The Committee on Monetary and Economic Reform (COMER) has made numerous efforts to bring about needed changes in monetary policy here in Canada – with rather limited success. We herewith announce a new effort which will be given a prominent place on our website: www.comer.org. We will be urging the many civil society organizations which work in many ways for public welfare to join us in endorsing the following statement.
Civil society organizations that work for public welfare in Canada, depending heavily on dedicated volunteers, are constantly frustrated in our efforts to obtain government funding to meet urgent human and environmental needs. We are repeatedly informed that there is never enough money available, and that now we are entering a period of inescapable austerity required to overcome growing public debts. We are told that public funds – essential for infrastructure repair, for health and medical care, for education, for poverty reduction, for social justice, and for environmental protection – not only cannot be increased despite urgent unmet needs, but must be cut, and public assets for providing public services must be privatized.
We are deeply concerned about government deficits and debt, and also about the heavy personal debts borne by Canadian citizens. Indeed we believe that governmental and personal debt should be taken far more seriously, and dealt with more radical means than the usual austerity programs involving cuts to social programs and privatization. Such measures have already been experienced as profoundly unjust. They shift debt burdens to individual Canadian citizens, especially to the most needy, bankrupting and impoverishing many.
Meanwhile, we see that wealthy individuals and corporations receive tax cuts they do not need, and that they often use tax havens to escape such taxes as they do owe. Lowering taxes for the rich is regularly justified by the argument that they invest their savings to create employment, but we see little evidence to support this claim. We see further that our federal government makes billions available for a controversial war, for expensive, inappropriate new weapon systems, and for unnecessary new prisons, while poverty and environmental damage continue to increase. A just tax system, wisely spent, could go a long way toward promoting the human and environmental welfare to which we are committed. But changes in our tax system are not enough to deal adequately with our debt problems.
Crucial to our governmental debt problems is the fact that our governments at all levels borrow from private banks and from other private money-lenders, and pay interest on these debts. Each year governments across Canada now pay some $60 billion in interest, and as these debts increase, with interest rates probably rising, this enormous annual burden for taxpayers will increase. But this interest expense is not necessary.
Through our publicly owned Bank of Canada, which was established in 1935, and nationalized in 1938, the federal government has the power to borrow money in huge quantities essentially interest-free, and to make such funds available not only for its own use, but also for provincial and municipal expenditures. Such borrowing helped Canada get out of the Great Depression, and to finance its participation in World War II. Continuance of this practice until about 1975 played a key role in creating Canada's post-war prosperity and its social programs.
As federal governments, which control the Bank of Canada, increasingly catered to the private commercial banks, this practice greatly declined. Governments at all levels in Canada increasingly had to resort to borrowing from the private banks and other private money-lenders, and foreign sources. Moreover, the Bank of Canada in the late 1970s began raising interest rates as its primary tool for fighting "inflation," driving the economy into recession in the early 1980s and again in the 1990s. These changes from the original mandate of the Bank of Canada, combined with tax reductions for the wealthy, rapidly increased the debts of governments at all levels, resulting in major cuts to social programs. Following some recent federal government economic stimulus in the current recession, the stage is now set for even more devastating cuts to public services.
In line with policies pursued through the Bank of Canada during its first four decades, our federal government could replace gradually interest-bearing debt carried by governments at all levels with interest-free debt, and make available interest-free loans for new projects. This change in monetary and tax policy would make available each year tens of billions of dollars urgently needed to protect our environment from such dire threats as global warming, to rebuild and to improve our public infrastructure, and to strengthen social programs – notably medical care.
Through such interest-free loans for infrastructure, for example, our governments, instead of paying for interest that could double or triple their investments, paying only for the principal, thus freeing tax income for other programs. Moreover, government-funded construction would create jobs, stimulate additional economic activity, and significantly increase tax receipts.
Those who oppose the revival of this monetary policy charge that it would be inflationary, even though it was used in the past without significant inflation. As the government through the Bank of Canada creates growing quantities of our money supply, the power of private banks to create money needs to be restrained, as was possible until 1991, when the reserve requirement for the private banks was surreptitiously removed from the Bank Act. This provision of the Bank Act needs to be restored to prevent inflation, as can readily be done.
Therefore, we Canadian civil society organizations, who work for public welfare, call on our federal government to use the powers of the Bank of Canada to provide funding to all levels of government in Canada, largely with interest-free loans, as was done between 1938 and 1975 with very low inflation, enabling our nation to break out of the Great Depression, to fulfill extraordinary responsibilities during World War II, and to prosper while building our infrastructure and highly valued social programs during some thirty post-war years. We Canadians now urgently need a renaissance of these powers of our Bank of Canada.
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COMER itself endorses this "Call," and is prepared to list on its website the names of all other Canadian civil society organizations which endorse it. Our understanding of what is meant by "civil society organizations" will be interpreted broadly to include such types as labour unions, churches, and even municipal councils. Through unifying our many voices in the "Call," all of us are strengthened in efforts to pressure our federal government to implement the urgently needed changes in monetary policy. We will encourage each endorsing organization to list their support for the "Call" on its own website, with a link to the COMER website. Indeed we will be happy to have any other endorsing organizations, especially those at the national level, also to list all endorsers. The more visible the "Call" becomes, the more effective it can be.
But reminding the world about the purposes for which the Bank of Canada was nationalised by buying out some 12,000 private shareholders, is one important matter. But it is not the only one that we must face today. The greatest lesson to come out of the Second World War resulted from Washington, as soon as Japan and Germany had surrendered, sending hundreds upon hundreds of economists to study the damage left by the war to predict how long it would take before these former great trading powers could resume such roles again. Sixteen years later one of these, Theodore Schultz of the University of Chicago, wrote an essay on how wide of the mark and why he and his colleagues had been in their forecast. It was he said, because they had concentrated almost wholly on the physical destruction of the war, but had attributed little importance to the fact that the highly educated and devoted human resources had come out of the conflict almost intact. And then in a stroke of genius he drew the conclusion that investment in human capital, that is not only in education, but in health, the preserving natural environment, the provision of adequate infrastructures for the world rush into mega-urbanization that has taken over.
And the key detail is that all this has been paid for in advance, and the children of educated, healthy parents tend to be healthier and easier to educate. For a few years Schultz was celebrated, decorated, and then completely forgotten. And investment in human capital, though prepaid, has been completely and elaborately forgotten. COMER is unfortunately the only organization today that mentions the great thinker's name and heritage.
And the "greatest investments a government can make" instead of a prepaid investment, is treated as mere expenditure that we can no longer afford. That brought us into the current deepening crisis, and thwarts every initiative to shake it off.
The end result is that our speculative banks are flying greedy but blind with no notion of how to get over a crisis that can only lead the world into the ultimate gamble, the next atomic war. For that the resources are evidently not lacking.