-and then they would probably allow you to put in a weight of 2,000 pounds. If I build an engine of 150 horsepower, I always have a margin which I can use in an emergency; probably it would develop 165 or 170 horse-power. So with a boiler; if you are going to test a boiler for 200 pounds, do you think any engineer would allow you to put steam into that boiler up to 200 pounds? The boiler would first be tested for, perhaps, 300 pounds, and then he might let you use it with a safety valve up to 200 pounds. Much the same principle applies here. My hon. friend misquoted the act. The section does not state that the reserve shall be five pep cent; it says that it shall not be less than five per cent. The bankers in their wisdom think they should have a margin of safety, and put it at ten per cent, and the hon. member uses that fact as a reason for arguing that the bankers are disdainful of the laws we create to control them.
There is a distorted opinion in the country of what banks can do. Some people have the idea that banks can create money ad libitum. According to the hon. member for Yancouver-Burrard, they can create money with a fountain-pen. If that were true, I do not see why bankers would have to stay in business very long, why they do not get rich and be done with their vocation altogether.
I do not intend to explore this realm of banking on a plane which almost comes into the region of mystery; I am going to get back to the old country store. You know a great deal can be said for the old country store; in the old days it was a place where a good deal of sound philosophy and many wholesome truths were learned. They are the people who must be convinced about the banking situation and therefore we had better talk in language that they will understand. The old country store was a good institution and performed many duties that usually belong to the bank, and until the days when the chain stores took away their cash business and compelled them to deal only in credit the country stores were found throughout the country almost at every corner.
Suppose a man were helping in the building of a railroad in some country district. The farmer wanted to use his team on the job and he would call up the storekeeper and ask for a double harness. The storekeeper would say, "All right; it is worth $100 and I will send it over. I will charge it on the books." He then instructs his bookkeeper to charge John Jones with $100 for that harness. A few days afterwards the contractor calls up the merchant and says that he would like to get some potatoes. The merchant calls up John Jones and tells him that he would like to have 100 bushels of potatoes for this man who is engaged on the road. The price, let us say, is $1.25 a bushel. And so he credits John Jones [DOT] on his books with $125 for his potatoes. Now there are two transactions. He calls up the contractor and tells him that he is going to deliver 100 bushels of potatoes and asks him if he will give him a cheque. The contractor sends the storekeeper a cheque which he puts in the bank and the bank gives him credit for $125. The contractor in turn wants some money and he calls up his debtor, who sends him a cheque which the contractor takes to the bank and deposits it and is given credit for the money he places there. Now all these transactions have been completed and there is no cash, no Bank of Canada money involved. Who says that is getting something for nothing? Who says that is not a splendid way of doing business?
The bank is a place where you exchange obligations; it is a credit exchange, and when it performs that function and collects a service charge therefor, it seems to me it is carrying on in a way which is beneficial to the business of the country. Take a manufacturer. I want to buy a certain quantity of raw material and I send him an order and get thirty days credit on that raw material. The man I bought it for makes a draft through the bank and I accept it at thirty days. When the draft is due the banker charges that to my account on the debit side and sends a credit along for the manufacturer, and the goods are dispatched. Is there anything wrong about that? There is no money used. A week afterwards I have to pay my men and I send a cheque to the bank and get $1,000 in bank notes. That is where you need real money, for pay envelopes. I go to the bank and they charge that to me. And so the transaction goes on.
Every transaction involves a debtor and a creditor; one brings and another takes. You can read that in any of the books on economics. The hon. member for Vancouver-
Bank Act Amendment
Burrard said! that a bank could buy- a $50 Dominion of Canada bond and all they hadi to do was to make an entry in their books; they did not need to put up any more than $5 as a reserve against it, in other words, 10 per cent. So far so good, but the hon. gentleman did not follow that transaction through. Suppose the government owes my hon. friend $50 and issues him a cheque on that bank and he takes it to the bank. He can demand for that cheque fifty Bank of Canada bills, or he can give it to the banker with instructions to have it placed'to his credit, thus transferring the credit from the bank to himself, or he can take the cheque to another bank and cash it. If he takes the cheque to another bank the first bank must meet the clearing-house the next day and give Bank of Canada bills for the cheque. It will be seen, therefore, that the hon. member went only half way in telling about such a transaction; he did not follow it all the way through. If he followed it through he would find that the bank must meet their obligations or be in peril at the clearing-house when they get there.
As I said before, the bank is the medium for the exchange of the country's business. It is true it creates deposits and credits and there is an enormous amount of business done without money at all, but a distorted idea is conveyed that the banks create money, that in their function as an exchange for the business of the country they create money, which is only credit and confidence. We must not break down credit as an institution for carrying on the business of the country. This five per cent reserve is a reserve against break-down. It is what one might call a degree of safety in the exchange of confidence and credit. Nor must we forget the power of association. The Creator Himself when he made the world had regard for the power of association. To make life it takes two people; one man cannot make life. Two people have to be properly equipped to make life; every living creature is of the same kind, and so is most agricultural production. Money is the economic bloodstream of the nation, and to control the economic bloodstream you need association; because there is power and there is virtue in association. I might do something that was criminal if I did it alone, but if I did it in association with others, and if it were done in a manner agreed upon, that would be all right. I say, therefore, that we had better be careful above a government-monopolized bank working all by itself instead of having a bank working in association with the people of Canada for the purpose of carrying on the business and commerce of the country.
My hon. friends say that there should be a 100 per cent reserve. What would you think of the country storekeeper who, when he charged the harness on the books, told his bookkeeper instead to go and get $100 in cash and put it in the safe so that he might have a reserve against the harness, or who, when he sold the potatoes, ordered his bookkeeper to go and get $125 in cash and put it in the safe so that he might have a 100 per cent reserve in that transaction? To hear our friends talk, to hear what some people said before the banking committee, one would think that banking was the only function in this country. There is a feeling that if you could fool with money, and have an easy time with it, you would be happy and the business of the country would be all right. Banking is only the handmaiden of business in this country; it is only the instrument that business uses for its convenience. As a rule, any troubles from which the country suffers do not come from banking; industry and business support the country. Banking in itself, in my opinion, will have very little to do with the prosperity or advancement of the nation.
Then the hon. member for Parry. Sound, with considerable heat and! fervour, almost in the style of a stump speech at election time, referred to these inner reserves. He pretty well rang the changes in regard to them, and his words could create a good deal of alarm in this country in this connection. He calls them secret reserves.
Topic: BANK ACT AMENDMENT
Subtopic: CONDITIONS GOVERNING TEN-YEAR EXTENSION OF BANK CHARTERS