Session, Friday, May 5, 1939 – House of Commons, Room 277
Standing Committee on Banking and Commerce
Minutes of Proceedings and Evidence
Gerald Grattan McGeer examines Mr. Graham Ford Towers – Governor of the Bank of Canada
Mr. McGeer; All right, let me put this proposition to you. On your own evidence it is now established that the money of Canada is a creature of the laws of Canada?
Mr. Towers; Yes
Mr. McGeer; That parliament does, by enacting laws, provide the means of creating, issuing and, in a measure, controlling and regulation the circulation of Canadian money. That is correct?
Mr. Towers; The amount; hardly the circulation.
Mr. McGeer; The amount. All right. Will you tell me why a government with power to create money should give that power away to a private monopoly and then borrow that which parliament can create itself back at interest to the point of national bankruptcy, because, if we cannot finance the things that are necessary it means that this nation cannot meet its current obligations. But we will eliminate the question of bankruptcy and leave the question: Why should a government with power to create money borrow that money at interest?
Mr. Towers; Presumably it does so because it wants to give the people a medium of exchange with which they will be satisfied. Now, speaking of borrowing that money, we realize of course that the amount which is paid provides part of the operation costs of the banks and some interest on deposits. Now if parliament wants to change the form of operating the banking system, then certainly that is within the power of parliament. Secondly, if parliament decided that it would proceed with such and such and expenditure by means of legislating for an increase in the note issue-two hundred, five hundred, a billion dollars-there are no limitations on parliament; it could do so. I would not be here to say that parliament must not do this. That would be foolish. Parliament can do as it sees fit. I can express opinions for what they may be worth on the results of any given method of financing.
Mr. McGeer; I put the question to you: If I as an individual had the power to create money, do you think that I would ever give that power away and then borrow back that money which I could create at interest, without being completely lacking in any understanding of sound business principles?
Mr. Towers; If you thought it was more profitable and more effective to do so, I daresay you would.
Mr. McGeer; Can you conceive of anyway by which I, as an individual with the power to create money, would give it away and then borrow it back at interest which would be more profitable to me?
Mr. Towers; Of course, what an individual might do is different from what a government might do, because the government acts in what it conceives to be the national interest.
Mr. McGeer; If I did that, I would find myself loaded up with unpayable debts.
Mr. Towers; Is your sole vocation, under this assumption, one of creating money?
Mr. McGeer; Yes, and carrying on my normal activity.
I just want to interject here before I type the last entry of significance. After all the testimony a sitting member on the Standing Committee on Banking and Commerce asks the question; “It does not create money, does it?”
To anyone privy to the fact that commercial banks can and do create money this is a demonstration of how foreign the concept is to most people. As John Kenneth Galbraith said; “The process by which banks create money is so simple that the mind is repelled”.
Mr. Clark; Might I interrupt Mr. McGeer? Mr. McGeer states, I believe, that money is created by the banks by a system of bookkeeping. Is not the function of bookkeeping to record transactions? It does not create money, does it?
Mr. McGeer responds by referring to previous testimony by Mr. Towers. One can almost sense a resignation of sorts in the response (Have you been listening?).
Since that exchange so long ago those pertinent questions posed by Gerald McGeer remain unanswered, and since then there have been no serious inquiries into our banking system!