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The Seaforth News, 1932-03-10, Page 3THURSDAY, MARCH 10, 1932. • anada andthe Gold THE SEAFORTH NEWS. Standard sizzamiazzawassinsinnengemem Rt. Hon, R. B. Bennett's Speech In The House Of Commons on Februarg 29 On The Position Of Canada Today In Regard To The Gold Standard. (From Hansard) Right Hon. R. B. BENNETT ,(Prime Minister) Mr, Speaker, be - Cause I have had the responsibility, particularly during the last few months and until a few weeks ago, of adminigtcring the Finance Ac't, I shall make, witthont further (lelay, the observations that I desie to make to Ithis chamber. I have 'followed with some interest the remarks of the hon. member fcir Vancouver Centre (Mr.. Mackenzie), and his references to the technical Side of the economics of the gold standard are worthy of a great occa- sion: But we •are dealing with prad tical circumstances and facts. Un - !fortunately his know,ledge •cif the is- sues of dominion notes is hardly ac- curate, as I shall presently ,point out. AJs for the suggestions made by the hon. member for Macleod (Mr. Coote) I think I :shall be able to show 'to the chamber that if they were ad- opted it would mean the ruination of Ithis country at this time.' In the first place, pray I ,merely am- plify very briefly sorne of tho obser- vations made by thehon. gentleman who has just taken this seat. Why is gold used as a Standard at all? That !seems to be the first question that /night reaSonally beasked. 'The ans- wer is fairly elear. First, it is rare; second, it is convenient, and third, it has, by .reason of those circumstances if you will, and others, a value that is uniform throughout the world. Hence it was, as the hon. gentleman has 'pointed out, that it became the stan- dard for values. It was worth just as much in Australia or Hongkong 'or London as it was in Paris or Wa- a"""el.: ahington or Ottawa. Pt had a fixed 'value that did ndt fluctuate with changing conditions. Therefore, for these and many other reasons to which on this occasion time will not permit ane to refer, 'gold became a standard for. valtes and we refer to it as the rare metal, the metal of va- lue, and in 'other terms, of that kind. We in .this country, prior to and since coefederation, have treated gold 'as a standard for values of our moire- ta‘ry system. I Shall not do more than refer to the statute that is the !law at the present thne. That statute, with which I trust most hon, mem- hers are familiar, requires that the is- sue 'jf dominion notes up 'to $50,000,- 000 be supported by a coverage of 25 per cent. of gold. 'That is, When the iDdminion of Canada emits $50,060,000 .worth of its legal tender or promises to pay on demand, there lies in y'onder treasury $12,500,000 in gold that being the ratio between the issue of paper and gold which We .have by our stat- ute provided- We have also provided that for any sum beyond 50,000,000 we shall have one dollar in gold for every dollar so issued. We also pro- vide that ten per cent. of all 'the de- posits in the Rost Office Savings bank :shall be covered b,y gold. May I point out to the house that the hon. member was slightly in error in connection with the .present issue cif dominion notes,. If hon, members will turn to page 21$8, of the ?Canada Gazette and look at the cir- culation and specie for the 31st day of January, 1932, they will find that we have altered slightly the form of the return as it used to be made in years gone 'by, believing it to be de- sirable that any person who wished to do so might by looking at that return ascertain exactly What the gold coverage of this country was ,with respect to oat- issued notes. First, under chapter four, 1915, there was an issue of $26,000,000. The hon, gentleman vho has just taken his aa seat suggested that possibly $10,000,- 000 has been retired, I point out to him that the whole $26,000,000 is still outstanding. Then under the Finance Wet of 1927, chapter seventy, there was an issue of $45,000,000. That rep- resents She notes -issued by the Do- minion. of Canada under the statute of 1915 and under the Finance Act, now being chapter seventy of the Re- mised Statutes of Canada for 1927, amounting to a total of $711,000,000. Then there has also been issued $99,- ,3182,505169 in dominion notes, covered IRS to $50,000,000 by 25 per cent of gold and as to the 'balance dollar for dollar. Those three' items—the $26,- 000,000 issued and still outstanding in lits entirety, the $45,000,000 also h- ailed an d still outstanding in its entir- ety, and the dominion notes, make a totai of $170,3.80,805)09. May 1 point out to the hon. member for 'Macleod that we still have outstanding at bhis, 'hour over $71,000,000 of notes which are not covered by' gold in any way, shape or foram So wliat he asks has already been done to the extent oil traint. If a nation is on the gold $74,000,000.. stawdard, you can in Ottawa or Wit - But nu-01er with respect to the sbington or London or elsewhere buy 'V9,382,805.169 of dominion notes out- gold as you could buy any other corn - standing, it is only a matter of com- mociity. That, in general terms, is .putation that it aequi.res $61,,832,805.- what it means. When in the days of 69 worth of gold to cover 'them; that my youth I first visited the Bank of is, 25 per cent up to $30,000,090 plus England I can recall being struck by dollat for dollar for the balance of, the ,fact that geld bars were roiled in .$49,3812,180.5.69, making a total of $61,- on small lorries and sold just as any 882,805)69 which we have ih our commodity is sold in a grocery store. treasury to cover, may I point out The truth is that London was the to ,the hon. member who has just ta- great tree market for gold, and, the ken hisstat (Mr. Mackenzie) not the reason.a free market for gold, has to $1,70,000;000 but only the $99,000,000 be maintained for the punpose of issue of dominion notei. That is ,poo- smaintaining the gold standard is a lvided :for by the 'Duinioion notes act. ,simple one. Wihen . communities IThe result is that at the end of the 'trade with one another there is rarely month we had nearly $5,000,000 of aso equilibrium of imports and ex - gold beyond what was required. That ports. There is usually a balance to is (a) tett per ceirt. to take care of the be settled. The balance may be one Peat ,office savings bank deposits; (b) 'way or the other, but ,Whatever way $61,000,000 to take care of the dentin- the balance cs, in the end it has to be ion notes outstanding under the pro- settled. There is no determination of visions of the statute, by which 25 'when the end comes if the world re- po): cent, up to $50,000,000 is in gold, mains at peace; but in 1914 suddenly and beyondthat dollar for ddllar; the world was at war, and it became and (c) a small suriplua of between necessary to adjust and settle hal- $4,0g0,000 and $5,000,000. ances. make that explanation mere - 'Beyond that we had outstanding ly 'because the hon. gentleintan refer - t$1,000,000 with no gold coverage at red to what happened in 1914. But all, •so that the end sought for has al- let us look at the situation to -day. ready been attained. We have a cur- :There is a .balance, let us say, between rency'covered 'by gold up to, roughly, Great Britain and Canada, or between $100,000,000, and. the balance is cov- the United States and France, or be- ered by the resources of this country tween the United States and Germany and the promise to pay of the Caned- or between Australia and Canada. In ian people. the end the only method by which !Now if it ended there, we might not those balances can be settled, if there discuss further the resolution, but one are no bilis of exchange to buy, is by 'must never forget that there are many passing some commlodity that vvil'l. obligations of this country in which. pass at par both with the payer and there is a promise to pay gold. .When with the payee. That is obvioui, is England went off the gold Standard, it not? It must have a parity of vel- a very distinguished political econom- ue to the man who pays and to the ist from London was in this country. man who receives for the purpose of He is a gentleman very well known settling that balance. if Canada owes by reputation to the group that sits the United States $100,000,000, Cana - across the chamber to my right. He da cannot pay that $100,000,000 in said to me, "Mr. Bennett, you should • pieces of paper unless they have be - go off the gold standard." "Well," I hind .them a value which will make said, .".ollaviously we are not on the $100000,000 in the United States gold standard as you understand it." where the debt is payable. That is lie said, "Well, I mean that you so clear that I :do not think it requires should depart from it." I said, "My any argument to be understood by all friends do ,you thiuk we could go off of US. 'That is the position of gold the gold standard, as you use that at the moment. Gold 'is the one me - team, with the ohligatious maturing dium of universal value Which enables in New 'York that we have to meet in balances between nations—and when gold during the next six months?" I say between nations I mean also 'Explain," he said. I explained to between the great corporations and .him the situation just as it stoad. bankers abroad—to be settled. "Well," he said, "that is a new phase I will give the house another illus - of it." He wrote me a letter—he tration. When England went off the cabled me, as a matter of fact .when gold standard, there was a part of the he seethed London --and said, "You Canadian National finanding Which are entirely right. You could not." had not been concluded. There was Let me explain to the house just Still a balance o'f $19,000,000, for which what is inisolved. We have maturing a loan had been made through a great outside of Canada this year ,practical- 'bank in New York. Now, if I shin- ty one milliem 'dollars a day of crbliga- ped down to Neva ,York 19 one mil- tioos of governments, nutnicipalities lion deblar Canadian bills twould 'that and public corporations, payable in pay the debt. Obviously it would not. gold, te,ptesenting either payment of tBecahae those nineteen one million ,principal--instalroents of principal, if dollar bills could not be converted in - you will—or payment of interest. to nineteen million dollars of gold, [Obviously., as the hon. ineniber far there being no free market in respect Madleod says, there is ant enough to it. That was the position. It' pat gold to gay those all at once, but gold, upon us the tremendous obligation of being a medium of exchange, circu- making the necessary arrangements lates, and 'in its 'circulation lies its va- to carry over. Inc. If the hon. gentleman :who has My hon. friend has referred also to just taken his seat had said what 2 the position of the provinces. That ,think was 11 his mind, namely, that position did not arise betause of their the lack of circulatioa of the gold that internal insolv.erecy. It arose because is held by one of the great powers of they in coninton with the municipali- }Europe, is the cease of the diffieulty, ties, had borrowed substantial sums and -not the mere holdin.g of it, I to pay in New York in gold, mad hay - would have been in entire agreement ing so prdmised they could not am - with him. The Versailles treaty pro- .vent their dollar bills in their treasury vided for Indemnities—we will use the or the money they could horrow from word iadenutitiesand it follows that Canadian banks into gold as, a coin - there is not Old ,eavough to pay all niodtty, because there was no free She obligations prdvided for. Gold, market for it in this coantry, without therefore, must circulate in order to, impairing, as it would, the whele.fin- be tiieful; when it does nfot circulate ancial structure. So they were placed its value disappears and it is no long- in the position where 'they too had er a medium of eXchange. That, I to rely upon the credit of the dornin- think, is what the hon. gentleman had ion for the moment to enable them in mind in his reference to the acculna tO discharge their Obligations 'which tilation of gold by one o't the great were payable abroad in gold. That is arations. Of the world. the reasonthose provineesnew pro - Now what was ourpositioa? Since 'vinces compared with old and ricIh 4929 we have not been 01 the geld provinces Liles Ontario and Quebec— standard. In that year, for reasons were compelled to make the arrange - beat known to the government of the talents they did. day, practically $40,000,000 of gol'd Now, sir, I put to the house thiS was shipped to the United,States. The question: With a currency to -clay effect was of course to lessen the sup- of Ohl& 4165,000,000 of Money is out - ply of gold in this country by $40,000,- standing, not covered by gold, what 000 and for the moment to substitute would happen if this act 'wets to be for gold, credits in New York. It repealed :and we no longer remain op - therefore followed that when Eng- on She basis of supiporting our cur - land went off the gold basis, we were re•ncy with the coverage provided by not on the gold standard' as that term statute ? What would happen to your is used in continental Europe and in dollar bill? It might be worth 25 international commerce. With what cents on the dollar• -it. Might be. .hon, friend Froin Veneouver 'There is .no man whohas given ally ;Centre has said I an wholly in ac-, attention to this who' has not,reallized cord, namely. that the term gold .stan, that, and yet. .my hon. friend from dard as it is Used by international' :Maelead suggests it this parliament bankers and financiers means that passed' a statute by Which we repeal - gold is a commodity freely bought' ed the provision for gold coverage anil sold without restriction or res- for our currency the millenium would be ushered in s0. far as this country is concerned, 1 put that proposition to this chamber, which alter all it a deliberative assembly. Does any member think that it is feasible? Be- hind what we emit as money, behind. the currency that we send out from the treasury, must not we always have something that has a fixed va- lue? How otherwise can we manage? 0 just put that to the house. This talk of the gold standard in theory is something about which, as the lion, :gentleman who has just taken his .seat has said, we could have very learned and lengthy discussions. The hon. member for Macleod has read the opinions of most distinguished men—they are economists. I am nol an economist, but Mace September last I have been dealing with a real 'probl'em—maintainting the credit land .financial integrity of Canada, and I know exactly what at least the men we owe say. And after all the man you OW e is very often the man who has something to say about the situa- tion. I pet to the house if that is not fair. 1Wihen "England went off the gold standard you Will recall—and I waist to correct my hon. friend as I pro- ceed—you will recall the news came across the water on Monday night, lAs a matter of fact I am merely ilia &eating what might be. read by any hon. gentleman who so desires, that for months prior to that it was point- ed out by the 'Ohancellot of the Ex- thequer and others in Great Britain that the steady increase in imports was making a drain upon the goid olf the Bank of England to such an ex- tent that unless it were Checked or the gold deposits maintained there must be ruin. I think if my hon. friend will new do me the honoor of thinking for a moment as to What I said he will recall it was this: The great excess Of imports over exports brought about the situation. Once more I come balek to my illustration. 'England had continuously increased her imparts and they were swelling up by hmtdreda of millions of pounds so that at one time they had readied the colossal figure in one week of two billion pounds more imports than ex- ports—ten billion dollars in our cur- rency. The result. was that when the balances were adjusted, at the end of the month, or whatever the period May be, there being no bills of ex Change to go out to meet these oblig- ations, they had to pay them in gold, and the only place to get it was the free market in the Bank Of England. Every day the gold reserves were go- ing dowa--dowm, down, down. Then there came the unfortunate incident in connection with 'the fleet. You will recall that immediately there came from Holland and other. 'contin- ental countries vast SIMS of :British securities. These were thrown upon the market on Friday afternoon and all Saturday morning for any price they would fetch. ISecunities were sold for ffity cents on the dollar, for even less than that. As soon as they were sold the seller demanded gold, and although the Blank Of England sas- pended payment on Saturday night— it was announced to the world on Sunday --the fact is that approxi- mately ten 'billion pounds in gold was taken 'from the ,bank 1Friday afternoon and 'Saturday morning. The result 'was the bank .could no longer sustain the demand made upon the treasury for gold; the free market had, dis- appeared; it could no longer meet the demands fec gold in- stead of paper. That being so, late Saturday night the bank concluded to go off the gold basis, and the Chancellor of the Exchequer made the announcement which appeared in the papers on the succeeding day. Now, loop at what we had to do. It affords rile an Opportunity to tell this house, because the, wisdom of what we did do has been questioned. The message to ns was in cipher. It was decoded late Sunday night, It was im.posaible in the very -nature Of things to gather our colleagues about us. A decision had to be taken. What were ,we going to do ? What would you say about roar country tinder similar circumstances ? Well, the Statement I made, as you recall, was perhaps in fifteen words; ,I ,said it was: for the people of Great Britain to determine 'what they would do hut we would continue to meet ,our ob- ligations in gold Where we had pro- mised to pay in gold. We had to do that or our credit was gone. We were deprived of the market for our securities. England :being no longer in a position to meet any /el:Mesta we 'might make for assistanee, having failed to maintain her poaition as a' free gold market despite the advances made by France and by the United States in the, farm. of gold credits, we were thrown upon .one market and one market only—the market of New York. And not only that. Upon what we said that night depended, the cre- dit of this country. Let us have no misunderstanding about it. The inter- national bankers of that oity knew far better ;than some of the members of this house the terms of our Fti- nance Act, our Currency Act, our Do- minion .Nfotes Act, our Bank Act, It ;as "He should be home by this time" Mts. Fowler was worried. Her husband had gone to town for the day but he was to be back in plenty of time to feed the stock And now it was getting dark Then the telephone rang: "Sorry,Mary", came her husband's voice, "I can't get home till late. Better telephone George Bothwell and ask him to help us out." So the stock was fed and Mrs. Fowler's worry was ended. No wonder she said: ,"It's lucky we have a telephone:' is not necessary for Inc to do more than make that statement. They were aware therefore that technical- ly since 1929 the country had . been off the gold standard as the hon. gentleman has defined it, but we were still working under the provisions of the Currency Act which provided gold coverage in the terms enacted for our dominion note issue. I said we proposed to meet our obligations in the terms of our promises, and we have done so. The only reason we assisted the provinces was to en- able them to Meet their obligations in the terms of their promises; that is all. Of course it does not follow that this means there is any difficulty in the situation of the provinces; it does not mean that they have be- come bankrupt. It only means this, that for the purpose of meeting ob- ligations which they were not able to convent into gold at the time, we had to assume the responsibility of helping thein, and we have advanced money for that purpose. That is the position in connection with the ap- plication 'of the gold standard to our tountry. The modern tendency is to believe that forty percent is a sufficient aver- age metallic coverage for bills. That is, inatead of 25 per cent up to $50,- 000,000, and there after dollar for dol- lar, the modern thought is that if we have 40 per cent coverage for all our issues we will be safe. That is the generally accepted rule to -day, and you will observe that on the last day of 'January the total outataading was $1170,0005000. Forty per cent of that makes a total (If $d8,000,000, and you will observe that 'while we ctid not have that $68,000,900, nevertheless our coverage of gold so nearly approxi- matedit that the credit of this coun- try has steadily improved. I say frankly that but for Great Britain going off the gold standard, and but for the depreciation of the' pound and the difficulties the pound has expeni- eneed, the' dollar of this, country would be worth par or practically par in New York. About that there need be practically no difficulty. That is the reason Why this government has laboured clay after clay and week after week, first to create and then to maintain a favourable trade balance; because we could not face the po.ssi- bility o'f having to pay in the only medium that would be accepted uni- versally, gold, an adverse balance which a year ago, Mr, Speaker, ,was $103,000,000. 'We have converted that now until the favourable balance where gold is due to us is between $10;000,000 and $25,000,000. I do not ask you, sir, or this, house to treat that as a great tribute to a government because the Canadian people have done it. They have had to undergo many difficulties . and many ptiVations, and they have made, many sacrifices to do so. It has in- ‘. convenienced many great merchants., but in the long run I am in the judg-- ment of the house and of those whoa have given thought and considerations to the matter -When I say that I be- lieve if we had done ought other than that we would have failed in our duty' to this country at this time, 1 be- lieve that will be the judgment of • those who have given math consider- ation to the question. It may interest some of my hon. friends opposites, who should take an equal pride witlat us in the matter, to knhw that there, are economists who say that the.: greatest single achievement that has.: been 'brought about by any country - in the world since the depression has. been that of ten million. people in - Canada, who have converted an ad- verse trade b'alance o.f $103,000,000.1 into a favourable balance. !Now we get dawn to the question. • of credit. I wonder if any mart in• this house will say there is lack of credit facilities in this country at the moment, having regard to the secur- ity that is available for the credit asked, I have discussed the matter. with men who have asked the batiks. to lend—what? It is not their Moineyw for remember that the banks have rrov money of their own; their capital and' reserves are locked up not only in: buildings and facilities bus 110 re-• serves of cash, and the money they; loan belongs to the s'mal'l and big. people of this country Who have their deposits in the banks. 10 nine cases out of ten my observation hag been that 1..Vhen I have pinned down the ap- plicant who complained, with this question, "Would you lend your money ott that risk," in most cases,. sir; 'he has said to me, "No." You go' into the bank and ask for $1,000—of; whose money? It is $1,000 of yourr neighbour's deposits, but you ask to borrow that $1,000 of your neigh -- hour's .deposits, and when the hanker - asks what security you can give you say, "We'll, I ani going out on a fannt . have not got one yet, but I expect: that I will be able to get a soldier- sdttleinent farm on reasonable teems; I am going to work Pt, and they will help me with respectto a crop." DO you think you would want your mon- ey lent on that security, if it was ott deposit? Do you think that is a risks that would enable you to dralw your - money out alt the bank when you - write your cheque ad present it ? What is the reason that in the Unit- ed States four thonsancl banks have. failed in the last two years? It is be- cause their assets were 'in securities. 'that were not canveritible into. malls so Agt the cheques of 'their deposit- ors could be met. Colitinhed on Page 7)'.