Mr. VICTOR QUELCH (Acadia):
Mr. Speaker, it would hardly be correct for me to say that I am disappointed in the budget. Realizing, as I d'o, that the Liberal party is a reactionary party, I do not look for any
The Budget-Mr. Quelch
really progressive action which would lead us to permanent prosperity. I do not believe there is any solution within.the narrow confines of the present capitalist system. It is true that rates of interest on the new dominion loans have been reduced, but as the national diebt is only a fraction of the total bonded debt of Canada and as these low rates are not being extended to the provinces and municipalities, it is hardly to be expected that the bonded debt of Canada will decrease. At no time during the last twenty-three years, even in times of the greatest prosperity, has Canada proceeded without going progressively further into debt. So long as we continue to operate under a debt-creating system, so long shall we be bound to go further into debt.
Many of those who voted in the last elections were of the belief that the government of Canada would issue its own credit, but from the statements of various Liberals, it has become very clear that such is not the policy of the government and that it intends to still go on pledging the real wealth of Canada to the financial interests. Such action can be continued only by keeping the standards of living down to an unnecessarily low point. We shall find that the present intolerable situation will be made even worse by the placing of an eight per cent sales tax on the consumer which will undoubtedly tend further to reduce his purchasing power.
The main problem to-day is that of stimulating the purchasing power of the people to a point where it is equal to the capacity of industry to produce and deliver goods. Any necessary increase in taxation should be made against surplus incomes, that is, incomes sufficiently large that the recipients are under the necessity of spending only a portion as purchasing power.
Some people take the stand that the government has no right to issue credit against the real wealth of the nation held collectively, when it is actually owned individually. We are actually doing that to-day in the form of dominion bonds. Bonds are nothing more or less than promises to pay at a future date. These bonds are recognized as a sound basis for the issue of money, for the issue of legal tender. Legal tender is recognized by the banks as a sound basis for the issue of credit up to nine or more times the amount of money held by them. That being the case, and as the federal government issues the bonds, why cannot the government issue credit backed by legal tender, with the full resources of the nation behind it?
I believe this example has been given before, but I should like to give it again just to
bring out my point. In November, 1932, the federal government sold to the chartered banks of Canada $35,000,000 of treasury notes bearing interest at four per cent. The banks increased the government deposit by $35,000,000. Then, in a short time the banks applied to the treasury board for a currency loan of $35,000,000, under the provisions of the Finance Act. The government issued the new currency and charged the banks three per cent, the security put up by the banks being dominion government notes. Why could not the government have credited themselves with
835,000,000 of currency in the first place and thereby saved the nation many millions of dollars annually? This is pointed out by Sir Thomas White in the November, 1935, issue of the Canadian Bank of Commerce Review, which states:
When credits are created in favour of customers, whether borrowers or savings depositors, a bank must be always prepared to meet cash demands of depositors-in legal tender. This is the reason why a bank must always keep liquid to the extent found necessary under the experience of bankers in the conduct of the business along safe lines. To maintain the requisite degree of liquidity, varying with varying conditions, banks must hold a considerable percentage of the assets (about ten per cent of their liabilities) in legal tender.
When 'the banks received the loan of $35,000,000 in currency they were then in position to loan out from $300,000,000 to $350,000,000 at interest. The currency loan itself was based upon treasury notes, which in turn were based upon the real wealth of the nation. We claim that the nation could have issued that credit in the first place, thereby saving the people of Canada millions of dollars in interest. I know many people would call this inflation. For instance, the hon. member for Huron North (Mr. Deach-man) is reported on page 1854 of Hansard as follows:
When you give something to the unemployed you in reality give them a call upon goods; and when you do that by printing money I do not think you will get very far, because your money will not be of much value and you will find it a great deal more difficult to finance than you did before. When you borrow money what do you do? You take from people who have and give them in return a certain allowance called interest; we pay them for the use of their money with a promise, which I hope we shall make good, of repaying them in due course when the time comes. But when you print money what do you do? You start upon a course of inflation-
I am sure the hon. member for Huron North would not have u>s take that statement too literally. He said, "When you borrow money you take from the people who
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have," and yet Sir Thomas White says, "The banks can loan up to about ten times the amount of their cash deposits." The Macmillan report states on page 34:
It is not unnatural to think of the deposits of a bank as being created by the public through their deposits of cash, representing either savings or amounts which are not for the time being required to meet expenditure. But the bulk of the deposits arise out of the action of the banks themselves, for by granting loans, allowing money to be drawn on an overdraft, or purchasing securities, a bank creates a credit in the books which is the equivalent of a deposit.
I quote from a speech delivered by the Right Hon. Reginald McKenna, in January, 1925, as follows:
I am afraid the ordinary citizen will not like to be told that the banks can create or destroy money. We do not like to hear that some private institution can create it at pleasure. It conjures up a picture of an autocratic and irresponsible body which by some black art of its own contriving can increase or diminish wealth and presumably make a great deal of profit in the process.
We find, therefore, according to these financial experts that when we borrow money from the banks instead of borrowing money already in existence, we are borrowing newly created money, and the total deposits of the banks are written up by that amount. The point is that it is new money. Therefore, if under certain conditions when we borrow money from banks it is inflation, so also under the same conditions if we borrow money from the government it will also be inflation. On the other hand, if under certain conditions the oreation of credit by banks does not cause inflation, then the creation of credit by the government under the same conditions cannot cause inflation. So long as only sufficient credit is issued to balance effective purchasing power with the total collective volume of prices of goods available for distribution, instead of having inflation you have stabilization. This is upheld very well by charts of Mr. Carl Snyder, chief statistician of the New York Federal Reserve Bank. These charts were published in the May, 1931, issue of the Royal Bank of Canada Economic Review, and Doctor Donal Marvin, Royal Bank economist, commenting on them, says, in part:
This relationship between volume of production and trade and volume of credit is one of the most important discoveries which has ever been made bv the statistician. It implies that there is a mathematical relationship between the volume of production and credit on the one hand and the price level on the other. In fact, by dividing each volume of credit by the corresponding volume of production, the level of prices at any particular moment is approximated.... Can it be that
had the growth of credit paralleled the increase in the volume of production and trade, there would have been no substantial changes in the general price level, no major business cycles, no booms, no severe depressions? This is indeed a startling concept, affording hope that the social injustices inherent in all major changes in the general price level might be avoided by proper control of credit.
It would seem therefore, according to Doctor Donal Marvin, that so long as you do not issue more credit than the volume of production and trade, there is no real danger of inflation. Nevertheless I realize that it would be a dangerous procedure to endeavour to equate the volume of effective purchasing power with the volume of potential production of ultimate goods unless first of all effective means were introduced to control prices so as to establish a fair price level based upon cost of production. The actual level would not be so important as would be the bringing about of a fair relationship between wages and prices and ensuring that the price of one article was commensurate with the price of another. Then, once having established a fair relationship, the purchasing power of the people could be raised until it was equal to the total collective volume of prices of ultimate goods, by an issue of credit direct to the consumer. This payment would have to be made outside the present industrial system because as credit passes through the industrial system it accumulates costs in excess of the purchasing power it distributes, thereby failing to bring about an equation as between purchasing power and prices of ultimate goods.
Whilst advocating a change in ownership of the banks, I realize that this in itself would be useless unless the policy of the banks were also changed, because owing to the policy of the banking system at the present time the volume of financial credit in circulation at any given time bears no relationship to the requirements of the people. It is argued that the restriction of credit is forced upon a banking system by their knowledge of conditions. This claim, however, is not upheld by some notable authorities on banking. Mr. W. L. Baker, former superintendent of branches for the Standard Bank of Canada, in a criticism of the system and not as a monetary reformer, referring to the great deflation of midsummer, 1921, states:
The reduction of $43,000,000 in three months was not a national slacking-off of industry, but was without doubt due to the concerted action of the banks in curtailing and calling in loans in all directions, and contributory in a general way to other conditions which were calculated to stagnate industry.
So we may believe from this statement that instead of loans being called in on account of
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a general falling off of business, it is just the contrary,, that business falls off on account of restriction of credit by the banks, resulting in the closing down of factories and increased unemployment. This action is to a certain extent no doubt forced upon the banks on account of their practice of loaning promises to pay up to ten times the amount of their actual cash, with the result that in times of great expansion they become panicky as soon as their margin of safety has been reached.
To quote again from Mr. Baker:
Bankers easily take fright. As demands for loans increase, in direct ratio comes their unwillingness to lend. When result of curtailment comes in decreased business activity, they raise the cry, "Now is no time to borrow; we are calling in our loans; you must restrict operations." And the cycle of deflation sets in, hastened by an ever-increasing timidity of bankers.
As an example of such panic I would refer the house to a statement made by the hon. member for St. Lawrence-St. George (Mr. Cahan) in a speech at Toronto in November, 1933. He is reported as having stated that from September, 1929, to September, 1933, $932,000,000 was taken out of circulation. No one would suggest that that was a natural slacking off of industry.
Money is termed a measure of value, but we find it at present to be a very elastic measure, at times swelling and at times shrinking, and we have placed the power of expanding and shrinking the dollar in the hands of a private monopoly so that they can manipulate this measure to their own advantage. When they expand credit at a greater rate than production the dollar shrinks, and when they restrict credit so that it fails to keep parallel with production the dollar expands, bringing about in a general way a depression with its consequent misery and bankruptcy. At such times we find the credit houses taking over these bankrupt concerns at a fraction of their real value., and later on selling in a time of expansion at a considerable profit to themselves. Such cases I have known in the west. Such power should not be placed in the hands of any private corporation, because their large profits can be made only by the general exploitation of the public.
Then, again, we are told that the banks are anxious to loan money to-day but that they cannot find reliable concerns willing to, borrow. Industry is not prepared to expand until it is assured of a market for its products, and as industry fails to distribute sufficient effective purchasing power to -buy back its own production, consumption has to be financed by direct relief or a program of capital goods
production. This condition applies not only to Canada but to a majority of nations, with the result that every nation is endeavouring to sell more goods than it buys. But, if we take the world as a collection of nations endeavouring to sell more than they buy, the absurdity of the situation becomes apparent, resulting in international friction.
We in this comer take the stand that the main justification for foreign trade is to export our surplus production and exchange it for those commodities which we cannot produce economically in Canada. The chief point to remember is that if there is an insufficiency of purchasing power available to buy the total production of the country, there will also be an insufficiency of purchasing power available to buy the goods for which our surplus products are exchanged. Therefore we contend that the main problem confronting this government is to stimulate the puchasing power of the people until it is equal to the capacity of industry to produce and deliver goods. In the past we have endeavoured to accomplish this by production credit, and we have failed in our objective, for the three following reasons: Every creation of credit has been at the same time the creation of a new debt. By the very nature of its existence it has been interest bearing. Lastly, as this new credit passes through the present industrial system it will create as many additional costs as it subsequently cancels, thereby failing to bring about an equation between consumption and production. We therefore claim that in the future we must recognize the absolute necessity for financing consumption by consumption credits. This credit money might well be .paid in the form of a dividend directly to the consumer so as to ensure as high a standard of living for our citizens as our total productive capacity might be able to supply.
Topic: THE BUDGET
Subtopic: DEBATE ON THE ANNUAL FINANCIAL STATEMENT OF THE MINISTER OF FINANCE