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War Finance and the Canadian Economy, 1914-201

Published online by Cambridge University Press:  07 November 2014

J.J. Deutsch
J.J. Deutsch*
Affiliation:
Queen's University
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Extract

To understand the effect of the war upon the Canadian economy it is first necessary to examine briefly the position of the country on the eve of the struggle. By the midsummer of 1913 Canada had come to the end of a long period of expansion and prosperity. For seventeen years the country had been engaged in the construction of the immense capital facilities which stimulated and resulted from the rapid settlement of the Prairie Provinces. The construction of transcontinental railways, the building of new cities and towns in Western Canada, the improvement of waterways and harbours, and the provision of machinery and equipment for nearly 200,000 new farms constituted an uniquely large proportion of the total economic activity of the country. In 1912-13, nearly one-fourth of all the labour and productive facilities of the economy was either directly or indirectly engaged in the production of capital goods. The employment of these resources could not, of course, be financed entirely out of the current savings of Canadians. Much of the money was borrowed abroad. About one-half of the total capital invested in Canada during the pre-war wheat boom came from foreign sources. In 1913 capital imports rose to more than $500 million, a figure equal to almost one-fourth of the national income. Such huge external borrowings could not be continued indefinitely. The money was obtained from abroad for the purpose of enlarging the export capacity of the country and it was necessary at some time to slow down expansion to enable the use of the facilities for the production of increased exports.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 6 , Issue 4 , November 1940 , pp. 525 - 542
Copyright
Copyright © Canadian Political Science Association 1940

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Footnotes

1

Paper presented to a joint meeting of the Canadian Political Science Association and the Canadian Historical Association at London, Ont., on May 23, 1940. This paper is complementary to the paper presented by Professor J. A. Corry, “The Growth of Government Activities in Canada, 1914-1921,” published in the Annual Report of the Canadian Historical Association, ed. R. G. Riddell (Toronto, 1940). The two papers should be read consecutively since some aspects of the subject which are omitted in one are discussed in the other.

References

2 I.e., employed directly on construction projects and in the forests, mines, and factories supplying material and equipment for new capital facilities.

3 Rough estimates of the national income of Canada for 1911-20 are given in the appendix.

4 SirWhite, Thomas, The Story of Canada's War Finance (Montreal, 1921), pp. 6–7.Google Scholar

5 For a more complete discussion of the possibilities and course of credit expansion under the new currency and banking legislation, see Curtis, C. A., “The Canadian Banks and War Finance” (Contributions to Canadian Economics, vol. III, University of Toronto Press, 1931, pp. 27–33).Google Scholar

6 Budget Speech delivered by the Hon. Sir Thomas White, M.P., Feb. 15, 1916, pp. 12-13.

7 Partly due to enlistment in the armed forces and partly due to the large crop of 1915, war orders, and the effects of credit expansion.

8 Inflation is used throughout in the sense of a process by which total money income and total real income rise more rapidly than real income produced by efficient resources. Inferentially the process is accompanied by rising price levels.

9 Journal of the Canadian Bankers' Association, vol. XXX, Jan., 1923, p. 272.Google Scholar

10 Between 1915 and 1916 the national money income rose about 15 per cent, and the general level of wholesale prices rose 20 per cent, while the national real income rose in the neighbourhood of 6 per cent, average wage-rates (D.B.S. index, mostly skilled trades) rose 7 per cent, and the cost of living rose about 8 per cent.

11 The $50 million were issued against imperial treasury bills deposited to the credit of the Dominion in the Bank of Montreal in London and were lent to the British Government for purchases in Canada.

12 The approximate method of determining changes in the national real income by deflating the national money income with the index of cost of living becomes increasingly rough when the character of production changes rapidly. However, the comparisons made here and the conclusions drawn make adequate allowance for error.

13 Estimated from details of subscriptions to war loans published in the press during the period.

14 For estimates of the Canadian balance of payments and external transactions during the war period, see Knox, F. A., “Canadian War Finance and the Balance of Payments 1914-18” (Canadian Journal of Economics and Political Science, vol. 6, May, 1940, p. 226).CrossRefGoogle Scholar

15 Between 1913 and 1917-18 export prices rose 91 per cent, the prices of agricultural products rose 104 per cent, while the increase in import prices was 78 per cent, all wholesale prices 89 per cent, and the prices of manufactured goods 86 per cent (D.B.S. indexes).

16 See Address by the President, Mr. E. L. Pease, to the Annual General Meeting of the Canadian Bankers' Association, Nov. 8, 1917: “I think, gentlemen, that we have reason to congratulate ourselves on the successful disposal of the many harassing problems encountered during the past year. The greatest of these were concerned with the pressing demands of the Dominion and British Governments for credits. Our advances to the Dominion Government this year, including the $75,000,000 two year loan, aggregate $175,000,000. It was invariably against our better judgment that we yielded to these demands, and it is indeed very gratifying to find that our resources have so well stood the strain. … For the present I consider that we have loaned as much as we should to the British Government” (reported in Journal of the Canadian Bankers' Association, vol. XXV, Jan., 1918, p. 167 Google Scholar).