Where money comes from? Canadian Shadow Finance Minister Challenges Parliament

Shadow Finance Minister Pierre Poilievre’s speech to the Canadian parliament has shown that often the simplest questions are the hardest to answer. Faced with a request to approve an additional CA$7bn in expenditure, Poilievre asked 10 of the highest level bureaucrats from the finance department, “Where does the money come from?” Are we seeing the beginnings of governments returning to sound money?

The public servants presented a series of reasons why the money would help the economy and all of the good it would do, but silence reigned in the financial oversight committee as no-one was able to step up to the plate to answer what should really be the first question that people ask when they are spending someone else’s money. Ultimately the Finance Canada Senior Director Maximilian Baylor admitted that he couldn’t answer where it came from specifically, but that it was a part of the government's “broader, macro economic framework”. Baylor offered to discuss the contents of the bill that the money was earmarked for, but wasn’t able to say how it was being paid for. Poilievre pointed out “well, somebody’s paying for it. Who is it? Did the tooth fairy?” 

The minister has been critical of Bill C-2, which broadly provides additional pandemic related spending. It proposes to provide income support to geographical regions affected by lockdowns and whose incomes have dropped by 50% or more. One wonders how governments are able to provide this financial support when their revenue, i.e taxable income from individuals and businesses, have been reduced by half or more. Polievre questioned “Is there a money tree, is there a printing press”. It seems that not a day goes by where the nature of money isn’t ascending further into the collective consciousness.

It may have only been heightened in the lockdown-era, but there is an oversupply of people willing to talk about how they are spending money, but very few people willing to state honestly where it is coming from. The embarrassing reality is that it comes from nowhere, although few would be willing to say so. While the government is able to spend into existence a seemingly unlimited amount of currency to solve problems of their own creation, savers’ purchasing power is eroded, young people struggle to make it on to the real estate ladder and grocery shoppers find that their dollar buys less and less. The full five minutes of non-response can be found here.

Speaking to Parliament following the committee hearing, the Shadow Finance Minister took the discussion one step further by asking “What is money?”. Money is merely a technology that is used to transport value over time and space, without this technology, we would need to consume our wealth in the present. Most animals, with the exception of the noble squirrel, need to consume what they kill and can’t barter their food for other resources. Various civilisations have used precious metals to trade with, but where these aren’t available, humans use other forms of money to keep account. In schools children have been known to use candy, and in prisons cigarettes are a store of value.

Politicians inevitably seek to debase currencies to enable increased spending. The Member for Caleton uses King Henry the IV’s to illustrate, as the Regent not only clipped the edges of coins to make new ones, but also painted the outside of copper coins with silver. With the coins rubbing away in peoples hands and pockets though, the most protruding part of the coin was the first to wear down, earning King Henry IV the moniker, “Old Copper Nose”. People may think they are getting a pound of silver, but when they saw the copper nose they knew that the silver had been stolen from the people.

Under the dollar standard, debt levels throughout the western world dropped markedly after the inflationary war-time spending, living standards rose and economies expanded many fold. Polievre makes the point though that in 70s there was increased spending on warfare and welfare, and this led to the closing of the gold window in 1971. From 1970 to 1980, Canada’s money supply increased 200%, while the real GDP only increased 47%. We are seeing the same phenomenon now where the actual output has been heavily restricted and monetary expansion has been picking up the slack. More dollars are chasing fewer goods. The end result can only be inflation, increase in debt, business failure, unemployment, reduction in purchasing power and reducing living standards. 

The full recording can be found here.