Mr. J. C. LANDERYOU (Calgary East):

Mr. Chairman, nothing affects the economic welfare of our country more than our money policy. We have contended that our monetary system must reflect the country's collective ability to produce and distribute goods and services for the people of Canada. The borrowing of this $750,000,000 will affect every man, woman and child living in Canada to-day, and it will affect also the lives of every man, woman and child who may live in Canada in the years to come. We maintain that our monetary system must be corrected if civilization is to progress. Every time we make a proposal the Minister of Finance (Mr. Dunning) raises the issue of inflation, but I should like to refer to a statement by the minister as reported on page 1527 of Hansard of March 3, 1939, as follows:

My hon. friends deny on all occasions that they advocate inflation, but they propose resolutions similar in terms to the one we now have before us, which does mean the issue of currency by the Bank of Canada to the extent of from $500,000,000 to $750,000,000 more currency than is now outstanding, which would mean an increase in the total currency available in thip country of from two and a half to four and a half times. Now, my hon. friend says he does not advocate inflation.

I say once more that we do not advocate inflation. It is well to remember that the provincial debt, the municipal debt and the national debt are all increasing. In 1912 the net debt of Canada was $339,919,461. In 1913 it was $314,301,625 and in 1914, $335,996,850. At that time the debt was approximately equal to the amount of currency available in the country, tout to-day our debt is atoout eighteen times greater than the amount of currency in circulation. Our provincial debt in 1925 was $813,400,000, about five times greater than all the currency available in circulation. By 1935 this had risen to $1,622,100,000, or albout ten times greater than all the currency available in circulation. In 1926 the municipal debt was $1,050,206,121, or six times greater than all the currency in circulation. By 1935 this had risen to $1,452,850,565 or nine times greater than all the currency in circulation. So our total

municipal, provincial and federal debt is many times greater than all the currency available in circulation.

Considering the tremendous inflation which has occurred in the debt of the country, it is hardly right to say that the issue of $600,000,000 would be inflation. I suggested that the government should issue $600,000,000. This issue would be without cost to the government, apart from the cost of printing. But what was the answer of the Minister of Finance? His answer was in these words:

An increase of say $350,000,000 in chartered bank holdings of Bank of Canada notes 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 a 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.

If instead of issuing bonds and having the bankers create credit out of nothing, as we have done in the past, the government would issue $600,000,000, under our present banking laws it would mean inflation. If the banks were permitted to take $600,000,000 worth of cash and expand credit ten to one, it would mean an increase of $6,000,000,000 in the credit of this country. That is provided there were borrowers who would be prepared to take the money. Our banks cannot always get rid of their surplus credit, and this would depend upon whether or not there were borrowers ready to borrow from the banks. At the present time it must be remembered that our banks have only ten per cent cash reserve. Time and time again the government have said that they have control of the issue of currency and credit day by day, week by week and month by month. If the government takes action and forces the banks to increase their cash reserves, takes action to prevent the banks from inflating credit, then there would not be one dollar's worth of credit expansion in this country. The Minister of Finance knows that full well.

Mr. DUNNING:

I take no exception to my hon. friend advancing his own argument, but I must protest when he states that I agree with it. I do not.

Mr. LANDERYOU:

I should like to ask the minister what is wrong with that. I shall ask him this question.

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Mr. MICHAUD:

There is nothing right about it.

At the moment there are approximately $2,000,000,000 of bank deposits in this country, while the cash reserves amount to only 8300,000,000. If there was a run on the banks what would happen? The banks would not have the cash to meet their obligations.

Mr. DUNNING:

That is not correct.

Mr. LANDERYOU:

It is correct the way the law is at the moment. The banks have not the cash to meet their deposit liabilities.

Mr. DUNNING:

Lest the Canadian people gather from m.y hon friend's remark that there is some uncertainty regarding their deposits in the chartered banks, I wish to say that the statement made carries with it a wholly wrong inference. There is no ground for the belief that any Canadian chartered bank cannot meet the demands of its depositors, under the Canadian law as it now stands. I cannot make that statement too strong. My hon. friend is quite wrong if he tries to convey to the public of Canada that there is not maximum safety with regard to the obligations of the Canadian chartered banks to their depositors.

Mr. LANDERYOU:

I did not say that the banks did not have assets behind their deposits. No one is questioning that. They have over $1,400,000,000 worth of municipal, provincial and federal securities as assets behind their liabilities to their depositors. They have plenty of assets-I am not questioning that; but all they have in actual cash to meet their liabilities does not total more than $300,000,000. The question I ask the Minister of Finance is this: If there was a run on the banks in Canada, as there was in the United States a few years ago, and in England in 1914, would our banks under the present laws have the cash to pay off the depositors?

Mr. DUNNING:

The Canadian banks

under the present laws would positively be able to secure the cash to meet immediately the demands of their depositors.

Mr. LANDERYOU:

They would be able to raise it; I do not question that.

Mr. DUNNING:

No, secure it.

Mr. LANDERYOU:

How would they secure it? By going to the dominion government and asking them to print the money.

Mr. DUNNING:

No, no.

Mr. LANDERYOU:

Could they secure the cash without a suspension of the gold clause?

Mr. DUNNING:

Positively yes. But, Mr. Chairman, I do not want to take the time of this committee once more, as I have on three different occasions when my hon. friend and his associates have cross-examined me, to go into an elaborate discussion of the basis of our banking laws and banking system. I tried to meet that demand and to save the time of the house by moving in the house that the report of the Bank of Canada be referred to the banking and commerce committee, to the end that all members of the house who desired it might in the banking committee have the privilege of cross-questioning not only myself, if they wanted me, but also the officers of the bank and the officers of the department. No one can say that there has not been ample opportunity in the house this session for the ventilation of views on the question of monetary policy. I do not propose this afternoon again to go into detailed technical argument, as I did before, on this question, because it is being carried on very effectively in another and more appropriate place. I rise only when my hon. friend makes a statement which at a critical time like this might possibly weaken the confidence of the Canadian people who have their money on deposit in Canadian banks. There are four million depositors, and I am very much more concerned about them than about my hon. friend's argument. That is the only reason I rise, when he attempts to put forward the idea that there is some lack of security with respect to the deposits of the Canadian people in the chartered banks. In my opinion the Canadian banking system as now operated through the control exercised by the central bank, is in a more secure position in relation to its depositors than it has ever been before in the whole history of Canada.

Mr. LANDERYOU:

I do not question that, and I am very glad to hear the minister say it. While there are over four million depositors in Canadian banks, the lion's share of the deposits belongs to a very small percentage of the total number of depositors. I read the other day a statement by a bank in relation to these deposits, as follows:

There were on October 31, 1935, over

4,600,000 depositors in the chartered banks, with deposits aggregating $2,090,508,000, representing an average of about $450 for each account.

That is a very nice way of presenting it- giving total deposits of over $2,000,000,000, and the number of depositors as over four million, with an average deposit of $450. But it does not work out that way. My average is not $450, and the average of over three million depositors is not $450, but a good deal less than that. In fact, 4,290,695 depositors

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having on deposit the sum of $501,881,610 were grouped as having on deposit less than $1,000, or an average of about $117 for each account. There were 302,743 depositors having on deposit $598,611,600, grouped as having between $1,000 and $5,000. There were 41,815 depositors having on deposit $376,319,432, grouped as having between $5,000 and $25,000. There were only 4,402 depositors having on deposit $199,461,844, grouped as having between $25,000 and $100,000 and 1,223 depositors having on deposit $407,229,739, grouped as having over $100,000. In other words approximately 71 per cent of the depositors owned 76 per cent of the deposits; and 92f per cent of the depositors had an average of $117 on deposit, or 24 per cent of the total deposits.