Our iniquitous servant, the Bank of Canada
An iniquitous or unworthy servant is that which does not give satisfaction to his masters. Is this the case with the Bank of Canada? Or perhaps we should first ask, is the Bank of Canada a servant with masters to serve?
Now the Bank of Canada did not always exist. It is not even as old as Confederation. It is the youngest of the banking institutions of Canada. It was established under the Bennett government in 1934 by a law of the federal legislature and it began operations on March 11, 1935.
It is therefore, a creation of the nation.
However the law which brought it into being founded an institution for public service based on private capital. The stockolders elected the directors who in turn appointed the administrators. In the beginning, however, the government reserved for itself the right to make the appointments - governor, deputy-governor, etc.
In 1936, under the King government, the law of the Bank of Canada was amended. Its capital was increased and the government proceeded to acquire for itself this increase, which put into its hands fifty one percent of the total shares and gave it control of the nomination of officers.
Two years later, in 1938, a new amendment provided for reimbursing all private shareholders for the shares they held. Thus the government, that is to say, the Canadian people, was left the sole owner of capital shares to the value of $5,000,000.
The Canadian people, therefore, are the owners of the Bank of Canada. This institution is the Bank of Canadians.
Furthermore, the governor of the Bank of Canada is appointed by our government, paid with the taxpayers money. His present salary amounts to $50,000 a year, or a total of $350,000 for his term of seven years.
So there would seem to be not doubt that the Bank of Canada exists to serve us and that the governor of the Bank is a servant of the Canadian people.
More a master than servant
In spite of what we have said above it would seem that neither the bank nor its governor have any orders or commands to take from anyone - and this includes even the Canadian government.
Our present minister of Finance, Mr. Fleming, remarked quite frankly in the House of Commons, on several occasions that such was the case. Last March 25, in reply to a question by Mr. Cresthol, an M.P., he said:
"We must recall to the member that the minister of Finance has no authority over the governor of the Bank of Canada. The functions of the governor are defined by a law of parliament, but he is not a civil servant and he does not belong to the ministry of Finance."
Appointed by the government of the people, paid by the people's money, yet quite independent of either the people or the government!
In that case, to whom can the people have recourse when monetary policy restricts credit, as it has the past few years, and impedes programs of production thus throwing hundreds of thousands of men out of work?
The federal government like Pontius Pilate, washes its hands of the results of the restriction of credit. "That is no work of ours", it says. In effect, the minister of Finance declares that the government has no monetary policy. It states that it has no authority to define a monetary policy. In other words, in what concerns the finance of the country, the government can offer nothing more than a fiscal policy. Moreover, its fiscal policy must be dependant upon a monetary policy outside its control!
The sovereign government of this land, like any ordinary, simple citizen, is obliged to suffer the vagaries of monetary fluctuations since it has no authority over the monetary policy of credit!
This is a very curious sort of democracy indeed when a monetary policy, with all that it implies for the economic well-being of the entire nation as well as for every slightest detail of each individual's life, can be imposed and must be accepted without the highest government in the land being able to influence it one way or another!
The banking system is responsible
Now, in order not to arrive at any false conclusions, let us state here and now that it is not the existence of a central bank which is responsible for the expansion and restriction of credit. Our country has already had an experience of credit restriction, a very severe experience back in the 30's before the Bank of Canada existed.
It is from the modern banking system, with or without a central bank, that flow the decisions affecting the ebb and flow of financial credit, which is modern money.
One might be tempted to ask if the network of central banks which has sprung up all over the world, embracing practically every country and culminating in the World Bank and the International Monetary Fund, has not been devised for the very specific purpose of making it easy for a universal credit cartel to take over the control of the economic life of all the nations.
Obviously, such is not the reason why this or that government sets up a central bank. There is always the motive of "for the better service of the country" to bring forward. But in this matter, the government is only following orders or is only imitating other countries which have received such a command..
The function of the Bank of Canada
The Bank of Canada it not just another bank set up in competition with the other banks which were existing when it was founded. No. It was not established to receive the savings of citizens, thus making it possible to use these reserves in order to create new credits to ten or twelve times the amount of their reserves and then lending these new credits to industry and commerce or public institutions at good rates of interest. No, this role belongs to the chartered banks.
The law establishing the Bank of Canada defines its function thus:
To regulate credit and money in the best interests of the economic life of the nation.
To this end the Bank has the right to change the proportion of liquid reserves which the banks must hold. This reserve has remained the same since 1945; 8 to 12 percent. The Bank of Canada can also change the rates of interest which it charges the chartered banks (the discount on the purchase of their securities when they want to realize liquid money). The Bank of Canada can also enter the free market for the sale and purchase of bonds not for the purpose of realizing profits from speculation, but rather with a view to increasing or decreasing the amount of money in circulation. And finally, the Bank of Canada can (and it does) suggest to the chartered banks a policy of either relaxation or restriction in the matter of advancing credit to borrowers.
The Bank of Canada should be satisfied with the means thus placed at its disposal by the law, since it never uses all of them and has never asked for any others. It should then be able to accomplish its job.
To regulate credit and money in the best interests of the economic life of the nation.
Has it done so? Will the nation, not the geographical map of Canada, not the few who are privileged under the system, the nation of Canadian people judge that the money and the credit has been regulated in the best interests of their economic life? To the service of their capacity to produce? To the service of the distribution of goods produced?
Incompetence or malice?
It is not necessary to be an expert in all the smallest details of a mechanism to know whether or not such a mechanism is functioning to the satisfaction of him for whom it was constructed. And this applies to the mechanism governing credit.
The ordinary citizen, the salaried man out of a job, the business man paralyzed for a lack of credit, municipal and school administrations, frightened by the prospect of having to pay two and three times over, the cost of the works they must accomplish, and even provincial governments, are unanimous in complaining of the strait-jacket of credit in which they have been bound. And since it is the Bank of Canada which has been charged with the duty of regulating the money and the credit of the country in the best interests of the economic life of the country, they might well direct their accusations against the monetary policy of the Bank of Canada.
And we may be allowed to find that legislation a bit strange which abandons to the Bank of Canada in effect, to one man, its governor, the right of determing those norms to be used in deciding what is in the best interests of the nation's economic life. Alright, let us by all means confide to an expert or a group of experts the job of realizing these norms, of putting them to work. But the norms themselves, the results which are to be sought, these should be clearly defined by the representatives of the people even if it means amending the law governing the institution of the Bank of Canada. As for the governor of the Bank of Canada, he seems to be smugly satisfied with his monetary policy. But if so, he is the only one enjoying such a sentiment.
Of course, he admits that the economy of the country is suffering in many places. He admits that there is unemployment even in the face of a multitude of private and public needs for goods and services. He does not deny that we have inflation along with a dire lack of purchasing power. But attributes all of these evils to other factors.
In effect, he says to us:
"My part in maintaining a sound and healthy national economy, namely, the regulating of credit, has been accomplished to perfection. However, money is not the only factor in the economic life of the nation. There is, among others, the conduct of the Canadian public. Now, it so happens that Canadians are buying beyond their means. They don't know how to deprive themselves in the face of all the goods which are laid before them. It is their fault if prices are high. It is their fault if there is unemployment. If the contractor is unable to obtain the necessary credit in order to build houses it is because Canadians are spending their money on good food and other consumer goods instead of bringing a good slice of their earnings to the bank..."
We must leave all the goods offered by the production system lying on the shelves of stores and in warehouses in order to put our money in industrial developments so that more goods can be produced, which goods in turn must be left lying idle so that money can be put into industrial developments, etc. and so forth ad nauseam.
Thank you, Mr. Preacher, but we shall see in a coming article that not everyone shares your view. Not everyone is of the opinion that your job has been accomplished and well-done.
