Mr. VICTOR QUELCH (Acadia):

Mr. Chairman, I rise to oppose the resolution because I am opposed to the financial policy of this government, a policy which in my opinion is forcing the people of this country further and further into debt, resulting in increased taxation and a steady lowering of the standard of living of the people.

Some members appear to believe that the present system has operated satisfactorily in the past and that there is no reason why it cannot continue to operate satisfactorily in the future. But, as was pointed out by the hon. member for Calgary East (Mr. Lander-you) the other day, the present system is a debt-creating system, and so long as we operate under it our debts are bound to increase steadily until eventually our fixed debt charges may well be in excess of our total revenue.

What is the result of this system? In the field of physical accomplishment it is no doubt one of which we may well be proud. But in the economic field it is one which must be a matter of concern to every thinking individual. The record of the present system has been that of building up enormous unrepayable debts, federal, provincial, municipal and private, resulting in default on

Loan oj $750,000,000

bonds and mortgages, in bankruptcies and wholesale cancellation of debt, this very often taking place in the face of tremendous selfdenial and long hours of overtime on the part of the people. Perhaps the greatest condemnation of the present system is that it creates an artificial scarcity in the face of potential abundance, and restricts production in the face of actual want, thus causing starvation and destitution.

We find many people in their smug complacency telling us that the system has operated satisfactorily in the past. I would say that the present system is a dishonest one; because what moral right have we to mortgage the production of future generations? What right have we to place a debt against unborn generations? To my mind the present financial system is nothing more or less than a gigantic racket, wherein the Minister of Finance has been placed in the position of acting as a collector for these financial racketeers. We are told that this system is highly efficient and that it has operated satisfactorily, but I would say, satisfactorily from whose point of view? From that of the bankers, certainly. But a system which has operated so as to force the people of this country steadily further and further into debt can hardly be considered from their point of view a satisfactory system.

The motion is-

-to raise by way of loan under the Consolidated Revenue and Audit Act, 1931, an amount not to exceed in the whole the sum of seven hundred and fifty million dollars for paying or redeeming the whole or any portion of loans or obligations of Canada, and also for purchasing and withdrawing from circulation unmatured securities of Canada, and for public works and general purposes.

WTe are opposed to the policy of the government as exemplified by this resolution, because we feel it is a policy which is largely responsible for the poverty that exists throughout the country; and it is our intention to move an amendment. I had hoped that this amendment would have been moved before I spoke, but it will be proposed, after I have finished, by the hon. member for Calgary East (Mr. Landeryou).

We hear a great deal about the dangers of communism and fascism. The greatest protection against communism or fascism is a happy and contented people. Both these "isms" thrive on discontent, and discontent is rife from one end of this dominion to the other. The failure of this government to bring about any really progressive policy is responsible, more than any other single factor, for the growth of fascism and communism. For several years we have been told that the major problem is unemployment. The Bank [Mr. Quelch.l

of Canada report points out that unemployment must be regarded as a long-term problem. But 1 would point out that employment is merely a means to an end; that end is economic security for the people. The real problem therefore is not so much one of employment as of providing social security for the people.

Have we any reason to believe that this resolution will help to bring social security to the people? I am afraid that all we can expect is that it will help to bring about better conditions of a temporary nature, but eventually it must mean an increase of debt, resulting in more poverty. For generations the best brains of the world have been endeavouring to find ways and means by which the productivity of mankind could be increased, and to-day we have at last reached the position where we have actually created a surplus productive capacity both of manpower and of machine-power. We have emerged from an era of scarcity into one of abundance. We have now reached the stage where it is not only possible but logical that the people of this country should be able to enter an era of greater leisure. It is a picture of which we might well be proud. But what do we find? We find at the present time the Minister of Labour pitting his puny weight against the combined brains of the scientists. They on the one hand are making it possible for more and more people to be relieved of the heavy and long toils of labour; he on the other hand is trying to put more men back to work. Unquestionably he is fighting a losing battle, and I -would say it is a good thing that he is, because his policy is one of reaction.

What is the situation in Canada to-day? We have a great productive plant in the form of factories, farms and mines, working at only a small percentage of their capacity; great natural resources barely tapped; great reserves of energy, a large surplus of unused labour in the form of the unemployed; and, in addition, a favourable balance of payments in the neighbourhood of, I believe, $185,000,000. It is a glorious picture, and one of which we might well be proud. I suppose that if anybody who was unfamiliar with conditions in Canada were confronted with that picture he would immediately say, "Undoubtedly there cannot be any poverty in Canada; for you must be enjoying a very high standard of living". He would be justified in coming to that conclusion, because there can be no excuse for having a picture of that kind on the one side, and on the other approximately a million people on the verge of starvation, with thousands upon thousands suffering from a very low standard of living.

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We hear hon. members and people outside the house criticize industry for not having more confidence, for not expanding; but how can industry expand when it is already in the unfortunate position of having difficulty in selling its products? It is true there is a large physical demand for goods in Canada to-day, but what good is that physical demand unless it is backed up by money? We therefore contend that steps will have to be taken to put money in the hands of the general consumer so that it will be possible to make that great physical demand effective against the production of the country. Until this is done it is useless to talk about industry expanding.

The reason for this 'condition-we have stressed it in this chamber many times, and I do not wish to labour the point-is that industry is not in a position to create, except in times of excessive capital goods construction, an effective demand for its own production. When, on March 14 of last year, I spoke in this chamber, I dwelt at some length on this subject, and I do not intend at this time to go over that field, but in passing I would merely mention what I believe are three of the main causes: (1) the practice of charging profits into prices without distributing purchasing power to pay those charges; (2) the practice of saving and the reinvestment of savings, which increases production without bringing about a corresponding increase in the effective demand of the people; and (3) the repayment of old debts, which results in a certain charge being put into prices to recover those debts, without a corresponding issue of purchasing power to pay them. As these deficiencies are occurring concurrently with production, and as production goes on continuously, it is quite obvious that a deficiency must occur continuously as well unless, as already stated, there is a certain definite volume of capital goods construction. I call that point to the attention of the Minister of Finance because when he spoke last year he said that we had absolutely ignored the question of capital goods construction; and yet when most of us have spoken on this point we have mentioned that there must be a certain definite volume of capital goods construction, or in other words you must maintain a definite relationship between capital goods construction and the production of consumption goods.

Mr. DUNNING:

What relationship?

Mr. QUELCH:

The very first time I spoke in this house at the first session I laid down the premise that industry could not create an effective demand for its own production unless you had a sufficient volume of capital goods

construction, so that the salaries, wages and dividends paid in that production were equal to the deficiency of purchasing power that existed as between total prices of consumer goods and the purchasing power distributed in their production. You have to maintain that relationship; otherwise there will be a lag in the demand for consumer goods. It must be obvious that there is a definite limit to the amount of capital goods production, that can be carried on because there is no use in building factories if you cannot sell the goods produced by the factories already in existence.

This resolution proposes the borrowing of money for capital goods. That is a very fine thing and in that way the deficiency might be made up temporarily. But, I repeat, inasmuch as the deficiency occurs continuously with production it stands to reason that you cannot make it up by borrowing money on a permanent basis. That money will have to be issued debt free if you are ever to make up the continuously recurring deficiency. It must be obvious that borrowing money to make up a continuously recurring deficiency can only result in steadily increasing debt. If, as we have done in the past, we can have the banks create money for our use, without that action resulting in inflation, then I say that there is no reason under the sun why under similar circumstances we cannot use the Bank of Canada for the purpose of creating money without any greater danger of inflation, thereby saving the people of Canada millions upon millions of dollars in interest.

With some members the term " inflation " has become an obsession; it is like waving a red rag in front of a bull. They are afraid to feed starving people for fear that those people will eat so much that they will burst. In other words, they are afraid to give money to starving people to buy the goods that are available for fear that they will buy so many that there will be a resulting shortage. Now, we fully realize that there is a well-defined limit to the amount of money that can be issued in any period, and so long as it does not go beyond that limit there need not be any fear of inflation.

Mr. DUNNING:

What is the limit?

Mr. QUELCH:

The limit is the amount of money necessary to make the great physical demand of the people effective against the production of the country; that is to say, if you have on the one hand goods unsold and on the other hand people requiring those goods, you can give them enough money to buy those goods without any possible danger of inflation. There may be a danger of

Loan of $750,000,000

exploitation. Industry might say, " Seeing that there is more money in circulation we will take advantage of that fact to raise prices." But that is a matter for government control. In England during the war it was necessary for the government to exercise such control. The day that war was declared prices started to go up without any increase in the money in circulation, simply because industries wanted to exploit the people. The government therefore took action. That is not inflation but exploitation, and the government, will always have to take the necessary action to avoid it if prosperity is to be brought about by an increase in money.

Some members contend that if our argument is sound the system would have crashed long ago. I would point out that the system has been kept in operation by the creation of enormous unrepayable debts, bankruptcies and unnecesary starvation. I should like to give briefly two examples to show how the system has been kept in operation in the past. First, I would take a highly industrialized creditor nation, England, and secondly, the Dominion of Canada.

What about Scotland?

Mr. QUELCH:

This will apply to Scotland as well as England. At any rate I am going to quote a Scotsman.

Mr. REID:

Be fair; call it Great Britain.

Mr. QUELCH:

Very well, though he calls it England. I quote from Reginald McKenna, who I believe is a Scotsman, in a speech he made to the American Bankers' Association on October 5, 1922:

For over two centuries British capital, that is, credit, had been lent to other countries; year by year England produced more than she either consumed herself or could exchange for the products of other nations, and she could not obtain a market for the surplus unless she gave the purchaser a long credit. Foreign loans and foreign issues were taken up in England and the proceeds were spent in paying for the surplus production. British factories and workshops were kept in good employment, but it was a condition of their prosperity that a part of their output should be disposed of in this way.

That is to say, for over two hundred years England consumed only a portion of her production.

Mr. DUNNING:

Are you quoting McKenna now?

Mr. QUELCH:

Mr. WOODSWORTH:

Might it not have been given in the form of wages and services?

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Mr. QUELCH:

I am not saying it could not. It could have been used to finance public works, but if it had been given as wages for producing goods there would have been that many more goods left unsold.

Mr. WOODSWORTH:

I mean higher wages and increased public services.

Mr. QUELCH:

If you have higher wages you immediately increase costs; prices would rise, and the discrepancy between goods and prices would continue, unless you controlled the prices.

Mr. HAYHURST:

And better homes.

Mr. QUELCH:

I will refer to that. But this article in the Times supplement says-

Mr. DUNNING:

Who wrote it?