Proceedings of the Royal Commission on Banking

and Currency, Canada, Ottawa,1933

Volume I

W.C. Clark, Deputy Minister of Finance (p. 129): “The origins of the Finance Act dates back tothe emergency measures adopted at the outbreak of the war (WWI). In the early days of August1914, many “runs” upon the banks took place throughout the country, withdrawals of gold inMontreal and Toronto were particularly heavy and in general an atmosphere of incipient financialpanic prevailed. On August 3rd an Order in Council was passed providing among other things,for advances to be made to the chartered banks and to the savings banks to which the QuebecSavings Banks Act applies in the form of Dominion Notes against deposits made by the bankswith the Minister of Finance of such securities as might be approved by the Minister. At thesession of Parliament held in the month of August 1914, the first Finance Act was passed; itconfirmed the issue of notes made under the provision of the said Order in Council and providedfor authorization by proclamation of similar advances in case of war, invasion, riot orinsurrection, real or apprehended, and in case of any real or apprehended financial crisis.”

Idem (p. 153): “The percentage of gold to Dominion Notes in circulation varied from 36.213% to37.560% from January 1930 to June of 1933 with a high of 57,930% and a low of 34.783%.

Idem (p. 154): “The Chartered Bank notes are not legal tender but are exchangeable forDominion Notes.”

Idem (p. 155): “You ask here if the banks may present $10,000 in silver coinage and get legaltender for it. In practice, I think it would be possible normally, but legally it would not becompulsory. In practice it is not done.”

Sir Thomas White, RCBC board member (p. 160): “The services rendered by the Royal CanadianMint in Ottawa during the war (WWI) were beyond belief valuable. Hundreds of millions ofdollars of gold were brought to Canada, and we had to enlarge the Mint. The amount of workdone by the officers of the Finance Department was unbelievably great. Gold was brought infrom Russia and elsewhere during that period and the enlargement of the Mint was absolutelyessential.”

W.C. Clark, Deputy Minister of Finance (p. 163): “The gold reserves in connection with the notecirculation are for the most part held in the Currency Branch of the Department of Finance’svaults; although a certain amount of gold coin is held at each Assistant Receiver General’s officeto meet possible requirements. The gold purchased by the Royal Canadian Mint when refinedand put into bars is turned over to the Comptroller of Currency either to be held as part of thegold reserves of for shipment to meet Canada’s obligations abroad. Such shipments are, ofcourse, gold held in excess of statutory requirements.”

Lord MacMillan, RCBC chairman (p. 208): “One is apt sometimes to think of the banks asthough they could themselves produce wealth. That, of course, is a mistake. A good bankingsystem is the best possible assistance to business and industry, but it does not itself createwealth.”

Idem (p. 209): “After all, the banking system is the servant of the people. In the long run, theprosperity of the banks is intimately associated with the prosperity of the country, and it is veryimportant that there should be sympathy between the two interests.”

Mr. Laming of Victoria, B.C. (p. 269): “The Assistant Receiver General of the Department ofFinance in Victoria, B.C. is not in favour of receiving gold on deposit. Now in Europe when youhave gold, you can deposit it with a Central Bank and get a receipt for its safe keeping and youcan issue notes against it, but in this case, I was advised to sell the gold, but I could not sell itbecause it happens the gold has to be kept for 21 years.”

Mr. McCormack of Vancouver, B.C. (p. 292): “I believe, however, that after going through thisvery serious depression of about four years, the people of Canada should be very thankful thatthey have had such a banking system as they have had to carry us through this trying time incomparison with the great country which lies to the south of us and which has had thousands ofbank failures over this four year period. I cannot remember that Canada has had a bank failure ora run on any of its banks, except for a small institution in Manitoba which was not one of ourprominent banks.”

Mr. Taylor of Vancouver, B.C. (p. 320): “In terms of minerals we are looking for gold or anyother precious metals that will show a profit. There are lots of mines today such as silver minesthat cannot be worked on account of the low price of silver.”

Idem (p. 321): “The current market value of silver varies between 36 and 40 cents per ounce. Properties can operate on 50 cents silver (...) Gold is now around $20,67 per ounce. It wouldhave to be at $30 per ounce for us to make money.”

Idem (p. 324): “Gold has gone up in term of commodities.”

Idem (p. 350): “The Bank of England manages Canada’s national debt.”

Professor Carrothers of the University of British Columbia (p. 360): “The gold standard nolonger exists to control and to prove harmful fluctuations in exchange rates. It is unlikely that thegold standard will be restored for some time. Some other machinery of control is necessary. Control of exchange rates and of international movements of capital have been found necessaryalready to meet the situation. The central bank would appear to be the logical institution inwhich to vest this control in Canada. Centralized control of the banking system is necessary tosecure the coordination between banking policy, government financial policy and trade policy.”

Idem (p. 383): “Central bank governors should be appointed by the Dominion government in thefirst instance.”

Sir Thomas White, RCBC board member (p. 384): “What I had in mind when I spoke of centralbanks issuing currency against exchange reserves, was the losses which were sustained by someof the central banks. I am not controverting your opinion but I had in mind the losses sustainedby some the central banks, you understand, carrying exchange reserves, let us say, in the Londonmarket, when the gold standard was departed from.”

Sir Thomas White, RCBC board member (p. 393): “Would you express any opinion on theworking of the Federal Reserve System of the United States ?”

Professor Carrothers of the University of British Columbia (p. 393): “It would take a long time toexpress an opinion on that, Sir Thomas.”

Sir T. White (p. 393): “How is it constituted - briefly ?”

Prof. Carrothers of UBC (p. 393): “The Federal Reserve System of the United States is of coursea federation of central banks, and was such because of the constitutional character of thatcountry. It has many political aspects.”

Lord MacMillan, RCBC chairman (p. 393): “ It is not a central bank ?”

Prof. Carrothers of UBC (p. 393): “Not in the sense that we are speaking of it now.”

Sir Charles Addis, RCBC board member (p. 394): “With regard to the supply of credit, have youin mind that the Government should determine the amount of fiduciary issue, or would there besome limit to the central’s bank power of inflation ?”

Prof. Carrothers of UBC (p. 394): “I think under present conditions there are very greatdifficulties in having a fixed fiduciary issue.”

Sir C Addis (p. 394): “And having your credit system related to that, because economicconditions change very rapidly ?”

Prof. Carrothers of UBC (p. 394): “Yes and I think one of the virtues of an institution of this kindwould be the promptness of action, of reaching a decision under which it could act in a particularinstance. If you have to wait for the government to persuade all the Members of Parliament topersuade all the people that the action was good the time for opportune action might be passed,and it would seem to me that the quicker the action the better it would be.”

Vancouver Society for Technocratic Research (p. 425): “The inefficiency of the present system isshown in the fact that during times when business is good, it is comparatively easy to borrowfrom the banks, but in times when conditions are adverse, as they are now, such borrowing ispractically impossible.”

Volume II

Mr. G.G. McGeer, New Westminster and District Trades and Labour Union, Vancouver (p. 461): “I am not suggesting that you have come here with any prepossessions of superiorexcellence of the institutions of Great Britain over the institutions of Canada; but the success ofthe British system as it worked up to the last century made Great Britain dominate economicallythe whole world, and the United States by trying to apply the English central bank systemthrough its Federal Reserve System in the United States came rather a sad cropper.

Lord MacMillan, RCBC Chairman (p. 461): “It was not a very good copy.”

Mr. McGeer (p. 461): “It was a copy in principle but there was not that wisdom and sagacity inthe administrators of inflated credit that Great Britain possessed, but it was the English bankingsystem applied so far as it was possible to apply it to a country like the United States. As youknow, automobiles and all machines and economic institutions depend very largely for theirsuccess upon the ability and the intelligence of the operator.

Mr. McGeer (p. 467): “The conventions of the international gold standard are so fundamentallyopposed to modern social and economic conditions that no government could, even if it wished ,gave effect to them, must be evident to anyone who is prepared to recognize that he is living inthe 20th and not in the 19th century. The international gold standard system is an anachronism inthe 20th century; it can never again function, but as its high priests still hold away over the nationsand regard it as sacrilegious even to discuss alternative systems, there appears nothing for it butto await the further inevitable collapse of the structure built upon it.”

Mr. McGeer (p. 469): “There was nobody on the MacMillan commission who was willing to takethe responsibility of recommending that England should go off the gold standard.”

Lord MacMillan, RCBC Chairman (p. 469): “That is quite right.”

Mr. McGeer (p. 469): “Whether they should have gone off is another question. We haveworshipped gold for so long and have become so stiff-necked that we cannot turn away to look atanything else but gold, but thank God we are emancipated from the barbarous relic of the goldstandard at last.”

Mr. McGeer (p. 503): “Nobody wants gold; nobody wants silver; nobody wants money ofintrinsic value, or money in any form other than in those minor denominations which are out ofpocket expenses. Now, my lord, in this country where there was no milk supplied on the relieflists, we have developed wealth to the value of 30 000 million dollars. Our banker friends willtell us there is no danger of inflating national currency in a country where there is only 200millions of dollars in money and 30 000 millions of dollars in real wealth. But when youexamine what the banker does in the creation of his own purchasing power by using a printingpress to issue money which is not secured by gold under our Finance Act, my lord, and notconvertible into gold as a practical proposition even in the limited amount which is spent, theyadopt inflation in the issue of bank credit; by resorting to inflation the bankers’ action contradicts

the bankers economic theory. Now, my lord, I want to submit in all fairness that what we havebeen pleased to call a “sound money system” is not a sound money system, but that it is athoroughly unsound credit “racket” and, my lord, the actual conditions which now exist today arethe inevitable results of the operation of that system. We could not have escaped under theexisting banking system, the depression which came upon us.”

Mr. McGeer (p. 509): “Everyone hoarding currency injures not only his own prospects and thoseof his family, but is acting contrary to the common good. It is to their own interests that theyshould return it to circulation, as well as a patriotic service to the country as a whole. And thisgoes or to say that every dollar of legal tender money held out of deposit with the bank meant thedestruction of ten dollars in credit.”

Mr. McGeer (p. 514): “My lord, where were the increases of bank deposits coming from duringthe period we were destroying wealth and life ? That is not the way you get credit, is it ? We didit without increasing our gold reserves. Clearly we financed the war with bookkeeping entriesmanufactured in bankers’ books, where credit issued at no cost to the monetary system wasloaned to the government to prosecute the war (WWI) at a disastrous rate of interest. Here is astartling thing which happened then. We have paid more in interest since the war has ended thanthe war cost, and our debt is greater today than it was when the war ended.”

Mr. McGeer (p. 519): “Now, my lord, when you realize that the great purchasing power of thedepositors in the banks of the United States rose from 1914 to 1929 from 18 000 millions to 53 000 millions of dollars, and you have not got very much difficulty in appreciating what wasthe cause of the boom in the United States which ended in the disastrous hysteria of speculation;it was the uncontrolled inflation of bank credit.”

Mr. McGeer (p. 523): “I wanted to show our position when we came to engage in the destructiveenterprise of war (WWI), that it was one of rather serious insolvency. We were not in a happyposition financially in our provincial government, in our businesses, or in the Dominion, but wehad in gold reserves 116 millions of dollars, and our bank deposits were 1 billion. Theyincreased, and in six years our total accumulation of bank deposits were more by about 125%. Where did it come from ? Now, my lord, just compare that figure with the United States. Whenwe say that the United States banking system was such an unfortunate thing, when so manybankruptcies were occurring and so many depositors were losing their money - I gave you thefigure of a decline of 26% in bank deposits; - when that was occurring, our bank deposits rose by1929 to 2 600 millions of dollars, but in 1932 it had fallen to 1 800 millions of dollars. My lordour depositor wealth has shrunk. 33% in Canada as against 26% in the United States. Now,what is the meaning of that ? It means our bank system for probably not the same reason is notas sound and stable as that of the United States, because the main defect I have mentioned, theaccumulation of an enormous foreign debt, has drained away, from our deposits in taxes andinterest more of their real wealth represented in accumulated deposits than has gone in the UnitedStates. Whatever condemnation people may offer of the American banking system because of itsobvious defects, it should never set the Canadian banking system up as a mean of improving it,because ours has infinitely more serious defects than it has, and the great defect, as I say, is thatfailure to supply the means of providing long term credits internally for our provincial and local

governments as well as our public enterprise. I cannot emphasize too much this problem of ourdebt. That is one picture which if I do not succeed in impressing upon you with anything else, Ido not want to impress upon you , Sir.”

Mr. McGeer (p. 529): “When you permit a private monopoly to mint and issue credit as asubstitute for money, you are not operating a sound money system, not using gold as a securityfor real wealth; you are using gold as a mean of creating an unsound credit racket, which mustend in the inevitable credit cycle, which means bankruptcy and disaster for multitudes.”

Mr. McGeer (p. 557): “I venture to say without fear of contradiction that since 1916 no man hasexercised and wielded the power over the British people that Montagu Norman has done. He hasbeen a definite and positive force in every move that the government of Great Britain has made,and it was the domineering dictation of the Bank of England at the Ottawa Conference thatbrought that magnificent opportunity for disaster. My authority for that, my lord, is not theconception of a crude colonial. I have the authority of the Journal of the London Chamber ofCommerce. Let us see what Montagu Norman, who appropriately chose for himself the alias of“Professor Skinner” did. He showed up in America during election time in the United States andhe threw the whole American people into a fervour of excitement by announcing that he did notwant to see anybody, but was going to travel west under the name of Professor Skinner. He is thegreatest humanist that has ever been developed in history. Nobody could be so subtle in hishumour as that but an English banker. He was laughing at humanity and at the pitiable plightinto which the Americans had got themselves in trying to emulate the banking manipulation ofcredit in England, and telling them what a sad thing it was that they were not as clever as he was. I wonder if he had anything to do with the defeat of Hoover. He was associated with the bankersof New York in knocking England off the gold standard and keeping her off for the purpose ofgetting that 800 millions that Edwin Kemmerer of Yale University publicly declared wasavailable. I know that there are delicate things in this monetary system, but it is not the bank ratepolicy. In one of his very rare speeches, Montagu Norman confessed to a banquet ofdistinguished British and Continental bankers and financiers at the Mansion House that asregards the world business outlook he could only quote the line of a famous hymn, “One stepenough for me”. Pointing out that the difficulties were so vast, the forces so unlimited and sonovel, and the precedents so lacking, he said: “I approach the whole subject not only in ignorancebut humility. It is too great for me. I think there is nothing that impedes business and theprospects of bankers to the same extent as frozen credits. I do not know how it is achievable, butI do believe that trade can find its way in almost any direction, over or around almost any tariff, ifit could be financed.” No precedents ? Nothing to do but die in stagnation under thatmountainous load of interest bearing debt.”

Mr. McGeer (p. 562): “What happened to the United States when Andrew Mellon, the richestbanker in the United States, became Secretary of the Treasury ? He enjoyed the post of honour,and the state was ruined.”

Mr. McGeer (p. 604): “Taxes, tariffs and gold are relics, my lord, of the barbarous illiterate past. They hold no place in an educated civilisation.”

Mr. C.E. Hope, Vancouver (p. 648): We all know that one of our troubles in Canada has been thecreation of fictitious credits which later were sold to the public, and it became based on bankborrowing, and so forth. In other words, you borrow $100 and then call it worth $200 and thensell it to the public for $200. That has been done over and over again and a good deal of this$200 stuff was in form of a bond with a fixed interest bearing charge on it. That charge to mymind is one of the major causes of the present depression. I cannot see why any privatecorporation, even a bank, and certainly not anybody else, should be allowed to create fictitiouscredit of that matter for it is really the same thing as money itself under present condition ofbusiness and money.”

Mr. Hope (p. 651): “My suggestion to reduce unemployment is that the Dominion Governmentshould bring into a revolving fund a certain amount of money without gold backing. I havealways been opposed to inflation but I see no objection to printing money without gold backingprovided it is for a definite purpose and provided there is a definite time when it will be repaid.”

Mr. J.H. Creighton, British Columbia Teacher’s federation (p. 663): “By the latter part of 1928 orthe early part of 1929 that provision in the Finance Act which enabled the banks to secureadvances from the Department of Finance on approved securities enabled the banks to draw onthe Finance Department to such an extent that it diluted the gold backing and thinned it out sogreatly that it was reduced until it was almost infinitesimal. I am not maintaining that the goldstandard was a good standard. I do not think so. But the fact is that we were driven off it againstour will.”

Mr. A.B MacKay, Retail Merchant Association of Calgary (p. 880): “Falling commodity pricesdue to the mal-distribution of the standard commodity of gold, or to any other economic causeinevitably means that goods cannot be plentifully produced or distributed on a profit basis in theState. That means contraction of credit by financial agencies operating entirely on a profit basis. It means absence of purchasing power in the hands of the consumer even almost to the point ofcessation if it is continued long enough.”

Professor H.W. Hewetson, University of Alberta (p. 1054): “Down to 1914 Canadian bankreserves fluctuated largely with the flow of gold into and out of Canada. In other words Canadawas subject to the control of the “automatic” gold standard. Price stability was not attained butthere was enough financial stability to maintain the gold standard. Recession to this system ofcontrol is undesirable for the following reasons:

1) The restrictions on the free movement of gold in the world wince the Great War (WWI) andthe changes in the methods of dealing with in it in certain countries interfere with the ability ofgold to provide even the pre-war stability;

2) Such stability of prices has prevailed before the war due to the accidental fact that new golddiscoveries enabled gold production to keep pace roughly with general production. There is noassurance that this will be so in the future.

The question of whether or not Canada should return to the gold standard when business revivaltakes place must be determined by the action of other countries. Little could be accomplished byindependent action. But even the return to the gold standard would not preclude the necessity ofartificial control of bank credit. When Canada returned to the gold standard in 1926 the situationdiffered greatly from that prior to 1914, not only in the changed distribution of the gold of theworld, but in the fact that the Finance Act of 1923 was in force. Some means of enabling thebanks to re-discount paper when necessary is required, but the Finance Act is open to thecriticism that it permits new Dominion notes to be issued to an unlimited amount without anybacking. As a result bank reserves ceased to fluctuate with the fluctuations of the country’s stockof gold. A foreign exchange situation calling for the export of gold would be met by the banksby the redemption of Dominion notes. But these notes could be replaced through the banks asreserves, the loss of gold would not necessarily have the effect of reducing reserves. Thus theonly check on credit expansion would seem to be the banks’ inability to face further loans to theirsatisfaction. My conclusion with respect to the Finance Act of 1923 is that the Act should berepealed.”

Prof. Hewetson (p. 1063): “I do not know that I hold any single theory on trade fluctuations inthe business cycle, but so far as my studies are concerned, and the matters into which I havelooked carefully, it seems to me that you get a severe depression after a very active prosperityperiod regularly; if you have a mild prosperity, you have a mild depression, and the best chanceof avoiding a severe depression seems to me to be the slowing down of the prosperity period, andthe best way to do that would be to check credit expansion. You cannot to it very perfectly, but itseems certain to me to be the very best way.”

Sir Charles Addis, RCBC Board member (p. 1064): “I was rather inquiring from the point ofview of the depression. I take your point to be that in trade cycles, a profit-earning institutionmay deem it expedient to expand credit at a time when it might be in the best interests of thepublic or the interests of the Government to contract credit.

Prof. Hewetson (p. 1064): “Yes.”

Sir Charles Addis, RCBC Board member (p. 1064): “And your point is this, that since they areout for profit, they are unable to reconcile those two different points of view.”

Prof. Hewetson (p. 1064): “It would certainly seem that you could avoid severe money panic, ormoney crises, by extending credit freely at such times, whereas an individual bank, consideringits own interest, might be quite unwilling to do so.”

Sir Charles Addis, RCBC Board member (p. 1064): “In a Central Bank such as you suggest,where the directorate and capital are both supplied by the government, might there be the dangerof removing the check upon undue public expenditure which a profit-earning bank mightexercise ?”

Prof. Hewetson (p. 1064): “Well, the Central Bank directors are supposed to consider publicwelfare, and I do not think they would be doing that if they permitted or encouraged continuousinflation of currency.”

Sir Thomas White, RCBC Board Member (p. 1069): “Just one other question if you please. Myexperience is that Governments have fount very great difficulty indeed in withstanding publicopinion at a time of expansion, because at a time of expansion, very few people know they are ina time of expansion, and even the Federal Reserve authorities in the United States did not fullyappreciate they were in a time of expansion.”

Prof. Hewetson (p. 1069): “Yes Sir Thomas.”

Sir Thomas White, RCBC Board Member (p. 1070): “And if you have a regulatory body, at allevents, you have somebody studying the question, and the tendency will be to restrain excessivecredit, which always is concomitant with the period of expansion, and in what way help ? Is tat it- substantially ?”

Prof Hewetson (p. 1070): “I can see a tremendous number of difficulties, a good many of themlying within human nature.”

Sir Thomas White, RCBC Board Member (p. 1070): “Yes, human indeed; no doubt about that. And in addition to that, the condition opposite the period of expansion, that is, the times ofdepression, when everybody thinks the end of the world has come, then your regulating bodyshould be wise enough to say, “Well, the end of the world has not come at all; we will make easymoney; we will extend credit”, where fear might prevent the extension of credit, which wouldhelp us to get out of this oppression I am putting it in homely language - but in both times ofprosperity or “boom” and depression, it should be a regulatory body, providing you can get thosein charge wise enough and prescient enough to regulate it.”

Alderman C.L. Gibbs, City of Edmonton (p. 1079): “I would like to quote the opinion of abanker, Ralph W. Page, vice-president of the Page Trust Company and son of the late AmericanAmbassador, W.H. Page. : “One of the most amazing phenomena of the present crisis in theUnited States is the tameness with which people have accepted the financial affliction called thedepression. It is more amazing still that they are willing to undergo bankruptcy, the loss of theirhomes, and their livelihood, or jump out of windows for the sake of maintaining a system thatthey do not understand that obviously is not working. Worse than that, they follow blindly theleadership of men and teachings of a school of though that for years now have been exactly 100%wrong - not wrong as a matter of opinion, but obviously, blatantly proven ignorant andmistaken.” he says, writing in Current History of March 1933.”

Mr J. Boyd McBride, Barrister, Edmonton (p. 1093): “Directly and indirectly we say that theabandonment of the gold standard will materially assist the people of this province in dischargingmortgages, interest loans and other charges and obligations many of which are going into defaultat the present time.”

Mr. McBride (p. 1103): “The only way in which anyone could pay for debts is either by goodsand services or by gold. We cannot export gold, and if the creditor nations will not take goodsand services in part payment of the debt then of course the debt must be renewed, and I suggestthat a central bank might be more or less a sort of broker to handle all public finances until we dotie up to some metallic standard and are able to import and export gold.”

Mr. John W. Leedy, Former Governor of North Dakota, United States, 85 years of age, sawservice in the civil war and heard Abraham Lincoln speak upon two occasions (p. 1217): “Thechanges in the State banking systems which I have referred to were the permission given in somestates to establish branches and “chains” and to a very limited extent, in State banks becoming“members” of the Federal Reserve System. May I respectfully advise that if the Commissionundertakes to obtain information in the United States as to this proposal, care must be taken tohear testimony for both sides because most of the officials of the Federal Reserve and NationalBanks will oppose the system of local banks for the reason that the latter attracted the largerportion of the deposits of the country.”

Mr. Leedy (p. 1223): “The community banker has no re-discounting services or anything of thatkind and he must depend upon his community in order to succeed himself and that is why theycontrol and will control more than half the deposits of the United States in banks. No matterwhat may be said now, I can cite you one or two instances - ”

Lord MacMillan, Chairman of the RCBC (p. 1224): Mr. Leedy, I think you should leave thematerial that you have put in our hands, as I gather from what you have put before us that there isample material fo us to study the mater. You see we must give a fair chance to others who wishto be heard and you may take it that the material, for which we are much indebted, will receiveour careful attention.”

Volume III

Mr. James A. Ross, Edmonton (p. 1235): “It is all the more necessary, therefore, while Canada isnot an international debtor in respect of war debts and reparations, that this subject be taken up. We find ourselves confronted with this position, that our exports have shrunk because ourcustomers are subjected to the influence of these war debts and reparations due to othercountries. I am not naming any particular country because it is in everyone’s mind to whom Irefer, but I say this: that there is not a single breadline in the country, there is not a singleeconomic disaster from which we suffer, there is not a particle of exchange difficulties of whichthe provinces and cities complain today that does not have its genesis directly in the question ofwar debts and reparations, and for this reason: I bring this very shortly to your notice that youmay convey to the government of Canada, if it needs to be conveyed to them, that there is asubstantial body of opinion in this country which considers that the first and necessary aspect ofthe world economic situation that requires to be brought to a head and settled immediately is thequestion of international reparations. Until that is settled your work and your cure, and all ournational cures and parliamentary discussions will be of no avail. I bring this to your attentionparticularly because it has not been emphasized in Calgary or Victoria, and it has beencompletely overlooked here today.”

Mr. H.E. Nichols, Edmonton (p. 1243): “The issue of currency to carry on new publicimprovements should be new money entirely without interest. The asset built up by theapplication of the labour to the natural resources should be a sufficient asset to secure that moneyshould act in every respect as a new gold discovery would at the present time. A new golddiscovery would provide a base for the issue of new money, and similarly with the other, only theone would be under control and not be subjected to chance like a new gold discovery.”

Memorandum of the Alberta Government (p. 1254): “We suggest that both the DominionGovernment and the Canadian Banks should have been required to conserve their holdings ofgold; and that the Bank Act should specifically states the amount of gold reserves the Banksshould hold against their notes circulation. It is, however, doubtful if the Banks should have theprivilege of issuing their own notes. We are of the opinion the function is one which properlybelongs to the Dominion Government”

Chart composition of Canada’s Gold Reserves (p. 1254)

Year Total gold reserves Proportion of U.S. gold coin

1914 $94,625,639 $86,382,620

1918 $121,260,824 $75,785,665

1920 $101,101,970 $35,896,485

1924 $141,747,636 $77,173,105

1927 $130,732,564 $51,179,390

1928 $93,316,873 $31,018,970

1930 $96,212,102 $28,748,085

1931* $66,960,148 $4,270,780

*In 1931, there was a decrease in British gold coin of $12,897,762.

Mr. George Bickerton, United Farmers of Canada, Saskatoon (p. 1288): “In other words, I wouldtake from you conception or explanation of a Central Bank of control, it means controlling theflow of credit’ it means taking care of the control of inflation and deflation.”

Lord Macmillan, RCBC Chairman (p. 1288): “Yes.”

Mr. Bickerton (p. 1288): “I was always led to believe that it more or less was under governmentcontrol; that government had something to do with the flow of credit, and expansion of credit,and the restriction of it. That, at least, the government should have sufficient power to restrictone way or the other. I may be mistaken, but I was under the impression that the government hadsufficient power to be able to restrict or suggest a move toward expansion of credit. If it be true

that the government did have that power, then I suppose the Central Bank would be under thecontrol still of the government, and if my conception is right, it would appear to me that it issimply a matter of moving the furniture from one room to another.”

Lord Macmillan, RCBC chairman (p. 1289): “I think you are quite right when you say thatultimately the power resides in government. No one would suggest that a Central Bank, or aSocialized bank, is beyond the government. The government is supreme, representing the wishof the electorate, but governments come and go, and one of the purpose of the Central Bank isthat it is a permanent institution, which is the repository of information, and has access to allsorts of information. A Government, however excellent it may be, for the time being, cannotpossibly command; it cannot and does not act in the sense of controlling. The Government mightsay, “We do not take your view; our policies are not consistent with what you are advising”, but aGovernment which went in the face of advice of that sort, would do so often it had been warnedof consequence. Supposing a Government says “By following that course, you are heading fordisaster”; if it continued on its course in the face of that danger signal, that is, if the Central Banksaid, “We will carry on, whatever you say”, when the electorate came to consider theirgovernment at the polls, they would say of it, “They sinned against the light; they were told thatwas sure to happen, and they brought our country to this unhappy plight, although they werewarned.” It is not useful to have a body of that sort, perfectly independent and with an unbiasedmind ? Is it not more than merely moving the machinery, or the furniture ? I am putting it as anadvocate, in order that you may see the merits as well as the demerits of the scheme.”

Mr. Bickerton (p. 1290): “Yes. As I see your point of it, the Central Bank would be more or lessof a watch dog - ”

Lord MacMillan, Chairman of the RCBC (p. 1290): “That is it exactly. That is a very goodsimile. It may, however have a bite as well as a bark.”

Mr. Bickerton (p. 1308): “While the system exists as it does exit we have to avail ourselves ofeverything we can use within that system with the hope and expectation that we are going to getsomething better. I should say in regard to a central bank as it has been outlined here today that itmay in the hazy future be of some benefit, but to me it looks like locking the door after the horseis stolen. What is it to control ? Is it to control this orgy of spending of credit ? That has gone;it has all gone, and if it is to be the function of a central bank to control something that hasalready gone I do not know that a central bank can be of very much use now, because it hasgone.”

Mr. J.G. Campbell, Saskatoon (p. 1317): On February 28, 1933, although we are supposed to beon the gold standard, we find that in taking the gold held by banks and government at that date,the results are as follows:

Dominion Notes $6,921,243,40Bank Notes $60,773,296,00Deposits $2,152,659,277.00Total $2,220,353,816.40

back of which there is no gold. So it is very evident that the gold standard is nothing more than abanker’s deception, which has created the demand for the banker’s credit which is transferable bycheque.”

Professor, W.W. Swanson, Saskatchewan University, (p. 1367-1370): “Therefore I believe that avery essential and vital part of the duty of this Commission, if I may be permitted to say so, is toexplore the methods by means of which it would be possible to cooperate with other nations tothe extent of our power to bring about that result, that is, the return of the gold standard. Myreasons for favouring the restoration of the gold standard are briefly as follows: The disastrouseffects following on the abandonment of the gold standard upon international trade. Take theBritish importer of our wheat. He has a double difficulty. He has not only the difficulty oftrading in units, but he sells in Great Britain. As you know a great part of our wheat goes over tothe Old Country on order and is diverted to the continent. There is the difficulty in regard to themilling of wheat, and in addition there is the formidable difficulty of price changes from the timethe wheat leaves Canada until it reaches Europe, although to some extent that difficulty can beoffset by hedging operations and the like. But there is the difficulty of dealing with fluctuationsin the rates of exchange, and the combination of these two factors may be so serious as toparalyse the free flow of trade and commerce between the old world and the new. Secondly Isubmit that we should have a return to the gold standard even if in only a modified form becauseit is essential for international investments. Canada is a borrowing and a debtor country, andinvestors in this country I believe will require to know in what media or in what paper they aregoing to be repaid. If we do not return to the gold standard it will be essential to tie up with thepound sterling and make our Canadian debts payable in pound sterling or in American dollars. Thirdly I believe that the gold standard has the best chance of again becoming a universalstandard for it provides the best safeguard against inflation and it also provides a reasonablestability of prices over long periods of time. I would not like you to think that I do not realizethere is a case against the gold standard. That is provided by John Stuart Mill and otherdistinguished economists in our own country and in the United States. I realize that gold, beingin itself a commodity cannot prevent price fluctuations, and sometimes when there is danger ofwar for instance, it may cause very serious results. There is also a case against gold because ofthe way it has been mismanaged, du to its maldistribution following upon nationalistic economicpolicies in Europe and the United States. If, however, there is to be an attempt to remedy someof these difficulties by international action, we shall require not only national but internationalaction. Probably it will be necessary, as Mr. Keynes suggests, to make use of the Bank ofInternational Settlements. Again there seems to be rivalry between New York, London, Paris andBerlin in setting upon one of these great money markets for world clearing house purposes I donot know but that raises a very big question. However, I mention it in passing. Mr. Keyneshimself believes that there should be a new money issue of five thousand million dollars madeavailable through the Bank of International Settlements and guaranteed by the nations of theworld as reserves for those debtor countries that require them in the reconstitution of theirbanking structure. Or we may devalorize by mutual agreement, and if so, we shall require somecentral authority in Canada to deal with these matters. If, however, the world is not soon toreturn to gold we shall need a central authority to deal with questions of even greater complexitybecause we shall be faced with a problem which, in my judgement, is a much more formidableone than the management of gold, namely, the problem of a managed paper standard; and

secondly we shall be faced with the problem of deciding what shall be the realisation of ourcurrency to London on the one hand, and to New York on the other and thirdly the problem ofdetermining our relationship to a sterling exchange standard which is in actual existence today.”

Professor Swanson (p. 1390): “There are alleged faults in connection to the Finance Act. TheAct does not specifically mention that the gold reserves shall be kept against the new issue ofDominion notes extended to the banks on the basis of gold and other securities pledged with theTreasury Department at Ottawa and it was because of that failure to establish a definite legal goldreserve, on the withdrawal of gold by the banks which at the end of 1928 and 1929 precipitated acrises. I have seen that statement made again and again in the press of Canada, and I think itshould be stated categorically that the Prime Minister of this country has said that the withdrawalof gold did not take place by the banks at all, but it was the government of this country whichexported forty million dollars in gold to the United States. However, that does not really meetthe question as to whether new money issued under the Finance Act to the banks should orshould not be from the gold reserves.”

Mr. Bates, farmer, Regina (p. 1530): “I have a suggestions to offer to improve banking because Iam sure that the banks are not the real factor in causing the present distressing conditions. Iattribute them to another cause altogether, and I think I have found on something of this reason acause in carrying on of my farming operations out in the country. I feel that the cause is due tothe amplification of government services, with the consequent increase of cost and increase oftaxation, also to the delegating and extending of the powers of our municipalities, our provincialand federal governments so that they are empowered to issue more and more bonds anddebentures which are really mortgages on our tools, our houses and our property.”

Sir Thomas White, RCBC board member (p. 1749): “It has been in my mind that so far as thequestion as to the devaluation of currencies was concerned, in terms of gold, that before the pricelevels of commodities - the world price of commodities - can be materially raised, there must bea joined cooperation between the great nations of the world, including of course Canada; that isthe thought which has been in my mind for sometime, that Canada alone, through a central bankor otherwise cannot do it. They could help possibly, but they could not do it alone; that was whatwas in my mind.”

Professor W. Burton Hurd, Brandon College, Manitoba (p. 1749): “I think I would agree withthat.”

Honourable Mr. John Edward Brownlee, RCBC board member (p. 1769): “Can there be anyother way after increasing of circulation of money that had arisen from two causes, first thatsomebody had the money to spend, and secondly that he is encouraged to spend it.”

Mr. Sanford Evans, Winnipeg (p. 1769): “Oh Mr. Brownlee, there was 57% more circulation ofmoney and credit in Canada in the month of June than in the month of February, with noappreciable increase anywhere.”

Sir Thomas White, RCBC Board member (p. 1769): “No appreciable increase in price ?”

Mr. Evans (p. 1769): “Oh yes, Sir Thomas; I meant in credit resources.”

Sir Thomas White (p. 1769): “Are you not saying this in substance, Mr. Evans, that people willnot buy on a falling market, but will buy on a rising market, and if you can get the stimulus ofrising prices, then the psychological factor as well as other factors enter, and you will get greatervelocity and circulation and business will begin to pick up ? Is that right, generally speaking ?”

Mr. Evans (p. 1770): “That is all right, and if we go back to the first step, how did prices begin tofall ? I suggest there was a curtailment in money work and we must find out the causes at thebeginning. If you start, it will go on.”

Sir Thomas White (p. 1770): “We have a certain situation existing to deal with. Now, what arewe going to do which will cause a resumption of business, and a reduction of unemployment ? There has been a great deal of talk, very interesting indeed, to the effect that the only way is toincrease the price of commodities. That seems to me to be very sound.”

Mr. Evans (p. 1770): “Provided, Sir Thomas, that increased results in the readjustment is morerapid, until you get them into relationship again; otherwise it would not do you any good.”

Mr. W.J. Lindal, Winnipeg (p. 1896): “No one can say in advance what the price level should bein a country. That is a problem that I for one certainly would not want to make any suggestionson. What I do suggest, however, is that if there is a return to gold, it will have to be a return togold on a different parity from that previously obtained. There again I should like to quote but Iwill not do so because it is not necessary, but one of the most instructive books I have read thisyear is entitled “Monetary Policy and the Depression” by a group of 14 men under the very ableleadership of a member of this Commission”. I shall not quote from it. I will simply say that Iagree with the monetary views as set out there.”

Mr. R.F. McWilliams, Winnipeg (p. 1911): “I take the illustration of what happened in theUnited States.”

Lord MacMillan, RCBC Chairman (p. 1911): “Never mind the United States. It is Canada weare dealing with.”

Mr. McWilliams (p. 1911): The Federal Reserve Banks of the United States - I am not talkingabout the Federal Reserve Board - are definitely limited as to the dividend they may pay; they arelimited to six per cent dividends. Anything above that they are allowed to use to build up areserve up to the amount of their paid-up capital and over and above that ninety per cent of theprofits goes to the federal treasury and the other ten per cent to build up a further reserve. According to the latest figures I say, seven of the federal reserve banks had reached that point andhad paid the treasury some $447,000,000. The record of the federal reserve banks as distinctfrom the record of the federal reserve board in the United States is an excellent one. On thewhole the federal reserve banks throughout their history have proven a most valuable institutionin the Unites States, and they have greatly aided the banking business of the United States and

saved it from many of the evils that existed prior to that time. Contrast that with the position ofthe federal reserve board.”

Chairman MacMillan (p. 1912): “I do not think we want to go into that. I do not think we shoulddiscuss the position in the United States. It is enough to consider our own position.”

Mr. McWilliams (p. 1912): “I see the objections to that, and yet most of our people who areadvocating a central reserve bank are taking their ideas from the United States.”

Chairman MacMillan (p. 1912): “No one has suggested to us that we ought to copy the UnitedStates in Canada.”

Mr. McWilliams (p. 1912): “But have we any hope of getting any better results from a politicallyappointed central bank board than what has been experienced in the United States ?”

Chairman MacMillan (p. 1912): “It seems to me that the state of the country today and the stateof other countries is something like the headache of the morning after, and the real trouble is thespree of the night before. I think we shall make a fundamental error if we try to cure the presentsituation with another shot of dope. We ought to realize the cause of our trouble and go back andcorrect the mistake where it was made, the condition that caused the headache.”

Chairman MacMillan (p. 1912): “There is a slight risk you know, that we might get a headachetoday.”

Sir Charles Addis, RCBC Board member (p. 1912): “What is your remedy ?”

Mr. McWilliams (p. 1912): “A fixed dividend similar to that in the Federal Reserve Banks.”

Sir Charles Addis (p. 1913): “Is that your sole suggestion ?”

Mr. McWilliams (p. 1913): “It is the sole suggestion I have to make on that point.”

Chairman MacMillan (p. 1913): “And fix the amount they may carry to reserve, and anythingover goes to the treasury ?”

Mr. McWilliams (p. 1913): “And in that way make the interests of the bank coincide with theinterests of the country.”

Chairman MacMillan (p. 1913): “We have that quite clear and I do not think you need address ageneral exhortation to us.”

Mr. Mc Williams (p. 1913): “I do not wish to take up any further time. I would simply refer toyou to the figures you have before you.”

Chairman MacMillan (p. 1913): “We are very much obliged to you for them.”

Mr. A.B. Rosevear, Young men’s section of the Winnipeg Board of Trade (p. 2015-2016): “It istherefore our hope that Canada’s future financial policy will be guided by wise counsel andsound methods of banking and public finance. In these days of economic disturbance, manyunsound theories and many radical proposals are being and will be advanced. We view theseunsound theories and radical proposals with alarm, believing as we do, that wealth can only becreated by sound work and sound business administration. Some advocate the printing of moreand more currency. The issuance of inconvertible paper money in large quantities resulting inthe confiscation of capital will, as it always has done in the past, bring about general chaos andthe working people will be the most affected in the long run. We do not desire revolutionarychanges in our banking system. We desire rather the correction of such weaknesses as exist andthe establishment of an even sounder credit structure than the one we now possess. We areopposed to national ownership of commercial banks and we doubt the wisdom of nationalownership of a central bank in the event of one being established. Our grounds are that undernational ownership there may be a tendency for political expedience to outweigh sound finance. We refer to two recent cases - the German currency experience of 1923 and the recent Australiancrisis. In the past there has been a tendency on the part of governments to keep a fictitiousprosperity going as long as possible. We are in favour of prosper government supervision ofbanks, but not arbitrary and annoying interference.”

Professor C. Clarke, Head of the Department of Economics at the University of Manitoba (p.2030-2034): “There are, it should be noted, two types of inflation:

1) Inflation of credit: Such an inflation preceded the stock market collapse of 1929 and such aninflation first Mr. Hoover and then President Roosevelt have hitherto vainly attempted to bringabout by utilising the Federal Reserve System to place credit at the disposal of the banks. Youcan take a horse to the water, however, but you cannot make him drink. Inflation of credit is theoutcome of a mental state and the President may “call spirits from the vastly deep” in vain. Tobring about inflation of credit there must not merely be cheap money available but a prospect ofprofit from its use. During the period of falling prices (just as in England between 1894 and1896) businessmen say no such prospects, and now, under Mr. Roosevelt’s N.R.A. Act, risingcosts threaten to frustrate his efforts, just as falling prices did those of Mr. Hoover.”

2) Inflation of the currency: This is the easier and more dangerous form of inflation, i.e.increasing the issue of inconvertible paper or fiat money. To this, it appears President Rooseveltwill be driven, and there is now a serious risk that Canada may be compelled to follow. Canadahas been off the gold standard since 1929. Her currency has since then been slightly depreciatedrelatively to gold, but the depreciation only became serious when Great Britain was driven off theGold Standard in September 1931. The reason is obvious. Before that date Canada could settlefor her excess indebtness to New York by Bills on London drawn against her excess exports toGreat Britain. Since September 1931, the Bill of London has no longer meant gold. It is to benoted that the effect of depreciation of a country’s currency on its foreign trade depends on howthe depreciation is brought about. There are two cases:

a) If (as with the British pound and the Canadian dollar) there is a specific depreciation of thecurrency in terms of gold before there is any general depreciation compared with goods (i.e.general rise in prices) then there is a stimulus to exports and a check to imports. This has beenillustrated by Canadian experience. The specific depreciation of our dollar has acted, so far, as astimulus to our exports to the States, through its influence in that direction has been counteractedby high tariffs; and similarly it has tended to check imports from the United States. The stillgreater specific depreciation of the pound sterling did tend to stimulate British exports to Canadatill counteracted by protective devices.

b) But if the general depreciation comes first through increased issues of paper, say Dominionnotes, before the premium on gold has appeared, there is actually a stimulus to imports and acheck to exports. The effect in either case is merely transitional. It exists only during the processof depreciation. Once the adjustment has been brought about between prices and costs, includingincomes and the equilibrium has been restored between the general and specific depreciation ofthe currency, the stimulus, or check, to industry variances. To get a continuing stimulus, orcheck, to exports, the process of specific depreciation of the currency must keep ahead of the risein general prices. Further if export industries benefit during the process of specific depreciationof the currency, those industries dependant on imports suffer; and in so far as these imports areraw materials, the rise in their price may lessen even the temporary stimulus to the exportindustry. The notion of any permanent benefit to the nation as a whole through inflation is but afen-fire gleam or will-o-the-wisp. The benefit of inflation to debtors, through lessening theburden of fixed charges - so far as these have to be met in domestic currency is real, but theinjury to creditors is equally real where contracts have been made on the basis of the lower pricelevels. Many contracts have already been readjusted while others are new, and very many datefrom the pre-var (WWI) period when prices were relatively low. Deliberate inflation now mightcause as many inequities as it would cure. A natural and slow rise in prices may have abeneficial effect, but a deliberate and rapid inflation would tend to destroy that sense of securitywhich is the basis of credit and of industry. The argument for raising the price level by artificialmeans rests on the assumption that there is no likelihood of a natural rise; and of such a rise thereare already many indications. If this is so, it would seem unwise to enter on a policy of inflationwith all its risks, of which not at least is the difficulty of keeping it within bounds, with thedebtor class ever claiming that money is being kept scarce. The difficulty of setting a limit toinflation is distinctly less in the case of a government like that of Great Britain, which is onbalance a great creditor country, than in the case of Canada. A few draughts of inflation mayafford an agreeable stimulus, but, like other stimulants, it tends to excess, with the inevitable“morning after” and the financial headache associated with the retreat from the morass to thesolid ground of the gold standard; for to that standard we must in course of time return. Currencyinflation is to be clearly differentiated from expansion of credit by giving a shock to that sense ofsecurity which is the basis of credit. It is the need for a reliable system of credit control thatfurnishes the strongest argument for the establishment of a Central Bank or a banker’s bank inCanada. (This subject has been and will be dealt with so fully by others that it need only bebriefly mentioned here.) The U.F.A. advocates formation of a nationally owned bank, to beoperated on a cost basis, yet the chartered banks are to hold no more than 40 per cent of theissued capital, and to receive from the profits a maximum dividend of 6 per cent, cumulative; at

least of 0,5 percent, it will be observed, more than they are on the average receiving on their paidup capital reserve funds and undistributed dividends. Such an institution, it is clear, would be tooclosely dependant on what Adam Smith has termed “that insidious and crafty animal vulgarlystyled a statesman or politician”. The experience of the country, however, during the yearsimmediately preceding the collapse of 1929, furnishes convincing proof that the control of creditand the price level cannot safely be left so directly as at present at the discretion of thegovernment. At a time when the gold reserve was shrinking rapidly, and the heads of several ofthe chartered banks were issuing warnings against inflation; the Dominion note issue should havebeen contracted. But, under the rediscount privilege introduced by the Finance Act of 1914 andrenewed in 1923, the note issue was in fact rapidly expanded, the notes being issued to the banksagainst deposits of securities. This provided the necessary currency for prolonging the inflationof credit and aggravating the collapse when it came. The practical difficulties arising from theabsence of a developed local money market, and an adequate supply of liquid securities suitablefor investment, will demand careful consideration, but could, I believe, be overcome. In any casethe Economic Advisory Committee suggested by Mr. M. C. Biggar, in his address to theCanadian Political Science Association, scarcely seems a satisfactory substitute for a CentralBank. It would leave ultimate direct control too much in the hands of the Government, alwaysliable to be influenced by non-economic considerations.”

Lord MacMillan, RCBC Chairman (p. 2034): “We are very much obliged to you, ProfessorClarke, for your contribution, which we will put in our files.”

Mr. Clarke (p. 2034): “I will be glad to answer any questions you may care to ask.”

Chairman MacMillan (p. 2034): “Thank you. We have got all your views, and it will not benecessary to see you further. I observe that the hands of the clock point to four o’clock, and I amafraid we shall require to adjourn our proceedings.”

Sir Thomas White, RCBC Board member (p. 2066): “Do you think that the people of Canadawould be content to turn over to a central bank the conduct of its external financial policy ?”

Mr. A.B. Wiswell, Halifax Board of Trade (p. 2066): “I suppose it has worked well in the OldCountry with the Bank of England.”

Sir Thomas White (p. 2066): “I am just putting these questions to you because you have reallybrought the matter up, and there are very important questions. There is another aspect which theChairman spoke of and it has given me some difficulty. Under the British North America Actthe various provincial legislatures are supreme within their own jurisdiction. The question of theextent of their borrowing and where they will borrow, for instance, are matter within provincialjurisdiction at the present time. Of course, if they borrow abroad, in New York or London, tothat extent they do affect the currency situation, but that is their right under the British NorthAmerica Act. One of the questions that has been raised during our investigation is as to how farthe provinces of Canada would be content to have their borrowing and financial policydetermined by a central bank no matter how constituted. That raises quite an important questionof provincial rights. I mention those two features because I think they should be considered at

the same time that these other questions which the Chairman has mentioned are considered. Butas I say, so far as I am concerned, I am trying to keep an entirely open mind on this question. There are undoubtedly two sides to it, as I have indicated.”

Mr. Wiswell (p. 2067): “I suppose that the Commission has asked and will hear the views of thevarious provincial governments on this question.”

Sir Thomas White (p. 2067): “Yes. I just wished to make that plain because it is something thathas been on my mind very much. It is something that has been on my mind very much. It issomething that has to be very carefully considered and upon which I would like to have a veryfrank expression of views because I can see how closely it lies at the root of the problem.”

Mr. W.E. Golding, New Brunswick Lumbar Association (p. 2223): “In our opinion it seemsunnecessary and dangerous to meddle with or change a Banking System that has so successfullystood the very severe test to which it was subjected by world conditions of the past four years.”

Lord MacMillan, RCBC Chairman (p. 2264): “It is not easy to devise, on the one hand, asafeguard which would give public confidence, and on the other hand to ensure that you wouldget on the Board the type of men you want with the necessary experience. One has to rely ontheir integrity to some extent, as you point out, but safeguards are useful, and do you think such asafeguard as I have indicated might be useful ?”

Mr. R.F. Stockwell, Provincial Treasurer, Province of Quebec, (p. 2264): “ I referred to that inmy submission more to bring out the contrast, and that such difficulties as we have encounteredwould not be obligated under an arrangement that was subject to political control.”

Chairman MacMillan (p. 2265): “I think you will have the assent of everyone that it is desirablethat the financial institutions of the country and the banks in particular, should be entirelyimmune from political interference. That has been affirmed over and over in internationalconferences. We have not heard any evidence to the contrary and I think it is accepted now asaxiomatic that any body which is responsible for the monetary system of a country should beentirely outside, so far as it is humanely possible, of all political influence.”

Major R.M. Watson, President, Quebec Board of Trade, (p. 2282): “In view of increasingtaxation, and taxation is constantly mounting in many of our municipalities, it has been felt thatthe banks were making it somewhat too easy for them to obtain funds to carry on certain publicundertakings, and that had the banks in the past been more severe or more restrictive in theirloans, thus making it more difficult for the municipalities to obtain money, they might not havecarried out certain improvements which were not absolutely essential.”

Mr. C. Vaillancourt, Chairman of the “Federation des Caisses populaires du Quebec”, (p. 2299): “To solve the depression one speaks, in certain quarters, of inflation; elsewhere, one hears of thecancellation of debts. I am giving here my personal opinion but it seems to me that an honestman who has economized all his life is entitled to more consideration. I refuse to believe thatconditions are such that honest, law abiding modest citizens should be bereft of his savings in an

orgy of ridiculous expense. It would appear to me that it would be better to reduce rates ofinterest, and such a solution would be more appropriate with the actual cost of living and income. It is to be noted that in our “Caisses populaires” interest is charged not on the initial amount thatis loaned, but quarterly, and reduced in proportion to the sums remitted. Our banks have alreadybeen notified to reduce their rates of interest on loans as well as on savings.”

Mr. Vaillancourt (p. 2300): “One hears in certain quarters, of control of savings by the State. Ihave little confidence in the State as a banker, but I believe that the State should help to protectsavings. Private initiative, however, should not be destroyed for the sake of a certain control, asno control can ever replace a wise supervision. To prevent abuse by control of a certain nature isthe duty of the State, but each organization should be allowed to develop in its own sphere.”

Mr. Vaillancourt (p. 2311): “At the present time in Canada we have practically a Central Bankand what has been proven in recent years is that not one bankruptcy has been noted owing to thesupport that the various banks mutually offered. In Europe, where there is a Central Bank,bankruptcies have been numerous. If Europeans conditions could prevail here it would be to noadvantage. Along the lines suggested by the Chairman, if a central bank should be establishedfor the benefit of the western provinces, I am at a loss to state what effect it would have here. Asthe Honourable Mr. Stockwell suggested, I am afraid of political interference with a central bank,so much so because we have experience of present conditions.”

Beaudry Leman, RCBC Board member, (p. 2342): “Does it in your opinion seem strange that inmost other countries of the world there exist a central bank and that we have none in Canada ?”

Mr. J.E. Gregoire, Professor of Political Economy, Laval University (p. 2342): “Perhaps, but Icould answer that probably these other countries envy the system that we enjoy. In manyorganizations, international ones I mean, would group all the central banks existing in othercountries and operate with common ideals, no doubt prices and currencies could be bettercontrolled, than they are now. But such conditions do not prevail today in the world.”

Beaudry Leman (p. 2343): “You are no doubt aware that there exists a Bank of InternationalSettlements ?”

Professor Gregoire (p. 2343): “Yes.”

Beaudry Leman (p. 2343): “Its board is formed of representatives of central banks whichdeliberate and render decisions in the best monetary interests of the various countries theyrepresent. Do you see any advantage for Canada to be represented on the board of this Bank ofInternational Settlements ?”

Professor Gregoire (p. 2343): “Possibly so, and the reason I see is that some day organizations todetermine and regulate credit will be called upon to play a greater part than they really do today. In some aspects it is the beginning of an International Central Bank. But what are the powers ofsuch an organization towards the American Government which desires to stabilize currencies theworld over ?”

Beaudry Leman (p. 2343): “It is possible that its means of coercion may be limited, but do younot believe that contacts and friendly discussions might bring about advantageous results ?”

Professor Gregoire (p. 2343): “Most decidedly it is by these discussions that someday a mutualunderstanding will be brought about between countries to put a stop to or to avoid disturbancessimilar to those which the world has witnessed.”

Mr. V. Gratton, Economist, Chambre de Commerce de Montréal, (p. 2364): “A Central Bankwould be under the control the Government and necessarily subject to political influence. In ademocratic country, government policies must be determined with an eye on the effect whichthey may have on the electorate and in Canada, what is worse, on the effect which these policiesmay have on certain particular sections of the electorate; and to subject the credit on monetarypolicies of a Central Bank to such influences, would be courting disaster. A Central Bank wouldbe an expensive organism which would deprive the Government of the important source ofincome it derives through the operations of the Finance Act and probably involve additionalexpenditures. Under our present system, our banks have a direct interest in the expansion ofcredit, provided such an expansion of credit, provided such an expansion can take place withoutundue risks for them and, within the sphere of their operations, the banks have generally grantedadequate credit facilities. Should this function of expanding be turned over to a Central Bank,necessarily subject to political influence, such expansion could not be carried on withoutconsiderable risks of loss and we do not believe that it would be the proper function of agovernment organization to assume such a function.”

Sir Charles Addis, RCBC Board member, (p. 2381): “As an economist, would you agree that,when the automatic factor of the gold standard has been removed, one of the means ofcontrolling the volume of credit is by raising and lowering the price of money ?

Mr. Gratton, (p. 2381): “Yes, I agree.”

Sir Charles Addis, (p. 2381): “And the proper instrument for doing that would be by raising orlowering the rate of discount ?”

Mr. Gratton, (p. 2381): “Yes, Sir.”

Sir Charles Addis (p. 2382): “Would you agree that this is properly a banking function ?”

Mr. Gratton, (p. 2382): “No, I do not think it is.”

Sir Charles Addis (p. 2382): “You think that the government is the most suitable instrument forregulating the volume of currency and credit ?”

Mr. Gratton, (p. 2382): “It has been so far.”

Sir Charles Addis (p. 2382): “But that is not the answer to my question. As an economist is ityour opinion that the ordinary banking function of raising and lowering the rate of discount isproperly a function of the government ?”

Mr. Gratton (p. 2382): “No. In my opinion, speaking as an economist and not speaking on behalfof the Chamber of Commerce, I think this should be left with an independent body.”

Sir Charles Addis (p. 2382): “And not with the government ?”

Mr. Gratton (p. 2382): “No, Sir.”

Sir Charles Addis (p. 2382): “Your view is that the government in distributing credit may not beacting at some particular time in the interests of trade and commerce. Or to put it in another way,there may be occasions when the economic interests of the country may conflict with thetemporary interests of the government ?”

Mr. Gratton (p. 2382): “Naturally. Legislature would have to be enacted that would not interferewith the general policy adopted by the central bank, whose functions would be to regulate moneyconditions, and this body would have to be so flexible, especially in times of crisis, as to give it acertain flexibility.”

Sir Thomas White (p. 2390): “Could a central bank in Canada by any action of its own, not jointaction, affect the world level of prices in terms of gold ?”

Mr. Gratton (p. 2390): “I do not think so.”

Sir Thomas White (p. 2390): “It would have to be by joint action if at all ?”

Mr. Gratton (p. 2390): “Yes, Sir.”

Sir Thomas White (p. 2390): “I think that is all. I just wanted to ask those questions and get theanswers for the purpose of the records.”

Mr. Gordon Scott, Former Treasurer of the Province of Québec, (p. 2422): “Some centralauthority which would guide and influence our banking policy would not appear inappropriate ifit increases the habits of caution and restraint which should be cultivated by the banks as well asthe public, and prevent overtrading and overmortgaging to such dangerous limits we have beenevidenced in the past.”

Sir Thomas White, RCBC Board member, (p. 2456): “What happened to the pound sterling whenthe United States went off the gold standard ?”

Mr. Harold Fisher, Montreal (p. 2457): “It depends what they stabilize it with. In my view thetreasury has been exceedingly clever in the last twelve months.”

Sir Thomas White (p. 2457): “I agree with that.”

Mr. Fisher, (p. 2457): “For some time before the American dollar went off the gold basis theBritish treasury, as far as I could follow its operations, had been leaving the dollar severely aloneand doing all its dollar business through France.”

Sir Thomas White (p. 2457): “When the Unites States went off the gold basis, what happenedthen ?”

Mr. Fisher (p. 2457): “Sterling of course improved in terms of the dollar but it was not affectedin terms of gold.”

Sir Thomas White (p. 2457): “The point I am really getting at is this: Is not international actionbetween great nations necessary to stabilize exchange ? That is what this internationalconference tried to bring about. Can we do it alone ? That is the point.”

Mr. Fisher (p. 2457): “I think two countries could do it by arrangement so far as stabilizing theirown currency is concerned.”

Mr. I.S. Henri, Montreal, (p. 2517): At this writing, gold of Canada should be sedulouslyconserved at home, thought not necessary for home currency, but we have plenty of minable goldto enable us to buy a few extras from those outsiders who still find some childish exchange valuein gold. Let our gold be put under lock and key by our own government for outside emergencypurposes only. It will serve to keep the financial invader out, for he never assists us, but bleedsour own production for his outside uses. Let us get back to the old pioneering truth that nothingdoes, nor can develop Canada economically but the bona fide residents at work here on theproduction and distribution of the upkeep of the animal part of our life.”

Mr. Hammerly, Montreal, (p. 2534): “I would like to have a private talk with the Commission. Ido not want to speak before an audience.”

Lord MacMillan, Chairman of the RCBC (p. 2534): “What point do you desire to deal with, Mr.Hammerly ? Have you any representations that you would like to place before us ?”

Mr. Hammerly, (p. 2534): “I have nothing in writing.” (A press representative informed theChairman that Mr. Hammerly had been in Russia at the time a central bank was instituted thereand might be able to give information to the Commission.)

Chairman MacMillan, (p. 2534): “I think if you would be good enough to put your views inwriting, Mr. Hammerly, we will be very glad to consider them. Will you do that for us and sendit on in the course of a few days to Ottawa ? I understand that a representative of the Woman’sConservative Association has arrived...”

Professor F. Vezina, University of Montreal, (p. 2553): “A Central Bank ought not to beconsidered a panacea for all our evils. Several banks of this kind exist in different parts of theworld, their number being increased especially since the Conference of Brussels. In spite of that,however, the economic situation has changed but little. We repeat that the solution of presenteconomic difficulties does not lie only in monetary measures, that is in the manipulation ofcurrency and credit.”

Lord MacMillan, Chairman of the RCBC, (p. 2595): “The collapse of 1929, which of course waswidespread and included both Canada and the United States, was the real commencement of ourfour years of depression. The financial situation in the United States has been decidedly worsethan that of Canada. Their banking system has proved to be unsatisfactory, and the authority ofthe Federal Reserve Banks has been if not useless, at all events ineffective. It is a curious factthat in both 1920 and 1929, the Federal Reserve Banks absolutely failed to control the situationthat seemed to be quite beyond their power. In 1920 a good part of the blame must be placed onthe government, which only released the Banks from the control established during the war, inthe winter of 1919-1920, when it was too late to act effectively. When they were able to act theresults were catastrophic and the complaints against them violent. In 1929 a great figure hadbeen removed from the councils of the banks in Mr. Strong of the New York office, and theyfailed to have sufficient prestige to control the situation.”

Mr. A.J. Glazebrook, Lecturer in banking at the University of Toronto, (p. 2607): “I presume thenew central bank would become a member of the Bank of International Settlements ?”

Lord MacMillan, Chairman of the RCBC, (p. 2607): “You would require to have a central bankin order to get a ticket to that August assemblage.”

Mr. Glazebrook, (p. 2607): “But one has a little suspicion in one’s mind as to the uncertainty ofthis continued success of the Bank for International Settlements. There was a tremendous outcry,throughout Europe at all events, for the creation of new machinery, and it appeared like magic. Ithink there were 35 or 39 new central banks formed, an immense machinery for handling asteadily diminishing international trade. It may have been a useful movement, possibly it was,but I for one should not be disposed to feel that this was sufficient. The membership of the Bankfor International Settlements being the governing factor in deciding is, in my opinion, notsufficient.”

Sir Charles Addis, RCBC Board member, (p. 2610): “Let me put it this way: If it were possibleto influence the stability of the monetary unit, would that, in your view, be an important functionof banking ?”

Mr. Glazebrook, (p. 2610): “Very.”

Sir Charles Addis, (p. 2610): “Before this depression took place, in the pre-war period, how infact was that stability accomplished ?”

Mr. Glazebrook, (p. 2610): “By the constant action of the exchanges, and the movementbackward and forward of gold.”

Sir Charles Addis, (p. 2610): “That is to say, that by the automatic action of the gold standard,the disparity between internal and external prices was corrected ?”

Mr. Glazebrook, (p. 2610): “Yes.”

Sir Charles Addis, (p. 2610): “There was, of course, a certain amount of management involved inthe maintenance of the gold standard.”

Mr. Glazebrook, (p. 2610): “Oh yes; oh, undoubtedly.”

Sir Thomas White, RCBC Board member, (p. 2627): “Now, just one other question, because Iam learning a lot out of this; having regard to the enormous aggregate indebtness in the world,which I think is one of the main troubles in the world today, international debt, national debt,corporate debts, and individual debts; do you think the world can get back to the present legalgold basis of the various currencies of the leading nations of today ?”

Mr. Glazebrook, (p. 2627): “I think it is extremely doubtful.”

Sir Thomas White, (p. 2627): “All right. I will take that answer. I think so too. Having regardto our financial relation to the United States - you said “within their financial orbit”, or at least,you said that - ”

Mr. Glazebrook (p. 2627): “Yes.”

Sir Thomas White, (p. 2627): “- can a central bank in Canada stabilize the value of the Canadiandollar in terms of the British pound sterling, without the United States or Great Britain or one ofthem assisting ?”

Mr. Glazebrook: (p. 2627): “I think they could.”

Sir Thomas White, (p. 2627): “Do you think any two of them could ?”

Mr. Glazebrook, (p. 2627): “I think th three of them could do it.”

Sir Thomas White, (p. 2649): “Suppose you brought a man in from the United States. He wouldbe in sympathy with the United States to a certain extent would he not ?”

Mr. Glazebrook, (p. 2649): “I believe that in the head office of the Federal Reserve Bank of NewYork there are at least two or three men whom you might describe as of outstanding ability. Ithink that Mr. -”

Sir Thomas White, (p. 2649): “I will not pursue that any further. I think those are all thequestions I have to ask, and I have at least got even with the University of Toronto for asking mein any lifetime a great many questions.”

Mr. W.C. Good, member of the United Farmers of Ontario, Toronto, (p. 2694): I do not knowwhether you are familiar or not with the protest that was made against the management of theFederal Reserve System in 1921. Everyone recalls the situation in the year 1920, and veryspecific charges were made in writing by the comptroller of currency in the United States againstthe management of the Federal Reserve Board, and these charges were in effect that the Boardwere simply playing in the hands of the financial interests on the Atlantic seaboard andsacrificing the interest of the South and the West. Resulting out of that there was a publicinvestigation held by a joint committee of Congress, both houses, in the year 1921, and there wasa very lengthy and exhaustive investigation, but the whole point of the investigation was thequestion as to the management. I think that they were called into question on two things, thebona fides if you like of the management, and the wisdom shown. You see, you might havepositive, shall I say, signs of wire pulling and that sort of thing, creeping into the management soas to use the public institutions for private purposes. In addition to that, you have mistakes thatare bound to creep in. I read most of the evidence that was taken at that investigation, and itdealt with both of those aspects. It was simply a mistake, whether there was anything worseabout it or not, but I think it is generally agreed that the policy adopted by the Federal ReserveBoard at that time was unfortunate and ill-judged. Whether there was anything worse about it ornot I guess nobody knows.”

H. Mitchell, Professor of Political Economy at McMaster University, Hamilton, (p. 2737-38): “Ithas been alleged, and unfortunately the idea seems to be widespread, that in 1928, the charteredbanks were withdrawing gold for export and maintaining their own reserves by borrowing underthe terms of the Finance Act. Had a central bank been in existence at that time, it is argued, thiswould have been controlled by its raising its discount rate to that point where it would no longerhave been profitable to continue the export of gold. As I have no doubt this commission is wellaware, this change is founded on a complete misconception of what actually happened. As amatter of fact the chartered banks were not involved in any such operation; such gold as did leavethe country was sent out on account of the Dominion government to meet its obligationsmaturing in New York. The whole allegation therefore falls on the ground and nothing furtherneed be said on the point.”

Professor Mitchell, (p. 2739): “As a matter of fact, on reflection it will be realized that, so farfrom being detrimental to Canada, the absence of a central bank which raises or lowers itsdiscount rate as the necessity arises is the exact opposite. The Finance Act has enabled thechartered banks to obtain the funds needed to allow them to meet the demands of businesswithout being under the necessity of raising their loan rates, when a central bank, in order toconserve its gold reserve, would have been obliged to raise its discount rate. The mistakencriticism of the working of the Finance Act arises from a false conception that compares thebanking practice in Canada with that of Great Britain. It seems to suppose that because, prior tothe suspension of Gold payments, the Bank of England “managed” its gold through the medium

of its discount rate, therefore there ought to be a central bank in Canada that would do the samefor the Dominion. It is needless to emphasize the fact that conditions in the two countries areessentially different, and any comparison between the functions of the Bank of England and acentral bank in Canada are totally at variance.”

Mr. Gordon Cockburn, Chairman, Economic Committee, Economic Reform Association ofToronto, (p. 2814): “The international gold standard was specifically designed to maintain astable exchange ratio between currencies at the deliberate sacrifice of the stability of internalprice levels over short and long periods. This system could only survive under conditions whichmay have been approximated in the 19th century, but conspicuously absent since the war (WWI),are not likely to be re-established.”

Mr. William A.J. Case, Barrister, Toronto, (p. 2846): “To decide whether Canada would deriveany advantage from the creation of a central bank, we should first of all get a clean understandingof what “money” is. Now “money” is not, as most people suppose, dollar bills. Those are only“money substitutes”. “Money” is metal; specie; coins. There is very high judicial authority forthis statement. If the reader will look at a dollar bill and read it (probably for the first time in hislife) he will see that the bill reads this way: “The Dominion Government promises to pay thebearer on demand one dollar”, meaning a promise to pay a gold coin of a certain weight andpureness. Gold is a commodity, just as grain or food or furniture is - ”

Lord MacMillan, Chairman of the RCBC, (p. 2846): “Do you really think you need to lecture uson the elements of money (...)You really must assume that we know the elements of the subject.”

Professor J.F. Parkinson, University of Toronto, (p. 2869): “In fact the establishment of a CentralBank should provide the opportunity for a long overdue centralization of the gold reserves ofCanada. The only useful purpose served by gold reserves, if we may over-simplify the argumentat this juncture, lies in its availability for export at times when the balance of internationalpayments has become inadequate to meet the current obligations of trade, and of governments. There is no precedent for the maintenance of three separate gold reserves, as is the case inCanada. The Central Bank should be able to mobilize all the monetary gold of the country atimmediate notice should the need arise. The dispersion of our present gold holdings between theDominion Government, the chartered banks, and the Central Gold Reserves, along with thepresent duplication of responsibility (or the lack of it) for monetary policy has prevented anyintelligent use of the gold reserves as a stabilizing agent in the foreign exchanges, or as means ofreducing the cost to governments of their foreign debt services, or as a pledge against the raisingof cheaper loans abroad. We should centralize the gold reserves of Canada in the same way, andfor much the same reasons, as the Commonwealth Government did in Australia in late 1929. Since the onset of the depression, the government has had to exercise an increasing degree ofsupervision over gold shipments. There is no reason why this natural process should not bespeeded up in order that the disposition of the gold reserves may be more effectual.”

Sir Thomas White, RCBC Board member, (p. 2917): “You have spoken of the necessity ofbranches in London or New York if a central bank were to be established in Canada. That wouldadd to the expense of it, would it not ?”

Professor Parkinson, (p. 2917): “It would.”

Sir Thomas White (p. 2917): “Has the Bank of England any branch in New York ?”

Professor Parkinson, (p. 2917): “No, it uses Morgan’s, but it has offices in Birmingham and atother places in England.”

Sir Thomas White, (p. 2917): “But none in New York ?”

Professor Parkinson, (p. 2917): “None.”

Sir Thomas White, (p. 2917): “And none in Canada ?”

Professor Parkinson, (p. 2917): “None.”

Sir Thomas White, (p. 2917): “Has it an office in any other part of the world ?”

Professor Parkinson, (p. 2917): “No.”

Sir Thomas White, (p. 2917): “Then they can act through agents ?”

Professor Parkinson, (p. 2917): “Yes.”

Sir Thomas White, (p. 2917): “Would it be necessary for Canada, if it had a central bank to haveagencies of the bank in New York or London.”

Professor Parkinson, (p. 2917): “I think it would because our transactions with London and NewYork are much more important to us than the transactions in any of these centres are to the Bankof England.”

Sir Thomas White, (p. 2917): “I do not know whether that is correct or not but for the time beingI will accept it.”

Lord MacMillan, RCBC Chairman, (p. 2930): “May I ask if you expect that the output of goldfrom your mines in Ontario will increase ?”

Mr. C. McCrae, Minister of Mines, Province of Ontario, (p. 2930): “Yes, my Lord, I do. In thatgreat mineral area in this province and extending along in our sister province of Quebec, andwhich we refer to generally as the pre-Cambrian shield, we have great assets in gold and otherminerals.”

Chairman MacMillan, (p. 2930): “It would be strange if world recovery were to be assisted by agold discovery as has happened twice I think in the history of the world.”

Mr. McCrae, (p. 2931): “We have an appreciation of the importance of the contribution of goldin those circumstances.”

Chairman MacMillan, (p. 2931): “As regards these various large matters of banking andeconomic policy to which you have alluded, do you think that the commercial banks have ameasure of responsibility in relation to such topics ?”

Dr. Theodore Gregory, Professor of Economics, University of London, England, (p. 2990): “Thatopens enormous issues, Mr. Chairman. I should be inclined to say that in a country upon thegold standard the ultimate responsibility for maintaining the basis of credit rests upon whateverauthority is responsible for the maintenance of the gold standard, but within that very wide fieldit is inevitable, I think, that bankers of every and any kind have a very great responsibility for theway in which they conduct their business, and an appreciation of the circumstances under whichcountries like Canada conduct their economic life must necessarily be of the greatest importancein the conduct of banking business.”

Dr. Gregory, (p. 2995): “I think that the history of European central banks in the last few yearshas rather tended to show that in moments of emergency that central bank is almost bound to besubordinated to wider considerations of national safety, national honour and other considerationof that kind.”

Dr Gregory, (p. 3010): “I feel very strongly that the modern world demands from central bankerssome such objective as that you have just stated, namely, that the real function of a central bankin the modern world is ultimately to prevent the trade cycle from getting entirely out of hand. Onthe other hand there is so much difference of opinion between economists of equal standing andreputation as to how precisely the trade cycle is caused, and so much doubt, I think, in the mindof both theoriciens and practitioners how properly to intervene and when to intervene, that I mustconfess I am a little bit chary of stating these things in the terms of a preamble to a general Act ofParliament. My own strong feeling is that the general functions of a central bank can really onlybe exercised in cooperation with other central banks, and that central banking only reallyfunctions effectively when some decision has been reached as to the bases of the currency policyof the country. I should not like to throw upon the a central bank the definite task of eliminatingthe trade cycle. That is not in the charter of any central bank in Europe or in the charter of theFederal Reserve System, and it would be absolutely futile to insert it in the charter of the centralbank of a country the economics of which is so largely dependant on what happens outside itsown frontiers.”

Dr. Gregory, (p. 3025): “I think I am right in saying that when the United States went of the goldstandard, power was taken under one of the numerous acts which have been passed since toestablish such an equalization fund, but one has not been established so far. It is notorious thatthe United States could protect its currency very adequately by selling part of its enormous goldholding in the open market, but I believe I am right in saying that England is the only countrywith an exchange equalization fund.”

Sir Charles Addis, RCBC Board member, (p. 3029): “The remedy is really to be found in acooperative movement of the central banks, of which it is hoped Canada ill form one, to reducethese extreme fluctuations, and eventually to arrive at stabilization of an international monetaryunit.”

Dr. Gregory (p. 3029-30): “Perhaps I should correct one of my former answers. Of course acountry could, as it were, contract out the necessity to hold foreign balances if, every time itraised a loan abroad, it took the proceeds of that loan out in gold, and constantly shipped goldfrom this to all other centres, but it is such an inconvenient policy that one cannot put it forwardseriously. I agree that the only hope of attaining our objective, so far as these newer functions ofthe central bank are concerned, is by means of some kind of international agreement, but perhapsI should add, Mr. Chairman, that in the present state of scientific study and knowledge of thesematters, there is no patent remedy which one can bring to the attention of the central bank bywhich they can attain such objectives.”

Sir Thomas White, RCBC Board member (p. 3032): “Do you think that there should be in thecharter of a central bank a very reasonable limitation imposed upon the power of the governmentto borrow directly from the central bank, either by the increase of the floating indebtness, in theirbills, or anything the government might desire ?”

Dr. Gregory (p. 3032): “No. My own feeling is the best safeguard the central bank possessesunder these circumstances is not a statutory protection against the claims of the government, buta strong public opinion behind it. I think the government could always alter the Bank Act andwould in an emergency amend it. I think the best protection the central bank might have is thestatutory right to present any correspondence relating to these matters to the House of Commonsor something of the kind.”

Sir Thomas White (p. 3036): “Would it be advantageous to the world at large if all the currenciesof nations now off the gold standard should be so devalued in terms of gold that such nationswould be able more easily to maintain the gold standard at the new parities ? Would it be anadvantage if we could get back to a gold standard, representing the reduced value in terms ofgold of all the currencies of the world, not necessarily uniform? Is that an object to be desiredinternationally ?”

Dr. Gregory, (p. 3037): “I personally am one of the few economists in Great Britain who is still abeliever in the gold standard. I believe the whole experiment of competitive exchangedepreciation has been a disastrous mistake, and the world must correct that mistake at an earlydate if a rational banking and currency policy is to be pursued anywhere. I must be frank and saythat many people do not agree with me. I personally would answer that question by an emphaticaffirmative.”

Professor W.A. Mackintosh, Queen’s University, (p. 3056): “It would be expected that a debtorcountry, a large exporter of raw products, would have been forced off the gold standard under thesevere strain of depression and panic. It was a fault in our monetary machinery, however, whichpermitted our currency to depreciate as early as December 1928.”

Professor F.A. Knox, Queen’s University, (p. 3063): “It may be assumed that sooner or later themajor trading countries of the world will have to come to some agreement as to a commonmonetary standard and that they will stabilize their several currencies with respect to each otherprobably by making them convertible once more into gold. Supposing this to have taken place,Canada’s monetary policy is clearly to join such a group in order to secure that stability in herforeign exchanges which is so essential to a satisfactory international trading position.”

Professor C.A. Curtis, Queen’s University (p. 3069): “Concern has frequently been expressedover suggestions that the bank note issue privilege should be withdrawn. While I am of theopinion that the burden imposed on the banks would not be as great as it feared the operations ofa central bank would not adversely affect it if the banks were allowed a free issue up to theexisting paid-up capital. This limit should be permanent. Central bank notes would provide thenecessary currency over this amount. The small Dominion notes circulation could be left to theGovernment as a part of subsidiary money of the country; this would be a great help to theDominion Government in making the necessary adjustments in the Dominion notes issue whichotherwise would be abolished. The central gold reserves would disappear, of course.”

M.W. Wilson, Ottawa, (p. 3163): “With both the United States and Canada on a gold standard,the situation would remain the same as it was under similar conditions in the past. The Canadianmarket would be overshadowed by that of the United States, and a Central bank’s powers in thedirection of contraction or expansion would be of the most limited character, unless the actiontaken in this country parallelled similar developments in the United States.”

Canada’s balance of international payments, gold coin and bullion: Exports from, and imports into Canada (in thousands of dollars)

(p. 3166) 1928 1929 1930 1931 1932

Imports $39,659 $3,746 $34,062 $2,038 $2,175

Exports $107,614 $50,598 $25,343 $70,062 $60,825

Surplus Imports $13,719

Surplus Exports $67,955 $46,852 $68,024 $58,650

Mr. Jackson Dodds, Ottawa, (p. 3175): “In the more normal period when Canadian currency wasanchored to gold, international prices were automatically (although not necessarily to the fullextent), reflected in domestic prices. Under the gold standard, if the price of a particularcommodity declined during a period in which commodity prices in general remained stable,producers of such a commodity received unmistakable intimation that the supply of thatcommodity was not adjusted to demand and that they should govern themselves accordingly. Incases where the lack of equilibrium was more than temporary (for example, a rapid increase inproductive capacity rather than a temporary condition of oversupply) anything the banks mightdo to assist such producers would only delay the final day of reckoning if producers attempted todisregard the relation between supply and demand. That is to day, the operation of the goldstandard, even if not wholly automatic, nevertheless imposes rigid restrictions upon themovement of commodity prices particularly in a debtor country. We think it desirable toemphasize that any attempt to raise domestic prices (whether the country is on or off the goldstandard) by measures designed to increase arbitrarily the volume of commercial credit in use, isbound to disrupt the normal economic process in unpredictable directions and to causedisequilibrium difficult to eradicate later.”

Mr. Jackson Dodds, Ottawa, (p. 3184): “When asked if he was not in the position of directinghow their credit shall be used, Benjamin Strong, New York City Federal Reserve Bank Governorstates: “I believe that an administration of credit such as is afforded by the Federal ReserveSystem, is capable of exerting an influence upon the value of credit employed by the country andinfluence upon the cost of credit, and, within the limitations which the volume of credit and thecost of credit exert and influence upon the price level and only within that limitation, can theoperations of the Federal Reserve System influence prices, that is, the general price level; thatthere will be times when even the power to somewhat regulate the volume of credit and its costwill fail of complete or anything like complete regulation of the price level, because there aremany other things far beyond the control of the influence of credit, that is, the volume and cost ofcredit, such as the mood of the people. Therefore, if any expression as contained in the FederalReserve System can do more in stabilizing the price level than the limited control of credit iscapable of performing, I am afraid that disappointment will come when there are fluctuations ofprices which cannot be controlled within the strict limitations I have described.”

Mr. H.T. Ross, Ottawa, (p. 3257): “The Bank of England notes are secured at the moment bypractically fifty per cent of gold and fifty per cent of live securities. Every dollar of the FederalReserve notes in actual circulation and Federal Bank Notes in actual circulation is required to bebacked by gold and securities of the most liquid character. The Commonwealth Bank ofAustralia has against its notes in circulation, for practically every pound of the issue, gold ordebentures and other securities interest bearing and furnishing the chief element of income to theCommonwealth Bank. Based, therefore, on the precedents mentioned and for the reasonsadvanced, the Government of Canada must redeem the $63,500,000 in the manner set out if thenew institution is to be upon a sound, stable basis, issuing a currency as acceptable as are theBank of England notes or Federal Reserve bank issues.”

Mr. H.J. Coon, Bank of Nova Scotia, Ottawa, (p. 3354): “If and when the gold standard isrestored internationally, we cannot expect it to work automatically without strain in an age asunstable as our own. It will be maintained, if at all, only by means of cooperation between thechief central banks; in other words, we shall have a managed gold standard. The establishmentof a central bank in this country would, it is claimed by its proponents, enable Canada to take partin the joint enterprise of gold management. It is believed, however, that such cooperation as mayprove necessary could be arranged without the creation of a central bank.”

Mr. H.T. Ross, Ottawa (p. 3368): “A drain of gold, consequent upon this situation, where itwould be necessary to diminish the aggregate purchasing power of Canada, would directly pressupon the cash reserves of the commercial banks; and thus would impose upon them a cautiouslending policy, without requiring action on the part of a central bank (indeed, the same resultwould occur, even if no central bank existed) to bring about this en; or, if the banks failed torecognize the situation, and to contract their own operation accordingly, the pressure upon theircash reserves would bring then, as would be borrowers, to the central bank, which would thusautomatically find itself in a dominant position.”

Mr. Charles A. Bowman, Editor, Ottawa Citizen, (p. 3396): “Would it be an overstatement to saythat this policy of greater production but restricted purchasing power continued just the sameafter 1923, eventually to drive the nations into the present breakdown, years after Lord Milner’sgreat appeal for a new economic policy ? It may be true, gentlemen, that many erroneousdoctrines are being preached by agitators and radicals: but it cannot be said for the accepteddoctrine of high financial authority that they have been free from error. They not only have beenpreached, but put into practice with disastrous consequences. As part of the propaganda to bringabout the return to the international gold standard, the nations were assured that increasedproduction and drastic economy - “Produce and save” - would restore prosperity. It hasobviously failed to do so. And when some observers began to contemplate the necessity of againdeparting from the gold standard, the British people were subject to the broadcasting of alarmingpropaganda to such an extent in 1931, that the three great political parties virtually eliminatedthemselves under the inspiration of high financial authority.”

Sir Thomas White, RCBC Board member, (p. 3454): “Suppose the Canadian dollar were peggedto sterling and sterling was 25 per cent below gold parity, and let us assume that the U.S. dollarrose to parity; I do not think that is probable, but suppose it did. What effect would that haveupon the burden of our indebtness to the United States ? The American dollar would be muchhigher in terms of the Canadian dollar.”

Mr. J. A. McLeod, Ottawa, (p. 3454): “We would be subjected to a very serious premium inredeeming our coupons and paying off our indebtness.”