[Stage Direction]
Hon. CHARLES A. DUNNING (Minister of Finance) moved:
That the name of Mr. Ross (Middlesex East) be substituted for that of Mr. Deachman on the standing committee on railways and shipping.
That the name of Mr. Rickard be substituted for that of Mr. Ross (Middlesex East) on the standing committee on agriculture and colonization.
Motions agreed to.


[Stage Direction]
Mr. JEAN-FRANGOIS POULIOT (Temis-couata) moved that the first report of the special committee appointed to inquire into the operations of the Civil Service Act be concurred in.
He said:	It has been agreed that the evidence and not the discussion will be printed in connection with this committee, and therefore I move the adoption of the first report.
Hon. CHARLES A. DUNNING (Minister of Finance):	I concur entirely in the proposal of the chairman of the committee, but this affords an opportunity to say that there is a rule of the house with respect to the printing of evidence given in committees. On examination I find that this arrangement will not constitute a discrimination against this particular committee, because it is in fact a rule that only the evidence shall be taken and printed. I say this for the guidance of other committee chairmen who may have the same difficulty.
Mr. POULIOT:: The last report of the committee on banking and commerce contained two pages of discussion.


Mr. DUNNING:: They should not have
been included. It is hard to keep the rule.


[Stage Direction]
Motion agreed to.

[Stage Direction]
Hon. CHARLES A. DUNNING (Minister of Finance) moved:
That a select special committee of the house consisting of Messrs. Anderson, Baker, Blan-

Dismissals in Prince Edward Island
chette, Bradette, Davidson, Dunning, Francccur, Hansel], Heaps, Hill, Lockhart, McCann, McLean (Melfort), Mallette, Mutch, Pottier and Wood be appointed to inquire into the terms and operation of the Civil Service Superannuation Act, and all matters pertaining thereto, with power to call for persons, papers and records, to examine witnesses under oath, and to report from time to time.
Motion agreed to.


[Stage Direction]
Hon. CHARLES A. DUNNING (Minister of Finance-for the Minister of Justice) moved that the house go into committee at the next sitting to consider the following proposed resolution:
That it is expedient to amend the Royal Canadian Mounted Police Act to provide that time served in the permanent naval, military and air forces of Canada may be included in the term of service of an officer or a constable for pension purposes; and to restrict the application of the act in respect to members of the reserve.
He said; His Excellency the Governor General having been made acquainted with the subject matter of this resolution, recommends it to the favourable consideration of the house.
Motion agreed to.


[Stage Direction]
On the orders of the day:
Mr. A. W. NEILL (Comox-Alberni); I should like to ask a question of the Minister of Mines and Resources (Mr. Crerar). The other day he brought down a return of correspondence asked for by the hon. member for the Yukon (Mrs. Black). That return consisted of correspondence from April 1, 1937, but the file shows that there are other letters which have not been brought down. Would the minister mind bringing down the correspondence, say, back to April 1, 1936? It will be necessary to make the thing clear.
Hon. T. A. CRERAR (Minister of Mines and Resources):: There is no objection to that; it can be brought down.



OLD AGE PENSIONS


[Stage Direction]
On the orders of the day:
Mr. N. J. M. LOCKHART (Lincoln):: Before the orders of the day are called I should
like to direct a matter to the attention of the Minister of Trade and Commerce (Mr. Euler). In explanation of the question which I intend to ask, may I say that it has come to my attention that not only my own municipality but others are finding difficulty in getting statistical returns from the bureau of statistics in connection with applications for old age and blind pensions. I have in my hand requests for information that go back as far as January 13. I am advised that this delay is probably due to lack of temporary assistance to take care of the unusual amount of work pertaining to blind pensions and other matters. Would the minister be good enough to check up on this situation and consider the providing of temporary assistance in the department to ensure the sending forward of this statistical information to the several municipalities concerned.


Hon. W. D. EULER (Minister of Trade and Commerce):: I shall be very glad to inquire into the matter.



UNEMPLOYMENT RELIEF-STATEMENT OF MR. ROSS

[Stage Direction]
(st. Paul's) on motion of minister of

[Stage Direction]
The house resumed, from Tuesday, March 1, consideration of the motion of Mr. Dunning for committee of supply.
Hon. NORMAN McL. ROGERS (Minister of Labour): Mr. Speaker, before the adjournment of the house on Tuesday last I was speaking to the question raised by the hon. member for St. Paul's (Mr. Ross) regarding grants in aid payable to the province of Ontario under the agreement covering the last quarter of this fiscal year. That discussion was continued in substance on the following day during the debate on the resolution moved by the hon. member for Broadview (Mr. Church), and I concluded what I had to say upon this question at that time.

Mr. C. G. MacNEIL (Vancouver North):: Before you leave the chair, Mr. Speaker, I desire to direct the attention of the government to an injustice which has been done to certain ex-service men. It has been protested through the usual channels but without securing redress, and I bring it to the attention of the house on this occasion because to some extent it touches upon the honour of the house, or at least upon the privileges and rights conferred upon the members of this house by established custom. I find it necessary to bring this matter before the house

Dismissals in Prince Edward Island
because after perusal of the correspondence in the case I find that it is only upon action by the house, upon a recommendation of the governor in council, that the wrong which I submit has been done may be righted in respect to the individuals in question.
I refer, Mr. Speaker, specifically to the dismissal of Edward E. Jay and certain other ex-service men from the staff of the Department of Agriculture in the province of Prince Edward Island during August 1936. The facts are contained in sessional paper 243A of last session, a return to an order of the house dated January 27, 1937. The essential facts as contained in that sessional paper and set forth by me appear in Hansard of April 7, 1937, at page 2691. I shall not repeat the facts which were then placed on the records of the house, except to say that these ex-service men, after being employed for periods ranging from five to thirteen years, were dismissed, without due notice and without inquiry, by reason of action begun by the hon. member for Kings (Mr. Grant). The hon. member made his complaint with reference to Mr. Jay in the following terms in a letter to the hon. Minister of Agriculture (Mr. Gardiner):
To my personal knowledge, Mr. Edward E. Jay, seed potato inspector, Peake's Station, R.R. No. 1, Kings county, P.E.I., was guilty of political partisanship at the last federal election and I recommend that he be dismissed from the service.
Yours respectfully,
Thos. V. Grant,
M.P. for Kings, P.E.I.
Mr. Jay was dismissed under authority of order in council P.C. 2156, dated August 26, 1936. Others were dismissed by order of the minister, some of them by telegram. I would ask the house to note that this was done without any further inquiry or any detailed statement of the alleged offences in any instance. In every instance considerable evidence was subsequently produced to show that these men had not been guilty of the alleged offences. This evidence submitted by the men on their own behalf was corroborated, as the sessional paper will indicate, by a number of responsible bodies of citizens, but as far as I am aware no action was taken to grant them the hearing requested. All of the men had enjoyed excellent records of service not only in the Canadian forces overseas but subsequently in the Department of Agriculture, and I submit that by reason of the action taken not only were they deprived of their livelihood but their employment opportunities for the future have been blighted. My point is that they were denied recourse to any procedure that would ensure observance of the elementary principles of British justice.

The justification for these dismissals was based on a custom that has been tolerated in this house for years. I consider that this custom should no longer be tolerated, because in application it is grossly unjust and open to vicious practice. It now becomes apparent upon further investigation that the custom as originally agreed upon has been violated and given an unwarranted application. The Minister of Agriculture referred to the custom in correspondence that was exchanged. I quote from page 2699 of Hansard of April 7, 1937, where the hon. Minister of Agriculture is reported as having said:
I can only say that the action was taken under the practice which has prevailed for a number of years in connection with such matters. The practice followed is that where a member, on his own responsibility, states in writing that a man has been politically active, his word is taken on the ground that he is in a position to be called upon to answer for his action on the floor of the house. Where anyone else makes complaint, a full investigation is held.
As to whether the hon. member for Kings feels disposed to answer on the floor of the House of Commons for his action in accordance with this custom, I leave to his own conscience. I would, however, bespeak his cooperation to secure a full investigation into the matter, that any injustice done may be rectified.
I would ask hon. members to note that this special practice, authorized by an understanding between the political parties years ago, has not in this instance been carried out in accordance with the terms of the original agreement. I refer to the remarks made by the late Sir Wilfrid Laurier, and the present Prime Minister (Mr. Mackenzie King), speaking on a former occasion in this house. Sir Wilfrid Laurier is reported in Hansard of December 6, 1911, at page 894, as follows:
I beg my hon. friend's pardon. We said in 1896 that no man should be dismissed unless he was first given the opportunity of being heard. But I said also that we would accept the written statement of a member of parliament, giving the facts and asking for the dismissal. This is the rule we laid down and we have lived up to it. I am told by hon. gentlemen opposite that rve did not live up to that rule. I do not admit the charge. I think we did, but even if we were deficient I would expect that the hon. gentlemen who are on the treasury benches at present would at least act according to their own doctrines. Are they going to throw over their own doctrine and institute dismissals right and left without giving any man the opportunity of defending himself or without any member of parliament taking the responsibility of placing on record a charge against the man whose dismissal he seeks? I would insist on the leader of the government that he should enforce the rule that no man should be deprived of office without being given the opportunity of defending

Dismissals in Prince Edward Island
himself or at least unless the member of parliament who asks for his dismissal has the courage to put on record the reasons why he demands it.
Again, in Hansard of February 15, 1923, the present Prime Minister is reported as follows:
In some cases charges have been preferred against certain officials by hon. members of this house. Where an hon. member has been prepared to state to the house that of his own knowledge an offence contravening the provisions of the Civil Service Act respecting political partisanship has been committed, the government has. acted under the provisions of the Civil Service Act, which provide that a civil servant guilty of political partisanship shall not be retained in the service. I think that list will cover any of the dismissals to which my right hon. friend has referred.
Mr. Meighen: I presume that that list would cover practically every case, because the statement from any member that a man has been guilty of political partisanship is not very hard to secure from a partisan supporter.
Mr. Mackenzie King: I did not say a statement from any member. I said a statement from an hon. member of this house that of his own knowledge a civil servant has been guilty of a certain offence which was in the opinion of the government sufficient to warrant his dismissal under the provisions of the Civil Service Act.
The clear intention was that before carrying out such dismissals under this custom, on the written word of a member of parliament, details of the alleged offence would be specifically set out. This contention is borne out by the terms of order in council P.C. 1467, dated October 16, 1922, which I quote:
The committee of the privy council have had before them a report from the right honourable the Prime Minister, representing that, in view of the large number of charges of political partisanship which have been made against government officials in different parts of the country, whose dismissal is asked for by the complainant, it is advisable in the public interest that a course of procedure should be defined for dealing with such charges, in a manner which, whilst giving effect to the intent of the existing legislation respecting political partisanship, will, at the same time, avoid the possibility of injustice being done any member of the public service.
The Prime Minister, therefore, recommends that the following procedure be adopted, viz.:
1.	That only such charges of political partisanship as may be made specifically in writing against an official of the government shall be deemed deserving of consideration.
2.	That without in any way superseding or suspending the power conferred by existing legislation, when a specific charge of political partisanship is made in writing against an official of the government, if the act complained of is, in the opinion of the minister, of a character to constitute "engaging in partisan work" within the meaning of section 32, chapter 12, George V, 1918, an Act respecting the
Civil Service of Canada, such charge may be referred by the minister of the department in which such official is employed, to a commissioner for investigation and report.
3.	That for the purpose of such investigation and report, should the number of complaints so warrant, one or more commissioners may be appointed in each of the several provinces under the provisions of part I of the Inquiries Act, chapter 104, revised statutes, 1906.
(Signed) H. W. Lothrop, Assistant Clerk of the Privy Council.
It should be noted that this order in council does not distinguish between a member of parliament and any other person, and this is as it should be. It seems to me unthinkable that a member of this house should be privileged under the protection of his position to initiate action that would deprive the victim of that action of recourse to the elementary procedure of law and justice. If this practice is condoned, nothing would more seriously demoralize the efficiency of the public service or work greater hardship to civil servants affected. The house will note that in the cases mentioned and referred to in sessional paper 243A, the Minister of Agriculture did not adhere to the terms of the order in council. The order in council requires that the charges be specified in writing and in such terms as to enable the minister to form an opinion as to whether or not the act complained of is of a character to constitute engaging in partisan work within the meaning of the act. In these cases the details of the charges were not specified, and subsequently evidence in support of the affidavits furnished by the men in question was not given consideration. The minister was never in a position, in the light of the evidence on his file, to form the required opinion. In no instance were the charges made the subject of an inquiry or an investigation as required under the order in council. I submit that these men were wrongfully, perhaps mistakenly, dismissed. The procedure followed in the cases cited does not appear to coincide with the intent either of the order in council or of the House of Commons as expressed in the quotations I have laid before the house.
I submit, Mr. Speaker, that this mistake should not deprive the men affected of the right to appeal for justice and redress. I appeal to the government to institute an investigation with the object of reinstating men who have been dismissed upon insufficient evidence. That is the first point. I think the house owes it to the men in question because of the procedure followed. Secondly, I would urge the government to give this house an assurance that in future insistence will be made upon a procedure which works full

Dismissals in Prince Edward Island
justice to all men concerned, namely, that within the terms of the order in council, details of such charges made by members of this house shall be set forth specifically, and that, when deemed worthy of consideration, proper inquiry shall be made as authorized under the terms of the order in council.


Hon. J. G. GARDINER (Minister of Agriculture) :: One year ago, when the house was in session, I was notified by the hon. member for Vancouver North (Mr. MacNeil) that it was his intention to bring this matter up on the estimates of the Department of Agriculture; but at a later date, and I must say after the hon. member had informed me of his intention to change the procedure, the matter was brought up on the estimates of the Minister of Pensions and National Health (Mr. Power). I am not certain as to why the change was made. When my estimates were up I had all the information here with which to answer any questions with regard to the dismissal of these particular persons; the question however was not discussed on my estimates last session but upon the estimates of the minister of pensions.
When the matter came before the house I did not happen to be in my seat, as I had another appointment and was not able to be here. But on that occasion the hon. member for Kootenay East (Mr. Stevens) addressed the house and stated what I assume would be taken to be the view of those who had previously served in governments in Canada on a matter of this kind. At page 2703 of Hansard the hon. member for Kootenay East used these words;
When I first came to parliament twenty-six years ago, a member of parliament had the right to say that of his own personal knowledge someone was guilty of partisanship, and that person would be dismissed; more than that, when I first came to the house, any employee of the government would be dismissed at the mere request of a member. That was the system then in vogue, the old patronage system. We have gone a long way from that, fortunately.
Further down the column on the same page the hon. member for Kootenay East used these words;
As regards these ten veterans-
In the first place, there were only four veterans; the ten who were dismissed in that particular constituency were not all veterans.
As regards these ten veterans, however, it appears that four of them were appointed under the regime of the present party prior to 1930, and they are dismissed at the request of a member, without a hearing, and without being apprised of the specific offences of which they are accused. The statement is simply made that the member knew that they were partisan and that they should be dismissed. That is a retrograde step; it is something that has not

been sanctioned in this house in recent years. True it is that Sir Wilfrid Laurier laid down a dictum that has been frequently quoted, to the effect that if a member seriously stated on his own responsibility as a member that he had personal knowledge that the person complained of had been guilty of partisanship, that person should be dismissed.
What I wish to call attention to is the fact that apparently in the mind of at least one hon. member who had served in governments previously, this was considered a custom which had not been followed by governments in recent years. The hon. member for Vancouver North, in the speech he has just made, has taken exactly the same position, that this is something which was practised some years ago but has not been practised in recent years by governments in Canada; and he has quoted remarks made by Sir Wilfrid Laurier in dealing with this situation following the election Of 1911.'
The question was discussed in 1911, again in 1923, and again in 1928 on the floor of the house, and so far as I have been able to follow those discussions it was admitted from all sides of the house on each of those occasions that it had been the general practice to act upon the word of a member who has a seat in this house and who can, because of that fact, answer for his recommendations upon the floor of the house. When, two years ago, I became a member of the government and recommendations of this kind were brought to my attention, I took the trouble to check back and find what the practice was, and determined to follow the practice exactly as it had been followed previously in the Department of Agriculture and other departments, at least until some change was announced in connection with the policy having to do with dismissals of this kind. And when representations were made to the department, by a member of the house, to the effect that to his own personal knowledge an employee of the department had been politically active, action was taken automatically by the departmental officials to dismiss him. I did not change the practice in any particular; I gave no instructions to them to make any change, but simply informed them they were to follow the practice that had been followed and that they should do so until such time as they received instructions to do otherwise. So far as these individual cases are concerned, they did not come to my personal attention as individual cases to be acted upon by the minister, but were acted upon in the ordinary course of events in the department as cases had been acted upon previously.
Lest there should be any question in that regard, I should like to read to the house

Dismissals in Prince Edward Island
two or three letters that went out following the election of 1930-in the years 1930 and
1931-because they bear out the contention I am putting forward at the moment. On November 3, 1930, a letter was addressed to Paul Caldwell, potato inspector in the province of New Brunswick, in these terms:
Dear Sir:
The Civil Service Act states that no government employee shall engage in partisan work in connection with any dominion or provincial election, and it provides that any person who is guilty of political partisanship shall be dismissed from the civil service.
Information has been received in the department to the effect that you engaged in partisan activities, and if this statement is correct, the department is giving you an opportunity to submit your resignation; otherwise, there will be no alternative but to proceed with your dismissal from the service.
Please be good enough to let me know at the earliest possible moment, as if no reply is received from you within a reasonable time the department conclude that the information which it received is correct, and that you were guilty of political partisanship and will proceed accordingly.
The following letter was addressed to the minister of the department on July 30, 1931:
This is_ to certify that charges have been made against Russell Nicholson, Hunter River, Prince Edward Island, who is engaged as fruit and vegetable inspector in Queens county, Prince Edward Island, that he was guilty of political partisanship in the recent dominion election. We personally accept the responsibility that these allegations are true and beg to ask for his immediate dismissal.
This is signed by the two members for that constituency, and action was taken upon their recommendation. There were sixteen letters signed by the members of the two constituencies dealing with eight different employees in the constituency of Queens, in Prince Edward Island, and eight also in a constituency in New Brunswick, after the same election. And they were acted upon. I did not go any further than to check these two constituencies, but I found sixteen on all fours with the four that are here brought before the house. They were in two constituencies, one in Prince Edward Island, and one in New Brunswick, and I think they justify me in saying that at least until the time of the last government, governments in Canada had followed the practice that had been pursued back in 1911, whether those governments were Liberal or Conservative.
I make this statement merely in order to make it clear to the house that any action which was taken in relation to the four men in question was in accordance with the practice that has been followed, and I think I can say without fear of contradiction that it
has been followed in all the departments of government right down to the present time. I am not arguing that it is the proper practice; I am simply saying it is the practice that has been followed in dealing with matters of this kind. Where a member states in this house that, of his own personal knowledge, someone has been active politically, then automatically the department concerned has acted upon the recommendation of the member and has removed from office the particular person concerned.
With regard to any steps that have been taken following such action on the part of the department, I examined the records still further and found that without exception-if there were any exceptions they were very few-the person concerned, did by some method or other deny that he had taken political action after having secured the position he then occupied. On one occasion one of these individuals-one of the eight in New Brunswick to whom I referred-declared that he had never done anything of a political nature while he was in the employ of the government. That brings up another point which I shall discuss in a moment with reference to these particular persons.
On the declarations with reference to the four individuals whose names are now before the house, there are some of the same names as appeared on the declarations on behalf of the other officials in 1931, indicating that they had given good service and that they should be allowed to continue in office. The records show that some of the same concerns that made representations on behalf of these four men, also made representations on behalf of those who were removed in 1931. But I am not submitting these facts to use them as an argument that the practice is a proper one; I am simply showing that it has been the practice.
One investigation was held as a result of the protests made in 1931. It had reference to the dismissal of one returned soldier. Some of the others in the group that were dismissed, following 1930 as well as 1935, were returned soldiers, but theiv, was one investigation that was held into the dismissal of a returned soldier. During the investigation, so far as I have been able to read the evidence, it appeared that the son, or, I believe, a nephew of the member who bad made the statement that he, of his personal knowledge, knew that this man had been politically active, gave evidence to the effect that he had seen this particular employee go into a hall where a public political meeting w.as being held and had seen him come out again. To show the effectiveness of in investigation of that kind



Dismissals in Prince Edward Island
the individual's dismissal was confirmed on the word of the son of the member in the same way as he had been dismissed previously on the word of the member himself. That was in 1931, following the election of 1930.
The record right through indicates that this sort of thing has been the practice down to the present time, and that is the only reason that I make these statements. I make them because of the very definite assertion of the hon. member for Kootenay East and of the hon. member for Vancouver North, that while this was the practice back in 1911 it has not been carried on recently and should not be revived.


Mr. STEVENS:: I think the minister is stretching the meaning of what I said regarding 1911. What I said regarding 1911 was that it was the common practice to remove employees of the government on the word of the member. I did not say that that was the practice that was defined by Sir Wilfrid Laurier or Sir Robert Borden, and others.
I said it was the common practice, and I added that in recent years the custom had been a little more rigid-at any rate, that is what I intended to imply-in that it was required that there should be a written statement by the member. If the minister will do me the courtesy to read my remarks more carefully he will see that I did not wish to suggest for a moment that the practice had been abandoned. Everyone knows it has not.


James Garfield Gardiner: I am pleased to have that explanation from the hon. member for Kootenay East, because it makes it unnecessary for me to proceed any further with an argument to convince the house that it has been the practice -right down to the present time.
In dealing with the individuals in question I stated a moment ago that the hon. member for Kootenay East in referring to the matter mentioned ten returned soldiers, and I indicated that these persons who were dismissed in that constituency were not all returned soldiers. Only four of them were, I call attention to that only in order to point out that what the minister of pensions said a year ago regarding the matter is true, that this particular question does not concern returned soldiers as -opposed to any other individuals in the employ of the government of Canada. If a man has been politically active and the proof which in the past has been accepted with regard to his activity is presented, action results from that, whether the man is a returned soldier or is not. In other words, being a returned soldier does not excuse a man for being politically active.

There is another -point in connection with these four men that I would like to place on the record. Only one of the four had what might be called a permanent job. Mr. Jay, I think, had a job which entitled him to draw pay from the government throughout the entire year. The other men had only part time jobs. Mr. Edward Cairns, who came into the employ of the government in 1928, drew from the government the following amounts

omitting cents:
1928-	29	$3271929-	30	
5551930-	31	
5141931-	32	
4641932-	33	
3121933-	34	
6831934-	35	
4611935-	36	
4261936-	37	
189
So it will be seen that these were all part time men working at so much a day or month.


Charles Grant MacNeil: Were they not employed each season-seasonal men?


James Garfield Gardiner: Yes, they were seasonal men, employed each season while inspecting a crop of either vegetables or fruit. Then Mr. Edmund P. Donnelly received the following amounts:
1931-	32.. ..
1932-	33.. ..
1933-	34.. ..
1934-	35.. ..
1935-	36.. ..
1936-	37.. ..

Mr. Charles MacLeod amounts:
1931-	32	
1932-	33	
1933-	34	
1934-	35	
1935-	36	
1936-	37	
drew the following

These men were all employed by the day and for so many days.	_
Mr. Edward Earl Jay was employed in 1924 and again in 1925. In 1926-27 he was employed from July 5 to January 5. In 1927-28 he was employed from July 11 to January 11. For 1928 to 1930 he was employed from February 15, 1928 to August 19, 1930. On August 20, 1930 he was made permanent, and from that -time on drew pay for the entire year.	_
I state these facts in order to bring out the point that some of the men who declared that they were not politically active during the time they were in the employ of the government made a distinction between the time they were actually working for the government and the time they were not. This raises a question to which I think hon. mem-

Use of Canada's Financial Resources
bers might give some consideration when dealing with a matter of this kind, as to whether or not the employment of a man by the government during two or three months of the year on some particular work deprives him of the right to take any part whatsoever in politics during the remainder of the year. Some of the men dismissed seem to think it should not deprive them of that right, and have made declarations to the effect that they have not been politically active while in the employ of the government. But so far as this one man was concerned, he was in the constant employ of the government, and he was dismissed on the word of the member to the effect that he had been politically active.


Mr. HEAPS:: What was the nature of the charges against the persons dismissed?


Mr. GARDIXER:: There were no definite charges. These letters in 1931, and all the letters right back over the years, indicate that the member did not make any specific charge, but simply said that the individual to his personal knowledge had been politically active.


Mr. COLD WELL:: May we have the
declarations that these men made in refuting the charges?


James Garfield Gardiner: They are all on the records of last session. There were three returns brought down in reply to an order of the house: one dealing with the constituency I have been speaking of in New Brunswick, one with the constituency of Queens, Prince Edward Island, and another with these four cases in the constituency of Kings. I think most of the records will be found in those returns.


Charles Grant MacNeil: I direct the attention of the minister to the fact that declaration was made that they had never been politically active and never attended political meetings.


James Garfield Gardiner: There were declarations of that same kind in other cases, all the way back, and still the word of the member was taken.


Some hon. MEMBERS:: Oh, oh.


James Garfield Gardiner: My friends question that. If I wished to take the time I could read them; some of them are in the records of the house already and hon. members can see them. But I think if they go to any department of the government and look up the records during the time almost any minister was there they will find that what I am stating is correct.
51952-71J


Mr. CAHAN:: They will not find it in the Department of the Secretary of State for five years.


James Garfield Gardiner: Having established the fact that this has been the practice, all I wish to say is that when the hon. member for Kings sent in a declaration over his signature to the effect that of his own personal knowledge these men had been politically active, his word was taken, as the word of other hon. members of the house has been taken, and acted upon. As far as the one individual is concerned, about whom most of the discussion has taken place, the one who was employed continuously during a period of some years, while it may be very difficult for an hon. member to go before a commission and prove his contention, judging from my own experience over twenty-five years in meeting with civil servants and examining files I would conclude without any further investigation that the member was. quite justified in making the statement he did make, and for that reason as minister of the department I would not have required any further examination or investigation in that particular case.
But the general practice has been established, and so long as it continues to be the practice' we shall act upon it in my department. When it is decided either by this house or by the government that a different practice is to be followed,^ then as a member of the government I am quite prepared to follow that practice.


Charles Grant MacNeil: May I ask the minister before he takes his seat whether the order in council to which I have referred is still in effect?


James Garfield Gardiner: The order in council referred to is still in effect, but it deals with a different class of cases.
use of Canada's financial resources for



ELIMINATION OF POVERTY-AMENDMENT OF MR. BLACKMORE

Mr. J. H. BLACKMORE (Lethbridge):: Mr. Speaker, I am not altogether satisfied with the progress which is being made in our dominion towards removing poverty from the midst of the potential abundance which exists in this country. It is the duty of every hon. member of this house to express his opinion and give the reasons for that opinion, and I merely undertake to discharge my duty in this respect.
As I see it, the government of the day has not only unsuccessfully grappled with the problem which confronts it; it has not even discovered the principles upon which a solution should be based. We still have a disastrous unemployment problem, as I think every-
1116	COMMONS
Use oj Canada's Financial Resources
one will grant quite freely. We have a far greater unemployment problem than ought to exist in a country like ours, so munificently blessed with resources. Our standard of living, even among the vast majority of those who are employed, I think all will agree is shamefully low. Our primary producers are crucified because of the fact that they must sell their products on an unprotected market while they buy what they need in order to produce on a protected market. This is causing universal suffering, particularly throughout the west, and apparently nothing is to be done about it. We are suffering from insufficient markets, and in order to get markets we are obtruding our products into the world market, displacing the products of other countries and engendering unfriendliness, while our own people are suffering for want of the very things we are seeking to sell. We have a debt burden which I think anyone who thinks about it calmly must realize is utterly appalling. Let us ask ourselves, as plain, straightforward, common sense, ordinary people: Can we see any way in which this country can ever get rid of the debt which is now hanging over us, if we go on as we have gone for the past ten years? Let us be perfectly honest with ourselves; let us face right up to the question in an unflinching, manly way. I think everyone will agree that our chances of getting out of debt, even if we have no great calamity in future, such as a war, are almost entirely negligible. There ought to be some way by which we can get out of debt, considering the natural wealth of this country. Surely some means can be discovered.
We are uncertain as to whether we ought to have a high tariff or a low tariff. I think even hon. members of the government party will agree that one of the greatest causes of contention among them is whether we should have a high or a low tariff, and no one seems to know. All we do is simply contend about it, and as long as the present system continues that is going to be the case in regard to every hon. member of this house, no matter what party he belongs to, which indicates that there is clash of interest between east and west, between primary and secondary producer, which certainly ought not to exist at a time like this. Surely there is some way of getting over this difficulty. Some people say that economic nationalism is the solution of our problem. Others arise and declaim against economic nationalism as an abomination, as the cause of war, and so on. All these people have been nurtured in Canada; they are even members of the same parties in parliament. I say as long as such conditions exist hon. members will readily realize, I think, and

frankly grant that we are far from any sort of solution or even any conception of what the solution might be.
I do not wish to declaim against things as they are without being prepared to offer a suggestion as to how they might be bettered. In Canada we have plenty; that is beyond any question. There may be one or two who will question that statement, but I think there will be very few. I believe almost anyone will readily grant that we can produce all the food, all the clothing, all the housing and all the fuel we need in Canada. An excerpt which to some extent bears upon this question can be found in the Chart of Plenty, published by the national survey of potential productive capacity of the United States. I am willing to grant that this does not apply strictly to Canada, but remembering how closely we resemble the United States in our natural resources and our industrial and railroad equipment we must concede that conditions here must be very similar to those in that country. Therefore when we read on page xiii of Loeb's Chart of Plenty that the United States, without adding to its existing plant or man power, could easily produce for the people of that country $4,400 per family in goods, even we must realize that some such principle must apply to Canada. In the same connection I am going to refer to another quotation which is to be found in The Condition of Britain, by G. D. H. Cole, which was published very recently. At pages 376 and 377 he refers to the findings of the Brookings Institution, again applying to the United States, and reaches the conclusion from their findings that in 1929 only four-fifths of their actual productive capacity was being bought.
Right here, I maintain, is the crux of the situation. They are producing the goods but the people cannot buy. Now the question is why can the people not buy, and how men can manage it so that the people will be enabled to buy. If the goods are there and the people are unable to buy, the problem is clear. The question is how to deal with it. We have the factories; we have the workers; we have the transportation; we have the distributive agencies in Canada, the wholesalers and retailers, and every other thing that is necessary except the means to make them operate. Mr. Henry Ford may not be an authority but nevertheless he is a very successful man; consequently his opinion ought^ to have a great deal more weight than mine. People who might object to my opinion because I am not successful ought to listen with respect to the opinion of Mr. Ford,



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Use oj Canada's Financial Resources
who is successful. Recently Mr. Ford made this statement:
Money is just part of society's transportation system for moving goods from man to man: it breaks down so often it is time our financial engineers developed a better model.
I am not saying that any great credence is to be placed in Henry Ford's opinion or that any great respect is to be given to it, but it is significant, as a point of departure, that this is what he says. I have also a quotation by Paul H. Douglas, which in the same way' indicates that money is the cause of the trouble. I shall not trouble the house by reading it, but it is very emphatic.
We, as a group of social credit people, think the solution of Canada's difficulties lies in money, and we believe that the particular kind of money is state-created money, or king-created money. From past experience I feel sure that hon. members now will not jump to conclusions. May I commend the members of this house for their general tolerance of the opinions expressed, and I should like to thank them for that. Since my experience in the past has been so pleasant I think I am safe in assuming that to-day, when I speak of a warm, quiet, beneficial kitchen fire hon. members will not immediately begin to think of a vast conflagration consuming a city. I say that because in the past whenever we have spoken of government or state-created money, people immediately have talked about Germany. You do not have to have a great conflagration destroying a whole city or a world in order to have a fire. A controlled electrical current will light your home, will warm your toaster, heat your iron and perform many other services, but when you think of electricity you need not think of the lightning flash. If you did, you would back away from electricity at once. W hen you speak of a shower of rain coming down graciously and beneficently to moisten the ground and all that is growing therein, you need not think of a cloudburst which would destroy everything in its path. In the past the reaction to the question of money has been something of that kind. In advocating more purchasing power we are not commending the cloudburst or the conflagration or the lightning flash; we are commending rather the kitchen fire, the electric current under control, and the shower of rain.
The government have tried everything but money reform. I am ready to say what I have said in a hundred places in this country, both on the platform and elsewhere, that as far as I can judge the government in power to-day has done everything u ^ould possibly
conceive of under the present system to improve the condition of our people. It is my judgment that the ministers are as energetic, as honourable and as earnest as men could possibly be. It is my belief that the members are ready to do their utmost. They disagree among themselves with regard to high and low tariffs and with regard to the advantages of trade with this and that country, but as far as they can see and come to agreement, they are doing the best they can. I do not hesitate one moment to say that.
We have tried having our banks independent, we have tried keeping them under a very rigid central control, but neither one of these methods of handling our money has succeeded. On every hand we are faced with frustration and the threats of fascism and communism. There is stress and strain among the provinces. If you travel from one end to the other of the province from which I come you will find a very sad and disheartened people.
An hon. MEMBER:: No wonder.


John Horne Blackmore: It is all right to say "No wonder," but that is the fact. Alberta is one of the nine provinces. If you go to those places in Manitoba where people are thinking most you will find that that province is facing frustration and is absolutely at a loss to know what it is going to do. That is the condition existing in two of the western provinces; but I do not intend to go into this in detail. Hon. members are just as aware as I that there are stresses and strains. Surely there must be some way out. In a land such as ours, with people such as ours, with equipment such as ours and in an age such as ours, there surely is a way of escape.
We have a suggestion to offer. Inasmuch as I have been dissatisfied with the progress made by the present government, not so much in its application as in its indisposition to try new things, I move that the motion now before the house shall be treated thus:
That all the words in the motion after the word "that" be struck out and the following substituted therefore: "This house is of the opinion that for the effective removal of poverty from Canada this government has neglected and is now neglecting to use the resources of the dominion as adequately as the people of this country have a right to demand.
Although I am introducing this as a want of confidence motion, I hasten to say that we have no desire to make this a political question. We felt that we should discuss this matter fully and frankly and dispassionately. We have canvassed with a great deal of care the methods which could be used to bring up this problem on the floor of the
1118	COMMONS
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house for consideration, and of all the various means which have been suggested, this one seemed the least objectionable and the most likely to bring about the kind of discussion that we wished. I hasten to urge upon the members that they do not consider this a political move.
We do not consider ourselves a political party at all; we consider ourselves everywhere as just an economic league. We have no desire to establish ourselves as a political party, as a group in the house or as a league outside. I want to present my case as modestly and yet with as much assurance as should be fitting. I have been told that sometimes in the past we have spoken with such confidence and, shall I say, such cocksureness, that we have in a measure offended some hon. members of the house. May I urge this in order that you may feel less harshly towards us: Anyone who does not believe sufficiently strongly in his opinion to get up and fight for it with all the energy and vigour of which he is capable, is probably not very sincere. We are very sincere. We believe with all the power of our beings that there lies along the lines which we indicate some chance of solving the problem.
It is my belief that R. F. Irvine, professor of economics at Sydney university, was saying a true thing when he used these words:
I believe the principles put forward by C. H. Douglas are not only sound but that they provide the only practical way of escape from the tragic fate which otherwise awaits the whole western civilization.
We have never made any statement more positive or more assured than that since we came here. That is a statement by a professor of economics of a great university in one of our sister countries. He has had twenty-five years experience as an orthodox economist, and surely his word should be considered of some importance, whether we agree or disagree with what he says. I urge that you attribute my zeal or ardour, not to persuasion, not to enthusiasm, but to genuine conviction. In further extenuation of my attitude, may I say that hundreds of years ago Bishop Berkeley, who is looked upon as one of the greatest minds in English history, was in favour of exactly the principle which we are advocating-


Mr. MARTIN:: That is not true.


John Horne Blackmore: My hon. friend is at liberty' to come to me and satisfy himself to the full after I have completed my speech. Disraeli recognized the faults in our money system; he referred to it as the Dutch finance system and had a great many things to say

about it which I do not think have been promulgated among the youth of this land for a long time. Gladstone realized the weaknesses of the system, and in 1932 the London chamber of commerce roundly condemned the system we are under and suggested the very one we now advocate. Irving Fisher, professor of economics at Yale, has the same attitude to money. G. D. H. Cole, an eminent professor of Oxford, while he does not exactly favour dividends or the just price, is in favour of national money. That is the thing which we are going to discuss here this afternoon.


Charles Avery Dunning: Surely my hon. friend
is not quoting those names as supporters of the Douglas theory of social credit.


John Horne Blackmore: Not by any means.


Charles Avery Dunning: Oh, thank you.


John Horne Blackmore: They are simply the
names of men who support the first fundamental of Douglas, and that is that your money shall be state-created, king-created, and shall be debt free. There is no doubt about that point; if anyone questions it I could bring plenty of evidence to bear me out. But I think everyone accepts that because it is well recognized by everyone *who understands the Douglas system.
In order to determine for ourselves whether or not the system advocated by Douglas has a chance of succeeding in Canada, there are a great many considerations which we must canvass with some care. I am going to say, first of all. that Canada has tremendous financial resources. When the Minister of Finance (Mr. Dunning) the other day, in all seriousness and earnestness, made the statement that there was no way in which you could get money except by taking it away from someone else, he was, according to our view, entirely wrong.


Charles Avery Dunning: My hon. friend must
not qualify what I said by leaving out part of it.


John Horne Blackmore: I shall be delighted
to have the minister straighten it out if I have not quoted him correctly.


Charles Avery Dunning: I used deliberately the two terms money and wealth, because I wanted it to be quite clear that I was not referring only to physical money, dollar bills and such, but to the actual transference of wealth which takes place when we take something from all of the community and give it to some of the community. We can call it money or wealth, but definitely a transference of wealth takes place.

Use of Canada's Financial Resources


John Horne Blackmore: Would my hon. friend then say that there is a way of getting money in Canada other than by taxing or borrowing?


Charles Avery Dunning: Yes. I hope to follow my hon. friend, and I will tell him then.


John Horne Blackmore: Once he grants that, we are not far apart. One of the great causes of disagreement among people I think, is that they do not always know when they are talking necessarily about the same thing.


Mr. McLEAN (Melfort):: Is it not real wealth that my hon. friend wants to have transferred from those who have it to those who require it, rather than money?


John Horne Blackmore: I think that when I have finished my hon. friend will fully understand all that I am talking about.


An hon. MEMBER:: Never.


John Horne Blackmore: We hope so. I give him credit for a good deal, and myself some credit too.
The question is, how much money can Canada have? How much money ought Canada to have? Should the amount of money which Canada should have be governed by the will of banks? Just as soon as we ask ourselves that question in all earnestness and set about finding the answer to it we shall be on the way, at least, in my opinion, to find some path out of our difficulties. We as a group contend that the amount of money, genuine good money, which this government can have, does not depend on the will of any banker or on the amount of money which people have been able to make and save in the past. Then you ask: Well, what is money? So the first thing we will consider this afternoon is, what is money?
In order that we may get together on this, and that you may not feel I am giving any private definition of money I am going to read a quotation from a book which is just off the press. It was published in 1937 by John Donaldson, Professor of political economy

I am not sure just where. The name of his book is The Dollar, at page 1 of which he says:
Although there are many meanings' given to the term money, unless otherwise indicated the word will be used here to mean (1) currency in the sense of all regularly recognized circulating media of hand-to-hand exchange (such as coins, national bank notes, federal reserve notes, and federal reserve bank notes), plus (2) credit, in the form of bank deposits.
For the purposes of our discussion let us accept that as the definition of money. Roger W. Babson, in a book published in 1937, called If Inflation Comes, defines money at page
68. He is worried about the coming of inflation, just as the Minister of Finance expressed himself as being afraid of it; and he has good cause just now, I will grant. In setting forth his reasons for his fear of inflation Mr. Babson gives the following as money: "gold coins, silver coins, paper money, cheques, private credit, government credit." I think that is enough from that quotation. I may say that Mr. Babson goes into the question of money and inflation with a great deal of care. He is certainly not a social crediter, but I like to read men who disagree with me completely because I find in them large sources of information.
There are then two kinds of money; currency and credit. To illustrate what our conception is, so that the members can form their own opinion whether they agree with it or not. might I give this simple little illustration. It is almost childish but it helped me to get a conception of the confounding difficulties when I first commenced to study Douglas.
If you go back into the history of money, (according to one story), you will come to a time when there was a man living in a community and keeping cows. Another man not far off was raising grain, and the man raising grain came to the man with the cows and said, "Let me sell you some of my grain." "Well," said the man with the cows, "I would gladly take some grain but I have not got anything to give you for it. I could let you have a cow." "No," says the man with the grain, "I cannot handle a cow just now. She will get in my way, but I certainly would like to sell you this grain." "Very well, then," says the man with the cows, "I will make a little leather tag and on it put a cow's head and my private mark, and you take the tag, go your way, and when you want the cow, come back and give me the tag and I will give you the cow, because the cow stands behind the tag." "Right," says the man with the grain; and he hands over his grain, takes the tag and goes his way. A little while afterwards he goes to a man with shawls. "I would like to get one of those shawls," he says to the owner. "I will give you some grain for a shawl." "No, I cannot handle any grain," says the man with the shawls. "I will tell you what I will do," says the man with the grain. "I will give you a cow for the shawl." "Yes?" said the man with the shawls. Then the grain man takes out the leather tag and says: "Take this little leather tag and give it to Jim Jackson, and he will give you a cow, for a cow stands behind the tag."
The mere fact that the word "pecuniary," which is the word we use with respect to

Use of Canada's Financial Resources
money, is .traceable to the word pecus, meaning cattle, indicates that that story may not be altogether far from the truth.
Now the question arises, how many tags could Jim Jackson make and trade for grain or shawls, or milk or cream, or fruit or sheep or anything else he wants to trade them for? Immediately people will say: It will depend on the number of cows he has. Of course it will. Allowing a certain number of cows to absorb the shock, shall we say, so that he will not be completely cleared out of all his cows, if he has thirteen head of cows he can safely issue probably nine or ten tags, which may go circulating all around the community. Every time a tag returns there will be a cow to back it. Now, suppose this man has thirteen cows and he issues ten tags; let us suppose another man has thirteen cows worth of grain and issues ten tags, and another man with thirteen cows' worth of shawls issues ten tags, immediately we see that in this little community there can be thirty leather tags in circulation. What is the backing of them? Is it the banks? Is it gold? Is it silver? Is it capper? No, it is cows and grain and shawls. Originally the money of a community depended exactly on the community's ability to produce goods that people could use. That helped me to get the idea of the backing of the money of the new economics. I believe we have quite lost sight of that backing of money. As soon as you begin to apply that principle to Canada, with all her boundless ability to produce all manner of things, you see that there is the possibility of a great many leather tags. Let me say that that possibly explains the way in which currency could be backed. Those leather tags would be currency.
Now, as to the other kind of money that we use-the credit; let us employ a similar illustration to get the idea of what credit is. Credit in the last analysis is the ability to produce and deliver goods and services, as, when and where required. That is a glib definition which meant nothing to me the first six months or so I studied it, but I got the idea of what it meant by this means. Supposing that, to a community where there is plenty of timber .and fish and good hunting, and coal in the ground, there come four men to settle. One is a good hunter, one a good fisherman, one a good woodman, one a good builder. The hunter goes out and has considerable success; he gets a good deer every day. He goes to the woodman and says, "If you will cut me twenty-five logs to-day I will get you a good deer." The woodman knowing that the hunter can be relied upon, goes off and cuts the twenty-five

logs. The hunter goes out and gets the deer, delivers it and gets his logs. The confidence which the woodman had that the hunter could get the deer gave an establishment of credit. If this little community went on and gradually developed, one man coming in with the ability to saw lumber, another with the ability to tan hides and make coats, little by little the public credit of the community would grow because its ability to deliver goods and services as, when and where required, would increase. The man who is the woodman will give an I.O.U. to the hunter; the hunter may give the I.O.U. to the tanner. We will suppose that they begin to use for I.O.U.'s figures in a book just as we use them now, just as our bank credit is operated. A man comes in who makes it his specialty to write up these I.O.U.'s. He does not need gold; all he needs is the assurance that these people can deliver goods and services as, when and where required, and he can commence to write up credit.


Mr. CLEAVER:: Would the hon. member permit a question?


John Horne Blackmore: Gladly. That is what I am here for.


Hughes Cleaver: Before I forget about these cow tags, are you suggesting that they can be handed or given to anyone without being earned, without being paid for?


John Horne Blackmore: Not just yet. We will come to that after a while.


Hughes Cleaver: I am sorry to have interrupted the hon. member. I just wanted that information.


John Horne Blackmore: As you have asked it,, let me say that if a community gets into war and one person is wounded so that he is thereafter incapable of going out and raising cows or grain, and the men who can raise cows and grain and shawls can produce far more than they can possibly use, it is conceivable that some of the tags could be given to this wounded man without doing them any harm at all. But when one of the tags comes to the man with cows he can turn it over and buy grain with it, and the grain man can turn it over and buy shawls or coal or any other article the community produces.


Hughes Cleaver: Are you suggesting that anyone may acquire one of these tags without having given value for it himself or through his friends or someone else?


John Horne Blackmore: That is a very fair question, but as we go along we shall get to the point that, as the community develops,

Use oj Canada's Financial Resources
it will be evident that the all-important thing for the man who produces cows is that he shall be able to sell them. That is the allimportant question which obtrudes itself upon all western stock producers to-day. Their great anxiety is not whether they can raise cows but whether they can sell them. They are interested in any means which can be employed whereby they will be enabled to sell their stock. Even the people who do not produce would probably confer upon them a distinct advantage-


Hughes Cleaver: I take it that-


Some hon. MEMBERS:: Order.


John Horne Blackmore: May I have the question? Very well. I am glad to answer questions; we might just as well take them up as they arise, because that is what I am here for. I delight greatly in questions.
First of all, then, we have decided on a definition of what is money; what is currency (tags); what is credit-figures-in-a-book. If hon. members do not agree with my definition- good. If they do, we are together thus far. The next question we shall take up is, where does money come from? Is the money which the bank, for example, lends to you if your credit is good, money which somebody put into that bank, or is it money which the banker creates at the moment and lends you? If the answer to the latter question is yes, a tremendous possibility opens up. Where does money come from? The contention of the whole social credit movement is that the banker creates that money as he lends it to you. There is a real clash there, some bankers maintaining it is not so, and increasingly many bankers and great authorities contending and declaring that it is so-and the latter are not all social erediters, by any means. We say that bankers lend credit and not currency. Some evidence that that is true is to be found in a quotation which I shall read. May I say that when I first heard this four or five years ago I considered it was the most idiotic thing I had ever heard of, and not until I was completely convinced that bankers do create the money they lend was I ready to listen to the social credit proposals.
Here is a quotation from a source which I think all hon. members must respect. It comes from the London Economist of August 15, 1936.
The most obvious and significant fact which emerges is that no single major country has overcome the great depression without undertaking a policy of monetary expansion of one kind or another.
Which indicates that money is the root of the difficulty.
It is, of course, open to anyone to maintain that recovery would have come without positive expansionist policies if only the countries concerned had waited long enough. In fact, however, it never did. Holland and Switzerland are waiting still.
Hon. members can find this letter in 'volume 124, July to September, 1936, page 292. The article goes on to say that the monetary expansion is accomplished, not out of savings, but by the creation of fresh credit. That agrees exactly with our contention. There are many other quotations that could be cited. I am going to direct the attention of the house to the London Chamber of Commerce report of July, 1932. I quote:
It is upon the base of currency (money without physical existence) that the structure of bank or credit money is built. This credit money is many times greater in quantity than the currency, and having no physical existence, it is conveyed from account to account by cheque. At the present time the banks are working to a ratio of ten per cent cash of their total deposits-i.e., they are lending ten credit pounds for every one pound cash holding.
That is, they are lending ten credit pounds for every one pound of cash held. I would submit that statement to any man in Canada and ask him to explain how on earth that is true unless the banks, holding one pound of money, can create and lend ten credit pounds out of nothing. As I say, there are plenty of quotations that I could give; I have them in great number. But these are enough.
Where does the money come from? If all the money that this government could borrow in Canada were obtained in Canada, if it had to come out of past savings of the Canadian people, out of life insurance and trust companies and the like, then, of course, we should be prepared to pay interest, on that money and consider ourselves in debt for it. We should have to pay it back and have our descendants for generations pay interest on it. Ultimately, if they could liquidate it, they would. But if the money originally was created out of nothing why should we have to pay interest on it? Why should we be in debt and bleed the country white to pay it back? That is manifestly a revolting prospect.
The next question is, what gives money value? The Minister of Finance has said, very wisely and quite correctly, confidence. Surely it is confidence. And what makes confidence? Is it not first of all the certainty that the person to whom you present money will deliver to you goods and services as when and where required? Does anything else matter at all? Undoubtedly the conclusion must be drawn that if in a country you have plenty of goods and services so that people are able to deliver these goods and services as, when and where required, then to the
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extent to which you have goods and services you can have money. That is a social credit contention put in another way.
The thing that attaches confidence to money is government backing. This Dominion of Canada has created millions upon millions of dollar bills. Did they cause inflation? Surely not. Were they good money? Surely they were. Did they always have gold behind them? Surely not. Just consider for a few minutes Sir Thomas White's excellent pamphlet, How Canada Financed the War. Many of these principles are set out clearly. Consider the way in which Britain financed the ' war. Britain went into debt to the extent of seven billion pounds. One of these billions she borrowed from the United States and two of them she borrowed from her people, raising it by loans and taxation. But the other four billion pounds were not in England before she went into the war. Where did they come from? If they were created by banking institutions in England, why in the name of common sense should the English people and their children to the last generation be loaded with a burden of debt which they must pay back, paying interest to an extent that ruins the country, just as we are doing now? The money was created out of nothing by the banking institutions of Great Britain, and ten per cent of it was created by the British government itself in treasury bills. And after a pound of treasury bills was created and handed to the bank the banker could immediately make ten pounds of his own credit money and lend it back to the government. Such a situation must surely present itself to any thinking man as an incongruity, a monstrosity, an absurdity. The thing that gives money value is the power of the people behind the government that creates that money-the power of those people to deliver goods and services as, when and where required. It is not gold. This principle must be laid down; if the hon. members challenge it we must clear the matter up. If the people's productivity backs and makes possible the money, then the money certainly ought to be theirs.
There is in the minds of people generally throughout Canada and the British world, and in the United States as well, great confusion as to the backing of money. Practically everyone has the idea that there must be gold behind the money. Thirty or forty years ago it was generally thought that money was better if it was made of gold. We never see gold to-day; we never even ask for it, nor do we trouble ourselves about it. Is it gold that gives value to our money? Let me hasten to say, I fully grant that you must 
have gold to back your exchange. But that is another matter that must be considered in its place; if we go into it on this occasion we shall not cover the other aspect of the question. Apart from exchange, however, is there any reason at all why the question whether there is gold in Canada or not should affect the value of Canada's money?


Mr. ROGERS:: Does the hon. member
agree that the value of money has some relation to the price level?


John Horne Blackmore: 
Charles Avery Dunning: The answer to that question is very important.


John Horne Blackmore: Very true. But the big question is this: Did the amount of money they could have created depend upon the gold that they happened to have, or the goods and services they could produce and deliver?


Charles Avery Dunning: It does not depend on either.


John Horne Blackmore: It depends in fact on the exchanges, on the use for the money. Is not that so? I wish that hon. gentleman had remained here; I have forgotten his name and constituency. Those questions will be answered before we get through. Now, the value of the money, or the amount of money which a community can have, depends upon the exchanges. Observe that the man did not have to have a tag until he wanted to exchange a cow for grain, but as soon as he wished to effect that exchange he had to have a tag. The more such exchanges he had to make the more tags he had to have. And that holds true with the country. This is an abstruse and intangible problem, difficult to predict and measure, I grant. Up to the present men simply do not know how to measure it; we grant that. But it is certain that there is a relation between the number of exchanges to be effected in the country and the amount of money the country can use. The question is: How many exchanges will the people of Canada make with each other if they are given a chance? Upon the answer to that question depends the amount of money Canada can have, and whether or not the government of Canada back in those war days could have created $160,000,000 instead of $16,000,000, and still have had sound money. Let me hasten to say that I do not wish to have any of the statements I make taken and interpreted in a broad way; it is impossible, as all hon. members know, and as the Minister of Finance knows very well, to make a statement without having plenty of time to qualify it.


Charles Avery Dunning: That is frequently true of the hon. member's quotations.


John Horne Blackmore: Exactly so. I have exerted all the intelligence, ability and industry that I possess in reading these books with the most minute care to make sure that the interpretation I have put upon the quotations is correct according to the meaning of the author. And I tell hon. members where they are found in order that they may read for themselves. Read the books through and see
whether you agree with the author. I can get no other meaning from what they say than that which I give here.
I have here two other quotations, one from Sir Norman Angell, and one from Sir Basil Blackett's book, Planned Money, pages 103 and 106, which bear out the statement that the amount of money that a country can have depends on its exchanges.
Having covered the question of what gives value to money, let us turn to another question which is fundamental to social credit. I am sure some hon. members will be surprised to hear that social credit stands for king-created money, money created by the sovereign, by the crown. That is just a ready way of expressing the thought. It is crown-created or government-created money. At the risk of boring the house I wish to review for a few minutes the history of English money. Let us go back into the past and see what they did in ancient times and whether when the king created money it caused inflation. Were the kings able to regulate the money, and did they do so? I found some very enlightening books on this question, from which I am drawing the information which I now give to the house.
Edward III was the first king who commenced to manage English money. In 1346 he reduced the penny from twenty-two grains troy of silver to twenty grains. Hon. members would say that he debased the coinage. But it did not work that way. In 1351 he issued a new penny containing eighteen grains. His reason was that he knew the country needed more money, and apparently the only silver they had was what was in their coins, so that new coins were made containing a smaller amount of silver.


Mr. REID:: The hon. member is wrong;
he did it to make a profit for himself.


John Horne Blackmore: I am glad the hon. member is so free to challenge my statements.


Thomas Reid: I can prove it.


John Horne Blackmore: I refer my hon. friend to The Breakdown of Money, pages 41 and 43; he will find much enlightenment there. Henry IV in 1412 reduced the penny to fifteen grains. Thorold Rogers in his History of Agriculture and Prices says that there was no rise in prices. Now, that is significant. There is a case where the amount of money was increased and the actual value in the money decreased, but there was no fall in prices. Why? Because the productiveness of the country had increased meanwhile, and the country really needed more money. Edward IV in 1464 reduced the penny to twelve grains, and prices remained absolutely stable. Henry

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VIII debased the money in 1542-this is what the hon. member for New Westminster (Mr. Reid) had in mind; he did it to make a profit.


Thomas Reid: So did the others, every one of them.


John Horne Blackmore: 
Charles Avery Dunning: No, no.


John Horne Blackmore: I am glad the Minister of Finance is so confident that that is not so.


Charles Avery Dunning: I do not think anyone in Canada contends that the money created by the government of this country is not good money, and I do not think our educational system in any part of the country teaches such a thing. I think that is incorrect.


John Horne Blackmore: Our educational system and our propaganda do contend, though, that if the government creates a dollar bill it is inflation.


Charles Avery Dunning: No, no.


John Horne Blackmore: I am delighted to hear the minister say that, because when we have been contending for state money the answer has been that it will cause inflation.


Charles Avery Dunning: We have state money. You have some in your pocket; I have some too. I wish I had more of it. Of course it is state money.


John Horne Blackmore: Well, we seem to be getting into a unity of faith. Once you grant that state money is good money, then there is no reason-


Charles Avery Dunning: It depends upon the state, you know, as to whether or not it is good.


John Horne Blackmore: True, but no one will
question the fact that Canada is good.


Charles Avery Dunning: Hear, hear; I am glad to hear my hon. friend make that statement.


John Horne Blackmore: That is exactly how I feel. Now, then, Mr. Speaker, once we grant that this dominion government can create money, and that it is good money, and that the amount of money which it can create depends not upon the gold it happens to have but on the exchanges which can be brought about in the country, then we begin to see that it is simply idle folly to suppose that all the money this country has must be borrowed from banks or collected in taxes.


Mr. THORSON:: But it must be good outside the country as well.


John Horne Blackmore: Very true. I am much pleased with my hon. friend's interest, but he must remember that we can do only one thing at a time. Let us get this

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proposition laid down fully and recognize that state money is sound money in Canada. During the war the English treasury notes were complete evidence that state money is sound. Doctor William A. Shaw, in one of his recent great books which all hon. members would find interesting reading, the name of which for the moment I have forgotten, but it has to do with the principles and practices of central banking, tells us that when the British government discovered the use of the treasury bill they had discovered the perfect money, and he deplores the fact that they allowed themselves to be deceived into going back to the gold standard, which brought about this terrible wreck from which we are all suffering at the present time.


Mr. TAYLOR (Nanaimo):: But did they not retreat in the face of the requisitions of the United States?


John Horne Blackmore: That would be a matter that we would have to go into.


James Samuel Taylor: I think it is a factor.


John Horne Blackmore: We must remember that if we go into side issues we will not get through. I shall be very glad to take up all considerations in time, but we have plenty to deal with to-day, so let us go straight through Certain it is that Doctor William A. Shaw, notwithstanding anything that can be said, has stated definitely that they had discovered the perfect money. I intended to bring that quotation down to the house with me to-day, but I thought perhaps it was too long to read here. Then they abandoned it; they sold themselves for a mess of pottage, and apparently we followed them.
I was going to comment on Canada's covered issues of notes, Canada's backed issues of notes, but since the Minister of Finance has been so kind as to help me out I do not need to go into that. I think we are all satisfied that Canadian money is good money, and that there is a tremendous possibility for the creation of the same in Canada.


Joseph Thorarinn Thorson: Then it might not be good if it were created in excess.


John Horne Blackmore: We grant that, Mr. Speaker, surely, but the all-important thing is to know to what extent you can go before it becomes excess.	.


Joseph Thorarinn Thorson: Now will you tell us that?


John Horne Blackmore: All right, but the point, as far as I see it, is just as I indicated in the little illustrations I gave. Because a fire has been used to create a conflagration, we cannot be forbidden to have a kitchen fire.


Paul Joseph James Martin: To what extent would you go?


John Horne Blackmore: That is a matter of which I have said already even the wisest and best informed of men are only becoming dimly conscious, but they are certain that a great deal more than we now have can be created.


Paul Joseph James Martin: I have followed the hon. gentleman very carefully and sincerely, and I should like to ask him a question, because he has given this matter a great deal of study. To what extent would he advocate that we should go?


John Horne Blackmore: I would advocate going far enough, as G. D. H. Cole says, to put our resources, that are not now being used, into production. That is not clear, I know, but the point, as you know and I know-


Charles Avery Dunning: That means exactly
nothing. That is what we are waiting to hear. The other day my hon. friend said he wanted a chance to explain what social credit would do. That is precisely the question in point, but my hon. friend does not give the answer. Tell us about it. Tell us how you propose to proceed. I ask as an earnest inquirier. I do not agree with my hon. friend in all that I have read as to what he means, but I wish he would tell us what social credit will do and how it will work.


John Horne Blackmore: In the first place we must not enter into too many technicalities here.


Some hon. MEMBERS:: Oh, oh.


John Horne Blackmore: It is all right to laugh, but the details I have given here this afternoon are quite sufficient. At another time I shall go into those details along that very line, if I am required to do so. In the first place we can say this: No one would be afraid if the banks throughout this country were to take a notion to lend $300,000,000.


Charles Avery Dunning: I would. '


John Horne Blackmore: Would the minister be afraid?


Charles Avery Dunning: Yes; I am afraid of notions like that. I would want to know what was back of it.


John Horne Blackmore: Would the minister be afraid that $300,000,000 loaned to farmers and various other producers throughout the country would cause inflation?


Charles Avery Dunning: I would want to know precisely what was back of it.


John Horne Blackmore: I think that will be developed as we go forward. Back of it is
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the Canadian banking system. My hon. friend has raised a question which probably I could deal with right now, by means of a quotation which astonished me.


Joseph Thorarinn Thorson: Never mind quotations.


John Horne Blackmore: If I make a statement in this house without a quotation to back it up, people say I do not know what I am talking about, so I am going to give you the quotation and tell you where it can be found. At page 140 of The Canadian Banking System, a book published in 1938 by James Holla-day, Ph.D., professor of economics at the university of Alabama, appear the words, in question:
The Bank Act of 1934, however, sets up a specific quantitative reserve which the chartered banks are required to hold against their deposit liabilities. In form, this reserve must consist of a deposit in and notes of the Bank of Canada. In amount, it must be equal to five per cent of the deposit liabilities in Canada. As a result, the chartered banks as a group can legally create deposits amounting to $20 on the basis of a one dollar reserve. A much larger secondary expansion is made possible, however, for the Bank of Canada is required to hold only a 25 per cent reserve against its liabilities, which in turn constitute the reserves of the chartered banks. Consequently, the [DOT]Bank of Canada can expand a dollar into $4 of liabilities which, if borrowed by the chartered banks, will enable them to lend an aggregate of $80 against a primary deposit of one dollar. This compares with a possible legal expansion of $28.50 under the federal reserve system in vogue in the United States.
If the Bank of Montreal lent $10 of credit money, unquestionably what would be behind it would be a one dollar bill of the Bank of Canada, and the one dollar bill of the Bank of Canada, if we interpret all these things aright, could just as well be expanded to $10 of federally created money if the government willed. Behind the one dollar which the Bank of Montreal would get from the Bank of Canada there would be only twenty-five cents in gold.


Charles Avery Dunning: But you say that gold
is unnecessary.


John Horne Blackmore: I am not saying that it is necessary, but it is there if the people who want gold must have it. Manifestly if the banking system can lend $80 against $1 of gold, it would appear that the framers of the Bank of Canada Act were not greatly concerned about gold. I am sorry that this one aspect of the discussion this afternoon is not in sufficient detail to meet the points raised by the minister and several other hon. members. The next time we bring up this matter on the floor of the house we shall go into their questions in more detail.

The next great question is:	What of inflation? We shall discuss inflation with considerable care. The reason why we have moved this motion of want of confidence is simply that we could show that the possibilities of financing the Dominion of Canada are tremendous, I almost said limitless. The other evening the minister said quite straightforwardly and sincerely, "I am not sure we are managing them right, but we have the complete power to manage them." I believe I quote him correctly.


Charles Avery Dunning: The management of
credit and currency in Canada is right here in this parliament.


John Horne Blackmore: I am delighted beyond measure to hear that, for I feared that it was somewhere else. Once it is here in this parliament; once we realize that there is such a tremendous reservoir of potential money in this dominion, a reservoir which will permit $80 in credit being issued against every dollar in gold deposited in the Bank of Canada, then we must realize the powerful weapon we have to be used in fighting poverty in this country. This government persists in believing that it must borrow from the banks and pay back to the banks, money which the banks could not create except for this government. So long as the government holds to this notion, the situation in Canada cannot greatly improve.


Charles Avery Dunning: We want to know what my hon. friend and his friends would do in managing the credit and currency of Canada if they sat here and had the responsibility. We want to be told how it is to be done.


John Horne Blackmore: I shall quote what Douglas says.


Some hon. MEMBERS:: No.


John Horne Blackmore: I do not hesitate to say that I am a follower of Douglas. Douglas says, "The first thing I would do would be to call in the bankers, and I would tell them that they were responsible for the economic condition."


Charles Avery Dunning: To whom would you say that?


John Horne Blackmore: Call in the Bank of Canada, if you wish.


Charles Avery Dunning: You would say that to the Bank of Canada?


John Horne Blackmore: Call in whoever has charge of the financial affairs of Canada. We would say to them, "We want you to manage matters so that poverty will be removed from the midst of plenty." The bankers will prob-

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ably say, "Very well, we will go and do it." I do not propose to go into more detail at the moment, but I should like to give one illustration. In the town of Raymond in which I live and from which I was elected, there are hundreds of good men. Twelve or thirteen years ago many of those men could write their cheques for $500, $1,000, $3,000 or $10,000. Where are they to-day? They are ruined. Why? Before the depression those men could go into a bank in the spring and get a loan of $3,000, $4,000, $5,000 or $10,000 with which to put in a crop. When those men went into the bank after 1929, the banker said, "We cannot let you have the money." The result was that credit was restricted all through the country. The men, women, boys and girls who had been working for those people, no longer could get jobs. The result was that the purchasing power in that particular community was dried up. Because those men could not borrow money with which to raise a crop, with which to produce, production in that particular area fell off. The same thing was true throughout all Canada.
In limiting production the bankers limited consumption. If a man could not get money with which to produce, neither could he get money with which to pay wages to permit people to consume. People must be able to produce and other people must be able to consume.


Mr. ILSLEY:: Would you pass a law to force the banks to lend people money?


John Horne Blackmore: We would have to leave that up to them. It may be that that could be looked upon as a special question, and I am net prepared this afternoon to go into the details of a discussion of that kind. I have seen ministers rather displeased at times when an hon. member asks a question without giving notice. Surely the same principle should apply to anyone who has come here prepared to deal with one aspect of a question when questions are asked in connection with another aspect. I would call in the bankers and tell them that they must hring about a change in conditions. Suppose they say, "We cannot do it, we do not know how." Then we would say, "Very well, we will bring in experts to teach you how."


Some hon. MEMBERS:: Oh, oh.


Mr. YOUNG:: Is my hon. friend saying that he does not understand all this?


John Horne Blackmore: Not at all. I have heard ministers of the crown rise in their places and say, "I cannot give the details of this." They did not make that reply because they did not know; they made it because it was not the right time to answer.


Alexander MacGillivray Young: My hon. friend is making a learned speech which he has carefully prepared; but when it comes down to the real point at issue, he says, "I am not going to answer that to-day." I am an honest inquirer. Would my hon. friend be good enough to answer the question asked by the Minister of Finance and tell us just what he would do if he were sitting here on the treasury benches? That is what we have been trying to find out.


John Horne Blackmore: I have said what the first step would be.


James Lorimer Ilsley: Is this the social credit policy about which we have heard so much, calling in the bankers?


John Horne Blackmore: That would ibe the first step.


James Lorimer Ilsley: What is the next one?


John Horne Blackmore: Just what I have said. If the bankers said, "We do not know how to change all this-"


James Lorimer Ilsley: Then you would call in the experts?


John Horne Blackmore: We would have to call in people who would know how. Suppose the Minister of Finance or the Minister of National Revenue would ask me what I would do if I were put in charge of his department. I would be confounded, naturally, until I had time enough to study it as he has done. The minister would call in the experts, and have them tell him, and if they could not do what he wanted them to do, he would dismiss them and get others.


Malcolm McLean: Might I ask, for information: Who are the experts who have demonstrated-


Some hon. MEMBERS:: No; go on.


Malcolm McLean: I know my hon. friend the member for Lethbridge (Mr. Blackmore) will be glad to listen to my question and answer it if he can, and he needs no help from those behind him saying no. I would ask him who are the experts who have demonstrated their expertness by doing this thing somewhere at some time in the past, and in whom we have reason to have confidence that they can do it again, because they can show they have done it before?


John Horne Blackmore: Before men had
successfully flown airships, you surely could not get an expert who knew how to fly a ship ; but there were experts who knew a good deal about the matter, and by constantly

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applying themselves they did learn to fly ships. The big mistake is that we are not trying. We are content to "stay put," so to speak, and to continue within the confines of a system handed down to us from 1688. I would be glad to have evidence that that is not the case, but I have not been able to see any since coming to Ottawa.


Malcolm McLean: The hon. member has not answered my question. I should like to know who are the experts who have demonstrated that they are experts by having done this simple operation at some time somewhere.


John Horne Blackmore: We shall have to let that be a state secret for some time, although I have some information which might interest my hon. friend.


Joseph Thorarinn Thorson: Why not send the master expert to go into this matter?


John Horne Blackmore: That is completely aside from the question before us. Let me say that I appreciate tremendously the courteous, kind and interested hearing which is being accorded me this afternoon, but I have not time to go into all these details. However, inasmuch as all hon. members are so much interested, we shall do so before we get through the session.


Charles Avery Dunning: But these are principles, not details.


John Horne Blackmore: Now, what is inflation? I am going to give a definition which is quoted with approval by Roger W. Babson in his recent book, and which I think is sound:
Someone has defined inflation as when purchasing power is made available to the people at a faster rate than goods are made and brought to market.


Charles Avery Dunning: Does he confirm that definition?


John Horne Blackmore: Yes, in the main.


Charles Avery Dunning: He says someone has stated it in that way.


John Horne Blackmore: Yes; he approves it in the main. My hon. friend will find the book in the library. It is carefully written, but Mr. Babson does not pose as an authority on the subject. In a way he accepts that definition, and all the best writers on the new economics, and the best writers that I have found on all economics, are agreed on that definition. -


Norman McLeod Rogers: The implication being that there would be a rise in prices in that situation?


John Horne Blackmore: No; there would not be so long as there were more goods than money, and I shall bring that out later on. I know the Minister of Labour (Mr. Rogers) is interested because he raised the question last year, and as I go on with my speech I think hon. members will find that all their questions will be answered in due time.


Norman McLeod Rogers: The hon. member has been very good-natured.


John Horne Blackmore: Taking that as our definition, we shall go forward. If some hon. members disagree with it, all right; but think about it anyway. But if we agree on that definition, it means a tremendous amount to our thinking regarding the possibility of financial expansion in Canada, the possibility of dividends, for example; and just jumping forward for the moment, tied up with that is the possibility of distributing money in the compensated price. The ordinary objection to the social credit theory is that it will cause inflation. Very well. We must know what inflation is before we can be in a position critically to examine that possibility.
There are two main kinds of inflation, into both of which Babson goes with considerable care. I took pains to read someone who is not a supporter of the new economics just to make sure that I would not be entirely out of touch with my hearers this afternoon. Babson points out that there are two kinds of inflation. You can have inflation with respect to gold. If you say that the rule is that for every one dollar of gold you can have four dollars of bills and you must not go beyond that, then manifestly if you have five dollars of bills you have inflation with respect to gold. That is as clear as can be.
If you say that the rule is that you can have four dollars of bills and seventy-six additional dollars of bank credit, and then you expand your bank credit to eighty-six dollars, you have manifestly come to a condition of inflation in bank credit with respect to your gold. Whether your inflation is with respect to goods or services is another question.
There are two distinct ways in which you can have inflation in the country. One is inflation beyond the accepted gold backing, or whatever else you say is the backing; it may be 'bills, dominion notes or other cash. The other applies to your potential production of goods and services. You may have so many goods and services, and so little money, that you can expand your money even though your money intrinsically be almost worthless, as they did with playing

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cards once upon a time in Canada, and still have your money good, providing you have more goods than you have money.
Let me restate this. We can have a currency inflation; we can have more currency than there is gold; or we can have more currency than there are goods and services; or we can have so much currency that if the banks expand that currency in credit there will be inflation either with respect to gold or with respect to goods and services within the country. Having laid this down as a basis, we are now in a position to go forward with the discussion. I regard this as extremely important.
There is another matter which needs to be dealt with. You may have ten million dollars in the hands of a few people, say ten people. Those men may begin to buy on the stock market and run prices up until there is a collapse, or they may cause a local inflation which may ultimately bring disaster to the country. With a small amount of money, however, that would not be possible. Take the ten million dollars and distribute among -a thousand people, and you will have no inflation whatsoever. A great deal therefore, depends not only upon the amount of money you have in the country but upon its distribution. While on that point might I say that the social credit idea of distributing money through dividends is one of the devices for preventing inflation, because the money is placed right out among the people who are going to use it, and immediately they get that money they will be exchanging some of it for clothes, food, fuel and various other things; whereas if the same amount of money were in the hands of a few wealthy men, they would not use it; or, if they did, they would use it for inflation.
So inflation involves a number of considerations: First of all, currency inflation; next, credit inflation, which is inflation with respect to your gold or other money or cash backing; then inflation with respect to your goods and services within the country. Let it be recognized fully that if you have more goods and services than you have money in the hands of the people to buy those goods and services, you will have a fall in prices, and therefore you will have deflation. But as soon as you have more money in people's hands than there are goods and services to buy, there will be a rise of prices, and you have inflation.


An hon. MEMBER:: How are you going to get money into the people's hands?


John Horne Blackmore: Through the dividend and the compensated price. We shall consider that in due time; I am not going to 51952-72
discuss it to-day. I had not intended to discuss the dividend or the compensated price; but they are exceedingly important in the Douglas system, and without them the Douglas system of course would fail. The chief reason why many fail to understand the value of the Douglas system is that they fix upon the one idea of state money, forgetting the other two, the dividend and the compensated price, and say immediately there will be inflation; whereas the whole system is designed and perfected to prevent inflation and to create the greatest possible distribution of goods.
The next question we shall consider is: Is state money inflation? I think from what we have said that every hon. member would rightly answer no.


Joseph Thorarinn Thorson: It might be.


John Horne Blackmore: Of course it might be. Just as dropping a lighted match may cause a conflagration, but in the hands of common sense people that will not occur. The dictionary gives the idea that one dollar of national money is inflation. You can find that in some of the dictionaries; I have read it. But history and common sense show that that is not so. National money does not necessarily bring inflation. I am going to read a quotation from a book which I believe hon. members will find exceedingly instructive. One of the finest books I have reed to date is Controlling Depressions, by Paul Douglas, Professor of Economics at Chicago university. It was published in 1935; it is fair, open-minded, thorough, scholarly, and restrained; it has many good points.


Charles Avery Dunning: But he is not a social crediter.


John Horne Blackmore: Not at all. Far from it. If he were, he would lose his position. On page 148 of his book these words appear:
Finally, if we turn to actual experience we find that it simply is not true that the use of paper money invariably leads to runaway inflation.
He has been discussing state paper money.


Charles Avery Dunning: Well, nobody has said that it does.


John Horne Blackmore: I shall not go into that in greater detail, although I have here a number of quotations from such eminent authorities as Irving Fisher, G. D. H. Cole, Paul Douglas, and R. F. Irvine, all expressing the idea that state money is sound and testifying to its truth. I shall take the liberty of saying that we can pretty well decide that state money is not necessarily inflation.

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The next question I wish to consider is: Is new money necessarily inflation? On this subject a wide diversity of opinion exists, many people imagining that the minute you have new money you have inflation. Such is not the case. Is new credit inflation? Is new currency inflation? The answer must be: No, not necessarily. Money has been called the blood stream of the economic system. I find that it helps me to appreciate the effect of money, to crystallize it, so to speak, if I think of money with respect to inflation in terms of that analogy of blood. If a boy weighs 130 pounds, according to most computations that I have read he should have ten pounds of blood, one-thirteenth of his body weight. He has that ten pounds of blood because he weighs 130 pounds and is healthy. Now -the body weight of the state is its goods and services producing and consuming power.


Charles Avery Dunning: How many pounds, though, in some exact terms that can be understood? The analogy is not correct unless it is stated in some terms of measurement.


John Horne Blackmore: It is merely intended to convey an impression which, although it may be perfectly clear to the Minister of Finance, is not clear to tens of thousands of people throughout the country, namely that the amount of money which a country can have depends upon its productive powers and not upon its banks and -its gold. Once that principle is laid down, we have something upon which to base our thinking.


Paul Joseph James Martin: What, for instance, is the productive power of Canada?


John Horne Blackmore: It can be found out. But the hon. member is not trying to find out, is he? Since this question has been raised, let me ask: Has this government set to work a body of men to find out the productive power of this country?


Paul Joseph James Martin: Is the hon. member seriously saying that there can be any adequate measure by which any government could determine the productive power of this or any other nation at a given moment?


John Horne Blackmore: Unquestionably, if
what I have said thus far, regarding the amount of money a country can have without inflation, is true, the very first consideration to be gone into is the matter of productive and consumptive power. About that there can be no question. The United States has already done this, through its economic survey which resulted in the Chart of Plenty by Loeb, and through its Brookings Insti-
[Mr. Blackmore.l
tution. We have not any Canadian Brookings Institution, or any survey, and apparently the government has no intention of providing any.


Joseph Thorarinn Thorson: Is the United States
showing such a remarkable success?


Paul Joseph James Martin: I deny first that the
Brookings Institution are seeking to determine the productive power of the United States. But apart from that, would the hon. member tell us how he would go about to determine the productive capacity and power of Canada or any other country? Will he tell us how he would do it?


John Horne Blackmore: I am astonished that the hon. member, with all his knowledge, would ask a question like that in all sincerity.


Paul Joseph James Martin: I do not know. I come to the oracle for knowledge.


John Horne Blackmore: Starting with Alberta, I would say that I would want to know how much coal Alberta can deliver, how many mines it has, what is its productive capacity. Get the information together, and we would know exactly the number of tons-


Charles Avery Dunning: That is not its productive capacity.


Paul Joseph James Martin: Certainly not. The hon.
member cannot tell us how much coal there is in the mines.


John Horne Blackmore: I am sorry if I have not taken care to specify it, but there is of course a difference between actual and potential capacity. No one can determine beforehand potential productive power, but we know it is greater than is now being used; of that there is not a question in the world. Vast numbers of cattle have been allowed to perish; many plants have been allowed to close.


James Lorimer Ilsley: Should your money issue
be based on actual or potential productive power?


John Horne Blackmore: At first it would have to be on the actual productive power. It would have to be well within the actual, because of the fact that you do not know what is the product available. But when you know that your immediate productive capacity is not now being used, it is evident that there is not enough money going into circulation.


James Lorimer Ilsley: How much is the present
issue of money below the actual?


An hon. MEMBER:: Order.


John Horne Blackmore: These are very fine
questions. It is delightful to me to have

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them asked as earnestly as this, and these hon. members are asking in all earnestness. I should say that the best guide we have is the one I referred to when I started. The Brookings Institution estimates are the nearest approach we have. They give quite definite information in the quotation to which I referred at the beginning of my remarks, and which I produced to be prepared for such questions as the hon. member has asked. The institution sets out this fact, that at no time during the past forty years have the people of the United States been able to buy more than eighty per cent of the actual productive capacity of the country. That indicates quite clearly that whatever amount of money, taken along with the velocity, would be necessary to enable the people to purchase that extra twenty per cent should be distributed among the people.


James Lorimer Ilsley: I think they were using the words in a different meaning. I do not believe that is what the Brookings Institution meant by "productive capacity." They were talking about factory equipment and the like.


John Horne Blackmore: Perhaps my hon. friend would like me to read the quotation. These matters are of vital interest. It is with such material that I do my thinking and, no doubt, my hon. friend does his, so that if he will pardon me I shall read this passage. It is important to be thinking about a way of putting the people back to work, of remedying unemployment. It is an idea which is quite prevalent among thinkers to-day, that we should be able, in a country like this, either to give people all they need or to put them to work. The quotation to which I refer is from the Technical Possibilities of Increased Production, in a book entitled The Condition of Great Britain, by G. D. H. Cole; it is to be found on pages 266 and 267:
The Brookings Institution estimates. . . at height of boom, American industry was working at only about four-fifths of the actual productive capacity of available factory plant and labour, and that without any improvements in technical efficiency, most industries could then have increased their output by as much as thirty per cent.


James Lorimer Ilsley: They are talking about industrial plant capacity which is a different matter from national capacity for production.


John Horne Blackmore: The very first thing you look to when you begin to wonder about the possibility of giving the people a decent standard of living is the capacity of your clothing factories, your ability to produce coal, your lumber resources, and so on, the means whereby you provide food, clothing and shelter, amusement, training, and all the things 51952-72J
the people require. If you find you have within the country the resources, equipment, training, organization, and distributive power by means of which you can deliver to the people, as, when and where required, the goods which will give them a decent standard of living, then you know that this aspect of the problem has been solved. In other words, the problem of production need no longer trouble you. You now have the problem of distribution to deal with. And the means of distribution is money. You need then to turn to the monetary aspect of the problem, and that is our whole contention this afternoon. That is the reason for moving this motion, that the government has not availed itself of the possibilities of the country's financial resources, the means of distribution.
Let me come back to the blood illustration. If a boy weighing 130 pounds increases his weight by twenty-six pounds, then unquestionably he should have two pounds more of blood. The trouble with Canada is that we can grow an extra twenty-six pounds of productivity, but the banker decides whether we shall have the blood, the money, or not.


Some hon. MEMBERS:: Oh no.


John Horne Blackmore: There is no getting away from that. Not only is that so, but the borrowers in the country also decide. If I am correctly informed with respect to physical anatomy, if I were to lose four pounds of blood, by haemorrhage or some other mishap, there are cells within my body whose business it would be to set to work immediately to replenish the blood supply, and those cells do not wait until somebody comes and borrows blood and undertakes to pay it back with interest. There is a mechanism within my body-


Alexander MacGillivray Young: Do not forget that you
have to visit the restaurant three times a day as well.


John Horne Blackmore: I am glad the hon. gentleman has made that remark. I would tell him in reply that, looking at the national body, we have the power to produce shoes and clothing, coal and other necessities, the thousand and one things which we require daily. There is no question that these things are there in abundance. They are the food. Speaking metaphorically, we have the body weight; the blood we need is money. We need more money, just as the body demands more blood.


Charles Avery Dunning: And it gets more money.


John Horne Blackmore: Only if people
borrow; there is no question about that. I

Use of Canada's Financial Resources
am. glad my hon. friend takes issue with me; we shall discuss the matter as we go along. Suffice it to say that when a country like Canada is growing, if it is to be healthy, strong and vigorous, there must be some sort of practical, automatic mechanism by which the money stream is increased. What would happen if a physical body grew larger without a commensurate increase in the blood supply? It would become sickly.


Charles Avery Dunning: We have machinery today, and it is operating every day.


John Horne Blackmore: We shall look forward to what the minister has to say in that regard, because we have not yet found out what it is. All I know is what I can read in books.


Charles Avery Dunning: You have only to read the statutes.


John Horne Blackmore: Read Irving Fisher's book and you will see that in the matter of money the United States is at the mercy of 14,000 banks, if I remember rightly, and a few millions of borrowers. If the borrowers borrow, then the bloodstream in the economic system is increased; if the borrowers do not borrow, then there is no blood, no money. If the banks choose to lend, there is blood; if the banks decide not to lend, then the economic system will not get any blood, any money. And to-day our banks are not lending except to the government.


Charles Avery Dunning: That is not true either.


John Horne Blackmore: I am glad to hear that; we are finding out things that we should never have known unless we came to parliament. Certainly where I come from there is no sign of any lending. I know that men cannot borrow now as they used to.


Malcolm McLean: Did they have crops or products of value?


John Horne Blackmore: Yes; 1932 was a glowing example.


Malcolm McLean: At twenty cents a bushel they could not borrow money.


John Horne Blackmore: We have an excellent example this year.


Malcolm McLean: In 1937 did they have a crop on which to borrow money?


John Horne Blackmore: Yes; we have a fine example of it to-day. I know the Minister of Agriculture (Mr. Gardiner) will be interested in this discussion. In my constituency for example, with 55,000 lambs being fed this year, what is going to happen? They

are going to be sold at a loss. Why? Because there is not sufficient consumptive power; the lambs cannot be bought at profitable prices. So it is with any number of things. Beef can be produced in my constituency; but it cannot be sold at a profit; it cannot be sold for what it costs to produce it, any more than butter or cream or cheese or dozens of other things can be sold at a profit.


An hon. MEMBER:: Nonsense.


John Horne Blackmore: There is no use saying, "nonsense" to me when I come right from there.


Malcolm McLean: That does not answer the question whether these people had a crop of grain on which to borrow money.


John Horne Blackmore: Even if they had a good crop on which they could borrow money, by the time they had paid back all the money they had borrowed, and paid it back with interest, they would have less than when they started; they would be further in debt. The actual figures in the west will prove that. I have not the time to-night, however, to go into that question. We are getting away from the subject, and though I am glad to answer any questions that are asked, there is a limit beyond which one cannot go in a single speech.
I have made three attempts to complete this illustration of blood. We simply need more money in order to service our production. Without the money we cannot service production; production diminishes; the shelves are cluttered up, and there is depression. That is the story of every depression; everyone knows that. Let me illustrate in a general way; I shall not go into details but for the present shall confine myself to generalities. Let us say that actual production is 100 and money is 60-that is, purchasing power. Then we could increase that purchasing power by 10 and that would be not inflation, but reflation.


Charles Avery Dunning: What is the difference?


John Horne Blackmore: The difference is this: If 100 is production and 100 is consumption, then you have equilibrium and you should be able to prevent either rising or falling prices. But the moment purchasing power falls below 100, then you fall into depression and you have deflation, with the result that people must sell at a loss. That is the story of depression. If you increased money from 60 to 70, many people would consider that inflation. As a matter of fact it is not inflation; it is merely reflation, because you have to go a great many points further before 3rou can get to the point where you can

Use of Canada's Financial Resources
equate consumption with production. Another extremely important point to consider is this- and it bears upon the question asked by the hon. member for Essex East (Mr. Martin). If potential capacity is 150 and money is 60, you can increase that 60 to 120 and the only result will be an increase in production.
The idea prevails among many people that when you increase the quantity of money you immediately increase prices. I say you increase production. Go bo a coal mining area where the mines operate only part time; you spend double the amount on coal. Enlarge the market for the coal; does it raise the price? No; you will simply increase the production of coal. The same thing would be true throughout the country, with every industry which can produce more than it is now able to produce and sell. If your potential capacity were 150 and your money at 60, you could move it up to 150 and the result would be only reflation or stimulation. You would stimulate additional production. I have not time to quote authorities, but I have plenty of eminent authorities to the effect that that would be the case. This is a feature which people overlook entirely in the application of the social credit idea. The other day one hon. member rose in his place and entertained himself freely at our expense by suggesting that we could raise the dividend from $25 to $50, to S60, to $75. If you take productive capacity or potential productive capacity at which you can give people $25 worth of goods, we all know that by increasing their purchasing power you increase the immediate productive capacity of industry; and as the resources of the country, both natural and human, are called upon and brought into activity, so will the standard of living of the people be raised, until that goal which the chart of plenty indicated is reached. That is the way it is done.


Malcolm McLean: But that was a positive promise to be fulfilled within eighteen months.


John Horne Blackmore: Exactly, and when the promise was given many things were assumed. It was assumed that there would be a great deal more willingness to cooperate on the part of many people than proved to be the case. Now let us not get oil the present subject. We are willing to debate the Alberta question to the limit at any time the hon. member wishes, but let us deal now with the question of inflation.
The next question arises right out of what I said a minute ago; you must have new money. There is no question about that. Hon. members will be interested in this fact. It was tremendously interesting to me. Carl
Snyder, quoted by Paul H. Douglas in Controlling Depressions at page 181, found that over a period of years, say during the last forty-five or fifty years, the productive power of industrial countries has increased three per cent per annum compounded. Now, if your productive capacity is 100, your consumptive capacity 100, and the money in circulation 100, and you do not increase the amount of money but your productive capacity increases to 103, then you would begin to have a fall in prices.
I wish the hon. member for New Westminster (Mr. Reid) had stayed in his place. The trouble is that some hon. members do not stop to hear a thing through. He said a few minutes ago that those kings reduced the content of the money to make a profit. The fact is that they increased the amount of money, knowing that their people had to have more money because the productive power of the country had increased, and if there was not an increase in the amount of money there would be a fall in prices, just as there was in Great Britain in the last fifty years of the nineteenth century. Prices fell because they could not get enough gold to back up their ridiculous gold standard money, established under a Dutch system introduced in the days of William III, the same system we are trying to work now. There was a fall in prices with consequent suffering, notwithstanding that the productive power of the country was increasing tremendously. The same thing is true of Canada.
I quote a passage from Irving Fisher's One Hundred Per Cent Money, published in 1935. At page 85 he says:
In fact, a fixed volume of money-if its velocity did not vary-would, as business volume increased, result in a slowly falling price level. Therefore there Bhould in my view be a currency commission-
The Minister of Finance wanted to know how we would go about it; here is a suggestion. I am not an authority in this matter; if I were placed in a position where I had to be, I would soon take steps to become one, just as he did. He gathered authorities around him to instruct him on tariffs and other matters until he became one of the greatest authorities on tariffs on the American continent.


Charles Avery Dunning: I had to know where I was going and what I was about before I started.


John Horne Blackmore: And we know where
we are going. This bears it out, as clear as day:
. . . there should, in my view, be a currency commission authorized to manage the currency, including the cheque book money.
1/134

Use of Canada's Financial Resources
A thing which no government so far has ever tried.


Charles Avery Dunning: Surely they have; we are doing it every day.


John Horne Blackmore: I am glad to hear that; still I cannot help judging by what I see.


Charles Avery Dunning: The trouble is you read the wrong books!


John Horne Blackmore: I come from seeing realities; I see the poor suffering in every direction, I hear cries for relief coming from the cities-


Paul Joseph James Martin: We all do.


John Horne Blackmore: Well, is that not evidence that things are going wrong? What more evidence do you want? What is an economic system for if not to give people plenty?


Paul Joseph James Martin: The point of my observation was that I do not think the hon. member should assume he alone is in sympathy with those who are suffering.


John Horne Blackmore: Mr. Speaker, I think you could go through my remarks this afternoon with a fine-toothed comb and not find a single word indicating that I claim to be the only one in sympathy with those who are suffering. The hon. member is exceedingly unjust when he imputes such a thing to me.
Looking down through the course of English history we find there has been need of new money from time to time. The whole history of English finance indicates that. The disasters which followed the battle of Waterloo were entirely owing to mismanagement of money. An hon. member-I am not going to name him because we had a sort of understanding that we would not refer to each other personally-the other night said he never knew anyone to get something for nothing. Listen to this. This is from Controlling Depressions, by Paul H. Douglas, published in 1935. Before quoting the passage I may say that I know of only one class of people in the world to-day who get something for nothing. They are indicated clearly in this passage, found at page 181:
Finally it may be asked why private interests should be allowed to obtain the wealth which comes from the creation of monetary purchasing power in the form of bank credit. As Carl Snyder has shown, production, if we take long periods of time, has increased at a rate of approximately three per cent a year compounded. Now if the private bankers only increase the quantity of credit in the same proportion they would gather to themselves a very large gain in wealth and power. This has most certainly been the case in the past.
(Mr. Blackmore.3
Note it is not the member for Lethbridge who is saying that.
The volume of bank credit which has been built up from very small beginnings is now the property of the banking fraternity. By creating credit they have acquired a title to wealth and a claim upon the national income as real as if they had themselves built gigantic factories, railroads, utility plants, etcetera. Some idea of how much these sums amount to can be gained from the fact that if we were to take a credit total of thirty-three billions as our base, an increase of three per cent in this figure to match the increase in production would mean that in the very first year the private bankers would create one billion dollars in new credit.
When you stop to think what that would mean, Mr. Speaker, it would be as though they had discovered in a gold mine or an old vault a billion dollars of money, all minted and ready for use, and they simply took that out and put it into their own vaults as new money. Then you realize how serious the situation is. The author is quite clear about it; there is no question about his meaning.


Charles Avery Dunning: And he is not talking
about Canada.


John Horne Blackmore: Very good, but the
thing does apply to Canada; it would be interesting to see how my hon. friend could prove that it does not.
They would own this and would in fact increase their wealth by that much. As the total volume of credit rose, the absolute yearly additions would of course rise also.
Where will all the money come from for the dividends? We have a hint there.
Thus, three per cent of fifty billion would amount to 1-5 billion a year. A large part of the fruits of progress, therefore, tend to be transfererd to the private bankers because their ability to create the monetary counters enables them to claim title to the goods.
Our contention is that that sort of thing should no longer exist in any civilized country. The government should be gaining all that profit, not necessarily by having a government owned bank but by the creation of the monetary counters, just as fast as the productivity of the people calls for those counters.
My time is getting short. I greatly appreciate the interest and tolerance that have been shown by my hon. friends, but before leaving the banking system there is one thing more I should like to say. Let no one imagine that I am in any way opposed to the bankers, except in so far as they have been allowed to take over the creation of the life-blood of this country, which is of the most vital concern to Canada. That power must be taken back by the state, so that the state

Use of Canada's Financial Resources
may provide the people with the money they need. To-day the banks lend money and get money out into circulation only through the men who will borrow. The mere fact that they have been transferring their deposits, from people all over the country, into government securities, is clear evidence of that. They cannot and will not trust the farmers, the manufacturers and others. They want their money where it is secure. So they create their money and lend it to the country, and fasten themselves as leeches upon the body economic of this dominion, to sap the very life-blood from the people; and we allow them to do it and apparently think it all right.
We must have a means of distributing purchasing power debt free, so that it will not depend upon the fortuitous circumstance of more or less borrowers in a given community. The present system, as it is conducted, checks production and consumption, rendering it impossible for the producers to sell their goods and therefore impossible for them to produce more, thereby lowering the standard of living in this wonderful country instead of raising it. The system creates only debt, stagnation, poverty and despair in a land of potential abundance. It is an abuse that screams to high heaven. Hon. members on the government side have talked of the need of preserving the old order, of the sacred trust and responsibility that rests upon them. I admire them for those sentiments, but let me urge upon them that they have an equally great responsibility and an equally sacred trust to bring in the new order before it forces itself upon them.


Mr. VIEN:: May I ask the hon. gentleman a question ?


John Horne Blackmore: I should like, if I may, to be allowed to finish. Later I shall be very glad to answer any question my hon. friend cares to ask, but at the moment I should prefer to finish what I have to say.
At the present time all over the Anglo-Saxon world we are industriously trying to put new wine into old bottles, and it simply will not work now any more than it would in the days of the Saviour. The result is that we are changing altogether too slowly. Roosevelt expressed a thought which I believe applies very well to our situation, in his Constitution Day speech. I hope to have time to read it before six o'clock. I have culled some quotations from that speech, which I believe apply not only to the government but to me and the other members of this parliament. This is not solely your responsibility; it is mine as well, and I know you realize that.


Charles Avery Dunning: Would my hon. friend permit me to interrupt for a moment? If he intends to conclude before six o'clock, we might have an understanding that I would ask the Speaker to call it six o'clock at the conclusion of my 'hon. friend's remarks, if he does not intend to go much beyond that.


John Horne Blackmore: I should like to finish before six o'clock.


Charles Avery Dunning: My hon. friend is, of course, perfectly free to go on as long as he wishes.


John Horne Blackmore: I understand that, and I appreciate it very greatly, but I think I have burdened the house quite sufficiently for this time. Among other things President Roosevelt said:
In our generation a new idea has come to dominate thought about government-the idea that the resources of the nation can be made to produce a far higher standard of living for the masses if only government is intelligent and energetic in giving the right direction to economic life.
That idea-or more properly that ideal-is wholly justified by the facts. It cannot be thrust aside by those who want to go back to the conditions of ten years ago or even preserve the conditions of to-day. It puts all forms of government to proof. . . .
Modern history proves that reforms too long delayed or denied have jeopardized peace, undermined democracy and swept away civil and religious liberties.
May I pause here to make the observation that the mere development of strains and stresses throughout this dominion, the threats of fascism and communism, are glaring evidences that reform has been too long delayed already in this country.
Yes, time more than ever before is vital in statesmanship and in government-in all three branches of it.
We will no longer be permitted to sacrifice each generation in turn while the law catches up with life. We can no longer afford the luxury of twenty-year lags.
You will find no justification in any of the language of the constitution for delay in the reforms which the mass of the American people now demand.
Yet nearly every attempt to meet those demands for social and economic betterment has been jeopardized or actually forbidden by those who have sought to read into the constitution language which the framers refused to write into the constitution.
So, Mr. Speaker, those people who have been rejoicing over the disallowance of the Alberta acts, where Alberta has striven to solve this problem for itself, realizing that the central government has neglected its trust, must remember that the selfsame device of hiding behind the constitution has been ap-

Use oj Canada's Financial Resources
plied across the line and in other countries when they have sought to bring about reforms. I continue reading:
But tolerance and fair play would disappear here as it has in some other lands if the great mass of people were denied confidence in their justice, their security and their self respect. Desperate people in other lands surrendered their liberties when freedom came merely to mean humiliation and starvation. The crisis of 1933 should make us understand that.
I believe this government should begin to issue currency and credit in terms of public need, just as the people of this dominion were led to believe it was going to, and as it has signally failed to attempt to do. It should commence to battle the money power, just as the Prime Minister said it would. Even yet the commencement of that conflict is being delayed and delayed until to-morrow.
Therefore, Mr. Speaker, although it pains me in some ways to have to do so, I find myself obliged by the position and the responsibility which I hold to move a vote of want of confidence in the government on the ground that it has failed adequately to use the resources of this country to battle poverty.
At six o'clock the house took recess.
After Recess
The house resumed at eight o'clock.



COMPANIES' CREDITORS ARRANGEMENT ACT


[Stage Direction]
of 1932-33, 23-24 george v
Mr. ERNEST BERTR'AND (Laurier) moved the second reading of Bill No. 26, to repeal the Companies' Creditors Arrangement Act, 1933.
He said: The purpose of this bill is to repeal the Companies' Creditors Arrangement Act which was passed in 1933. The act was passed unanimously at that time as it was felt it was needed because of the state of business in the country. I have read the debates that took place, both in the house and before the committee. The discussion in the house takes up only a page and a half of Hansard. I think everyone on both sides of the house admitted at that time that this was a most important piece of legislation. The Bankruptcy Act was passed in 1919, and section 13 could have been applied to the condition sought to be corrected by the Companies' Creditors Arrangement Act. Section 13 reads:
Where an insolvent debtor intends to make a proposal for,-
(a) a composition in satisfaction of his debts; or,
[Mr. Blaekmore.l
(b)	an extension of time for payment thereof ; or,
(c)	a scheme of arrangement of his affairs; he may, either before or after the making of a receiving order against him-
That section contained subsections which were designed to take care of all arrangements that might be made before a receiving order or an assignment had been made. The section was amended in 1923 when the words " either before or" were struck out. This amendment was made because at that time there was no superintendent of bankruptcy and it was considered too easy for anyone to be appointed a trustee. It was known that in large centres like Montreal and Toronto trustees would go around to interview a company or a man who was being sued and try to induce it or him to make an arrangement with the creditors under section 13 of the Bankruptcy Act. This condition became so bad that the act had to be amended. Later on Mr. Reilly was appointed superintendent of bankruptcy and he succeeded in clearing up the situation. A reading of the discussion that took place in 1933 when the Companies' Creditors Arrangement Act was passed will show that no mention was made of section 13 of the Bankruptcy Act.
Mr. BENNETT:: The difficulty was that it did not apply to farmers.


Mr. BERTRAND (Laurier):: Section 13 of the Bankruptcy Act did not apply to farmers, but neither did the Companies' Creditors Arrangement Act.


Richard Bedford Bennett: That was what it was for.


Ernest Bertrand: It applied only to companies.


Richard Bedford Bennett: Oh, yes, quite.


Ernest Bertrand: We feel that this act should be repealed as it grants to companies a privilege not enjoyed by individuals. As I say, there was no mention in 1933 of the bankruptcy law as it stood in 1919. In my opinion, this legislation was very badly drafted. I would be bold to put forward just my own opinion, so I should like to read some other opinions I have received. The Saint John, New Brunswick, board of trade passed the following resolution on F ebruary 15, 1937:
Finally we would recommend that the Companies' Creditors Arrangement Act be repealed. It was enacted during the recent business depression largely to assist debtors during those difficult times. As the business world is once again at normal levels, we submit that there is no longer any justification for the loose provisions of this statute.
The board of trade of Montreal also passed a resolution in 1937 dealing with the same matter. It reads:

Companies' Creditors Act
This legislation was enacted at a time when the economic strain of the past several years was bearing heavily on trade and was designed to relieve the heavy expense incidental to bankruptcy.
To some extent it succeeded, but to-day there exists among creditors a manifest objection to the act.
Chief among the reasons for this opposition are absence of adequate control of debtors' affairs and the consequent use of this act in order to evade the more strict and exacting provisions of the Bankruptcy Act. In explanation it should be stated that arrangements or settlements are made at metings of creditors. No trustee or inspectors are appointed, no list of creditors is required to be- issued, no examination of debtor is required, all permitting a condition not generally conducive to the protection of the creditors' interests.
It is unfortunate that in amending the Bankruptcy Act, parliament in 1923 removed a provision for settlements and arrangements without bankruptcy which existed in section 13 of the 1919 Bankruptcy Act.
The restoration of such a provision would enable all the benefits now possible under the Companies' Creditors Arrangement Act to be included in the Bankruptcy Act with the added advantage, the importance of which cannot be too strongly emphasized, of proper control by creditors and final supervision by the superintendent.
I know that complaints against this legislation have accumulated in the office of the superintendent of bankruptcy. This is quite easy to understand. As is mentioned in the resolution of the Montreal board of trade, this law has no machinery with which to protect the creditors. According to section 17, general rules were to be passed by order in council, but to date they have not been put into effect. Section 11 defines a debtor, and I should like to read subsection 2 of that section. I believe that most of the complaints are in connection with this particular section which deals with the admission of claims. If a company is in difficulty and the creditors want to come to its aid and are willing to compromise, there is always some kind of understanding between the company and the creditors asking for that compromise. It cannot be otherwise in practice, and the main question always is, Who is the bona fide creditor and who is not? Subsection 2 of section 11 reads as follows:
Notwithstanding anything contained in subsection one the company may admit the amount of a claim for voting purposes under reserve of the right to contest liability on the claim for other purposes.
That is an open door to fraud, and it has been used in a flagrant way for fraud. It is easy to understand, when a company may admit any claim for purposes of voting, reserving its right to have the claim set aside when the time for the distribution of moneys
comes, that officials of companies which want to get rid of creditors will have no difficulty in securing a sufficient number of claims for purposes of voting.
I should like to give the house figures on the number of companies that have petitioned to come under this act. In 1935 in Montreal, according to the registrar's office, fifty-five companies made application; in 1936, fifty-two; in 1937, thirty-one; and up to the third of March, 1938, there were eight. So the figures in those years respectively were fifty-five, fifty-two, thirty-one and eight, of companies making application. This, I think proves that business is getting better, and when the board of trade of Saint John, New Brunswick, says that this law was of a temporary nature,
I think the facts prove that it is so.
Now let me give the figures of companies in Toronto making application to come under the act. In 1936 there were five companies in Toronto, as reported by Dun & Bradstreet, and fifty-two for the same year in Montreal; in 1937, five in Toronto, and thirty-one in Montreal; in 1938 up to the third of March, three in Toronto, and eight in Montreal. There were a few applications made in other cities, but very few as compared with Toronto and Montreal; and if the figures for Montreal are larger than those for Toronto, it is not that we want to boast about this large number of insolvent companies. I am quoting these figures just to show the great interest that business men have in this question.


Mr. LAPOINTE (Quebec East):: Has the hon. member any figures for the other cities?


Ernest Bertrand: The figures have been given to me by the business men of Montreal, and they show that in Winnipeg, according to Dun & Bradstreet. there were no applications in 1936, and in British Columbia for the same year, according _ to Dun & Bradstreet, there was one application. I have no figures for other cities.
I should like to quote from a memorandum prepared by the board of trade of the city of Toronto. The Toronto board of trade seems to be concerned mostly with one side of the question, that with this act on the statute book, securities could be sold in different states where they would have been barred if the trust deed or the bonds had contained a proviso that the majority of the secured creditors could force an arrangement upon the minority secured creditors. That seems to be the principal reason why these gentlemen are opposing the repeal of the act. According to their own memorandum, the act requires so much reconstruction that I think it is far better .to repeal it. As a matter of
Companies' Creditors Act

fact, Mr. Speaker, we are in this situation to-day, that we have an act which the consensus of opinion of the business men of Toronto, Montreal, Saint John and everywhere else says is having very bad results, and we have either to supplement the act by adding general rules and many other sections, or to repeal the act and insert a few sections in the bankruptcy law that will cure all the above difficulties. I just want to read a paragraph or two of the memorandum prepared by the Toronto board of trade:
As unsecured creditors often have only very small claims and are widely scattered throughout the country


That is not absolutely true, but I am reading it as it appears here:

their difficulty has been that usually this type of creditor has not had sufficient interest at stake to warrant adequate representation and close contact with the various steps taken by debtors seeking compromises or extensions under the act. The result of inadequate unsecured creditor watchfulness has been that in all too many instances unscrupulous debtors have succeeded in effecting compromises quite unfair to unsecured creditors.
This was one of the reasons given for the passing of the act, that it would not require a trustee to supervise the arrangement. Even those who were in favour of the act realized that a trustee is needed. It is exceedingly bad to give to debtor companies or debtor persons the choice of three or four different acts under which they can make compromises or come into bankruptcy, because in practice it always works out against the creditor; for the debtor chooses the act where he will meet his creditors in the easiest way. Many company debtors to-day go under the Winding-up Act, because under that act there are no such offences as there are in the bankruptcy law. I quote again from the memorandum of the Toronto board of trade:
Although section 17 of this act contemplates that general rules of procedure thereunder would be made, none have been laid down yet.
And the act has been in force since 1934.
As proceedings under this act are more expeditious than proceedings under the Bankruptcy and Winding-up acts, it has been used extensively by financially embarrassed companies and owing to the lack of general rules of procedure thereunder, it has been applied by some debtor companies in a manner which was both unfair and detrimental to creditors.
I am continually quoting those who are supposed to be against the repeal, because if I should go to the files of those who complain and who are asking for repeal, I should find many other arguments that I could present here.
In a number of cases, companies have obtained court orders under this act summoning

meetings of creditors to consider proposals for payment of liabilities in full and copies of such orders and proposals have been sent to creditors with a proxy form made out in favour of the debtor's nominee. In many cases, neither a statement of the debtor's affairs nor a list of its creditors were sent with the proposals. As it is frequently inconvenient for creditors, particularly distant creditors, to attend meetings to consider debtor's proposals, and as there is often insufficient time between the receipt of the notice and the date of the meeting to investigate a debtor's affairs, and as a creditor may lose his vote unless he acts promptly, many creditors who have but a slight knowledge of the existing condition of the debtor's affairs, have completed and returned proxies in favour of the debtor's nominee with the intention that such proxy would be voted in favour of the debtor's proposal for an extension. During the depression, many creditors were willing to consent to an extension rather than risk either a bankruptcy or being forced to accept a compromise.
Another objection to the present act is that between the date upon which the court makes an order staying proceedings against a debtor and the date of the creditors' meeting, any debtor in the manufacturing business which desires to take advantage of its creditors may cut up or convert its readily saleable raw or bulk supplies into goods in process and thereby place itself in a position where its creditors would have difficulty in realizing upon the debtor's assets if the debtor's proposal were to be refused. Creditors should be given some control over the conduct of the debtor's business during this period.
There is no control at all in the law as it is to-day.
Careful consideration of the terms of the act does not indicate any completely satisfactory means of controlling this possibility. It is felt, however, that the provisions for appointment of a trustee, as suggested in the proposed general rules, go some distance towards controlling the debtor's affairs pending consideration of the proposal by the creditors and constitute a strong moral check on undesirable conduct by the debtor.
The act does not provide for the appointment of an independent person to give all creditors or possible creditors reasonable and proper notice of the debtor's proposal and of the meeting to consider it, or for the appointment of an independent party to receive creditors' proxies and to record creditors' votes. The act does not require statements of the debtor's affairs to be verified by affidavit and filed with the court or for a summary of such statement and a list of creditors to be sent out with the original proposal or to be submitted to the meeting of creditors. A statement of affairs prepared by the debtor but unaccompanied by any declaration as to its accuracy is generally produced at the meeting of creditors but unless some licensed trustee has been consulted by the debtor, the statement submitted often fails to classify the creditors (secured, preferred and unsecured) or to disclose the true position of the debtor's affairs.
As I said a few moment ago, we are in this situation, that if we leave this act on the statute -book, the complaints and the

Companies' Creditors Act
frauds that have been going on will continue until it is amended; and if we add to the act all the provisoes and rules that are wanted by some gentlemen in the business world, it will take probably another year before the amended law can come in force and we shall have to complain again of the act as it exists to-day and as it will remain in the meantime.
I know that some representation has been made to the government in connection with the amending of the Bankruptcy Act, but I have no authority to say whether it is to be amended or not. But a few words in section 13 as it was in 1919, the words "either before or after," and two or three sections that would replace section 13, subsections 3(c) 3(d) and 3(e) as they were from 1919 to 1923 would absolutely give the same security to any company willing to compromise with its creditors without going into bankruptcy.
Big corporations do not seem to like the word "bankruptcy." They might be bankrupt; they might owe more than all the assets combined; and yet they do not want to be termed "bankrupt." In 1919 section 13, subsection 3(e) of the bankruptcy law had a proviso stating that when proceedings are taken under the immediately preceding four subsections, that is when there was no receiving order or authorized assignment, all other applicable provisions of this act would apply, but no document in such proceeding would be headed "The Bankruptcy Act," nor would the term "bankrupt" or "bankruptcy" or "assignor" or "assignment" be applied to a person who before any receiving order or authorized assignment has been made makes a proposal for composition. This amendment would have the advantage of giving the same right to an individual as it gives to a corporation to-day under this act. For these reasons I move that the law be repealed.


Charles Hazlitt Cahan: I believe that the hon. member for Laurier (Mr. Bertrand) has an entire misconception of the purpose of the act which he seeks to repeal and of the valued services which that act has given to the commercial community as a whole. As a matter of fact, for two years and a half, while I held the office of Secretary of State, only one complaint ever came to that office with regard to the administration of the Companies' Creditors Arrangement Act, and that was from the province of Quebec, where it was alleged that proper notice had not been given. When I called the attention of the judge to it, the judge showed that there had been a misconception of his order; he made his order clear, and the result was that there was no dissatisfaction in that case.
This act is not a bankruptcy act. A bankruptcy act has been used, so far as I have had experience, too frequently for the perpetration of the worst kind of frauds. It has been used for the purpose of enabling a few creditors to drive a company, often a competitor, into bankruptcy, to compel the liquidation of its assets by forced sale, and to destroy altogether the goodwill of the business. Time after time it -has been used by creditors to conjure up claims for the purposes of driving their rivals into bankruptcy without any hope of redemption.


Ernest Bertrand: May I ask a question?


Charles Hazlitt Cahan: The hon. member can ask questions before we close the debate; he will have ample opportunity. As a matter of fact this act of which the repeal is sought, is, in simple terms, practically a reenactment of certain sections of the English Companies Act. In England, in that large business community where commercial and industrial affairs are carried on chiefly by companies, it was found necessary to insert certain clauses in the Companies Act to enable the creditors of the company to make friendly compromises with the company; and if three-quarters of the creditors of any particular class agreed, they could force a dissentient one-fourth into accepting a compromise which was approved by the court.
I have no time to-night within forty minutes to call attention to injustices I have seen perpetrated in my own experience by a minority of creditors, who, for their own personal ends, have precluded satisfactory, amicable arrangements being made between creditors and companies.
The hon. gentleman says that no rules have been formulated as provided in a certain section. The fact is that it never was intended that such rules should ibe formulated or put into force by the governor in council unless it should be found that the ordinary procedures of the court were inadequate for the purposes contemplated. In this case a thorough investigation was made of the procedure in each of the provincial courts, and we found that the proceedings for approval of a compromise, if made either by originating summons, as prevails in many of the English speaking -provinces, or by petition, or by motion, as in other provinces and especially in Quebec, would be governed by the ordinary rules of procedure prevailing in the courts; and it seemed to me better-and I still think it was far better-that in entering into provincial jurisdiction the rules of procedure which prevail in each provincial court should
Companies' Creditors Act

prevail in this case. If there is any complaint whatsoever with regard to the administration of this act in the courts, it is not because of lack of rules, because the Judicature Act prevails in the provinces except Quebec, and under it, as every lawyer here knows, the rules are ample and adequate for the purpose. In the province of Quebec, under the code of civil procedure, the rules there enacted are adequate in respect of every petition and original motion made before the court. There, if a motion is made, the parties interested may examine upon oath all parties concerned, and a judge in chambers hears all parties who wish to be heard and gives a just decision accordingly as to whether a scheme or arrangement which is come to under the act is made in good faith and is a fair arrangement for all the parties concerned.
This is not only a proceeding between the creditors as a whole and the debtor; it is a proceeding which enables any class of creditors by a majority holding three-fourths of the credits to approve a compromise as between that class of creditors and the debtor company. That is made to obviate the possibility of a small minority of any class of creditors serving their own selfish interests by holding out against a fair and equitable compromise. And that is the rule in England, as it is the rule which is prescribed by this act. In arranging for a revision of the Companies Act I would certainly have followed the English act and placed these very provisions in it. But certain lawyers of Ontario and Quebec and some others thought that it would not be possible to accomplish the end in view by drafting an act which would be within the legislative competence of the parliament of Canada.
This legislation, before its enactment, was advertised as few acts are that pass this parliament. The bill was circulated from one end of the country to the other; it was placed before commercial and financial men in every part of the dominion. The act was not drawn clumsily. I am not seeking credit for myself; but I say: Place the act before any competent lawyer or judge, and I am sure he will say that the bill was drawn with the utmost care possible in order to keep it within the legislative jurisdiction of parliament. It was based on the presumption that the rules of court which prevail with respect to procedure would be applied to every motion or petition made under the act. But in order that there might be power in the governor in council, in case it was shown that the rules in any particular court were inadequate, right was reserved to the governor in council to make rules for that purpose.
[Mr. Cahan.J
During the two and a half years which elapsed after the passing of the act before I ceased to be Secretary of State, there was no complaint from any quarter, while the mere enactment of the measure gave necessary and sufficient relief throughout the country; for when it once became known that a creditor, one out of a hundred, or two or more out of a hundred, could no longer hold out and defeat an equitable compromise in order that any creditor might obtain his own pound of flesh, or in order that he might exercise his right of dissent so as to destroy a competing company which should never be destroyed, then all creditors began to make reasonable arrangements with their debtor companies. Many were made that did not come under the act at all. Competent business men met together, and after discussion agreed to a fair compromise between the debtor company and its creditors, as they do frequently as between an individual debtor and his creditors. In so far as it made fair play necessary, it conduced to amicable and satisfactory settlements between debtor companies and their creditors.
But to return to the English act. The English have their bankruptcy law; they have their winding-up acts. There is there but one jurisdiction with respect to companies; here there are several jurisdictions, generally divided between the provincial and the dominion. And the difficulty in drafting this legislation was to draft an act which would not only apply to dominion companies but give the same relief to all provincial companies, whether organized under provincial charters or by special statutes of the provincial legislatures. And that object was attained because after a most thorough discussion, at which all parties were represented before the court, the Supreme Court of Canada on a reference held this act intra vires of the parliament of Canada. Therefore I wish to call attention to the English act and to its provisions. Section 153 of the English act provides that:
(1) Where a compromise or arrangement is proposed between a company and its creditors or any class of them, or between the company and its members or any class of them, the court may, on the application in a summary wray of the company or any creditor or member of the company, or, in the case of a company being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members of the company or class of members, as the case may be, to be summoned in such manner as the court directs.
There are no special rules in the English act for the summoning of the meeting; but the ordinary rules of practice under the Judicature Act apply. The same Judicature Act

Companies' Creditors Act
is in force, I think, in every province except Quebec, and those who are acquainted with the code of civil procedure in Quebec know that ample provision is there made for the summoning of all parties interested in order that they may be represented before the court which assumes jurisdiction.
Then subsection (2) of the same English act reads:
If a majority in number representing three-fourths in value of the creditors or class of creditors, or members or class of members, as the ease may be, present and voting either in person or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors or the class of creditors, or on the members or class of members, as the case may be, and also on the company or, in the case of a company in the course of being wound up, on the liquidator and contributories of the company.
That act was passed by the parliament of the United Kingdom which had jurisdiction over the incorporation of all companies, jurisdiction not only with respect to companies in financial difficulty, between creditors and the company, but in conflicts between shareholders inter se. Therefore, as this parliament has no jurisdiction in conflicts between the shareholders of a provincial company, it was provided in this statute-and the Supreme Court of Canada held it to be a competent statute-that the provision in the provincial acts relating to conflicts between classes of shareholders should be applied in the case of a provincial company. But in respect of any conflict between creditors and the debtor company, that is entirely within the jurisdiction of the parliament of Canada, and the supreme court has so held.
Now that English act provides for compromises. They may be between a class of creditors and the company, or between the creditors as a whole if there are none of a particular class outstanding. It provides that the ordinary rules of procedure of the courts shall apply, and that is what we followed in this act, with a special provision that if it were found necessary to make new rules to overcome any fault or default in the proceedings, the governor in council was given the authority to make, alter, revoke or reenact such rules, or to delegate to the judges of the court in any district the right to make new rules. There is no deficiency in the act with respect to rules.
This act was not intended as a temporary one. It was deemed necessary for the amicable adjustment of all disputes arising between creditors and the debtor companies, amicable adjustments which would obviate the necessity of driving the debtor company into bankruptcy and having its assets sold in bulk, as they were being sold in bulk, for very low prices.
I wish to call attention to the fact that I have no knowledge of the memoranda from which the hon. gentleman has read. I do not know whence these memoranda were obtained, whether they were special petitions sent to the hon. member for Laurier (Mr. Bertrand) or whether he obtained them from the superintendent of bankruptcy.


Ernest Bertrand: The memorandum which I read came from the board of trade of Montreal. It was passed in November, 1937.


Charles Hazlitt Cahan: But I was wondering where the long memorandum came from.


Ernest Bertrand: It was sent to the Minister of Justice, and seeing that I had this bill before parliament they sent me a copy of it.


Charles Hazlitt Cahan: I thank the hon. gentleman for this information, but it does not influence my judgment that a committee of the board of trade even in my own home city have passed a resolution of that kind. I have seen so much of the ruthlessness of creditors who happened for the time being to hold the controlling vote in dealing with debtors, when better motives and more lenient measures should apply, that I am not surprised that some of these hard-hearted men are disgruntled at the prospect of this act being retained upon the statute books.
I have not had time to examine the return brought down by the Secretary of State, but, as a matter of fact, I think it shows that less than ten companies incorporated under the dominion statutes have applied for and obtained relief under the act. That number of compromises having been filed in the returns to that department does not show a large misuse of this statute with regard to dominion companies. I do not know as to the accuracy of the figures quoted by the hon. member for Laurier; I am bound to accept them although I do not know where they came from; but in a time of great financial distress such as prevailed during the last two and a half years that I had charge of the Department of the Secretary of State I was really surprised that so few cases arose.
The reason so few cases came up was that when a minority of the creditors of any class, that is, representing less than twenty-five per cent in value, found that there was a way by which they could be compelled to give to the debtor company a reasonable compromise which would enable it to pay its debts and retain its property for future industrial or
Companies' Creditors Act

commercial business, such minority readily entered into that reasonable compromise. As has been discovered in England, as indicated in the English act, where a certain proportion of all the creditors, representing at least three-quarters of the value, are willing to accept a reasonable compromise or arrangement, which is placed before a judge who after a thorough investigation approves it as being fair and equitable, then it is not unreasonable that the small dissentient minority should be compelled to come in and accept the terms that are offered to all.
I would regret very much, to see this act repealed. We had stress and strain in 1930, 1931 and 1932. The number of companies theft were ruthlessly driven into bankruptcy, without a chance of retrieving their position, was considerable. Bankruptcy frauds were prevalent, too, in those days. I have no doubt that they have been somewhat remedied by a better administration of the Bankruptcy Act; but the sole protest that came to me with respect to this act, after the bill had been distributed from the Atlantic to the Pacific, came from trustees in bankruptcy, gentlemen who had been appointed by the government as qualified trustees, who thought this act, which permitted a reasonable and amicable compromise, might take away a considerable portion of the fees they were receiving out of bankruptcies. They made their protests accordingly, some of which I have no doubt will be found in the files of the bankruptcy branch of the Department of Finance. But that has been entirely obviated. The act is being administered fairly. There may be rare cases where some judge who administers the act is not thoroughly informed as to company law, and perhaps does not fully realize the responsibilities which he assumes as the judge in charge of such an arrangement as this. It is only in such a case that a fraud could arise, because so long as you have a competent judiciary administering the act no frauds are possible under it.
I would regret the repeal of this legislation, and I would regard it as a backward proceeding at this time. Some hon. gentlemen may think the worst of the depression is over. Perhaps it is; perhaps the country is so prosperous that there will be few companies getting into financial difficulties under the present regime. But this year is not the end of all things. There may be other financial recessions or retrogressions; and if you have an act like this upon the statute books of Canada, in practically the same terms as the English act, you will find that it will afford relief to many honest debtor companies which

should be placed in a position to meet their creditors and, by amicable agreements and arrangements, arrived at in good faith, come to satisfactory terms with them. If you take that act off the statute books, you will find the same difficulties arising that arose during the recent depression, certainly during the last two or three years before this act was brought into force.


Mr. D. A. McNIVEN (Regina City):: Mr. Speaker, if there is one type of legislation with which I have little or no sympathy it is bankruptcy legislation, and in particular the Bankruptcy Act. As it is applied in this country that act disposes of the assets of the bankrupt at whatever price they will bring. The organization is disrupted; the good will of the company is depreciated and ultimately lost. That, I think, is a fair summary of the operation of bankruptcy legislation. When I heard the hon. member for Laurier (Mr. Bertrand) suggest that certain individuals did not like bankruptcy, I wondered if there were any who did like bankruptcy proceedings, not only because bankruptcy brings about the results I have just indicated but because, in the case of an individual, for all time or in any event for a great number of years he carries the stigma of bankruptcy and there is an order following his earnings during that period.
It was for these reasons that I regarded very favourably the legislation referred to as the Companies' Creditors Arrangement Act. From what experience I have had of its operation, and from comments that have been made to me by creditors both large and small and by interested companies, I have found that it works out very fairly in its operation and that its provisions are very much appreciated.

use of Canada's financial resources for



ELIMINATION OF POVERTY-AMENDMENT OF MR. BLACKMORE

[Stage Direction]
The house resumed consideration of the motion of Mr. Du-nning for committee of supply, and the proposed amendment thereto of Mr. Blackmore.
Hon. CHARLES A. DUNNING (Minister of Finance): Mr. Speaker, the motion of the hon. member for Lethbridge (Mr. Blackmore) is an amendment to the motion that you leave the chair for the house to resolve itself into committee of supply. It is therefore, as the mover indicated, a vote of want of confidence.
I shall not deal with the language of the amendment, then, for the reason that while naturally it would command the support of

Use of Canada's Financial Resources
most if not all of those opposed to the government, it is really intended by the mover as a vehicle for the discussion of the financial theories advocated by the social credit group, and a discussion of the control of currency and credit in Canada generally. It is in that sense that I shall attempt to-night to discuss currency and credit in Canada. I do so with a very keen appreciation of the responsibility attaching to words uttered in relation to this subject by anyone who occupies the position of Minister of Finance, but I shall hope to avoid any mistakes or any slips by sticking as closely as I can to the text which I have set out for myself to follow.
During this session there have been frequent references to monetary reform, not only by those who profess so-called social credit principles but also by many other members. The right hon. leader of the opposition, while not very specific, stated on one occasion that we should not be incapable of making progress in monetary reform. He made general references to what had been done in Australia, New Zealand and South Africa, but he was very careful to point out that while these dominions had acted with great courage, conditions differed in different parts of the empire. He said that what was true in one dominion could not always be said to be true in another. Other hon. gentlemen have also referred to monetary policies and some have suggested various experiments in monetary reform.
First let me say that in my opinion it is unnecessary and confusing to speak about the need of enacting new laws in the field of monetary policy. Parliament has set up an institution, now controlled by the government, charged with the specific duty of regulating the volume of currency and credit in the best interests of the economic life of the nation. Those words I quote from the statute itself. That is now the function of the Bank of Canada. The bank is already in operation, and I am convinced that its directors and officers are attempting to perform their high task to the best of their ability and with a singleness of purpose that excludes all considerations except the promotion of the permanent welfare of the general mass of people in this country. Many hon. gentlemen realize what they have been doing. Some may not agree that what they have been doing is best for our country; but in order to keep the issue clear, let us agree that when hon. members advocate some experiments in monetary policy, some vague monetary reform, what they are really doing is criticizing the policy of the Bank of Canada. Of
course that is the right of any hon. member, but we will avoid confusion if we define the issue clearly.
I propose, therefore, to say something about the policy which the Bank of Canada has been following as shown, not by confidential information available to me in my official capacity, but by the bank's published statements. To make clearer the results already accomplished, I shall find it necessary to review briefly the Canadian monetary policy during the whole depression. Before doing so, however, it might be well to define our terms and to refer briefly to the methods by which the Bank of Canada can perform its primary purpose of controlling the volume of currency and credit in use.
By the term "currency" most of us refer to money in its narrower sense, that is to say, our bronze, nickel and silver coins, and our paper money. Our metallic coins are merely the small change of ordinary business transactions, the hand to hand money convenient for the purpose of making change. The volume of these coins in circulation is practically self-regulating. We issue them from the mint through the Bank of Canada in accordance with the public demand. If business activity and particularly retail trade are expanding, if prices are rising, the public will require more of them and the Bank of Canada will receive requests from the chartered banks to ship more five or ten cent pieces to the maritimes, more fifty cent pieces or more silver dollars to British Columbia, and so on. If we shipped more than the needs of business demanded, they would merely pile up on the bankers' shelves and become redundant. They constitute no real problem of monetary policy.
Paper money in Canada now consists of two types: first, chartered bank notes and, second, Bank of Canada notes. Chartered bank notes are subject to rigid limitation under the existing law as to maximum issue. That maximum will decrease year by year until 1945 when the banks will have the right to issue only up to twenty-five per cent of the amount of their paid-up capital. Bank of Canada notes may be issued by the bank subject only to the limitation that the bank must keep a reserve of at least twenty-five per cent in gold against its total note and deposit liabilities. The small denominations of Bank of Canada notes, chiefly the ones, twos and fives, constitute the large change of hand to hand circulation. In addition, Bank of Canada notes have another important function. Being legal tender they may constitue legal reserves for the chartered banks. In other words, our chartered banks
1144	COMMONS
Use of Canada's Financial Resources
keep Bank of Canada notes as well as deposits in or balances with the Bank of Canada as the cash reserves which they are required to maintain against their demand liabilities, comprising both notes and deposits within Canada.
I shall not introduce the qualifications I would be required to introduce if I were dealing with the regulation of currency and credit under gold standard conditions. Contrary to what I sometimes read in newspaper editorials, we are not on the gold standard and are not subject to its deflationary or other controlling influences. We have long since cut adrift from gold. For better or for worse, for the time being at least, we are on a managed paper standard, just as is the United Kingdom. It is true that the Bank of Canada is required to keep a minimum gold reserve of twenty-five per cent of its combined note and deposit liabilities, but the value of our currency is determined not by gold but by the principles which govern managed paper standards and which may be summarized as demand and supply. So much for currency.
Now let us turn to the regulation of credit. What do we mean by " credit '' in this limited sense? For our present purpose "credit" means circulating credit or bank deposits. As everyone knows, the story of the last century or more, particularly in the Anglo-Saxon countries, is a story of the gradual rise of bank deposits to perform the monetary work of the business world. As a circulating medium bank deposits have been found to be infinitely more convenient than currency, and to-day in Canada, in the United States and in the United Kingdom, they are the vehicle by which ninety or ninety-five per cent of business transactions are effected. As they are in quantity the most important by far of all our circulating media, and moreover, since they are subject to wide swings of expansion and contraction, it is the control of their volume to which we mainly refer when we speak of the central bank's function of controlling the volume of currency and credit in use.
I come now, Mr. Speaker, to the methods by which the central bank exercises this power of regulation and control. These methods will warrant careful study by all hon. members, but here I can do little more than refer to them.
Briefly stated, the Bank of Canada exercises its control over the chartered banks by operating on the cash resei /es of the banking system, either by conducting so-called open market operations or by altering its rediscount rate, or by both. Our chartered banks, like all commercial banks, are accustomed to keep

a certain proportion of cash as reserves against their note and deposit liabilities. In practice they have found it necessary to keep this cash reserve in order to be able to meet the demands for cash that may be made upon them at any time by their note holders or by their depositors. In Canada the cash reserves of our chartered banks consist of notes of the Bank of Canada and deposits by the chartered banks with the Bank of Canada. Speaking of the banks as a whole, the proportion or .percentage of cash which the banks keep is in practice about ten per cent, and by law it must be at least five per cent. The Bank of Canada can expand or contract these collective chartered bank reserves at will, always providing that it can buy and sell securities or other suitable assets when it wants to. It is the buying and selling of securities for this purpose by the Bank of Canada that are commonly known as open market operations.
Suppose, for example, that the Bank of Canada buys ten million dollars' worth of securities. Then, no matter from whom it buys those securities, the reserves of the chartered banks as a whole will rise by the amount of ten million dollars. If it buys from other banks, their accounts at the central bank will be credited, and those accounts are part of the chartered banks' cash reserves. If it buys from an individual, then that individual pays the money into his account with his bank, and when that bank presents the cheque to the central bank to be paid by it, then that chartered bank's reserves at the central bank are raised by the same amount. Obviously, if each chartered bank has some percentage of cash reserves which it thinks it is necessary to maintain, the banks which eventually are credited with the additional cash and which thus find their cash reserve percentage increased, will wish to reduce it again. Otherwise they are losing the opportunity of increasing their earnings. Consequently such banks will take steps to increase their own assets and deposit liabilities by amounts sufficient to reduce their cash reserve percentages to near the customary level again.
As we have seen, the Canadian chartered banks as a group think it expedient to maintain an average reserve of ten per cent, and consequently if, as a result of the purchase of ten million dollars' worth of securities by the central bank, the reserve of the chartered banks has been increased by ten million dollars, the chartered banks will seek to expand their assets and deposits by approximately one hundred million dollars. Thus it is that security purchases by the Bank of Canada tend

Use oj Canada's Financial Resources
to expand bank deposits in the country by approximately ten times the amount of the transactions.
You may ask just how the chartered banks will expand their assets and deposits as a result of open market operations by the Bank of Canada. If the chartered banks can find good borrowers they will tend to increase their ordinary commercial loans, and by so doing increase their deposit liabilities by a similar amount. Otherwise they may buy investment securities which will usually earn them a considerably lower rate, or they may expand partly in one way and partly in the other. Either move will increase the aggregate of deposits of the banking system as a whole.
It is of interest to note that the chartered banks will all expand more or less in proportion to their relative size. Otherwise some will lose cash reserves to others and will find their individual cash reserve percentages dropping too low.
I have referred to the effect of the Bank of Canada purchasing securities. Precisely the opposite effect will ensue if the central bank sells securities. There will be a corresponding fall in the cash reserves of the chartered banks, a reduction of the average cash reserve of the banks as a group, and a consequent necessity for collective contraction of deposits on the part of the banking system.
The second well known mechanism by which the central bank exercises control is the deliberate raising or lowering of its rediscount rate. High rates, of course, tend to contract business enterprise, and low rates tend towards expansion.
Richard Bedford Bennett: But there are no
rediscounts in Canada.


Charles Avery Dunning: The rediscount rate is in effect; I shall come to that in a moment. I was saying that high rates tend to contract business enterprise, and low rates tend towards expansion. The control exercised by this method is indirect rather than direct, and it may not be very effective unless there is a well developed money market sensitive to changes in discount rates. These are the major weapons which the central bank may use in carrying out its primary function of controlling the volume of credit and currency in use in the country.
In order to obtain a proper perspective from which to consider how far the bank has carried out its duties, let us glance back over the course of monetary policy during the depression. It will only be necessary to call attention to a few salient points1. We recall too keenly the vicious spiral of deflation which pursued its devastating course from the end 51952-73
of 1929 until the beginning of 1933. On December 31, 1929, Canadian deposits of the chartered banks totalled 82,270,000,000. This volume of deposits was based on a cash base of about $228,000,000, which had been expanded rapidly as a result of advances made under the old Finance Act. These advances had increased to $81,700,000 on December 31, 1929. By October 31, 1932, the cash in Canada had been reduced to $183,000,000, of which only $27,500,000 was based on Finance Act advances, and Canadian deposits had shrunk to $1,960,000,000. This represented a contraction of over fourteen per cent in circulating credit.
I shall not take time to debate the difficult theoretical problem as to whether this credit contraction was the cause or the result of the liquidation of business and the fall in prices. I shall merely state what I believe to be the prevailing view among competent economists, that while in the early stages of the depression the contraction of credit was probably largely the reflection of the decline in business and prices caused by fundamental jconomic maladjustments, yet after a time the monetary and credit factor became definitely an important cause.
From early in 1931 to the United States banking crisis in March, 1933, credit liquidation was certainly a factor operating with cumulative force to aggravate the decline in business and prices. Here was a time when, if ever, the use of monetary policy was justified as a weapon against the ravages of deflation. In my opinion, an opinion held at that time as well as now, conditions in this country were such as to warrant prompt and courageous experiments of the type which my right hon. friend the leader of the opposition (Mr. Bennett) apparently has now in mind. However, no action was taken until about the close of this deflationary period, in November, 1932-


Richard Bedford Bennett: And the exchange situation was the cause.


Charles Avery Dunning: Yes. I shall give my right hon. friend credit, if he will have patience.


Richard Bedford Bennett: I am not concerned with that.	t


Charles Avery Dunning: -when my right hon. friend persuaded the chartered banks to issue $35,000,000 under the Finance Act in order to relieve the cash shortage which had developed and which threatened to become more acute. I am not inclined to criticize my right hon. friend for the action he then took, certainly not for his general objectives. My real criticism would be directed rather against



Use of Canada's Financial Resources
the tardiness of and perhaps also the lack of vigour in his measures. I realize, of course, that the machinery which was available to his hand was inadequate and cumbersome, and that any bold and aggressive measures would have been bound to meet the strongest possible resistance from the orthodox financial world.
The expansion of bank cash, which began in November, 1932, was soon followed by a cessation of the declining trend in Canadian deposits; and when, following an amendment to the Dominion Notes Act of June, 1934, a further substantial expansion of bank cash occurred, Canadian deposits began a rapid rise which has continued until the present time. In March, 1935, the Bank of Canada commenced to operate as a central bank and assumed responsibility for the regulation of the cash reserves of the chartered banks and consequently of the volume of credit in circulation. Recognizing that the regulation of the country's credit and currency was so vital a sovereign function that it could not be left in the control of a private institution, this government in 1936 amended the Bank of Canada Act to give the dominion government effective control over the bank by majority ownership of the capital stock and majority control of the board of directors.


Richard Bedford Bennett: No wonder you laugh.


Ernest Lapointe: I cheer. I do not laugh.


Charles Avery Dunning: I think it may now be fairly said that one of the difficulties which my right hon. friend was concerned with in 1931 and 1932 has been removed. Canada's financial machinery is now adequate to enable the government to cause effective action to be taken in the field of monetary policy to the extent that monetary methods may be appropriate to solve our problems.
To enable the house to follow my discussion of past and present conditions, I have had placed on the desks of all hon. members a chart showing clearly the trend of the cash reserves in Canada and Canadian deposits of the Canadian chartered banks. The chart shows the course of these two fundamental factors from the beginning of 1927 until the end of 1937. If hon. members follow these two curves, they will note the rapid expansion of credit in the boom years, the drastic deflation in the early years of the depression to which I have just referred, the effect of the action taken in November, 1932, and in the fall of 1934, and the expanding trend of bank cash and Canadian deposits from 1934 right up to the present time.
ALL CHARTERED BANKS: CANADIAN CASH RESERVES AND DEPOSITS



TWELVE-MONTH MOVING AVERAGES PLOTTED ON TWELFTH MONTH

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* Prior to March, 1935, .these reserves are the sum of gold and coin held in Canada, holdings of Dominion notes, and deposits in the Central Gold Reserves not required as backing for excess chartered bank note circulation; in March, 1935, and after they consist of deposits with the Bank of Canada and holdings of Bank of Canada notes.
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I think this chart may come as a revelation to some who have been inclined to criticize Canadian monetary policy of recent years as deflationary or insufficiently expanding.. Consider the figures. On October 31, 1932, as I have already stated, cash in Canada was $183,000,000, of which $27,500,000 was due to bank borrowing under the Finance Act. As of the same date Canadian deposits had fallen to the low level of $1,960,000,000. On March 31, 1935, the end of the first month in which the Bank of Canada was in operation, the cash reserve of the chartered banks was $200,600,000, and their Canadian deposits were $2,033,600,000. As at December 31, 1937, bank cash had increased to $250,000,000 and Canadian deposits had increased to $2,387,000,000. It should be noted that this expansion in bank cash has taken place despite the fact that the chartered banks have not been borrowers at the central bank. There are only one or two instances of such borrowing, and only for very short periods. It should be noted also that Canadian deposits-and, mark you, these represent the credit which does ninety to ninety-five per cent of the money work of Canada-are now at a level nearly twenty-two per cent above the figure for October 31, 1932, and1 over $117,000,000 higher than at the end of the boom year 1929. Is it any wonder that I find some difficulty in restraining myself when I read certain newspaper editorials and listen to certain speeches?
Let us approach these figures from a different angle. It is usually the case that an argument with regard to monetary policy can never be settled, because it is impossible to determine exactly what would have happened if some other policy had been followed. But in the case of Canada during the last five or six years we can get some idea of what the banking and monetary situation would have been if no action had been taken in the monetary field. I assume first of all that the chartered banks would have regarded the Finance Act as a temporary source of funds for seasonal purposes. They would not have been willing to remain indebted to the government for long periods of time. Such an attitude on their part is a perfectly proper and understandable one. Rediscount facilities are intended to fulfil temporary needs and not to supply permanent or semi-permanent requirements. On this assumption the cash reserves of the banks to-day would be about the same as they were in October, 1932. after making two deductions. The first deduction represents the amount they were then borrowing under the Finance Act, namely $27,500,000. The second deduction represents
the subsequent increase in the active note circulation after making allowance for the notes which could have been supplied by an increase in the chartered banks' own issues. Making those two deductions, I assume that the amount of bank cash to-day would have been about $114,000,000 if no action had been taken to remedy the situation. As I do not believe that the banks would have found it wise to operate on a cash ratio of less than, say, 8i per cent, which is a very low ratio indeed, their Canadian deposits would have been in the neighbourhood of $1,340,000,000 instead of the actual figure of $2,387,000,000, as they were at December 31, 1937. Naturally their assets in the form of loans and investments would have been lower by an approximately equal amount.
I realize fully that the situation which I have just outlined would have been found intolerable long before 1938, and that action to remedy it, first perhaps by temporary measures and later by the creation of a central bank, was inevitable in the best interests of this country. But let me contrast the situation as it threatened to be with the situation as it has actually been. First of all, by appropriate monetary action, the increase in note circulation required for use by the public because of better business, increased employment and higher payrolls, has been taken care of by the central bank with no drain on the cash reserves of the chartered banks and therefore no need for curtailment of credit or liquidation of investments. On the contrary, the cash reserves of the banks have actually been increased by an amount which has enabled them to expand their commercial loans and to add substantially to their investments. The keen desire of the banks to find remunerative employment for their funds has meant that no borrower to whom they thought it was reasonably safe to lend had difficulty in obtaining the accommodation he required. Governments which command the confidence of .the investing public have been able to do a tremendous amount of new financing and refunding at very low rates of interest. Corporation refunding and repatriation of debt have been accomplished on a large scale, and an increasingly effective treasury bill market has been developed.
Lastly, we have to-day a monetary structure which is fully capable of meeting without strain the requirements of an increasing volume of business as and when developments in the non-monetary field create a demand for additional funds; and we have a central banking organization which provides the machinery for such adjustments as may seem desirable from time to time.
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It is perhaps not unnatural that what has been done in the monetary field has not attracted the attention of the average man. But the very fact that our monetary machinery is thought by so many to have done nothing when, in fact, it has done so much, is to my mind a testimony to the quiet effectiveness of the policy followed. There has been no crying from the housetops, no spectacular announcements of policy followed by reversal of that policy. These things may attract newspaper attention, but they disturb the normal course of business and tend to defeat their own ends. On the other hand, let me assure you, sir, that there has been no concealment in these matters. The figures are available for those who care to study them.
Anyone who takes the trouble to do so can find the Bank of Canada's policy mirrored in its own weekly statements, and the effects of that policy in the monthly statements of the chartered banks. Contrast, for instance, the first weekly statement issued by the bank on March 13, 1935, with the statement for December 31, last, and you will find some illuminating changes. During that period of about two and three-quarter years the bank's note circulation has increased by $68,000,000. Its investments increased by S36,000,000, and gold is up $73,000,000 because of the revaluation which took place in July, 1935. Finally, chartered bank deposits with the central bank and their holdings of Bank of Canada notes have risen by $41,000,000. This latter total is the increase in bank cash which has made possible an expansion of over $350,000,000 in Canadian bank deposits or Canadian credit during that period of two and three-quarter years.
Richard Bedford Bennett: Invested in Canadian
securities.


Charles Avery Dunning: Some of it. I submit
that this is a record of which we may well be proud. It is a story of the carrying out of an easy money policy demanded by the public good. It is a story of efficient administration characterized by a full mastery by the management of the bank of complicated monetary technique and by a thorough grasp of sound objectives for the Canadian people as a whole. Some apparently think that it has not been pushed fast and far enough; there are others who fear the reverse may be the case. These latter, in my opinion, are too much bound down by what they regard as orthodox tradition, and too little conscious of the pressure which had been crashing so many important parts of our economy. The super-expansionists, on the other hand, are too little aware of the complicated forces with which we are dealing, too inclined to

oversimplify the problem, too blind to the probable repetition of the evils of such a hectic inflationary boom as has caused much of the misery from which we have been suffering since 1929. In this, as in so many other cases, wisdom is likely to be found in the middle course.
I am sure the house will desire to know on what basis the Bank of Canada has determined the policy which it has followed. In other words, what are the criteria which must guide the central bank in carrying out its important task? What economic factors does it watch? How does it interpret current trends? By what objective standards does it decide that it should go so far and no further, to quote the act, "in the best interests of the economic life of the nation"?
These are very difficult questions to answer. There is no simple mathematical formula which the bank can use to find an easy answer to its fundamental problem, no single test which it can use. If there were such a simple formula or a single test, we should probably not need a central bank with its highly specialized staff. There is little difficulty in defining the general objectives of the central bank and of the government which controls it. These objectives are the maximum possible sustained level of productivity and the minimum possible level of unemployment. Monetary policy in itself cannot enable us to reach these objectives. A bad monetary policy can impede us; a good monetary policy will assist progress towards the desired ends if otheT factors are favourable.
If the country is suffering from abnormal unemployment and if the volume of production is relatively low, then there is a prima facie case for an easy money policy. If production and employment in the country as a whole are at a high level, the objective is naturally to maintain the equilibrium. Gradual growth in the population of productivity per capita might in such case call for a moderate enlargement of the credit base, that is, the. cash reserve of the banking system year by year. The third case which we may visualize is one in which boom conditions, sure to be accompanied by unwise use of credit and increased maladjustments, are seen to be developing. In such circumstances the central bank may try a direct attack on the source of trouble if it is limited in its character; but if it is widespread, general restrictive action may be necessary.
This description of monetary policies, which might be appropriate under varying conditions, is of course of a most general nature. I shall try to supplement it by indicating some of the things which a central bank must study

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in order to arrive at an appraisal of the existing state of affairs. The most important indications will be found in a study of all data relating to production, distribution, and employment; changes in the general price level of wholesale and retail goods,- in the cost of living and in the relationship of these one to another; any available information regarding changes in the relationship between prices of consumers' and producers' goods, manufactured goods and primary commodities, especially foodstuffs; and changes in import and export prices, in other words, the "terms of trade." Lack of equilibrium between these separate sets of prices is liable to upset the balance of payments and the national income.
Even in a closed economy-by that I mean a selfnsufficient economy, shut off from the rest of the world-the exchange of goods within the country will be impeded, and the national income therefore diminished, if the purchasing power of any one section of the country is altered at the expense of another section. And in an economy like ours, which is not closed, the relationship of these various groups of prices to similar groups in other countries must also be studied, because a change in prices internally as compared with prices externally may mean eventually a change in the balance of payments. Similarly, changes in the volume and nature of production must be studied; for if these depart from a reasonably balanced relationship, and goods are produced which there is no opportunity to sell at a profit, price relationships will be disturbed, unemployment will result, and the national income will be diminished. Failure to sell will be reflected in growing inventories. I do not suggest that monetary policy by itself can restore equilibrium in such cases; but developments of the kind just indicated are danger signals which must be observed by a central bank because of the effect which they may have on general business, and because of the possibility that action by the bank, or by the government in a non-monetary field, may contribute to the restoration of equilibrium.
Another factor which may create disturbances in the national economy is the action of governments, national, provincial and municipal. Hence the budgets and policies of these public bodies must be studied by the central bank.
Then there are financial factors which in the short run are largely dependent, and in the long run entirely dependent, on the economic factors already referred to. Capital movements, short term and long term, can be so disturbing that the central bank's short term policy may be directed entirely to counteracting them, or on the other hand so
beneficial that its short term objective is secured for it without having to take definite action. Of the importance of speculation, either in the stock market or in commodities or in real estate, we have had so many illustrations in recent years that it is unnecessary for me to do more than mention this factor. In connection with its open market operations and its function as financial adviser to the government, a central bank must of course study continuously the bond market, and indeed, the capital market as a whole. This is a day to day matter.
Particularly necessary is it that the central bank should examine the country's balance of payments and its current and prospective development. Changes in imports and exports must be watched, and study of the effects of tariffs at home and abroad also comes into the picture.
Is the country a creditor or a debtor nation? If it is a creditor nation, is it employing its favourable balance in a manner to stimulate the international exchange of goods or services, or is it endeavouring to strengthen its reserves? Do these reserves need strengthening? If it is a debtor nation, how long can it or should it go on borrowing, and on what terms? If foreign debt is being repatriated, is the movement taking place on a scale likely to affect the domestic market or the exchange rate, or both? The general policy of the central bank will be dependent upon the answers to these questions.
But this policy will be only one factor in bringing about the state of affairs which it is desired to achieve. At all times the central bank must keep itself as well informed as possible in regard to the condition of and the outlook for business in the country's principal markets, so that it may as far as is humanly possible form some idea in regard to prospective developments, favourable or unfavourable.
Having taken all these factors into consideration, the bank decides what the volume of cash should be; that is the size of the combined cash resources of the commercial banks, upon which their credit structure will be based. But the appropriate amount of cash at any given moment cannot be determined without reference to the rate of turnover of the medium of payment, that is the rate of turn-over of deposits and money, sometimes called the velocity of circulation. This cannot be knowm with exactness, but such things as bank deposits and clearings and the course of prices give a good indication. Changes in the national income are more conclusive evidence, but may be available too late to be of use.

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There have been many examples of the policy of a central bank being determined by the real or supposed short term needs of its government. Sometimes, as in the case of a war, these needs are so pressing that they get the right of way, even if the actions taken are not in the long term interest of the country as a whole. But it is obvious that in the ordinary course of events such considerations should be definitely subordinated to the long term requirements of the economy as a whole.
Let me emphasize again that I do not want to convey the idea that a central bank by studying all these factors can arrive at conclusions which can be stated in precise mathematical terms. All this information, however, must be the subject of continuous study and continuous intelligent interpretation. It must be mixed with experience, business sense and a sound sense of public psychology.
This discussion of objectives and criteria has been necessarily somewhat abstract. Perhaps I can make it more concrete if I consider one or two suggestions which have been made by some critics who advocate a much more rapid expansion of currency and credit than has taken place since the Bank of Canada started its operations.
I shall take first of all the suggestion made by the hon. member for Rosthern (Mr. Tucker) on February 8 last, and if I criticize one of his suggestions I do not wish him to think that I am one of those to whom he referred as believing "that there can be no improvement in what they had conceived or what had been conceived prior to their day and generation." His contribution to the discussion of this matter was an admirable one, and if I disagree with his concluding suggestion in regard to monetary policy it is not because I question the sincerity of his convictions or depreciate the time and study which he has given to some of the difficult problems which concern us all. My disagreement is based on my own interpretation of current conditions, and the results which I believe would be sure to follow from his suggested program, which results in my opinion would be little short of disastrous to this country. He does, however, provide me with something which my social credit friends always fail to provide, that is something tangible by way of suggestion of what should be done by this parliament in the realm of monetary policy.
The suggestion of the hon. member for Rosthern is, in brief, that the Bank of Canada should issue, on the basis of the gold which it holds, an additional $560,000,000 of Bank of Canada notes in order to finance the con-

struction of highways, irrigation projects and other public works. He justifies this additional issue on the ground that the bank, holding as it does $179,000,000 of gold, would have, to quote him, "the right to issue on a sound money basis $718,000,000 worth of currency fully secured on a twenty-five per cent basis."


Richard Bedford Bennett: He overlooks the reserves.


Charles Avery Dunning: In the first place the
details of my hon. friend's calculations are not correct. Under the law the bank must keep a reserve in gold of twenty-five per cent, not merely of its note liabilities, but of its combined note and deposit liabilities. It must keep twenty-five per cent not only of the volume of its own notes but of the volume also of the deposits made by the chartered banks in the central bank.


Mr. TUCKER:: Pardon me, that can be suspended by order in council, can it not?


Charles Avery Dunning: That is the law.


Walter Adam Tucker: But by law it can be
suspended by order in council.


Charles Avery Dunning: No; I think not. Perhaps I shall clear up the point my hon. friend has in mind.
As the bank had over $209,000,000 of deposit liabilities on January 18, the maximum increase legally possible in its note circulation would be about $351,000,000 instead of $560,000,000 as stated by the hon. member for Rosthern.
Furthermore he states:
It is regarded as sound financial practice to have a gold coverage of twenty-five per cent; that is so regarded, I believe, even by the Bank of England.
What the hon. member is referring to, I believe, is a resolution passed by the world economic and monetary conference, held in London in 1933.


Richard Bedford Bennett: It is in our statute.


Charles Avery Dunning: Yes. However, it must first be noted that the twentyffive per cent minimum coverage recommended by the London conference was, as my right hon. friend the leader of the opposition will remember, recommended as an absolute minimum legal cover, and not as a desirable working ratio.


Richard Bedford Bennett: And the hope was expressed that it would not be so used.


Charles Avery Dunning: I am going to read that portion of the resolution of the London conference in order to demonstrate that point. The same resolution goes on to say that such legal provision- '
.	.	. must not be taken as an excuse for
unduly building up a larger superstructure of

Use oj Canada's Financial Resources
notes and credits; in other words the effect of this resolution should be to increase the free reserve of central banks and thereby to strengthen their position.
In practice the central banks of the world keep a substantially higher percentage reserve in normal times. On January 26, for instance, the reserve of the Bank of England was 32-7 per cent, based on the old valuation of gold. On the basis of the new valuation, of course, the reserve would be very much higher. The effect of this higher percentage in normal times is that when business recovery reaches a more advanced stage or gold outflows occur, the central bank's reserve may be allowed to run down without violating statutory limitations or causing a restrictive policy to be put into effect, with a consequent contraction in business activity.
In the second place it should be noted that gold reserves have a dual purpose. Not only do they provide a cover for domestic note circulation, but they also constitute reserves with which to meet a deficit in the balance of payments. The latter purpose, particularly in the case of a debtor country like Canada, might well have, at times, a more deciding voice in determining the amount of gold to be held, than the former.


Richard Bedford Bennett: That is the reason we seek a favourable commodity balance.


Charles Avery Dunning: Yes. Obviously the
amount of currency to be issued must be determined by the actual needs of -business rather than by an arbitrary ratio to the amount of gold which is accumulated for diverse purposes.
We come back, then, to the question whether the present volume of currency and credit in circulation in Canada is adequate for the needs of business and whether a further increase would be beneficial. It must first be understood that an increase in Bank of Canada note issue does not mean more notes in the hands or pockets of the public. Whatever medium be used for issuing the new currency or credit, such as the proposed one of financing the construction of public works, the central bank's notes would be immediately deposited with the chartered banks. An increase of, say 1350,000,000 in chartered bank holdings of Bank of Canada no-tes would increase their cash reserves from the present figure of about $250,000,000 to $600,000,000, and their cash ratio from about ten -per cent to roughly twenty-four per cent.
The sponsor of the suggestion contends that no inflation is intended or would result by thus increasing bank cash, so long as the gold cover of the Bank of Canada did not fall
below the twenty-five per cent minimum. This factor, however, is not a test of inflation. If the banks use their increased cash in the normal way, as a basis for the extension of roughly ten times as much in loans to the public, or for the acquisition of ten times as much in investments, bank deposits would expand by approximately an equal amount until the cash ratio was brought down again to approximately ten per cent. This would mean an increase in -bank deposits from the present level of about $2,387,000,000 to something like $6,000,000,000, or more than 2.6 times the level of December 31, 1929. Am I merely old fashioned or orthodox when I say that this would mean a colossal measure of inflation?
Perhaps there are some who believe that such inflation would be desirable, and on the effects of inflation, therefore, I shall be compelled to say just a word or two. Inflation does not increase material wealth but, by increasing the volume and decreasing the value of money, it redistributes wealth. Everyone who by custom or by contract receives income by way of fixed or nearly fixed payments loses by inflation, and everyone who owns real property or an equity in real -property gains, at least relatively. In Canadian society this means that the wage earning and salaried classes, the -people on relief, the -bank depositors, insurance policy holders, rent recipients and bondholders will lose. To give some idea of the order of magnitude of the classes involved, 2,600,000 Canadians are wage and salary earners, as against approximately 400,000 employers and 600,000 who work on their own account. There are approximately, I think, 900,000 persons on relief. There are 4,084,752 bank savings deposit accounts and roughly 6,500,000 life insurance policies in effect in Canada.
The generally deep-seated illusion that inflation will hit the wealthy classes has been exposed many times, by experience. The wealthy classes have generally a much smaller proportion of their wealth in the form of bank deposits, bonds, life insurance policies, annuities and other contractually fixed values than the middle and lower classes, and a much smaller proportion of their total incomes in the form of contractually or traditionally fixed payments such as salaries, wages, interest, rents, pensions and relief payments than either the middle or the lower classes. The wealthy classes do not, of course, all benefit in like proportion, because property values are not all affected in the same manner, but the large owner of equities and the skilful speculator in equities have all the odds in their favour.
No more deliberate method, in my judgment, can be conceived of taking from those
1152	COMMONS
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who have not and giving to those who have. The pitiful state of the great bulk of the population during the various inflation periods in European countries, and the long, painful struggle before the middle and lower classes ever recovered what had been lost in one stroke, are scarcely arguments for deliberately introducing a policy in Canada to benefit the lucky or astute gambler. No wonder the people of continental Europe, who have passed through a great world war and a great inflation during the last quarter century, are as much concerned to-day with the possibility of the recurrence of cumulative inflation as they are with the possibility of another great war.
Inflation may look like a scheme by which governments can get something out of nothing. It is not so. The mind of man has not yet solved that particular problem, and never will. Governments have only one source for the funds which they use, and that is the pockets of their people. No tax system may be wholly scientific or wholly equitable. Inflation, however, in my opinion is the most unjust and unwise system of taxation that has ever been devised.


John Horne Blackmore: Would my hon. friend permit a question? Has he, to his own satisfaction, proved that this $6,000,000,000 would create an inflation?


Charles Avery Dunning: Positively yes.


John Horne Blackmore: On what grounds?


Charles Avery Dunning: 
Mr. POOLE:: The Liberals denied that in Alberta.


Charles Avery Dunning: As I stated a moment ago, the velocity of circulation of both money and credit tends to rise very rapidly as confidence returns and business activity increases. If the ipublic believes that inflation is under way and that the government or the central bank is going to continue to inject new currency or credit into the monetary system, as would necessarily be the case if the program suggested by my hon. friend were accepted by the government, then they would begin to lose faith in the integrity of the monetary unit and a race from the dollar would begin. In other words, the velocity of circulation would increase with enormous rapidity and prices would tend to soar with ever-increasing rapidity.
During a period when this process is under way it is perfectly obvious that there is fertile ground for the development of those maladjustments in the economy which I have already mentioned. Prices do not rise at the same rate in all industries. In those industries where prices tend to rise most rapidly, the prospect of increased future profits acts as a magnet to new capital, and business men increase their investment in fixed plant and equipment. Much of the new investment will prove to be unwise. Speculative activity will become excessive and may find an outlet in commodities or in securities or in real estate, producing the whole series of evils with which we are all too familiar.
Furthermore, there will be maladjustments between the various types of prices-retail prices, wholesale prices, security prices, wage rates, prices of raw materials, prices of finished commodities, etc. All these conditions are the familiar product of an inflationary boom
which is bound to result in a serious depression. Essentially, a depression is a state of business in which maladjustments between various industries and between costs and prices make it impossible for a system of private enterprise to function normally, and a business recovery is the stage in which normal equilibrium is gradually being restored.
It may be asked why the central bank could not control such an inflationary boom as I have been describing and prevent these excesses from developing. My answer to that is that the central bank could probably perform that function, in large measure at least, if it began to exert its controls at a sufficiently early stage. But the point is that if there is a too rapid, and a too extensive, expansion of credit with a view to hastening recovery, the central bank's control is bound to be ineffective. Once the situation gets out of hand, the only thing which the central bank and the government can do is to introduce restrictive measures of such a drastic and comprehensive nature as to bring about the very depression which they had been trying to guard against.
The importance of this point will be recognized when it is remembered that the proposal being considered involves an immediate or rapid increase in bank cash of 240 per cent. I am aware, of course, that the hon. member for Rosthem has suggested that if inflation should threaten as a result of his program, the legal reserve requirement of the chartered banks might be raised to prevent any secondary expansion of bank deposits. Let us assume, first, for the sake of argument, that this could be worked out, although I believe my hon. friend would be the first to recognize the difficulties involved in timing and calculating the necessary adjustments in the reserve ratio to avoid inflationary expansion or deflationary restriction-as his construction program would necessarily extend over two or three years at least.
But if we assume it could be done, what would be the effect? I submit that one of the effects would be that we would be paying for the 8350,000,000 program by an indirect tax on the shareholders, depositors and borrowing clients of chartered banks. The banks would have additional deposits of $350,000,000, on most of which they would be paying interest, but through the control of the legal reserve an equal amount would have to be carried by them as idle cash reserves bringing no return. The additional interest load would be met either by reducing the interest paid on all savings deposits or by raising the rate of interest on bank loans, or by reducing dividends to shareholders, or by all three methods.

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Richard Bedford Bennett: Or by expanding business.


Charles Avery Dunning: Yes, I shall deal with that phase of it in a moment. Even if we are not concerned with any long run adverse effects upon our banking system, I ask if it is fair that the whole burden of such a program should be thrown on those classes in the community which use our chartered banking system. Alternatively, if this is the desire, why not impose a tax directly and be done with it, instead of assuming all the risks involved in tinkering with our currency and credit structure?
Apart from the initial effects of such a program, I shall mention only one other difficulty in the proposal to offset increases in bank cash by raising the legal reserve ratio. What is to happen when the $350,000,000 program has been completed? When the funds are all spent and the banks' cash reserve has been raised to twenty-one per cent, what will take the place of the artificial purchasing power injected into our monetary system? The program in itself will likely have done nothing to restore the normal functioning of the economic system. On the other hand, it may have done much to retard recovery by undermining confidence, by promoting undue expansion in one or more industries, 'by raising the prices of certain commodities, and by creating a more rigid and a more expensive banking system. If private enterprise is, as is probable, not ready to take up the slack, why not another $350,000,000 program of the same type? Moreover, if a $350,000,000 program is good, why not a $500,000,000 program? Why not, indeed, a billion dollar program? This is the inevitable record of such experiments with the currency.
Returning to the main proposal, I should mention the possibility that the increased bank cash might not immediately result in a tenfold or, indeed, in any expansion of circulating credit in use. If the business and financial world saw that the government and the central bank had committed themselves to a program of progressively expanding the volume of cash on a huge scale, precisely the opposite result might occur, at least for a time. Although ultimately the process of inflation would be almost certain to get under way, the first effects might be a general stagnation of business. Private business would be reluctant to make future commitments. Private individuals would hold a larger proportion of their funds in idle cash. The velocity of circulation of money and credit would decline, and this decline in the rate of turn-over would offset or possibly more than offset the increase in the volume of cur-
[Mr. Dunning.)
rency and credit. In other words, a contemplated program involving such vast inflationary possibilities might destroy the confidence of the business world in the soundness of conditions, and of the public generally in the future of their currency. In recent years we have seen more than one instance of such lack of confidence causing an almost insuperable obstacle to business recovery. The government would, of course, be creating purchasing power by its large public works program financed by inflation, but it would probably be found that the retarding of private business enterprise would much more than offset the stimulus which the government was trying to give.
The fact is, Mr. Speaker, that government spending cannot make up for the paralysis of private enterprise and of private spending which is created by fear and uncertainty. Under an absolute dictatorship, with complete regimentation of business and the private citizen conditions might be different; but under an economic and political system such as ours it is essential to maintain the confidence of the millions of individuals and organizations that make their own decisions as to whether they will or will not spend and invest.
The second suggested program for expanding currency and credit to which I wish to devote some attention is that series of proposals which goes under the general title of social credit. Hon. members will realize that most of what I have already said is a criticism of this doctrine, although I have not addressed myself to the precise terms in which social credit theories are couched. Also, hon. members who have sponsored social credit in the house will not expect me to deal with all their arguments or all their definitions of terms or all the variants of their theory, as presented by themselves or by the founder of their school. Even they, I think, must realize that the numerous volumes in which their high priest has expounded his doctrines are masterpieces either of confused thought or of studied ambiguity, and that every time he has been put up against prescribing a concrete program for a specific problem, he has again been a master of evasion. I am afraid that even my hon. friends have learned much from him in this respect. The debates of the house contain many social credit speeches, but it would take a magnifying glass to discover any concrete explanations made in those speeches as to how the program is to be carried out. The other evening when the leader of the social credit group (Mr. Black-more) was advocating the creation of credit to supply all the needs of our people, he was asked by the hon. member for Selkirk (Mr. Thorson) to explain just how it was to be

Use of Canada's Financial Resources
done. He proceeded to explain in some detail what scarcely needed explanation, why the United States should have more money and credit than Newfoundland; but the explanation asked for was left for another time; and I know my hon. friend will forgive me if I say that this afternoon, after inviting questions, he always carefully deferred an answer to a specific question to some future occasion.


John Horne Blackmore: If my hon. friend will permit a question, has he now proved to his own satisfaction that six billion dollars in the banks -would cause inflation?


Charles Avery Dunning: I have no doubt of that.


John Horne Blackmore: Has he proved that?


Charles Avery Dunning: I think so.


John Horne Blackmore: I do not.


Charles Avery Dunning: However, with the background which I have already given of monetary policy in this country, I propose to comment on a few of the special points in the social credit doctrines.
Let me say at once that, in my opinion, social credit rests upon an incorrect diagnosis of an existing malady and prescribes a cure which would be dangerous in the extreme. In other words, the whole theory is based upon a false premise, and the whole program which derives from that theory is unsound and pernicious.
The false premise to which I refer is that, as an inevitable result of the working of our present economic and financial system, there is a chronic shortage of purchasing power in the hands of consumers. This deficiency is supposed to arise from the fact that, of the costs incurred in the production of commodities for sale, only a part have involved the distribution of purchasing power to potential consumers. In other words, if the cost of a pair of shoes is ten dollars, only, say six dollars of that cost represent all the payments that have been made to individuals as wages, salaries or dividends-which are called "A" payments by Major Douglas-and the remaining four dollars represent payments made to other organizations for raw materials, bank charges, etc.-which are called "B" payments. Similar assumptions are made as to all other commodities sold in the community in the course of a year. Now, the theory alleges that, as individuals who are the potential consumers always receive for their work in production less than the total cost of the products of industry, they never have enough purchasing power, enough money and credit, with which to buy those products of industry. We
have all heard that stated in the house time and time again. Because of this shortage of purchasing power, which according to the analysis is inevitable and also permanent, we are bound, it is alleged, to have gluts of commodities, surpluses of goods that cannot be used by the public because they have not enough money with which to buy them, "poverty in the midst of plenty," periodic depressions, wars and tariff struggles and all the other evils to which flesh is heir.


Mr. MITCHELL:: May I ask a question?


An hon. MEMBER:: Mr. Speaker-


Charles Avery Dunning: One at a time, now.


Archibald Hugh Mitchell: I should like to ask the hon. gentleman, if the theory which he has just explained does not cause the difficulty that he has referred to, what does?


Charles Avery Dunning: I understand the hon. member is speaking next. If I omit anything along the line of his question, I trust he will develop it.
This which I am quoting is an analysis, oriefly stated, upon which Major Douglas has stated his whole program must stand or fall. In the language I have just used I have been paraphrasing as fairly as I can Major Douglas. Does it sound convincing to hon. members?


Eric Joseph Poole: Mr. Speaker, will the hon. gentleman permit a question? I want to ask him if he did not make a mistake when he said that our theory was that the system did not supply a sufficiency of purchasing power at any one time. That is not the premise of our argument at all.


Some hon. MEMBERS:: Order.


Eric Joseph Poole: It should be this way, I think.


Some hon. MEMBERS:: Order.


Eric Joseph Poole: AVhy raise a false premise?


Charles Avery Dunning: My hon. friend is not asking a question; he is making a speech. I understand that he is on the speakers' list, and he will be able, of course, to make any explanation he wishes. I am endeavouring to state the Douglas theory without quoting at great length from all the Douglas books and to state what I think anyone will agree with, namely, that Major Douglas' theory on which, he states clearly, his whole program must stand or fall, is this "A" plus "B" theorem or analysis. There is at first sight an air of plausibility about it, and, particularly when it is stated in the mathematical terms of the so-called "A" plus "B" formula, a superficial mind like

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mine which has forgotten its algebra is likely to >be awed into an acceptance of it as a mathematical truth. Particularly in times of severe depression it is likely to win unthinking acceptance, because in such periods, as we have already noted, there is likely to be monetary and credit deflation. This temporary deflation of money and credit demands an appropriate remedy in the type of monetary policy which I have previously discussed. But the error of Major Douglas is that, finding this type of temporary deflation in the immediate post-war depression when he began his investigations, he was led to erect a general theory which contends that there is always and inevitably a deficiency of purchasing power created by the working of our present system.
The falsity of his analysis has been exposed time and again by economists-not only the orthodox economists but even including such an unorthodox one as the communist John Strachey in his book on The Nature of Capitalist Crisis-and those who have time to go into it in more detail should read one of these exposures-for instance, Gaitskell's chapter in G. D. H. Cole's volume on What Everyone Wants to Know about Money. But let me indicate briefly a few of the major errors underlying the analysis. In the illustration I used of the -pair of shoes costing ten dollars, payments amounting to four dollars were assumed not to go to individual consumers -but to other firms and organizations. Most of this, say three dollars, would represent payments made for the purchase of raw materials such as leather, etc., and it does not take long to realize that the three dollars recovered ,by the shoe manufacturer as part of the sales price of ten dollars for his shoes goes to pay wages and salaries of the long line of people making the leather and other materials purchased by the manufacturer in order to make his shoes. But, says Major Douglas, this argument disregards the element of time. The money received by the farmer who raised the live stock -and the tanner who produced the leather, etc., has been paid out in the past in an earlier stage of production, and so is not available in the present when the pair of shoes has to be purchased by someone. But obviously this attempted rebuttal entirely overlooks the fact that industry is a continuous process and that at all times producers and industries are operating side by side in all. the various stages of production. It is evident, therefore, that industry as a whole is making available purchasing power equal to the total "A" payments made and these in turn will equal the cost of production of all consumer goods

produced. Were it not so, our economic system would have broken down completely long years ago and we would now be operating on an entirely different type of system.
It is true, of course, that a deficiency of purchasing power may arise if there is a breakdown in the continuity of the productive process, and these break-downs do occur. But these periodic break-downs are what we mean by depressions and they call for their own appropriate remedies. They are not the phenomena which Major Douglas is attempting to analyze and prescribe for.
Another error which the social crediters make is to overlook entirely the fact that consumers do not buy the whole product of industry. A very substantial proportion of the total product of industry consists of producers' or capital goods-machinery, tools, equipment, etc.-which never come into the hands of consumers and which they never have to buy. The firms which are producing these capital goods pay wages, salaries and dividends which constitute purchasing power in the hands of consumers for the purchase of consumers' goods produced by other industries. It is, therefore, absurd to contend that sufficient money should be placed in the hands of consumers to enable them to purchase the entire produce of industry.
Finally, the social crediters overlook, in my opinion, the importance of the velocity factor to which I was referring a few minutes ago. They appear to forget that a dollar may turn over fifteen to twenty-five times in the course of a single year and thus do the money work of S15 to $25. Thus in 1929, when the total volume of business transactions in Canada amounted to fifty-two and a half billions of dollars, the total volume of money and credit in circulation was estimated at less than two and a half billion dollars. Would the sponsors of this theory contend that the volume of money and credit should have been increased to fifty-two and a half billion dollars, in order to provide purchasing power in the hands of consumers for all of the transactions which took place during the year 1929?
So much for the false foundation upon which, in my opinion, the social credit program rests. What about the program itself? It is impossible here to go into the myriad complexities and variants of the program; but as one would expect, it involves an attempt to provide a compensation for the supposed chronic shortage of purchasing power in the hands of consumers, which Major Douglas has been at such pains to demonstrate.
Most of the positive devices which are suggested will be recognized by all as frankly inflationist. This applies particularly to such

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suggestions as social credit dividends of 825 per month, payment of old age pensions by so-called monetizing of the national credit, and other devices of a similar nature. But the main part of the program as expounded by Major Douglas does seek to avoid inflation by providing for a reduction of prices by a certain proportion by government decree. How this proportion is to be arrived at is a technical problem and remains a mystery. Producers who sell at the lower prices once they have been established become entitled to credits supplied by the government equivalent to the difference between the old and the new prices in respect of each article sold. Ho interest is charged on these credits and no security is required therefor-they are really subsidies based on the national credit. The theory, of course, is that as a result of these credits or subsidies producers will find themselves as well off as they were before their prices were lowered, while consumers have obtained the benefits of the lower prices and are able with the same money incomes to buy more goods. It is evident that the total amount of these credits or subsidies given to producers involves a huge total; for they are designed to make up for the shorts age between the cost value of total consumption and the money value of total production of the country during a given period, say one year, and the estimates made by social crediters indicate that only from two-fifths to one-ninth of the total production of a given period is consumed. It is apparent, therefore, that the new purchasing power thrown into the monetary system would be of colossal proportions.
It should be obvious, from what I have previously said, that this program would involve inflation on an enormous scale, with skyrocketing of prices and all the maladjustments of an artificial boom.


John Horne Blackmore: Will the minister permit a question?


Charles Avery Dunning: My hon. friend was
courteous this afternoon and I do not mind if it is a question, though I should like to get through to-night.


John Horne Blackmore: I wonder if, while I ask the question, I may inquire whether the Liberals will show us the same courtesy we showed them. The question is this: Will the hon. gentleman tell us where he has got all this information in regard to the two-fifths and one-ninth? What authority is he quoting?


Charles Avery Dunning: What authority?


John Horne Blackmore: What social credit authority is he quoting for all this?


Charles Avery Dunning: Well, I have had the benefit of reading, as my hon. friend has had. I shall not say that I have read as widely as he; but one thing I do not do, and that is to pick out a quotation from a man's book in order to back up a point I am making, when I know that the trend of the whole book is directly against the theory I am advocating. I do study these matters; I have to do so in my capacity as Minister of Finance. I discuss them frequently with my technical officers, and endeavour to shape my own views and the views of the government, in so far as I can influence them, with respect to monetary matters, and I may tell my hon. friend that ever since this session opened I expected to have to face this question in parliament and have been very carefully preparing myself for it. Moreover, I have been very careful to-night to stick as closely as possible to the text because, as I said at the outset, I have a very deep sense of responsibility with respect to the influence, not on my hon. friends, but on the credit of Canada generally, of anything which a man occupying the position of Minister of Finance says with reference to such matters.


John Horne Blackmore: May I ask another question?


Charles Avery Dunning: Certainly.


John Horne Blackmore: I am wondering why the Minister of Finance cannot tell us where he has got his information with regard to the figures he has quoted.


Charles Avery Dunning: In quoting the Douglas theory I have attempted to condense within a narrow compass my conception of it from what Major Douglas has written in many books, and from what my hon. friends have been saying in the house during the last two or three years. It is my own opinion. If my hon. friends believe that I am wrong in any particular, if is their privilege to point out, after reading in Hansard what I have said, wherein I am wrong. That is the privilege of debate. It is by that method that we all endeavour to arrive at the truth. I am endeavouring to state what is my opinion, what is my conception of the thing I am talking about.
To continue, if the program were continued, this inflation would be progressive and cumulative, and before long the experience of post-war Germany would have little to teach us. Of course, Major Douglas says that at the first sign of rising prices no more new money would be created.


Mr. QUELCH:: He never said that.

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Charles Avery Dunning: If this promise is to be taken literally, then the social credit program would be at an end, and presumably we would have to worry only about the effects of the first dose of inflation. I am afraid, however, that under a social credit regime the promise could not be taken literally, and at the best we would find continuing doses of inflation on an enormous scale with attempts by the regime to counteract the effects of inflation by the fixing of maximum prices. This would lead inevitably to the assumption of control over all industries, trades and economic activities and the complete regimentation characteristic of an authoritarian state. Moreover, as history has shown repeatedly, for instance in the fiat money period of revolutionarjr France and in the hyper-inflation period in post-war Germany, the attempts at fixing maximum prices, regulating wages, and so forth, would be futile and ineffective, even though the death penalty were imposed against offenders.
I have dealt all too briefly with the positive program of social credit, but I think the members of the house are sufficiently aware of the nature and implications of the program to make a more detailed appraisal unnecessary.
In conclusion, I have traced the history of our monetary policy in the last few years, and have tried to show, I fear at too great length, the reasons why I believe that this policy, in the recent past at least, has been well considered, and why some of the alternative policies which have been suggested should not be adopted. Our policy has been and is an easy money policy which has resulted in an expansion of our credit base and of the volume of credit in use at a rate which is believed to be in harmony with the best interest of the economic life of the nation. It is a policy which recognizes the part which monetary weapons can usefully play in stimulating and supporting business recovery, but not one based on the belief that monetary factors are the sole factors to be considered. It is a policy which has retained the confidence of the business man and the private citizen, not one which has created fear or uncertainty. It is one of the factors responsible for the fact that our economy has shown a consistent, and indeed rapid, recovery; not one characterized by fits and starts.
Of course much remains to be done. One of our important industries has been prostrated by the recurrent ravages of drought Unemployment has declined substantially, but we still have employable persons who are unemployed. These and other problems must be attacked on many fronts. Fundamentally our need is an actual increase in material wealth, not a different yardstick with which

to measure it, or the deliberate ruination of one class for the imaginary benefit of another. Such an increase in material wealth can be best secured by facilitating the production of the many commodities which Canada is best adapted to produce, and by exchanging these products on as large a scale as possible for products which Canada cannot advantageously produce, receiving in return for our exports, as much rather than as little as possible. Monetary policy will continue to have its part to play, and I am confident that the administration of Canadas monetary policy by the Bank of Canada is in capable hands, and is directed to the single purpose of promoting the best good of all Canada in so far as monetary policy can be effective to this end.


Archibald Hugh Mitchell: May I say to the Minister of Finance (Mr. Dunning) that I did enjoy his essay. It will be necessary to read and study it in order to deal effectively with it.
May I say also that when I came to this house I had some fixed ideas and some firm prejudices. One of those prejudices was political; another was perhaps against individuals. There have been times when I actually doubted the integrity of the Minister of Finance and the men who control finance in Canada. But I should like to say that as I have come to know them better, I came to understand my prejudice more, and I think what we have to say can be more useful according as we lose our prejudices.
In seconding the motion of the hon. member for Lethbridge (Mr. Blackmore), my leader in the house, may I say that I believe this government is actually in a negative position. It is in the strange position of having a leader who stated in the house, while in opposition, that usury once in control will wreck any nation. Now, Mr. Speaker, I agree completely with the right hon. gentleman in that statement. But I have not seen any evidence that he or his government has done anything to free this country from that condition.
Let me explain exactly what I mean. I was so impressed by that statement that usury, once in control, will wreck any nation, that I looked up the definition of the word "usury". The first definition I saw was, "the fact or practice of lending money at interest". I looked in six different dictionaries in the parliamentary library in order to see whether there was any disagreement, and I found they agreed in the definition that the fact or practice of lending at interest is usury, with

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the added meaning especially in later use, of "the charging or taking of excessive or illegal rates of interest."
In the light of what I have found since I discovered the meaning of that word "usury," and in view of the statement I have quoted as to its effect when in control of a country, the striking thing is that the effect of lending principal and recovering interest is the accumulation of a tremendous debt, which is growing rapidly. When principal only is borrowed by a borrower, and principal plus interest is repayable at maturity, the principal and the interest are of exactly the same material, namely dollars. If I borrow $940 and repay $1,000. that is, if I borrow at six per cent discount, I am returning $60 which I did not receive. If every person who borrows a sum of money, when he makes repayment repays the principal plus interest, then surely, since the material which he uses for repayment is the same as what he borrowed, he must be repaying with part of someone else's principal. Therefore it is not surprising to find that usury-or use the term interest if you like

the payment of interest for the money which we have to use to exchange our goods and services, is part and parcel of an idea which is in control of this nation. That fact I would say is the pons asinorum of the new economics.
Every time principal is lent money goes into circulation; every time loans are repaid money comes out of circulation. But since principal only is lent, and principal plus interest repaid, more money must come out of circulation than went in, which is nothing more or less than impossible. The result is debt. So I say that if the Minister of Finance has successfully disposed of the "A" plus "B" theorem, we have yet to hear how he is going to dispose of the debt problem, which confronts individuals, businesses and governments, whether provincial, municipal or federal.
It is like a gigantic poker game. I happen to know something about the game. I know that the man who runs the game is called a banker. That may be a coincidence. The banker "drags" each pot; it is only a small drag, hardly a percentage of the pot each time; but as the game goes on and the banker keeps dragging, if the same players stay in the game, eventually the banker must have all the money. Unless new players come in, eventually all the players, or at least some of them, are bound to be in debt to the banker. That is the way it operates.
Now, when money goes into circulation as debt, and like a comet returns bringing with
it a tail of interest, the busier and more productive we are the more money is borrowed, the more principal is used up in paying interest, and necessarily the more debt must accrue. The fact has been borne out by the findings of the Bank of Canada in connection with provincial operations in the three western provinces, and because of it, if not because of the "A" plus "B" theorem, if your personal difficulty and that of all the people whom you know, or know of, is lack of money, is it not obvious that the central national difficulty is but the aggregate of the difficulty of all the citizens, and that the scarcity of money is our paramount national problem?
Those are not my words, Mr. Speaker. I have quoted from the foreword to Professor Irving Fisher's book One Hundred Per Cent Money, which was. written by Robert H. Hemphill, formerly credit manager of the federal reserve bank of Atlanta. He goes on to say:
We have ample producing and distributing facilities to supply everyone with an abundance of the essentials for a high standard of living, and we are desperately anxious to produce, but we haven't sufficient money to effect the exchange of our goods and services.
We are dependent for sufficient money upon the judgment of a few men, whose integrity I am not questioning for one moment, although, as I said to the Minister of Finance, there was a time when I was narrow enough to have done so. It is hardly possible to conceive of the effect of compound interest. It is impossible to pay simple interest. How are we going to pay it when you compound it?
So, Mr. Speaker, the technique which is suggested by Major Douglas deals with that phase of the difficulty. The growth of debt may be judged by the fact that in the seventeenth century world debt increased forty-seven per cent. At the end of the eighteenth century world debt had increased 466 per' cent. At the end of the nineteenth century world debt, public and private, had increased 12,000 per cent. Professor Rauten-strauch, of Columbia university, taking 1800 A.D. as the year of origin and one hundred years as the unit of world debt, says that world debt is now increasing as the fourth power of time-of time, not squared-in spite of the bankruptcies, the various repudiations, writings down and so on. That is an appalling fact, and it requires some solution. The "A" plus "B" theorem has not been disproved to my satisfaction by the Minister of Finance, and there are many other points he made with which I am not going to take time to deal; but that does not by any manner of means dispose of the problem. It is a fact that
The late Peter Sinclair

history shows that when debts become unbearable, a means is always found of repudiating them. In France it was revolution; in Germany it was inflation, and in Russia it was both.
The position of this government is a negative one, because on the assertion of the minister himself, the government with parliament holds the means of correcting or finding a solution to that problem, which lies in the source of money and the means by which people obtain it; for now it comes only as a flow of principal through production. With the complications of mechanization and all the other complications such as unemployment and so on, it does not carry the burden it is expected to bear. I should like to quote the right hon. Prime Minister (Mr. Mackenzie King), who said in the house:
Once a nation parts with the control of its currency and credit, it matters not who makes the nation's laws. Usury, once in control, will wreck any nation. Until the control of the issue of currency and credit is restored to the government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of parliament and democracy is futile.
Has this government shown evidence that it has accepted its most conspicuous and sacred responsibility? I am sure that at the moment the position of the government in that regard is negative. It has stopped Alberta from trying to exercise sovereignty; but nothing is done to apply the sovereignty of the dominion over money power for the benefit of the people of Canada, except in the opinion of those who control the Bank of Canada, the Department of Finance and so on. Certainly something more is needed than reliance on exporting to foreign markets. Alberta has been stopped from trying to find a way out along the path of social credit. All right; the responsibility then is upon the dominion government to achieve better results.
Money technique and an accurate accounting system are required, not a poker game complete with banker. The government may feel satisfied with the results that are to be seen in the trade statistics, where Canada is shown to be exporting more than ever to the markets abroad. This is not a proof of anything except that we in Canada deprived ourselves of 86,000,000 worth of our own produce. Did we do so because no one here was hungry, because all the people were warmly housed and well clothed? No, Mr. Speaker, we did not.


Mr. SPEAKER:: Eleven o'clock.


[Stage Direction]
At eleven o'clock the house adjourned, without question put, pursuant to standing order.

Wednesday, March 9, 1938