August 11, 1956

CCF

Clarence Gillis

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

Mr. Gillis:

That is right. There is only one way to prevent it. Take a look at the profits. Take a look at them both in Canada

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and in the United States. Just check over the people who threw in the $16 a ton increase on basic steel in the past two years. Take a look at their profits over the last two years. They said they could not afford an increase in wages in 1955. I have the figures here. I am not going to bother to put them on the record and delay the house in doing so. In 1955, when United States Steel hiked their prices by $7.50 a ton, they could have reduced the price of steel on the basis of their profits in that year. They could have reduced the price of basic steel by $7.50 a ton. Mind you, those are the people who are not very much concerned about inflation, or about what it is doing to a country, as long as the profit picture is bright for them. That is their one concern.

I might refer to the increase that General Motors brought about just recently, after the wage negotiations. They said they could not pay the wage increases. Well, their profit pictures show they could have done pretty much the same thing. We are going to have to start considering the matter. The government of the country that gets blamed for everything is not managing the economy of the country. They have no control over people who will throw in devices of their own for their own convenience without any regard for the public interest.

I believe we are just beginning to think about this problem. If we are to correct the situation and keep ourselves in balance over the next two or three years we shall have to consider either an excess profits tax or a price control policy. In my opinion there is no other way out of it because, as I said a moment ago, the government is not responsible for the increases in prices. The small operator or the small businessman will be driven out of business, because he is not going to get money to refinance himself from year to year. The big fellow who has his roots in the banks will be able to control the whole economy of the country.

I just wished to say this briefly, because it is something we have to begin to think about. I do not think the device we are using now will be sufficient to take care of the situation.

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PC

Donald Methuen Fleming

Progressive Conservative

Mr. Fleming:

In connection with the minister's earlier announcement as to the savings plan campaign, is he prepared now to indicate the rate to be offered on these bonds?

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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:

No, Mr. Chairman, I am not at the moment.

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LIB

Edward Turney Applewhaite (Deputy Chair of Committees of the Whole)

Liberal

The Deputy Chairman:

Shall the item

carry?

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SC

John Horne Blackmore

Social Credit

Mr. Blackmore:

I have chosen not to discuss the increase in the bank rate. I think it is a wrong move and I do not think it

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will do the things it is supposed to do, but I did feel there would not be any advantage in talking about that. There are other matters which I think are of more importance to us at the present time having to do with the Department of Finance.

Before leaving the matter of the increase in interest rates I might raise this question for the consideration of all hon. members and the minister. Is not this reported rapid expansion of consumer borrowing evidence that there is a shortage of purchasing power in the country, and that there are more goods than the people have the money to buy? I would say it is, and I am sure the expansion of consumer buying power to some $2J billion does not necessarily have an inflationary tendency unless there is a shortage of the kind of goods that money is borrowed to buy.

I do not know where I could obtain a breakdown of the articles for which people have borrowed, but I would say a very large amount of that money was borrowed to buy new automobiles, and a very large portion of it was borrowed to buy television sets, refrigerators, deep freezes, high class furniture and a great many other things of that nature which people today appear to feel they require when they set up housekeeping. Therefore they borrow in order to buy these commodities.

Before one could say with any certainty that the $2J billion which has been borrowed to buy goods would cause inflation, one should have to know whether there is a shortage of the particular kinds of goods bought with the money that was borrowed, and whether there has been a shortage of the material that went into the production of those goods; in other words is there any likelihood that there will not be more goods put on the market immediately to replace the goods which have been purchased.

Let us take automobiles, for example. There will be an automobile right in the yard to take the place of every automobile that is purchased. There will be plenty of manpower and material to manufacture another automobile upon the sale of the first one, and a great many people will be employed in the shops to produce the automobiles that are turned out. The money spent for the purchase of automobiles probably will not go into the market to buy milk, bread, butter, cheese, eggs, clothing and shelter and various other necessities of life; instead it will probably go into the bank or into the purchase of highly specialized materials.

Consequently I see no reason why we should assume that this great increase in consumer borrowing necessarily indicates an

[Mr. Blackmore.l

inflationary trend; and if it does, as the hon. member for Eglinton implied, if he did not in fact specifically state it, if we desire to relieve the market of that surplus buying power which is worrying the governor of the Bank of Canada why not ration the amount of that kind of purchasing power that can be borrowed to buy automobiles, deep freezes, refrigerators, high class washing machines and various other things? Why inflict hardship on the farmers and small producers all over the nation in order to make the big fellows be good? I think the whole trend indicates a shortage of purchasing power on the part of the people to buy the goods which the nation produces in abundance.

I would like to make a comment concerning the very fine statement the minister made. It seems to me that our finance ministers have always been able to paint the most glowing pictures such as would lead a person to imagine he is on the verge of floating into a paradise, until he gets out on the street and visits some old age pensioners who are trying to live on the niggardly pittance they get. Then he begins to feel differently about the matter.

The minister spoke about the danger of the shortage of goods. He did not tell us in what goods or services we are in danger of finding a shortage; it would have helped very much if he had done that. I will agree there are a number of commodities which are being stockpiled in the United States, Canada and other places in preparation for possible military trouble. If these are the goods of which we are in danger of running into shortage, then why not ration them and thereby prevent their prices rising? It looks to me as though that would be a far more sensible approach than raising bank interest rates.

In painting his beautiful picture in his statement the minister completely overlooked the fact that our provinces today are literally at their wits end to know how to get money with which to finance their affairs, and that our municipalities have gone even beyond that. Despite the facts, the ministers picture indicated that everything in this nation is lovely and prosperous and that there is no cause for anxiety at all. Well, that is a very unrealistic picture and I think the minister will probably be forced to realize that before he grows very many years older.

The matter I desire to speak about this afternoon concerns some of the dangers which confront us. I hope everybody in the house got around to reading a statement which was made by Professor Louis Budenz, the top ranking authority on communism on the North American continent. He made

certain portentous comments in Canada recently; these were his words:

Unless those who are in charge of the governments of the so-called western world are able, very shortly, to turn back the course of the past 20 tragic years in our international history, we are writing the downfall of the entire non-Soviet governments. We are writing the second chapter in the achievement of the world Soviet dictatorship with the hammer and sickle over Ottawa and Washington before the next generation has expired.

You will notice that he has said there must be a complete change. I ask the minister if there has been one single change in his way of conducting the affairs of his department. His speeches sound exactly like the speeches of Hon. C. A. Dunning, and all the men who have served as minister of finance throughout the years. There has been no change at all. My point, Mr. Chairman, is this. If what Mr. Budenz says is true, and if this country desires to change the trend we are following, we should see some evidence of adjustment in every department of government in this country and particularly in the Department of Finance. One sees no evidence of change anywhere.

I should like to speak about a possible change in our way of approaching matters pertaining to finance. There exists a confusion in the minds of hon. members in this house, as indicated by the way they talk, regarding the meaning of the word "inflation", and this confusion positively sickens me to the very marrow. The price of steel has increased by $6.50 a ton. I think we should have a show of hands among the hon. members of this house to see if anyone believes that this is inflation. Is there anyone here who could be deluded into believing that this increase in the price of steel is inflation? Well, it is not inflation. That is an increase in price that has been forced by an increase in the cost of the production of steel.

Is that increase in the cost of production of steel the result of inflation? No. They tell us that is the result of increased wages. Are increased wages inflation? How can you call an increase in wages inflation? If you have about 650,000 men banded together so they can force you to pay twice as much money as you were paying before, who in his right senses could call that inflation? That is a forcing up of the price by an increase in the cost. Inflation is a raising of the price which results from a scarcity of goods. Is there any scarcity of steel or of the ingredients of steel or of anything that enters into the production of steel? No. Is there a scarcity of men to engage in the production of steel? No, there is not. How can you call this rise in price inflation?

We have heard a certain amount of talk about inflation during the last 10 tragic years.

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We have had inflation, if you want to call price manipulation upward inflation, but I do not call it that. We have certainly had rises in prices. I should like to put on record for the benefit of people out in the country- no one in the house needs these figures-some information to help them do a little thinking. I should like to put on the record what has happened since this government or its immediate predecessor permitted an increase of $5 per ton in the price of steel in 1946. Let us follow through what has happened to prices, taking 1939 as being about 100. In 1940 the price index was 105-645600; in 1941, 111-916800; 1942, 117-223200; 1943,

119-474400; 1944, 119-956800; 1945, 120-600000.

Those were increases in prices during world war II. We will grant that those could have been the result of inflation, because there was actually a shortage of goods in the world during world war II and there was actually a surplus of money in the hands of the people during that period. In 1946 the index was 124-620000; in 1947 there was a jump to 136-358400. You see the effect the $5 per ton increase in the price of steel had. Then in

1948 it was 155-976000. See the way the increase in the price of steel was working? In 1949 it was 160-800000; in 1950, 165-463200; in 1951, 182-829600. We were in the Korean war at that time.

We will grant again that there might have been a shortage of goods and excessive purchasing power, though I do not think at any time we had a short supply of any goods in Canada; but we were still being affected by the increased price of steel. In 1952 the index was 187-332000; in 1953, 185-724000. It began to go down for the first time. In 1954 it was 186-849600; in 1955, 186-528000; in 1956, 189-422400.

Someone will say that we are not using the proper price index. No, we are not using the commonly employed index because in

1949 somebody began to be so much afraid of the price index we were using, which showed such a tremendous increase in prices, that they changed the price index and began to count 1949 as 100. From then on we had these indexes:

1949

1950

1951

1952

1953

1954

1955

1956

It looks very much better, does it not? So we are told that the price index now is 117-8, where it ought to be 189-422400.

The reason I mention this particularly is that we have an increase in the price of

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CCF
SC

John Horne Blackmore

Social Credit

Mr. Blackmore:

The Bradburys of Great Britain. Great Britain fought world war I on the Bradbury, which was nothing but a paper pound issued by the government debt-free.

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LIB

William Alfred Robinson (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Liberal

The Chairman:

Order. I am sorry to interrupt the hon. gentleman but I am obliged to advise him that his time has expired.

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CCF

Frederick Samuel Zaplitny

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

Mr. Zaplitny:

Mr. Chairman, it is not my intention to pursue the Bradbury story at

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this point; no doubt it will be resumed. However, I think the statement made by the minister today with regard to the increase in the interest rate of the Bank of Canada was extremely important. It is also important that we assess the effectiveness of the potential of that increase.

To me it was interesting to hear the minister describe what the trend was in his analysis with regard to what he called the possibilities of inflation. As to what may come about in this country if something is not done he used these words-and I wrote them down as he used them-speculation, inflation and instability. That was quite a revealing statement from the Minister of Finance in this parliament. In spite of all that has been said by him and his colleagues throughout this session about the soundness of our economy and of the great so-called prosperity that we are experiencing, he now refers to the possibility of speculation, inflation and instability being in store for us unless something effective is done.

I think those three words describe very well the kind of economic and financial system under which we are attempting to live in this country. In a way it is a sad commentary on a system whose motivation is based chiefly on profit making rather than the provision of services. From that standpoint he went on to say that in 1956 we have had a year which we describe as most prosperous for most industries and most people. I notice that he used the word "most" on two occasions in qualifying the statement, and it was well that he did so.

I think it should be pointed out that in this so-called prosperous year the position of agriculture, for example-this applies to a few other occupations but particularly to agriculture-is such that it could not be included in that statement. The income of that industry has slipped in the last few years by about 40 per cent. If it is compared with some of the industrial profits, then certainly the word "most" would have to exclude agriculture. I have before me certain figures taken from the bureau of statistics. They show that in the twelve months 1954-55 the profit increase was as follows:

Profits before taxes, manufacturing industries Percentage increase, 1954-1955

All manufacturing 27 per cent

Wood and paper products 22 per cent

Iron and steel products 33 per cent

Electrical appliances and supplies .... 26 per cent

Products of petroleum, coal 22 per cent

Chemical products 24 per cent

Textile products 74 per cent

Non-ferrous metal products 57 per cent

Non-metallie mineral products 44 per cent

Other manufacturing 34 per cent

In fairness to the textile products section I mentioned I should point out that in 1954 [Mr. Zaplitny.l

there was an extremely low profit figure for that industry. Therefore a 74 per cent increase does not reflect an exact picture. But taking them as a group, showing an increase ranging anywhere from 22 per cent to 74 per cent or averaging in the neighbourhood of 35 per cent, when you relate that increase to the drop of about 40 per cent in the income of agriculture it is easy to see what the minister means when he says "most industries" and "most people" in relation to our country.

The part I want to refer to particularly is the remedy that apparently the minister is applying in prescribing for this danger of speculation, inflation and instability which he tells us is what will happen unless the action which is being proposed is taken. In giving us the choice he added these words, "It is better to have a higher interest rate than skyrocketing prices". I have heard of many hard choices to make, but this is Morton's fork and Hobson's choice all rolled into one. The people of Canada are being asked to choose between higher interest rates and skyrocketing prices.

To me it indicates a complete collapse of government policy when all they can offer the people of Canada is a choice between those two evils. Certainly if all our economy is anywhere nearly as sound and if our nation is anywhere nearly as prosperous as our friends on the government side have been trying to persuade us for the last six months, the Minister of Finance should be able to do better than offer the people of Canada a choice between higher interest rates and skyrocketing prices. But that seems to be all he has to offer at this time. I think it is a sad commentary on the kind of policy followed by his government and by his department if that is the best choice he can offer the people of Canada.

Then further on he gave us one of the reasons for this increase in the Bank of Canada rate. Though he did not say it would be the definite result, he more or less expressed the highest hope that it would have a moderating influence on the expansion of credit. What does that mean when you put it into ordinary words? It simply means the restriction of credit. Instead of saying "moderating influence", which is a more mellifluous way of putting it, the attempt apparently is to restrict credit, to make it tougher to borrow money, by raising the interest rate, so you will have to pay more for the service or the privilege of using somebody else's accumulated savings or somebody else's accumulated capital. That is what it means in plain, ordinary language.

What does it mean to the ordinary small operator, whether he be in business or on the farm or in any other occupation, in which his credit facilities or his credit standing or his credit potential is limited as compared with that of those who are operating on a massive scale in competition with the small operators, and who have almost unlimited credit? They are the ones who own the credit institutions from which both the small borrower and the big borrower must borrow. In effect what happens is this. The minister is telling this parliament and the people of Canada that the government policy is such that you are going to have to pay more for the privilege of using the credit of this country because it is in the hands of the people who have both the capital and the credit. Therefore if you have not the capital, and if you want to get some of that credit, you have got to pay more for it.

Where does that put the small operator in competition with big business? Where does it put the small independent merchant, for example, whether he be an implement agent or a grocer or in any kind of small business, when he is in competition with, say, the T. Eaton Company, Loblaws or any of the huge chains such as Safeway and all the others, or the huge insurance corporations? He must go to the credit facilities which are owned by those huge outfits and try to borrow money from them in order to compete with them. What chance has he when the government throws its weight on the side of the big operator and tells the people of Canada, "we are just going to make it that much tougher for the small operators to meet them in competition"? He is finding it tough enough already, and now they are going to make it that much tougher. According to the minister that is going to have a moderating influence on the expansion of credit. In his opinion that is going to end speculation, inflation and instability.

I want to make it quite clear that I share the views expressed by my hon. friend from Cape Breton South, when he pointed out that this is completely ineffective. It does not attack the root problem, and it is not going to do anything for the average small operator in this country. It is just another method by which an extra profit for the privilege of using the financial credit of this country is being handed to the big operator at the expense of the average person, the taxpayer and the average small operator in this country.

What is basically the trouble is simply the fact that we are attempting to operate a profitmaking machine, an economy based on economic motives rather than services. These 67509-4744

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profits keep being channelled into the hands of the same people, the same financial institutions, and the rest of the people of Canada have to go to the same people to whom they paid high prices and ask for the privilege of using some of their own money at a rate of interest. This government is making it harder for the people to go and get back some of their own money by making them pay a higher toll for the use of that money.

I agree with my colleague when he said that if we are going to tackle the thing in a serious vein, if we really mean what we are talking about, if we are going to try to avoid speculation, inflation and instability, then we will have to look at it from the point of view of price control or at the very least from the point of view of an excess profits tax. There are ordinary corporate taxes, and some of the members of the government will argue we are already using the taxation system as a method of more or less redistributing the wealth. But let me quote something from a leaflet that came into my hands not long ago. It points out how limited the ordinary corporation taxation is from the point of view of the redistribution of wealth. It says:

All of the taxes which the corporations pay must, in the nature of things, eventually be passed back to people: either to the shareholders of the corporation in reduced dividends, or to labour in lower real wages, or to the consumer in higher prices for the corporation's product.

This is the significant sentence.

In the end all corporation taxes come to rest upon people, who are the only taxpayers.

That points out the very strict limitation in the use of ordinary corporate taxation for the redistribution of wealth. This points out that all the corporation does is simply pass on that tax in the form of higher prices or lower wages or lower dividends, as the case may be, and in effect it is the consuming public or the purchasing public, if you look at it from the point of view of labour, who pay the tax anyway. I would ask the Minister of Finance at this point if he agrees with this statement I have just read. Does he think that is the effect of ordinary corporate taxation? The minister does not answer, and while he is making up his mind I shall pass on and ask the Minister of Justice whether or not he agrees with that?

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LIB

Stuart Sinclair Garson (Minister of Justice and Attorney General of Canada)

Liberal

Mr. Garson:

When I wish to express my views upon economic questions such as this, I prefer to do so in my own language.

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CCF

Frederick Samuel Zaplitny

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

Mr. Zaplilny:

I am glad to hear the minister say that, because what I was quoting was his own language. It is a quotation, from a speech made by Premier Stuart Gar-son over the C.B.C. on June 9, 1947.

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LIB

Stuart Sinclair Garson (Minister of Justice and Attorney General of Canada)

Liberal

Mr. Garson:

May I suggest to my hon. friend that he state sufficient of the context so the quotation will make more sense.

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CCF

Frederick Samuel Zaplitny

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

Mr. Zapliiny:

I would have to go beyond the ambit of the whole speech to make any sense.

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LIB

Stuart Sinclair Garson (Minister of Justice and Attorney General of Canada)

Liberal

Mr. Garson:

If my hon. friend is not willing to do so, if he will send my speech over to me I shall be glad to do it.

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CCF

Frederick Samuel Zaplitny

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

Mr. Zapliiny:

I shall be glad to let the minister refresh his memory and see if he agrees with it.

I wish to point out that if we are going to really solve this recurring problem which has faced Canada more than once-and this is only one of the sources of the so-called inflation, instability and speculation which I believe is inherent in the very economic system which we are trying to operate-we are going to have to go down a lot deeper than raising the interest rate so far as the Bank of Canada is concerned. We are going to have to do something to bring ourselves closer to the efficient operation of our economy, and bring it as close as possible to service at cost. Because as long as we have to pay in large amounts in the form of profit for the services performed by someone else for things we can do better for ourselves, whether that be in the ordinary industrial sense or in the financial sense, then we are going to be faced again and again with the same situation. Every time the government takes this kind of action it is simply widening the gap and creating greater hardships to the small operator, whether it be the farmer or the small businessman in this country as opposed to the huge business concern.

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PC

Jay Waldo Monteith

Progressive Conservative

Mr. Monieilh:

I should like to ask the minister two very brief questions. First of all, did he not intimate that the Bank of Canada could, if it saw fit, create a certain expansion of credit?

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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:

Yes.

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PC

Jay Waldo Monteith

Progressive Conservative

Mr. Monteith:

Having that in mind, may I ask him this. Has he or the government or the officials of the Bank of Canada given any consideration to another possibility of, shall I say, holding inflation in check or creating a trend the other way, by allowing sufficient credit to cause enough expansion to supply the goods which would fill the demand.

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LIB

Edward Turney Applewhaite (Deputy Chair of Committees of the Whole)

Liberal

The Deputy Chairman:

Shall the item carry?

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PC

Jay Waldo Monteith

Progressive Conservative

Mr. Monteith:

No. I am wondering if the government or the officials of the Bank of Canada have given any thought to that?

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August 11, 1956