1959-04-27

Right Hon. J. G. Diefenbaker (Prime Minister):: Mr. Speaker, on March 4 I informed the house that on March 2 a note addressed to the government of Canada by the Soviet government had been received, concerning the possibility of negotiations taking place on problems connected with or relating to Germany. This Soviet note did not contain anything of significance which was not to be found in the notes which were addressed on the same date to the United Kingdom, the United States and France.
The Canadian government in its reply to the Soviet note, which reply was given on April 24, expressed support for the proposals put forward by the western powers, and accepted by the Soviet government, which would lead shortly to negotiations in Geneva at the level of foreign ministers. The note stated that in view of the imminence of these negotiations the Canadian government did not consider it would be of value to comment in detail on the matters raised in the Soviet note. The hope was expressed, however, that the Soviet government will treat the coming negotiations as a real opportunity to achieve a lessening of international tension, and to settle some of the pressing problems on a basis that will take into account the legitimate interests of all concerned.
For the information of the house I should like to table copies of the Soviet note and the Canadian reply.


Hon. Paul Martin (Essex East):: I am sure the house will welcome the tabling of these documents by the Prime Minister. Can the Prime Minister say whether or not the Canadian reply in any way dealt with the latest proposal put forward by Her Majesty's government with regard to the new proposal for inspection, and if not, can the Prime Minister say whether or not Canada has been made aware of this proposal?


John George Diefenbaker: Mr. Speaker, in general the note dealt with the matters set out in the Soviet note. With respect to the other matter raised by the hon. member for Essex East, I wish to say that the Soviet union, we
regret, has not accepted the recent proposal. I take it what the hon. member has in mind is the proposal of the United States consolidating the progress so far made at Geneva?


Mr. Marlin (Essex Easl):: I was referring to the latest proposal announced over the week end by the Prime Minister, with regard to the occasions when inspection teams would proceed into the territory of the countries concerned.


John George Diefenbaker: In so far as that matter is concerned naturally-it was not delivered until Friday night-our reply did not deal with that particular phase. I thought the hon. member had in mind particularly the situation respecting the consolidation of progress already made in connection with nuclear tests.


Murdo William Martin: Can the Prime Minister answer the other part of my question, which was whether or not Canada has received an intimation from Her Majesty's government about this new proposal, and is the Prime Minister in a position to make any comment in regard to it?


John George Diefenbaker: In so far as the first part of the question is concerned, naturally there has been information given.
With respect to the latter part of the question, I think the representations in general are acceptable and indeed offer a new vista of hope for a solution of the problem provided, of course, that these views are accepted, even in part, by the Soviet union when the foreign ministers' conference takes place on May 11.


Mr. H. W. Herridge (Koolenay Wesl):: Mr. Speaker, the members of this group are interested in the Prime Minister's statement. We welcome his tabling of these very interesting documents. As a party we are interested in a continuance of negotiations to the end that progress can be made toward peace in the world. We shall peruse these documents with interest.


UNEMPLOYMENT INSURANCE ACT
Hon. Michael Slarr (Minisler of Labour) moved: that the house go into committee at the next sitting to consider the following

Proposed Legislation
resolution, which has been recommended to the house by His Excellency:
that it is expedient to introduce a measure to amend the Unemployment Insurance Act to raise the rate of remuneration of insurable employment; to increase the rates of contributions to be paid on behalf of insured persons and employers; to add new grounds for extension of the qualifying periods; to provide a new schedule of rates of benefits consequential on the new table of contributions; to provide that the maximum benefits, under the heading "duration of benefit", will be increased from 36 times to 52 times the weekly benefit rate; to establish a new schedule of allowable earnings; and to provide for other related matters.


[Stage Direction]
Motion agreed to.

[Stage Direction]
On the order: Government notices of motion:
April 23-The Minister of Labour-the following proposed resolution-That it is expedient that the Houses of Parliament do approve of convention No. 105, concerning the abolition of forced labour which was adopted by the international labour conference at its 40th session at Geneva on the 25th day of June, 1957, and that this house do approve the same.
Michael Starr: Stand.


Mr. Speaker:: Pursuant to section 2 of standing order 21 this government notice of motion stands referred to and ordered for consideration under government orders at the next sitting of the house.


CANADA ELECTIONS ACT
[Stage Direction]
On the order: Government notices of motion:
April 23-The Secretary of State-The following proposed motion:-That the standing committee on privileges and elections be empowered to study the Canada Elections Act, and the several amendments thereto suggested by the chief electoral officer; and to report to the house such proposals relating to the said act as the committee may deem to be advisable.
Mr. Couriemanche:: Stand.


Mr. Speaker:: Pursuant to section 2 of standing order 21 this government notice of motion stands referred to and ordered for consideration under government orders at the next sitting of the house.


BROADCASTING
[Stage Direction]
On the order: Government notices of motion:
April 23-The Minister of National Revenue- The following proposed motion;-That a select

committee be appointed on broadcasting to consider radio and television broadcasting together with the annual report of the Canadian Broadcasting Corporation, and to review the operations, policies and aims of the corporation and its revenues, expenditures and development, with power to examine and inquire into the matters herein referred to, and to report from time to time their observations and opinions thereon, and to send for persons, papers and records;
That the committee have power to print such papers and evidence from day to day as may be deemed advisable or necessary;
That the committee have power to meet while the house is sitting;
That the committee shall consist of 35 members;
That standing orders 66 and 67 be suspended in relation thereto.
Mr. Nowlan:: Stand.


Mr. Speaker:: Pursuant to section 2 of standing order 21 this government notice of motion stands referred to and ordered for consideration under government orders at the next sitting of the house.


MOTION FOR PAPERS
[Stage Direction]
Motion No. 95-Mr. Bourgei:
For a copy of all letters, notices, declarations, affidavits and other communications leading to the dismissal of Octave Bujold, Chandler, Quebec, from the Department of Transport in 1958.
Motion agreed to.


[Stage Direction]
On the orders of the day:
Paul Joseph James Martin: Mr. Speaker, I wonder whether I may ask the Minister of Labour if he thinks he can usefully report to the house regarding his reported conversations this morning with management and labour in connection with the threatened strike on the Canadian National Railways.


Michael Starr: Mr. Speaker, we met this morning with Mr. Donald Gordon, president of the Canadian National Railways and Mr. Gamble, chairman of the negotiating committee of the brotherhood, together with three other members of that union. Up until one o'clock we were discussing the matters in dispute as outlined in the conciliation board report, and we have adjourned until four o'clock.
I am afraid, Mr. Speaker, it would be premature on my part to make any remarks about the discussions that are going on. We hope some settlement can be reached between the two parties in this dispute.



REPRESENTATIONS BY UNITED STEEL WORKERS OF AMERICA FOR PUBLIC INQUIRY INTO PRICE INCREASES

[Stage Direction]
On the orders of the day:
Mr. Hazen Argue (Assiniboia):: Mr. Speaker,
I would like to direct a question to the right hon. Prime Minister. Has the Prime Minister received a submission from the united steel workers of America asking for a public inquiry into the steel industry to determine whether steel companies have been justified in further increasing steel prices? Can the Prime Minister say what consideration has been given to the conducting of such a public inquiry?


John George Diefenbaker: Mr. Speaker, such a representation was received. Since it has been received there have been one or more meetings between representatives of the steel workers and the Minister of Trade and Commerce and I would ask the minister to reply in general to the question asked.


Hon. Gordon Churchill (Minister of Trade and Commerce):: Mr. Speaker, I wish to add to what the Prime Minister has said and say that a brief and an appendix to the brief have been put before us. I had a separate meeting with the representatives of the united steel workers. They raised with me a particular problem with regard to a statistical survey which would relate wages to productivity, and that has been under consideration by the dominion bureau of statistics. The whole brief has been given careful study, and we are continuing to look into matters raised therein.



CIVIL DEFENCE


[Stage Direction]
On the orders of the day:
Miss Margaret Aitken (York-Humber):: Mr. Speaker, I would like to ask the Minister of National Health and Welfare if he could give the house a report on the civil defence conference with the provinces which took place last Friday.


Hon. J. W. Monteiih (Minister of National Health and Welfare):: Mr. Speaker, I would like to thank the hon. member for having given me notice of her intention to ask this question. I might point out that all provincial governments, with the exception of Prince Edward Island, were represented by at least one minister and one or more officials. The federal government was represented by the
Inquiries of the Ministry Prime Minister, who addressed the conference at the morning session and stressed the need for decisive action in the field of civil defence, by the Minister of National Defence, the Minister of Justice and myself, and for part of the time by the Minister of Defence Production and the two Ministers without Portfolio.
The purpose of the conference was to discuss with the provinces the proposed allocation of certain federal functions to national defence, to national health and welfare, to the R.C.M.P. and the emergency measures organization in the privy council office, and to obtain their views on the responsibilities which it is proposed to leave in provincial and local hands with increased federal technical and advisory services, as well as greater financial assistance. The allocation of the federal responsibilities was discussed with the provinces in considerable detail, and I can say to the house without reservation that in their broad outlines these new arrangements appealed to the provinces as being sensible and reasonable in every way.
We also discussed with the provinces the areas of responsibility which will remain in their hands and those of the municipal or regional civil defence organizations maintained under provincial direction. I think I can say that provincial reactions to all features of the federal proposals were favourable; particularly to the federal government's offer to increase the federal contribution to approved or local civil defence projects from 50 per cent, where this now applies, to 75 per cent.
Provincial ministers will now discuss these various questions with their colleagues, and we hope to have the official reactions of their governments at an early date. In the meantime it is the government's intention to proceed with the reallocation of purely federal functions to the departments and agencies I have mentioned.


Paul Joseph James Martin: Mr. Speaker, may I ask the Minister of National Health and Welfare a supplementary question. Can he say whether or not the federal government now has a definite policy on evacuation? If so, was that policy announced to the provinces? Also, has the federal government a policy with regard to shelters, and was that likewise discussed with the provinces?


Jay Waldo Monteith: Both these subjects were discussed briefly with the provinces, and as indicated at that time top priority was going to be given to these matters at the policy committee level.
3060	HOUSE OF
Inquiries of the Ministry LABOUR CONDITIONS



AUTOMATION


[Stage Direction]
On the orders of the day:
Herbert Wilfred Herridge: Mr. Speaker, I wish to direct a question to the Minister of Labour, which provides him with an opportunity to be a star performer this afternoon.
Have various labour organizations urged the government to establish a committee composed of representatives of government, labour and industry to investigate the effects of automation on employment and to recommend appropriate measures to deal with the situation? If so, what consideration is being given by the government to these recommendations?


Michael Starr: I wish to thank the hon. member for Kootenay West for having given me notice of this question. In answer I wish to say that we have received such recommendations, and that a committee was set up in 1957 composed of representatives of labour and management, and including in addition experts from the government service and universities. The committee will be holding a meeting next month. I may say that while no formal recommendations have been received, this committee has tendered very valuable advice and suggestions to the officials of my department who are presently engaged in the study of automation.



PAYMENT OF TRANSPORTATION COSTS FOR UNEMPLOYED WORKERS IN LABOUR SURPLUS AREAS

[Stage Direction]
On the orders of the day:
Mr. H. J. Robichaud (Gloucester):: I wish to address a question to the Minister of Labour. Can the minister advise the house if it is still the policy of his department to pay transportation fares for groups of unemployed workers in one province who are able to secure employment in another province?


Michael Starr: Yes, providing there is an order in council declaring the area from which the workers are moved to be a labour surplus area.



ADMINISTRATION OF JUSTICE


[Stage Direction]
On the orders of the day:
Hon. E. D. Fulton (Minister of Justice):: Mr. Speaker, on Friday the hon. member for Skeena asked me a question which concerned the condition of a penitentiary guard at Kingston who had been stabbed, and the disciplinary action intended for the inmate who stabbed him.


I am informed that on Thursday morning one of the officers on duty in the psychiatric ward of Kingston penitentiary was stabbed in the back by an inmate who was himself a patient in that ward. The instrument used was a piece of a chisel which had been sharpened. Fortunately the injury did not affect a vital part, and the officer is in satisfactory condition in one of the local hospitals.
With regard to disciplinary action, reports on the inmate involved are being obtained from the psychiatrist, and a decision as to the action to be taken will be made after these reports have been considered.



REPORTED STATEMENT ON EXERCISE OF CLEMENCY

[Stage Direction]
On the orders of the day:
Mr. O. J. Godin (Nickel Belt):: Mr. Speaker, I should like to direct a question to the Minister of Justice arising from press articles relative to the rights of parliament and the commutation of sentences by the cabinet. To assist the minister I should like to quote a paragraph containing words purporting to be those of Mr. Justice A. M. Manson in Kamloops, British Columbia, as follows:
Within recent times there has been commutation in 90 per cent of the cases. I have no hesitation in saying that is wrong-
Seme hon. Members: Order.


Mr. Speaker:: Is the hon. member asking about the exercise of the right of clemency?


Osias.-J. Godin: No, Mr. Speaker, my point is not as to the exercise or the merits of clemency.


Mr. Speaker:: I suggest that the hon. member put his question. He is not supposed to read extracts or give any factual statement more than is necessary to found his question.


Osias.-J. Godin: It is my impression, Mr. Speaker, that the cabinet at the present time has on numerous occasions-perhaps in 90 per cent of the cases-commuted the death penalty to life imprisonment which infringes-


Mr. Speaker:: Order. What is the hon. member's question?


Osias.-J. Godin: I should like to know the policy of the government concerning this alleged abuse of the right of parliament, which should decide-


Some hon. Members:: Order.


Mr. Speaker:: I do not know of any alleged abuse of the right of parliament. There has been no factual background laid for a

question of that kind. As I indicated the other day, the exercise of the prerogative of clemency is not the responsibility of the House of Commons and has never been a subject matter for questions at this stage.


Paul Joseph James Martin: Mr. Speaker,
I wonder if I may be permitted to say something on this subject. I believe what the hon. member was seeking to do through the question and statement he has already made was to point out to the Minister of Justice a statement purported to be made by Mr. Justice Manson. The hon. member was asking the Minister of Justice if he would comment on that statement, which alleged that the right of parliament in respect of the commutation of the death sentence in capital cases was being infringed.


Mr. Speaker:: I rather thought that was what the hon. member was trying to do. This does not seem to me to be appropriate.
I am afraid he cannot found a question on that basis.


Hon. J. W. Pickersgill (Bonavisia-Twillin-gale):: Mr. Speaker, I wonder if I may ask the Minister of Justice a somewhat different question. The question I would ask the minister is this. Does the Minister of Justice agree with Mr. Justice Manson that the rights of parliament have been infringed?


Edmund Davie Fulton: Mr. Speaker, I would point out that Your Honour has already ruled that questions on this subject are out of order, and of course the hon. member for Bonavista-Twillingate was as out of order as was the hon. member who first tried to ask the question. But since the hon. member for Bonavista-Twillingate, as he frequently does, has succeeded in slipping a question in contrary to the rules of the house-


John Whitney Pickersgill: I thank the hon. gentleman for the compliment.


Edmund Davie Fulton: -I would only say to him that I have not seen the report of Mr. Justice Manson's comments. If he did in fact make such comments he would be commenting on something entirely outside his sphere of authority and jurisdiction, and I do not intend to transgress either the rules of the house or the rules of common sense by commenting on a statement which, if made, went beyond the authority of the one making it.



COMBINES INVESTIGATION ACT


[Stage Direction]
On the orders of the day:
Edmund Davie Fulton: Mr. Speaker, on Friday the hon. member for
Inquiries of the Ministry Skeena asked a question relating to the Combines Investigation Act and inquired when the statement of evidence regarding the investigation into the production, purchase and sale of fish in British Columbia would be forwarded to the restrictive trade practices commission.
I am glad to be able to advise the hon. gentleman that although the statement has not actually been forwarded, the director expects this to be done in the very near future, since it is now in the course of being mimeographed for that purpose.
As to when the restrictive trade practices commission will hold the final hearings, I am not in a position to say, since this date will have to be worked out by the commission with the different parties when they receive the statement.



ATOMIC ENERGY


[Stage Direction]
On the orders of the day:
Mr. John MacLean (Winnipeg North Centre):: Mr. Speaker, I should like to ask the Prime Minister whether he has any further information to give to the house with regard to the statement which he made last week in reply to my question on nuclear testing.


John George Diefenbaker: The hon. gentleman advised me of his intention to ask this question, and I might perhaps answer it by referring to the progress being made at Geneva, which indicates that there is little hope of the Soviet union agreeing to the cessation of nuclear tests in the atmosphere up to a height of 30 miles and the establishment of a control system to verify compliance with the agreement.
With regard to the proposal made by Prime Minister Macmillan, there is some encouragement in the reaction of Mr. Khrushchev to that suggestion. As the house knows, his view was that in order to overcome the deadlock at Geneva the nations might agree on a maximum number of annual inspection trips which might be permitted in each country to sites of unidentified but suspected nuclear explosions. When the Prime Minister of the United Kingdom was in Ottawa on his last visit he discussed this matter with me. I hope that as a result of the further discussion of this matter and the general reaction shown by Mr. Khrushchev, in the proposal in question there might be achieved a substantial field for agreement.


Paul Joseph James Martin: Mr. Speaker, may I ask the Prime Minister whether, in view of the reply of Mr. Khrushchev and the reported conversations the Prime Minister
3062	HOUSE OF
Inquiries of the Ministry had with Mr. Macmillan, he is in a position to tell the house whether any formal position has been taken by the governments of the United States and France?


John George Diefenbaker: As far as I know there has been no formal position taken. Of course there has been the suggestion that the viewpoint is not entirely or substantially agreeable to one or more of the nations concerned.



INDUSTRY


[Stage Direction]
On the orders of the day:
Mr. Frank Howard (Skeena):: I have a
question I should like to direct to the Minister of Transport; I sent notice to him earlier. Can the minister advise whether Canadian National Railways is at present engaged in a campaign directed to executives of United States corporations and designed to attract industry to Canada, especially that portion of Canada near the railway lines of the company?


Hon. George H. Hees (Minister of Transport):: I want to thank the hon. member for giving me notice of his intention to ask this question. However, it was delivered only just before I came into the house, and for that reason quite naturally I have not been able to get in touch with the management of the Canadian National. I will do so and give the hon. member an answer as soon as possible.



UNEMPLOYMENT INSURANCE


[Stage Direction]
On the orders of the day:
Hédard-J. Robichaud: I wish to direct a question to the Minister of Labour. In view of Canadian Press reports which appeared in most Canadian newspapers on Saturday, April 25, to the effect that the unemployment insurance fund was now around $600 million and still slipping, can the minister advise the house of the last figure available as to the balance to the credit of this fund?


Mr. Speaker:: If the minister has the information it might save time, but this is properly a question for the order paper. It is seeking purely statistical information.


Hédard-J. Robichaud: Mr. Speaker, the question was directed in order to correct the figure in Saturday's papers, which I think is incorrect.


Michael Starr: Mr. Speaker, I agree with you that the question should be put on the order paper, 

and I would suggest to the hon. member that he advise the newspaper in which he read the report that the figure is incorrect.



BRITISH COLUMBIA


[Stage Direction]
On the orders of the day:
Frank Howard: I have a question I should like to direct to the Prime Minister, and I have sent him notice. Has the attention of the Prime Minister been drawn to an article in the April 25 edition of the Financial Post to the effect that the premier of British Columbia is intending to trade a portion of northern British Columbia to the United States in exchange for a corridor through the Alaska panhandle? If so, will he comment on this report?


John George Diefenbaker: Mr. Speaker, the hon. gentleman sent me the clippings in question, and from an examination it appears to me that the status of the matter as reported in the press is that a member of the legislature of British Columbia has made a statement; but there is no indication, as I read it, that any attention is going to be given to the matter until the return of the premier of British Columbia from his vacation.
As the house knows, there are a number of bills on this general subject before the United States congress. One of these, I understand, would authorize the leasing on long term to Canada of a corridor through the Alaska panhandle. It is not considered very likely that the bill will be passed.
With regard to the general question of whether British Columbia is constitutionally capable of entering into an exchange arrangement, without expressing a legal viewpoint on the matter, not having consulted the law officers of the crown, I must say that I do express unequivocal doubts as to the constitutionality of such a move.



LEAD AND ZINC-FURTHER STATEMENT ON CANA- DIAN REPRESENTATION AT INTERNATIONAL MEETING

[Stage Direction]
On the orders of the day:
Gordon Minto Churchill: Mr. Speaker, on Friday last the hon. member for Ottawa West asked if I would give the house a list of the personnel attending the United Nations lead and zinc conference which opens in New York tomorrow.

The Canadian delegation will be led byDenis Harvey, director of the commodities branch of the Department of Trade and Commerce, who also led the delegation to the lead and zinc conference at Geneva and the copper and lead and zinc conferences in London in September. He will be accompanied by J. M. Rochon, chief of the metals and minerals division, J. R. Downs of the international trade relations branch, both of the Department of Trade and Commerce, D. B. Fraser of the minerals resources division of the Department of Mines and Technical Surveys, L. D. Hudon of the economic and international affairs division of the Department of Finance and J. G. Hadwen, second secretary of the permanent mission of Canada to the United Nations in New York.
There will be an important group of industry advisers accompanying the mission, including C. O. Buchanan of Hudson Bay Mining and Smelting Company, M. A. Cooper of Manitou-Barvue Mines Limited, J. F. M. Douglas of Consolidated Mining and Smelting Company Limited, G. A. Gordon of Canadian Exploration Limited, R. Hendricks of Consolidated Mining and Smelting Company Limited, C. C. Muir of Waite Amulet Mines Limited and A. O. Wolff of Consolidated Mining and Smelting Company.


Mr. Harold E. Winch (Vancouver East):: May
I ask a supplementary question. Are there no trade union members on the delegation?


Gordon Minto Churchill: The delegation was not selected by the government at all, with the exception of the representatives from the various departments.


Hon. Donald M. Fleming (Minister of Finance) moved: that the house go into committee of supply.



DEBT MANAGEMENT AND MONETARY POLICY

Mr. G. J. Mcllraith (Ottawa West):: Mr. Speaker, I think perhaps it would be well, at the outset of my remarks on this motion, if I were to recall to the minds of hon. members the reason we are dealing with a motion to go into committee of supply this afternoon when it was indicated on Thursday that we would be dealing today with certain other matters on the order paper. It will be remembered that on Thursday evening the house leader announced in some detail the expected order of business for Monday and Tuesday, which had been arranged through the usual channels. At the opening of the house on Friday morning the hon. member for Assiniboia (Mr. Argue) sought to move the adjournment of the house to discuss a matter
Monetary Policy
of urgent public importance, namely the announcement made the day before of an increase in the Bank of Canada rediscount rate to an unprecedented 4.9 per cent.
In the course of the discussion which followed with respect to whether or not the motion to adjourn the house was in order the Prime Minister announced that the government would go ahead today with a supply motion. It will be recalled that that announcement was made notwithstanding that it had previously been arranged that the next supply motion would not be proceeded with until next Monday.


Mr. Green:: On a question of privilege, in giving this explanation I think the hon. member should make it accurate and full. The Prime Minister's statement was only made after the hon. member for Laurier (Mr. Chevrier), speaking on behalf of the official opposition, had made a rather bitter statement in which he used these words


George James McIlraith: I was going to quote them exactly.


Howard Charles Green: He said:
It is a matter which was brought up by the hon. member for Welland prior to the orders of the day yesterday, and certainly it should receive the proper discussion to which a matter of this importance is entitled, and that discussion would be carried on under the motion which has been made by the hon. member for Assiniboia.
The Prime Minister's statement was only made after the strongest-


George James McIlraith: Mr. Speaker, I have some rights. There is no point of order.


Mr. Speaker:: It seems to me that this discussion is entirely out of order. The motion is to go into committee of supply, and I take it that it is open to the hon. member who has the floor to launch into a fairly broad range of subjects but not into something that is past history and is clear on the records of the house.


George James McIlraith: In framing my proposed amendment, which I hope to come to in due course, I was seeking to explain exactly one part that will be involved in the motion. I would point out to you, Mr. Speaker, that I was taking no objection whatever to the proceedings on Friday. I was not dealing with that at all. The Minister of Public Works was completely out of order, as a matter of fact, and he interrupted me as I proposed to quote the exact words the Prime Minister used. I think the point will be clear if I may be permitted to make my statement, and I shall quote those words. This has to do with the framing of my own proposed amendment.

Monetary Policy


Mr. Speaker:: If what the hon. member is saying leads up to an explanation of his motion, then I ask him to proceed.


George James McIlraith: It does, Mr. Speaker; that is the whole point. Now, so there will be no confusion in the mind of the house leader-


Howard Charles Green: There is no confusion in my mind; it is only in yours.


Paul Joseph James Martin: I doubt that.


George James McIlraith: In any event, we will see where the confusion is. The exact statement of the Prime Minister is to be found at page 3012 of Hansard for April 24, 1959:
However, in view of the argument which has been advanced I suggest that every opportunity will be given on Monday. We will certainly provide a motion to go into supply, so the argument advanced by the hon. member for Laurier is met.
Then, what was that argument? The argument was based on two main points. One was the importance of the matter. The hon. member for Laurier said it was
-a very serious matter that will affect the rights of everyone in this country.
This was one point. The other was in answer to an argument put forward by the Minister of Public Works that an opportunity would be provided to discuss this matter on the budget resolutions. It was at that point that the Prime Minister announced there would be a supply motion, and made the announcement in the terms I have indicated.
Now, what I propose to do is take the Prime Minister at his word and deal with this, among other subjects, on the supply motion that is now moved.


John George Diefenbaker: The question of discussion requires that the hon. member also read what I said at page 3013, which clarifies the situation.


George James McIlraith: I will read as much as the Prime Minister likes. I quoted the remarks he made when he first spoke, as recorded at page 3012. He said:
However, in view of the argument which has been advanced I suggest that every opportunity will be given on Monday. We will certainly provide a motion to go into supply, so the argument advanced by the hon. member for Laurier is met.
Perhaps I do not need to quote the remainder of what appears on page 3012. At page 3013 he said:
No, not at all. There was no such suggestion. I said the opportunity would come on Monday, but as far as the rules are concerned the question still remains as to the propriety or regularity of such a motion.
Well, I see nothing in that which adds to or detracts from what I said.
[Mr. Mcllraith.l


Howard Charles Green: Again on a question of privilege. Mr. Speaker, may I say that the hon. member is omitting to read the last sentence of the statement by the hon. member for Assiniboia (Mr. Argue) on page 3013, which says:
-since he has suggested that we have a supply motion on Monday with this very kind of amendment under discussion.


Murdo William Martin: I rise on a point of order. This intervention by the Minister of Public Works now is not in order. The hon. gentleman is making a speech, and these interruptions are certainly outside the rules of this house.


George James McIlraith: I take it that it will surprise no one when I say that I take a somewhat different approach to this matter from that taken by the hon. member for Assiniboia. I think that is a reasonable assumption, and surely the Minister of Public Works will not argue that is out of order, or raise another question of privilege. While our grievance, as I say, includes the subject matter sought to be raised by the hon. member for Assiniboia on Friday, it is on wider and somewhat different grounds. The motion I propose to move at the close of my remarks will however give that hon. member ample scope for the observations he may wish to make.
What I propose to do is to ask the house to express its regret at the ill-conceived and irresponsible action of the government in the field of debt management and monetary policy. We believe that these ill-conceived and irresponsible actions have had many unfortunate consequences for the Canadian people. One of those consequences, of course, is to be found in the rise, since the budget debate was concluded, in the bank rate to an unprecedented 4.97 per cent on April 23. This is the matter the hon. member for Assiniboia sought to raise on Friday.
However, as I said, that is only one of the unfortunate circumstances of the management, or perhaps I should say mismanagement, by the present government of its monetary policies. Perhaps I should say something at the very outset, in developing this subject, about the biggest operation of all in debt management in the past year, or since the present government came into office; that is the conversion loan. I should say something about the errors in concept and the inequities associated with that refunding operation. It will be recalled that the conversion loan was undertaken to replace the fifth, sixth, seventh, eighth and ninth victory loans which were to mature in January, 1959; June, 1960; February, 1962; October, 1963, and September, 1966.
It will be recalled further that all these victory loans bore interest at the rate of 3

per cent per annum. With the exception of a right which holders of the fifth and sixth victory loan bonds had to subscribe for a new short term issue maturing in December, 1961, at 3 per cent, the new bonds were to mature in 1965, 1972 and 1983, and they were to bear interest at 3| per cent; 4J per cent; and 4J per cent, respectively.
In the first place the minister, in explaining the inclusion of these victory loans in his refinancing plan, dealt with maturities and pointed out that there was a call feature included in the 'last three issues. He argued from that fact, if I understood him correctly, that the maturities did not really extend up to eight years but rather, for all practical purposes, should be considered as three years. Well, that was, as I have said, his reason for including the last three victory loans, the seventh, eighth and ninth; and it was wrong. There was an error in calculation on his part in assuming that any investor would consider the maturity of those loans as all coming within three years; in other words, in assuming that any investor would consider that those bonds would be called at the end of three years.
He explained that interest rates were rising. At the same time, in making that explanation he was trying to suggest that the government would withdraw from circulation bonds which bore the lower rate of interest, namely 3 per cent. No investor would expect that to happen. No prudent government would do it unless there was some other very substantial reason for doing it. Therefore he was wrong in his assumption that the investor would assume that those bonds had an effective term of only three years.


Donald Methuen Fleming: That is the assessment the market puts on them.


George James McIlraith: I am just arguing the point; I am trying to interpret the minister very accurately and carefully. I have checked his speeches. In any event, there was a very easy way of removing that doubt and fear from the investors' minds. Since the minister knew the current interest rate was higher, he could have removed the fear by the simple announcement that he did not propose to call those bonds, that the government was not going to call those bonds. We would then be in the position where the bonds would mature on the dates indicated on the bonds. The minister's treatment of them on any other basis was quite wrong. It could easily have been corrected by that simple announcement on his part. That was the first serious error the minister made concerning the conversion operation.
Then, of course, in connection with the conversion operation there is the whole matter
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of cost. I hope the minister will follow these figures; I think I have taken them accurately from his own statements. It will be recalled that the conversion loan cost by way of cash adjustments the sum of $42,500,000; by way of issuing fees the sum of $7 million; by way of commission to sales agents the sum of $20 million; by way of advertising the sum of $1,500,000, and by way of administrative costs the sum of $1,225,000. It will be recalled also that the added annual interest charge on the moneys being borrowed is in those early years some $58 million; that is by way of added interest charge alone. In addition to this additional interest charge there is the additional annual amortization charge. I admit a little confusion in getting what that is from the minister's figures, but I take it to be approximately $7,500,000. In other words the cost in added annual charges is something of the order of $65 million a year.
To show how needless part of this added cost was I should like to point out one feature pertaining to the ninth victory loan. If it had not been converted but had been left to carry on until maturity in the ordinary way, the interest charges saved on this portion of the national debt borrowings would have been $165 million; that is, $165 million in interest alone less than the amount the government agreed to pay by reconverting that issue. This is to me an enormous sum of money to add to the tax structure of this country, to put as a burden on the taxpayers because of the mistake in judgment of the Minister of Finance in including this victory loan in the conversion operation.
I am aware that the interest rates were rising at the time the conversion loan was undertaken. I do not for a minute deny that they were rising here and in the United States, but this question remains open to be settled. In my view there is no doubt at all but that some part of this increase in the interest charge is the minister's own responsibility, due to his failure to adopt proper monetary policies and in the general budgetary field since he took office in June of 1957. This raises the interesting point as to whether or not the minister should have undertaken the conversion loan at the time he did; or, indeed, if he was going to undertake it then, surely he owed a duty to the country and to the taxpayers to have more appreciation of the part his own responsibility as Minister of Finance and his own actions as Minister of Finance would have on the interest rate. That is particularly true as far as it pertains to his management of the national accounts.
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He may well ask-perhaps he will not argue it-how did his actions have any bearing on the rise in interest rates? They certainly did, because you go back in these things to what seems to be one prime factor, namely the confidence of the investing public in his administration. I cannot help but recall to his mind now the impact of his failure to deliver a budget in the first parliament in which he had any responsibility as Minister of Finance, his complete failure to deliver any budget during that whole parliament when the Conservative party was assuming office for the first time in 22 years. He would not express his views on monetary policy, or expound his views as to the national accounts and what should be done with respect to these matters. That undoubtedly did much to destroy the confidence of investors in Canadian government securities.
Perhaps I need not pursue this, but I can follow through with his actions time after time in the almost two years during which he has had the responsibility of Minister of Finance. Indeed, in this I do not wish to single out the Minister of Finance only. It is a responsibility that must be shared by his colleagues in other departments with respect to these budgetary and financial matters.
There is another interesting facet to this. There is the whole attitude of neglect of this subject by the present government. For some reason, which I for my part have never been able to understand, the Tories seem to regard this subject as not worthy of the most serious attention. They treat it as if it was something less than a very big and difficult subject confronting them. As an illustration of that I would draw to your attention, Mr. Speaker, that in the budget of 1958 the minister devoted a good deal of his time to the subject of debt management, with no inkling of what was coming. Just after that he switched quite suddenly from anything he had said on the subject of debt management and announced a conversion loan. It was to be on such a scale that he used on one occasion the term "gigantic"; in any case, it was to be very large. The lack of confidence in government bonds has been contributed to in large measure by the government's own actions and by the continuing prospect under the present government of successive deficits.
There is another feature about the high interest charges on such a large operation as the conversion loan, and that is that it has saddled this country with a base interest rate of some 44 per cent for the next 25 years.


Donald Methuen Fleming: What does the hon. member mean by a base rate? The hon. member does not mean it is an average rate?


George James McIlraith: No, I do not suggest an average rate. I mean the government, having undertaken such a large conversion operation in issuing these long term bonds at a 44 per cent interest rate, if it was unnecessary to do it on such a large scale at that rate, or if that rate was contributed to by the government's own actions in its management of related matters, then it has the effect of making it difficult for governments to borrow easily below that rate within that term. It does tend, I think you will agree, to raise the whole basis on which government borrowings will be carried on.


Donald Methuen Fleming: Would the hon. gentleman be a little more fair and relate the interest rate to the maturity in question? A 25-year maturity in these circumstances is not comparable with a shorter maturity.


George James McIlraith: I do not see that is differing in fact from anything I am stating. The minister's point is not a point of order or of privilege. If the minister wants to argue that he will have his opportunity to do so. In the meantime it is my argument. These things are somewhat technical, and if I make any error in factual matters at any point I am happy to have him interrupt me; otherwise I do not think he should interrupt just for the purpose of stating an argument he may wish to advance.
There is another serious error in this whole conversion loan operation, and that is the effect of the government's policy in having the Bank of Canada undertake to buy the victory loan bonds at par; that is, at the time the conversion was being undertaken. It will be recalled that this whole operation was undertaken when the New York bond market had gone down sharply, or was in the process of going down, and the Canadian market was following in the same general trend. The government, in my view, made a serious error in establishing an artificial market for the victory loan bonds which it was seeking to convert. The creation of this artificial market at that time had very serious repercussions, and I will seek to develop those later in my argument. As a result, great numbers of holders of victory loan bonds did not convert their bonds into the new bonds but sold them for cash, and by that method took what I think I can show was a windfall capital profit of a very sizable nature. In some cases I guess it was five or six points, but a very substantial matter. That was made possible by the action of the government, and it was really in effect a capital bonus to those persons who were astute enough to see what the government's policy was. It was a bonus to those persons

who did not contribute to achieving the objective of the conversion operation.
Then during the operation another facet was that the Bank of Canada, by purchasing these bonds from individual holders, did so at prices, as I have said, higher than those which had been prevailing in the market, in fact at prices which were fairly sharply higher. It was a purely artificial level which applied to these victory bond holders. At the same time the government was attracting the savings of other less experienced Canadians who, due to the pressure of the campaign, were induced to invest their savings in government bonds at prices which subsequently have been shown to bear no relation to the real market value, because they were held above the real value by this artificial means. These people who took the windfall I have spoken about can now buy the new bonds under the conversion loan at a much lower rate, and they have been put in that position by not answering the appeal of the government in this very important matter.
Now, how many Canadians, under the urging of the advertising campaign and other propaganda used and paid for by the government, bought these higher interest bearing bonds at par? Unfortunately some of them have gone down as low as $92.50; they are down very low. It seems to me on that account alone that the government should indeed have a very bad conscience in having placed these artificially high values on the bonds. It seems to me that is something about which the government should concern itself in great measure.
There is another phase to this. It seems to me that because these bond prices were established at an artificially high level for the purpose of the bond conversion-an artificially high level bearing in mind the depressed condition of the bond market at that time-and because the issues I have mentioned were included, in the conversion operation although they had several years to run that the conversion was bound to be a failure notwithstanding the language of the Minister of Finance. When I say it was bound to be a failure, I mean not so much in the premise of the number of bonds converted-that is not the point I am seeking to make-but in the light of the objectives of the conversion loan. As I indicated a moment ago, during the conversion loan the Bank of Canada acquired a very large volume of victory bonds for cash. The reason for that I have indicated; it was simply because they fixed an artificially high value at that time.
In order to curb the consequent increase in the cash reserves of the chartered banks,
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and because of the acquisition of these victory bonds, the Bank of Canada had to sell treasury bills and short term bonds on the market. I want to develop this thesis a little further. The Bank of Canada at the end of the period during which the conversion loan was offered converted large amounts of its victory bonds into new long term conversion issues. As a consequence the average term of its portfolio was largely changed by being very substantially lengthened. In a moment I want to take the actual figures.
I am glad to see the Minister without Portfolio (Mr. Macdonnell) is interested in this matter. I think it is something he appreciates and follows most attentively, and I appreciate his interest in it. As a consequence of what I have described, the average term of the Bank of Canada's portfolio was substantially lengthened. I will give figures in a moment to prove this contention. This, it will be seen, materially reduced the capacity of the Bank of Canada to carry out open market operations in short term securities.
Let me point out to the hon. gentleman that as at December 31, 1958, the Bank of Canada held $1,326 million worth of bonds with a maturity date over ten years, which was some $1,113 million more than it held at the beginning of the year. This information will be found, if the minister wishes to check my figures, on page 91 of the Bank of Canada statistical summary for March, 1959. He will see there that at the end of December 1957 the bank's holdings of maturities of a term longer than ten years were $213.3 million but that at the end of December, 1958 the Bank of Canada's holdings of such maturities had increased to $1,326.4 million-an increase by more than six times in the course of a year. That is, the bank's holdings of bonds having maturity terms of more than ten years was multiplied more than six times in the period between the end of December 1957 and the end of December 1958.
In this connection I want to suggest one thing to the Minister of Finance. He spoke about the victory loan bonds overhanging the market. Let me suggest to him that it is these very large holdings of long term bonds by the Bank of Canada which are overhanging the market today. These long term bonds in the Bank of Canada's portfolio are a dead weight overhanging the market. They are, to a considerable extent, undermining confidence in the stability of long term bonds and in the level of bond yields. I think the minister will agree with that.


Donald Methuen Fleming: I disagree entirely as to the effect.

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George James McIlraith: Well, the facts speak for themselves. If the minister wants to draw a different conclusion it is open to him to do so.


Paul Joseph James Martin: The minister is a prejudiced witness.


George James McIlraith: In any event, investors in Canada consider that they do constitute a dead weight hanging over the market today, and in their minds at least this is a matter of some consequence.
There is another consequence of this wholly unsuccessful conversion loan that I wish to draw to the attention of the house, namely the undue expansion of the money supply. It is clear from the Bank of Canada's report that in order to carry out the loan of May 1, the loan of $950 million, it was necessary to expand the money supply by a substantial amount. That is how I read the Bank of Canada report. This loan was a prelude to the conversion loan and both loans had the same characteristic; that is, that the money supply was expanded in order to facilitate each of them. During the period of the conversion loan the money supply, that is the total currency and chartered bank deposits, expanded from some $12,385 million to $13,098 million-an increase of some $713 million in two months.
The story of this increase in the money supply will be found in considerable detail at page 99 of the March statistical summary of the Bank of Canada. The figures are quite interesting. They certainly support the thesis I am advancing, and I think they are capable of no other interpretation than that these two bond issues brought about a direct and very sharp increase in the money supply, an increase which might be described, as unprecedented in peacetime.
Whatever the views of the Minister of Finance may be in this connection, the investors have shown a pronounced lack of confidence in the bond market. The hon. gentleman has claimed that his loan issues have had the effect of stabilizing the bond market. My view is that they have had the very opposite effect and that the minister's claim is totally unfounded. The effect of the conversion loan was to undermine confidence in the bond market.
There is another interesting facet of this subject. The Bank of Canada has been obliged to take active steps to support the market for the long term conversion loan. Such an operation could not be successfully carried out at a time when there is an underlying lack of confidence in the market without the bank acquiring, and ending up with, large holdings. That is exactly what took place

last fall, and during the fall months the money supply was further expanded by some $300 million.


Donald Methuen Fleming: Last fall?


George James McIlraith: Yes. 1 have the figures here and I can put them on record.


Donald Methuen Fleming: You are wrong about that.


George James McIlraith: No, I am right. I can put the figures on record and perhaps, if the minister is in doubt about them, I should do so.
The total currency and chartered bank deposits, as indicated at page 99 of the March statistical summary issued by the Bank of Canada, is shown on December 31, 1957 as being $11,923 million, and the total at December 31, 1958, is shown as being $13,247 million. I used the term "last fall". If the minister will look at the figure for the end of September he will find it stood at some $13,022 million, and that at the end of October it was $13,347 million or an increase, in a 31-day period, of some $325 million. I do not know how there could be stronger evidence in support of my statement than that.


Donald Methuen Fleming: The hon. member said "the fall". The fact is that from the first of October there was no increase in the money supply at all.


George James McIlraith: Let me repeat the figures, Mr. Speaker, because I think the minister has not followed the details given in the statistical summary. At the end of September the figure for the total currency and chartered banks deposits stood at some $13,022 million. At the end of October the figure was some $13,347 million. That is an increase of $325 million in the 31 days of October alone. I do not know what could be more pronounced than that. What the minister has apparently lost sight of is the fact that later on in the year the money supply remained comparatively constant. If he will bring his figure up to the last date I have here, March 25, he will find that it is some $13,219 million. This shows that to support the conversion issue itself the government in effect had to increase the money supply. I think the minister will agree with this conclusion which may be drawn from the figures I have just quoted.
Apparently confronted with the dilemma of having to continue to support this long term conversion issue the bank withdrew its support and let the conversion issue find its own level. Let me point out that when it got itself into the position I have described the bank, considering the obligations imposed on it by the law, withdrew its support. How those bonds went down. It was a pretty cruel

blow to the individual bondholders who had accepted at their face value the very stirring and rousing appeals made by the government for them to convert to those issues. Their reward was a reduction in price in some cases to as low as $92.50.
I always understood that one of the prime objectives of this loan was to clear the decks to enable the government to finance its cash deficit of some $1.4 billion of additional money which it required to raise. I think that is a fair statement. The government would have liked to finance that additional new borrowing by selling bonds to the general public and to avoid sharp and abnormal increases in the money supply. I believe that is a fair statement of the objectives. However, as I have indicated, in order to dispose of the May 1 issue and make the conversion loan appear to be a success according to the way the Minister of Finance viewed it, the government did the very thing it tried to avoid. It expanded the money supply to the extent of some $1,467 million between the end of March and the end of October; that is in the period it was financing the bond issue of May 1 and the conversion loan.


Donald Methuen Fleming: Does my hon. friend say that the government expanded the money supply?


George James McIlraith: Technically it was done
through the Bank of Canada. That was the effect of this policy. The government produced this situation by its wholly wrong concept of what should be done with respect to the conversion loan. I say that is certainly a direct consequence of the government's action in following the course it did in the circumstances existing at that time. This matter of financing bonds by creating a new money supply is a dangerous proposition. In my view this situation was brought about largely by the government's own action, its whole monetary policy, its sins of omission and commission, its public policies, as well as its mishandling of the national accounts. The point I want to make clear is that the conversion loan resulted in this expanded money supply and did the very thing it was supposed to avoid. In other words it failed in its major objectives.
Another thing it did in addition to what I have mentioned is that it failed completely to restore the confidence of the investing public. For instance, in October and December the government offered new bond issues. If the minister will check the figures he will find that those operations resulted in a loss to the bond buyers. I think he will agree that prices have gone down on those issues.


Donald Methuen Fleming: But that does not mean a loss.
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Paul Joseph James Martin: It is certainly not a gain.


George James McIlraith: Of major significance is the fact that it is not the kind of thing that creates confidence in the investing public. It tends to make the investing public lose confidence in this government's method of handling monetary policies and in this bond issue. That atmosphere of disillusionment among the people who would normally invest in bonds is a very serious thing. It spread generally among individual bond buyers, corporation treasurers, insurance companies, the holders of bonds generally; and in my judgment based on reading their accounts it spread through the commercial banks all across the country. As I have said, it was due to a considerable degree to the raising of hopes by government spokesmen and the subsequent dashing of those hopes after the bonds had been purchased.
Let me illustrate my point. I believe the government itself has been somewhat infected by the loss of confidence in what it is doing. We observe that the government has done some unusual things in bond financing. Allow me to deal with one of them. I am seeking to illustrate the uncertainty of the government's policy in the monetary field. Let me take the bond issue maturing April 1, 1960. It was a 23 per cent issue, issued at $97.90 and the effective yield, I believe, was 4.76 per cent. It was issued for a term of thirteen months. Permit me to point out a little side repercussion of that bond issue which also tended to undermine confidence in the government's policy in this field.
The effective yield may be stated to be 4.76 per cent, but the effective yield to an investor who is in the 50 per cent income tax bracket is something quite different again. The yield provided by that bond is exactly the same as if such an investor bought at par a bond bearing an interest coupon of 6.6 per cent per annum. If anyone doubts how that works out I could place it on the record, but I believe it is quite clear. If you take the portion of the increase in capital within the thirteen months-that is 12/13 of that figure-and take that portion of the net gain of the purchaser together with the interest which he has at the end of the year, after taking his 50 per cent income tax off, you will find he is in the same circumstances as if he had bought a bond at par but having a yield of 6.6 per cent. In my opinion that is something that the government should not be proud of. It is not the kind of thing that creates confidence in investors although to a few investors it is a very fortunate circumstance.

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Donald Methuen Fleming: The Liberal government did it many times.


George James McIlraith: The Liberal government did not do it many times. I want to clear up that canard once and for all. I expected that interjection. If the minister will check the records he will find that when the Liberal government issued bonds below their face value, as indeed it did on many occasions, the bonds were of long term, the interest rate was lower and there was no such windfall to be made out of them. There were no 13-month or other short term bonds of that sort issued in that way by the Liberal government. I am glad the minister interjected because it gives me the opportunity to answer that canard once and for all.
There is another side to the operation of this particular issue of bonds. The minister does not explain that by that method the tax collecting authority, the Minister of National Revenue (Mr. Nowlan), receives a little less in tax collections than he would if interest were payable on the whole gain of the persons who bought the bonds. Therefore, in effect the tax load is distributed over those persons who did not buy the bonds because they are in the smaller income tax brackets. Surely the minister is not very proud or happy about that.
As I have said, the general public have been losing confidence in the government's ability in this field. They have lost all confidence in the worth of the bonds under present government management. That seems to me to be a very serious thing. These people were promised a good thing in buying these bonds. They were subjected to an abnormally intensive selling program. Perhaps it could be more appropriately described as ballyhoo but in any event there was a very strong, intensive selling program. The people were told that it was in the national interest to convert and that it would fight inflation. Surely in all this there was some implication that the bonds would maintain their value.
But we find now that the measures used in this whole transaction not only did not fight inflation but were directly inflationary. The fear of inflation has not subsided. The national interest in this respect has not been served by the conversion loan. Rather, the national interest has been dealt a cruel blow by this aspect of the conversion loan.
I indicated that we have had a very substantial increase in the money supply. In addition, I want to point out that for all practical purposes new borrowings in the year 1958 amounted to $1,360 million. As set out on page 7 of the Bank of Canada report, that amount is made up of some $1,250 million in new direct and guaranteed securities and

to be added to that is the figure of $110 million representing the reduction in the holdings in government accounts. The minister can argue whether the correct figure should be $1,250 million or $1,360 million; it is open to argument but the explanation is to be found on page 7 of the Bank of Canada report. In any event, it is a very large figure.
But during the same period of time when the increase in borrowings was taking place the money supply increased by $1,324 million, from $11,923 million at December 31, 1957 to $13,247 million at December 31, 1958. The increase of $1,324 million in the money supply is very close to the amount of new government borrowings. In fact, it is almost identical. In the light of that fact, I confess I was completely unable to understand the argument of the Minister of Finance (Mr. Fleming) in his budget speech this year when he tended to indicate that government borrowings over the year as a whole had been achieved largely in a non-inflationary manner. So that the minister will understand my reasoning I refer him to his own budget speech, page 2415 of Hansard, where he will find he made that statement. I do not know anything that could be more inflationary than an increase in the money supply of that magnitude at that time, an increase in the money supply almost identical with the total borrowings of the government in the same period.
The government has produced another economic paradox by its monetary operations. At the same time as the sharp increase in the money supply, which many would term as easy money, we have had a sharp and very large increase in the interest rate. In popular terms we have what may be called easy money and dear money both at the same time. We have today the highest bank rate in the country's history with all its implications, all its ramifications with respect to government borrowings in the future, the high interest charges that will have to be paid on such borrowings and the effect it will have on provincial and municipal borrowings and borrowings by the private sector of the economy.
My goodness, when the members of the present government were in opposition I used to hear them argue about the evils and consequences of high interest rates. I often wonder what they think about that matter now. I will not embarrass them today with all their arguments on the subject but they are many. Indeed, if they believed those arguments they must be having a very unpleasant time now.

But we have this paradox. The last treasury bill rate announced was 4.72 per cent, an alltime high. I want to point out that the rate is very high compared with the United States rate. I want to emphasize the widening of the gap between the Canadian and the United States rates. I also wish to suggest to the minister that if he chooses to answer he might deal with the extent to which the widening gap is due to a loss of confidence by the Canadian people in the government of our country. I should also like him to contemplate the adverse effects on our economy that the widening gap, in addition to the high rate, may have. Incidentally, the last rate I have for United States treasury bills is 3.10 per cent compared with 4.72 per cent in Canada.


Donald Methuen Fleming: What is the date?


George James McIlraith: I have it noted on my copy of the last weekly supplement. I will give you the date in a moment; I have it here. I have not got it in my hand, but I think I can find it later. It was 3.07 per cent the previous date, but I think it has gone up from 3.07 per cent to 3.10 per cent.
I want now to take the minister back to the argument which he advanced in referring to the conversion loan as the foundation for a sound debt management operation. If indeed it was such a foundation, then I want to point out that that foundation has failed miserably. It has contributed to an increase in the money supply to unprecedented high levels and to increasing the interest rate to an unprecedented high level. It is really a foundation to inflation, pure and simple.
The minister talked about reduced federal borrowings to leave room for existing dominion-provincial financing. I can only point out to him that if that is what he is planning to do by his monetary policies, then by his own actions he has left to the provinces and municipalities the right to borrow at extremely high interest rates. They are simply not in a position to do so.
I take the minister's position to be, as he has indicated, that he believes that the rate of personal savings in 1959 will be lower and as we proceed on the road to recovery the business sector will require more funds. If business conditions improve, and I for one certainly hope they do, it is reasonable to expect some liquidation of holdings of bonds by corporations and banks.
In addition to that, the government itself has to face the current requirements of 195960. Perhaps before I deal with these current requirements I should point out to the minister another instance of what has taken place under his policy, and that is the virtual removal from the Bank of Canada portfolio of 66968-9-195
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short term treasury bill holdings. If he will look at page 91 of the March statistical summary he will find that during the time when there was a very sharp increase taking place in long term holdings, that is holdings of bonds having maturity of over 10 years, there was a correspondingly sharp reduction in the holdings of treasury bills. This summary indicates that from the end of March, which was just prior to the first borrowings of last year, the Bank of Canada's holding of treasury bills dropped from some $480 million, and dropped almost continuously and regularly, to a low of $6 million at the end of January, 1959. Since then, they have only increased slightly to $161 million at the end of March.
He will find also that their holdings of short term bonds, that is two years and under, have dropped from some $1,009 million at the end of April to some $91 million at the end of March of this year. There has been a similar but smaller drop in the holdings of bonds with maturities from two to five years. In other words, the bank has switched its portfolio to these long term bonds, so that they overhang the market. The bank has taken away from itself the ability to meet its requirements easily to support certain short term issues. The minister will see the seriousness of that dilemma. Incidentally, if he doubts what I have said about the loss of confidence in government bonds, if he will take the corresponding table which I do not propose to put on the record, for holdings by private individuals, he will see that of the total increase of bonds in the hands of the public almost exactly 50 per cent is in Canada savings bonds and short term treasury bills. The public have put themselves in a position where they can deal with short term securities and liquidate them as they see fit.
I was speaking of the requirements for the current year, and in speaking about that I think I must rely on the figures-I hope the minister will just catch these figures before he goes out-given by the minister in his budget speech, when he said that following the replacement of the cash deficit he will possibly have a budgetary and capital deficit of some $850 million. In addition to that, there are the bond maturities for this year, and if we include the maturities of April 1, 1960 the day after the end of the fiscal year the total will be $1,735 million. In other words, the country is confronted with finding this year by way of replacement of existing maturities and for new purposes, additional sums to the amount of $2,585 million, a very large sum indeed.
Well, you may ask how did we get ourselves into this horrible condition? I suggest that same question has been asked in other

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places but has not been answered here. For instance, we find that the United States was concerned about some of these problems as far back as a year ago. We find that on August 18, 1958, Mr. Henry Hazlitt, as reported in Newsweek, in talking about inflation had this to say:
It is time to ask some blunt questions of congress and the administration. Do you ever expect the debt to be paid oil? Do you ever intend even to reduce it? If so, at what rate? Under what conditions? Are the conditions likely to be realized? Do you intend to pay off either principal or interest in dollars of even present (48 cent) purchasing power, or do you mean to keep short-changing the government's creditors by further depreciation?
Mr. Speaker, in that jurisdiction the President of the United States did indicate that he is seeking to balance the budget; he did indicate other policies that would seek to deal with the problem. In Canada there are also others concerned with this problem. On Saturday I received the eighty-ninth annual report of the Mutual Life Assurance Company of Canada. I find that in dealing with economic matters generally the president had something to say in his report which in my judgment is equally applicable to the problem we are discussing today, namely the minister's actions in the field of monetary policy. I would like to place the quotation on Hansard. The president had this to say:
What can be done toward building a sound national economic policy?
Then, he answered his own question in this way:
First, aim at improving the psychological atmosphere by making clear that every effort will be made to return sound dollars for the money our governments are now borrowing. This calls for action, not merely exhortation. It is a matter of honesty as well as economic good sense. A heavy responsibility rests on the federal government in this regard, for it is the only debtor which can exercise direct influence over the value of the currency in which its obligations will be repaid.
Mr. Speaker, the government has got itself into this position mainly through its own actions. To meet the problem that confronts us by way of borrowing the minister has told us that he expects the Canada savings bonds will yield about $250 million; but the big question outstanding is as to the policy to be applied in providing for the rest of the requirements. I will admit that the minister is facing a real dilemma. He can either increase the money supply or he can, I suppose, offer still higher interest rates for new government bonds. Let me point out it is quite clear that the governor of the Bank of Canada is opposed to an increase in the money supply at this stage. If we look at page 9 of the annual report we will find this statement:
The central bank must continue to emphasize its major and essential role of regulating the rate of
[Mr. Mcllraith.l
change in overall monetary supplies in such manner as is consistent with and, so far as monetary action can, will contribute to, sound and sustained economic growth under stable prices.
I believe that monetary policy must strengthen and reaffirm its determination to remain true to the basic principles of sound money.
Certainly that is not what was done last year. It is certain that any material increase in the money supply will produce greater inflation and rising prices. I can only hope that the Minister of Finance will agree with the reasoning of the governor of the Bank of Canada and that the bond issue will not be created out of an increased money supply.
The other method, of course, is providing money by borrowing by paying a further increase in bond yield and that, I think, is going to be pretty unacceptable to the taxpayers and pretty unacceptable to the government.


Howard Charles Green: Are you in favour of it?


George James McIlraith: I am in complete accord with the Minister of Public Works (Mr. Green) that I am not always authorized to speak for the government, and certainly not for this present government.
Higher interest rates have as a necessary corollary to other borrowings that they would discourage private investors, that is private investors who would be borrowers, and they would also put the provinces and municipalities in a wholly intolerable position. This is the dilemma the government is in, largely through its own doing.
There is another method, I suppose, which could be used in dealing with this problem, and it has to do with the demands for money credit allocation. Quite a bit is said about this in the Bank of Canada report at page 7 and onward and I should like to quote some of it:
If recovery and growth proceed very strongly the demand for money to finance apparently desirable projects-both the desirability and the number of which multiply rapidly under such circumstances- may once again increase more rapidly than the supply of savings and of loanable funds. Under such conditions also the demand for capital and credit for speculative or non-productive purposes would increase and become a strong competitor for money.
I think there can be nothing but agreement with this statement. Then the report goes on, on the next page, to point out that if such scarcity of funds develops it is the government's responsibility and not the bank's to take whatever measures that are taken designed to alleviate the credit squeeze which could victimize any segment of the borrowers or any certain group of borrowers. His exact words can be found on page 9 of the report,

and I have no desire to quote them other than the very last sentence where he says:
Regardless of the desirability or feasibility of these measures, they are outside the powers of the Bank of Canada.
There is, of course, always another method that could be used and it is interesting to note that Mr. Fraser Robertson, in writing on this subject in the Globe and Mail of April 16, had this to say:
Bluntly, that means that if the government cannot get money, or have money provided for what it considers necessary purposes, on a voluntary basis, it will use coercion.
There is a fourth method, of course, namely that of coercion. I think the implications of such government control over the capital market are not something that we, or anyone in the house, contemplate without the greatest concern, and I would hope that all would agree that this method is to be avoided. Yet the government has created a situation by its own actions which invites questions like these to be raised. It has not outlined to parliament its plans for dealing with our financial difficulties.
Surely, the government, having created the highest deficit in our peacetime history, with the announced intention of having the second highest deficit in the current fiscal year, and with nothing to indicate other than recurring deficits; having created the highest debt charges in the history of Canada; having increased the money supply by the greatest amount in any peacetime year and created doubt in the investing public's minds by these inflationary methods of doing its financing in the last fiscal year; having created the highest interest rates for years and years; having done all these things through its policies owes it to the country and to this house to outline its program and policy in the field of debt management, and its monetary policies.
These difficulties in which we find ourselves in this respect today are, as I have sought to indicate, largely of the government's doings. They have been substantially contributed to by them. I believe that the government is subject to censure for its ill-conceived and irresponsible actions in this field.
Accordingly, Mr. Speaker, I should like to move, seconded by the hon. member for Levis (Mr. Bourget), that:
All the words after "that" to the end of the question be deleted and the following substituted therefor :
"this house regrets the ill-conceived and irresponsible actions of the government in the field of deDt management and monetary policy which have been characterized by:
1.	The errors and inequities associated with the conversion loan:
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2.	The highest bank rate since the Bank of Canada was established:
3.	The largest expansion of the money supply in any year since the war;
4.	The greatest increase in peacetime in the national debt;
5.	The highest public debt charges in Canada's history."


Donald Methuen Fleming: Mr. Speaker, I would like to speak to a point of order, if I may, before the hon. member for Kootenay West (Mr. Herridge) rises. It is in submission quite clear that the amendment which has just been submitted by the hon. member for Ottawa West (Mr. Mcllraith) repeats in large measure the amendment which was introduced in this house on April 13 by the hon. member for Kenora-Rainy River (Mr. Benidickson) on the budget. I do not say it repeats it in full but it repeats a good deal of it. Because it repeats a good deal of it, I submit it is clearly out of order. May I remind you, Mr. Speaker, of the language of the amendment introduced by the hon. member for Kenora-Rainy River on April 13, which is to be found in Hansard at page 2619, the second column:
That all the words after the word "that" be deleted and the following be substituted therefor:
"this house regrets the bad faith of the government, which sought and secured support from the Canadian people on a program of lower taxes, reduced expenditures and a balanced budget, and which has now produced, in flagrant disregard of pre-election promises, a budget calling for higher taxes, record expenditures and a large deficit."
Mr. Speaker, we have noted, of course, that in his remarks leading up to his amendment the hon. member for Ottawa West has simply threshed straw which was threshed for eight days in this chamber in the course of the budget debate. These matters were touched on from time to time in discussion.


Paul Joseph James Martin: Touched on.


Donald Methuen Fleming: Examine, if you will, the language of this amendment. It touches on the conversion loan, the Bank of Canada rate, the expansion of money supply, the increase in the national debt, and then the highest public debt charges in Canada's history. These are all matters associated, Mr. Speaker, with the subject of the attempted indictment in the amendment of April 13: the higher taxes, the record expenditures and the large deficit. Surely, Mr. Speaker, however much effort has been expended to try to devise today an amendment which will somehow steer clear of repetition of any part of the amendment of April 13, the draftsman of this amendment has not succeeded.
For an amendment to be out of order on this occasion, Mr. Speaker, it is not necessary, in the light of former decisions, that it should cover entirely the language and purport of

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the amendment of April 13. It is sufficient if it covers part of the area covered by the amendment of April 13. This amendment certainly does, Mr. Speaker. One cannot discuss any of these matters without trespassing again upon the realm of the budget debate and the language, as well as the purport, of the amendment of April 13. Mr. Speaker, in the light of the fact that at least part of the area covered by the amendment of April 13 is covered by today's amendment and that amendment of April 13 was rejected by the house by vote last week, in my respectful submission the present amendment is out of order and I ask it be so ruled.


Mr. Erhari Regier (Burnaby-Coquitlam):: Mr. Speaker, I wonder if I might be permitted to say a word or two on the point of order raised by the Minister of Finance (Mr. Fleming): I should like to point out that if we look at the terms of the amendment proposed by the member for Ottawa West (Mr. Mcllraith) and then compare it with the amendment proposed by the member for Kenora-Rainy River (Mr. Benidickson), as found on page 2619 of Hansard for April 13, it is my humble submission that each of the five complaints of the member for Ottawa West could obtain even if you had lower taxes, lower expenditures and a balanced budget. There might be some question as to No. 4, the greatest increase in peacetime in the national debt. However, may I point out that you could have a balanced budget and at the same time have heavy government borrowings on behalf of crown corporations. Such borrowings do not come into the picture as far as a balanced budget is concerned. So each of the five complaints in the amendment of the Liberal party could obtain even with lower taxes, lower expenditures and a balanced budget. Therefore it is our contention that the amendment is not out of order.


George James McIlraith: Mr. Speaker, I would like to draw to your attention one matter which seems to have been missed in the argument. The budget has to do with the national accounts and their administration by the government. It is a motion to go into committee of ways and means and is the traditional period in which the minister accounts for the receipts and disbursements of the government. The amendment today has nothing to do with that subject at all and is not couched in language capable of giving it that interpretation. Mr. Speaker, I would draw your attention to the fact that if the argument of the Minister of Finance were to be accepted no further subject matter of any kind could be brought before the house, because in some way or another the subject would have some relationship to something in the budget. It

would be utterly impossible to bring any motion before the house for that reason.
However, I would like to draw your attention to the proposed amendment itself. The amendment is concerned with the ill-conceived and irresponsible actions of the government in the field of debt management and monetary policy. Surely it cannot be held that that is the same thing as lower taxes, reduced expenditures and a balanced budget, all of which were talked about in the amendment moved in the course of the budget debate. It is a wholly different subject, Mr. Speaker.
It is true that the mismanagement we allege in debt financing could indirectly affect the budget, but it is a wholly different subject matter. The amendment is one dealing with the field of debt management and monetary policy. Then the amendment gives a list by way of illustration of some of the incidents of mismanagement in that field.


Howard Charles Green: May I add a word on the point of order? The main portion of this amendment which has been moved by the hon. member for Ottawa West (Mr. Mcllraith) is:
This house regrets the ill-conceived and irresponsible actions of the government in the field of debt management and monetary policy which have been characterized by-
And then it goes on to list five so-called examples. But the essence of the amendment is contained in the first three lines. Surely that is an amendment to the budget. The purpose of the budget debate is to discuss these very things and, particularly, monetary policy. That is the essence of a budget debate, and in the attack which was made during the budget debate by the hon. member for Kenora-Rainy River (Mr. Benidickson) he took in effect exactly the same position as that which the hon. member for Ottawa West is taking today. In fact there has been a great deal of repetition in the speech which the hon. member for Ottawa West made this afternoon of what was said during the budget debate. If an amendment of this type, which is really a budgetary amendment, can be moved now, I would suggest that a similar amendment could be moved on the next supply motion simply by using words other than "debt management" and "monetary policy". Surely that was never the intention. The rules of the house provide for one budget debate which is supposed to deal with monetary policy. That debate has been held, and it finished only last week. Now we have another amendment put forward by the opposition which, in effect, I suggest is nothing more or less than a budget amendment and which, as such, is out of order.


John Whitney Pickersgill: I should like to make a few observations based on those which have just been made by the leader of the house. The motion which is made by the minister of finance when he introduces the budget is, as Your Honour knows, that Your Honour should leave the chair. To say that anything said during the budget debate is decided by the house is, of course, not in accordance with the established rules. The amendments to the budget are therefore all that can be considered as limiting the freedom to go into supply, that is, amendments to the budget and any other matters which have already been settled by the house, and it seems to me that the hon. member for Burnaby-Coquitlam (Mr. Regier) and the hon. member for Ottawa West (Mr. Mcllraith) have sufficiently disposed of the argument made by the Minister of Finance that there is any conflict between this motion and the motion moved by the hon. member for Kenora-Rainy River. The minister did, of course, refer only to that.


Donald Methuen Fleming: Well, there was also the amendment to the amendment.


John Whitney Pickersgill: There was the amendment to the amendment, but there was no conflict there, it seems to me, either. But if Your Honour is satisfied there is no need for further argument I will be very glad to sit down.


Mr. Speaker:: I had rather thought, in view of the discussion which took place in the house on Friday, that the house had itself come to the conclusion that a discussion on the problem of interest rates could be expected today, and that caused me some difficulty, because there was a fairly specific subamendment about interest rates which was moved in the course of the budget debate.


Donald Methuen Fleming: April 13.


Mr. Speaker:: Yes. And then again, this present amendment does not take that course. There is no mention of interest rates in the amendment as submitted. Therefore, I suppose that that approach to the subject.

that this was a debate which the house was expecting-really does not apply.
The point of order that we are entering upon a repetition of matters which have been decided must, I think, be judged in the light of what the procedure is on supply motions. Supply motions give a great deal of latitude for attack on the policy of the government on a fairly broad front, and I think that almost any supply motion would involve monetary and financial problems in some degree. But I am not satisfied from what
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the hon. minister has said that this amendment cannot be distinguished from the debate which took place on the budget. The budget deals with ways and means. It deals with taxation and expenditures, and the balance of the two. In other words, it is basically a taxation debate. This motion, to my mind, introduces the problem of public debt and public debt management, and it does not seem to me that the two fields entirely corresponds. They overlap, it is true, but they are not co-equal, in the sense that the policy of the government with regard to the conversion loan is carried out entirely outside the budget resolutions and reflects independent actions of the government under authority which parliament has previously given.
As I look at the resolution it seems to refer to debt management and monetary policy basically, and the five instances cited have to do with the conversion loan, the public debt, the bank rate, which is not directly involved in the budget-I see I am in error in saying that interest is not involved, because the bank rate is a matter of interest-the expansion of money supply-something which could be independent of the budget debate and budget resolutions-the national debt itself, and public debt charges.
I would think there is scope for a debate on public debt management as distinct from the other fiscal policies which are involved in the budget. In any event, I would be disposed to consider the amendment liberally in view, first of all, of the fact that this is a supply motion and, second, in view of what was said in this house on Friday. In that light I would hope that the opposition to this resolution would not be pressed.


Donald Methuen Fleming: May I draw your attention, Mr. Speaker, to two points, first to the amendment to the amendment which was moved in the budget debate on April 13 and which also covered part of the ground that is sought to be covered in the amendment now submitted. That subamendment reads, as recorded in Hansard at page 2623:
That . . . this house further regrets that the government has failed to present to parliament a planned financial and economic program designed to develop the economic health of the nation by, among other things, (a) reversing the trend of rising interest rates-
That question is presented again today.


An hon. Member:: Not at all.


Donald Methuen Fleming: Yes, we have
presented to us an attempt at an indictment based upon the highest bank rate since the Bank of Canada was established, Vhich is

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part and parcel of the same complaint which was made in the C.C.F. subamendment moved in the budget debate.


An hon. Member:: No.


Donald Methuen Fleming: As to what happened last Friday, may I point out that while some things were said about a discussion today, the Prime Minister, as reported at page 3013, was very careful to point out that the rules must, of course, apply with regard to any motion that might be introduced. Here are his words as reported in Hansard in the first column of that page. After the hon. member for Assiniboia (Mr. Argue) had attributed to the Prime Minister (Mr. Diefen-baker) what he called a suggestion that we should have a supply motion on Monday on the particular kind of amendment now under discussion, that is, an amendment relating to interest, the Prime Minister replied:
No, not at all. There was no such suggestion. I said that opportunity would come on Monday, taut as far as the rules are concerned the question still remains as to the propriety or regularity of such a motion.
There cannot be any suggestion that so far as this present amendment is concerned there was any agreement on the part of the Prime Minister or anyone else in this house to waive the rules of this house in regard to what is propriety and order on an amendment of this kind.
With great respect it is my submission, Mr. Speaker, that the ground in regard to the issue as to rising interest rates has already been covered by these two previous amendments which have been disposed of by vote of the house.
The final point I should like to mention is as to whether this present matter of debt management was embraced within the scope of the budget. With great respect I submit that was very much a part of the budget presentation. There will be found at page 2411 of the budget speech as recorded in Hansard a section extending over two and a half pages devoted to that very subject. The heading there is "Debt Management". That subject certainly was discussed in the course of the budget debate. The Leader of the Opposition (Mr. Pearson) also had something to say about it. This, it seems to me, disposes of any suggestion that we are here today breaking new ground and that the amendment now submitted breaks new ground that was not included within the scope of both the amendment and the amendment to the amendment during the budget debate.


Mr. Speaker:: I am inclined to accept the latter argument of the minister that anything to be said on this amendment could have

been said on the budget debate but that does not say this amendment is out of order; it points up certain and particular problems.
As I recall the budget debate the hon. member for Welland (Mr. McMillan) was the only hon. member who spoke for any length on the conversion loan and he was in order in speaking there, but this amendment focuses the attention of the house on monetary policy in the sense of the national debt and its management as well as certain other things of a specific character.
I have doubts about the second item in the amendment which refers to the highest bank rate. As I said, I expected that was the course this amendment would take and I realize that anything said on Friday, unless there is an order of the house, does not absolve me from the responsibility of dealing with this amendment on its merits today. I should think the house would understand from what I have said that I am disposed to regard this as a suitable amendment and to let it proceed reserving the right to limit the discussion under the second item of the amendment, because, as the minister has pointed out, we have had a specific amendment accusing the government of failure to act against high interest rates which is what is involved, I take it, in the clause "highest bank rates since the Bank of Canada was established". It may be possible to distinguish those. I would allow the debate to proceed and reserve the right to intervene if I feel that it is becoming a repetition of the budget debate.


Herbert Wilfred Herridge: Mr. Speaker, I listened with a great deal of interest to the speech of the hon. member for Ottawa West (Mr. Mcllraith) and particularly to those comments referring to the one facet of our fiscal problems that concerns us at the present time. I would say that in general this group can support this amendment but I want to make some qualifications with respect to clause 3 of the amendment which reads as follows:
-the largest expansion of the money supply in any year since the war.
Under our present unplanned economy unrelated to monetary and fiscal policies, that is an evil. In the opinion of this group the expansion of the money supply would be quite a safe proposal if it were related to a planned economic policy and the planned development of this country. With that qualification we in this group can support this amendment.
I was somewhat interested in the failure of the hon. member for Ottawa West to make any alternative proposals with respect to his criticism of the government's fiscal policy.

I am one who is rather inclined to symbolize ideas, groups and things of that sort. While he was speaking I could not help thinking that all three parties in this house could be well represented or symbolized by certain animals. I would say the Progressive Conservatives would be well represented by the porcupine. As we know, they are inclined to climb a tree, look down on the rest of the world and shed their quills when annoyed, as the minister does on occasion. I would say the Liberals would be well represented by the rabbit. They are quite harmless, quite neutral and not given to construction or things of that sort. They are nice as a pet, particularly for children and people with immature minds. So far as our group is concerned it is obvious that there is only one animal by which it could be represented and that is the beaver. It is always building.
As I look over at the Minister of Finance I have memories of him when he was in opposition. At that time I used to regard him as a sort of symbolized connoisseur of the evils of waste and extravagance, high interest rates, high taxes and consequent inflation. I used to think of him as the lion rampant of the opposition roaring his demands for the remedy of these evils. According to the records, the last time I heard him roar in this respect was in the budget debate on March 21, 1957. Anyone taking the time to go back and read that debate will be most interested in observing how the minister has changed his tune. He is singing quite a different tune today, now that he has assumed the responsibility of the portfolio of Minister of Finance.
When I witness his present mellow meekness which represents such a marked change, his pallid smile in the face of opposition criticism, it appears to me that the former lion rampant of the opposition has become the minister quiescent. The minister has our sympathy and what we shall do this afternoon is to present constructive alternatives designed to bail the minister out of his very difficult situation. I want him to understand that our policy and program will be presented with the best intentions and in the best spirit.
It may be asked why the minister has our sympathy. He has it because he is the victim of circumstances, caught in the vise of the inherent contradictions of capitalism -I am now speaking as a democractic socialist-and also in the contradictions of the speeches he made while in opposition and those he has made as Minister of Finance. He is caught also by his party's philosophy, election problems and present policies which policies permitted the gain of $165 million by certain people who benefited by the conversion loan and also the looting of the
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public wealth of this country by certain persons who buy stock and make no contribution to the wealth of Canada at the same time. The minister is also caught in the vise of fixed interest charges, statutory payments and also the present recession and unemployment problems for which this government is not entirely without responsibility.
In the opinion of this group all this results from a system which leaves genuine economic control in the hands of a few people without direct responsibility to all the people in this country. Proof of this I think is clearly provided in the recent price increases, exceeding the tax increases, on the part of certain people who have things to sell in Canada whose actions in this regard were deplored even by the Prime Minister (Mr. Diefenbaker). I wonder what some of the same people would say if all wage earners in this country demanded an automatic increase in wages equal to the increase in taxes and the increase in the cost of living occasioned by the increase in prices by these people who accept no social responsibility to the country as a whole.
There is no question but that unemployment and inflation are the two current, major national problems. As a result of this amendment I intend to deal with the problem of inflation which is more correctly termed a debasement of currency. Whom does it affect? It is a very serious problem at this time which I think is being underestimated in some quarters. It affects all the working people of the country and the real value of their wages. It has affected farm costs and prices and we realized from the representations made by the delegation which came from the prairie provinces recently. It has affected our small business people. It has affected our young people trying to obtain an education. A good many young Canadians were unable to return to universities last fall because they could not obtain employment last summer. It has certainly affected the standard of living of our senior citizens. I am sure all members of the house have had representations in that connection.
To illustrate that point I want to read very briefly from an article in the Ottawa Citizen of Thursday, August 16 entitled "Welfare Report; 273,000 Ontario Aged In Impoverished State". It reads in part as follows:
Between 180,000 and 273,000 of Ontario residents over 60 are living below a subsistence level, it was estimated yesterday.
This is largely occasioned at the present time by the increases in the cost of living and the low standard of their allowances. I think we should all recognize the fact that persons of small means, small earning power,

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small income are always much more seriously affected by inflation or debasement of currency than persons of larger means or big business. Why? Because big business, industrialists or manufacturers, almost always have their entire wealth invested in natural resources or in equity capital which gives them ownership and control of the plants in question. That is why tremendous inflation oc-cured in Germany after the first world war. The Krupps and others, the warmongers generally, suffered nothing. Their interest was in equity shares in their plants. The working people of that country suffered tremendously, and that was one reason why Hitler obtained their support at a later time.
Inflation or debasement of currency is caused by irresponsible, unplanned development, a lack of direction and tempo of investment, government fiscal policy, monopoly regulated prices, which has actually happened at the present time as I will demonstrate later, and lack of markets. Before proceeding with concrete proposals, as a democratic socialist I do wish to mention a few axioms with respect to inflation which we consider is an eruption of capitalism, a periodic disease because of the lack of control by governments of the economic system of the country which they are supposed to govern. I think we should not forget these axioms.
The first, in my opinion, is that value is determined by the amount of necessary labour incorporated in the production of the required amount of a commodity. Second, the production of any commodity over the required quantity does not add any value by way of the excess. For instance, the production of
1,000	tons of potatoes if the market requires only 500 tons will realize only the value of 500 tons. Inflation is not caused by high prices or high wages. Monopolies may vary the price to a limited degree. High monopoly prices tend to reduce the turnover and turnover is one of the most important objects of monopoly. If a commodity is sold above its value, money changes hands at less than its value. The commodity owner, if selling above value, takes a larger share of surplus value at the expense of the buyer capitalist. Sellers of labour power have excess included in their wages, as they have taxes. The eruption in capitalism, known as high prices or inflation, is the immediate effect of debasement of currency.
When we are dealing with this very complicated and difficult question I think we should remember some of these fundamental axioms. We do not suggest for a moment that this problem is an easy one which can be solved over night. We do maintain that, given correct policies, we can gradually work toward a solution of the problem. There 
are two major schools of thought when it comes to the question of inflation or the present situation which has developed through inflation. The classical school of thought-


Mr. Speaker:: May I interrupt the hon.
member? There was a debate on the failure of the government to take effective steps to combat inflation on an amendment moved by the leader of the hon. member's group to the address in reply to the speech from the throne, and that amendment was negatived. On a supply motion there was also a debate involving inflation. I would hope that the hon. member could relate his discussion of this problem to the public debt and the items in the amendment.


Herbert Wilfred Herridge: I intend to do that, Mr. Speaker. I am dealing with inflation at the present time before proceeding to another argument having to do particularly with the largest increase in the money supply in any year since the war. Then I intend to put forward specific proposals. As a matter of fact, it is very hard to deal with monetary problems and policy without covering some previous ground that is related. I was saying that the classical economist sees the remedy to the situation in the arrested development of the economy, the restriction of the growth of social welfare services, a measure of unemployment and high interest rates. That is the classical approach to the situation we are experiencing at the present time.
What is the approach of democratic socialists? While we are conscious of the effect of inflation and the difficulties surrounding the problem, we believe it can be remedied by planned fiscal and economic policies and the planned direction and tempo of investment, which we think is very necessary. There is serious concern with this problem by a wide section of the community. I am sure all members realize that from their correspondence since the session commenced. Such correspondence largely relates, of course, to the increase in the cost of living. In that connection I want to quote from a few articles in various newspapers relating to this subject. I should like to read just the first paragraph from an interesting article in the Manchester Guardian of Saturday, February 14, 1959. It indicates the attitude of other countries toward the circumstances existing in Canada at this time. This is what the article has to say in part:
Canada has been since the war one of the most rapidly developing free countries in the world, and her natural resources make her future economic potential almost boundless. But she is approaching a dangerous cross-roads. Too few of her leaders seem to appreciate, or to be willing to give public warning of, her growing monetary and financial problems.

That is from a very substantial newspaper. I want to quote a comment on an article in Saturday Night entitled, "How the Banks Can Halt Inflation." I think it is a very good illustration of how government policy has permitted the banks to benefit from the present situation. It reads as follows:
An enlightening article on "How the Banks Can Halt Inflation" appeared in the February issue of Saturday Night. It was from the pen of Kenneth Gouldie. He relates how, prior to 1954, chartered banks were permitted by law to lend $10 in credit for every dollar held by the bank. That was the legal minimum cash reserve ratio. He goes on to tell how the Bank Act was amended in 1954 providing that the minimum reserve ratio be reduced from 10 per cent to 8 per cent. The writer then goes on to tell us exactly what happened as a result of this change and incidentally lets some light in on the way bankers become rich.
The Saturday Night article says: "During the first half of 1954 the mean cash reserve of the chartered banks amounted to a total of $894 million and the average amount of deposits (every loan being in fact a deposit) was $8,940 million. But in July of that year, after the legal minimum cash reserve ratio had been reduced to 8 per cent the banks could legally lend $11,170 million."
But that was not all that happened by reducing the reserve. Here is how Saturday Night tells it: "By consenting to reduction of the cash reserve ratio from 10 to 8 per cent, parliament then, in effect, made a gift worth $223 million to the shareholders of the chartered banks for which, in the higher prices of everything which Canadians have since bought and now buy, they have paid and are still paying."
I cannot blame the present government tor that action. Now that shows that government policy has an effect on the cost of living. There have been some other articles with respect to other persons who have an effect on the cost of living. I want to quote briefly from an article from the Ottawa Citizen of March 24, 1959 entitled "Price Increases and Inflation". It is quite brief. At one point, this article reads:
But one of the questions now being raised most consistently in hearings here is that the big steel and auto industries themselves may be equally to blame for unnecessary prices rises, which have helped the inflationary spiral. This view may have some application in Canada, too .. .
The more conservative economists have been unwilling to assess any blame to industry, but even some of them have admitted that the concentrated heavy industries, by their use of "administered prices", have contributed to the unique situation of the past two years, inflation in the midst of a severe recession. The theory of "administered prices" is that the few dominant corporations in the industry itself have the major control over pricing, rather than the market-place control by supply and demand.
And one noted economist, Gardner C. Means, who with Adolf A, Berle wrote a revolutionary volume on big business in the 1930's, "The Modern Corporation and Private Property", has been testifying to an increasingly interested group of senators that this is an entirely new type of inflation-an administered price inflation.
The heart of the Means thesis, which he buttresses with all kinds of charts and statistics, is that when 66968-9-196
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big price increases come in the concentrated heavy industries like steel, rather than in the more competitive durable goods industries, it is largely because of administered pricing, and the effect of this rolls through all sections of the economy.


Mr. Speaker:: I think the hon. member is getting quite a distance away from the amendment. I appreciate what he said about the difficulty there was in discussing monetary policy, and how easy it is for one to wander into many fields. However, there is nothing about prices and inflation in the amendment. The only question in relation to inflation is the money supply, and if he wants to relate his discussion to money supply, he may proceed.


Herbert Wilfred Herridge: I am coming right now to money supply; I am closer to it than I have ever been in my life before. I do want to emphasize that this indicates there is a possibility of regulated prices by large industries, such as steel, and I think we have to consider that in considering our proposals.
I want to mention a brief that was presented to the government on behalf of the united steelworkers of America concerning steel prices in Canada. On page 2 they suggest the government should require steel producers to make public the actual prices and price changes for all of their products.


Mr. Speaker:: I am sorry, but the hon. member does not seem to be paying very much attention to what I have said. He is going on to discuss the question of prices.


Herbert Wilfred Herridge: Mr. Speaker, if you allow me to continue I can be right there. Now I come to money supply. I am just relating the actions of these companies to the effect on our cost of living and the price increases suffered by persons generally. This amendment moved by the hon. member for Ottawa West deals with the question of the largest expansion in money supply in any year since the war and the highest bank rate since the Bank of Canada was established. I want to deal with those aspects of the amendment, Mr. Speaker.
In order to buttress my argument, I do want to quote from Mr. Reginald McKenna in the Monetary Times of April, 1959. This is a very respectable organ, I should think, from a government point of view. This is what he has to say:
History has shown that apart perhaps from wars and religious intolerance no single factor has been more productive of misery and misfortune than the high degree of variability in the general price level. This may sound like an extravagant statement, but so far from being of the nature of a demagogic outburst it is clearly demonstrable from the course of events in various countries ever since money became an important element in the life of civilized communities. A stable price level is a thing to be desired, second only to international and domestic peace.-Reginald McKenna, chairman (president of Midland Bank Ltd.).

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This is a statement by Sir Josiah Stamp, and I mention this to indicate the use of this very outstanding opinion on monetary policy; I am very interested in quoting from what Sir Josiah Stamp had to say because, on one occasion, I wrote him and he sent me a copy of a book he wrote entitled, "Christianity and the Economic and Social Order". This is what Sir Josiah Stamp had to say:
When I have said quite seriously, as I have done on a number of occasions, that the problem of price level is the most important single problem of our age, I have been accused either of exaggeration or flippancy. What about trade depression in the basic industries, unemployment, labour unrest, class hatred, high taxation and the rest. My answer is that the problem of the price level is fundamental to a solution of them all.
This matter has been of great interest lately in the United States. I want to quote from the Congressional Record of February 26 of this year. There was a long debate on this question, but I shall read only from one or two statements. This is a speech by the Hon. Chester Bowles in the house of representatives, and at one point he says:
But one point, at least, is clear: If we are to succeed in our efforts to secure peace in the world and prosperity for our own people, we cannot afford to wait for the least likely development of all-for the problems themselves to grow smaller. Instead both we and our economy must grow to meet them.
Then he goes on to say:
These men have honestly convinced themselves that the American people and their congress must choose between rapid growth with inflation on the one hand or minimal growth with stable prices and some unemployment on the other.
These are the persons advocating a classical approach to inflation. Then, he continues:
-I deeply believe that those among us who assume that we must accept a slow rate of expansion with some unemployment as the best means of preventing inflation, are gravely misjudging the problems which we face.
He goes on to criticize the whole approach and to suggest some regulation of the monetary system and of the economy, although somewhat limited in its extent. We all know, that former President Lincoln made some strong statements concerning monetary policy and the purpose and place of money in our society. He said on one occasion:
To what extent has the government a responsibility to protect the currency of the nation?
Money is the creature of law and the creation of the original issue of money should be maintained as an exclusive monopoly of national government.
The monetary needs of increasing numbers of people advancing toward higher standards of living can and should be met by the government. The circulation of a medium of exchange issued and backed by the government can be properly regulated and redundancy of issue avoided by withdrawing from circulation such amounts as may be necessary by taxation, re-deposit and otherwise.

The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government's greatest creative opportunity.
Then, I want to mention again the words of a former prime minister, the Right Hon. Mackenzie King who said:
Until the control and issue of money is restored to the government, and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of parliament and of democracy is idle and futile.
We in this group, Mr. Speaker, certainly support this statement, as we have in the past. In our opinion the present situation provides the government with a creative opportunity. We in this group suggest the necessity for a planned national development policy, but at the same time we recognize the fact that the natural resources are under the jurisdiction of the provinces, and the fact that co-operation with the provinces in a program of this type is essential. We believe that is absolutely the first essential with respect to overcoming the situation we are faced with at the present time. We believe the federal government should give leadership in that direction.
Then we believe it is necessary to have a planned fiscal policy. In this connection we believe a national development plan and the accumulation of capital for this purpose should be established. Capital could be provided by bond issues, by obtaining the savings of the people, and this is completely non-inflationary. It is a matter that will have to be explored by this government to its ultimate possibilities and limits.
What has been done to secure the co-operation of the people of this country in support of a national development policy by lending their moneys themselves for projects for which they would be directly concerned? In that connection I think it would be a good idea to appeal to people's local loyalty. You could have a national loan for the South Saskatchewan dam, a national loan for maritime dams, or for maritime development. We have not started to mobilize the resources or to attract the interest of the Canadian people in this direction. We could secure some capital by taxing where appropriate-this is not inflationary-toward a development policy, and we could use national credit through the Bank of Canada under circumstances that will not create inflation. In order not to create inflation it must be directly related to a planned economic policy and to the rate of production.
As socialists we urge the government to consider our common sense proposals which have been proven by experience. We are not just getting up here and talking Utopian nonsense from the government members' point of view, or a lot of tommyrot. The

ideas we are expounding and do expound from time to time with respect to these problems have been proved by experience.
In this connection I want to bring to the attention of hon. members a book entitled: "Norway The Planned Revival", written by Miss Alice Bourneuf. I read this book with great interest, and I recommend it to the members of the house. I may say I was led to search into this problem by my great admiration for the Norwegians both in peace and in war, and I have friends who are Norwegians. I am one of those who recognizes that they have made a great contribution to Canadian development. I have always looked upon the Norwegians as Englishmen who failed to come over from Norway with their brothers to Britain prior to the Roman invasion. I want to bring this to the attention of the house, and to read briefly from the cover blurb:
Her emphasis is on the over-all national accounts aspect of the plans-the program for total investment, private and public consumption, output increases, and import surpluses to be financed with aid or credits. And since monetary, fiscal, and wage-price policies were an important part of Norwegian economic planning, the book devotes considerable time to an analysis of the stabilization program-
This is the sort of program we are suggesting the government should undertake at the present time. I continue:
-the gradual easing of inflationary pressures, the importance of high public savings, and the measures which led to a very high rate of private savings. Also discussed in detail is the problem of maintaining some degree of price-wage stability in spite of rapidly rising import prices, the 1949 devaluation, over-full employment, and a domestic price and wage level held down by means of subsidies and price controls.
Norway's experience is important not only in and for itself, but as a pilot study for other countries engaged in economic planning.
I bring this to the attention of the Minister of Finance. I would like to see him give some consideration to the outline in this book of the policies of the Norwegian government, which is a labour government, a democratic socialist government that has been engaged in socialist planning and the maintenance of real freedom both i<n the economic and political spheres. In this connection I want to read a short paragraph or two from this book. From page 210 I read this:
One obvious fact is that Norway eliminated inflationary pressures in the consumer section only by a strong combination of fiscal policy, price-wage policy, and policy on the use of resources for consumption. The heavy reliance on fiscal and price-wage policies to keep the controlled price system from getting too far out of line with disposable incomes, and gradually to bring it more into line, was of the utmost importance. Fiscal and wage policies are less manageable in many countries.
66968-9-1961
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Then, on page 211, the writer goes on to say:
One last point to be made in connection with the progress toward elimination of suppressed inflation in Norway is that over-all economic planning clearly helped in meeting a difficult situation. When the whole period from 1946 to 1956 is considered, national budgeting for resource uses appears to have contributed to the handling of a series of difficult problems and critical situations.
I would like the Minister of Finance (Mr. Fleming) and also hon. members to read this book. It is a very interesting study and demonstrates what can be done when the government takes hold of and makes itself wholly responsible for the control of the economic system. This is something the C.C.F. has suggested on many occasions. There have been difficult situations to meet in all countries, and there have been difficulties every where with respect to inflationary pressure since the war. This has applied to Norway, but the government took action on voluntary price reductions. I should like to read this:
The Norwegian price directorate has received reports from four major industrial and business organizations on the results of efforts to put through voluntary price reductions, as urged by the government.
They did that through the co-operation of business itself. They established a committee representing government, industry, labour and the farmers, as I said, to suggest means of controlling the price-wage spiral. I quote:
The report strongly advocates the establishment of a permanent co-operation council to watch Norwegian economic developments and to offer such proposals as it might deem necessary.
Moreover, efforts should be made to co-ordinate price and wage negotiations through a co-operation council in which the government, wage-earners, employers and agriculture would be represented.
That has been the approach of the democratic socialist government of Norway, and it has met with considerable success to date. Surely we in Canada with our greater natural resources and opportunities can approach this problem along similar lines. Therefore we suggest similar planning be undertaken in Canada, with co-operation between the government, wage-earners, employers and agriculture, and as a result of that co-operation it is our opinion that we would get a stabilization of prices and wages which would be of great benefit to the working people of this country.	*


Mr. Morris:: Would the hon. member permit a question at this time?


Herbert Wilfred Herridge: All right.


Edmund Leverett Morris: Does the hon. member carry a similar affection for the economic control of the workers of Sweden?

Monetary Policy


Herbert Wilfred Herridge: I am afraid I did not hear my friend's question.


Edmund Leverett Morris: I say, does the hon. member carry a similar affection for the regulated economic life of Sweden?


Herbert Wilfred Herridge: The government of Sweden has somewhat different policies, possibly, from the government of Norway, but basically they are alike. I would suggest that if the government of Canada had conserved our human and natural resources as well as the government of Sweden has in the past, the Canadian people would be much better off today.


Edmund Leverett Morris: Is the hon. member aware that the government of Sweden has announced it will not be able, because of its regulated economic life, to finance any further social adjustments for a period of ten years?


Herbert Wilfred Herridge: Possibly the hon. gentleman does not realize the level of social services provided in Sweden at the present time. There are a great many other countries which have a long way to go to catch up.
Mr. Speaker, we believe that the policy I have outlined in these brief remarks on national planning and development related to governmental control of the issue of currency, plus co-operation between the government, industry, labour and agriculture, will be a great step forward. We believe these proposals will lead toward a planned development of our resources, a stable fiscal policy, full employment and security for all Canadians. Therefore, Mr. Speaker, in concluding my remarks I wish to move, seconded by the hon. member for Burnaby-Coquitlam (Mr. Regier):
That the amendment be amended by adding thereto the following words:
"this house further regrets the failure of the government to assume full responsibility for the control of credit, and particularly, its failure to establish a national investment board."


Mr. Speaker:: I am not very clear how the subamendment relates to the amendment. Would the hon. member moving this subamendment indicate where the control of credit and the establishment of a national investment board is related to the points covered by the amendment?


Herbert Wilfred Herridge: Mr. Speaker, I submit that the amendment moved by the member for Ottawa West (Mr. Mcllraith) deals with the high bank rate, which affects all Canadians; the expansion of money supply, which affects all Canadians; the increase in the debt and also in the charges. We move this subamendment because of the belief

that if the government had complete control over the issue of credit it would have a beneficial effect on the conditions complained of in the amendment itself.


Mr. Speaker:: The point I want clarified, if the hon. member would be good enough, is this. The amendment regrets the ill-conceived and irresponsible actions of the government in the field of debt management and monetary policy characterized by, amongst other things, the highest bank rate since the Bank of Canada was established. I ask the hon. member what item in the amendment involves the control of credit referred to in the subamendment? The subamendment also alleges a failure to establish a national investment board, and before I allow or disallow the subamendment I would like to know what relationship it has to the main amendment.


Erhart Regier: Mr. Speaker, on looking over the amendment we notice that no approach seems to have been made as to what action ought to have been taken by the government. The amendment regrets a number of things resulting from government policy, and therefore we move an additional amendment whereby we hope to supply the answer to the complaints. While we acknowledge the existence of the five points listed in the Liberal amendment, we feel as a responsible group that we have an alternative to offer. In our opinion the establishment of a national investment board would eliminate the complaints contained in the Liberal amendment.


Mr. Speaker:: I appreciate what the hon. member says, but it seems to me that the establishment of a national investment board to control investment funds is an entirely new subject and not one which can readily be discussed in conjunction with the amendment, which relates basically to debt management and monetary policy, an increase in the national debt and an increase in the bank rate.


Harold Edward Winch: Mr. Speaker, if I may say one word, this matter of investment of course is very interesting, but I would call your attention to the fact that the original motion moved has to do with the expansion of the money supply. It has to do both directly and indirectly with the matter of investment of money, and that comes into every point. The subamendment moved by the C.C.F. party regrets the failure to establish an investment board. Item No. 3 of the Liberal amendment definitely ties in with the question of an investment board on the question of finance.


Mr. Speaker:: The first part of the proposed subamendment seems to me to be fully

covered in the amendment itself, and therefore any discussion relating to the control of credit in so far as it is relevant to the main amendment can take place. But with all respect, it seems to me that the establishment of a national investment board deals with an entirely unrelated subject. I feel it should be possible to confine this debate to the subjects relevant to the amendment, which could not be done if the proposed subamendment were accepted, and therefore I declare the amendment out of order.


Mr. W. H. McMillan (Welland):: Mr. Speaker, in referring to the way in which the government has handled our debt I wish first of all to refer briefly to what I consider to be the greatest financial fiasco in the history of our country, namely the conversion loan. Our people will feel the effect of this loan for a generation.
I have said previously in this house that less than 55 per cent of those bonds were in fact being extended over a longer term. Over 45 per cent of those victory bonds must again be dealt with as they have been converted into short term loans maturing in either 1961 or 1965, and both issues come due before the ninth victory loan would have come due and been ready for conversion. The 1961 loan amounting to $1 billion will need to be converted during the lifetime of this parliament, and the 1965 loan amounting to over $1.2 billion will come due in the year I have mentioned, and will need to be converted during the lifetime of the next parliament. I think we have paid a very high price in order to get just slightly over half of these bonds extended to bonds of a longer due date. We have heard all kinds of prices mentioned, and a figure of over $70 million has been named as the cost of that conversion.
At the time of the conversion, I well recall saying that I could not condone the expenditure of over $16 million for the printing bureau, especially if there was any irregularity, and none was proved. I told the minister that in extra debt charges his conversion policy would be costing the people of Canada the equivalent of one printing bureau every three months for a generation, or one almost every mile from here to Montreal. The minister told me then that I was irresponsible. Well, let us see how irresponsible I was. Including the cost of the loan-over $70 million -and the extra interest, the minister, had he been building printing bureaux, would, starting at Eastview, have completed four, with another four nearing completion. By the fall he would be starting work on four more, and be 12 miles out of the city toward Montreal with 23 years yet to go. And this would represent only part of the cost, because
Monetary Policy
on the other side of the road he would also have as many other imposing structures, progressively more ornate as you go east representing the extra interest our people have to pay for provincial, municipal and other loans because of that conversion program.
Every new sidewalk, new school, new hospital, sewer or road will cost more because of that conversion loan. As an example, the city of Welland and the township of Crowland in my own county are building a new hospital; the two municipalities are underwriting a substantial share of the cost. When they come to sell debentures they will get some concept of what that conversion loan and the fiscal policy of this government have done to them. A good many municipalities have not built new projects since the time of the conversion loan. They will be going on the market soon to borrow money, and at that point they will speedily realize what this conversion loan and what the other activities of this government have cost the people of Canada. If we turn to table 48, page 87, of the budgetary papers it will be seen that the minister is in big business. In the last fiscal year the total amount of securities issued was $9.2 billion. Renewals or conversions amounted to $6.8 billion, and the amount issued for new cash was $2.4 billion. The trouble is that so much of the new borrowing by this government to meet deficits and other expenditures was on short term. The issues are again right on top of us to finance again in this current year and in the year which lies ahead.
The minister talked a great deal about the victory loans, amounting to $6.4 billion, overhanging the market. He has now worked himself into a position where, as will be seen from an examination of the budgetary papers, he has over $7 billion overhanging the market between now and the end of 1966 when the ninth victory bond was due-I am including the new borrowing which he must make this year to cover the deficit and other budgetary loans. This calculation does not, however, include the $1.59 billion of treasury bills which was increased by $70 million last year in order to get more cash, or new borrowings, or the deficit in succeeding years.
As I said before, the total amount of bonds issued in the last fiscal year by conversion for new cash amounted to 9.2 billion. If nearly $1.6 billion of three months treasury bills is added to this hon. members will see that the minister has been fooling around with over half our total debt, and this costs money, as is evidenced by the conversion loan itself. Truly this government's greed for cash is insatiable. In spite of their promises, they had to get more money.

Monetary Policy
The minister has told us that as far as he can judge the Canadian public has been well informed about the situation with regard to our debt and the money we have to raise. Well, the overspending in deficits and the depletion in government accounts amount to more than twice the total budget for 1939. The "moderate increase" in taxes of $352 million-and this is the only time I will refer to the budget-is 75 per cent of the total budget of 1939, with an estimated deficit amounting to some $400 million which is, itself, not far off the total 1939 budget.
This year the estimates are away up again, and there seems no end to the increase in spending. The government is taking so much of our earnings, and competing so strongly for money which the provinces, the municipalities and the school boards have to find on the open market in competition with the government to finance their legitimate needs, that the future cannot possibly be regarded with confidence. There surely must be a limit to all this. At the time of the conversion loan, the minister said one result would be that the provinces and the municipalities would be able to get money at better advantage, by which he meant at more satisfactory rates of interest. But in his last pronouncement, the minister did not go out on a limb. He merely said he wanted to leave more room for the provinces and municipalities to borrow money. I am afraid he has not left them much room unless they pay very high rates.
If the minister had sold his short term bonds at par around a rate commensurate with present yields instead of putting in income tax gimmicks costing our treasury a net 6.6 per cent when sold to corporations he would have a more stable market. Bond buyers are holding back in full knowledge of the number of bonds the minister must finance, waiting to see what gimmicks might be in store for them. Surely, the minister is directly responsible for creating an irregular and unsatisfactory bond market.
The next time the minister has a bond issue with gimmicks I think he should make the bonds available in smaller denominations to the small businessmen. The last bonds were sold in denominations of $1,000, $5,000, $100,000 and $1 million. The small businessmen might as well get in on the benefits at this time because they will be shown no discrimination when the bill is to be paid. The next bond issue should not be handled on the basis of a 15-minute rush. As the minister said, at the time of the last loan the books were opened and closed in 15 minutes. Certainly the ordinary man did not

get much chance to get a bond even if he had $1,000, the amount of the lowest denomination.
At any time I have heard the minister speak in the budget debate or on any other occasion he has nearly always justified the high interest rates in Canada on the basis of those in the United States. Let us review what has been done in that country. There were three issues in the United States sold immediately prior to our conversion loan bond issue. They were in May and June of 1958. The United States treasury sold $1 billion worth of bonds representing only one-third of 1 per cent of their total debt in 27-year 3-J per cent bonds slightly above par. They were 50 cents for each $100 above par. There was so much criticism of the United States treasury over this high interest rate of 3J per cent that the treasury went into shorter term bonds. On June 15, 1958 they had to refund $9.5 billion of notes and bonds coming due. They did this in two parcels which I will describe. They floated $1.8 billion in 11-month 1J per cent certificates. The larger one involved the sum of $7.4 billion which was floated in 6-year 8-month bonds to yield 2.58 per cent. They were doing this at a time when we were getting rid of the 8th and 9th series of bonds. At the corresponding time they sold new bonds to return to the buyer 2.58 per cent. These were sold to the public at 50 cents per $100 above par. The whole issue was sold and this left $356 million that had to be redeemed for cash. The point is that our 4i per cent bonds were 1J per cent in yield over the comparatively small amount sold by the United States treasury at 3J per cent and for which they were severely criticized, and If or nearly 2 per cent over the larger United States 2f per cent issue.
It is true that United States short term money is up; in fact, the figure of 4 per cent was mentioned in today's Globe and Mail. It may be pointed out, however, that our last short term 13-month loan sold in February, with its income tax gimmicks, cost our government 6.6 per cent net when sold to big corporations. This is still considerably more than 2 per cent over United States short term loans. We surely want to keep ahead of the United States.
One bad feature in connection with our borrowings is the lack of stability on the part of the Department of Finance. Most of our bonds were selling on the market to yield slightly under 5 per cent and then the minister offered $200 million of bonds in two issues, both of which carried income tax gimmicks. As I said before the shorter term 13-month bonds because of the income tax gimmicks returned 6.6 per cent. This is

bad in itself but there is another bad aspect of this. Because of these sudden upward jumps in interest rates the people who have money to invest in the bond market are sitting back waiting to see if any new income tax gimmicks might come their way. No one buying a bond returning a high interest rate wants to see his bond go down as a result of the Department of Finance offering a bond at a higher interest rate. Many of the bond buyers are afraid of this. Both the man buying a $50 bond and the man buying a $1 million bond do not want to see their bonds go down in price next month.
May I call it six o'clock, Mr. Speaker.
At six o'clock the house took recess.


[Stage Direction]
AFTER RECESS

The house resumed at 8 p.m.
William Hector McMillan: Mr. Speaker, nobody in this country can deny that we are approaching or are in some form of financial crisis. Last Thursday I asked the Minister of Finance this question, as found at page 2968 of Hansard:
Is it true that the new treasury bill rate is now 4.72 per cent, and that the bank rate has reached another unprecedented record high of close to 5 per cent?
His answer was:
I have not the precise figure for this week's rates, but I would say that the movement in the rate on treasury bills lately has been attributable directly to the tremendous demands for commercial loans which are being made at this time on the chartered banks, reflecting the very great expansion in the economy of this country which is under way at present.
I would say that these rate increases were depressing financial news to the people of the country. The minister evidently did not know how many percentage points rise had occurred in the treasury bill rate. This rate sets the bank rate which is .25 above it, and it also in effect sets the commercial rate which now stands at 5} per cent. These rates have a tremendous effect on the business tempo in our country.
I realize that there has been some industrial pick-up, I think about two points, but if it is to be sustained and if it is to progress we must have money at reasonable rates in order that it may do so. If there ever was a time when a pick-up of the business tempo was needed it is now because we have so many people unemployed. Yet the minister did not know what the interest rates were at a time when later that day and the following morning they made headline news in the papers across our country. The minister should do all he can to stimulate an industrial pick-up. The time has come when the minister should take
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the people of Canada into his confidence. They have the right to expect honest and straightforward statements as to our fiscal policy and not misleading ones such as have been given by the minister, three examples of which I referred to in the budget debate.
Nothing will precipitate a crisis faster than lack of candour on the part of the minister. Doubt is worse than reality. In February, as you know, our short term bonds were sold, as I said before, on a basis actually costing the government 6.6 per cent but most of our bonds were selling on the Canadian market to yield between 4.75 and 5 per cent. I think there must be something seriously wrong with our fiscal policy when the Minister of Finance finds it necessary to put out bonds at such a high rate and such a high cost to the government of our country. I said before that our money was costing us more and therefore our bonds are selling lower than bonds of most countries of the western free world.
Federal government borrowings are the senior security in our country. In my lifetime they have always been considered to be the best and safest investment and they have always sold to give a lower yield than provincial and municipal bonds. This is not so today because many equivalent maturities of most provincial and provincial guaranteed bonds are selling either on a par with, or slightly above Canadian government bonds. I said in the speech from the throne debate that the minister would soon be competing with our cities, towns, and townships for money, and that has come about at the present time. Even at present many of our fellow Canadians are willing to buy some of these debentures ahead of the senior maturities of our country and I know that some of our municipalities do not have to pay 6.6 per cent. They get their money cheaper than that.
Why is this so? It has never been the case in our country that municipalities have been able to obtain money as cheaply as the Dominion of Canada. The reason must be that many investors have greater faith in municipal councils and the way they manage their affairs. This has occurred only during the time that the present minister has been in office.
The Conservative party has never been outstanding in their handling of financial matters in Canada. Only twice since confederation have they had a surplus of more than $1 million, once in this century and once in the last century. It is true that they had two other surpluses but they were both less than $1 million. Altogether their past surpluses did not amount to over $15 million,

Monetary Policy
and the government has been overspending by that amount in every week of the last fiscal year.
After all, what can we expect? The government has no fiscal policy. It has no long term or short term fiscal policy. They go along day by day and I think their consciences are plagued by their promises. They deal with financial problems one at a time but unfortunately debt, deficits and poor financing are not easily dismissed. They stay to plague them. I know that the firing of a sub-postmaster and the firing of a lot of men who worked on the Arrow project are matters that the government hopes the people will soon forget but certainly their fiscal policy stays with them and it has become a nightmare.
I am not going to refer extensively to what the minister said in the budget debate, but as found at page 2889 of Hansard of April 21, 1959 the minister did say this:
If we had been elected earlier unquestionably we could have saved this country money by eliminating waste and extravagance.


Mr. Speaker:: Order. May I say at this point that it seems to me that the hon. member is reverting to the budget debate rather than dealing with the question before us.


William Hector McMillan: I will not do so further ex-cep't to quote one sentence with reference to capital. I was really glad to hear the minister say this in the budget debate. The minister said: "Capital in this country is not unlimited." I think that refers to something we are debating. He also said:
Our policy has been, as hon. members know, to resist as far as lies within our power the payment of high interest rates on federal borrowings.
For the life of me I cannot understand that statement after the conversion loan fiasco and after the loans at 6.6 per cent with respect to which the bonds were sold, as I said before, to corporations, most of whom would be paying 50 per cent or more income tax. I think it is over 50 per cent now when you take in the old age pension part of it. When the minister gets into trouble he seems to blame the United States but I have already put on the record today some facts as to how the United States has handled its loans. I think I put on the record here today that the United States, certainly before the conversion loan, was able to obtain money cheaper, often up to 2 per cent.
There was no mention by the minister of the British budget. I do not suppose I should mention the British budget, but this year Britain was able to grant tax reductions amounting to about $1 billion, with an indicated surplus of $102 million.

One reason back of our trouble in this country is the lack of foreign investment. It is certainly not coming into the country as fast as it used to come. One reason for this is the anti-Americanism which was created in this country and stirred up on many Tory platforms and by some of the Tory press. It certainly was so in my part of the country. I saw in the newspapers a story about a broker from Montreal who said he used to have a lot of Canadian bond buyers from the United States, but since the conversion loan he has not had any. I have cited before in this house how unpopular our bonds are in New York. I refer to the fact that one week one lone Canadian $1,000 bond was sold on the New York market during a week as against $375,000 worth of Australian bonds. During the week following that, not one Canadian bond was sold, while practically the same number of Australian bonds were sold. I know a few Canadians personally who used to buy our bonds but now they not only do not buy our bonds but they have sold the ones they bought at a loss.
Even the unemployment insurance commission fund, over which the minister has control, I understand took a loss of $10,115,171.51 in the government bonds they had to sell within the last year. I am surprised that the minister would be forced to take such a loss in one of the government accounts. I am often asked by people from the United States when I meet them, "What kind of government have you in Canada, anyhow?" I can only reply in the words used by the Minister of Trade and Commerce (Mr. Churchill) when he was asked in Chicago about the diversion of trade and the anti-Americanism he said, "That was only election talk". Unfortunately, the words of the Minister of Trade and Commerce do not catch up with the publicity in the United States press emanating from Ottawa about the diversion of 15 per cent of the trade and the criticism of United States investments in Canada. The average citizen of the United States, therefore, who might help us by buying bonds or who might invest some money in Canada, does not do so. He merely asks, "What kind of government have you in Canada, anyhow?" Even I wonder. After all this anti-Americanism, after all the great pronouncements by the Prime Minister (Mr. Diefenbaker) about maintaining our sovereignty in Canada our government leases oil and gas rights on three million acres to corporations, 90 per cent of which were either United States corporations or United States controlled.
The press has referred to this time in our history as a strange interlude, as being unpredictable and not knowing where we are

going. Certainly, this government is strange and their actions seem to be stranger than fiction. I hear the minister is going to the Department of External Affairs. I wish him well, and I would say that the department is badly in need of a head at the present time. I think the minister will do well there because lately he has demonstrated more tact and patience than I thought was possible. In my opinion, he has many admirable qualities and accomplishments, although I do not believe mathematics is one of them. I congratulate the minister upon his work and his industry, but I regret that our fiscal policy is in such a mess that our Prime Minister feels it is necessary to move him.


Mr. Romuald Bourque (Ouiremonl-Sl. Jean):: Mr. Speaker, I am sure that many of the mayors and aldermen of the municipalities of Canada were shocked when they read in the newspapers over the week end that in the future the rate of interest for money would be 5} per cent. Municipal debentures at 5 J or 5| per cent will cripple the Canadian municipalities and discourage the undertaking of public works throughout the whole of Canada. A $2 million debenture at 5| per cent would cost a municipality $115,000 a year in interest alone. If the population were approximately 9,000 in that municipality, the cost per year for interest charges only would amount to $12.78 per person or $63.90 per year for an average family of five. A municipality with a total taxable valuation of $25 million would have to collect from the proprietor of an immovable valued at $20,000 an annual tax of $92 for interest alone. This amount would be over and above the ordinary taxes levied.
If the ordinary municipal tax imposed on this property were $360, adding $92 would raise the taxes to $452, an increase of 25.5 per cent. At the present time it is very difficult to borrow money at less than 5i or 5J per cent. I have here a clipping from a newspaper in which the city of Kitchener is inviting tenders for debentures and the maturity rates are 5J per cent, one to ten years; 5i per cent, one to fifteen years, and 5J per cent, one to fifteen years. In one of the latest booklets issued by a broker in Montreal it is indicated that the rate of interest for municipal hospital and school debentures is 5 to 5j per cent.
Now an interest rate of 5} per cent is the highest rate in recent years. It was at this rate in August, 1957 and it dropped to 5J per cent in February, 1958. It rose to 5J per cent in March, 1959 and at the end of this April it rose again to 5f per cent. Now the increase in the cost of wages and salaries, as a result of the increased cost of living,
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plus the higher cost of the necessary equipment, placed the municipalities of Canada in a very difficult situation.


Mr. Speaker:: Order; the hon. member seems to be addressing his remarks to the problem of interest on municipal borrowings. There is no mention of that in the amendment before the house, and I should like to remind him that on the first supply motion during this session a subamendment called for consideration at a conference of such federal proposals to reduce the burden of interest rates on new provincial and municipal borrowings, which subamendment was negatived by the house. It seems to me that only a limited reference to the effect of the bank rate on municipal borrowings would be in order at this time. In fact, it is only section 2 relating to the bank rate which seems to permit any discussion at all. I hope the hon. member will keep more closely to the matter before the house.


Paul Joseph James Martin: I wonder if I might speak to the point Your Honour has just made. The governing part of the amendment before the house is what I would think should really be discussed at this time. It reads as follows:
This house regrets the ill-conceived and irresponsible actions of the government in the field of debt management and monetary policy-
Points 1, 2, 3, 4 and 5 are descriptive only and are by no means all inclusive of the effects of the government's debt management and monetary policy.
What the hon. gentleman is seeking to do is quite obviously, I submit with great respect, to show that as a result of the government's debt management and monetary policies municipal financing has been rendered more difficult. The effect of the government's monetary policy is to provoke the kind of situation to which the hon. gentleman has just directed our attention.
With regard to the specific characteristic in No. 2, it should be noted that the bank rate does not preclude a discussion of the matter of interest rates, I submit, within the proper context of the question because the highest bank rate is not what we mean by interest rate. The bank rate is something which may have a determining factor on what the interest rate is but by itself it is not to be regarded as meaning the same thing as the interest rate.
I would submit with respect that the hon. gentleman deserves the latitude he is seeking because he is seeking to show that the situation confronting municipal financing is the product of the government's monetary policy and debt management.

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Mr. Speaker:: May I say this with respect to what the hon. member for Essex East has submitted? If the amendment had simply the first paragraph it would scarcely have been admissible because the term "monetary policy" is too broad, and would take us back over the ground of the budget debate which we have just finished. Therefore I regard the amendment, which deals with debt management and monetary policy, to be limited by the five specific items which follows; otherwise it seems to me that it overlaps a good part of what has been discussed in other debates during this session. Therefore I feel that the discussion should be restricted to the specific items one to five which are specified as the aspects of debt management and monetary policy which the house is to discuss.
Now with respect to the line which has been taken by the hon. member for Outre-mont-St. Jean. He goes directly over ground which has been debated in the house, and that is the reason why I felt in discussing municipal and provincial finances, and this government's attitude towards the problem, he Was repeating a previous debate, and more properly should have made his speech at that time rather than this time. I do not feel that I should allow a wide range of debate on the amendment before the house.


John Whitney Pickersgill: Would Your Honour hear another word on this point? It seems to me that the governing word in the motion moved by the hon. member for Ottawa West (Mr. Mcllraith) is the verb "regrets". The house is asked to regret what we on this side of the house feel to have been the ill-conceived and irresponsible actions of the government in the field of debt management and monetary policy. It seems to me my hon. friend from Outremont-St. Jean (Mr. Bourque) is pointing out to the house one reason why he feels the house should regret this. He feels that the interest rates which municipalities are now having to pay are a direct result of the debt management of the government, and from his point of view that is the most regrettable feature of it, though I should not anticipate his speech. It seems to me that this is quite different from the motion that was decided by the house earlier. The house was asked earlier to take some specific action about this interest; but I apprehend that my hon. friend is not asking the house to take any specific course of action but to express regret about the subject, and he has given his reason why we should regret that. All of us have our own reasons for regretting it.


An hon. Member:: The last election.


John Whitney Pickersgill: That is right.


Mr. Speaker:: All I can say in amplification of what I said before is that the house refused to regret the matter that was before the house on the previous supply motion.


Romuald Bourque: If I may say so, Mr. Speaker, the sheet which I hold in my hand refers not only to municipal debentures but to hospitals, schools, churches and all the different people who have to borrow money. A rate of 5| per cent is going to be a very serious handicap to all of these organizations. In my municipality, if I may say so, in 1947, we paid $515,568 in wages, and now in 1959 we are paying-


Mr. Speaker:: I hope the hon. member did not misunderstand me. I have not accepted the proposition which has been made that we can go into a discussion of municipal and provincial debt. I do not want to suggest what the hon. member should say as he has to make his own speech but it seems to me that municipal borrowing is a subject which has been covered before and voted on by the house, and there should not be any more than a passing reference to it. The hon. member should confine himself to the matter before the house.


Romuald Bourque: This interest of 5} per cent is going to have a serious effect on employment in the province of Quebec because municipalities and all of these other organizations borrow to create work and to build. On March 22, 1958 we had 222,000 unemployed in the province of Quebec. On March 21, 1959 we had 215,000. If we could borrow money at a reasonable rate we could build all kinds of things which would create work and it would enable the unemployment figure to go down. At the rate of 5f per cent it is practically impossible because the costs are too high.
The new rate of 5f per cent is going to have a serious effect on the finance charges on automobiles and appliances, and it will place a heavy burden on the average citizen who, through unemployment, illness or a bad investment has to borrow through regular channels.
The stockbrokers and investment houses will certainly suffer from this high rate of interest. It is going to place a heavy burden on their shoulders, and I am sure the number of investors will become fewer and fewer as time goes on.
This high rate of interest will curtail the exports of Canadian goods, and it will add to the cost of manufacture. Already the Canadian production and shipment of newsprint in the first three months of the year is at 1,469,000 tons and 1,335,000 tons which is still 1.7 per cent and 3.3 per cent below the 1958 level. The Alberta production of crude

oil in April has fallen to around 300,000 barrels a day, after being in excess of 400,000 barrels during the first two months of the year.
I have a lot of statistics, but in deference to your ruling, I suppose I had better let them go. That will be all.


Erhart Regier: Mr. Speaker, I shall do my utmost to remain within your decree. I notice there have been a large number of rulings today. It is with a little bit of difficulty that we have to debate the amendment to the supply motion which is now before the house. I would like to begin by reading into the record the amendment that is now before us, as moved by the hon. member for Ottawa West (Mr. Mcll-raith):
This house regrets the ill-conceived and irresponsible actions of the government in the field of debt management and monetary policy which have been characterized by:
1.	The errors and inequities associated with the conversion loan;
2.	The highest bank rate since the Bank of Canada was established;
3.	The largest expansion of the money supply in any year since the war;
4.	The greatest increase in peacetime in the national debt;
5.	The highest public debt charges in Canada's history.
We in our group, Mr. Speaker, admit the complaints that the Liberal spokesman raised. We admit that there have been ill-conceived and irresponsible actions on the part of the government in the field of debt management and monetary policy. It is our contention that since the days of the hungry thirties, the years 1930 to 1935, the Conservatives have learned nothing, and that all the remedies they have to offer to meet head on the problem in an attempt to reverse the trend of an ever-worsening recession in Canada are higher taxes, higher tariffs and higher interest rates. I regret very much that the Liberals did not lodge any complaint in their amendment about the lack of action. They mentioned the ill-conceived and irresponsible actions of the government in the matter of debt management and monetary policies, and we agree that whatever action has been taken by the government and the Minister of Finance (Mr. Fleming), has been irresponsible and ill-conceived. However, we very much regret that there was no proposal offered in the amendment that might have suggested a solution to the difficulty that the amendment complains about.


John Whitney Pickersgill: Would the hon. gentleman permit a question?


Erhart Regier: Yes.


John Whitney Pickersgill: If the hon. gentleman has that regret, why does he not fill that vacuum?
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Erhart Regier: Mr. Speaker, I think the hon. member for Bonavista-Twillingate (Mr. Pickersgill) is a sharp enough observer in this house to realize very well indeed that our subamendment was ruled out of order.


John Whitney Pickersgill: That does not preclude
another.


Erhart Regier: Therefore our proposals as to a remedy may not be debated at this time. However, to get back to the Conservatives, as I indicated before, since 1935 they have learned nothing; hence the reason for the complaints at the present time.
The over-all approach which I can only assume is being taken by the Conservative government at this time is that matters will right themselves. I regret that my colleague, the member for Kootenay West (Mr. Herridge), had to file his documents with the Hansard office a little while ago and I therefore have not with me the copy of the speech rendered to the house of representatives in Washington by the Honourable Chester Bowles, where he warned in unmistakable terms that if we are going to adopt the philosophy that our problems will resolve themselves, we are headed for serious trouble indeed. I imagine that applies in the United States of America equally as well as here in Canada. The only way out of our difficulties is for the government to see the problems and to resolve upon a course of action. It is our contention that almost any plan of action would be preferable to lack of action and to a philosophy of letting sleeping dogs lie and matters will adjust themselves.
Mr. Speaker, I would like to review the complaints that we note in the amendment. I see that the first one is a complaint that the government's policy in regard to management of debt and monetary matters has been characterized by errors and inequities associated with the conversion loan. Our complaint about the conversion loan is, first of all, that the rate of interest offered was needlessly high. As evidence we call attention to the activities on the money markets of Canada. If the rate which had been offered had been realistic at the time and in line with market conditions, government of Canada bonds would not have suddenly leaped ahead as they did, especially victory bonds.
Our next complaint on the conversion loan is that with regard to the new bonds which have been issued-I have particular reference now to the 4J per cent, 25-year bonds- they were non-callable. We feel that action was most irresponsible. We also complain that the Minister of Finance and the Prime Minister (Mr. Diefenbaker) appeared on a

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add to the tax burden of every Canadian. The action-and more especially the lack of action-on the part of this government will cause municipal and provincial taxes to rise and will, as the minister admitted in the budget, cause an increase in federal taxes. It will mean in effect that our municipalities and provinces will be unable to take action concerning much needed services and activities of this nature will of necessity be curtailed.
One of the most shameful things that has happened in Canada took place about a month ago when the old age pensioners were blamed for tax increases. I believe that the monetary policies of this government rather than the old age pensioners are to be blamed. High interest rates result in increased costs of production and make worse the cost-price squeeze. At this time when we are particularly concerned about unemployment I regret that the actions and the lack of action on the part of this government in the field of monetary policy generally and specifically with respect to interest charges is causing a slowdown of the industrial development of Canada. When you think of automation especially you will realize the important relationship this has to the ever-increasing number of unemployed from one end of the country to the other. When industrial enterprises are faced with high carrying charges and capital costs there is a tendency to delay and postpone any planned industrial expansion that may have been contemplated and jobs that might have been provided to the unemployed do not come into existence.
We also regret the influence that the policies of the government have on the buying power of the average Canadian. This has a tremendous effect on the home market which is, after all, our most important market. When you take away from the purchasing power of the people in order to meet these high interest charges you interfere with the ability of Canadians to provide themselves with the necessities of life.
The Liberals in this house have complained that the actions of the government were wrong and we in this group agree that the little action the government has taken to meet the problems of the day has been unwise, especially in relation to monetary policy and more specifically in relation to interest charges. The government follows a policy of sitting it out, waiting it out and letting problems resolve themselves. We regret that the only action the government will see fit to take will be in the application of the outmoded Tory policies of the hungry thirties.
In the main, however, we complain about the lack of policy which we contend might be

remedied by this parliament assuming control of the currency and credit of the nation. I know that the Prime Minister is a westerner. I only wish that at an early date we would have the announcement of the appointment of a new secretary of state for external affairs. While the knowledge of the Prime Minister with respect to economics may be weak I have sufficient confidence in him as a westerner to entertain some hope that he may be amenable to the advice of modern economists. I would like to see him seize the responsibility that is his and aid the people of Canada by implementing our proposal that this parliament must assume complete responsibility for the issuance of all currency, for the control of all credit and more specifically for the early establishment of a national investment board in Canada.


Mr. Speaker:: Is the house ready for the question?


Some hon. Members:: Question.


Donald Methuen Fleming: Mr. Speaker, I must say I feel deeply flattered by the compliment that was paid today by the Liberal opposition in renewing to all intents and purposes the budget debate. I sat through the budget debate for eight days. I inflicted upon the house a very long speech to begin with and then last Tuesday inflicted upon the house a rather long reply to the Liberal amendment. Now they are back again today extending in effect the budget debate and I am afraid the house will have to submit to a speech from me on this third occasion.
We have in effect seen here an extension of the budget debate today, Mr. Speaker, because while I will not renew the argument that was addressed to you on the subject of whether the amendment was in order I will point out that everything that has been said today has touched on something that was said at one time or another during the budget debate, and something that relates to matters that the house must concern itself with in any budget debate. Indeed, the speeches have abounded with references, direct or indirect, to the budget and to things that were said in the course of the budget debate.
As I have on other occasions, Mr. Speaker, I express regret at the utter absence on the part of the official opposition of anything constructive in their approach to the matters they discussed today. They have not put forward one single constructive idea in this debate. There have been plenty, of course, that were destructive. They were under no inhibitions or restraints or restrictions in the things they had to say that pilloried the credit of Canada. Apparently the responsibility which they bear as members of parliament in

discussing matters that mean a great deal to the welfare of Canada is something that is of small concern to them. I will say this for the C.C.F., that at least they tried to put forward some ideas. However mistaken, however misjudged, however wrong those ideas were, they at least tried to put forward their ideas, but from the official opposition we have yet to hear one single inkling of how they would approach these problems.
They have talked about the problems, as was the case in the debate that ended last week. They have magnified and exaggerated the problems out of all recognition, but never once did they allow to escape from their lips a single constructive utterance or inkling or suggestion of how they would approach these problems. We will look in vain to that quarter for any suggestion as to how these problems should be met.


John Whitney Pickersgill: I am rising on a point of order. I submit to Your Honour that there is a rule of the house against tedious repetition.


Donald Methuen Fleming: Mr. Speaker, no member of the house should know that rule better than the hon. gentleman because no one breaks it more than he does.


John Whitney Pickersgill: I am not tedious.


Donald Methuen Fleming: So, Mr. Speaker, I dismiss this latest interruption from the talkative member by quoting the words of scripture, "Physician, heal thyself".


John Whitney Pickersgill: The hon. gentleman would not say my speeches were tedious.


Donald Methuen Fleming: If I said they were only tedious I would be more than generous and polite to him. So, Mr. Speaker, I say in review that this kind of performance on the part of the official opposition is not a responsible performance in this house. When they can, by their tactics of exaggeration, make any problem that Canada faces today look grim, how happy they are. Indeed, they are not happy until they exaggerate these problems beyond recognition.
There is nothing that has been said today thus far that is going to help Canada's credit. There is not one thing that has been said by a member of the opposition in this debate that is going to help Canada meet her financial problems on better terms or to improve in any respect Canada's position. Such is the test of the performance by hon. members opposite.
It is regrettable that, whether by calculated design or accident or their failure to grasp the problem, they have a confused approach to these questions. I do not pretend for one minute that I shall be able to assist them out
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of their confusion but in my remarks in the course of this debate I shall try as best I can to set the record straight and remove some of the error and confusion and clouding of issues that have been caused by hon. members of the opposition opposite.
It is no secret that a government must have money. Governments have no secret source of money. They must turn to the people for it. There is no magic source available to governments. What are the sources open to governments that need cash? They can raise it by taxation, they can raise it by borrowing or they can, if they were so disposed, create money by turning loose the printing presses.
I do not need to say to the house that the government has no intention whatever now or any other time, I take it, of debauching the currency of the country by resorting to the printing press. Such things have been advocated in the house in past years, but it is no part of our approach to financial problems to resort to that kind of destructive expedient. Therefore, Mr. Speaker, we are faced with the necessity of finding money for the necessary purposes of government, either by taxation or by borrowing.
The borrowings of the government of Canada take several forms. First of all, there are treasury bills which are issued each week. The government invites tenders each week for a stipulated amount of money and, according to our current practice, these treasury bills expire in 91 days. In the United States they have treasury bills of various maturities. Our practice in this country in recent years has been to issue treasury bills for the uniform period of 91 days. We also issue bonds and, without trying to draw exact lines, bonds are classified in the market according to those of short duration, medium and long, and, of course, the approach to each of these classes of maturities is governed by the return involved. Very often we find a measurable difference in return in these various classes of maturities. The market at any one time may favour one class of government obligation as against another or others and from time to time there will be a shift in the public reception of the different classes of offerings.
I think I should begin this reply, Mr. Speaker, by a reference to what actually has occurred in the money market of Canada. We have had a money market in this country now for approximately the last four years. Money markets are not greatly different from commodity markets in this respect, that they are governed, not entirely but very largely, by the law of supply and demand. Obviously if the

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demand is large in relation to supply the return on borrowings must be larger because the earning power of money is greater. Alternatively, when the supply is large in relation to demand, the earning power of money will be reduced and borrowing can then be had at lower rates of interest. Interest is simply a means we have of measuring the value of money as a return on the use of it.
Now, Mr. Speaker, let us put some facts straight at the outset. We are told here in this house that the rates that the government of Canada must pay on borrowings have been rising and, indeed, have reached record proportions. It is one thing to talk about treasury bills, and it is another thing to talk in generalities. Hon. members opposite today, when they have launched out on the subject of treasury bill rates, have either confused themselves or by typical sophistry jumped into an area of generalities from that point concerning interest rates in general. We should put some facts straight. It is true that last Thursday the Bank of Canada rate reached a record 4.97 per cent. This is somewhat larger than the rate was about 20 months ago.
The fact is, Mr. Speaker, that in the year 1957, before we came into office, interest rates were moving up. Indeed, from 1955 forward interest rates in general were moving upwards. This is not a phenomenon that has suddenly emerged since June 21, 1957, and attempts by speakers to leave that impression of course are not only nonsensical but they are contrary to fact. Effective interest rates began to rise in this country measurably in 1955; they were rising steadily in the early part of 1957. It was only after the new government had been in office about two months that the change came about and interest rates then began to recede. Interest rates, from that point on, dropped steadily. I am speaking now particularly of the treasury bill rate and the Bank of Canada rate associated with it. These rates dropped steadily until the spring of 1958, and then in 1958 the treasury bill rate began to rise again.
While there were fluctuations up and down, the interest rate today on treasury bills is higher than it has been in these past times. It is not a great deal higher than it was in the summer of 1957, but it is admittedly higher. Let us look at some of these figures, Mr. Speaker. On the three-month treasury bills, the rate in the summer of 1957, August, was 4.08; at the end of 1957, the rate had dropped to 3.60.


George James McIlraith: I wonder if the minister would permit a question on that figure? I have the Bank of Canada statistical summary before me, and the rates seem to be a little different. I wonder if he would give me the statistical authority? I am not questioning his figure, but I should like to have the same one.


Donald Methuen Fleming: The hon. member should be aware of the fact that the treasury bill rate as reported on page 111 of the statistical summary of the Bank of Canada for March, 1959 selects the weekly rate for the last week of the month. Now the weekly rate for the last week of the month of August, which was August 28 of that year, was 4.03 per cent, but the rate during that month reached 4.08 per cent.
By December 31, 1957, the rate as I have indicated had dropped to 3.60 per cent; by April 21, 1958 it had dropped to 1.37 and it reached its low in July, 1958, when the rate dropped to .87 per cent, the lowest for years, a rate of less than 1 per cent. Then, as I have indicated, a rise began in the late summer of 1958, and the rate has moved up gradually, just as it did in the United States. We have a rate on November 19, 1958 of 3 per cent; December 31, 1958, 3.49 per cent; and on April 24, 1959, 4.72 per cent. This is the treasury bill rate.
Now, Mr. Speaker, hon. members opposite have chosen, without any more factual basis than that, to picture this country as going to the bow-wows, as though we were heading straight for a crisis. Let us see this matter in its true proportions. No minister of finance, no government enjoys paying any more for the money it has to borrow than it must pay. Believe me, there is no pleasure in paying high interest rates. The fact is that these are weekly offerings. The treasury bill rate is the most volatile rate amongst all government obligations, and the fluctuations in the rate can at least be understood in relation to this fact, which has some comfort in it, that these rates exist for only three months. When reductions occur, the reductions in rate are quickly felt and the government is in a position to take immediate advantage of them because they are weekly offerings.
What are some of the other movements in interest rates? We have been told here today that the country is going to perdition because the chartered bank prime rate has risen, as of today, to 5J per cent. Mr. Speaker, again let us, while not taking any satisfaction out of the fact that this rate has gone up, see this in its true relationship. This rate has gone back to what it was in the summer of 1957.


John Whitney Pickersgill: What did you say about it then?


Donald Methuen Fleming: I had this to say, that we inherited a situation from our predecessors, who were very generous in bequeathing problems to us that they did not have either the courage or competence to handle.


John Whitney Pickersgill: More tedious repetition.


Donald Methuen Fleming: You would think from their talking today that a rise in interest rates had never occurred before. Let us look at what happened in the regime of these gentlemen who are so boastful today. Let us just go back to 1945. These figures that
1	give now are the prime interest rate charged by the chartered banks of Canada.
From 1945 to April 23, 1956 the rate was 4J per cent. On April 23, 1956 it was moved up to 5 per cent. On August 20, 1956 it was moved up to 5J per cent. On October 22, 1956 it was moved up to 51 per cent. On August 26, 1957 it was moved up to 5f per cent. On December 2, 1957 it went down to 51 per cent. On February 17, 1958 it went down to 51 per cent. On March 8, 1959 it went up to 51 per cent. On April 27 it went up to 5f per cent.
Therefore, Mr. Speaker, seen in the light of these figures, while we may not like it- and I do not suppose any of us do like to see this present rise in interest rates-the fact is that it is a rise that brings us back to the figure that was reached over 20 months ago, and that following that, through the late part of 1957 and the first half of 1958, the rate went down. This is a rate that has fluctuated frequently according to conditions.
We are told it is deplorable that the Bank of Canada rate should have risen. The Bank of Canada sometime ago chose to set its rate in terms of a formula attached to the treasury bill rate. This was not always the case. For years the Bank of Canada set a rate. That rate stood at 2 per cent from October, 1950 to February 14, 1955. It was then reduced to 11 per cent. It was raised to
2	per cent on August 5, 1955; to 2i per
cent on October 12, 1955; to 2f per cent on November 18,	1955; to 3 per cent on
April 4, 1956; to 3| per cent on August 9, 1956; and to 31 per cent on October 17, 1956.
Now, Mr. Speaker, will you note that in the days when hon. members opposite were in power the rate set by the Bank of Canada advanced from 11 per cent in February, 1955 to 31 per cent in October, 1956. In other words, the treasury bill rate rose by 2 per cent within a space of some 20 months. It advanced from 11 per cent to 31 per cent, a rise, if you want to measure it in percentage terms, of 133 per cent in terms of
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the rate prevailing in February, 1955. That was the extent of the rise in the treasury bill rate before we came into office while the rate was still set by the Bank of Canada without reference to the treasury bill rates.
Then, the Bank of Canada, on November 1, 1956 set its rates in terms of a formula attached to the treasury bill rate. In other words, from that point on the Bank of Canada did not attempt to set on its own account the rate on its loans. It simply accepted week by week the treasury bill rate and added a quarter of 1 per cent to it. That was the decision of the Bank of Canada. Whether the government of that day or the minister of finance of that day expressed any opinion on that subject outside the house, we do not know. We do know that he was chary about expressing any opinion on the subject in the house. The Bank of Canada did give its reasons for establishing its rate at that time in terms of this formula. Let us bear in mind that the government of Canada does not establish the Bank of Canada rate.
There are matters within the subject of the amendment that fall within the responsibility of government; there are things that fall within the responsibility of the Bank of Canada. The government is responsible for fiscal policy. The Bank of Canada, by an act of the parliament of Canada, is responsible for monetary policy, and this bank rate, as it is called, is set each week by the Bank of Canada in the exercise of its statutory powers.
I should like to place on Hansard simply for the information of the house, without either attacking or defending it, the reasons given by the Bank of Canada for attaching the bank rate to the treasury bill rate. I am reading now, from the press release issued by the Bank of Canada on November 1, 1956:
The Bank of Canada announced today that it was carrying a step further the policy announced in February 1955 of making its bank rate more flexible and responsive to changing conditions in the short-term money market. Henceforth and until further notice the bank rate, which is the minimum rate at which the central bank is prepared as a lender of last resort to make very short term loans to chartered banks and money market dealers will be at a fixed margin of one-quarter of one per cent above the latest weekly average tender rate for 91-day treasury bills. The average tender rates on treasury bills today was 3.34 per cent, a decline of .03 per cent as compared with a week ago. Accordingly the bank rate until next Thursday will be 3.59 per cent.
As indicated on several occasions by the bank, the bank rate is not changed arbitrarily or with a view to bringing about other interest rate changes. On the contrary, it has been desired since the development of the money market in Canada in late 1954 and early 1955 that the bank rate should be kept in line with other interest rates and should move when they do, but usually not otherwise. The present technical change in the method of setting the bank rate from week to week is

Monetary Policy
intended to clarify this relationship and remove what has evidently been a source of some public misunderstanding.
Interest rates are determined in the market by the interplay between the supply of and the demand for loanable funds. Transactions take place every day in considerable volume; .yields on marketable securities may change by small amounts from day to day, according to changes in the views of holders and of prospective buyers of various categories of securities as to the prices at which they are prepared to sell or buy. In general, interest rates have been rising for nearly two years because of a great growth in demand to borrow money, or to raise money by selling securities. The supply of money has increased, but the demand for it has grown even faster.
The bank rate has been increased from time to time in Canada as in other countries in line with this movement in market rates of interest. It would be clearly undesirable that banks and dealers should be able to borrow from the central bank at a lower cost than the yield on the most liquid form of government securities. Such an encouragement to borrowing from the central bank would be apt to induce an inflationary increase in the volume of money.
Changes in bank rate in the past two years have taken place in steps of one-quarter per cent or one-half per cent. One result of having the bank rate change by smaller amounts each week in closer touch with other short-term interest rates is that it will direct public attention more to the basic factors in the monetary situation, that is, changes in the supply of and demand for money.
Then, further down:
If at any time it appears that the treasury bill rate is not the best indicator of market conditions or if it is found that a different margin between market rates and bank rate would be more suitable, or that a change in monetary conditions should be more strikingly signalized, a change in the practice will be made and announced. For the time being, however, it is proposed, as indicated, to keep the bank rate at a fixed margin of one-quarter of one per cent above the average rate at the most recent weekly tender for government of Canada treasury bills, the rate which is made public at approximately 1 p.m. each Thursday immediately following the tender.


John Whitney Pickersgill: Would the minister permit a question?


Donald Methuen Fleming: Yes.


John Whitney Pickersgill: I would like to ask the minister whether he approves of this technique followed by the Bank of Canada?


Donald Methuen Fleming: Monetary Policy
prevent longer-run tendencies based on real changes in supply and demand. On balance, the bank has been a buyer of government securities throughout the period of falling bond prices, that is, of rising interest rates.
I have read that extract with a view to placing before the house the bank's statement containing its view as to its function in relation to the movement of the interest rate and the supply of money. There has undoubtedly been a good deal of misunderstanding on the subject of the operations of the bank in this particular field, and I have read this statement at some length, because it is as far as I know the clearest and most comprehensive statement which the Bank of Canada has issued at any time as to the function which the bank performs in connection with interest rates and their fluctuations.
I spoke of the interaction in the money market which we have had in Canada since the end of 1954 of the forces of supply and demand. The demand for money is, of course, measured by the total effective borrowing from all sections of the country-borrowings, made by the federal government, provincial governments, municipal governments, business and persons-the whole gamut of borrowings in a free economy.
What are the factors which govern the supply of money? The two elements in money supply are currency in circulation and bank deposits. The bank deposits represent, of course, the total sum of money placed on deposit at any particular time with the chartered banks. The other element of money supply is currency in circulation, and the volume of currency in circulation in Canada is determined by the Bank of Canada and by the Bank of Canada alone. This is something strictly within the sphere of monetary action and this power, by the Bank of Canada Act, has been vested in the Bank of Canada. I wish to make it quite clear that the gov-vernment, as such, does not exercise control over the money supply or over the amount of money in circulation.
The powers and responsibilities of the bank have been clearly defined. The Bank of Canada Act defines them in three sections to which I should like to make reference. In section 18, subsection (3), the act provides:
The bank shall at all times make public the minimum rate at which it is prepared to make loans or advances.
That is the provision under which the bank derives its power and authority to establish the bank rate. The Bank of Canada rate is simply the minimum rate at which the Bank of Canada is prepared, as a lender of last resort, to make loans or advances.
Section 21 (1) of the act provides that the bank shall have the sole right to issue notes

payable to bearer on demand and intended for circulation in Canada, and that such notes shall be the first charge upon the assets of the bank. From this provision the Bank of Canada derives its exclusive power to issue notes and in that way to determine the volume of currency in circulation.
There have been questions as to the relationship between the Bank of Canada and the government. Section 20 (1) of the act provides as follows:
(1) The bank shall act as fiscal agent of the government of Canada without charge and, subject to the provisions of this act, by agreement, may also act as banker or fiscal agent of the government of any province.
There you have the provision under which the Bank of Canada operates as the fiscal agent of the government. And in subsection 2 there is the provision:
The bank, if and when required by the minister so to do, shall act as agent for the government of Canada in the payment of interest and principal and generally in respect of the management of the public debt of Canada.
In that respect it is clear that the function of the bank is that of agent, and that the government holds the responsibility before parliament and within the powers given to it by parliament in relation to the management of the public debt of Canada. The bank acts as the government's agent in this regard.
Perhaps I have sufficiently sketched the provisions under which the Bank of Canada operates and the respective functions of the bank and of the government in the fiscal field, in the management of the public debt and in the field of monetary action. And then there is, of course, the field where their re-ponsibilities are mingled and they act in association.
I have made these remarks at more length than I would have wished with a view to clarifying, if I may, the question of responsibility in this situation, because this amendment that has been moved today seeks to place upon the government the whole responsibility for the interest rates that exist in the market at the present time.


George James McIlraith: No, no.


Donald Methuen Fleming: Mr. Speaker, we see an attempt in this amendment to say that because of the actions taken by the government in the field of debt management and monetary policy certain things have happened. Hon. members opposite are quite entitled to hold the government responsible for debt management with respect to that period during which the government has been in office, but I would point out that in the matter of monetary policy this parliament has placed the responsibility and indeed the power in the hands of the Bank of Canada.

The government does not exercise any sway in the field of monetary policy. The right to issue currency is vested exclusively in the Bank of Canada. Notwithstanding this fact, this misguided amendment seeks to hold the government responsible for all that has happened in the field of monetary action.
On the face of it this amendment is obviously quite misdirected. It was framed by someone who has not read the statutes enacted by this parliament. I shall have something to say in detail about the five elements that are set forth in the amendment, but I draw your attention, sir, to the fact that these are put forward in the amendment as illustrations of the results of government action in the field of debt management and monetary policy. If these five illustrations have no more validity than the general statement which precedes them then they will need a great deal to buttress them because they are founded upon a statement that is utterly at variance with the law enacted by this parliament.
I have said that this government will meet its responsibility in relation to the public debt of Canada. That is our responsibility and we shall face that responsibility. We are not, however, to be held responsible in a field where parliament has vested the determination of the Bank of Canada rate, under section 18 of the act, and the issuance of currency, under section 21 of the act, in the Bank of Canada.
Let us now look a little closer at these five illustrations. The first refers to the conversion loan. I shall have something to say about that, but perhaps I should leave those remarks until tomorrow because of the length of time that was spent on this subject today by several hon. members opposite.
The second paragraph of the amendment makes reference to the highest bank rate since the Bank of Canada was established. I point out to you that the government of Canada has no responsibility whatever for the establishment of the Bank of Canada rate. In pursuance of powers conferred upon it and responsibilities vested in it by the parliament
Monetary Policy
of Canada the Bank of Canada has established the bank rate.


George James McIlraith: Mr. Speaker, I wonder if I may be permitted to ask a question at this point. Since the bank rate is fixed in the way in which the minister has described by its relationship to the bids on treasury bills, would the minister deny that government policies have some effect on the amounts being bid for treasury bills?


Donald Methuen Fleming: Mr. Speaker, if this amendment had spoken of the treasury bill rate it would have spoken about something that lies within the area of government action, but this misdirected amendment which as I have said was obviously drawn by someone who had not read the statute law enacted by this parliament does not speak of the treasury bill rate; it talks instead about the Bank of Canada rate...


John Whitney Pickersgill: Which is established by the treasury bill rate.


Donald Methuen Fleming: . . .which is something over which this government has no control. The Bank of Canada has chosen to set this Bank of Canada rate by a formula based upon the treasury bill rate. If this amendment had talked about the treasury bill rate it would in my submission have been clear on this point and would have been dealing with something which is within the proper sphere of government action.


John Whitney Pickersgill: "Plus cela change, plus
c'est la meme chose."


Donald Methuen Fleming: The realm of action of the Bank of Canada in relation to treasury bill rates, as was made clear in the statement I read from the governor's report of 1956, consists of the purchase or sale of treasury bills. I wish to register that fact now and having made that comment may I call it ten o'clock and move the adjournment of the debate.
On motion of Mr. Fleming (Eglinton) the debate was adjourned.


[Stage Direction]
At ten o'clock the house adjourned, without question put, pursuant to standing order.
[Stage Direction]
Question

[Stage Direction]
The following answer, deposited with the Clerk of the house, is printed in the official report of debates pursuant to standing order 39:

Mr. Howard: 1.	Have any committees of inquiry been appointed since 1951, pursuant to section 112 of the Indian Act?
2.	If so, what were the names and addresses of the members so appointed, and what reports, if any, were made?
Answer by: Hon. Ellen L. Fairclough (Minister of Citizenship and Immigration):
1.	Yes.
2.	On March 6, 1956, a committee comprising His Honour Chief Judge N. V. Buchanan, Edmonton, Alberta; John Rodgers, Michel
Indian reserve, Alberta; and L. L. Brown, Ottawa, was appointed to inquire into an application for enfranchisement made by the Michel band of Indians of the province of Alberta. The committee's report, dated January 11, 1957, recommending enfranchisement for the band, was approved and the Michel band was enfranchised by order in council P.C. No. 1958-375 dated March 18, 1958.
On March 7, 1956, a committee comprising Hon. Mr. Justice J. O. Wilson, Vancouver,
B.C.; Edwin Ryan, Metlakatla, B.C.; and L. L. Brown, Ottawa, was appointed to inquire into an application for enfranchisement made by the Metlakatla band of Indians of the province of British Columbia. The committee's report, dated July 23, 1956, recommended against the enfranchisement of the band and in consequence the application from the Metlakatla band was not approved.

Tuesday, April 28, 1959