April 21, 1947 (20th Parliament, 3rd Session)


Victor Quelch

Social Credit


In view of the remarks
made by the hon. member for Cape Breton [DOT] South, I rise to say a few words at this time.
I agree with him absolutely when he says that the prosperity of the nation in the future will depend to a large extent on the payment of subsidies, that is, under a system of private enterprise, in order to maintain the production of the country at its maximum level and to maintain the demand of the people against that production, there will have to be a system such as that referred to by the Minister of Veterans Affairs as a compensatory system. A compensatory system is described very well by Stuart Chase in his book "Where will the Money Come From" where he advocates subsidies in order to maintain the effective demand of the people. I have heard several ministers state that subsidies cannot be paid without maintaining price control or price ceilings. I would say that depends, first, upon the purpose of the subsidies; and, second, upon the condition of production at the time the subsidy is paid; that is to say, it will depend upon whether goods are scarce or whether goods are surplus. If goods are scarce, then you will have to maintain a price ceiling. If, on the other hand, your production is surplus, the subsidies can be paid without any price ceiling being maintained by rigid controls.
May I explain what I mean? During the war a very large percentage of our production was shipped overseas, with the result that the money paid out on that production became a demand against the production left in the country, and that purchasing power became a great stress upon the price structure within the country. The government therefore desired to prevent the prices of goods from rising, and for that purpose put into effect price control. In addition, in order to make it possible for industry to pay their costs under that price control, the government subsidized industries where the costs were greater than could be met under the price ceilings. If the government had merely said to the industries concerned, "We will pay you a subsidy to make up for the increased costs, provided that you do not raise your prices," what would have been the result? In all probability some industries would have said, "To heck with your subsidies. We will increase our prices to an extent greater than the subsidies. Therefore we will recover our cost plus a profit, to an extent we could not recover it under your subsidy." In view of the fact that goods were so scarce at that time, after the subsidized goods had been sold the industries which had raised their prices would also have been able to sell their goods. That is why I say that when goods are scarce you will have to maintain price ceilings as well as subsidies.
What is to be the situation in the future? It will not be a question of reducing the demand against goods in short supply. The problem we shall face in future will be to increase the demand against expanding production, because we shall not be exporting fifty per cent of our production in the future and without bringing back imports in return. The total production of the country will be available to the people, plus the imports brought here in exchange for our exports. Just the other day Mr. Ruml issued a statement in which he said we shall probably have a depression on April 15, 1948. The analysis on which he based that statement is interesting. It supports 100 per cent the statement made by the governor of the Bank of Canada in 1946, to the effect that the great problem which will be facing this country in the near future will be lack of effective demand.
Mr. Ruml points out four reasons -why demand w'ill fall off at that time. He points out that today we have full employment. We have not quite full production because of strikes, etcetera, but we have a full demand against that production. The reason is that at the present time we are building up inventories. Those goods art not yet on the market, but the money paid out for building up those inventories is a demand against available production. In the second place, a large amount of money is being paid out for reconversion purposes; that is, to reconvert factories. That money is also a demand against available goods, because goods are not coming from those factories yet. Then he points out that at the present time a large proportion of our production is being exported with no goods being brought back in return under export credits. This means that money is being paid out in the production of goods that are not available for consumption in Canada; that is to say, the money paid out for the production
Emergency Powers

of goods which have been exported becomes a demand against the goods remaining. The fourth reason he points to is that today we still have a large amount .of savings built up during the war, which are a demand against out present production.
He points out that by 1948 the condition will be rapidly changing. Inventories will have been built up, and the goods will be coming on the market. Reconversion will be largely completed; the factories will be completed, and goods will be flowing from them. He points out that we cannot expect to continue to export goods abroad without bringing back imports in return, and that the savings carried over from the war will have been largely spent. Therefore he points out that by 1948 our production will be increasing in relation to demand; there will be a falling off of demand, so he prophesies that by April 15, 1948, people will say, "This is not a recession; it is a depression." He admits that very likely the government will take steps immediately to change that situation, and I am hoping that the government of this country will be prepared to do likewise. However the government knows very well that, once you allow a country to start on the road to depression it is not easy to stop it, because, once people lose confidence, it is very difficult to restore it.
So, Mr. Chairman, we have .suggested that it is possible to maintain demand through the use of subsidies, and that in order to maintain those subsidies it will not be necessary to have price ceilings. We say the government can meet with industry and say, "If you are prepared to produce at a fair profit we will pay you a subsidy." That is to say, the government will set up a commission whose duty it will be to examine the relationship between demand and supply from day to day, week to week and month to month. If over a period of three months, say, they find that demand is lagging behind supply at the rate of perhaps ten per cent, so that demand is only ninety per cent of supply, then through the commission the government would say to industry, "We will pay you a subsidy of ten per cent on condition that you reduce your prices by ten per cent in order to restore the balance between demand and supply." If any industry refused, obviously the industries that did agr.ee would be able to undersell the one that did not by ten per cent; and in view of the fact that the situation will not be the same as it was during the war, but one in which production is available, then an industry which refused to reduce its prices would have a great deal of difficulty in selling its goods in competition with goods which were being subsidized and sold at a lower price.

That is why I say in future, when production is expanding more rapidly than effective demand is being maintained, subsidies can be paid without the necessity of maintaining price control. It has been argued in this house that you cannot pay subsidies without increased taxation. During the war that was true; but the purpose in maintaining subsidies during the war was to maintain price control and thereby reduce the danger of inflation. Taxation also helped to reduce the danger of inflation; but now, after the war, it is necessary to take steps to safeguard the country against deflation, and the purpose of the subsidies would be to increase demand in relation to supply. The minister himself has said that at the present time the saving in subsidy will be no greater than the cost in taxation. Therefore, if you are going to try to increase the demand by subsidies, obviously you cannot pay for those subsidies by taxation, because you will not be increasing the demand in relation to supply but merely taxing people in order to pay the subsidies. When that situation develops; when we have to expand the purchasing power of the people in order to maintain demand against production, then obviously subsidies will have to be paid by national money, which, of course, will not be obtained by taxation.
I think that must be obvious, and that applies to the remarks of the hon. member for Kamloops. Obviously he is still thinking of the situation that existed during the war, but that will not be the situation henceforth. The great problem we are going to face in this country will be the difficulty of maintaining an effective demand against our production. Before the war, we used to try to do that by maintaining a favourable balance of trade. It is generally recognized today, however, that if we want to have good relations with other countries in future we shall have to be prepared to accept the goods of other nations in return for our exports. Other nations will not be prepared to go into debt just in order that we may dump our unemployment problem on their doorstep. So I would suggest that in future, in order to maintain prosperity in this country, we can release the rigid price controls we have had in the past, maintain subsidies at the necessary level to maintain effective demand against our production, and finance those subsidies by national money.
P.C. 9870 agreed to.
On P.C. 7475.

Full View