From Graham Towers and His Times (-Toronto: McClelland and Stewart, 1986), pages 88 to 93: "The depression broadened interest in central banking among students and businessmen, and the number of the initiated gradually increased. Canada’s continuing economic troubles also created a new group that was skeptical about all aspects of the conventional approach to money creation. As Towers noted in a speech to Queen’s University students, the phrase "sound money" came to be almost a form of reproach. In 1939 he appeared before the Commons Standing Committee on Banking and Commerce, which had a principal goal of educating members of Parliament and the public about the Bank. In his appearances before the committee, Towers was soon drawn into battle with monetary dissidents and self-styled reformers, particularly those of the Social Credit persuasion.

"Bruce Hutchison describes the scene vividly in The Far Side of the Street. Gerald McGeer had begun as ‘an ignorant boilermaker’ but made himself ‘a King’s Council, a Biblical soothsayer, a scourge of Canadian politics, a piercing thorn in Mackenzie King’s side.’ Hutchison says McGeer ‘stumbled by accident on the science of money. Inflamed by the discovery, he perfected a fool-proof monetary system of his own.’ Hutchison’s own ‘economic illiteracy’ led him to become an ‘unpaid press agent and travelling companion’ to McGeer – ‘a third-rate Boswell to a second-rate Johnson.’ As soon as [McGeer] arrived in Ottawa, he made himself a pest about monetary matters. He filled the pages of hearings on banking with his unorthodox monetary views; he cross-examined all the witnesses, and often tied them in knots. That is, until 1939, when he confronted Graham Towers. As Hutchison noted: Hour after hour, day after day, [Towers] answered Gerry [McGeer], the prosecutor, in such perfect diction that it could have been published verbatim as a book. Gerry used his blustering questions like a club. Towers’ thrusts were delivered with a rapier. A western giant and an eastern giant-killer had met in death grapple while the committee watched in admiring stupefaction but without comprehension.

"In 1949, F.C. Mears of the Montreal Gazette had this to say: [Graham Towers’] parliamentary performances won’t be forgotten. The times he has appeared before the banking committees of House and Senate, always in an atmosphere heavily charged with political controversy, if not acrimony, the Governor of the Bank of Canada has been exceedingly effective. Back in 1939, when the Bank of Canada was only four years old, he was obliged not only to explain but also actually to defend the institution. The rapid fire of questions and answers on fairly intricate monetary questions, the magnitude of the issues involved, and the prominence of the man on the stand, made it mighty hard for party whips to hold a quorum in the House. Towers could never be trapped into exhibiting heat, could never be caught off base. At the same time he had to be nimble and quick, for there were legislators who had done a lot of homework on the banking problems. There was dignity, there was an apparently inexhaustible resourcefulness, a flash of good humour when the moment required it, sometimes the measured reply, never a retreat. The long duration of these appearances, the wide variation in the quality of the questioning, the repetitiveness in the answers, and the perennially difficult problem of dealing with half-truths and misconceptions required enormous concentration and patience. What helped sustain him was his recognition that most of the questioning was inspired by the government’s failure to deal satisfactorily with the problems of the depression. An even stronger motivation for standing up under extended parliamentary committee fire without bridling was Towers’ compulsive drive to straighten out his questioners, to tell the truth as he saw it, to counter charges with the best arguments he could muster. He accepted this task as almost a holy commitment. He worked at it; if his replies were to have an impact, then they had to be simple and clear and without holes. It was Towers the educator at his best."

Towers’ principal response, in my reading thus far, to the complaint that a government with sovereign power of monetary policy should have given it to a private monopoly, was that banks didn’t simply have a key to the candy store. He continually stressed that when banks create deposits they are creating a liability for themselves which they then have to protect themselves against in some way. The promissory note of the borrower is only part of it; they buy other assets as well, using cash from depositors and credits transferred from other institutions. As a veteran British banker and theorist put it recently, banks create money for their customers, not for themselves.

1. This point is expressly confirmed in the Constitution Act, which may be read in full at http://laws.justice.gc.ca/en/Const/c1867_e.html#distribution.

Paragraph 91 under section VI on the distribution of legislative powers includes the following provisions: [T]he exclusive Legislative Authority of the Parliament of Canada extends to all Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say (14) Currency and Coinage; (15) Banking, Incorporation of Banks, and the Issue of Paper Money; (16) Savings Banks; (17) Weights and Measures; (18) Bills of Exchange and Promissory Notes; (19) Interest; (20) Legal Tender. (29) Such Classes of Subjects as are expressly excepted in the Enumeration of the Classes of Subjects by this Act assigned exclusively to the Legislatures of the Provinces.

I have decided to publish Keith Wilde’s research because it pays due tribute to the performance of Graham Tower, a former high official of the Royal Bank and first Governor of the Bank of Canada in a fair presentation – the best defence of legitimate banking – referring what had not been legislated to Parliament since it was, he readily conceded, entirely within the jurisdiction of Parliament to make. We could do with the talents, the honesty, and frankness of a Graham Tower to defend the banks’ legitimate activities. Instead, these have been overshadowed by endless difficulties to make possible their impossible goal of endless expansion of banking to take over the entire financial sector to permit its ever-accelerating growth in a shrinking, abused environment. Nor does the description of McGeer as a "second-rate Johnson" or as having begun as an "ignorant boilermaker" hold water, though these quotations do not originate with Wilde. There was nothing second-rate or "ignorant" about McGeer. He began as a boilermaker, and a high-school dropout with an unusually enquiring mind who in a matter of a few years surpassed John Maynard Keynes in reaching a model that had the government arrange the financing through the central bank which he had convinced Mackenzie King to nationalize in 1938. A natural follow-up to that great step was for the central government to use its own bank to finance increasing amounts of its own capital investments, since the interest it paid on such loans would come back less overhead as dividends to the government as sole shareholder. Because of this prewar nationalization of our central bank, Canada was able to surpass the percentage of their WWII costs that they were able to finance virtually interest-free through its central bank. The detail can be found in War Finance and Reconstruction: The Role of Canada’s Department of Finance 1939-1949 by David W. Slater with two chapters by N.B. Bryce. Both authors were high officials of the Finance Department, and the book was actually financed by the government of Canada, but the government’s desire to put the contents into the public domain did not extend to obtaining a commercial publisher or publishing it itself. That however increases rather than diminishes its credibility.

Keynes, on the other hand, was born into a distinguished Cambridge don’s family, had the eminences of the self-balancing market school close friends of the family. That undoubtedly had considerable bearing on the lateness of his abandoning marginal value theory – as "scientific." Some of his closest collaborators, D.E. Moggeridge, for example, have written that these family ties delayed rather than helped him reach the point of questioning the magic of the self-balancing market. His real iconoclastic genius was directed against political leaders rather than the eminences of marginal theory. He never developed his model beyond the view that in a slump the government should spend more than its revenues, and in a boom less.

The idea of using a nationalized central bank for the government to finance its capital investments at a virtual zero interest rate – the interest it paid came back to the government as dividend, he never arrived at.

All this notwithstanding, I have decided to publish Wilde’s research, because, given what the lads and lasses with academic tenure and in government have done to the economy and the world, it is clear that we have need of drop-outs which include John Stuart Mill. Mill actually was not even a drop-into the school system since his education came entirely from his father James Mill.

– from Economic Reform, May 2008

[McGeer in fact was arguing that the government should create and control all of the national money supply.                                                                                                                                    BL]