February 19, 1948

GOVERNOR GENERAL'S SPEECH

CONTINUATION OP DEBATE ON ADDRESS IN REPLY


The house resumed from Wednesday, Eebruary 18, consideration of the motion of Mr. J. A. Dion for an address to His Excellency the Governor General in reply to his speech at the opening of the session, and the amendment thereto of Mr. Bracken, and the amendment to the amendment of Mr. Coldwell.


PC

James MacKerras Macdonnell

Progressive Conservative

Mr. J. M. MACDONNELL (Muskoka-Ontario):

Mr. Speaker, I had begun to speak yesterday on the question of inflation, which seems to me a danger to our economy perhaps second only to that of the atomic bomb, and much more immediate. I pointed out the tremendous increase during the last eight years in the quantity of our money. I pointed out how that arose naturally during the war. I pointed out that the increase in money was not accompanied by any corresponding increase in goods. I pointed out further that that condition had been accentuated by the policy followed subsequent to the war, which I thought-[DOT]

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LIB

James Horace King (Speaker of the Senate)

Liberal

Mr. SPEAKER:

Order. I dislike having to interrupt the hon. member, but I must point out to hon. members that there is so much noise in the chamber that it is disagreeable to the member who has the floor and, I am sure, to everyone ivho is trying to listen to what he is saying.

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PC

James MacKerras Macdonnell

Progressive Conservative

Mr. MACDONNELL (Muskoka-Ontario):

Thank you, Mr. Speaker. I might say to hon. members that they had better listen now because it gets much duller as it goes on. This is the best- part.

I just w-anted to add that I had pointed out yesterday my belief, and the belief I have no doubt of everyone who reflects upon it, that notwithstanding the fact that this matter is of enormous importance, the government when recently putting before the house the question of high prices had entirely neglected this question of inflation; and I quoted the remark of an American writer to the effect that inflation was the crime and the government was the criminal, adding that our government was seeking to implicate other criminals so as to draw attention away from itself.

I wish to go on now and point out to you and to the house why I think that the policy pursued since 1945 has been wrong; why I think it is doing serious damage now, and, further, why I think that unless steps are taken to correct it there is more damage to be expected.

The diagnosis of 1945 was wrong. I said yesterday that I thought there was an excuse for the government, when coming to the end of the war. to believe that they might be faced with depressed conditions, and I did not think of blaming them for not realizing that they would be faced with a boom. But one can blame them, and blame them severely, for having continued for three years in their failure to recognize that what we are having now is a boom condition. The diagnosticians prescribed the wrong medicine. The condition which they foresaw and prescribed for was a

The. Address-Mr. Macdonnell

condition of anaemia, whereas what we have had has been a fever. In plain words, they used artificial means to keep down the rate of interest and keep up the supply of money.

What are they doing now? They are confusing or trying to confuse the people of the country by leading them off on a wild-goose chase in the committee. As a matter of fact the proceedings of the committee have indicated already that it is a wild-goose chase. I think the government's own officials have given enough evidence to show the nature of this foolish proceeding which the government of Canada has embarked upon.

In case anyone suggests that I am putting forward some wild idea that we should wreck the economy of the country in order to bring down prices, may I say this. I notice the governor of the Bank of Canada the other day made the statement that he did not want to burn the house down in order to cook his pig. He has been reading Charles Lamb, I presume. I do not want to burn the house down either to cook the pig, but temperate, gradual means should be taken, and there is no sign, or precious little sign, of the government doing that in any way, shape or form.

Let us now deal with the question of low interest. Some people seem to think that if you talk about interest you are touching some sacred thing and that you will arouse every person in this country against you. I am not afraid of that. What is interest? What does artificially low interest mean? It is interest which is kept down by artificial means. It gives us easy money. What do we mean by easy money? Just what we say-lots of money, money easy to get, money easy to spend, encouraging people to borrow whether it is wise for them to borrow or not, so that the money can be spent.

In a moment I shall quote from an authority suggesting that perhaps a good deal of money has been spent incautiously, that some of the chickens may come home to roost. What is the remedy for this? What is the remedy which has been tested by the generations? It is that when we get into boom times the rate of interest should be allowed to rise gradually and naturally. As I say, that is a remedy which has been tested by the wisdom of men for generations. What has happened here? Our government has undertaken to set it at naught. What I say is that if one undertakes to set at naught the tried and tested results of experience, if one undertakes to say that he knows more than all other men know, then he must be right. One cannot afford to come back later on and say: We thought we knew more than everybody else, but now we find that we .

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

Will my hon. friend permit a question?

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PC

James MacKerras Macdonnell

Progressive Conservative

Mr. MACDONNELL (Muskoka-Ontario):

Yes.

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SC

John Horne Blackmore

Social Credit

Mr. BLACKMORE:

Was it not the rise in the interest rates that immediately precipitated the great depression of 1929?

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PC

James MacKerras Macdonnell

Progressive Conservative

Mr. MACDONNELL (Muskoka-Ontario):

I shall not try to answer that in a hurry, because there were a great many conditions that arose there. My hon. friend and I can discuss that at some other time; I have only twenty minutes left.

Let me come back to what I was saying. A rising interest rate is the corrective which has been recognized for generations. It has been set at naught, and what has happened? We have got into the deadly spiral. There are four well-recognized stages, you might say, in the deadly spiral. First of all, prices go up, and1 labour naturally asks for increased wages. Profits being good and demand being good, employers are inclined not to demur to such a request, and increases will be given to labour. As 85 per cent of costs consist of wages or services paid to other people who are self-employed, then prices go up. There is another turn in the spiral. But owing to the abundant means of payment, and the fact that prices are still soaring, these goods can be sold and so you have the deadly spiral which we are in the midst of now. In this atmosphere, expansion is in the air. This is in the psychology of boom; and if we go on allowing the psychology of boom to continue undisturbed), uncontrolled and uncorrected, we all know what will happen. We get a bust; and the longer it goes, the worse is the bust. What I charge against the government is that they are now refusing to allow the proper correctives to work, that they are stimulating and intensifying the situation and making certain that we shall have a bust. The government may say: Oh, we are not making these expenditures; private individuals are making these expenditures. In the main that is true. But what I charge is that the government is creating the wrong atmosphere. The government, by its credit policy, should not be making it easy for these people to go on expanding.

The other day a competent authority, Mr. Dobson, the president of the Bank of Montreal, stated as follows:

Much construction is going forward now at costs so high that only continuous prosperity at present levels can make it pay.

In other words, unless we go on and on, and up and up, some of these chickens will

The Address-Mr. Macdonnell

come home to roost. We are all on the merry-go-round. I say that the ordinary correctives have been denied to the economy. The government has prevented1 them by its financial policy. I do not think we ought to believe for one minute that we are necessarily at the end of the roadi yet. Doctor James of McGill, who is a well recognized authority in the field of finance and incidentally I think was chosen by this government as one authority on its planning commission during the war, says this: "Tremendous forces for potential inflation still exist". That statement was made a couple of days ago. He says those forces still exist. In other words, if we go on at this rate the boom will turn into a bust. Some people seem to think we are on a verge of a bust now. Indeed I heard someone say the other day, "Is that not just the Prime Minister's luck? We are going to get a break in prices and1 he is going to be saved". What I say is this: if we have a break in prices even now it will cause enough disturbance and the government even now will have the responsibility because for three years we have had this wrong inflationary financial policy forced upon us.

I have already said that I believe that up to 1945 this expansionist policy was justified, or at any rate there was a great deal of reason for it, and that we certainly should not come back and try to criticize it. It is since that time that the mistake has been made. Lest anyone should say I am overlooking the fact that the classic corrective of higher interest does cause certain distress, let me say that I am not overlooking that at all. I know it caused certain distress and I know that in the community of today we must take care of that distress. We must see that by allowing what Keynes called the classic medicine to work, we do not disregard those whom it affects. But what I say is if we are to have a bust or anything like a bust because of this policy, twenty times as much distress will be caused as would have been caused by allowing the natural corrective of rising interest rates to work.

Whatever possessed the government, which is .pleased with itself and which occasionally has won praise even from others, to get into this situation, I think, like a good many other things, it can be traced to the war mentality. We had order in council government during the war; and what we should remember is that order in council government does not really mean order in council government; it means minister government. It means that the minister gets endorsement of the cabinet, but naturally the minister must make his own

decision. Therefore we come back to the Department of Finance which for years has had virtually unlimited power and unlimited money. When we came to the end of the war I think it was extremely difficult for them to understand that new circumstances had arisen, and they carried their war controls into peace controls. It is interesting to observe that the war controls on other things have been diminished and in some cases done away with; but the war controls on money are practically the same as they were. Indeed we know that since 1946 they have in certain cases been increased. How long is this going on? Is it going on for ever?

I come now to what is the key or the root of the whole matter, namely, the control of money, of its use and of its supply which goes on through the interest rate. It is another case of arbitrary power which I spoke about the other evening. As a matter of fact, while many people may escape the arbitrary power of the Minister of Trade and Commerce, nobody escapes the arbitrary power of the Department of Finance. It touches everybody. So we are especially interested in tliis power. The low rate of interest is owing to the fact that the Bank of Canada, by buying bonds in the market, keeps this rate of interest artificially low. They support the market for long-term Dominion of Canada bonds at a price of about S102 when these same bonds are selling in the United States at a discount of about sixteen points below par. I understand that in the United States these bonds are called orphan bonds. Incidentally, this discount is partly due to the utter unreality of the situation here. The truth is that the market for Dominion of Canada bonds in Canada is a sham. The only real buyer on balance is the Bank of Canada. I say it is a sham while the bank persists in maintaining this artificial situation. Those who ordinarily establish the rate, the dealers -and let us bear in mind that they are the very dealers who placed in the hands of hundreds of thousands of Canadians who bought in good faith huge amounts of bonds during the war-now1, because of the arbitrary action of the government, have no basis on which they can form a judgment as to the true value of the securities in order to advise their clients.

In other words, as I say, the bond market is a sham, with the Bank of Canada on balance being the only real buyer. How are the dealers to know, under these artificial conditions, when the Bank of Canada is going to take another step, as it did a month ago, to disrupt the market? The step they took a month

The Address-Mr. Macdonnell

ago, when they partly withdrew support, caused the market to fall some two points, which is a violent disruption in ordinary times,

I suppose the worst since September, 1939, or perhaps June, 1940. Now as a matter of fact everything is confused; no one knows what the bank is going to do. I noticed that at the annual meeting the other day the governor spoke of what they had done; nevertheless he indicated there was still to be some support. So apparently they allowed this little breath of reality to blow' in upon the situation, but now again we are to have support, though no one knows to what extent. In other words the value of bonds in Canada at the present time does not depend, as it always has in the past and as it must again some day in the future, upon the judgment of hundreds of thousands of people buying and selling-[DOT] because after all there is safety in a multitude of judgments; now it depends upon the judgment of the Department of Finance, the same judgment that made the decision in June, 1916, which so many people now regard as disastrous.

Of course, here as elsewhere one control leads to another. When the bank begins to control the price of Dominion of Canada bonds it finds it cannot stop there but has to step out, so that now, in the case of other financing, the Dominion of Canada has to come to the rescue. Just the other day I am told that in connection with a certain large issue of some

S35.000.000 the dealers found, as they are finding in many eases, that there were not enough buyers unless Dominion of Canada bonds could be turned in as the purchase price. So what happened in this case was that fifty to seventy-five per cent of the buyers handed to the dealers as their purchase price Dominion of Canada bonds. The dealers then turned around and sold them, and to whom? They were sold to the only real buyer, the Bank of Canada. So we have reached the point where the Bank of Canada is now not merely underwriting Dominion of Canada bonds but other bonds as well.

It is high time, Mr. Speaker, the people of Canada asked themselves how long this is to go on. How' long is the department going to dam back the waters? The longer the flood is held back the greater will be the break; and there will be a break some day, a break which will bring tremendous unsettlement with it if no steps are taken to let it come gradually. In the interests of common sense I appeal to the Minister of Finance to begin to let nature take its course.

My time is running out, and I want to say-just a word about the effect of this low interest rate. Of course it strikes a body blow at everyone trying to look after himself, everyone who is trying to save money against his old age. It strikes a body blow against those paying their money to insurance companies. I sometimes wonder whether it is possible that the official mind gets to the point where it does not want independent people, people who think for themselves. I do not know whether it is possible for them to get to the point 'where they want as many people as possible dependent on the government. Sometimes one almost thinks that must be so.

A moment ago I said that in a multitude of opinions there is wisdom. That is the only way we ever got on. Is there any reason to believe that in one department of government there is enough ability to set itself up against or rather substitute itself for, the common capacity for judgment of those who act together, who proceed by trial and error, making mistakes here and being corrected by other people there and eventually arriving at what is a sound view? That is the only way we can progress, as I suggest it is the only way we have progressed thus far. For what reason do they believe they are always right? They caused a great disturbance a month ago by what they did then. I am not going to go over again the disturbance caused in June 1946 by their embargoes and taxes and penalties and permits, and now our subjection to the decrees of the minister of reconstruction.

I have argued that this peril of inflation is something we cannot disregard. In other countries it has produced indescribable unsettlement; or perhaps "unsettlement" is not strong enough, so I would say it has produced indescribable distress. I said yesterday we here have regarded inflation as something which happened in funny foreign countries, something which could not happen here. Well, I see no reason why it cannot happen here if we do the things which made it happen elsewhere. There is no reason to think that if we act in time we cannot prevent it, but I see no action being taken by the government with that in view. Perhaps I should not say that; some action is being taken. The government has redeemed certain bonds in the last year, but I see no action worthy of the name being mentioned to deal with this situation. Do not let us provide a complete cushion for ourselves by just saying we cannot do anything because of the United States. I know the influence of the United States upon us is very great; nevertheless I was interested to read that after the first war one brave little country, as it was then and I hope still is, that is Czechoslovakia, managed

The Address-Mr. McCuaig

to preserve its currency by proper measures taken within that country itself, even though it was surrounded by a sea of inflation.

What we need now is wise action by the government, and also moderation and selfrestraint on the part of all, because if everyone, capital, labour, agriculture and so on, seeks his own immediate advantage-and I underline the "immediate"-I think there is incredible trouble waiting for us all. I have said more than once that I believe that so far the government has largely failed, and that it is now engaged in obscuring the issue. Someone wonders whether they are hoping that, a semidepression is at hand to cure the situation. But I conclude, Mr. Speaker, by saying that this problem faces us; that I believe we are now on the wrong track; that what we are doing is utterly unreal, and I call upon the government to bring forth real remedies in time.

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CCF

Duncan John McCuaig

Co-operative Commonwealth Federation (C.C.F.)

Mr. D. J. McCUAIG (Maple Creek):

Mr. Speaker, I believe the speech from the throne is looked upon as a forecast of government policy and future economic trends. In the present speech from the throne I see no fundamental change from government policy in any other session of this parliament, or any change from the pre-war economy of Canada. It is my opinion that a definite national policy should be on the way, and that the Liberal party has fallen down in the exercise of the powers the people of Canada have placed in its hands. If anything, greed and dissension are more prevalent now than at any other time. The new order the Prime Minister (Mr. Mackenzie King) has spoken of, for which many laid down their lives, is nowhere in sight. The very spirit that spelled the doom of three powerful regimes in the past eight years still prevails and is becoming more intensified every day on this continent of North America, as the austerity program, the McCann income tax witch hunt, as I call it, and the Prime Minister's resolution will testify. The almighty dollar is still uppermost in the minds of men. It takes first place. The greatest of God's handiwork, men, women and children, take second place. Eighty-five per cent of the people of Canada, including the workers and the producers, those who produce the goods which keep us alive, the workers in our mines and forests and factories who make everything we wear and everything we have around us, those who serve the public and look after our needs, get but a small share of that great common heritage available for the use of all mankind. The eighty-five per cent found in those three classes are the salt of the earth; the nation's strength is measured by their welfare.

It w'ould appear to me that the two great world wars, with all their sacrifice of lives and property, have availed nothing and taught us nothing. But one thing is sure, that we are more enslaved to the great national debt and to the almighty dollar than we ever were before in our lives. The concentration of wealth in the hands of a few and the ever-increasing burden of taxation upon the working people violate eve ry aspect of comm: n interest among men.

It is becoming more apparent to me as time goes by that, if it has the welfare of the people at heart, the government will have to regard seriously the fact that the present economic policy does not take care of the interests of the majority of the Canadian people, and that the men who own and control our natural resources, our transportation systems and our financial structure hold the destinies of every soul in Canada in the hollows of their hands. These people defy government, and something will have to be done about it. With them, scarcity, lower costs and higher prices come first; the needs of the people second. They turn the key in the lock and they defy the government, as they did in connection with wartime contracts-costs plus five per cent. The British Columbia legislature had a taste of this when a ceiling was placed on the price of oil products. The oil concerns cut off supplies and sat back. There is no longer such a thing as competition among those big fellows. They are a brotherhood of exploiters, taking all that the traffic will bear, all the time. They defy governments and get away with it.

The things I see happening around me every day while sitting in parliament almost lead me to believe that the government ministers are part and parcel of the racket. Or perhaps they belong to the same school and do not know any better. Their world is a world of flat-top desks, adding machines and typewriters. They never rub shoulders with the realities of life and simply do not realize the struggles of the home builder or the very important part he plays in the building of the nation.

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LIB

John Ewen Sinclair

Liberal

Mr. SINCLAIR:

Why don't you stop reading the manuscript written by Dave Lewis?

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CCF

Harry Grenfell Archibald

Co-operative Commonwealth Federation (C.C.F.)

Mr. ARCHIBALD:

If you wish to say something, get up and try it.

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CCF

Thomas John Bentley

Co-operative Commonwealth Federation (C.C.F.)

Mr. BENTLEY:

It is smarter than anything you ever did.

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LIB

John Ewen Sinclair

Liberal

Mr. SINCLAIR:

Mr. Speaker, I respectfully submit that if the hon. member is going to abuse cabinet ministers and members on this side of the house, he should at least do it

The Address-Mr. McCuaig

from his own thoughts and not from a prepared manuscript such as he has been reading since he began to speak.

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PC

Gordon Knapman Fraser

Progressive Conservative

Mr. FRASER:

The Minister of Mines and Resources (Mr. Glen) read all of his yesterday.

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LIB

John Ewen Sinclair

Liberal

Mr. SINCLAIR:

Why did you not object, then?

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CCF

Harry Grenfell Archibald

Co-operative Commonwealth Federation (C.C.F.)

Mr. ARCHIBALD:

Did you see the Minister of Mines and Resources reading his speech yesterday?

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LIB

John Ewen Sinclair

Liberal

Mr. SINCLAIR:

Why did you not object?

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CCF

Thomas John Bentley

Co-operative Commonwealth Federation (C.C.F.)

Mr. BENTLEY:

Fine sports over there!

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February 19, 1948