November 21, 1940 (19th Parliament, 2nd Session)


James Lorimer Ilsley (Minister of Finance and Receiver General)



I said that to a limited extent it was possible, but certainly not to the extent which would be necessary if we created money from year to year with which to cany on the war.
Furthermore, if we did succeed, by price fixing, in preventing inflation resulting from the financing of the war by creating new money, we would in the end only reach the same result that we shall reach by sounder methods; for if war production is to be the same in each ease there will only be the same remainder of resources left over for civilian purposes. The new money dammed up in the public's pockets would be useless to it during the war, and after the war it would come bursting forth in a flood that would create inflation as soon as the rigid war-time price controls were once relaxed.
There is another, and, from a war point of view, more fundamental point. It is suggested that we should finance by issuing new money so that we can bring all useful resources into production and avoid curtailing civilian demand. But if we are really to put forth a maximum effort in the war we must not only bring all our resources into use but, in addition, restrict as far as possible civilian use of all those resources which can be used for war. As I emphasized in the budget speech in the first week of war, it is necessary to inSrease employment and production to the maximum; but that is only part of our task; we must also divert all we can from civilian to war use. We should certainly not be doing that if we refrained from borrowing and taxing.
In fact very great increases in employment and production have been achieved since the war began. The index of industrial production in September was at 167 compared with 127 immediately before the outbreak of war. The index of employment at the beginning of October was at a new record-136-2. It indicated a total increase of wage earners in employment, as compared with the month preceding the outbreak of war, of about
350.000 persons. This does not include about
200.000 men added to our armed forces since war began.
Consequently, the total number of persons in employment and in the services has increased by something like 550,000 since the outbreak of war. In very few industries has there been any decrease of employment; highway construction is the only significant item to show a decrease and that is due mainly to the disappearance of what was really a relief work.
From an examination of these and other figures it seems clear that so far our war activities, both in the services and in production, have not required any significant reduction of civilian activity or expenditure, though, of course, many individuals have had to restrict their consumption. In fact the figures for retail sales, and production and imports of consumers' goods, indicate that total civilian consumption, particularly of luxury goods, has increased significantly during the war, even when allowance is made for somewhat higher prices. This remarkable economic expansion which we have had in the last fifteen months has not been accompanied by any significant general increase in prices, except the increase which occurred in the early weeks of the war consequent upon the changes in exchange rates and ocean freights and insurance.
This brings me to a consideration of the prospects which we now face in the financial and economic sphere. As the military and supply programmes develop they will require an increasing number of men and amount of materials. Analyses are at present being made of the various elements in these programmes in order to see just what they do require in terms of labour and materials; for those, and not money, are the limiting factors. In fact, one of the principal reasons for setting up the war-time requirements board, which the Minister of Munitions and Supply (Mr. Howe) described to you yesterday, was to assist in the analysis of these physical requirements and the implications which they involve for civilian consumption. It is on the basis of such information that we must decide what we can accomplish.
It is certain, however, that the programmes upon which we have already embarked will create many scarcities and, before many months have passed, carry us to the stage
The Address-Mr. Ilsley

of full employment of our labour power and full utilization of most of our economic resources.
We still have some unemployed labour despite the great increase in employment which I have just mentioned. We still have some excess capacity in a number of our industries. Furthermore, we have many people employed in industries not essential to the war programme and we can, if necessary, shift many tens of thousands of people from agriculture and trade into war industries, or into other industries to replace people needed in war industries. In other words, we are now at a stage where we can still expand total production by a careful use of those resources which are unemployed or poorly employed. War production can and will be expanded even more than this by transferring resources from civilian purposes to war use. But all this expansion and transfer requires careful management and takes time. In particular, it requires the training of labour to fit it for new tasks, and the most efficient use of skilled labour. Measures have been and are being taken to ensure that this necessary training and efficient use of labour are carried out.
Facing the prospect of substantially increased requirements for war production under these conditions, I think it is higly essential that all of us should economize all we can and not spend our incomes on things which compete for labour and materials with war production. We must save and invest our savings either immediately in war savings certificates or later in next year's war loan.
I quite realize that the view is held that it is not wise to ask people to reduce their expenditures while there is still any unemployment or any room for expansion of production. But, as I have already stated, we are now running into shortages more and more frequently. The expanding war demand will continue to absorb the existing unemployed. The civilian demand will also be growing because of increased employment and earnings in war industries. Therefore, even if we do increase our savings, employment and production will continue to increase rapidly.
We have recently 'been giving consideration to our programme of financing for the next twelve months. Two decisions have had to be reached. The first relates to the character of the organization which should be set up on the next occasion when a large war loan is being sold to the public. The second decision relates to the time of issue of such a loan. It is our belief that the time has now arrived when we must resort to the cooperative type of organization to which I have already referred. The amount which we will need to raise will require the creation of a broad

national organization to ensure that all persons who are financially able to subscribe for war bonds shall be directly approached. As a people, we must develop a full understanding of our joint responsibility for the results we wish to obtain. I can say that the government will do its utmost to ensure that the organization built up will be equal to its task. I am certain that we shall receive from all quarters the cooperation and generous assistance without which success cannot be obtained.
Turning now to the question of the timing of the next loan, I believe that there is a great deal to 'be said for not undertaking a public appeal until the summer of 1941. By that time the budget will have been brought down, the great bulk of 1940 income tax payments will have been made, and individuals as well as institutions will be in a good position to know how 1941 will turn out for them from a financial point of view. If we were to come to the public with a loan in the early part of 1941, potential investors would still be faced with a number of difficulties and uncertainties. Furthermore, the type of comprehensive community organization which it is proposed to use is of such a character as to make it undesirable and indeed practically impossible to have two such campaigns following closely upon each other. This type of organization is cumbersome and requires a great deal of preliminary preparation and planning, and from the point of view of cost it is more easy to justify if the size of the loan is substantial.
Our decision not to issue the third war loan until next summer will make it necessary to undertake some short-term financing shortly after the beginning of the new year. It will be recalled that in the budget speech delivered on September 12, 1939, I said that our first borrowing operation would be of a short-term character and would be accompanied by a small and carefully regulated amount of credit expansion. I stated that expansion of credit, while appropriate during the early stages of war, should not be continued when employment and production were approaching their limits. I have not had occasion to change my basic views on this subject, but I believe that the tax programme of the government has been and will continue to be such that some additional financing of a short-term character, accompanied by some increase in total bank deposits, will not under the circumstances have inflationary results, and will, I believe, avoid undue stringency in the monetary field at a time when the working capital requirements of industry are increasing because of expanding business activity due to war orders. In forming these views, I have given some

The Address-Mr. Ilsley
weight to the fact that uncertainties bred of war and the necessity of building up substantial balances in anticipation of tax payments have made many people somewhat reluctant to deplete their bank balances, and anxious to keep in a good liquid position.
In deciding to undertake some additional short-term financing, the government also had in mind the fact that the major portion of the new money which will have to be borrowed prior to next summer will be required for the activities of the foreign exchange control board. It has been decided that the board will finance the repatriation programme to a greater extent than it has in the past, and additional funds will be necessary for this purpose. You will recall that the process of repatriation involves the temporary accumulation of sterling balances by the foreign exchange control board, and these balances are later used to acquire Canadian securities held in the United Kingdom.
I believe that these decisions in regard to our financing programme will commend themselves to the financial public as well as the general public, and will enable the government and our people to make adequate preparations for assuring that the third war loan will be a resounding success. It has been stated by several ministers in this house in recent months that, in the words of the Prime Minister:
The only limits the government is prepared to place upon Canada's war effort are those imposed by the extent of our resources both human and material and by our capacity for sacrifice.
And that:
We will make financially possible the utmost effort the people of Canada are physically and morally capable of making.
This does not mean, however, that we shall have no financial problems to face. In fact it means quite the reverse-that we are going ahead no matter what financial problems may be created by the need to finance the enormous military and supply expenditures. It is going to require the most careful attention to both the physical and the financial aspects of the programme. On the one hand we must determine what is physically possible and we must make sure that all our physical resources, our man-power, capital facilities and materials, are used to the fullest extent possible and as quickly as possible. On the other hand, it requires the most skilful and thorough financial management in order to assure that these physical resources are made available for carrying out the war programme quickly and efficiently.
This policy implies that our financial problem will be one of tremendous magnitude- that we must be prepared to raise very large sums of money in one way or another and divert ever-increasing amounts of our national income into the treasury. It will be no easy task. It will require the utmost skill, the most energetic direction and hard, unremitting work on the part of the government and people alike, but I believe that we can do by voluntary action as much as the enemy is doing by the most rigid compulsion. I have faith in our ability to match and surpass their effort once our people are aroused.
When we came together here in May last, Great Britain was meeting with reverses in Norway, the low countries were being overrun by the enemy, and our ally France was on the brink of the disaster which overtook her shortly afterwards. The Canadian people were willing to go to any length to aid Britain. Their private interests had second place. They were ready for any sacrifice. An invasion of England was believed to be imminent. The existence of the empire was in peril. Sectionalism and selfishness, the bane of democracy, perhaps of every form of government, were subordinated to patriotism. Burdens, whether tax burdens or others, were accepted with little complaint. Our main, if not our sole desire, was to help to win the war.
To-day, only a few months later, we are reassured, too much so. We feel, vaguely, that the important things in our lives are at stake, but we are not so sure that they are in jeopardy. Instead of a consciousness every waking moment of the deadly peril of a powerful enemy, many of us have a feeling that the battle of Britain is won, and that all is well. This optimism is excessive and dangerous. The war is not won. A far closer engagement with the enemy will be necessary long before we achieve victory. Not only must our fighting forces engage his, we must engage him in our civilian activities-by the making of sacrifices, the forgoing of pleasures, the devotion of our substance to the common cause-in these ways must all of us engage the enemy.
To-day there is heroism in the air, on the sea, in the deserts of Africa-and there is heroism among the common people of the motherland. Let their example be our inspiration. Civilian Canada has its responsibilities, easier to assume but no less important than those of civilian Britain. Let us assume those responsibilities with the same unselfishness and courage and determination.

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