By Paul Hellyer,
I consider it a great honour to be asked to write a piece for the final print edition of the illustrious and incredibly useful COMER magazine, the Journal of the Committee on Monetary and Economic Reform. I suspect the choice was awarded on the basis of age, since I have been around since the first edition was published many years ago.
Professor John Hotson, of the University of Waterloo, got in touch with me. He had heard of my interest in monetary reform and wanted me to join the COMER group that he and the intrepid Bill Krehm had established. It was tempting, but as a young member of Parliament I had already learned that any mention of government-created money would result in being cut to ribbons by the press gallery, especially by Charles Lynch who would gleefully shriek, “funny money,” at the top of his lungs. So John and I agreed on an informal relationship which allowed me to have the best of both worlds. We bonded beautifully, and became sufficiently close that when he died his wife advised me that I should have any or all of the books in his personal library.
We were all impressed by the wonderful job done by Graham Towers, the first, and arguably the best, Governor of the Bank of Canada. He was the genius who engineered what some of us labelled as the Canadian Precedent.
The Canadian Precedent
In 1938 there were no job openings in Canada – none! Then, in 1939, World War II began and it wasn’t long until everyone was either in the armed forces, or working in factories to build the tanks, trucks, airplanes and ships required to support a really magnificent war effort. Unemployment dropped to an historic low of one percent.
You may wonder where the Canadian government got the money to initiate this unprecedented economic miracle. The answer is that the Bank of Canada printed it. The Bank bought government of Canada bonds and paid for them with newly minted cash. The government paid the Bank interest on the bonds which then, because the government owned 100% of the Bank shares, was returned as dividends, with only the cost of administration deducted.
In effect, it was near zero-cost money that produced such wondrous results.
The newly created money that the government spent into circulation wound up in the private banks, where it became what the economists called “high-powered money.” High-powered money was really “legal tender” money or “real money” that the banks could use as “cash reserves” which the law allowed them to leverage into bank loans equal to 12½ times their reserves. So if $10 million of what was literally governmentcreated money was ultimately deposited in one of the commercial banks, the banking system was able to create an additional $125 million in book-entry or “virtual” money.
The commercial banks were able to lend this money to help businesses build factories, develop essential products, buy “War Bonds,” etc. These large infusions of first government-created cash, followed by bankcreated credit, made it possible for Canada to be transformed in a few short years from a largely agricultural and resource-based economy into a significant mixed economy that included a strong manufacturing, industrial and scientific base.
What made this all financially possible was a sharing of the money-creation function between government and the commercial banks. That teamwork enabled Canada not only to play a larger-than-life role in the war effort, but also to extend the miracle into the post-war years.
Government-created money played a key role in many of our infrastructure projects like the great St. Lawrence Seaway development, the Trans-Canada highway, new airport terminals and port facilities. It also enabled the federal government to assist the provinces and municipalities with many of their major public works ranging from bridges to sewage-disposal systems.
Another marvellous benefit that government-created money helped make possible was the establishment of a social security network to help citizens in times of distress. Some of us who had lived through the Great Depression of the 1930s were determined that never again would someone lose their home, farm or life savings due to a serious illness of one of the members of the family. Nor would someone be left destitute because he or she was unemployed. All of these accomplishments were achieved without incurring any significant debt.
This system of money-creation sharing between the government and private banks worked splendidly for 35 years until 1974, when the Bank of Canada unilaterally changed the rules. As far as I know – and I and others have spent many hours of research without finding any evidence that would refute it – this was done without either advising or obtaining the consent of the Canadian government.
The Governor of the Bank of Canada simply put it into effect and didn’t tell the Canadian people until September, 1975, in a speech in Western Canada. Meanwhile he was in discussions with ten other Central Bank Governors concerning the establishment of the Basel Committee that became known as the Committee on Banking Regulations and Supervisory Practices at the end of 1974.
There was no mention that we were leaping into the arms of the Bank for International Settlements (BIS), with its plan to manage the World economy. Its policy of not allowing central banks to provide cheap money to their governments, was like a knock-out blow in boxing, from which we have never recovered.
Fallout from the Change in Policy
It took just a few years for the full fury of the blow to be felt. Wages and prices began to rise like a dog chasing its tail until the level of inflation became untenable. So the central bankers, who wore glasses too dark to see through, and were led by US Federal Reserve Chairman, Paul Volker, raised interest rates to a dizzy height and crashed the system to cause social and financial distress unequalled since the Great Depression. Not only did tens of thousands of people lose their jobs, homes and businesses in 1981- 82, the Government of Canada was forced to pay more than 20% interest on its bonds – a rate at which the debt doubles about every four years.
Despite the disastrous results of using interest rates as an economic weapon, when inflation began to re-assert itself a decade later, the Central Bankers induced a second disastrous recession in 1990-91. All they proved is that Einstein was correct when he 14 | Economic Reform May 2021 www.comer.org said that to do the same thing over again and expect different results is a form of insanity. A twelve-month wage and price freeze applying to everything except the fresh products of land and sea, would have reduced inflation to zero, without a single job being lost.
COMER, of course, was quite aware of the insanity and said so, loud and clear. Unfortunately no one was listening, but we never gave up. One of the most senior members, Dr. Jerry Ackerman, was a friend of Ellen Hodgson Brown, the author of Web of Debt, that explains just about everything about money in the first 100 pages. Jerry brought Ellen to Toronto to speak to us, and to discuss alternatives to the official madness. It was Ellen who phoned me one day and nearly blew my mind.
“Paul,” she said, “did you know that Canadians have paid a trillion dollars in interest, and none of it was necessary?” I have the highest regard for Ellen, but I was incredulous. So I asked the research department of our Parliamentary Library to check. The answer came back that from fiscal 1974/1975, to fiscal 2010/2011, Canadian taxpayers had paid one trillion, one hundred million dollars in interest on federal debt alone, almost all of it unnecessary. Just imagine what that much money could have accomplished if it had been spent for useful pursuits! Obviously, an up-to-date figure would be far greater.
A New Era
Of all the heavy-hitters for monetary reform few, if any, came close to the contribution made by Ann Emmett, the longtime president of COMER – whether it was making her home available, organizing meetings, or stepping up to the plate personally, and with COMER, as co-plaintiff when Bill Krehm agreed to finance a suit against the Bank of Canada for failing to meet the legitimate needs of its shareholders, the Canadian people.
One of the very few lawyers I have ever met who understands money and banking, the fabulous Rocco Galati, pleaded our case before the courts and made the government’s defense lawyer look like an amateur. COMER members and friends turned out in large numbers to cheer (virtually) the brilliance of our gladiator. In the end, however, the courts ruled against us. The justices upheld the literal reading of the Bank of Canada Act.
Their ruling didn’t prevent us from introducing thousands of people to the intricacies of monetary madness. Looking in the rear view mirror however, one might conclude that we were shooting at the wrong birds. It was the politicians who were the villains.
Another workhorse on the COMER team was the indefatigable George Crowell, supported by his wife, Donna. Few of his fellow monetary reformers knew that George was a Rev. Dr., having been ordained a Presbyterian minister before joining the Religious Studies Department at the University of Windsor. That is where I met him when he invited me to give a guest lecture on money and banking. It was the beginning of a life-long friendship, and of my profound appreciation of all the wonderful things he did without seeking praise or fame.
When my twenty-two and a half years as a member of parliament ended in 1974, I felt free to join COMER and collaborate freely with its many talented members. I got to know Bill Krehm on a first-name basis and my appreciation of his incredible life kept growing constantly. I also met two very active members of COMER, Ann Emmett and Jerry Ackerman, both of whom ran as candidates for my ill-fated Canadian Action Party.
Later still, I made inquiries about finding a bona fide economist with whom I could work in preparing a proposal for our federal government. I had ended the equivalent of a lifetime in partisan politics in the Spring of 2004 when I resigned as leader of the Canadian Action Party.
Since then I have had no further allegiance to any political party because the several issues that I consider critically important are not partisan issues. They are people issues, affecting the whole of humankind. So I don’t care which party “bites the bullet,” as the saying goes, I only hope and pray that some party will.
It wasn’t too long before I got a response to my inquiry. The president of the Kingston, Ontario Branch of COMER, Richard Priestman, phoned to say that they had a real economist. His name was Keith Wilde, and would I like to meet him? Would I? You bet I would! So, a meeting was arranged and I drove to Kingston to have lunch with this possible recruit. There are a few economists who are believers, but those who will stick their necks out and risk ridicule, are especially rare!
Richard introduced me to Keith, who had worked for the Bank of Canada briefly, and for the federal government for the remainder of his career. It didn’t take long to establish that our views were very similar and that we were both monetary reformers who believed that government-created money was not only possible, but absolutely essential. After coffee, he summed up the discussion by saying: “At last, a politician who ‘gets it’!” I had the decency, or it may have been just common sense, not to reply: “At last, an economist who ‘gets it’!”
Keith and I worked well together and decided not to get hung up on definitions or rules. We would adopt something like the Canadian Precedent of 1939-74, but one that was more up-to-date and durable. Together with a few other COMER stalwarts, our objective was a comprehensive proposal to present to the federal government. After months of hard slugging, we finally came up with an agreed document called A Social Contract Between the Government and People of Canada. It was sent to Finance Minister James Flaherty on March 21, 2013, with copies to the leaders of the three opposition parties.
A Social Contract between the Government and People of Canada
In view of the fact that our present banking and financial system is unstable and unsustainable, we, the undersigned, on behalf of all Canadians, demand that the federal government use its constitutional power over all matters pertaining to money and banking, by forthwith taking the following action to benefit all Canadians:
1. The government of Canada should print fifteen non-transferable, non-convertible, non-redeemable $10 billion nominal value Canada share certificates.
2. Simultaneously, the Justice Department should be asked for a legal opinion as to whether the share certificates qualify as collateral under the Bank of Canada Act. If not, legislation should be introduced to amend the Act to specify their eligibility
3. The government should then present the share certificates to the Bank of Canada that would forthwith book the certificates as assets against the liability of the cash created, and deposit $150 billion in the government’s bank accounts. The federal government should immediately transfer $75 billion to the various provinces and territories in amounts proportional to their population, with the understanding that they would help the municipalities, as appropriate, so that there would be no need to cut back on essential services, or to sell valuable assets.
4. Amend the Bank Act to reverse the 1991 amendments that eliminated the requirement for the Canadian chartered banks to maintain cash reserves against their deposits, and provide the Minister of Finance, or someone acting on his or her behalf, the power to set the level of cash reserves for banks and other deposit-taking institutions up to a maximum of 34%, provided the increase is not less than 5% per annum until the new 34% base has been established in 7 years. This will ensure that there will be no inflation resulting from the government-created money.
5. The government should repeat the action prescribed in Sections 1 and 3 every year for seven years or until bank cash reserves reach 34% of their total assets.
6. Once the transition has been made the Governor of the central bank shall, each year, estimate the amount of increase in the money stock required to keep the economy growing at its optimum with the number of job openings being roughly equal to the number of job seekers. He/she shall then acquire, on a predetermined schedule, shares from the federal government in exchange for cash up to 34% of that amount.
7. In the event of a disagreement between the Governor and the Minister of Finance in respect to the amount by which the money supply should be increased, or the rate of interest to be charged by the bank for overnight lending, the view of the Minister shall prevail. In any such case, however, a direction from the Minister shall be in writing and made public forthwith. This procedure is consistent with the principles of democracy, and should eliminate future cases of monetary and fiscal policies being at odds rather than working in harmony. Signed: Jerry Ackerman, Paul Amodeo, Erik Andersen, Carol Bailey, David Banerjee, André Bernier, Erick Bittschwam, George Crowell, Arestia Dehmassi, Derrel Dular, Ann Emmett, Helen Ferreira, Connie Fogal, Claire Foss, Sarah Harrington, Paul Hellyer, William Krehm, Christopher Lambe, Chris Lang, Judy Lewis, John McMurtry, Dennis Morrison, David Patrick, Richard Priestman, Susan Rawley, Hon. Alan Redway, Hugh Reilly, John Riddell, Sarah SackvilleMcLauchlan, Michael Sinclair, Derek Skinner, Myra Sonnichsen, Victor Viggiani, Andrew Ward, Sydney White, Keith Wilde, Pierre Zgheib
The Best and Worst of All Possible Worlds
This formula has many advantages. It would provide governments with large amounts of money for seven consecutive years that would allow them to start capital projects and carry them through to completion. Then, in year eight and beyond, governments would have sufficient debt-free money to balance their books at reasonable levels of taxation. No more austerity budgets.
Perhaps most important of all, bank leverage would be reduced from 20 to 1, to 2 to 1, and the banks would no longer be our masters. Genuine democracy would be restored.
When this attractive package was sent to Conservative Finance Minister Jim Flaherty, it was not even properly acknowledged. The same was true for the other party leaders who had been sent copies. The government changed, and the day Justin Trudeau was sworn in as prime minister, I wrote him to suggest that he could become a great PM by adopting three or four long-overdue policy changes including introducing the Social Contract. There was not even a word of response. A trillion dollars down the drain that could have been used to improve hospitals and homes for the aged, affordable housing, urban transportation and other useful pursuits!
Instead, Trudeau and his Finance Minister, Bill Morneau, embarked on a rampage of neo-liberal developments and buying votes by putting Canada further and further into debt. Neither the PM nor the finance minister were aware of the Canadian Precedent and how it could be adapted to meet our needs. Instead they met clandestinely with representatives of Black Rock, the world’s largest investment company, presumably controlled by the Rothschild family. Black Rock was then allowed to help design an Infrastructure Bank that would allow them to convert some of their paper money into real Canadian assets. Joyce Nelson wrote about this “scandal” in COMER and one can gain a broad education on the hazards and evil consequences of neo-liberalism by reading Joyce’s books.
A Time of Mourning
One of the saddest days I can remember was a heads up from Rita that Bill Krehm had passed away peacefully on Friday, April 11, in his 106th year, and when and where the funeral service was likely to be held – followed by an informal one-day Shiva at the Krehm residence. My mind began racing through the years from the time Bill was just a distant father figure and co-founder of COMER, until we got to know each other and become friends and fellow boosters. Bill was one of the most talented men I have ever met. An author of several books, his mastery of music, mathematics, economics, languages and politics – was unique. Bill was a fantastic man of many talents who really was one of a kind.
Much more could be said, but I will just repeat the final paragraph written by our Interim Leader Larry Farquharson in his “Statement on the Passing of William Krehm.” “While Bill will be dearly missed, the substantive and powerful legacy of his life-long passion and dedication remains, and the mission and work his visionary colleagues put into motion so earnestly and with such foresight over 30 years ago, will continue through COMER and our commitment to carry forward the work Bill started.”
In the immediate years before Bill’s death, Derrel Dular an American expatriate did a lot of the heavy lifting and, by all accounts provided wonderful support to the aging team. But then, he too passed to his reward. The indefatigable Ann Emmett, after several years preparation of her house for sale, found a buyer she trusted enough to care for the castle she had shared with her partner Elizabeth. She was free to give up the presidency of COMER and move to a new apartment suitable for her advent as a nonagenarian.
I decided to write my final “last” book on the basis that if ever there is a time to introduce a fair and progressive banking system the post-pandemic crisis is the perfect launching pad. And no, I don’t like the solutions being incubated by others. The so-called “Re-set,” bitcoins, and all types of cryptocurrencies, are just more sophisticated ways for the rich to rob the poor of a fair return for their labour. Schemes to keep them in debt bondage are simply evil incarnate. Heaven forbid!
A small group has kept the COMER flag flying. One of the newest and most prolific is/was Adam Smith. Herb Wiseman, former information-officer of COMER, who seems to have been around forever. Just a few of the other names are as follows. Sean Sloan, Judy Lewis, Margaret Rao, Judy Kennedy, Jerry Ackerman, Patrick Cryan, Darko and Drazen Dodig, Rick Tufts, Paul McMurray, Tom Smarda, John Sanders, Ronnie Pereira, and more.
Without the guiding hand of a Hotson or a Krehm I sometimes get the impression from the avalanche of correspondence that a few of them might be trying to re-invent the wheel. Others, including Herb, are hearing the song of Modern Monetary Theory. These same ideas have been around for generations, but one can wish them luck with the new “modern” name.
There is an old practice of leaving the best wine until last. That is what I have done with COMER. In the last 15 plus years, Rita, the only name she is known by, his always cheerful personal assistant, she was Bill Krehm’s left and right arms facilitating the incredible output of this incredible man. Rita has also been a key to assist Ann over the past 8 years with the journals of the Committee on Monetary and Economic Reform. Along with Bill she has been the heart and soul of COMER, and when the patron died she modestly inherited responsibility for keeping the dream alive and current.
