THE CANADIAN ECONOMY emerged from World War I stronger and more mature than at any time since Confederation. And even while Canada had been making an important contribution to the Allied war effort,¹ remarkable economic advances had been taking place, greatly speeding up the transformation of the entire economic structure of the country.

Although the figures are sketchy and not fully accurate, the following broad statistical picture will serve to illustrate the nature of Canada’s economic growth during World War I:² The acreage in field crops had risen from 35 million in 1913 to 53 million in 1919, an increase...

DURING THE TWENTIES, questions of monetary theory and policy became a focal point in the economic literature of the Western world.¹ Although central banking machinery had long since been in operation in England, France, and Germany, and the Federal Reserve System had been established in the United States about six months prior to the outbreak of the First World War, it remained for the postwar world to see the emergence of centralized monetary control in a recognized and accepted form.

The wartime experience in the techniques and dangers of large-scale financial operations, together with the unprecedented postwar currency inflation in...

AS World War I came to a close, the nineteenth-century economic philosophy of laissez-faire remained-strongly entrenched in Western countries. In the fiscal sphere, it was therefore quite natural that public revenue and expenditure should have been widely regarded as wholly unproductive--as necessary evils resulting from the need to keep internal order and to provide for defence against foreign aggression. The French economist, J. B. Say, had clearly set forth this attitude more than a century before the war in his famous “golden maxim” that “the best scheme of finance is to spend as little as possible; and the best tax...

WHILE THE CIRCUMSTANCES of the decade of the twenties were favourable to Canadian expansion, they also increased the vulnerability of the economy.¹ Primarily responsible for the rising standard of living was a heavy reliance on narrow specialization geared to a maximum of international trade.

The major sources of instability were threefold. First, there was the fact that the chief Canadian product, wheat, in addition to being subject to the incalculable vagaries of nature, was subject also, along with most of the other Canadian export staples, to a relatively inelastic demand; that is to say, a substantial increase in the supply...

IT HAS BEEN DEMONSTRATED that at the end of the twenties “Canada had attained a high level of prosperity, but the increased specialization, the great dependence upon raw material exports, large overheads, stubborn rigidities, and a relatively high per capita income greatly enhanced her vulnerability to economic fluctuations.”¹ In those circumstances, and in an environment characterized by non-receptiveness to bold remedial action by government, the great economic collapse of the early thirties was bound to have the most severe repercussions on all phases of Canadian activity.² Attention is now turned to this environmental setting. Some preliminary recognition of developments in...

IN the United States and Great Britain, the Great Depression of the thirties was a testing ground for the monetary approach to economic stability. The reason for this is not to be sought so much in the strong monetary emphasis then pervading business cycle theory, as in the fact that the comprehensive institutional machinery necessary for the execution of monetary policy was already close at hand, and that the monetary control function was presumed to occasion less interference than any other with the normal workings of the private enterprise system.

For Canada there was no such opportunity to test the...

THE CENTRAL BANK CONTROVERSY, as it developed and reached its climax during the early thirties, was an integral part of the intellectual ferment then being stirred up in Canada by the unprecedented economic collapse of 1929. It is no accident that the Proceedings of the Royal Commission on Banking and Currency,¹ appointed July 31, 1933, constituted what was probably the most voluminous and representative compilation of public testimony that had hitherto, been made by an agency of the Dominion government as a basis for the recommendation of economic policy.² For these hearings, more than any other contemporary source of public...

MONETARY POLICY during the crucial decade of the thirties derived its uniqueness from, and helped in turn to determine, the final outcome of the inflation and central bank controversies. Analysis of this policy divides logically into three parts: the first two comprise the “internal” and “external” efforts made to stabilize the Canadian economy in the depths of depression;¹ while the third involves the monetary measures undertaken by the new Bank of Canada during the latter part of the decade. The basic division, then, is between the pre- and post-central bank years, and attention is accordingly turned to the complex problems...

TO NO SMALL EXTENT, the development of Canadian fiscal thought during the thirties, particularly in the first half of the decade, constituted but one aspect of the inflation and central bank controversies which have already been analysed. The truth is that, whether Canadians were discussing monetary or fiscal problems, their orientation was almost invariably monetary, in terms of major concern with such factors as the monetary and banking structure, the supply of money, and price levels. Thus, fiscal observations took on meaning, for the most part, in a monetary context; indeed, this is an important reason for both the immaturity...

AS IN THE MONETARY FIELD, the Dominion Government waged its anti-depression struggle on two fiscal fronts--externally and internally. The external approach, through the tariff structure, represented the only positive and comprehensive attempt made to raise Canadian employment and income levels during the early thirties.¹ At best, it served as an instrument for blunting the deflationary impact which would have been produced by the depression losses of those industries dependent upon domestic markets; and, at worst, as a means merely of redistributing a shrinking national income by intensifying the regional incidence of the depression. As for the internal approach, it involved--at...

EXCLUSIVE CONCERN with either the thought or policy aspects of Canadian interwar fluctuations would have imparted a degree of precision to this study which it has not achieved. But either approach, taken by itself, would have had serious shortcomings for purposes of providing a broad understanding of the dynamic forces governing policy evolution in the stability sphere. This is not meant to imply the total adequacy of the combined approach which has been followed, but rather its closer approximation to economic truth.

There is no intention here to retrace ground already covered. The attempt has been made throughout to draw...