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Proceedings of the Royal Commission on Banking

and Currency, Canada, Ottawa,1933

Volume I

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

Idem (p. 153): “The percentage of gold to Dominion Notes in circulation varied from 36.213% to
37.560% from January 1930 to June of 1933 with a high of 57,930% and a low of 34.783%.

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

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

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

W.C. Clark, Deputy Minister of Finance (p. 163): “The gold reserves in connection with the note
circulation are for the most part held in the Currency Branch of the Department of Finance’s
vaults; although a certain amount of gold coin is held at each Assistant Receiver General’s office
to meet possible requirements. The gold purchased by the Royal Canadian Mint when refined
and put into bars is turned over to the Comptroller of Currency either to be held as part of the
gold reserves of for shipment to meet Canada’s obligations abroad. Such shipments are, of
course, gold held in excess of statutory requirements.”
Lord MacMillan, RCBC chairman (p. 208): “One is apt sometimes to think of the banks as
though they could themselves produce wealth. That, of course, is a mistake. A good banking
system is the best possible assistance to business and industry, but it does not itself create

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

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

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

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

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

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

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

Professor Carrothers of the University of British Columbia (p. 360): “The gold standard no
longer exists to control and to prove harmful fluctuations in exchange rates. It is unlikely that the
gold standard will be restored for some time. Some other machinery of control is necessary.
Control of exchange rates and of international movements of capital have been found necessary
already to meet the situation. The central bank would appear to be the logical institution in
which to vest this control in Canada. Centralized control of the banking system is necessary to
secure the coordination between banking policy, government financial policy and trade policy.”
Idem (p. 383): “Central bank governors should be appointed by the Dominion government in the
first instance.”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mr. McGeer (p. 503): “Nobody wants gold; nobody wants silver; nobody wants money of
intrinsic value, or money in any form other than in those minor denominations which are out of
pocket expenses. Now, my lord, in this country where there was no milk supplied on the relief
lists, we have developed wealth to the value of 30 000 million dollars. Our banker friends will
tell us there is no danger of inflating national currency in a country where there is only 200
millions of dollars in money and 30 000 millions of dollars in real wealth. But when you
examine what the banker does in the creation of his own purchasing power by using a printing
press to issue money which is not secured by gold under our Finance Act, my lord, and not
convertible into gold as a practical proposition even in the limited amount which is spent, they
adopt inflation in the issue of bank credit; by resorting to inflation the bankers’ action contradicts
the bankers economic theory. Now, my lord, I want to submit in all fairness that what we have
been pleased to call a “sound money system” is not a sound money system, but that it is a
thoroughly unsound credit “racket” and, my lord, the actual conditions which now exist today are
the inevitable results of the operation of that system. We could not have escaped under the
existing banking system, the depression which came upon us.”

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

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

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

Mr. McGeer (p. 523): “I wanted to show our position when we came to engage in the destructive
enterprise of war (WWI), that it was one of rather serious insolvency. We were not in a happy
position financially in our provincial government, in our businesses, or in the Dominion, but we
had in gold reserves 116 millions of dollars, and our bank deposits were 1 billion. They
increased, and in six years our total accumulation of bank deposits were more by about 125%.
Where did it come from ? Now, my lord, just compare that figure with the United States. When
we say that the United States banking system was such an unfortunate thing, when so many
bankruptcies were occurring and so many depositors were losing their money - I gave you the
figure of a decline of 26% in bank deposits; - when that was occurring, our bank deposits rose by
1929 to 2 600 millions of dollars, but in 1932 it had fallen to 1 800 millions of dollars. My lord
our depositor wealth has shrunk. 33% in Canada as against 26% in the United States. Now,
what is the meaning of that ? It means our bank system for probably not the same reason is not
as sound and stable as that of the United States, because the main defect I have mentioned, the
accumulation of an enormous foreign debt, has drained away, from our deposits in taxes and
interest more of their real wealth represented in accumulated deposits than has gone in the United
States. Whatever condemnation people may offer of the American banking system because of its
obvious defects, it should never set the Canadian banking system up as a mean of improving it,
because ours has infinitely more serious defects than it has, and the great defect, as I say, is that
failure to supply the means of providing long term credits internally for our provincial and local
governments as well as our public enterprise. I cannot emphasize too much this problem of our
debt. That is one picture which if I do not succeed in impressing upon you with anything else, I
do not want to impress upon you , Sir.”

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

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

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

Mr. McGeer (p. 604): “Taxes, tariffs and gold are relics, my lord, of the barbarous illiterate past.
They hold no place in an educated civilisation.”
Mr. C.E. Hope, Vancouver (p. 648): We all know that one of our troubles in Canada has been the
creation of fictitious credits which later were sold to the public, and it became based on bank
borrowing, and so forth. In other words, you borrow $100 and then call it worth $200 and then
sell it to the public for $200. That has been done over and over again and a good deal of this
$200 stuff was in form of a bond with a fixed interest bearing charge on it. That charge to my
mind is one of the major causes of the present depression. I cannot see why any private
corporation, even a bank, and certainly not anybody else, should be allowed to create fictitious
credit of that matter for it is really the same thing as money itself under present condition of
business and money.”

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

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

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

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

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

2) Such stability of prices has prevailed before the war due to the accidental fact that new gold
discoveries enabled gold production to keep pace roughly with general production. There is no
assurance that this will be so in the future.
The question of whether or not Canada should return to the gold standard when business revival
takes place must be determined by the action of other countries. Little could be accomplished by
independent action. But even the return to the gold standard would not preclude the necessity of
artificial control of bank credit. When Canada returned to the gold standard in 1926 the situation
differed greatly from that prior to 1914, not only in the changed distribution of the gold of the
world, but in the fact that the Finance Act of 1923 was in force. Some means of enabling the
banks to re-discount paper when necessary is required, but the Finance Act is open to the
criticism that it permits new Dominion notes to be issued to an unlimited amount without any
backing. As a result bank reserves ceased to fluctuate with the fluctuations of the country’s stock
of gold. A foreign exchange situation calling for the export of gold would be met by the banks
by the redemption of Dominion notes. But these notes could be replaced through the banks as
reserves, the loss of gold would not necessarily have the effect of reducing reserves. Thus the
only check on credit expansion would seem to be the banks’ inability to face further loans to their
satisfaction. My conclusion with respect to the Finance Act of 1923 is that the Act should be

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

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

Prof. Hewetson (p. 1064): “Yes.”

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

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

Sir Charles Addis, RCBC Board member (p. 1064): “In a Central Bank such as you suggest,
where the directorate and capital are both supplied by the government, might there be the danger
of removing the check upon undue public expenditure which a profit-earning bank might
exercise ?”
Prof. Hewetson (p. 1064): “Well, the Central Bank directors are supposed to consider public
welfare, and I do not think they would be doing that if they permitted or encouraged continuous
inflation of currency.”

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

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

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

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

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

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

Mr J. Boyd McBride, Barrister, Edmonton (p. 1093): “Directly and indirectly we say that the
abandonment of the gold standard will materially assist the people of this province in discharging
mortgages, interest loans and other charges and obligations many of which are going into default
at the present time.”
Mr. McBride (p. 1103): “The only way in which anyone could pay for debts is either by goods
and services or by gold. We cannot export gold, and if the creditor nations will not take goods
and services in part payment of the debt then of course the debt must be renewed, and I suggest
that a central bank might be more or less a sort of broker to handle all public finances until we do
tie up to some metallic standard and are able to import and export gold.”

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

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

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

Volume III

Mr. James A. Ross, Edmonton (p. 1235): “It is all the more necessary, therefore, while Canada is
not an international debtor in respect of war debts and reparations, that this subject be taken up.
We find ourselves confronted with this position, that our exports have shrunk because our
customers are subjected to the influence of these war debts and reparations due to other
countries. I am not naming any particular country because it is in everyone’s mind to whom I
refer, but I say this: that there is not a single breadline in the country, there is not a single
economic disaster from which we suffer, there is not a particle of exchange difficulties of which
the provinces and cities complain today that does not have its genesis directly in the question of
war debts and reparations, and for this reason: I bring this very shortly to your notice that you
may convey to the government of Canada, if it needs to be conveyed to them, that there is a
substantial body of opinion in this country which considers that the first and necessary aspect of
the world economic situation that requires to be brought to a head and settled immediately is the
question of international reparations. Until that is settled your work and your cure, and all our
national cures and parliamentary discussions will be of no avail. I bring this to your attention
particularly because it has not been emphasized in Calgary or Victoria, and it has been
completely overlooked here today.”
Mr. H.E. Nichols, Edmonton (p. 1243): “The issue of currency to carry on new public
improvements should be new money entirely without interest. The asset built up by the
application of the labour to the natural resources should be a sufficient asset to secure that money
should act in every respect as a new gold discovery would at the present time. A new gold
discovery would provide a base for the issue of new money, and similarly with the other, only the
one would be under control and not be subjected to chance like a new gold discovery.”

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

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

Year Total gold reserves Proportion of U.S. gold coin
1914 $94,625,639 $86,382,620
1918 $121,260,824 $75,785,665
1920 $101,101,970 $35,896,485
1924 $141,747,636 $77,173,105
1927 $130,732,564 $51,179,390
1928 $93,316,873 $31,018,970
1930 $96,212,102 $28,748,085
1931* $66,960,148 $4,270,780
*In 1931, there was a decrease in British gold coin of $12,897,762.

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

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

Mr. Bickerton (p. 1288): “I was always led to believe that it more or less was under government
control; that government had something to do with the flow of credit, and expansion of credit,
and the restriction of it. That, at least, the government should have sufficient power to restrict
one way or the other. I may be mistaken, but I was under the impression that the government had
sufficient power to be able to restrict or suggest a move toward expansion of credit. If it be true
that the government did have that power, then I suppose the Central Bank would be under the
control still of the government, and if my conception is right, it would appear to me that it is
simply a matter of moving the furniture from one room to another.”

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

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

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

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

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

Dominion Notes $6,921,243,40

Bank Notes $60,773,296,00
Deposits $2,152,659,277.00
Total $2,220,353,816.40
back of which there is no gold. So it is very evident that the gold standard is nothing more than a
banker’s deception, which has created the demand for the banker’s credit which is transferable by

Professor, W.W. Swanson, Saskatchewan University, (p. 1367-1370): “Therefore I believe that a
very essential and vital part of the duty of this Commission, if I may be permitted to say so, is to
explore the methods by means of which it would be possible to cooperate with other nations to
the extent of our power to bring about that result, that is, the return of the gold standard. My
reasons for favouring the restoration of the gold standard are briefly as follows: The disastrous
effects following on the abandonment of the gold standard upon international trade. Take the
British importer of our wheat. He has a double difficulty. He has not only the difficulty of
trading in units, but he sells in Great Britain. As you know a great part of our wheat goes over to
the Old Country on order and is diverted to the continent. There is the difficulty in regard to the
milling of wheat, and in addition there is the formidable difficulty of price changes from the time
the wheat leaves Canada until it reaches Europe, although to some extent that difficulty can be
offset by hedging operations and the like. But there is the difficulty of dealing with fluctuations
in the rates of exchange, and the combination of these two factors may be so serious as to
paralyse the free flow of trade and commerce between the old world and the new. Secondly I
submit that we should have a return to the gold standard even if in only a modified form because
it is essential for international investments. Canada is a borrowing and a debtor country, and
investors in this country I believe will require to know in what media or in what paper they are
going to be repaid. If we do not return to the gold standard it will be essential to tie up with the
pound sterling and make our Canadian debts payable in pound sterling or in American dollars.
Thirdly I believe that the gold standard has the best chance of again becoming a universal
standard for it provides the best safeguard against inflation and it also provides a reasonable
stability of prices over long periods of time. I would not like you to think that I do not realize
there is a case against the gold standard. That is provided by John Stuart Mill and other
distinguished economists in our own country and in the United States. I realize that gold, being
in itself a commodity cannot prevent price fluctuations, and sometimes when there is danger of
war for instance, it may cause very serious results. There is also a case against gold because of
the way it has been mismanaged, du to its maldistribution following upon nationalistic economic
policies in Europe and the United States. If, however, there is to be an attempt to remedy some
of these difficulties by international action, we shall require not only national but international
action. Probably it will be necessary, as Mr. Keynes suggests, to make use of the Bank of
International Settlements. Again there seems to be rivalry between New York, London, Paris and
Berlin in setting upon one of these great money markets for world clearing house purposes I do
not know but that raises a very big question. However, I mention it in passing. Mr. Keynes
himself believes that there should be a new money issue of five thousand million dollars made
available through the Bank of International Settlements and guaranteed by the nations of the
world as reserves for those debtor countries that require them in the reconstitution of their
banking structure. Or we may devalorize by mutual agreement, and if so, we shall require some
central authority in Canada to deal with these matters. If, however, the world is not soon to
return to gold we shall need a central authority to deal with questions of even greater complexity
because we shall be faced with a problem which, in my judgement, is a much more formidable
one than the management of gold, namely, the problem of a managed paper standard; and
secondly we shall be faced with the problem of deciding what shall be the realisation of our
currency to London on the one hand, and to New York on the other and thirdly the problem of
determining our relationship to a sterling exchange standard which is in actual existence today.”

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

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

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

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

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

Mr. Sanford Evans, Winnipeg (p. 1769): “Oh Mr. Brownlee, there was 57% more circulation of
money and credit in Canada in the month of June than in the month of February, with no
appreciable increase anywhere.”

Sir Thomas White, RCBC Board member (p. 1769): “No appreciable increase in price ?”
Mr. Evans (p. 1769): “Oh yes, Sir Thomas; I meant in credit resources.”

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

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

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

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

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

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

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

Mr. McWilliams (p. 1911): The Federal Reserve Banks of the United States - I am not talking
about the Federal Reserve Board - are definitely limited as to the dividend they may pay; they are
limited to six per cent dividends. Anything above that they are allowed to use to build up a
reserve up to the amount of their paid-up capital and over and above that ninety per cent of the
profits goes to the federal treasury and the other ten per cent to build up a further reserve.
According to the latest figures I say, seven of the federal reserve banks had reached that point and
had paid the treasury some $447,000,000. The record of the federal reserve banks as distinct
from the record of the federal reserve board in the United States is an excellent one. On the
whole the federal reserve banks throughout their history have proven a most valuable institution
in the Unites States, and they have greatly aided the banking business of the United States and
saved it from many of the evils that existed prior to that time. Contrast that with the position of
the federal reserve board.”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chairman MacMillan (p. 1913): “We are very much obliged to you for them.”
Mr. A.B. Rosevear, Young men’s section of the Winnipeg Board of Trade (p. 2015-2016): “It is
therefore our hope that Canada’s future financial policy will be guided by wise counsel and
sound methods of banking and public finance. In these days of economic disturbance, many
unsound theories and many radical proposals are being and will be advanced. We view these
unsound theories and radical proposals with alarm, believing as we do, that wealth can only be
created by sound work and sound business administration. Some advocate the printing of more
and more currency. The issuance of inconvertible paper money in large quantities resulting in
the confiscation of capital will, as it always has done in the past, bring about general chaos and
the working people will be the most affected in the long run. We do not desire revolutionary
changes in our banking system. We desire rather the correction of such weaknesses as exist and
the establishment of an even sounder credit structure than the one we now possess. We are
opposed to national ownership of commercial banks and we doubt the wisdom of national
ownership of a central bank in the event of one being established. Our grounds are that under
national ownership there may be a tendency for political expedience to outweigh sound finance.
We refer to two recent cases - the German currency experience of 1923 and the recent Australian
crisis. In the past there has been a tendency on the part of governments to keep a fictitious
prosperity going as long as possible. We are in favour of prosper government supervision of
banks, but not arbitrary and annoying interference.”

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

1) Inflation of credit: Such an inflation preceded the stock market collapse of 1929 and such an
inflation first Mr. Hoover and then President Roosevelt have hitherto vainly attempted to bring
about by utilising the Federal Reserve System to place credit at the disposal of the banks. You
can take a horse to the water, however, but you cannot make him drink. Inflation of credit is the
outcome of a mental state and the President may “call spirits from the vastly deep” in vain. To
bring about inflation of credit there must not merely be cheap money available but a prospect of
profit from its use. During the period of falling prices (just as in England between 1894 and
1896) businessmen say no such prospects, and now, under Mr. Roosevelt’s N.R.A. Act, rising
costs threaten to frustrate his efforts, just as falling prices did those of Mr. Hoover.”

2) Inflation of the currency: This is the easier and more dangerous form of inflation, i.e.
increasing the issue of inconvertible paper or fiat money. To this, it appears President Roosevelt
will be driven, and there is now a serious risk that Canada may be compelled to follow. Canada
has been off the gold standard since 1929. Her currency has since then been slightly depreciated
relatively to gold, but the depreciation only became serious when Great Britain was driven off the
Gold Standard in September 1931. The reason is obvious. Before that date Canada could settle
for her excess indebtness to New York by Bills on London drawn against her excess exports to
Great Britain. Since September 1931, the Bill of London has no longer meant gold. It is to be
noted that the effect of depreciation of a country’s currency on its foreign trade depends on how
the depreciation is brought about. There are two cases:
a) If (as with the British pound and the Canadian dollar) there is a specific depreciation of the
currency in terms of gold before there is any general depreciation compared with goods (i.e.
general rise in prices) then there is a stimulus to exports and a check to imports. This has been
illustrated by Canadian experience. The specific depreciation of our dollar has acted, so far, as a
stimulus to our exports to the States, through its influence in that direction has been counteracted
by high tariffs; and similarly it has tended to check imports from the United States. The still
greater specific depreciation of the pound sterling did tend to stimulate British exports to Canada
till counteracted by protective devices.

b) But if the general depreciation comes first through increased issues of paper, say Dominion
notes, before the premium on gold has appeared, there is actually a stimulus to imports and a
check to exports. The effect in either case is merely transitional. It exists only during the process
of depreciation. Once the adjustment has been brought about between prices and costs, including
incomes and the equilibrium has been restored between the general and specific depreciation of
the currency, the stimulus, or check, to industry variances. To get a continuing stimulus, or
check, to exports, the process of specific depreciation of the currency must keep ahead of the rise
in general prices. Further if export industries benefit during the process of specific depreciation
of the currency, those industries dependant on imports suffer; and in so far as these imports are
raw materials, the rise in their price may lessen even the temporary stimulus to the export
industry. The notion of any permanent benefit to the nation as a whole through inflation is but a
fen-fire gleam or will-o-the-wisp. The benefit of inflation to debtors, through lessening the
burden of fixed charges - so far as these have to be met in domestic currency is real, but the
injury to creditors is equally real where contracts have been made on the basis of the lower price
levels. Many contracts have already been readjusted while others are new, and very many date
from the pre-var (WWI) period when prices were relatively low. Deliberate inflation now might
cause as many inequities as it would cure. A natural and slow rise in prices may have a
beneficial effect, but a deliberate and rapid inflation would tend to destroy that sense of security
which is the basis of credit and of industry. The argument for raising the price level by artificial
means rests on the assumption that there is no likelihood of a natural rise; and of such a rise there
are already many indications. If this is so, it would seem unwise to enter on a policy of inflation
with all its risks, of which not at least is the difficulty of keeping it within bounds, with the
debtor class ever claiming that money is being kept scarce. The difficulty of setting a limit to
inflation is distinctly less in the case of a government like that of Great Britain, which is on
balance a great creditor country, than in the case of Canada. A few draughts of inflation may
afford an agreeable stimulus, but, like other stimulants, it tends to excess, with the inevitable
“morning after” and the financial headache associated with the retreat from the morass to the
solid ground of the gold standard; for to that standard we must in course of time return. Currency
inflation is to be clearly differentiated from expansion of credit by giving a shock to that sense of
security which is the basis of credit. It is the need for a reliable system of credit control that
furnishes the strongest argument for the establishment of a Central Bank or a banker’s bank in
Canada. (This subject has been and will be dealt with so fully by others that it need only be
briefly mentioned here.) The U.F.A. advocates formation of a nationally owned bank, to be
operated on a cost basis, yet the chartered banks are to hold no more than 40 per cent of the
issued capital, and to receive from the profits a maximum dividend of 6 per cent, cumulative; at
least of 0,5 percent, it will be observed, more than they are on the average receiving on their paid
up capital reserve funds and undistributed dividends. Such an institution, it is clear, would be too
closely dependant on what Adam Smith has termed “that insidious and crafty animal vulgarly
styled a statesman or politician”. The experience of the country, however, during the years
immediately preceding the collapse of 1929, furnishes convincing proof that the control of credit
and the price level cannot safely be left so directly as at present at the discretion of the
government. At a time when the gold reserve was shrinking rapidly, and the heads of several of
the chartered banks were issuing warnings against inflation; the Dominion note issue should have
been contracted. But, under the rediscount privilege introduced by the Finance Act of 1914 and
renewed in 1923, the note issue was in fact rapidly expanded, the notes being issued to the banks
against deposits of securities. This provided the necessary currency for prolonging the inflation
of credit and aggravating the collapse when it came. The practical difficulties arising from the
absence of a developed local money market, and an adequate supply of liquid securities suitable
for investment, will demand careful consideration, but could, I believe, be overcome. In any case
the Economic Advisory Committee suggested by Mr. M. C. Biggar, in his address to the
Canadian Political Science Association, scarcely seems a satisfactory substitute for a Central
Bank. It would leave ultimate direct control too much in the hands of the Government, always
liable to be influenced by non-economic considerations.”

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

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

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

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

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

Sir Thomas White (p. 2066): “I am just putting these questions to you because you have really
brought the matter up, and there are very important questions. There is another aspect which the
Chairman spoke of and it has given me some difficulty. Under the British North America Act
the various provincial legislatures are supreme within their own jurisdiction. The question of the
extent of their borrowing and where they will borrow, for instance, are matter within provincial
jurisdiction at the present time. Of course, if they borrow abroad, in New York or London, to
that extent they do affect the currency situation, but that is their right under the British North
America Act. One of the questions that has been raised during our investigation is as to how far
the provinces of Canada would be content to have their borrowing and financial policy
determined by a central bank no matter how constituted. That raises quite an important question
of provincial rights. I mention those two features because I think they should be considered at
the same time that these other questions which the Chairman has mentioned are considered. But
as I say, so far as I am concerned, I am trying to keep an entirely open mind on this question.
There are undoubtedly two sides to it, as I have indicated.”

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

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

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

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

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

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

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

Mr. C. Vaillancourt, Chairman of the “Federation des Caisses populaires du Quebec”, (p. 2299):
“To solve the depression one speaks, in certain quarters, of inflation; elsewhere, one hears of the
cancellation of debts. I am giving here my personal opinion but it seems to me that an honest
man who has economized all his life is entitled to more consideration. I refuse to believe that
conditions are such that honest, law abiding modest citizens should be bereft of his savings in an
orgy of ridiculous expense. It would appear to me that it would be better to reduce rates of
interest, and such a solution would be more appropriate with the actual cost of living and income.
It is to be noted that in our “Caisses populaires” interest is charged not on the initial amount that
is loaned, but quarterly, and reduced in proportion to the sums remitted. Our banks have already
been notified to reduce their rates of interest on loans as well as on savings.”

Mr. Vaillancourt (p. 2300): “One hears in certain quarters, of control of savings by the State. I
have little confidence in the State as a banker, but I believe that the State should help to protect
savings. Private initiative, however, should not be destroyed for the sake of a certain control, as
no control can ever replace a wise supervision. To prevent abuse by control of a certain nature is
the duty of the State, but each organization should be allowed to develop in its own sphere.”

Mr. Vaillancourt (p. 2311): “At the present time in Canada we have practically a Central Bank
and what has been proven in recent years is that not one bankruptcy has been noted owing to the
support that the various banks mutually offered. In Europe, where there is a Central Bank,
bankruptcies have been numerous. If Europeans conditions could prevail here it would be to no
advantage. Along the lines suggested by the Chairman, if a central bank should be established
for the benefit of the western provinces, I am at a loss to state what effect it would have here. As
the Honourable Mr. Stockwell suggested, I am afraid of political interference with a central bank,
so much so because we have experience of present conditions.”

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

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

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

Professor Gregoire (p. 2343): “Yes.”

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

Professor Gregoire (p. 2343): “Possibly so, and the reason I see is that some day organizations to
determine and regulate credit will be called upon to play a greater part than they really do today.
In some aspects it is the beginning of an International Central Bank. But what are the powers of
such an organization towards the American Government which desires to stabilize currencies the
world over ?”
Beaudry Leman (p. 2343): “It is possible that its means of coercion may be limited, but do you
not believe that contacts and friendly discussions might bring about advantageous results ?”

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

Mr. V. Gratton, Economist, Chambre de Commerce de Montréal, (p. 2364): “A Central Bank
would be under the control the Government and necessarily subject to political influence. In a
democratic country, government policies must be determined with an eye on the effect which
they may have on the electorate and in Canada, what is worse, on the effect which these policies
may have on certain particular sections of the electorate; and to subject the credit on monetary
policies of a Central Bank to such influences, would be courting disaster. A Central Bank would
be an expensive organism which would deprive the Government of the important source of
income it derives through the operations of the Finance Act and probably involve additional
expenditures. Under our present system, our banks have a direct interest in the expansion of
credit, provided such an expansion of credit, provided such an expansion can take place without
undue risks for them and, within the sphere of their operations, the banks have generally granted
adequate credit facilities. Should this function of expanding be turned over to a Central Bank,
necessarily subject to political influence, such expansion could not be carried on without
considerable risks of loss and we do not believe that it would be the proper function of a
government organization to assume such a function.”

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

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

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

Mr. Gratton, (p. 2381): “Yes, Sir.”

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

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

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

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

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

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

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

Mr. Gratton (p. 2382): “No, Sir.”

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

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

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

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

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

Mr. Gratton (p. 2390): “Yes, Sir.”

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

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

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

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

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

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

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

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

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

Mr. I.S. Henri, Montreal, (p. 2517): At this writing, gold of Canada should be sedulously
conserved at home, thought not necessary for home currency, but we have plenty of minable gold
to enable us to buy a few extras from those outsiders who still find some childish exchange value
in gold. Let our gold be put under lock and key by our own government for outside emergency
purposes only. It will serve to keep the financial invader out, for he never assists us, but bleeds
our own production for his outside uses. Let us get back to the old pioneering truth that nothing
does, nor can develop Canada economically but the bona fide residents at work here on the
production and distribution of the upkeep of the animal part of our life.”

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

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

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

Chairman MacMillan, (p. 2534): “I think if you would be good enough to put your views in
writing, Mr. Hammerly, we will be very glad to consider them. Will you do that for us and send
it on in the course of a few days to Ottawa ? I understand that a representative of the Woman’s
Conservative Association has arrived...”
Professor F. Vezina, University of Montreal, (p. 2553): “A Central Bank ought not to be
considered a panacea for all our evils. Several banks of this kind exist in different parts of the
world, their number being increased especially since the Conference of Brussels. In spite of that,
however, the economic situation has changed but little. We repeat that the solution of present
economic difficulties does not lie only in monetary measures, that is in the manipulation of
currency and credit.”

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

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

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

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

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

Mr. Glazebrook, (p. 2610): “Very.”

Sir Charles Addis, (p. 2610): “Before this depression took place, in the pre-war period, how in
fact was that stability accomplished ?”
Mr. Glazebrook, (p. 2610): “By the constant action of the exchanges, and the movement
backward and forward of gold.”

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

Mr. Glazebrook, (p. 2610): “Yes.”

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

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

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

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

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

Mr. Glazebrook (p. 2627): “Yes.”

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

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

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

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

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

Mr. Glazebrook, (p. 2649): “I believe that in the head office of the Federal Reserve Bank of New
York there are at least two or three men whom you might describe as of outstanding ability. I
think that Mr. -”
Sir Thomas White, (p. 2649): “I will not pursue that any further. I think those are all the
questions I have to ask, and I have at least got even with the University of Toronto for asking me
in any lifetime a great many questions.”

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

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

Professor Mitchell, (p. 2739): “As a matter of fact, on reflection it will be realized that, so far
from being detrimental to Canada, the absence of a central bank which raises or lowers its
discount rate as the necessity arises is the exact opposite. The Finance Act has enabled the
chartered banks to obtain the funds needed to allow them to meet the demands of business
without being under the necessity of raising their loan rates, when a central bank, in order to
conserve its gold reserve, would have been obliged to raise its discount rate. The mistaken
criticism of the working of the Finance Act arises from a false conception that compares the
banking practice in Canada with that of Great Britain. It seems to suppose that because, prior to
the suspension of Gold payments, the Bank of England “managed” its gold through the medium
of its discount rate, therefore there ought to be a central bank in Canada that would do the same
for the Dominion. It is needless to emphasize the fact that conditions in the two countries are
essentially different, and any comparison between the functions of the Bank of England and a
central bank in Canada are totally at variance.”

Mr. Gordon Cockburn, Chairman, Economic Committee, Economic Reform Association of

Toronto, (p. 2814): “The international gold standard was specifically designed to maintain a
stable exchange ratio between currencies at the deliberate sacrifice of the stability of internal
price levels over short and long periods. This system could only survive under conditions which
may have been approximated in the 19th century, but conspicuously absent since the war (WWI),
are not likely to be re-established.”

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

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

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

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

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

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

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

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

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

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

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

Professor Parkinson, (p. 2917): “No.”

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

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

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

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

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

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

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

Chairman MacMillan, (p. 2930): “It would be strange if world recovery were to be assisted by a
gold discovery as has happened twice I think in the history of the world.”
Mr. McCrae, (p. 2931): “We have an appreciation of the importance of the contribution of gold
in those circumstances.”

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

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

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

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

Dr. Gregory, (p. 3025): “I think I am right in saying that when the United States went of the gold
standard, power was taken under one of the numerous acts which have been passed since to
establish such an equalization fund, but one has not been established so far. It is notorious that
the United States could protect its currency very adequately by selling part of its enormous gold
holding in the open market, but I believe I am right in saying that England is the only country
with an exchange equalization fund.”
Sir Charles Addis, RCBC Board member, (p. 3029): “The remedy is really to be found in a
cooperative movement of the central banks, of which it is hoped Canada ill form one, to reduce
these extreme fluctuations, and eventually to arrive at stabilization of an international monetary

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

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

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

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

Dr. Gregory, (p. 3037): “I personally am one of the few economists in Great Britain who is still a
believer in the gold standard. I believe the whole experiment of competitive exchange
depreciation has been a disastrous mistake, and the world must correct that mistake at an early
date if a rational banking and currency policy is to be pursued anywhere. I must be frank and say
that many people do not agree with me. I personally would answer that question by an emphatic
Professor W.A. Mackintosh, Queen’s University, (p. 3056): “It would be expected that a debtor
country, a large exporter of raw products, would have been forced off the gold standard under the
severe strain of depression and panic. It was a fault in our monetary machinery, however, which
permitted our currency to depreciate as early as December 1928.”

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

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

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

Canada’s balance of international payments, gold coin and bullion:

Exports from, and imports into Canada (in thousands of dollars)
(p. 3166) 1928 1929 1930 1931 1932
Imports $39,659 $3,746 $34,062 $2,038 $2,175
Exports $107,614 $50,598 $25,343 $70,062 $60,825
Surplus Imports $13,719
Surplus Exports $67,955 $46,852 $68,024 $58,650
Mr. Jackson Dodds, Ottawa, (p. 3175): “In the more normal period when Canadian currency was
anchored to gold, international prices were automatically (although not necessarily to the full
extent), reflected in domestic prices. Under the gold standard, if the price of a particular
commodity declined during a period in which commodity prices in general remained stable,
producers of such a commodity received unmistakable intimation that the supply of that
commodity was not adjusted to demand and that they should govern themselves accordingly. In
cases where the lack of equilibrium was more than temporary (for example, a rapid increase in
productive capacity rather than a temporary condition of oversupply) anything the banks might
do to assist such producers would only delay the final day of reckoning if producers attempted to
disregard the relation between supply and demand. That is to day, the operation of the gold
standard, even if not wholly automatic, nevertheless imposes rigid restrictions upon the
movement of commodity prices particularly in a debtor country. We think it desirable to
emphasize that any attempt to raise domestic prices (whether the country is on or off the gold
standard) by measures designed to increase arbitrarily the volume of commercial credit in use, is
bound to disrupt the normal economic process in unpredictable directions and to cause
disequilibrium difficult to eradicate later.”

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

Mr. H.T. Ross, Ottawa, (p. 3257): “The Bank of England notes are secured at the moment by
practically fifty per cent of gold and fifty per cent of live securities. Every dollar of the Federal
Reserve notes in actual circulation and Federal Bank Notes in actual circulation is required to be
backed by gold and securities of the most liquid character. The Commonwealth Bank of
Australia has against its notes in circulation, for practically every pound of the issue, gold or
debentures and other securities interest bearing and furnishing the chief element of income to the
Commonwealth Bank. Based, therefore, on the precedents mentioned and for the reasons
advanced, the Government of Canada must redeem the $63,500,000 in the manner set out if the
new institution is to be upon a sound, stable basis, issuing a currency as acceptable as are the
Bank of England notes or Federal Reserve bank issues.”
Mr. H.J. Coon, Bank of Nova Scotia, Ottawa, (p. 3354): “If and when the gold standard is
restored internationally, we cannot expect it to work automatically without strain in an age as
unstable as our own. It will be maintained, if at all, only by means of cooperation between the
chief central banks; in other words, we shall have a managed gold standard. The establishment
of a central bank in this country would, it is claimed by its proponents, enable Canada to take part
in the joint enterprise of gold management. It is believed, however, that such cooperation as may
prove necessary could be arranged without the creation of a central bank.”

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

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

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

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