Mr. J. S. WOODSWORTH (Winnipeg North Centre):
I believe I am in order today in making a few remarks on this motion. As I tried to say the other day, the work of the committee was somewhat limited in its scope. We were given to understand that we ought not to bring in any recommendation that would involve a change in the Bank Act, and this made the work of the committee rather academic in character. I would point out that it is impossible to bring witnesses from a distance, such as economists from the United States or Great Britain, who might be considered authorities in this matter. Further, we found some difficulty-those of us who were trying to present the standpoint of the general public-in securing suitable witnesses. I discovered that a number of business men who were complaining about inadequate credit facilities were not willing to come before the committee. Whether or not their contention was correct, they took the ground that if they passed any adverse criticism their credit might be endangered. As a matter of fact, therefore, all the witnesses who appeared before the committee, with the exception of one who
represented the Canadian Council of Agriculture, represented either the department or the banks.
While I think the report as presented fairly gives the main points that were considered, I should like to direct attention to the fact that other suggestions were also offered. For example, it was urged that there might be established small local banks and co-operative credit societies. The committee did not go into these matters in any detail. There were also a good many general criticisms of the present banking system. The bankers claimed that these criticisms were not well founded. In order to save the time of the house as far as possible I have summarized the claims of the banks as follows:
(a) That the small number of banks in Canada-four banks controlling approximately 70 per cent of the entire deposits (page 28)-is in the interests of Canada, (page 27).
(b) That according to the bank's code of honour, in the granting of credits, there is no discrimination against a business concern that is a rival to one in which a bank director is also a director. (pages 104-105). That is to say, that the charge that interlocking directorates is inimical to the welfare of the public at large is not well founded.
(c) That, on the contrary, interlocking directorates are a distinct advantage, (page 105).
It has been said, especially in western Canada and in the maritimes, that the concentration of headquarters of banks in Montreal and Toronto is not good for the east or for the west. The banks claim:
(d) That districts remote from headquarters are under no disadvantage, (page 44).
It was complained that in some instances business enterprises, especially in their initial stages, were not able to secure credits such as were necessary, and that private individuals had at this stage to do the financing of such concerns. That is the complaint. The claim of the banks is:
(e) That it is not the function of a bank to take the hazards of the commencement of a manufacturing business (page 102), but that any solvent concern in a liquid shape can obtain all the credit it can reasonably desire for legitimate purposes, (page 100).
Mr. A. E. Phipps was emphatic. He said:
No legitimate loan properly secured has been refused, from one end of Canada to the other, since I have been a banker, (page 44).
It seems to me that the general public will have to decide whether or not these statements of the bankers are in accordance with the facts. I might, in -passing, call the attention of the house to the fact that in Eng-
Banking and Commerce-Mr. Woodsworth
land bankers and other financial men, and industrialists, are considering whether or not the present system -is adequately meeting the credit needs of the country; and when men of the type of Sir Alfred Mond are beginning to give attention to a question of this character, looking to reform, it would seem that we might take some action in Canada.
The main proposal 'brought before the committee was undoubtedly the establishment of a central bank. The statements made in the report are, I think, quite fair; but they do not cover all the ground which personally I should like to have seen covered. I might suggest some of the things that are found in the evidence but not included in the report: (a) That under the Finance Act the government performed, with less machinery and expense, some of the functions of the federal reserve bank, but that the banks use the Finance Act to a very limited degree.
fb) That the control of the federal reserve banks over the money market through the open market transactions might be difficult to exercise in Canada, (page 70).
(c) That, in the opinion of Mr. H. P. G. Harding, governor Federal Reserve Bank, Boston: (1) The mutual savings banks in
New England have been highly successful, (page 82). (2) That in the United States
western cities would organize their own banks, (page 89). (3) That the federal reserve
banks have been helpful in stabilizing the price level by stabilizing the money market, (page 75). (4) That a federal reserve system
organized on the same basis as in the United States-that is, a regional system-would be impossible in Canada, (page 89).
Now there is only a bare mention in the report of what many of us consider to be the most vital matter, namely, the possible control of the general price level. As many of the members of the house will recognize, there are two distinct schools of thought on this matter. Some bankers and economists claim that there is very little relationship between the amount of money in circulation and (the price levels; others claim that there is a very vital relationship. Indeed, some go so far as to say that the amount of money in circulation determines the general price level and that if this is so the general price level may be controlled by a control of t)he money in circulation. That was considered true when gold was the chief medium of exchange. It is recognized that the issuance of bank notes also has an effect, but more than that I think these newer economists and some bankers such as Mr. Reginald McKenna are recognizing that credit facilities including the checking system,
which is responsible for something like 96 per cent or more of our business transactions today, have a very important effect on the general price level.
Again to summarize what I think hon. members will find in the evidence as submitted to the committee, I would say:
First, that bills and coins constitute less than 4 per cent of the total volume of money (page 42);
Second, that deposits created by loans are not kept, separate from savings deposits (page 40);
Third, that the bankers, in keen competition-to use the words of the bankers themselves-" are a practical people" "meeting the situation from day to day" and not considering the ultimate economic effects of the extension or contraction of credit (page 35);
Fourth, that there is no government control over the extent to which the banks can issue credit; that this is a matter of banking policy (page 3);
Fifth, the preponderant opinion of the witnesses was that only to a limited extent could the banks or a central bank influence the general price level (pages 34 and 84). Mr. Harding, in opposition to the position taken by Mr. McKenna and others of his school, agreed with Mr. Mellon that "neither the federal reserve system nor any other system can control prices (page 84).
It seems to me, Mr. Speaker, that whilst I can endorse the greater part of that report, we should add to it a clause providing that the committee which the Minister of Finance is urged to associate with himself, in addition to the work which they are asked to do, "should further explore the possibility ;of stabilizing the money market and preventing the recurrence of periods of inflation and deflation, with their attendant evils." In view of the very great evils which we have experienced in the past; the inflation that appeared to such a degree at the time of the war; the subsequent deflation which so adversely affected business in this country; the fact that students of this question would indicate to us that all through the past there have been recurring periods of inflation and deflation which have been responsible for upsetting general financial arrangements; for transferring large sums of money from one set of pockets to another and for creating great hardships alike for business men and labour people-in view of these considerations it would seem to me that the time is ripe for the government itself to give more care-
Railways and Shipping-Mr. Bennett
fill attention to this whole subject, and to attempt to bring scientific knowledge to bear upon this most important financial problem.
Subtopic: MOTION FOB CONCURRENCE IN REPORT OP COMMITTEE