March 20, 1941 (19th Parliament, 2nd Session)


Victor Quelch

Social Credit


I am not suggesting that various precautions and other means would not have to be taken. I am pointing out that it does not matter what you do, in a time of depression you cannot improve conditions until first of all you have monetary expansion. In September, the minister admitted that it would be desirable to have monetary expansion. Why? The minister realized that if they tried to borrow money from the people they would be drawing money out of circulation, and reducing production. Therefore, first of all they hire-and I use the word advisedly -the chartered banks to create $200,000,000. I remember well the statement made at that time by the Minister of Finance. He said, "When this money is paid out it will increase the savings of the people, and then we will be able to borrow those savings." But the minister realized that the government would not be able to borrow savings from the people until it had created those savings by an expansion of money. In other words, the expansion must come first.
The minister has said he cannot see the similarity between the condition in September and the condition between 1935 and 1939. I

will give the similarity. During that time industry was running at about 50 per cent of its capacity. We had in the neighbourhood of half a million unemployed. We had, in the form of a million people on relief, a tremendous undeveloped market for goods. The logical question, then, is this: Why did we not put people to work in industry to produce goods to satisfy that market? Why did industry not expand? I have heard the criticism of industry that it did not have sufficient confidence to expand during that time. To me the reason is obvious; industry at that time could not sell the products it was already producing. It knew well that if it expanded production it would have a still greater unsold surplus of goods.
I say to the minister that if during that period of time we had had monetary expansion for the purpose of putting a certain proportion of the unemployed to work in capital goods industries-such as armaments, road building, the elimination of railway crossings, and so on-and had we utilized the remainder of the unemployed for the purpose of expanding production of consumer goods, then those goods would have been available to satisfy demands which would have been created by payment of moneys to those people working in capital goods industries. I am satisfied that industry in Canada will always be ready to increase production, when it knows that it is going to be able to sell what it produces. The trouble between 1935 and 1939 was that it could not sell what it produced. During that time we had a favourable balance of trade amounting to about $200,000,000 annually. In the committee I asked the governor of the Bank of Canada this question: During that period why could we not have put into operation $200,000,000 worth of national projects, so that the money paid out in these projects would have created in this country a demand for the $200,000,000 worth of goods that were credited to us abroad? He did not deny that this could be done, but said that it was purely a matter of government policy.
I remember that in 1935 in his pre-election speeches the Prime Minister (Mr. Mackenzie King) stated that if the Liberal party were elected, a great battle would be engaged in between the government and the money powers. I make this charge: Had the government engaged in that battle with the money powers, and had the governments of Great Britain and of France engaged in that great battle, the history of Dunkirk as we have it to-day would not have been written. Because of the deflationary policy which existed throughout those years, defences were allowed to deteriorate.

War Appropriation Bill
I want to refer now to a statement placed on record by the minister in his reply to a question I asked on February 20. According to that statement we have borrowed from the chartered banks in the neighbourhood of half a billion dollars. The minister will agree that, other things being equal, deposits would have increased by a like amount. As a matter of fact, it is admitted in the state: lent that in so far as the $250,000,000 that was borrowed in the spring of 1941 is concerned, deposits would have increased by that amount, other things being equal. That is to say, when we borrowed the money from the chartered banks, they lent us that money by creating the means of payment. I do not believe the minister would disagree with that statement. It is true that for years prominent officials of various banking institutions in this country have carried on the delusion or the hoax that they are in a position to lend only their depositors' money. We have heard members in this chamber say that banks are able to lend only their depositors' money. I do not doubt that many hon. members are still in that fog, or confused state of mind.
In any event, it was refreshing in 1939 to have a statement by the deputy governor of the Bank of Canada to the effect that it was nonsense to suggest that chartered banks could lend their deposits, because it was pointed out that deposits are liabilities, and that it would be impossible to lend their liabilities. Then, again, when giving evidence before the committee on banking and commerce in 1939, the governor of the Bank of Canada said, as reported at page 455 of the proceedings, that the chartered banks cannot, of course, loan the money of their depositors. He also admitted that they lend by creating the means of payment. Hon. members may verify this, if they wish, by turning to the evidence of the banking and commerce committee of 1939, page 456, where it was pointed out that the banks lend by the simple procedure of creating the means of payment.
The main question in connection with which I am particularly interested in receiving an answer from the minister is this-and I want to put it accurately. When we have obtained from the people all the money we consider it wise to take, whether by taxation or by the sale of war savings certificates, and when we deem it necessary to indulge in a form of inflationary borrowing, why do we not obtain the money from our own bank, the Bank of Canada, instead of from the chartered banks, who will merely create the amounts of payment?

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