July 15, 1942 (19th Parliament, 3rd Session)


James Lorimer Ilsley (Minister of Finance and Receiver General)



If my hon. friend believes
that, then he has no confidence in the financial policies of the administration. He should not be a supporter of the financial policies of the administration, because his attack is upon fundamentals.
Let me come back to what I was saying. The question is how to distribute this burden, because a burden there will be. There are three ways in which to do it. The first is by taxation; the second is by borrowing, and the third is by inflation. We can adopt that policy, and it will be easy for a while. My hon. friend is not the first to suggest it. This is not the first century in which clever men have risen in their places in parliaments and advocated this kind of thing. Let the hon. gentleman read the debates of the constituent assembly at the time of the French revolution. The finest economists of France were advocating this thing. They were advocating the issue of a few million more of money, then a few million more and then a few million more until their currency was entirely destroyed. It has been done time after time.
My hon. friend says to-night that we should finance this war by the issue of a billion dollars of what he calls national currency. I gathered from the latter part of his remarks that by national currency he meant Bank of Canada notes, because he told the committee of the hundreds of millions of dollars of Bank of Canada notes that are outstanding. Let me lead the committee through the three kinds of borrowing that there might be. The most simple way of putting into the currency of this country a billion dollars of Bank of Canada notes would be to borrow a billion dollars from the Bank of Canada. We would be borrowing from our own institution, and the effect would be precisely the same as if we had issued this amount. We cannot issue it because we have not the power, but it would be our bank that would be issuing it for us.
If they issued and lent the money to us, that is an issue of a billion dollars of national currency. That is the most natural thing.
There are three kinds of borrowing. First, we can borrow from the public; second, we can borrow from the chartered banks and, third, we can borrow from the Bank of Canada. That is by far the most inflationary method of the three. If the government borrows $100,000 from my hon. friend, his bank account shrinks by $100,000 and the Minister of Finance's bank account increases by $100,000. There is no difference in the total of . the deposits after the transaction from what there was before. I think that is clear. That is the first method of borrowing.
The second method that I mentioned is to borrow from the chartered banks. I go to some bank and ask them to let the government have $100,000. If I followed what the hon. gentleman said, the government would be doing just exactly -what the hon. gentleman says they would do. They simply credit the government with $100,000, and the total of the bank deposits of the country have increased by $100,000. In other words, that transaction results in there being in existence $100,000 more new money than there was if I had borrowed from my hon. friend. To that extent it is $100,000 more inflationary in its eSect than the other method. That is the reason why we shy off from borrowing from the chartered banks, why we strictly limit our borrowings from the chartered banks, keep them down to the irreducible minimum. That is why we keep on with these campaigns throughout the country and pay millions in advertising. That is why we have 22,000 workers for the national war finance committee all over Canada trying to get the people to lend their money to the country so that the government will not have to borrow it from the chartered banks. That is the second method.
The third method is the method suggested by my hon. friend to-night, borrowing from the Bank of Canada or issuing of more currency. That is several times more inflationary than borrowing from the chartered banks.

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