying that he will find there was a specific question asked-I think it was by the hon. member for Kamloops- at which time I attempted to correct to some extent the incorrect impression that someone might have received from what I said at the time. I think both the hon. member for Victoria-Carleton and the hon. member for Kamloops as well as myself fully understand the position of the potato growers and their representations.

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PC

Gage Workman Montgomery

Progressive Conservative

Mr. Montgomery:

Not according to this statement, Mr. Chairman, in answer to the hon. member who interrupted at that time.

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?

An hon. Member:

The hon. member for Kamloops.

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PC

Gage Workman Montgomery

Progressive Conservative

Mr. Montgomery:

If I read it correctly, what the minister said was this:

Yes, that was precisely the presentation they made to the tariff board.

According to the tariff board report, this is what they say; it is a summary:

The request was for the deletion of the provision for free entry of seed potatoes and for the application on a year round basis of the seasonal duty of 371 cents per hundredweight . . .

Which at present applies only to the period-

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LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

Put in the condition they attached to that.

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PC
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

They attached a condition to it, namely that the tariff for the admission of potatoes into the United States would not he altered. That was the point I was trying to make. That is the crux of the problem.

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PC

Gage Workman Montgomery

Progressive Conservative

Mr. Montgomery:

According to the New Brunswick brief the situation is this; and I think the growers in New Brunswick, possibly even more so than those on the island, are in an awkward position because we have to move our potatoes by rail, and freight rates are not quite so favourable there. Also owing to the fact that, from the point of view of the return from a cash crop, we produce close to 20 per cent of all the potatoes grown in Canada, I think these people down there understand the situation fairly well.

As I understand it, their requests may be a little bit different, and I think possibly this is what the minister was referring to. They first said, "We would be quite willing to have no duty at all, to have free passage back and forward across the international boundary". I am sure they feel that would be the best way. Nevertheless they realize that such a thing could only be brought about by negotiation and by this government being able to convince the United States government that their potato industry would not be injured in any particular manner. In other words it would be the United States government that would have to take off their duty.

Realizing that this would be possibly quite difficult to bring about, at least without some bargaining method, their second and strongest recommendation up to the present was that until such time as the situation expressed in No. 1, to which I have just referred, was brought about, there should be a countervailing duty of 37 J cents at all times on potatoes entering Canada from the United States.

The point is this, that when the minister's statement is read by our potato growers they are going to take a far different view of it than perhaps the minister intended. I am not going to go into this in detail at all because I do not want to delay the house. I do not think I can be accused of delaying these estimates, and I do not want to be guilty of that at this stage. The minister did make a statement at page 7108 of Hansard, and I do not want to repeat the whole of it. There is this line:

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However, there may be other means whereby we can meet the requests of the potato producers at least to some extent.

The minister has said it would not be possible to induce the United States government to change its tariff in accordance with the wishes of the potato growers, and I would say he meant in accordance with the wishes expressed in paragraph 1 of the New Brunswick submission. Since the minister made no statement today, and possibly intended that to be a statement in answer to my question the other day, I am wondering if he will not enlighten the house and the people across Canada who are interested in producing potatoes as to just what the government had in mind when he made the statement that there may be other means whereby the requests of the potato growers could be met.

The minister went on a few lines later to say that this matter is not very pressing though it may be on future occasions. Let me be very fair about it. I think that conveys to the potato growers of this country that they are not getting the consideration they feel they should be getting. If the minister had not qualified that statement the farmers would have been led to believe there was something being considered and an announcement might have been made before September 1, when the crop commences to move. If there is any announcement the minister can make I should like him to tell us what is being considered, so the growers will know before they start moving their crops.

Last year, for instance, the crop commenced to move in September, and farmer after farmer was forced to sell when the market was lowest in order to get money. Many of them had to sell at half the cost of production. During the first four months of the movement they were trying to get negotiations under way with the Department of Agriculture because they thought that was the proper department to approach in order to get some sort of program that would give some stability to the crop. When that did come the program did give some stability, though it came far too late for many producers who took heavy losses. Nevertheless the program not only stabilized the market, but from that time on the market commenced to go up.

There is one more thing the tariff board report does not mention. I do not know whether or not it was in the presentation, but it does affect the economy of the potato producer. Until last year Canada grade 1 potatoes measured two inches. This was changed in order to meet the competition from across the border. The state of Maine, one state in the United States, raised the size of their grade 1 potato; and according to federal law when

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any state took such action affecting the grade of potatoes it became effective in all states, so we were obliged to do something to keep the smaller sized potatoes, which would be considered culls by our potato growers, from going into the market as Canada grade 1.

I do not think there is too much criticism of that change, but remember when that action was taken our farmers then faced a larger number of culls. It is true that a potato anywhere from an inch and a half to two inches is a good table potato, but it is not accepted as Canada grade 1. This means that if a farmer has a large crop of potatoes, in some yields he gets a good many that are under two and a half inches and which are good eating potatoes, but he cannot market them as Canada grade 1. He must feed them to his stock or turn them over to a starch factory if there is one within an economic distance from him.

All these things affect the farmers position. The cost of machinery and the capital outlay to raise a crop of potatoes will be just as great if a lot of them are culls as it will be if a greater number of them are Canada grade 1. I think it is as the result of a lot of things like this that the matter is pressing, and I think the potato growers are entitled to know what the government has in mind.

There is something else that has affected us down east which does not affect some of the provinces, and that is the freight rate change. You may be surprised to know-

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LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

Not on my estimates, please.

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PC

Gage Workman Montgomery

Progressive Conservative

Mr. Montgomery:

I do not want to be out of order, Mr. Chairman, but this is all tied in with the potato economy. I would have taken it up if the minister had not said he was going to deal with it on his estimates. I do not want to infringe, but I do think I am entitled to say one thing about the statement made by the hon. member for Ottawa East the other evening.

I am sure he does not understand the situation. His statement is in Hansard, and I am only going to take a minute to deal with it. He said that someone should speak up for the consumers, and he mentioned paying $8 or $9 a bag, I presume a 75-pound bag, for potatoes. I should like to tell the hon. member, the members of the house and the consumers of this city and other cities, that when they pay that price, if they do, it is not for very long. If he did pay that price, I will venture the guess that he was buying United States potatoes. If those potatoes were grown in New Brunswick the producer would not be getting 7 cents or 8 cents a pound, and according to him he was paying 10 cents a pound in Ottawa.

I want to make this statement, and it has-been made before; that commercial potatoes cannot be grown-there are potato growers in this house and if they are from New Brunswick they will agree with me-even under the most efficient conditions for less than 1 cent a pound. During the first three months of last fall our farmers were receiving half a cent a pound. I should like to say that on June 7 of this year potatoes were being landed in Ottawa from New Brunswick at a wholesale price of 5 cents a pound. I cannot see any reason why the consumer who might pay another 3 cents, or perhaps 4 cents, for the local handling should kick at such a price, because there is far more stable food value in a pound of potatoes at 15 cents than in a pound of bananas or in three oranges. It is all in the point of view, and I am afraid the point of view of the farmers is not appreciated by the consumers.

I am not going to take any more time on this now, Mr. Chairman. I feel that in part of his statement the minister has held out a hope, and before he winds up the discussion I should like him to tell us what is under consideration, because I cannot agree with him that it is not a pressing matter.

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CCF

Clarence Gillis

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

Mr. Gillis:

Mr. Chairman, the question of inflation that was posed first by the minister is one to which anyone who is thinking at all has to pay some attention. When the minister concluded his statement he quite clearly said they were faced with the problem of either having high interest rates or high prices, and the steps they were taking were designed to prevent prices rising.

I cannot agree with him on that. As I see the question now, there is no doubt about it that we are headed into a period of inflation. Whether the manipulation of bank credit and bank interest in this country is the device that can prevent it is doubtful, in view of the fact that the economies of Canada and the United States are so closely integrated that any rise in prices in the United States- and there are certainly going to be rises in that country-is going to affect this country very badly.

I think the action the minister has taken means this. The government is blaming the person who has to borrow when prices rise. I do not think that is the case at all. I am just going to bring this briefly to the minister's attention, because I sat in this house all during the war when the mechanics for the prevention of inflation were developed and applied. I went through the period of inflation in the 1920's. Everyone in my age group did. We know the effects of it. We went through the period of deflation in the 1930's,

or the 10-year period, without money. We do not want either of them again if we can help it.

If the minister will just think about this for a moment he will realize what is going on. In the United States in the last two years there have been two increases in the price of basic steel. The price of basic steel was raised $7.50 a ton in 1955 and $8.50 a ton just recently. That is an increase of $16 a ton in the price of basic steel in two years. The same pattern will be followed in Canada after wages are adjusted. An increase of $16 a ton on basic steel can mean an increase of at least $35 a ton on fabricated steel, and steel runs through the whole economy of both Canada and the United States.

Those increases in steel prices have not yet been reflected in our commodities. Within the next year or two they will be shown in practically everything we use in the country. I do not believe that just by increasing the bank rate in Canada to 3J per cent for the people who have to borrow in order to conduct their business you are going to prevent an inevitable rise in prices. I think what the increase in interest rates is going to do is to force the small operator out of business altogether. The big fellow will carry on because by and large the big companies, the big processors, the big contractors, are pretty well rooted in the banks anyway, and they have the necessary collateral to get money to carry on their business. But the fellow who is struggling along, depending on refinancing as he goes on, will be in this position.

In my judgment this device will put him out of business. The increase is an over-all increase that applies straight across the country. While it may help to some extent in some sections in Canada, it will hurt other sections. It will interfere with the government's program of public works. That is something that will hit the maritime provinces pretty badly, because any project that is designed for that part of the country at this time is needed in order to provide employment.

The second world war took us out of the bust and boom business and the war in Korea prevented another bust. I believe the minister, the government and the government of the United States are going to have to reconsider their position, because what Russia has been waiting for for a long time is for this country to boom and bust itself.

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LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

Boom too much and then bust.

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August 11, 1956