Institute a provincial credit system

A provincial credit organization to supply a current of money, to the province, just as a hydro organization supplies a current of electricity

A Quebec credit system — an Ontario credit system a credit system for each province according to its own natural resources

Provincial premiers' disillusionment

In his conference with the press, and over the television and radio, the premier of the province of Quebec, Mr. Jean Lesage, complained loudly and bitterly about the results of the federal-provincial conference held at Ottawa on February 23 and 24.

Mr. Lesage made many promises to the voters last June. Carrying out these promises is going to cost plenty of money. This year the budget will call for expenditure of some 800 million dollars the highest in the history at the province of Quebec. All of the projected works and services planned are physically possible; but finding the money to pay for them is quite another story. And if we accept all the limitations imposed upon us by the existing financial system, we are very quickly brought to a halt in the attempt to realize these plans even though we may have fallen far short of utilizing all the physical possibilities at hand.

Mr. Lesage and his confreres from the other provinces, as well as the federal goverment, know of only one source of finance; that is to take the money, by taxation, from the taxpayers. Or to beg loans, which, in effect, are only another form of taxation laden with huge interest charges.

Ottawa taxes. The provinces tax. The municipalities tax. So do the school commissions. And all batten on the same victim: the citizen. Since 1914 Ottawa has been getting the lion's share. Two world wars have turned the Ottawa tax pump into a really monstrous machine. To meet the obligations which have accrued as a result of war expenses, Ottawa has reached with its tentacles into every corner of the country. Even with the war over, Ottawa has maintained this overlordship in matters of taxation, leaving for the needs of the provinces, a taxpayer who has been bled well-nigh dry.

To justify this ravenous appetite for taxes, Ottawa has invaded fields which do not properly belong to it, offering in compensation to the provinces, a small share of the booty which it has plundered. It is precisely this share which was the bone of contention at the recent conference, as it has been at all such previous conferences.

Mr. Lesage wanted a larger share. In fact, he wanted 80 million dollars more. Not having got what he wanted, he flounced out of the conference, red with anger. He found himself faced with the unpleasant prospect, of having to cut back on election promises or else impose new taxes, thus adding to the number of those who, having hailed his accession to power with such joy, were suddenly disillusioned by the increase in provincial income taxation.

The other premiers of the provinces were no more satisfied than was Mr. Lesage. Mr. Frost of Ontario said he needed 150 million dollars more; and to find this 150 million he was finally obliged to impose a new provincial sales tax of 3 percent in the province of Ontario.

To the provinces their responsibilities

At this meeting between the provinces and Ottawa, the Prime Minister, Mr. Diefenbaker, told the provinces, in a somewhat bantering tone, that if they were not satisfied with his offers they could always undertake, themselves, the job of raising the taxes they needed instead of letting Ottawa do the job for them. This bit of advice was not happily received by the parties concerned, chiefly because Ottawa was not prepared to betake itself far enough - out of the taxation field to make it possible for the provinces to get enough without committing an overlapment which would be in effect, double taxation.

But why such shortsightedness? Why can the governments see no further than taxation when it comes to seeking means for utilizing the physical realities existing to satisfy the needs of the public for those things which they have a right to expect from government and public bodies?

Neither the refusal of additional grants by Mr. Diefenbaker, nor the incapacity of the province to tax further their taxpayers has lessened in any way the number of workers available. Nor have they reduced the resources of the provinces by one single tree, one quarry, one single kilowatt of electrical energy. The provinces have not lost, through this refusal and this inability to tax, the physical power to produce all the cement, all the bricks and all the other materials necessary to accomplish the project envisaged by Mr. Lesage, Mr. Frost and the other premiers.

Mr. Lesage taking Mr. Diefenbaker's advise as an occasion to lift himself in stature and speak like a true man of state, and not hesitation to trample on those sacred shibboleths which have been too long held as inviolable, might have spoken up in this fashion:

"Accepted and agreed upon! The government of Quebec will take into its own hands the job of financing those projects and services which it needs. And it will do so magnificently! But I warn you that we are going to have to drive out those sacred cows of the financiers which only ignorance and servility hold in reverence. The government of Quebec will seek the source of its finances in its capacity to produce. And this capacity is enormous. We refuse to hold ourselves to a financial system which rations credit and which is completely out of step with realities. You in Ottawa may, if you wish, bow down before an artificial financial system which prevent the people from exploiting and using to the full its true wealth. But as for me, I shall not permit it to do so in Quebec. Since the Bank of Canada has failed in its task of regulating credit in accordance with the needs and the productive capacity of the province, I shall see to it that provincial credit system is established which will serve the length and breadth of the province".

Had Mr. Lesage (or Mr. Frost, or any one of the other premiers) spoken in such a fashion, he would have shown himself to be not a disconcerted complainer, but a man strong and decided. And certainly he would have aroused others to imitate him. And had action been suited to such speech, it wouldn't be long before we saw the end of that absurd and criminal system which allows families to suffer want in the face of a production which cannot get its goods flowing; which allows so many to go unemployed, and so much material to lie idle while governments, public bodies and private enterprise are clamoring for both to put into action a great multitude of needed projects and services. If Quebec or Ontario were to take such a step you can be sure that it would not be long before Ottawa followed suit and applied such a procedure across the dominion.

Where the wealth, where the control?

But can a province take such a step and still act within the constitution? Do not questions pertaining to finance and banking lie completely within the field of federal jurisdiction?

Here there is no question of banking. It is a question of utilizing the productive possibilities of the province. If the text of a law, drawn up nearly a hundred years ago, reserves to the federal government all legislation pertaining to banks; if bank credit does not prove adequate to making full use of a province's productive capacity and putting at the disposal of the people those goods and services which are physically possible and needed, then some other means, different or complementary must be found to put the wealth of the province at the disposal of the people.

We cannot remain slaves to the interpretation of a text of law which has come to be contrary to logic and humanity.

Natural wealth belongs to the provinces and not to Ottawa nor to the banks nor to any other financial institutions. Those of Quebec belong to the people of Quebec. Those of Ontario to the population of Ontario. The labour conditions pertaining to the exploitation of such wealth pertain to the province. Why should it be necessary to await permission from some body outside the province to use that wealth which lies within and belongs to the province?

Consider, for example, the following situation: Ten men each posses an enterprise or a business establishment. Each is proprietor and owner of all that lies within that establishment. But let us suppose that there is but one key to unlock all of these ten establishments. Let us suppose further that this key is in the possession of an eleventh individual who owns absolutely nothing. Each of the ten so-called proprietors is obliged to ask this eleventh for permission to use the key when he wishes to enter his store. He must ask permission to use this or that article in his store, during such and such hours. And he must pay certain rates of tribute depending upon his request.

Absurd, you will exclaim. But then, is not this exactly the position in which the ten provinces find themselves?

Is it not absurd, illogical and downright shocking that the provinces should be given ownership of that which lies within their boundaries, and on the other hand should be obliged to depend, for the exploitation of this wealth, upon a system over which they have no jurisdiction? Such a system belongs to Ottawa. And Ottawa is proprietor of nothing! Under such conditions, provincial autonomy means nothing.

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This condition of dependance and of ceded autonomy could not exist even supposing that the banking system lay within Ottawa's jurisdiction if this system were what it should be; that is, an exact reflection of realities, a system which automatically finances all production in the same rythm and flow by which production became a reality; retiring money automatically at the rate of consumption. Thus the financial problem of provinces, municipalities and public bodies would disappear as it would for private groups and individuals.

But such a system is yet only a hope. And while waiting for the federal to do something about it, and to goad the federal on, it would seem advisable to establish some sort of supplementary system as we have suggested. This would be a provincial credit system which would "make financially possible, within the limits of the province, whatever is physically possible in response to the needs of the people of the province".

Money and credit

But in order to understand such a principle, it is necessary to understand certain ideas about money and credit, ideas which are already familiar to readers of this paper. Here we can only set down these ideas in broad outline.

Money for a long time consisted of pieces of metal, usually gold and silver. It was in fact a sort of a money-merchandise, for it had its own value apart from its purchasing power.

Then, gradually, people became accustomed to paper money which had no other value apart from its purchasing power. And it had this value only because people accepted it as such. This was fiduciary money.

Another giant step was taken with the acceptance of the banking system. The cheque, which was the right to draw upon a banking account, became the current money of commerce. And when the cheque was simply deposited by the beneficiary in his account, the final banking operation consisted in a simple transferring of credit from one account to another. Today, considered broadly, paper money has only a very small share in financial transactions today; nine-tenths of financial transactions are completed by subtractions and additions from and to accounts that is, figure work in a bank ledger.

This great progress made it possible for banks to lend money to a borrower without touching the contents of its coffers, nor without touching the accounts of any of its depositors. All the banks need, in paper or metal money, is one- tenth or less of what they lend, in order to meet the demands of those who wish to cash cheques at the bank wicket.

Bank loans, therefore, are in fact, creation of money – the creation of banking credit which will exercise all the functions of concrete money right up to the moment when such credit dissappears by its repayment by the lender to the bank. The vast percentage of money in circulation today is made up of this money which consists of figures in a bank ledger and is called, for this reason, "book money". For, after all, it consists of nothing more than figures set down in a bank's ledger.

But, regardless of whether this money is paper, metal or book, it has value only because of one fact: the fact of the possibility that there are goods and services to meet this money's value. Which is another way of saying that it is a country's production, or potential production, which serves as the basis for the value of money in a country.

This productive capacity does not belong to the banks. It comes from a number of factors and it makes up the true wealth of a country; true wealth of a province, true wealth of a nation. It is its real credit, upon which is based all financial credit, and without which financial credit is absolutely worthless. On the other hand, if financial credit does not express faithfully this real credit, if it is restricted (as it is by the bank), while the capacity to produce remains great, financial dictatorship results, and, as a consequence, the artifical impoverishment of the people in the face of an abundance of real wealth. The country, or the province, is thus the victim of a false accounting which is completely at odds with reality.

Productive potentiality which, for lack of financial credit, results in nothing but unemployment, is a direct indictment against the existing restriction of financial credit. Such restriction of credit deprives the people of the use of a good which belongs to them. No government worthy of the name can for long submit to such a repression.

A Quebec credit system

Let us take Quebec as an example. Mr. Lesage and his government, could, without causing any turmoil whatsoever, institute a Quebec credit system. After all the Quebec Hydro system was established to render better electrical service to the people. And it caused no upheaval.

There are, in fact, several points of resemblance between credit and electricity; between a current of money and current of electricity. Neither one nor the other is a thing tangible. Neither one nor the other is the agent which actually accomplishes the work. But both are forces which permit an agent to accomplish the work. A saw cuts tree trunks into lengths of wood and shapes them into planks. It is the electric motor which moves the saw. But there is required first of all, a force which will set these agents in action. This force is a current of electricity. So it is that financial credit is the force which sets diverse elements natural resources, materials, workers, experience and know-how in action so that we have the productive capacity of a province.

A Quebec Credit System would be a commission under the jurisdiction of the provincial Minister of Finance. Its work would be to furnish the necessary financial credit in order that the actual and potential productive capacity of the country might be set in motion to the end that the needs of the people of the province might be met and that they might enjoy the fruits of this provincial capacity to produce.

This financial credit would consist of figures, transferable from one account to another to pay for work, materials, products and services. Just as a current of electricity comes through an electrical cable and goes out by such a cable once it has terminated its work, so also the financial current would issue forth from the provincial credit system and would return to it once it had accomplished its work.

If the people can find it in themselves to have confidence in a banking system which operates on the idea of profits for the bank and which yet paralyzes productive capacity while the people are still so much in need of goods and services, then surely the people shouldn't find it difficult to place confidence in a credit system which does not operate from the profit motive, and whose reason for existence is to serve, purely and simply, automatically working to meet the needs of the people and in no way dictating to them how they are to live or to what degree they are to enjoy the fruits of that which belongs to them.

No barrier to outside commerce

Granting that there is no difficulty in setting up such a system to provide for the circulation of credit within the limits of the province, would this not hinder obtaining products from outside the province? Not at all. Here is how the province of Quebec, for example, might put forth its proposition:

"Legislation is passed establishing a credit commission which will be known as Quebec Credit:

"To benefit completely from this organization, the population of the province is invited to make use of Quebec Credit in all the payments which it may make within the province. This will be effected through credit accounts in the books of the different branches of Quebec Credit.

"To participate in Quebec Credit, all that is necessary is to deposit at a branch of Quebec Credit, a sum of money money issued by the banking system. Such an amount will be inscribed to the credit of the depositor, just as is done in ordinary banks.

"The bank credit, thus deposited, will be used to make payments outside the province.

"For all payments, either within or outside the province, the individual having an account with Quebec Credit, will simply sign a "transfer of credit", indicating the amount to be transferred-  just as is done in ordinary banks. The branch of Quebec Credit, within which such a transfer is made, goes about completing the transfer as indicated. If the payment is sent outside the province, Quebec Credit will make the payment in banking money drawn from the total of the deposits made by the depositors; evidently, the total of the provincial credit in the books of Quebec Credit will have been decreased by this amount.

"It is not difficult to understand that if the people use as little as possible the banking money which they obtain from some source or other, no difficulty will arise in making payments outside the province, so long as the people do not get most of their products from outside the province, making little use of the supply of products within the province.

"It is much in this fashion that trade between countries takes place. The Japanese who send us products are not paid in Canadian money but in Japanese money; and vice versa. The whole business of financing such trade is carried on without any difficulty in the offices of the financiers. With regard to the setup we have recommended for the provinces, Quebec in this case, these outside payments would be automatically regulated in the offices of Quebec Credit.

"The advantage of such an institution is that there is no financial obstacle hindering the people of the province from making use of its manpower and natural resources so that they may produce all the goods they require to meet their needs and demands:

"All which is physically possible in the province, for filling needs both public and private of the people, will be made financially possible through the accounting service of Quebec Credit".

The constitutional aspect

Would such an organization be contrary to the constitution? Not at all. There would be no issuance of money, either metal, paper or in the form of banking credit. It would be a simple and direct use of the credit of the province of Quebec through a system of accounting.

There does exist such a thing as provincial Credit. The constitution of 1867 recognizes, it when it says that, the province can borrow on its own credit (not on the credit of another province). If the province can borrow. and thus go into debt on its own credit, it most certainly can avoid debt by the simple process of making use directly of its own credit within the limits of its jurisdiction.

Furthermore, Alberta has already, by a law which has never been disavowed, set up very similar machinery, appertaining to the Provincial Treasury. If Alberta never succeeded in liberating itself from the restrictions of the banking system, it is because the people of Alberta never had enough confidence in it. They confided but a very small percentage of their business transaction to this department, which operated through a system of transfers by credit certificates. Politically, the people of Alberta, since 1935, have voted for a provincial government which bears the name, Social Credit. But in practice, the people give more confidence to the banks and their debt-money, than they do to the mechanism instituted by the government for which they habitually vote. All of which indicates that the Social Credit movement in Alberta has been, or is, guilty of a mediocre, superficial or false education of the people in the true principles and basic elements of the Social Credit philosophy and pratice.

But it is still to be proved that a provincial institution of this sort is in any way anti-constitutional.

But in order that it will work it is necessary that there be a government to set it up and a people to make use of it. We believe, for example, that in the province of Quebec there is a sufficiently large number of well-formed Social Crediters to inspire confidence in such a credit institution and to get others to make use of it. A good push from the government, would also aid enormously; and the government's decision to institute and make work, such a provincial credit organization would electrify the people and give the necessary impetus for other provinces to follow suit. And the very immediate result of such a move might be the transformation throughout the whole of Canada of the debt-engendering money system of the existing banking system into a system of Canada-Credit through which the entire Canadian people would take control of and benefit from its great real wealth.

But let us not wait for the distant and centralizing government at Ottawa. Let us set up in Quebec city a system of Quebec Credit; at Toronto a system of Ontario Credit; at Fredericton a system of New Brunswick Credit; and so in each province a system of provincial credit, for the unhindered service of the people of the province.

Louis EVEN

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"The State's financial system should aim at reorganizing the economic situation in such wise as to guarantee to the people the material conditions of life indispensable for the pursuit of the supreme end assigned by the Creator, namely, the development of their intellectual, spiritual and religious life."

Pius XII to the International Institute of Public Finances, 1948.