February 21, 1961

LIB

George James McIlraith

Liberal

Mr. Mcllraith:

I appreciate the bright

remarks of the Postmaster General but I am sure the subject is of no interest to him. Perhaps he could allow those who are concerned about it to debate it. Hon. members on the other side may differ from my conclusions, and others may agree with them, but I am entitled to make them and, surely, the Postmaster General could discharge his duty as a minister of the crown in a better manner than by making remarks and interjections of that kind.

The point I was making is that even if there were no confusion in the public mind about the government's responsibility in the field of monetary policy in the past, there is now because of the hon. gentleman's pronouncements this afternoon. I take it to be implicit in the minister's speech that the government does have a responsibility for fiscal policy. I think that is common ground between us. I take it, also, that the hon. gentleman admits that the government has responsibility in the field of debt management. That, also, is common ground. I take it that it is only when we get to the area of monetary policy that we differ. The minister says that has been given to the Bank of Canada, and that the government no longer has responsibility over it. It is on that point that we differ, and differ very sharply.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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CCF

Harold Edward Winch

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

Mr. Winch:

Who has responsibility, then?

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

George James McIlraith

Liberal

Mr. Mcllraith:

The government did, and the government still has responsibility over monetary policy. It is unthinkable that any government of any sovereign nation should not have responsibility for monetary policy and it was never suggested otherwise until the present minister was made Minister of Finance. Then he changed his views on the matter and advanced the theory he outlined this afternoon. In the few minutes I have

left to me in which to deal with this question I intend to quote briefly what some ofour ministers of finance have had to say onthe subject. In 1936, Mr. Dunning, dealing with the Bank of Canada legislation, had this to say as reported on page 3262 of

Hansard of that year:

The bank may and should resist temporary gusts of public fancy, but in the long run it must show responsiveness to public opinion. In the long

run, the bank in the performance of a vital sovereign function must be responsible to the sovereign will expressed through government. There cannot be two sovereigns in a single state.

That was the position taken in the debate in 1936. Then we come to the discussion of this subject in 1941. Mr. Ilsley, on June 13 of that year, had something to say on the subject and I quote him from page 3936 from the Hansard of that date. I should like to quote at greater length but hon. members will forgive me if I quote only parts of what was said. I will give the page reference in each case so that members can read further if they wish. On June 13, 1941 Mr. Ilsley said:

The point which I would like to emphasize is that the responsibility with which the governor and board have been charged by parliament does not in any way relieve the government of responsibility for the monetary policy being pursued by the bank, nor in any way militate against public control of monetary policy. The monetary policy which the bank carries out from time to time must be the government's monetary policy, but the government must leave the carrying out of that policy-

Note that-"the carrying out of that policy".

*-the choice of ways and means of executing it, to the management of the bank in whose judgment it has confidence.

If the government is satisfied with the policy which is being pursued, there is obviously no quarrel between it and the bank. Let us suppose, however, that the management of the bank and the government do not see eye to eye in the matter of monetary policy. Let us assume that after the usual careful consideration of the pros and cons, a serious difference of opinion remains. In such a case there can be no question whatever as to the outcome of the dispute. The government's views will prevail.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

Lester Bowles Pearson (Leader of the Official Opposition)

Liberal

Mr. Pearson:

Here it is. That is the difference. That is responsibility.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

George James McIlraith

Liberal

Mr. Mcllraith:

The views of Mr. Abbott will be found on page 4393 of Hansard of June 20, 1951. After a question had been pressed upon him, Mr. Abbott replied:

The government, of course, if it were not satisfied with the action taken by the governor and the directors of the Bank of Canada, would have to change the management of the bank.

After an interjection of the word "yes" by Mr. Low, Mr. Abbott concluded:

So that I suppose it is fair to assume that the ultimate responsibility must fall upon the government.

The minister referred to the questioning of the then governor of the Bank of Canada, Mr. Graham Towers, in the banking and commerce committee in 1954. I refer hon. gentlemen to pages 714 and 715 of the unrevised committee reports of March 18, 1954. On that occasion the governor of the bank dealt with this subject. Hon. gentlemen will recall that the minister quoted part of this and that I asked the minister a question about it. He had stopped at a certain point in the quotation and I asked him to read the subsequent lines. The portion of the statement I requested the minister to read is as follows:

On the other hand, there is no alibi possible for the government, because if government said, well, we disagreed with what the central bank did, but parliament has placed the responsibility on them, so what could we do? The answer obviously is that the administration of the day, supported by a majority in parliament, can always alter the legislation. In fact, I doubt whether a disagreement would ever necessitate such a thing, because there are various ways and means by which directors and management can be got rid of. I am sure that in the case of a serious disagreement that is what would take place.

Mr. Towers then went on to elaborate on that subject. Under examination by the present Minister of Finance, who was then the private hon. member for Eglinton and a member of the official opposition, Mr. Towers made it perfectly clear that the government had the ultimate responsibility and that if there were a disagreement, the governor of the Bank of Canada would have to resign. That is perfectly clear.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

Lester Bowles Pearson (Leader of the Official Opposition)

Liberal

Mr. Pearson:

He has changed his mind now.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

George James McIlraith

Liberal

Mr. Mcllrailh:

The minister then made reference on this point to a statement made by Mr. Harris, I believe on June 10, 1956.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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PC

Donald Methuen Fleming (Minister of Finance and Receiver General)

Progressive Conservative

Mr. Fleming (Eglinton):

August.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

George James McIlraith

Liberal

Mr. Mcllraith:

The minister quoted from Hansard of that date. I wish to point out one or two features of the question and answer period on the orders of the day of August 10, 1956 to which the minister made reference earlier. One feature is that Mr. Harris made it very clear that he was advised of the action-taken. The then prime minister went on to make it clear that the government of the day had complete confidence in what was done. The government was in accord with it. There was no confusion about a possible difference of view.

I am not certain if the Minister of Finance quoted the following statement made by the then prime minister as found at page 7352 of Hansard of August 10, 1956 in answer to one of the many questions that arose on that occasion:

-I can assure the hon. gentleman that the matter received very serious consideration and the government has not decided to recommend

Government Monetary Policy

to parliament any amendment to the act which places that responsibility on the governor of the Bank of Canada.

It was made clear in that question and answer period that the issue that was being dealt with was that the action should be taken through the Bank of Canada. I do not think anyone has contested that. I have re-read that debate very carefully today. As I read it there was no suggestion that the government could abdicate its responsibility in the field.

It is interesting that at the conclusion of the question and answer period-and I remember the occasion well because there was some heat generated in that period-

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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PC

Kenneth Hamill (Ken) More

Progressive Conservative

Mr. More:

Mr. Speaker, would the hon. member permit a question?

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

George James McIlraith

Liberal

Mr. Mcllraith:

No. I have only 17 minutes left. If the hon. member would like to direct his question to me when I conclude my remarks I will be happy to deal with it.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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PC

Richard Albert Bell (Parliamentary Secretary to the Minister of Finance)

Progressive Conservative

Mr. Bell (Carleton):

That is a good way of not dealing with it.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

George James McIlraith

Liberal

Mr. Mcllraith:

I am really perfectly happy to accept the hon. member's question but I have only 17 minutes left at my disposal. In that time I want to develop my argument as best I can. I will be quite happy to deal with questions at the conclusion of my remarks.

I was about to point out that at the conclusion of the question and answer period the request was made that the then minister of finance deal with this subject on his estimates next day. The next day, on his estimates, the minister did deal with the subject at some length. He made it abundantly clear that the government did have the responsibility, and spoke also of the government's agreement with the decision taken by the bank. The references to this matter will be found mainly at page 7457 of Hansard of August 11, 1956. Let me place on the record a statement made by Mr. Harris on that occasion:

The government is satisfied, and I believe that the vast majority of informed observers are satisfied, that under the economic conditions of the past 12 months it was desirable to moderate the rate of monetary expansion. I know of no responsible person who argues openly for inflation as a solution to the problem of excess demand.

Further along Mr. Harris said:

It is right and proper that our fiscal system at this juncture should emphasize additional restraint in public spending wherever possible. It is equally appropriate that monetary policy should assist by exerting a moderating influence on the expansion of credit.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

Lester Bowles Pearson (Leader of the Official Opposition)

Liberal

Mr. Pearson:

That is taking responsibility.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

Paul Joseph James Martin

Liberal

Mr. Martin (Essex East):

He did not shirk his responsibility.

2274 HOUSE OF

Government Monetary Policy

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

George James McIlraith

Liberal

Mr. Mcllrailh:

No, there was no question of his shirking responsibility. If hon. members will read the evidence given in the banking and commerce committee of 1954, they will find that there was no suggestion made then by the then private hon. member for Eglinton who is now Minister of Finance of the government shirking responsibility.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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?

Peter Francis Martin

Mr. Marlin (Essex Easl):

Or by the hon. member for Greenwood (Mr. Macdonnell).

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

George James McIlraith

Liberal

Mr. Mcllrailh:

Yes. Indeed, the hon. member for Greenwood was most eloquent about the sovereignty of parliament at that time.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

Lester Bowles Pearson (Leader of the Official Opposition)

Liberal

Mr. Pearson:

The hon. gentleman certainly was.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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LIB

George James McIlraith

Liberal

Mr. Mcllrailh:

This subject has always been treated in that way up until the time the present government took office. The situation is different now. The Minister of Finance seems to seek to say today that this is all the responsibility of the Bank of Canada. Notwithstanding his physical vigour in speaking and his pugnacious qualities, the minister attempts to depict himself as a poor little help'ess man. The Minister of Finance has nothing to say about this policy and could not have any part in it, poor little creature. This is the Minister of Finance who displays great physical vigour in argument, perhaps in an attempt to conceal the lack of careful reasoning that should be applied to a subject of this kind.

The minister in support of his argument chose to quote from the Bank of Canada Act and I should like to place on the record some of its references to the governor in council.

Mr. Speaker, may I call it six o'clock.

At six o'clock the house took recess.

Topic:   UNEMPLOYMENT
Subtopic:   GOVERNMENT MONETARY
Sub-subtopic:   POLICY AND DEBT MANAGEMENT
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February 21, 1961