A NEW WAY FORWARD

In common with almost all countries of the world, Canada is affected by a complex of economic problems, of which the most outstanding are those of unemployment, price inflation, internal and international debt, trade competition, and business collapse.

At the same time, immense improvement in techniques of production, centred around the computer, the robot, and innovations in chemistry and microbiology, are offering to mankind the prospect either of an immensely increased standard of living - or of poverty as a result of unemployment.

The observation is made that modern manufacturing techniques involve immense expenditures on research and development ahead of production. Production itself takes place with a small labour force and large amounts of capital. Mass employment on the production of consumer goods, as distinct from capital developments, is becoming a thing of the past. This has created a situation where the total output of consumer goods in the economy at any time has become progressively less connected to the quantity of paid employment distributing incomes to potential purchasers during the same period of time. Therefore situation has arisen whereby an artificial pressure has been created throughout the world's economies to develop capital spending, including spending on armaments, for the major purpose of distributing incomes to workers rather than for any other valid economic or political reason.

The generally accepted use of bank credit (which is effectively the creation of new money) instead of personal savings for the purpose of financing capital needs, leads to increasingly violent swings of the trade cycle, to a heavy burden of personal, corporate and government debt and debt service charges, and to a lack of personal investment income to members of the general public. Certain changes to the existing fractional reserve system of banking are therefore suggested to correct this situation. Suggestions are also made for the electoral reforms necessary to make economic and political changes feasible under our Parliamentary system.

 
SUMMARY    .    .    .    .    .    .    .    .    .    Page  2

 INDEX     .    .    .    .    .    .    .    .    .    Page  3

 PRELIMINARY    .    .    .    .    .    .    .    .    Page  4

 ARGUMENT  .    .    .    .    .    .    .    .    .    Page  4

 THE WORLD OF THE 1980's  .    .    .    .    .    .    Page  6

 THE PROBLEMS WE FACE.    .    .    .    .    .    .    Page  6

 FLAT EARTH ECONOMICS.    .    .    .    .    .    .    Page  8
Unemployment    .    .    .    .    .    .    .    .    Page  8
Incomes    .    .    .    .    .    .    .    .    .    Page  9
Inflation  .    .    .    .    .    .    .    .    .    Page 10
The National Debt    .    .    .    .    .    .    .    Page 10
Foreign Trade   .    .    .    .    .    .    .    .    Page 11
Productivity and Competition   .    .    .    .    .    Page 13
Wealth and Money.    .    .    .    .    .    .    .    Page 14

 OUR MONETARY SYSTEM TODAY.    .    .    .    .    .    Page 14

 MONETARY INSTABILITY AND COST .    .    .    .    .    Page 23   
Instability.    .    .    .    .    .    .    .    .    Page 23
A distorted economy  .    .    .    .    .    .    .    Page 25
Cost  .    .    .    .    .    .    .    .    .    .    Page 27
Third world debt.    .    .    .    .    .    .    .    Page 29

 SOLUTIONS AND RECOMMENDATIONS .    .    .    .    .    Page 30
Monetary Stability   .    .    .    .    .    .    .    Page 30
Debt  .    .    .    .    .    .    .    .    .    .    Page 31
Foreign Exchange.    .    .    .    .    .    .    .    Page 32
Unemployment    .    .    .    .    .    .    .    .    Page 34
Business and the Environment   .    .    .    .    .    Page 35

 THE POLITICAL ASPECT.    .    .    .    .    .    .    Page 36

Recommendations .    .    .    .    .    .    .    .    Page 39


 APPENDICES.    .    .    .    .    .    .    .    .    Page 40

A.  Statistical Approach  .    .    .    .    .    .    Page 40
    Actual and calculated Price Index changes,1926-1962 Page 42
B.  Summary of recommendations .    .    .    .    .    Page 46

At the outset, I would like to express my pleasure that a Commission such as this has been set up.

Across the world today, and with distressing similarity to the Great Depression of the 1930's that struck the world some years after the boom that followed World War I, another Great Depression has begun to make its appearance. New technologies and immense progress in techniques of production should have made it possible to offer a fuller and more satisfying life for mankind than ever before - yet the chief reward to the average working person, whether blue collar or professional, has been the threat of lost employment and the poverty that derives from it.

"Poverty in Plenty" has once again become an everyday reality. Nothing could be more worth while at this moment in our nation's history than to seriously study the condition and the great potential of our nation and map out directions for the future, and your Commission, with the broad terms of reference it has been given, and the wide view it has taken of its responsibilities, will, I hope, prove a worthy vehicle through which this can be done.

The argument I wish to present is that the immense progress in techniques of production and national wealth that has been made since the commencement of the Industrial Revolution two hundred years ago has been the result of a number of factors such as specialization of employment, the use of power, use of tools of progressively more complex types, and particularly, the development of knowledge and skills that have enabled human effort to be applied with increasingly more potent effect.

This progress is essentially the development of a system whereby a single person, instead of working on his own in a large number of fields with limited output to satisfy his various desires and needs, works to turn out a large and specialized output of goods and services in a very limited field, exchanging his surplus with the surplus production of many different specialists in many different areas.

The key to the efficiency and increased production of wealth that comes from this specialization lies in the efficiency of the process of exchange. If the system of exchange is efficient, then an immense degree of specialization, both in human activities and in machinery to assist these activities, is possible. If it breaks down (and many factors can cause it to do so: shortage or loss of confidence in the medium of exchange, government taxes, controls or planning contrary to market influences, breakdown of law and order and respect for private property) the standard of living of a whole community can be impaired, sometimes very suddenly and very drastically.

The institution of an effective money system has proved over history to be the best means of providing a system of exchange where seller and buyer are able with a minimum of friction, and with a maximum of efficiency and satisfaction, to exchange wealth of one kind for that of another. The particular success of Western capitalism over the past two hundred years has stemmed from the development of an effective system of monetary exchange through its joint stock Banking system, which has provided a means whereby a supply of money (in the form of bank credit) has been made available for the development of capital and commerce, at far less cost than would have been the case if the money supply had depended solely on the supply of precious metals. Through the banking system, also, credit could be supplied in a quantity that the world's gold and silver supplies could never have matched. The built in possibility of bank failure prevented the unlimited expansion of credit, which would have the effect of destroying the bank before it destroyed the value of the monetary unit. This has rendered Bank credit frequently superior to state created fiat money (its principal rival for acceptance as the monetary unit) in the past.

The general acceptance of private banking as the means for supplying the nation with its money supply, which is particularly the case in Canada, should not blind us, however, to a number of its shortcomings. Some of these are:

1. Difficulty in accurately controlling the total of the nation's monetary mass.
2. The cost to the business community and the consuming public alike of interest on credit created by the banking system and used as the prime medium of exchange.
3. Difficulty in providing the economy with a sufficient monetary mass in times of recession when borrowing is unattractive or impossible from a business point of view.
4. An immense burden of National, corporate and personal debt, which cannot be repaid without cancellation of most of the country's money supply.
5. The possibility of excessive Bank influence in both the political and economic spheres, through favouritism in the supply of credit.
6. Capital financing for business from Bank sources rather than through personal savings, which leads to unhealthy debt/equity ratios, inflation in times of capital expansion, and devastating recession when it ceases.
7. Possible loss to the public and economic collapse arising from bank failure occurring through dishonesty, imprudent investment, or other cause.

   The suggestion is therefore made to the Commission that the supply of Canada's medium of exchange through the Chartered banking system should be controlled on the basis of a statistically calculated "fiduciary issue" of allowable Bank credit, rather than the present "fractional reserve" system, where the quantity of credit in circulation cannot be controlled other than by a vicious elevation of interest rates. It is further suggested that the activities of "near banks" - institutions of all kinds whose promises to pay, although not backed 100% by legal tender payable on demand, yet pass from hand to hand in settlement of debts - be similarly controlled.

   It is further suggested that the enormous cost of Canada's National Debt could by this means be almost entirely eliminated, since financing could be undertaken at cost (likely under 1% per annum) through the publicly owned Bank of Canada, once the threat of inflationary credit expansion by the chartered Banks under the fractional reserve ratio rules has been done away with.

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   THE WORLD OF THE 1980'S

   The preliminary outline of the Commission's work raises the question as to whether the troubles of the present time are merely temporary phenomena - or whether they are signs of a deep seated change in the nature of the economy itself.

   My reply to that question is certainly that we are at the beginning of a completely new era in the history of the human race: one that involves such a radical development of human capabilities that today's resources and social institutions will look as restricted and hidebound to future generations as those of the Middle Ages look to ourselves - but yet this does not mean that the ordinary rules of mathematics or of economics have been repealed, nor that the situation that we find ourselves in is completely without precedent.

   Perhaps the closest parallel to the conditions of this, the second Elizabethan era, is that of the time of the first Queen Elizabeth. In those days, the new frontier was the Americas: now it is outer space. In those days, the explosion of popular knowledge and informed communication was the result of the invention of the printing press: now it is that of radio, TV, telecommunications and the computer. In those days, acute inflation was the result of quantities of precious metals brought back from the New World: now, it is from the abandonment of the Gold Standard in favour of money existing chiefly as computer information. In the England of those days, there was widespread unemployment and a flight to the towns by those who had once been independent yeomen, as a result of the development of land-intensive sheep farming requiring little labour, and the enclosure of lands previously held in common. Today, the intensive use of capital in production, and the exhaustion of free "homestead" land that was previously the new place to start for the economic failures of our system, is also creating a pool of urban unemployed that it may be very difficult to dissipate.

   Another parallel with our times - they were ones of domestic violence, and international and civil wars. They were times when the conscience of individuals enlightened by the new learning fought against and eventually achieved freedom from the control that tradition could once maintain over the ignorant. We too, in the twentieth century, are going through our times of passionate conflict of nation against nation, class against class, and belief against belief. Perhaps we too, in our time, (nuclear war permitting) can hope to win through to a new age of reason, where scientific enquiry will replace unthinking passion in the discussion of social and economic questions. Perhaps this Royal Commission has a place in this process.

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   THE PROBLEMS WE FACE

   To itemize the most conspicuous economic problems we face, and have faced to a greater or lesser degree throughout most of this century, these are as follows:

   1. Unemployment. In many parts of Canada, and for many years, there have been substantial numbers of persons willing to work, but unable to find a suitable job. At times this could be rectified by movement to high employment areas. At other times - such as the '30's and the present, there are no areas of high employment. Besides the personal discouragement of the jobless, there is an obvious loss to the community of the output of services that the jobless could have provided to the community, had they been employed. At the present time, an unemployment rate of over a million persons, and the cost to the Federal government of unemployment insurance payments running into the billions of dollars a year, are matters of national crisis.

   2. Inflation. Apart from a time of marked price decline in Canada during the years of the 1930 depression, the level of consumer prices has been steadily rising in Canada throughout the period since World War I - and since World War II, has commenced to rise with alarming rapidity. In the past 25 years in Canada, the dollar has lost over 75% of its original value. Only extremely severe "tight money" policies, involving unprecedently high interest rates, and devastating effects in the health of business, have been successful in checking (but not entirely eliminating) this continual fall in the value of the monetary unit.

   3. National Debt. Since 1968, and particularly in the past two or three years, the federal deficit, and the cost of servicing it, has climbed to unprecedented levels - so much so that in this 15 year period, the amount of the federal deficit has climbed to a greater sum than the whole of the 1968 budget. Provincial and Municipal budgets are under similar stress, and the load that these deficits are placing on the capital markets of the nation in turn makes it difficult for this market to service the needs of business at economic rates.

   4. International Trade. Much of Canada's economic prosperity depends on finding overseas markets for primary agricultural and mining production. The acute budgetary problems of less developed countries makes the continuance of these markets problematic. Furthermore, the competition to Canada's industries from either hyper-automated industries such as those of Japan, or of low wage economies, such as those of Hong Kong, Taiwan and Korea, are creating devastating competitive pressures on Canadian manufacturers that perhaps cannot be measured up to within Canada except through either a return to "sweated labour", or a degree of tariff protection.

   5. The environment. A further problem which is going to be of greater and greater concern in the world as frontiers and undeveloped land become exhausted, is the contamination of the world's environment with waste of all kinds - organic waste, toxic gases, heavy metals, asbestos dust, radioactivity as well as insecticide and fertilizer residues and other forms of chemical pollution which could, if present trends are allowed to continue and if no proper countermeasures are taken, make the globe virtually uninhabitable within a short period of time. Environmental protection costs money, and the particular problem created by this situation is that, in a highly competitive world economy, the temptation is to cut corners and expenses by disregarding the problem - to the serious long term detriment of the human race. "Love Canal" and Minimata disease may only be the forerunners of even more serious horror stories in the future.

   "FLAT-EARTH ECONOMICS"

   When a problem goes unsolved in spite of many years of effort to find a solution, this often enough occurs because the framework of previously conceived ideas concerning the situation inhibits the radical change in viewpoint necessary to come up with an answer. Those who believe in Phlogiston, for instance, will never be able to understand the chemistry of combustion. Those who believe that the world is flat are incapable of understanding gravitation or the motions of the planets.

   Our lack of progress in finding solutions to economic problems of long standing, therefore, should by now be prompting us to consider whether it is some wrong preconception of the economic situation - equivalent to the belief that the earth is flat to a would be space explorer - which is preventing us from sailing out in a new direction and discovering a new world of economic prosperity. And in fact, inspection does reveal, around each of our major problems, a conventional wisdom of "flat earth" ideas which explains our lack of success. These fallacies can be listed.

   1. "That automation destroys employment". This is an untruth. A "job" is a standing order by an employer to an employee to supply him on a regular basis with one of the basic factors of economic production - human effort. With labour, as with any other of the traditional factors of production, demand is a function of price. Automation, giving more output at a cheaper price, naturally tends to replace the direct use of labour in production - but if the price of labour were to fall to zero - if people were willing and able to work for free - jobs would appear from everywhere: the demand for labour would become almost limitless. The surplus of unemployment that we see across the world today is not because there is no work to do. It is because labour cannot afford to work for employers at the price the employer can afford to pay, and at a price competitive with the machine for similar output.

      The problem is one of the price of labour. Most of us, if someone volunteered to work for us for free, would find no end to the useful work that could be done - care for the aged or for children and the sick, cleaning and improving the home, and when immediate needs had been satisfied, in scientific research, education, or other cultural activities! We might find servants to pump gasoline, wait on us in retail stores, butlers and maids - services which have almost passed out of existence as labour costs have brought in the "serve yourself" society of today.

      Unemployment is the failure of a potential worker to find some person willing to buy his labour, and the reason for unemployment is that the price of labour is too high compared with the resources of the employer to purchase it, and the value he can get from its use. This does not necessarily mean that Canada's million and a half unemployed should go back to work for starvation wages. However, if they did have alternative sources of income to supplement their wages, or if in some way, their living and especially their housing costs could be cut down, then wage rates could be reduced, involuntary unemployment could be eliminated, all without any sacrifice of the worker's standard of living.

      The above is of course purely theoretical. But it leads on to another "flat earth" fallacy.

   2. "That earned income is the only income." Karl Marx paints a picture of the proletariat sweating under the capitalists of his day, forced to supply the greatest output possible on a wage which is the minimum necessary to keep body and soul together. In the atmosphere of unrestricted free enterprise of his time, of course, the capitalist could hardly do otherwise, or under the "iron laws of economics" his enterprise would not survive. Similarly, in today's atmosphere of acute international competition for markets, Canada appears to be faced with the same dilemma - cut costs (including wages, and the government costs of the "welfare state") or go under. Already, this has been the justification for severe cutbacks in wages and social services in British Columbia - it has, too, been to a greater or lesser degree the policy of the governments of both the United Kingdom and the United States in the past two or three years.

      The purpose of the worker's income is to make available to him the food, clothing and shelter and other things he needs for a reasonable standard of living. The problem of the proletariat is not necessarily that it is underpaid, but that all it needs to survive in the world has to come from one single income source - the sale of labour. Yet the requirements of survival can come quite easily from several income sources, not just one:

      1. Ownership of consumption goods. Buying a car and paying the mortgage or the rent are two of the working person's greatest living expenses: in many cases they amount to between a third and a half of total income. Those who own these assets outright receive a tax free income of value from this ownership that costs nothing in money, yet which can enable them to live at a higher standard of living than their propertyless neighbours, even when their money wage is lower.
      2. Ownership of productive assets. This may be the increasingly rare species - the businessman or farmer who owns his own enterprise - or it may be an investor who, directly or indirectly, has a share in the ownership of profitable productive enterprises which bring him an income without him having to do a hand's turn of work. Some people may regard this as immoral. To me, it is a simple reflection of a phenomenon that has been with us ever since the Industrial Revolution. Output today comes primarily from the use of tools and machinery. Employment today comes chiefly from labour put out on the tools and machinery that will create the output at a future time. Investment is the tie by which those who go without consumption at one point, in order to make it possible to manufacture the tools of production, are paid off handsomely in the future when that production comes about without their labour being required.

      3. A third source of income is, of course, wages of labour, which will always have some, though not necessarily the first, place in the scheme of income distribution. In a world where labour demand is increasingly tied to capital development, which tends to create high demand for short periods of time only, wages for work become more and more unreliable as a person's major income source.

      4. Government handouts form a fourth source of income. They have a somewhat pejorative connotation, until we realize that these `handouts' reward Veterans and Senior Citizens with pensions, encourage mothers to bring up the next generation with Family Allowances, and stand between the unemployed worker and destitution in the case of Unemployment Insurance, to name only a few such programs.

      Incomes, in fact, can come from many sources other than employment - and the more they come from such sources, the more the price of labour can be lowered, and with that, the level of employment restored.

   3. "That inflation comes from governments printing money". This hoary piece of conventional wisdom continues to hold its ground in spite of the fact that the Government of Canada has not printed any money at all since the "shinplaster" went out of circulation in 1935. It is a fairy tale a little similar to that which blames inflation on "world conditions", sunspots, greedy capitalists and/or workers, or which says that "inflation is an incomprehensible plague that no-one can understand."

      The reason for this belief that, somewhere in the backrooms, "governments are printing money", in spite of a complete absence of all the evidence of it that a normal enquirer would expect - government printed paper money, for instance - must surely be, firstly, the obvious fact that there is much more money in circulation than there was, say twenty-five years ago, and secondly, another long standing fiction that Banks do not create money - they simply lend out their customers' deposits".

      If there is a vast increase in the money supply of the nation, and if the Banking system does not create this increase, we are almost forced back on the legend that Governments are printing money, in spite of a total lack of evidence that this is the case. On the other hand, once we accept the fact that the major part of Canada's money supply originates from credit created by the Chartered Banking system, which has the right to issue "promises to pay" which pass as money to a value of $1.00 for every five cents it holds in cash, then we can suggest that the proper dictum is that "Inflation is the result of the chartered banking system creating credit."

      Belief that this is in fact the case becomes stronger the more one vainly searches to find any depositor at any solvent bank who can say: "My money in the Bank is not available for me to use. The Bank has lent it out!"

      So, too, let us dispense with the fiction that the rate and manner in which consumer prices have been rising is beyond human comprehension. It is possible to demonstrate from the published statistics that the Consumer Price Index varies almost exactly in accordance with the following two factors:

      • Variations in the volume of money in the hands of consumers, and
      • The volume of retail sales.

      A more detailed analysis of the computation of this relationship applied to Canadian statistics appears as Appendix "A" to this brief.

   4. "That money cannot be created without the creation of debt." Incredible as it may seem, when the Federal Government finds its income running short in a year of recession when program needs are high and taxes cannot be raised, it considers no other alternative but to borrow the necessary shortfall.

      The process of borrowing involves the Government printing paper promises to pay in the form of Treasury Bills, which it sells at a discount, so giving an "effective yield" to the purchaser. Some of these Bills are purchased by the Bank of Canada, a highly profitable Crown Corporation, which gives either credit in its books or legal tender Bank Notes to the Government in exchange for these Bills. The remainder of these bills can be purchased by financial institutions such as Chartered Banks. Assuming that the Bank of Canada has purchased a sufficient number of Treasury Bills, and the Government has spent the proceeds of sale on its salaries and various programs, these will have been deposited in the Chartered Banks by the recipients. In very round figures, every million dollars so deposited gives the Chartered Banks the opportunity to buy twenty million dollars of Treasury Bills with "Bank Credit" - that is, with the Bank's own promises to pay. This Bank Credit is secured by the impeccable reputation of Canada for paying its debts. Twenty one million dollars that never existed before are now in circulation. Canada is in debt an additional twenty one millions of dollars, and the interest burden of this (unless paid off in the future) will be an annual charge of three million dollars or so in taxes on the Canadian people, year after year after year.

      Behind the promises of the commercial banks of this country, and giving us confidence in their ability to pay, stands the Bank of Canada. Its Bank Rate is an open offering to any bank in cash flow trouble to borrow from it at the stated rate. Behind the Bank of Canada stand the printing presses of the British American Bank Note Company, able to deliver legal tender money - almost the only legal tender money there is in Canada - in quantities sufficient to satisfy any conceivable demands for currency that the public might place upon it. Behind this paper of the Bank of Canada stands the law of the Canadian government - that the paper of the Bank of Canada is lawful money - legal tender for the settlement of debts. In financing the National Debt in the way it does, the Government is, at immense cost to the Canadian taxpayer, borrowing credit created by the Chartered Banking system which would be worthless paper if it were not for the Government's own guarantee that it will never allow the Banking system to fail.

      As an exercise in lunacy, this process takes the prize. It enables, for instance, insolvent Banks who have over-lent to insolvent Dome Petroleum Company to put together a package by which an insolvent Government will give them a guarantee, and all will be saved from failure. Canada must be the only place in the universe that three negatives can be assembled together and used to manufacture a positive!

      Once upon a time, the Canadian Government issued Treasury notes - without debt. Even now, through the Royal Mint, it issues Canada's coinage - without debt. Many nations, including particularly the early American colonies, issued paper money - without debt. Treated responsibly, it did not lead to runaway inflation. Adam Smith's "Wealth of Nations" seems to indicate that in the American Colonies, it led to prosperity far beyond that of the Britain of his day. The creation of a nation's money supply by borrowing it from the Chartered Banking system is a farce and an absurdity, which not only involves unnecessary levels of taxation and restriction of social services on the populace, but also prevents the economy having a sufficient supply of a cheap and credible medium of exchange to work at an optimum level of activity.

   5. "That prosperity depends on Foreign Trade". This is actually one of a number of fallacies centering around the foreign sector. Some others related to it are:
      • "We need foreign investment to set our industries to work."
      • "Unless we are competitive in international trade, we are doomed."
      • "Money is international, therefore Canada cannot follow an independent monetary policy in today's world."

      What confusion! Suffice to say that the firm attachment of Canada's monetary authorities to the policies of Washington in the recent period of inflation, coupled with extensive Canadian borrowing in the U.S.A. to protect Canada's exchange rate, has done more to destroy Canadian business, employment and prosperity in recent years than any other article of monetary policy in the past fifty years, home grown or imported.

      The Canadian people only work for Canadian dollars. An "inflow of foreign investment", therefore, is no more than the purchase by foreigners of quantities of Canadian currency with the foreign currency: the currency itself never crosses the national boundary. As was the case, for instance, in the Diefenbaker years, when U.S. investment in Canada's oil industry was at its height, the major effect of such investment is the flattering one of driving up the exchange rate of the Canadian dollar. This in turn makes Canadian industry uncompetitive in world markets. Foreign investment in Canada therefore becomes the way by which we sell out the ownership of our industries, at the price of our own unemployment.

      Money is not international - it is a call on the resources of the persons whose nation makes use of the money, nothing more. There is a real danger in all attempts to give the world an international currency, and equally, in removing all barriers to trade. The danger is one of speculation, and of competition. Speculation, because if a quantity of money can be moved from one end of the world to the other, faster than goods can be moved, artificial fluctuations of the price level (particularly of immovables such as real estate) can easily be achieved. Competition, because Canada is a country that will always have non-competitive overheads built into her productive system, arising from climate and from geography. If we cannot sell anything without meeting the keenest of world competition, we may as well close down all our industries - they are heading in that direction already!

      In fact, Canada should rather think in the reverse direction - that the area covered by her national banking system and her monetary unit may well be too big, leading to continual swings of prosperity as money moves between "have" and "have-not" provinces. The United States system of localized banking, and the success, for instance, of the Alberta Treasury Branch system in refloating the Alberta economy after the 1930's depression, may be indicators that localized and not too mobile forms of credit may be a valuable tool in preventing excessive swings in prosperity between the regions of the Canadian economy.

      Foreign trade is obviously also no complete source of answers to the world's problems of underconsumption. If domestic consumers are short of purchasing power, then of course it is attractive to try and sell abroad: this is not for the purpose of exchange of commodities, but to dispose of surpluses which otherwise will not find a market. There is really nothing Canada wants from the Soviet Union in exchange for its wheat - certainly not Lada cars! It is for this reason that credit is extended to foreign markets by almost all nations including our own on almost irrationally generous terms. But all nations cannot solve their problems of lack of market demand in this way. Those who do succeed in so doing - like the Japanese - can become the workshop of the world. Those who do not - and even those who do chiefly by export of raw materials with little labour content, like Canada - had better think of some better way of maintaining domestic employment levels.

      Those nations who invest substantially overseas - as was Britain's situation in Victorian times, and that of the U.S.A. more recently - obtain very beneficial economic results. Their investment itself creates an artificially low exchange rate for their currency, which in turn is extremely helpful in making them competitive in foreign markets. Canada's penchant for borrowing capital abroad is the very reverse of this, and extremely harmful to the national economy.

   6. "That Productivity and Competition are the key to economic renewal". The suggestion is often encountered that if only business would become more efficient and competitive, we would not lose the "international trade war", and could set our industries humming once again. This is another variation of the theme that foreign trade will solve all problems. This, however, is really just as practical a suggestion as saying that only the runner who can win the race should be allowed to run at all. Only hares are allowed to participate: tortoises are barred. Common sense tells us, however, that in terms of total distance travelled, the slowest tortoise can still add something to the achievements of the fastest hare!

      Productivity in our modern world means getting more production from fewer workers. The workers not required go on the scrap heap. In the case of the individual company, this of course spells efficiency. In the case of a nation, where the net result is half the working population out of work, and the other half working seventy hour weeks to avoid the same fate, the situation becomes ludicrous. There is no more productivity in having half a nation out of work and the rest working at 100% efficiency, than to have the whole nation only working at 50% efficiency. The social cost of the former is actually higher than that of the latter.

      Canada is a cold country with a scattered population. Moreover, her favourable endowment with natural resources means that, if these are the factor of production she best contributes on international markets, then other nations such as the Japanese will be the ones to add the labour and capital, and a competitive international environment will keep our unemployment level uncomfortably high. (Britain has had the same problem in dealing with the wealth coming from the exploitation of North Sea oil.) Efficiency may be all to the good - but cheapness is not necessarily the same as efficiency. How much must we pay in terms of degraded environment, lowered quality of life, poor housing, dangerous or unhealthy work environments, and general loss in the enjoyment of work itself, if competition decrees that unless we are cheaper than any, we have no right to exist as manufacturers at all?

   7. "That producing wealth produces money." A final and related misconception. The idea sometimes gets around that "If we produce more wealth we will have more money" - as if, for instance, growing a bumper wheat crop grew the dollar bills to buy it with. Of course this is untrue. The production of money is independent of the production of real wealth - and the bumper wheat crop simply leads to an "agricultural surplus" unless independent steps are taken to correct the monetary imbalance this "overproduction" causes.

   OUR MONETARY SYSTEM TODAY

   The key to an effective economic system is effective exchange, and the key to effective exchange is an efficient, credible and inexpensive monetary system. Canada does not enjoy such a system, and this is at the root of our economic problems. I would therefore now like to move on to outline the way in which our monetary system is functioning today - and how it could be made to function more smoothly.

   A monetary system can be examined from two standpoints:

   1. The source of the value of the credit of the nation as a whole, and
   2. The source and cost of creation of the different dollar units made use of to draw on this credit.

   The monetary mass - that is, the total volume of money of all kinds circulating in a country at a particular time - has value because at any single point of time in Canada, there will be persons and businesses of all kinds with specialized skills or products surplus to their requirements, which they wish to "put on the market". Even though they are owners of these skills and products, their interest is to find someone else willing to acquire ownership in exchange for dollars. The purpose of acquiring ownership of these dollars is in turn to exchange them for other products sold by other people, which the holders of the dollars with to take off the market for their own use.

   The time frame within which all this takes place, and during which the average dollar makes a single revolution from consumers to business, in savings, purchases and investment, from there back to consumers (including government) in wages, taxes, rents and dividends, and from there to the point of spending again, is essentially determined by social conditions - general frequency of wage payments, tax structure, personal spending, investment and saving habits, and so on.

   Nevertheless, as is set out in Appendix A, it is a remarkably constant percentage of total production. Statistics over many years show a total of currency outside banks and chartered bank deposits (M3) that does not generally vary outside the limits of a minimum of 35% and a maximum of 55% of Gross National Product. Put in another way, the time taken by the average dollar to pass through all the processes of the economy, from the time it is spent by the consumer to the time that the consumer is ready to part with it once again, varies from four to seven months, and is presently running fairly close to a six month, or 50%, ratio of money supply to annual G.N.P. Rarely is there violent fluctuation in this ratio from one year to another.

   This very definite value of approximately one half year's production constitutes what one writer has called the "virtual wealth" of the nation, and others the "public credit". It is the total value of all that Canadians are prepared to put "on the market" at one single point in time, for the sake of receiving dollars which give them the right to take other goods and services "off the market" when they are spent or invested later on.

   Note first, that this public credit is of an identifiable quantity, given certain information about social conditions, price levels and the like. Note secondly, that the whole value of the public credit is generated by the action of Canadians putting goods "on the market" in order to acquire Canadian dollars. It is not generated by the actions of the financial institutions which create these dollars.

   The value at any time of each Canadian dollar, regardless of its origin, is the quotient obtained by dividing the total value of Canada's public credit by the total number of the dollars contained in Canada's monetary mass. Increasing this number of dollars will tend to reduce the value of each individual dollar. On the other hand, shrinking the number of dollars will not always lead to falling prices and an increased value of the dollar. The manufacturer or farmer unwilling to sell below cost may instead shrink the size of the public credit by legally or illegally holding goods off the market, through cartels or marketing boards. Alternatively, he may go bankrupt or out of business. A shrinking supply of money will likely result in the nation's Gross National Product falling in real terms below the reasonably possible productive power of the nation expressed in physical terms.

   Based on this line of reasoning, a prudent government would surely cause the quantity of monetary units within Canada to be regulated in accordance with physical possibilities in the most precise and scientific manner possible, to prevent either inflation of prices or decline in economic activity. It is with a sense of shock that one examines the grab-bag of monetary units of different types and origins that in fact make up the monetary mass of Canada, and the blunt and ineffective instruments that are all that are presently available by way of control either of quality or quantity.

   Classically, Canada's money supply consists of coins, Bank of Canada Notes in circulation with the public, and Chartered Bank deposits.

   Coins are the most primitive form of money. Originally a state-certified weight of precious metal, they have degenerated over the years to base metal of no particular weight, drawing value from the stamp of the mint on their face. The Royal Mint turns out coins from metal purchased on the market. It makes a profit, if the face value of coinage produced exceeds the costs of production. Coins do not form a major part of the nation's total money supply.

   Bank of Canada Notes are distributed through the Bank of Canada, and are the basic form of "legal tender" money. They form around ten per cent of Canada's money supply. They are issued by the Bank of Canada in accordance with the policies of the Bank, in exchange for the debt either of the Federal Government or the chartered banking system. Because Bank of Canada notes are the major form of legal tender in the country, and the Bank Act requires chartered banks to hold prescribed reserves of legal tender (averaging perhaps 5%) as security that Bank Credit held by the public can be honoured in legal tender notes on demand, the volume of Bank of Canada notes, an of Chartered Bank deposits in the Bank of Canada, is the key instrument that the Bank of Canada has at its disposal in controlling the actual quantity of money in circulation in Canada at any time.

   A third type of money - which constitutes perhaps 90% of Canada's money supply - is Bank Credit. This is the "money in the bank" of all who have made deposits in chartered banks, or obtained a line of credit from them. Banking has descended in principle from the actions of the goldsmiths of the Middle Ages, whose notes, given as receipts for gold deposited with them by the public for safekeeping, passed into general circulation as money. Goldsmiths then began to issue more notes than the actual gold in their vaults, "banking" always on being able to satisfy the demands of depositors - something they were generally able to do unless they were destroyed by a loss of confidence and so by a "run on the bank".

   As time has gone by, the promises to pay of banks have been backed by less and less precious metal, to the point that nowadays, there is no gold whatsoever behind Canada's money supply, and the security to prevent bank failure has become the guarantee of the state-owned Bank of Canada to lend legal tender paper in time of need. There has been an actual transformation in the nature of money itself. Over hundreds of years, it has changed from solid, valuable metal of defined quality and quantity, to nothing else than information contained in the accounting records of a limited number of privately held corporations, backed in value by State fiat and a printing press - and the credulity of the Canadian people!

   Beyond Banking lie other, more shadowy forms of money which do not always appear in the statistics. Counterfeit money is prohibited by law, and in general is effectively suppressed. However Credit Unions, Trust Companies and Treasury Branches operate chequing accounts backed only partially by legal tender money, which have the same effect of inflating the national monetary mass as bank lending. Travellers cheques are prettily printed paper, passing as money, backed only by a promise to pay. The "plastic money" of a credit card is a promise by the grantor to make Bank Credit available on demand up to an assigned credit limit, backed by nothing except an estimate of demand. It adds to the monetary mass, yet is unrepresented in the statistics. Gresham's law, that "bad money drives out good", has indeed taken our monetary units a long way since the days when money was solid, measurable, and of intrinsic worth!

   MONETARY INSTABILITY AND COST

   The creation of Canada's money supply in this haphazard manner has two principal consequences. Both of these are becoming so much more oppressive at the present time, that they threaten economic collapse.

   The first of these is instability in the quantity of money in circulation, leading to uncertainty concerning the value of the dollar, and therefore concerning business profit levels, activity and costs.

   The second is the cost to the nation of a rented money supply, having regard to the fact that money originally owes its value, not to any value given it by the creating institution, but to the people who will give the real wealth of the public credit in exchange for it.

   (1) MONETARY INSTABILITY

   In a situation where the greatest amount of the nation's monetary mass is credit that has been created by the chartered banking system, the amount of that monetary mass is bound to be determined, not by the actual economic needs of the nation, but by the laws of "sound banking". The loans creating the nation's money supply will be made, not in accordance with the nation's economic needs but by the question of whether, from a banking point of view, they are soundly enough secured to give a proper return on investment.

   A positive economic outlook, with the prospect of increasing sales, steady and high levels of employment, and rising prices (which guarantee the soundness of security based on real estate) leads to conditions encouraging an expansionist bank lending policy. The credit so lent itself creates effective demand for products on the market, tending to the continuance and increase of these "boom" conditions. A situation of positive feedback develops, in which prosperity encourages lending, and lending creates prosperity, and, as Canada has recently experienced, it easily leads to a situation of runaway inflation.

   Conversely, if business is contracting, real estate prices are falling, unemployment is high, and business sales are slumping, then this is not the climate in which banks can be expected to lend. And the very reluctance of banks to lend in such an economic climate itself causes a contraction of credit, and conditions that make lending even more unwise from a banking point of view.

   A particular reason for this swing between boom and depression is the purpose for which business loans are advanced in the first place. It is commonplace in the business world for many items of capital - machinery, buildings, office equipment, vehicles and so on - to be financed either by direct bank borrowing, or indirectly, say by a lease agreement funded by bank credit. Suppose such a loan is for, say, an office computer system to lower costs by reducing staff. An initial study shows that the $300,000 capital cost of the computer amortized with interest at $10,000 per month over five years will replace staff presently employed for $20,000 per month. The financing of the system by bank credit creates new money which goes to the supplier of the system, and those who work on its assembly, during all the period that the system is being put together.

   Throughout this period, inflation is being caused, because a number of persons working in assembling this capital project are receiving incomes, but no new product is at that time coming on the market. Their pay packets, therefore, compete with those of all other consumers on the retail market, and tend to force up prices - particularly the prices of immovables, such as rents and housing.

   As soon as the system is assembled and installed, two sets of people lose their jobs. One set is the persons working on the manufacture of the equipment. The other is the office staff replaced by the new technology. Yet at the same time, the owners of the system are under an obligation to start paying back to the Bank the credit that has been advanced to them to purchase it, by sixty monthly instalments of $10,000. They are now trying to draw credit out of the market for cancellation, at the very moment when the market is suffering the loss of the incomes of the staff displaced by the completion and introduction of the new machine.

   This is not fanciful theorizing. In the heyday of the Alberta boom, a million dollars a day were pouring into Edmonton from the incomes distributed in Northern Alberta through the Fort McMurray tar sands project. Rents and property values were continually rising. The whole economy was carried along on a wave of euphoria. It seemed that every project would turn to gold, and good times would never cease. When the day came that the project was complete and most of the construction staff were laid off, and next when successor mega-projects such as the Alsands plant were cancelled, the economy turned downwards with lightning rapidity. What is of the greatest concern in looking at future trends, is that the ever increasing use of ever more expensive and efficient capital for productive purposes is likely to lead to ever more violent swings between boom and bust from this cause. The instability that comes from ninety per cent of the nation's money supply depending for its existence on there being a good economic climate for bank lending is too great an economic threat for any prudent government to allow, and demands new thinking.

   More than this, such a situation causes distortions in the economy. Projects are approved for action, often by desperate governments, for the reason that they give an excuse for the manufacture of bank credit. Hopefully, this will convert a downward deflationary spiral into an upward boom of business prosperity: (this is known as "priming the pump"). The economic worth of such projects is not their real motivation. Effectively, uneconomic projects are set on foot for the sake of their monetary consequences. All of them have one of two possible characteristics - either they distribute borrowed money to potential consumers, without at the same time placing consumer goods on the domestic market for sale, or else they reduce the amount of consumer goods coming on the market, relative to a stable quantity of purchasing power. Both of these courses have the effect of increasing money demand relative to quantity of product on the consumer market for sale. They increase the potential for business profit, and with profit, the potential for increasing credit creation and an upturn in the business cycle. This, however, is all at very serious cost in wasted resources and distortion of the economy. In the long run, the cure is worse than the disease!

   Every sector of the economy can be used on these makeshift recipes for prosperity:

   • The Government Sector
     • by setting up government authorized cartels to restrict production and so maintain prices of "surplus" commodities - agricultural and fisheries marketing boards in particular. Governments can also engage in
     • risky capital projects,
     • an inflated civil service,
     • deficit financing,
     • overseas loan guarantees, and that granddaddy of all economic revitalizers,
     • rearmament and war.
   • The Business Sector
     • with generous consumer credit,
     • with mega-projects financed by borrowing rather than investment,
     • with farm and businesses borrowing rather than making use of equity for capital expansion,
     • with aggressive selling in foreign markets for credit rather than accepting foreign goods in return:
     • by restrictive practices aimed at cutting down supplies in order to maintain profit levels by preventing "cutthroat competition".
   • The Personal Sector
     • by financing living and capital costs through borrowing, including car and home purchases on longer and longer terms and with lower and lower down payments than ever before.
     • By steering away from the old fashioned virtues of saving, economy and thrift, for the sake of immediate gratification in a "throw away" society.
   • The Foreign Sector
     • by exporting surplus products in exchange for foreign debt,
     • by discouraging "cheap foreign competition" that might disrupt manufactures at home.

   Every one of these nostrums yields a short term inflationary consequence which gives a little boost to the economy. My guess is that, repeatedly, they have been and will be recommended in briefs from many sources to your Commission. Yet every one of them gives its short term shot in the arm to the economy, at the expense of long term consequences of ever increasing severity.

   "Government interference" and "Government waste" are proverbial, so are "Government boondoggles" that over and over again have wafted millions of dollars to feed the sacred cows of full employment and economic development. Farmers ruined by land prices driven up by easy farm credit; ruined by quotas on production: food prices kept artificially high by marketing boards while the quarter of the population living below the poverty line goes without - culminating in the deliberate destruction of wealth as wheat is burned and coffee thrown into the sea. Consumers mired in a maze of "easy payments" for both the luxuries and necessities of life, living from payday to payday, and ruined if they lose their employment for as little as a couple of months. Businesses swinging on the teeter totter of highly leveraged financing, and the gradual but inevitable disappearance of the small entrepreneur and the independent middle class.

   Worse than all of these, the desperate need for all of the above to have yet another "fix" of credit, to stave off the always impending day when the "buy now - pay later" society has to start to pay.

   (2) COST

   The second factor is the cost to the world of renting most of its money supply from the chartered banks.

   The "Canadian Banker" magazine a while back carried an extract from the diary of Samuel Pepys, who flourished in Britain in the years of the Restoration, about 1660. He was describing in surprised delight the new institution of Banking, by which the smart investor, instead of paying the goldsmith for warehousing his valuables, opened an account, and was actually paid interest for having his money looked after!

   Who paid for Samuel Pepys' remarkable new service? Basically, the public did. Pepys leaving his gold with the banker enabled the latter to lend it out to a third party. Pepys had his "money in the bank" and the borrower took the gold. The borrower naturally paid interest on the loan. Pepys received interest on his deposit. The same money being (notionally) in the possession both of Pepys and of the borrower meant an increase in the monetary mass of the nation. All the holders of money in the nation, therefore, had the value of their holdings very slightly diluted. There was a profit to the Banker on the "spread" between borrowing and lending rates. There was a profit to Mr. Pepys, who at one and the same moment had both money in the Bank and an interest bearing investment. Yet the borrower also profited. His loan would be at a lower interest rate than that on capital that had had to be saved up. `Smart' bank financing put him ahead of conventionally financed competitors. All three parties gained, at the expense of the general public, the value of whose money was diluted through inflation of the monetary mass.

   Skipping forward three centuries (past events such as the South Sea Bubble, tulip mania, the Railway boom and the 1929 market crash) we find that the little spot of inflation that Mr. Pepys indulged in has become a universal way of life. The extensive capital development of Canada in the post World War II boom has been largely financed, not by personal savings and investment, but by the inflation of the money supply. This has left the thrifty who invested their little savings from the hard times of the Great Depression in mortgages, bonds and Life Insurance deprived of most of the rewards of their thrift, and has caused the profits of inflation to benefit all who could borrow, build, and then repay their capital in deflated dollars later on.

   I want to make it perfectly clear at this point that, although Banks are indeed one of Canada's most prosperous businesses in a time of general recession, the major profit from the business of banking does not go in "Billions (of usury) to the Bankers". The Banker runs a competitive business, and has to watch his "spread", his risk, and his costs extremely closely.

   The profit from Banking goes to those who at one and the same time are able to have an interest earning investment - their savings account - and use it as if it were ready money. Secondly, and on a much greater scale, profit goes to all who can make use for speculative purposes of the fluctuations in the price level that bank financing creates. The profits are made at the expense of the investment holding public whose money is losing value to inflation.

   If we are to prevent such profits being made at the public expense, then we must make it a law that in so far as money in the bank is a means of exchange, it should not and cannot be an interest earning investment. In so far as a Bank account is an interest earning investment, it should not be available also on demand to serve as money.

   During the past forty years, the position of the old fashioned, thrifty Canadian, who saved for his old age in conservative investments in a time of inflation, has been that of a lamb ready for the slaughter. The fortunes created in the times of inflationary boom have been at the expense of his diminishing capital. He is like someone who kept his money in a mattress and whose house is robbed. His power to buy has been taken away from him. More than that, because his money is gone, he has nothing with which to go shopping - to the financial detriment of the storekeeper who had hoped to sell to him. The economy eventually comes to a halt because the public's purchasing power has all been stolen by inflation.

   The long term result of Mr. Pepys' experiment is an economy where practically all money has come into existence as the result of bank lending. In order to have a money supply at all, houses, cars, furniture, businesses - anything on which money can be raised is mortgaged. Interest on this debt is a first charge against the profits or the cost of living of all the mortgagors. The rich, who dabble in money, get richer. The poor, who generally speaking can only get money by working for it, get poorer.

   An extension of this situation is the growing crisis of third world debt, caused by the extension of credit (debt!) to underdeveloped nations, through the activities of the International Monetary Fund and commercial Banks. The worst that the Social Credit Members of Parliament prophesied when they filibustered against the Bretton Woods agreement in December 1944 has come to pass. The extreme indebtedness of many national economies has not only brought these countries to ruin, but has even threatened the stability of the banks who lent on a large scale internationally to countries such as Mexico, Brazil and Poland.

   If Canada genuinely wished to aid Third World countries, and its own industries by providing them with export markets, how much more sensible it would be if Canada simply accepted the currency of third world countries into its own foreign exchange reserves in exchange for goods supplied. Canadians, if they found themselves with a surplus of foreign currency in their possession, would not be in a position to make impossible repayment demands on the debtor nation. They would simply have a large supply of its currency in their possession, which they could either spend on imported products, or use to invest on an equity basis in the development of the country in question.

   SOLUTIONS AND RECOMMENDATIONS

   Based on the foregoing analysis, let me now suggest some means of putting an end to the problems that were outlined at the outset of this brief. For the sake of logical progression, they will be outlined in a slightly different order.

   1. MONETARY STABILITY.

      
      
      • An immediate end must be made to the fluctuations in the quantity of our money supply. We do not have to live eternally with the results of the historical accident under which the rules of banking were invented. We do not have to let pass unchallenged the diversity of organizations who for private gain have taken it on themselves to create substitutes for money which circulate as effectively as legal tender.

      • The Economic Council of Canada, in consultation with Statistics Canada, should be given the responsibility to produce on a regular basis - probably monthly - a figure for the National Credit of Canada. This will be the figure, based on current production and employment potentials, for the quantity of money which the Council estimates will maintain a desirable and attainable degree of activity in the Canadian economy, without inflation of the price level.

      • A certificate for this figure - the total figure in the first place, and any changes upwards or downwards thereafter - should then be deposited by the Federal Government in the Bank of Canada. This will give that Bank authority to issue to the credit of the Federal Government in the Bank, a sum equal to the total amount so certified, less amounts of legal tender money - coins and Bank of Canada notes - already circulating with the public or held by banks.

      • Any institution dealing with the public, which promises to pay money on demand to members of the public in excess of legal tender at that time held by it, should be deemed to have borrowed against the Public Credit, and should pay interest at a rate which shall be a percentage of the amount of credit made use of. Either the rate should be fixed by the Federal Government, or it could be fixed by market forces through an auction similar to that presently held for the sale of Treasury Bills on Thursdays by the Bank of Canada. This auction, however, would be to determine how much financiers should pay the public for the use of the Public Credit - not how much the public should pay financiers for the servicing of the Public Debt.

      • The present system of fractional reserve banking (which, besides giving no protection against the Banking system's inherent liability to failure, gives no effective control over the quantity of money in circulation) must be replaced by a system whereby banks wishing to extend credit beyond their actual reserves will apply to the Bank of Canada to issue loans against the Public Credit, and will pay appropriately for this privilege. Other "near banking" institutions, and issuers of travellers cheques and credit cards, must similarly be required to pay interest to cover the reserves of Public Credit being held against the credit limits they extend.

      • Nothing in the above should be taken to restrict any institution from borrowing money from the public for definite periods of time, during which the investor has no right to its use, and lending this money out as a loan or investment. The public should, in fact, be encouraged to save, and banks encouraged to open "investment accounts" or make term certificates available to finance investment, for the express purpose of giving Canadians a stake in Canadian business, and providing capital and income for them from a source other than wage employment.
      • The surplus of Public Credit not otherwise taken up should be used to reduce taxes, increase social allowances and to repay the National Debt. It is recommended that some fixed proportion of this surplus be made available to both Provincial and Municipal governments, so as to help them in their urgent financial needs, and spread the monetary tokens representing the credit of the nation into all parts of the country.

   2. DEBT

      
      The entry of an asset of approximately $200 billions as a credit on the nation's books is bound to have an immense and immediate effect on the debt situation in Canada. If the federal government makes use of these funds to reduce the National Debt, then by that amount the burden of taxation to pay interest can be lightened. In any case, since financial institutions making use of the Public Credit will be required to pay for this privilege, there will be a steady income to government from that source, again reducing taxes.

      Pressure of government borrowing being taken off commercial markets will result in much easier financing conditions for Canadian business. There will also be a much greater effort to mobilize the savings of the private investor on a genuine long-term basis.

      Interest rates must no longer be used as instruments to "control" inflation. Since a tight control on the quantity of the medium of exchange in circulation can be counted on to maintain stable consumer prices, interest rates will in fact likely fall much closer to a "natural" level - that is, one that reflects the actual return on the money borrowed, after giving a reasonable reward to the entrepreneur for his enterprise. This will immensely reduce the cost of debt for homeowners, renters, landlords and other businessmen alike, and with it, the cost of living and the demands of wage earners for higher incomes.

   3. FOREIGN EXCHANGE

      
      
      • The Bank of Canada must abandon all attempts to "defend" a high exchange rate for the Canadian dollar, particularly if these involve foreign borrowing or high interest rates to encourage purchase of Canadian currency with foreign funds. A low exchange rate for the dollar in comparison with Canadian prices makes Canadian exports competitive, discourages importing goods that can be produced at home, and so greatly assists Canadian employment and business activity without the need for protective tariffs.
      • For the same reason, Canadians should be encouraged to invest abroad, and encouragement should not be given to foreign investment in Canada. Registered Retirement Savings Plans, for instance, could be permitted to invest in foreign securities without limit.
      • Foreign investment should be encouraged on an equity rather than a fixed interest basis. This means that the lender shares the risk of an unsuccessful investment, and avoids the pressure on a borrower nation of interest not balanced by productive and revenue earning investment.
      • Financing of aid to the Third World should not be by way of loan (even interest free) but by currency exchange. This is another means by which the lending nation can be put under pressure to assist the borrower to sell internationally, and so make the investment profitable to all participants, not simply the investor.

   4. UNEMPLOYMENT

      
      The cumulative effect of the policies outlined above will be to reduce unemployment.

      If the essence of the unemployment problem is that labour costs more than it can deliver in value, then unemployment can be helped by reducing the cost of labour through the following measures:

      • Greater government income and lower government costs from the handling of the Public Credit as an income earning national asset, leading to reduced taxes, and higher social and family allowances;
      • Capital projects becoming more economic as interest rates fall;
      • Industrial and agricultural demand becoming greater through a low foreign exchange rate policy;
      • Personal debts becoming reduced, and personal investment holdings increased, so encouraging personal initiative and entrepreneurship.
      • Retirement from the labour market of persons whose participation at the moment is the result of economic stress rather than desire.

      Economic stability, private investment, private avoidance of debt and private accumulation of capital assets, coupled with generally lower wage rates and lower levels of taxation, certainly are a way to encourage employment and prosperity for the world of the future, where much production is going to be carried out by machine. However, attention has to be paid in the here and now to those who do not now have the means to acquire those resources, to give them an additional source of income to supplement that derived from their labour.

      Even so small a matter as the mailing of income tax refunds in the third quarter of 1983 compared with the second quarter as was usual in previous years, has been enough to lead to an upturn in the economy strong enough to show in the statistics. This only goes to prove that nothing is more practical to solve the problem of poverty and business downturn than to provide consumers with dollars to spend, within the limits of economic prudence! Great progress has in fact been made in this century in this direction, by the institution of Old Age Pensions and Family Allowances. Lately, however, Social Assistance has become more directed to the "means test" approach, which pays an income that is cut off from anyone who attempts to help himself. It involves costs of administration of no benefit to the recipient, and is a demeaning and unsatisfactory method of making incomes available to those in need.

      • Some part of the money reflecting Canada's Public Credit must be paid to all citizens to supplement any other form of income they may have. Since the Public Credit is the reflection of Canadians' willingness to work for Canadian money, and paper money, which costs little to create, is simply the reflection of this credit, there is no reason why a "National Dividend" based on this credit should not be paid as a basic right to every Canadian resident. How much this should be and how it is to be paid must be a matter of social policy, but to the extent that it is paid, it will not only guarantee some basic living standard to all, but will also enable us greatly to simplify the present cumbrous apparatus of the Welfare State, by replacing other programs made unnecessary by this more comprehensive approach.
      • It is my profound hope that in addition to the above policies, the Commission will recommend a thoroughgoing overhaul of all Federal government programs which in any way involve interference by government in the operation of the private enterprise system determined in its actions by the mechanism of price. This includes tax incentives and disincentives, grants of all kinds for different purposes, marketing controls, tariffs, "make work" projects and a clutter of other "assistance" to business. Government is often enough not aware that the grasping of some new refinement of tax law, the filling in of yet another form, and the myriad of controls in this over-governed nation, in the end destroy the ambition of the entrepreneur, and with this, the jobs and the production which he otherwise would have achieved.

   5. BUSINESS AND THE ENVIRONMENT

      
      

      The final recommendation that I wish to make in this section of my brief is that Canadians leave this country to the next generation in the state they would like to find it.

      There are storm clouds on the horizon as far as the environment of Canada is concerned, and pretending they are not there for the sake of "economy", "profit" and "competitive cost" is an unwise way of preparing for the deluge to come. Some of the most important areas of concern are:

      • Exhaustion of agricultural and forest resources, through lack of soil management and reforestation procedures;
      • Exhaustion of non-renewable resources because of excessive consumption in a "throw away" society, and failure to recycle wastes;
      • Contamination of the atmosphere, particularly with dust and toxic gases;
      • Heavy metal contamination, of rivers in particular;
      • Toxic and radioactive waste disposal problems;
      • Chemical residues in the environment from industrial and agricultural activity.

      Governments who have made a serious effort to provide clean air and otherwise improve the environment, have proved that determined efforts are often remarkably successful. However, some "business oriented" Provincial governments have a bad record of shuffling the long term problems under the mat. It will be for the good of us all for this Commission to place the environment problem firmly on the national agenda. Let not Canada's be one more civilization that has begun in a forest - and ended in a desert!

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   - POLITICS -

   Although the principal thrust of this presentation has been on economic questions, I would like to make some comments at this point on the subject of the political process by which reform can be achieved.

   Much of what appears in this brief is not new. In essence, it was first presented to the Parliament of Canada when Major C.H.Douglas appeared before a Parliamentary committee sixty years ago in 1923. Since that time, the causes and cures of the financial woes of the country have been analyzed and presented to Parliament on innumerable occasions through the "Ginger Group" of the U.F.A., and after 1935, by the members of the Social Credit Association of Canada and the Social Credit Party of Canada, not to mention members with similar views from other parties. Regrettably, over all these years, the Social Credit Party has not been able to break through into the mainstream of national politics - and the economic disorders it has for so many years tried to correct remain uncorrected.

   In his "Decline and Fall of the Roman Empire", Gibbon makes the point that the continuing solidity of the structure of government in ancient Rome was tied in to the fact that all classes of persons - freed slaves, conquered peoples, foreigners and so on - were as a matter of policy always given the hope of having, either at once or in future generations, access to political office. The category of "citizen" was continually being enlarged through new blood. In the very brief history of the Athenian democracy, the reverse situation was taking place - the number of citizens directing the government of the city was actually shrinking. The lesson is drawn that a government will endure, and citizens will be loyal to it, so long as there exists a hope in the heart of the citizen that he or she will not be denied a chance of effective participation in the governing process.

   Canada should study this lesson with concern. Canada's federal Parliamentary system, as an exercise in participatory government for a democratic nation, is programmed for failure. Federal politics in Canada, for long stretches of time, is not even a two party, but a "one-and-a-half" party system. The "first past the post" system of electing members of Parliament by constituencies gives such enormous advantage to any party in office that to establish effective political representation of radically new thinking in Parliament is virtually impossible. Less than 50% of support from the voters will give a government an overwhelming Parliamentary majority when the opposition is divided, yet introducing new ideas through a new political party by definition involves creating such a division. The New Democratic Party, for instance, has been underrepresented in members elected contrasted with popular vote for many years because of this situation.

   If voters, however, aiming to further their new and radical ideas, join the major opposition party to "throw the government out", they create a new problem. They run the risk that their new ideas will be lost in the pursuit of political power. If the opposition succeeds in becoming the government, it will be quickly reduced to impotence because its electoral basis is such a grab bag of ideas, joined for negative rather than positive reasons, that it will be incapable when in government of formulating any policy directions acceptable to the majority of its supporters.

   The problems of the minor party become compounded as voters understand the system, and refuse to vote for a party they are interested in, but which they believe "doesn't have a chance". Add to this one other compounding factor - to achieve any success at all, the minor party has to concentrate its electoral effort in a very intense campaign in a limited area where there is a prospect of success. If successful, the party immediately runs the danger that all of its policies will be unduly influenced by the regional attitudes of those successful enough to become elected. This in itself makes development of national attitudes and cooperation within the party even more difficult.

   Not only minor parties are affected by this phenomenon. Despite quite creditable Conservative minorities in Quebec, and Liberal minorities in the West, the Parliamentary representation in Canada is almost 100% Liberal in Quebec, and 100% Conservative in the West. Western and Quebec regionalism are both fostered by the situation.

   Yet one further consequence of the situation is the immense power of party political machines in Canadian federal politics to influence the Parliamentary behaviour of Members. Members depend on party favour for nomination and for their livelihood after the next election, and the number of available parties is limited. It therefore requires more than ordinary courage in a Member to defy the dictates of his Party. No wonder that Members of Parliament often enough are seen to debate like children, feel themselves ineffective in their position, and are treated by the public and the Executive alike as "nobodies". Sturdy independence, and a care for country and constituents before party, are not encouraged by the system as we have it.

   The indirect consequence beyond this is a failure of members of the public at large, who seek some sort of change, to believe that this can be effectively carried out through party political action. How much of the terrorism of the FLQ, for instance, in the crisis of October 1970, came from the fact that Rene Levesque, taking the electoral route towards power through the Parti Quebecois, and in spite of gaining 24% voter support, had at that time lost his seat, and his party had gained only 7 seats in the Quebec National assembly? The position of native groups and other minorities similarly, under present conditions, makes it virtually impossible for them to have effective political representation of their particular positions and viewpoints in Parliament. This creates a situation of desperation: an open invitation to demonstrations and many forms of violent action in order to secure political recognition and change.

   The classic purpose of the Upper House in a bicameral legislature is to provide representation for minorities, whose political importance is not sufficiently recognized in a unicameral legislature with representation by population. Canada's Senate has never been effectively used for this purpose, although it well could be. Certainly, unless determined steps are taken to incorporate minority thinking into the processes of government in this country, we can expect a withering away of the Parliamentary system in Canada, and the further danger of such alienation of territorial, ethnic, political and economic minorities that these will be completely indifferent to the political future of Canada as a nation.

   RECOMMENDATIONS

   
   

   Three suggestions are made for changes in electoral law to rectify this situation.

   1. The size of Parliamentary constituencies should be increased so as to reduce the number of constituencies by 33%. One third of Parliamentary seats would then be voted on by the electorate "at large" on the basis of slates of their candidates prepared in preferential order by all recognized political parties. Voters would have two votes - for Party and for local member. The seats additional to those elected on a constituency basis would be allocated from these lists to each party running candidates in proportion to the number of votes cast for each party - about one seat for each 250,000 votes. This would have the effect of giving some representation to minority parties which do not have an established power base in a particular area. It would also enable established parties to fill in gaps in their territorial representation from this general list, contributing to a better balance of territorial representation for the government and major opposition party in all parts of the country.
   2. After this has been done, there should be redistribution of Parliamentary constituencies on a basis of "Number of square miles in Constituency plus number of electors equals 120,000". This would give systematically higher representation to rural areas to compensate for travel difficulties. In the South of Canada, it would make a small but not too noticeable change in the distribution of seats. However, it would have the effect of adding around 12 new seats to Parliament for different regions of the Northwest Territories, sufficient to give much more adequate representation to this important, ethnically diversified, rich, but lightly populated and very neglected area.
   3. One third of the seats of the Canadian Senate should be filled by appointment of Provincial governments. Another third should by selected to represent the most important minority groupings in the country. The remaining third of Senators could remain appointed by the Federal government as at present. This will strengthen the status and effectiveness of the Senate in protecting the position of minorities in Canada.

   APPENDIX "A"
   STATISTICAL

   The purpose of this Appendix is to give the statistical backing to maintain certain points advanced in the text of this brief. These are:

   1. That the quantity of dollars in circulation is related in a reasonably constant fashion to the amount of the Gross National Product. From this is deduced the concept that the path of the "average dollar" through the various sectors of the economy back to its original starting place is a measurable and reasonably constant period of between four and seven months. This concept is used as the basis for the proposal that the amount of the National Credit, expressed as a dollar figure, is a precise and ascertainable amount.
   2. That the changes in the Consumer Price Index over time in Canada have varied annually by a factor that reflects increases or decreases in the volume of money in the hands of the Personal and Government sectors of the economy, and decreases or increases in the volume of sales by the Business sector to Persons and Governments.

   The reason for the preparation of these tables is to justify, in a world where economists' explanations of inflation are more numerous than the angels on the proverbial pinhead, the old fashioned concept that inflation of prices is indeed related to "too much money chasing too few goods", and thereby justify the almost crudely simple proposals of this brief for control of inflation by quantitative control of the monetary mass.

   Figures for the quantity of business sales to governments and persons are taken directly from items 24(a) and (b) of Table 11 on Page 44 of "National Accounts, Income and Expenditure, 1926-1956", and continuation volumes. Figures for money supply are an average of the "Monthly Average" series for Currency and Notes in circulation plus Chartered Bank deposits (M3), supplied by the Bank of Canada (Statistical Summary Supplement, 1950 and continuation volumes).

   Determination of changes in the quantity of money held by persons and governments has been based on the following reasoning:

   Sector accounts show the flow of value from all the various sectors of the economy to each other, and each sector has an equal balance of value received and value spent. From these figures, totals of Gross National Product and Gross National Expenditure are prepared.

   We know, however, that these sectors are not in exact balance. Specifically, if the volume of money (credit) in circulation increases or decreases during a year, there will be an unexplained flow from the National Savings Account to or from the Business Sector or the Personal and Government sectors, or both.

   In the case of this flow to the business sector, this is represented by an item of "Residual Error". I am assuming that this is in fact not an error at all, but an actual imbalance caused by the creation or withdrawal of new money in the system, and its being held to a greater or lesser degree by the Business Sector.

   In the case of flow to the Personal and Government sectors, I note that the figure for National Savings is actually a residual figure, which will therefore mask with an error of its own any actual cash flows from increases or decreases in the money supply coming into the hands of consumers and government rather than business.

   The figure assumed to come to these sectors is therefore the total amount of new credit in circulation, plus or minus credit assumed to have passed into the keeping of the Business sector as disclosed by figures for residual error.

   As a commentary on this technique, I note that it implies that the National Accounts figures for personal savings in recent years of monetary expansion have been highly overstated. This, I believe, is true.

   ---

   Predictions of Price Level changes are based on the formula:

     
    I2 3D I1 x (S2 + M2 - M1 - RE2) / S2
   
   Where   I1 3D Price Index, Year 1
           I2 3D Price Index, Year 2
           S2 3D Total Sales to Persons and Governments, Year 2
           M1 3D Average Currency outside Banks and Bank Deposits, Year 1
           M2 3D Average Currency outside Banks and Bank Deposits, Year 2
          RE2 3D Total residual error expressed as a cash flow from        
                Savings to Business, Year 2.

   Pearson correlation of the above tables (where -1 indicates inverse correlation, 0 indicates no correlation, and +1 positive correlation) yields correlations as follows:

   Table I (relationship Money Supply to G.N.P.)             
      +.98
   Table II (predicted and actual variations in consumer price
                index, unaveraged)                                  +.52
   Table III (predicted and actual Consumer Price Indices)      +.97
   Table IV (predicted and actual variations in consumer price
                index: 3 year moving average)                       +.73
   

   ---

   TABLE I - QUANTITY OF MONEY CIRCULATING IN CANADA 1926-1982 AS A PERCENTAGE OF GROSS NATIONAL PRODUCT

   (1)     (2)      (3)       (4)                    (5)
         AVERAGE   GROSS   (2) AS A   PERIOD OF CIRCULATION (MONTHS)
   YEAR   MONEY   NATIONAL  PERCENT
         SUPPLY   PRODUCT   OF (3)  0....1....2....3....4....5....6....7
          (M3)
   1926  2153       5152     41.7   **************************
   
   1927  2283       5549     41.1   *************************
   1928  2458       6046     40.6   *************************
   1929  2498       6134     40.7   *************************
   
   1930  2326       5728     40.6   *************************
   
   1931  2270       4699     48.3   *****************************
   1932  2113       3827     55.2   **********************************
   1933  2098       3510     59.7   ************************************
   
   1934  2129       3984     53.4   *********************************
   1935  2249       4315     52.1   ********************************
   1936  2395       4653     51.4   *******************************
   
   1937  2557       5257     48.6   ******************************
   1938  2617       5278     49.5   ******************************
   1939  2798       5636     49.6   ******************************
   
   1940  3009       6743     44.6   ***************************
   
   1941  3361       8328     40.3   *************************
   1942  3786       10327    36.6   **********************
   1943  4583       11088    41.3   *************************
   
   1944  5410       11850    45.6   ****************************
   1945  6235       11835    52.6   ********************************
   1946  6908       11850    58.2   ***********************************
   
   1947  7222       13473    53.6   *********************************
   1948  7600       15509    49     ******************************
   1949  8265       16800    49.1   ******************************
   
   1950  8763       18491    47.3   *****************************
   
   1951  8759       21640    40.4   *************************
   1952  9307       24588    37.8   ***********************
   1953  9789       25833    37.8   ***********************
   
   1954  9931       25918    38.3   ***********************
   1955  10933      28528    38.3   ***********************
   1956  11414      32058    35.6   **********************
   
   1957  11489      33513    34.2   *********************
   1958  12545      34777    36     **********************
   1959  13210      36846    35.8   **********************
   
   1960  13291      38359    34.6   *********************
   
   1961  14165      39646    35.7   **********************
   1962  15208      42927    35.4   **********************
   1962  15981      45978    34.7   *********************
   
   1964  17202      50280    34.2   *********************
   1965  18996      55364    34.3   *********************
   1966  20441      61828    33     ********************
   
   1967  22874      66409    34.4   *********************
   1968  25749      72586    35.4   **********************
   1969  28492      79815    35.6   **********************
   
   1970  30081      85685    35.1   **********************
   
   1971  35156      94450    37.2   ***********************
   1972  40947      105234   38.9   ************************
   1973  47035      123560   38     ***********************
   
   1974  55578      147528   37.6   ***********************
   1975  66616      165343   40.2   *************************
   1976  69985      191857   36.4   **********************
   
   1977  87641      210149   41.6   *************************
   1978  105296     232211   45.3   ****************************
   1979  122951     264279   46.5   ****************************
   
   1980  140606     296555   47.4   *****************************
   
   1981  163183     339055   48.1   *****************************
   1982  173149     356600   48.5   ******************************
   
         AVERAGE   GROSS   (2) AS A   PERIOD OF CIRCULATION (MONTHS)
   YEAR   MONEY   NATIONAL  PERCENT
         SUPPLY   PRODUCT   OF (3)  0....1....2....3....4....5....6....7
          (M3)
   
   

   ---

   TABLE II - PREDICTED AND ACTUAL CONSUMER PRICE INDICES, 1926-1982

    (1)    (2)     (3)      (4)       (5)       (6)       (7)      (8)
         AVERAGE  SALES   RESIDUAL PREDICTED PREDICTED  ACTUAL   ACTUAL
   YEAR   MONEY   BY BUS-  ERROR   CP INDEX  % CHANGE  CP INDEX  CHANGE
         SUPPLY   INESS     (x2)   19493D100  IN CPI    19493D100  IN CPI
          (M3)
   1926  2153     3511     312       78.36               70.7
   
   1927  2283     3883     104       83.08     6.03      69.8     -1.27
   1928  2458     4306      82       88.04     5.97      70.4       .86
   1929  2498     4651     -55       87.76     -.32      71.2      1.14
   
   1930  2326     4475     -49       83.42    -4.94      70.4     -1.12
   
   1931  2270     3904    -228       77.35    -7.27      70.4       .00
   1932  2113     3296    -146       70.24    -9.19      64.2     -8.81
   1933  2098     3011    -154       66.30    -5.61      59       -8.10
   
   1934  2129     3219    -202       62.78    -5.31      56.6     -4.07
   1935  2249     3393    -199       61.32    -2.33      57.5      1.59
   1936  2395     3604    -142       61.38      .11      58.8      2.26
   
   1937  2557     3950    -141       61.71      .53      60.5      2.89
   1938  2617     3980     -77       61.45     -.43      61.5      1.65
   1939  2798     4064     -57       63.32     3.05      61.2      -.49
   
   1940  3009     4823    -197       63.51      .29      63.8      4.25
   
   1941  3661     5698    -149       65.77     3.56      68.3      7.05
   1942  3786     7703    -200       67.69     2.92      71.5      4.69
   1943  4583     7687    -262       72.40     6.96      73.5      2.80
   
   1944  5410     8054    -299       77.15     6.56      74.3      1.09
   1945  6235     7908    -395       81.34     5.44      75.2      1.21
   1946  6908     8398     -62       87.26     7.28      77.8      3.46
   
   1947  7222     10705     29       90.06     3.20      85.3      9.64
   1948  7600     11824    212       94.55     4.99      96.5     13.13
   1949  8265     13087     90      100.00     5.77     100.0      3.63
   
   1950  8763     14410      7      103.51     3.50     103.7      3.70
   
   1951  8759     16668    410      106.03     2.44     113.5      9.45
   1952  9307     18782     24      109.26     3.05     116.2      2.38
   1953  9789     20005   -159      111.02     1.61     115.8      -.34
   
   1954  9931     20759    105      112.35     1.19     117        1.04
   1955  10933    22424     76      117.75     4.81     117         .00
   1956  11414    24516   -259      118.81      .91     118.9      1.62
   
   1957  11489    26065    -46      118.94      .11     122.6      3.11
   1958  12545    27699   -359      121.94     2.52     125.8      2.61
   1959  13210    29366   -454      122.81      .72     127.3      1.19
   
   1960  13921    30760   -391      121.58    -1.01     128.5       .94
   
   1961  14165    32136   -284      123.81     1.84     129.3       .62
   1962  15208    34060    251      128.51     3.80     131        1.31
   1963  15981    36207     78      131.53     2.35     133        1.53
   
   1964  17202    38982   -101      135.31     2.87     134.7      1.28
   1965  18996    42305   -411      139.73     3.27     137.4      2.00
   1966  20441    46638   -364      142.97     2.32     141.9      3.28
   
   1967  22784    51125    -66      149.59     4.63     146.8      3.45
   1968  25749    56388    -20      157.17     5.06     152.9      4.16
   1969  28492    61733    886      166.41     5.88     158.8      3.86
   
   1970  30081    66957   -690      168.64     1.34     164.5      3.59
   
   1971  35156    73984  -1782      176.15     4.45     168.4      2.37
   1972  40947    82499   -380      187.70     6.56     175.1      3.98
   1973  47035    94315     89      199.99     6.55     187.9      7.31
   
   1974  55578   111204   1259      217.62     8.81     209.1     11.28
   1975  66616   130375    600      237.05     8.93     231.1     10.52
   1976  69985   149982  -1014      240.77     1.57     250        8.18
   
   1977  87641   166939  -2530      262.58     9.06     270.2      8.08
   1978  105296  184304      3      287.74     9.58     290.7      7.59
   1979  122951  204372   1224      314.32     9.24     317.7      9.29
   
   1980  140606  230211   2286      341.55     8.66     352       10.80
   
   1981  163183  261882   2222      373.89     9.47     392.6     11.53
   1982  173149  286994    186      387.12     3.54     435       10.80
   
    (1)    (2)     (3)      (4)       (5)       (6)       (7)      (8)
         AVERAGE  SALES   RESIDUAL PREDICTED PREDICTED  ACTUAL   ACTUAL
   YEAR   MONEY   BY BUS-  ERROR   CP INDEX  % CHANGE  CP INDEX  CHANGE
         SUPPLY   INESS     (x2)   19493D100  IN CPI    19493D100  IN CPI
          (M3)
   
   

   ---

   TABLE III - PREDICTED AND ACTUAL INDICES, 1926-1982

    (1)     (2)          (3) (log scale)                (4)      (5)
         PREDICTED           1        2           5   ACTUAL
   YEAR  CP INDEX   5        0        0           0   CP INDEX   YEAR
         19493D100   0........0........0...........0   19493D100
            (*)                                          (+)
   1926   78.36     ******
                    +++++                              70.7      1926
   
   1927   83.08     *******
                    +++++                              69.8      1927
   1928   88.04     ********
                    +++++                              70.4      1928
   1929   87.76     ********
                    +++++                              71.2      1929
   ----
   1930   83.42     *******                                      ----
   ----             +++++                              70.4      1930
                                                                 ----
   1931   77.35     ******
                    +++++                              70.4      1931
   1932   70.24     *****
                    ++++                               64.2      1932
   1933   66.30     ****
                    +++                                59        1933
   
   1934   62.78     ***
                    ++                                 56.6      1934
   1935   61.32     ***
                    ++                                 57.5      1935
   1936   61.38     ***
                    +++                                58.8      1936
   
         PREDICTED           1        2           5   ACTUAL
   YEAR  CP INDEX   5        0        0           0   CP INDEX   YEAR
         19493D100   0........0........0...........0   19493D100
            (*)                                          (+)
   1937   61.71     ***
                    +++                                60.5      1937
   1938   61.45     ***
                    +++                                61.5      1938
   1939   63.32     ****
                    ++++                               63.8      1939
   ----
   1940   63.51     ****    (WAR & PRICE CONTROLS)               ----
   ----             ++++                               63.8      1940
                                                                 ----
   1941   65.77     ****
                    +++++                              68.3      1941
   1942   67.69     ****
                    +++++                              71.5      1942
   1943   72.4      *****
                    +++++                              73.5      1943
   
   1944   77.15     ******
                    ++++++                             74.3      1944
   1945   81.34     *******
                    ++++++                             75.2      1945
   1946   87.26     ********
                    ++++++    (END OF PRICE CONTROL)   77.8      1946
   
         PREDICTED           1        2           5   ACTUAL
   YEAR  CP INDEX   5        0        0           0   CP INDEX   YEAR
         19493D100   0........0........0...........0   19493D100
            (*)                                          (+)
   1947   90.06     ********
                    +++++++                            85.3      1947
   1948   94.55     *********
                    +++++++++                          96.5      1948
   1949  100.00     **********
                    ++++++++++                        100        1949
   ----
   1950  103.51     **********                                   ----
   ----             ++++++++++                        103.7      1950
                                                                 ----
   1951  106.03     **********
                    +++++++++++                       113.5      1951
   1952  109.26     ***********
                    +++++++++++                       116.2      1952
   1953  111.02     ***********
                    +++++++++++                       115.8      1953
   
   1954  112.35     ***********
                    ++++++++++++                      117        1954
   1955  117.75     ************
                    ++++++++++++                      117        1955
   1956  118.81     ************
                    ++++++++++++                      118.9      1956
   
         PREDICTED           1        2           5   ACTUAL
   YEAR  CP INDEX   5        0        0           0   CP INDEX   YEAR
         19493D100   0........0........0...........0   19493D100
            (*)                                          (+)
   1957  118.94     ************
                    ++++++++++++                      122.6       1957
   1958  121.94     ************
                    ++++++++++++                      125.8       1958
   1959  122.81     ************
                    +++++++++++++                     127.3       1959
   ----
   1960  121.58     ************                                  ----
   ----             +++++++++++++                     128.5       1960
                                                                  ----
   1961  123.81     ************
                    +++++++++++++                     129.3       1961
   1962  128.51     *************
                    +++++++++++++                     131         1962
   1963  131.53     *************
                    +++++++++++++                     133         1963
   
   1964  135.31     *************
                    +++++++++++++                     134.7       1964
   1965  139.73     **************
                    ++++++++++++++                    137.4       1965
   1966  142.97     **************
                    ++++++++++++++                    141.9       1966
   
         PREDICTED           1        2           5   ACTUAL
   YEAR  CP INDEX   5        0        0           0   CP INDEX   YEAR
         19493D100   0........0........0...........0   19493D100
            (*)                                          (+)
   1967  149.59     ***************
                    +++++++++++++++                   146.8       1967
   1968  157.17     ***************
                    +++++++++++++++                   152.9       1968
   1969  166.41     ****************
                    ++++++++++++++++                  158.8       1969
   ----
   1970  168.64     ****************                              ----
   ----             ++++++++++++++++                  164.5       1970
                                                                  ----
   1971  176.15     *****************
                    ++++++++++++++++                  168.4       1971
   1972  187.70     ******************
                    +++++++++++++++++                 175.1       1972
   1973  199.99     *******************
                    ++++++++++++++++++                187.9       1973
   
   1974  217.62     ********************
                    +++++++++++++++++++               209.1       1974
   1975  237.05     *********************
                    ++++++++++++++++++++              231.1       1975
   1976  240.77     *********************
                    +++++++++++++++++++++             250         1976
   
         PREDICTED           1        2           5   ACTUAL
   YEAR  CP INDEX   5        0        0           0   CP INDEX   YEAR
         19493D100   0........0........0...........0   19493D100
            (*)                                          (+)
   1977  262.58     **********************
                    ++++++++++++++++++++++            270.2       1977
   1978  287.74     ***********************
                    +++++++++++++++++++++++           290.7       1978
   1979  314.32     ************************
                    +++++++++++++++++++++++++         317.7       1979
   ----
   1980  341.55     **************************                    ----
   ----             ++++++++++++++++++++++++++        352         1980
                                                                  ----
   1981  373.89     ***************************
                    +++++++++++++++++++++++++++       392.6       1981
   1982  387.12     ***************************
                    +++++++++++++++++++++++++++++     435         1982
   
   

   ---

   TABLE IV - PREDICTED AND ACTUAL INDEX CHANGES, 1926-1982 (CHART)

                     (3 year moving average 
   display)
   
             PREDICTED % CHANGE            ACTUAL % CHANGE
           1  minus  0  plus   1        1  minus  0  plus   1
   YEAR  ..0....5....0....5....0..    ..0....5....0....5....0..
           |    |    |    |    |        |    |    |    |    |
   1927  **|****|****|****|*   |6.03  **|****|****|    |    -1.27
   1928  **|****|****|****|    |3.89  **|****|*****    |    | .24
   1929  **|****|*****    |    |0.24  **|****|*****    |    | .29
           |    |    |    |    |        |    |    |    |    |
   1930  **|****|*   |    |    -4.18  **|****|*****    |    | .00
           |    |    |    |    |        |    |    |    |    |
   1931  **|*** |    |    |    -7.14  **|****|**  |    |    -3.31
   1932  **|*** |    |    |    -7.36  **|****|    |    |    -5.64
   1933  **|*** |    |    |    -6.71  **|*** |    |    |    -6.99
           |    |    |    |    |        |    |    |    |    |
   1934  **|****|*   |    |    -4.42  **|****|*   |    |    -3.53
   1935  **|****|**  |    |    -2.51  **|****|*****    |    -0.07
   1936  **|****|****|    |    |-.56  **|****|****|**  |    |2.25
           |    |    |    |    |        |    |    |    |    |
   1937  **|****|*****    |    |0.07  **|****|****|**  |    |2.27
   1938  **|****|****|*   |    |1.05  **|****|****|*   |    |1.35
   1939  **|****|****|*   |    |0.97  **|****|****|**  |    |1.80
           |    |    |    |    |        |    |    |    |    |
   1940  **|****|****|**  |    |2.30  **|****|****|****|    |3.60
           |    |    |    |    |        |    |    |    |    |
   1941  **|****|****|**  |    |2.26  **|****|****|*****    |5.33
   1942  **|****|****|****|    |4.48  **|****|****|*****    |4.85
   1943  **|****|****|*****    |5.48  **|****|****|*** |    |2.86
           |    |    |    |    |        |    |    |    |    |
   1944  **|****|****|****|*   |6.32  **|****|****|**  |    |1.70
   1945  **|****|****|****|*   |6.42  **|****|****|**  |    |1.92
   1946  **|****|****|*****    |5.31  **|****|****|*****    |4.77
           |    |    |    |    |        |    |    |    |    |
   1947  **|****|****|*****    |5.16  **|****|****|****|****|8.74
   1948  **|****|****|*****    |4.65  **|****|****|****|****|8.80
   1949  **|****|****|*****    |4.75  **|****|****|****|**  |6.82
           |    |    |    |    |        |    |    |    |    |
   1950  **|****|****|****|    |3.90  **|****|****|******   |5.59
           |    |    |    |    |        |    |    |    |    |
   1951  **|****|****|*** |    |3.00  **|****|****|*****    |5.18
   1952  **|****|****|**  |    |2.37  **|****|****|****|    |3.83
   1953  **|****|****|**  |    |1.95  **|****|****|*   |    |1.02
           |    |    |    |    |        |    |    |    |    |
   1954  **|****|****|*** |    |2.54  **|****|*****    |    |0.23
   1955  **|****|****|**  |    |2.30  **|****|****|*   |    |0.89
   1956  **|****|****|**  |    |1.94  **|****|****|**  |    |1.58
           |    |    |    |    |        |    |    |    |    |
   1957  **|****|****|*   |    |1.18  **|****|****|**  |    |2.45
   1958  **|****|****|*   |    |1.12  **|****|****|**  |    |2.30
   1959  **|****|****|*   |    |0.74  **|****|****|**  |    |1.58
           |    |    |    |    |        |    |    |    |    |
   1960  **|****|****|*   |    |0.52  **|****|****|*   |    |0.92
           |    |    |    |    |        |    |    |    |    |
   1961  **|****|****|**  |    |1.54  **|****|****|*   |    |0.96
   1962  **|****|****|*** |    |2.66  **|****|****|*   |    |1.15
   1963  **|****|****|*** |    |3.01  **|****|****|*   |    |1.37
           |    |    |    |    |        |    |    |    |    |
   1964  **|****|****|*** |    |2.83  **|****|****|**  |    |1.60
   1965  **|****|****|*** |    |2.82  **|****|****|**  |    |2.19
   1966  **|****|****|*** |    |3.41  **|****|****|*** |    |2.67
           |    |    |    |    |        |    |    |    |    |
   1967  **|****|****|****|    |4.00  **|****|****|****|    |3.63
   1968  **|****|****|*****    |5.19  **|****|****|****|    |3.82
   1969  **|****|****|****|    |4.09  **|****|****|****|    |3.87
           |    |    |    |    |        |    |    |    |    |
   1970  **|****|****|****|    |3.89  **|****|****|*** |    |3.27
           |    |    |    |    |        |    |    |    |    |
   1971  **|****|****|****|    |4.12  **|****|****|*** |    |3.31
   1972  **|****|****|****|*   |5.85  **|****|****|*****    |4.55
   1973  **|****|****|****|**  |7.31  **|****|****|****|*** |7.52
           |    |    |    |    |        |    |    |    |    |
   1974  **|****|****|****|*** |8.10  **|****|****|****|***** 9.70
   1975  **|****|****|****|*   |6.44  **|****|****|****|***** 9.99
   1976  **|****|****|****|**  |6.52  **|****|****|****|**** 8.93
           |    |    |    |    |        |    |    |    |    |
   1977  **|****|****|****|**  |6.74  **|****|****|****|*** |7.95
   1978  **|****|****|****|****|9.29  **|****|****|****|*** |8.32
   1979  **|****|****|****|****|9.16  **|****|****|****|****|9.32
           |    |    |    |    |        |    |    |    |    |
   1980  **|****|****|****|****|9.12  **|****|****|****|****|* 10.54
           |    |    |    |    |        |    |    |    |    |
   1981  **|****|****|****|**  |7.22  **|****|****|****|****|* 11.04
   1982  **|****|****|*** |    |3.54  **|****|****|****|****|* 10.80
           |    |    |    |    |        |    |    |    |    |
             PREDICTED % CHANGE            ACTUAL % CHANGE
           1  minus  0  plus   1        1  minus  0  plus   1
   YEAR  ..0....5....0....5....0..    ..0....5....0....5....0..
   
   

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   APPENDIX "B"
   SUMMARY OF RECOMMENDATIONS

   
   

   I. ECONOMIC

   1. Control of monetary volume by quantitative control rather than interest rate manipulation.

   2. Quantity of the "Public Credit" to be certified to the government regularly by the Economic Council of Canada and/or Statistics Canada.

   3. The consequent Certificate of Public Credit to be deposited as an asset of the Federal Government in the Bank of Canada, and all forms of money issued in Canada to be entered as a debit against this account.

   4. Institutions promising to pay money to the public on demand in excess of actual currency reserves held by them to pay interest for use of the Public Credit.

   5. "Fractional Reserve" Banking to be replaced by this system of credit control.

   6. No restrictions on term investments in Banking institutions, where money is not repayable except on a fixed future date, and this money is loaned out on similar repayment terms.

   7. Money (less amount of money and credit already in circulation) may be drawn from the Bank of Canada for Federal Government use up to the limit of the Public Credit as certified.

   8. Such money to be used to reduce National, Provincial and Municipal debt and taxes, and finance government transfer payments.

   9. Federal Government borrowing on the commercial market to cease.

   10. Interest rates to be set by market forces.

   11. A policy of low foreign exchange rates for the Canadian dollar.

   12. Encouragement of Canadian investment abroad.

   13. Equity preferred to debt as the vehicle for foreign investment.

   14. "Currency Swaps" with underdeveloped nations to avoid burdening them with debt from foreign loans.

   15. A policy to supplement wage incomes by the following means:

   • Reduction of personal taxes;
   • Reduction of personal debt costs;
   • Encouragement of personal savings and investment;
   • A guaranteed basic income to all regardless of employment, in the form of a "National Dividend" paid on the Public Credit.

     16. Overhaul of federal taxation and business incentive policies, to eliminate obstacles to efficient business operation.

     17. Abandonment of welfare policies based on a means test in favour of those which do not discourage self-help.

     II. POLITICAL

     18. One third of House of Commons seats to be elected "at large", by party rather than constituency.

     19. House of Commons redistribution formula to include both area and population factors, so giving substantially increased representation to rural regions and Northern Canada.

     20. Senators to be appointed one third Federally, one third by Provincial Governments, and one third to represent important Canadian minority groups.

     ---

     [NOTE:
     Although the general situation in the Canadian economy, and the underlying causes and solutions to its problems, have not changed substantially in the years since the original drafting to this paper in 1983, the following matters should be noted:

     1. The Economic Council of Canada has been dissolved.

     2. Canada's National Credit has increased by about 50%, and Canada's National Debt has tripled.

     3. "Fractional Reserve" Banking has been replaced by an even shakier system, where the limit on Bank credit creation depends on the capital of the Bank, rather than the ratio of deposits to reserves.

     J.M.H. March 1995]

     ---